You
should carefully consider the following factors which may affect future results of operations. If any of the adverse events described
below actually occur, our business, financial condition and operating results could be materially adversely affected and you may
lose part or all of the value of your investment. If you choose to invest in our securities, you should be able to bear a complete
loss of your investment.
Risks Relating to the Company
We are a preclinical-stage
company, have a very limited operating history, are not currently profitable, do not expect to become profitable in the near future
and may never become profitable.
We are a preclinical-stage
biotechnology company specializing in the discovery and development of the class of deoxy-ribonucleic acid and ribonucleic acid-targeted drugs called peptide
nucleic acids, which will not change as a result of the Merger. Since our incorporation, we have focused primarily on the development
of preclinical-stage therapeutic candidates. All of our therapeutic candidates are in the preclinical development stage, and we
have not initiated clinical trials for any of our product candidates, nor have any products been approved for commercial sale
and we have not generated any revenue. To date, we have not completed a clinical trial (including a pivotal clinical trial), obtained
marketing approval for any product candidates, manufactured a commercial scale product or arranged for a third party to do so
on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Drug development
is also a highly uncertain undertaking and involves a substantial degree of risk.
As a result, we have
no meaningful historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability
to obtain marketing approval for any of our product candidates or successfully overcome the risks and uncertainties frequently
encountered by companies in the pharmaceutical industry. We also have not generated any revenues from collaboration and licensing
agreements or product sales to date and continue to incur research and development and other expenses. The Company’s prior
losses, combined with expected future losses, have had and will continue to have an adverse effect on its stockholders’
deficit and working capital, and the future success of the Company is subject to significant uncertainty.
For the foreseeable
future, the Company expects to continue to incur losses, which will increase significantly from recent historical levels as the
Company expands its drug development activities, seeks regulatory approvals for its product candidates and begins to commercialize
them if they are approved by the U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the
“EMA”) or comparable foreign authorities. Even if the Company succeeds in developing and commercializing one or more
product candidates, the Company may never become profitable.
The approach
the Company is taking to discover and develop nucleic acid therapeutics is novel and may never lead to marketable products.
The Company has concentrated
its efforts and research and development activities on nucleic acid therapeutics and its synthetic chemistry drug discovery and
development platform comprised of peptide nucleic acids with natural and engineered nucleotides. The Company’s future success
depends on the successful development and manufacturing of such therapeutics and the effectiveness of its platform. The scientific
discoveries that form the basis for the Company’s efforts to discover and develop new drugs, including the Company’s
discoveries about the relationships between oligonucleotide stereochemistry and pharmacology, are relatively new. The scientific
evidence to support the feasibility of developing drugs based on these discoveries is limited. Skepticism as to the feasibility
of developing nucleic acid therapeutics generally has been, and may continue to be, expressed in scientific literature. In addition,
decisions by, and negative results of, other companies with respect to their oligonucleotide development efforts may increase
skepticism in the marketplace regarding the potential for oligonucleotides.
Relatively few nucleic
acid therapeutic product candidates have been tested in humans, and a number of clinical trials for such therapeutics conducted
by other companies have not been successful. Few nucleic acid therapeutics have received regulatory approval. The pharmacological
properties ascribed to the investigational compounds the Company is testing in laboratory studies may not be positively demonstrated
in clinical trials in patients, and they may interact with human biological systems in unforeseen, ineffective or harmful ways.
If the Company’s nucleic acid product candidates prove to be ineffective, unsafe or commercially unviable, the Company’s
entire platform and pipeline would have little, if any, value, which would substantially harm the Company’s business, financial
condition, results of operations and prospects.
In addition, the Company’s
approach, which focuses on using nucleic acid therapeutics for drug development, as opposed to multiple or other, more advanced
proven technologies, may expose the Company to additional financial risks and make it more difficult to raise additional capital
if the Company is not successful in developing a nucleic acid therapeutic that achieves proof of concept in animal models, desired
tissue distribution, selectivity for the target, and/or regulatory approval. Because the Company’s programs are all in the
research or preclinical stage, the Company has not yet been able to assess safety in humans, and there may be long-term effects
from treatment with any product candidates that the Company develops that the Company cannot predict at this time. Any product
candidates the Company may develop will act at the level of DNA or RNA, and because animal DNA and RNA often differs from human
DNA or RNA at the sequence level, in its regulation and degradation, secondary and tertiary structural conformations and ultimately
in being translated into proteins with varying amino acid sequences conformations and functions, testing of the Company’s
product candidates in animal models may not be predictive of the results it observes in human clinical trials of its product candidates
for either safety or efficacy. Also, animal models may not exist for some of the diseases the Company chooses to pursue in its
programs. As a result of these factors, it is more difficult for the Company to predict the time and cost of product candidate
development, and the Company cannot predict whether the application of its gene silencing technology, or any similar or competitive
gene silencing technologies, will result in the identification, development, and regulatory approval of any products. There can
be no assurance that any development problems the Company experiences in the future related to its gene silencing technology or
any of its research programs will not cause significant delays or unanticipated costs, or that such development problems can be
solved. Any of these factors may prevent the Company from completing its preclinical studies or any clinical trials that it may
initiate or from commercializing any product candidates the Company may develop on a timely or profitable basis, if at all.
The Company
is highly dependent on the success of its initial product candidates targeting rare genetic diseases, and the Company cannot be
certain that any of them will receive regulatory approval or be commercialized.
The Company has spent
time, money and effort on the licensing and development of its core asset: the PATrOL™ platform. To date, the Company has
not submitted an IND to the FDA, and no clinical trials have commenced with any of the Company’s product candidates. All
of the Company’s product candidates will require additional development, including further preclinical studies and bioanalytic
method development as well as clinical trials to evaluate their toxicology, carcinogenicity and pharmacokinetics, efficacy, and
optimize their formulation, and regulatory clearances before they can be commercialized. Positive results obtained during early
development do not necessarily mean later development will succeed or that regulatory clearances will be obtained. The Company’s
drug development efforts may not lead to commercial drugs, either because the Company’s product candidates are not deemed
safe and effective, because of competitive or market forces, intellectual property issues or because the Company has inadequate
financial or other resources to advance the Company’s product candidates through the clinical development and approval processes.
If any of the Company’s product candidates fail to demonstrate safety or efficacy at any time or during any phase of development,
the Company would experience potentially significant delays in, or be required to abandon, development of the product candidate.
The Company does not
anticipate that any of its current product candidates will be eligible to receive regulatory approval from the FDA, the EMA or
comparable foreign authorities and begin commercialization for a number of years, if ever. Even if the Company ultimately receives
regulatory approval for any of these product candidates, the Company or its potential future partners, if any, may be unable to
commercialize them successfully for a variety of reasons. These include, for example, the availability of alternative treatments,
lack of cost-effectiveness, the cost of manufacturing the product on a commercial scale and competition with other drugs. The
success of the Company’s product candidates may also be limited by the prevalence and severity of any adverse side effects.
If the Company fails to commercialize one or more of its current product candidates, the Company may be unable to generate sufficient
revenues to attain or maintain profitability, and the Company’s financial condition may decline.
If development
of the Company’s product candidates does not produce favorable results, the Company and its collaborators, if any, may be
unable to commercialize these products.
To receive regulatory
approval for the commercialization of the Company’s use of the PATrOL™ platform, or any other product candidates that
the Company may develop, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in
humans to the satisfaction of the FDA, the EMA and comparable foreign authorities. In order to support marketing approval, these
agencies typically require successful results in one or more Phase 3 clinical trials, which the Company’s current product
candidates have not yet reached and may never reach. The development process is expensive, can take many years and has an uncertain
outcome. Failure can occur at any stage of the process. The Company may experience numerous unforeseen events during, or as a
result of, the development process that could delay or prevent commercialization of the Company’s current or future product
candidates, including the following:
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preclinical studies conducted with product candidates for potential clinical development
to evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, among other things, may
produce unfavorable results;
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patient recruitment and enrollment in clinical trials may be slower than the Company anticipates;
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clinical trials may produce negative or inconclusive results;
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costs of development may be greater than the Company anticipates;
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the potential market advantages of the PATrOL™-enabled drugs may not materialize and
thus would confer no benefits to patients over other products that may emerge;
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the Company’s product candidates may cause undesirable side effects that delay or
preclude regulatory approval or limit their commercial use or market acceptance, if approved;
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collaborators who may be responsible for the development of the Company’s product
candidates may not devote sufficient resources to these clinical trials or other preclinical studies of these candidates or
conduct them in a timely manner; or
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the Company may face delays in obtaining regulatory approvals to commence one or more clinical
trials.
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Additionally, because
the Company’s technology potentially involves gene silencing via genome binding and/or editing across multiple cell and tissue types, the
Company is subject to many of the challenges and risks that advanced therapies such as gene therapies face, including:
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regulatory requirements governing gene and cell therapy products have changed frequently
and may continue to change in the future;;
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improper modification of a gene sequence in a patient’s genome could lead to lymphoma,
leukemia or other cancers, or other aberrantly functioning cells; and
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the FDA recommends a follow-up observation period of 15 years or longer for all patients
who receive treatment using gene therapies, and the Company may need to adopt and support such an observation period for its
product candidates.
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Success in early development
does not mean that later development will be successful because, for example, product candidates in later-stage clinical trials
may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.
Furthermore, the Company
has licensed or acquired virtually all of the intellectual property related to its product candidates from Carnegie Mellon University. All preclinical studies and other analyses performed
to date with respect to the Company’s product candidates have been conducted by their original owners or collaborators.
Therefore, as a company, the Company has limited experience in conducting preclinical trials for its product candidates. Since
the Company’s experience with its product candidates is limited, the Company will need to train its existing personnel or
hire additional personnel in order to successfully administer and manage its preclinical studies and clinical trials as anticipated,
which may result in delays in completing such anticipated preclinical trials and clinical studies.
The Company currently
does not have strategic collaborations in place for clinical development of any of its current product candidates. Therefore,
in the future, the Company or any potential future collaborative partner will be responsible for establishing the targeted endpoints
and goals for development of its product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety
and efficacy levels required for regulatory approvals. Even if the Company believes data collected during the development of its
product candidates are promising, such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable
foreign authorities. Further, data generated during development can be interpreted in different ways, and the FDA, the EMA or
comparable foreign authorities may interpret such data in different ways than the Company or its collaborators. The Company’s
failure to adequately demonstrate the safety and efficacy of the Company’s product candidates would prevent the Company’s
receipt of regulatory approval, and such failure would ultimately prevent the potential commercialization of these product candidates.
Since the Company
does not currently possess the resources necessary to independently develop and commercialize its product candidates or any other
product candidates that the Company may develop, the Company may seek to enter into collaborative agreements to assist in the
development and potential future commercialization of some or all of these assets as a component of the Company’s strategic
plan. The Company’s discussions with potential collaborators, however, may not lead to the establishment of collaborations
on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading to development and
potential commercialization delays, which would adversely affect the Company’s business, financial condition and results
of operations.
The Company
expects to continue to incur significant research and development expenses, which may make it difficult for the Company to attain
profitability.
The Company expects
to expend substantial funds in research and development, including preclinical studies and clinical trials of its product candidates,
and to manufacture and market any product candidates in the event they are approved for commercial sale. The Company will likely
need additional funding to develop or acquire complementary companies, technologies and assets, as well as for working capital
requirements and other operating and general corporate purposes. Moreover, an increase in the Company’s headcount would
dramatically increase the Company’s costs in the near and long-term.
Such spending may
not yield any commercially viable products. Due to the Company’s limited financial and managerial resources, the Company
must focus on a limited number of research programs and product candidates and on specific indications. The Company’s resource
allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities.
Because the successful
development of the Company’s product candidates is uncertain, the Company is unable to precisely estimate the actual funds
the Company will require to develop and potentially commercialize them. In addition, the Company may not be able to generate sufficient
revenue, even if the Company is able to commercialize any of its product candidates, to become profitable.
The Company
may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates
or indications that may be more profitable or for which there is a greater likelihood of success.
Because the Company
has limited financial and managerial resources, the Company will initially develop its lead product candidate for particular rare
genetic diseases. As a result, the Company may forego or delay pursuit of opportunities in other types of diseases that may prove
to have greater treatment potential. Likewise, the Company may forego or delay the pursuit of opportunities with other potential
product candidates that may prove to have greater commercial potential.
The Company’s
resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities.
The Company’s spending on current and future research and development programs and product candidates for specific indications
may not yield any commercially viable product candidates. If the Company does not accurately evaluate the commercial potential
or target market for a particular product candidate, the Company may relinquish valuable rights to that product candidate through
collaboration, licensing or other similar arrangements in cases in which it would have been more advantageous for the Company
to retain sole development and commercialization rights to the product candidate.
Given the Company’s
lack of current cash flow, the Company will need to raise additional capital; however, it may be unavailable to the Company or,
even if capital is obtained, may cause dilution or place significant restrictions on the Company’s ability to operate its
business.
Since the Company
will be unable to generate sufficient, if any, cash flow to fund its operations for the foreseeable future, the Company will need
to seek additional equity or debt financing to provide the capital required to maintain or expand its operations.
There can be no assurance
that the Company will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing
is not available on satisfactory terms, or is not available in sufficient amounts, the Company may be required to delay, limit
or eliminate the development of business opportunities, and its ability to achieve its business objectives, its competitiveness,
and its business, financial condition and results of operations may be materially adversely affected. In addition, the Company
may be required to grant rights to develop and market product candidates that it would otherwise prefer to develop and market
itself. The Company’s inability to fund its business could lead to the loss of your investment.
The Company’s future
capital requirements will depend on many factors, including, but not limited to:
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the scope, rate of progress, results and cost of its preclinical studies, clinical trials
and other related activities;
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its ability to establish and maintain strategic collaborations, licensing or other arrangements
and the financial terms of such arrangements;
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the timing of, and the costs involved in, obtaining regulatory approvals for any of its
current or future product candidates;
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the number and characteristics of the product candidates it seeks to develop or commercialize;
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the cost of manufacturing clinical supplies, and establishing commercial supplies, of its
product candidates;
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the cost of commercialization activities if any of its current or future product candidates
are approved for sale, including marketing, sales and distribution costs;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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the amount of revenue, if any, received from commercial sales of its product candidates,
should any of its product candidates receive marketing approval; and
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing
possible patent claims, including litigation costs and the outcome of any such litigation.
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Any additional capital
efforts may divert the Company’s management from their day-to-day activities, which may adversely affect its ability to
develop and commercialize its product candidates. Moreover, if the Company raises additional capital by issuing equity securities,
the percentage ownership of its existing stockholders may be reduced, and accordingly these stockholders may experience substantial
dilution. The Company may also issue equity securities that provide for rights, preferences and privileges senior to those of
its common stock. Given the Company’s need for cash and that equity issuances are the most common type of fundraising for
similarly situated companies, the risk of dilution is particularly significant for the Company’s stockholders. Furthermore,
the incurrence of indebtedness would result in increased fixed payment obligations and the Company may be required to agree to
certain restrictive covenants, such as limitations on its ability to incur additional debt and other operating restrictions that
could adversely impact the Company’s ability to conduct its business. The Company could also be required to seek funds through
arrangements with collaborators or otherwise at an earlier stage than otherwise would be desirable and the Company may be required
to relinquish rights to some of its product candidates or otherwise agree to terms unfavorable to the Company, any of which may
have a material adverse effect on its business, operating results and prospects.
The Company’s
efforts to discover product candidates beyond the Company’s current product candidates may not succeed, and any product
candidates the Company recommends for clinical development may not actually begin clinical trials.
The Company intends
to use its technology, including its licensed technology, knowledge and expertise to develop novel drugs to address some of the
world’s most devastating and costly central nervous system and other disorders, including orphan genetic and oncology indications.
The Company intends to expand its existing pipeline of core assets by advancing drug compounds from current ongoing discovery
programs into clinical development. However, the process of researching and discovering drug compounds is expensive, time-consuming
and unpredictable. Data from the Company’s current preclinical programs may not support the clinical development of its
lead compounds or other compounds from these programs, and the Company may not identify any additional drug compounds suitable
for recommendation for clinical development. Moreover, any drug compounds the Company recommends for clinical development may
not demonstrate, through preclinical studies, indications of safety and potential efficacy that would support advancement into
clinical trials. Such findings would potentially impede the Company’s ability to maintain or expand the Company’s
clinical development pipeline. The Company’s ability to identify new drug compounds and advance them into clinical development
also depends upon the Company’s ability to fund its research and development operations, and the Company cannot be certain
that additional funding will be available on acceptable terms, or at all.
The pharmaceutical
market is intensely competitive. If the Company is unable to compete effectively with existing drugs, new treatment methods and
new technologies, the Company may be unable to commercialize successfully any drugs that the Company develops.
The pharmaceutical market
is intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental
agencies and other public and private research organizations are pursuing the development of novel drugs for the same diseases
that the Company is targeting or expect to target. Many of the Company’s competitors have:
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much greater financial, technical and human resources than the Company has at every stage
of the discovery, development, manufacture and commercialization of products and product candidates;
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more extensive experience in designing and conducting preclinical studies and clinical trials,
obtaining regulatory approvals, and in manufacturing, marketing and selling pharmaceutical products and product candidates;
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product candidates that are based on previously tested or accepted technologies;
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products and product candidates that have been approved or are in late stages of development;
and
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collaborative arrangements in the Company’s target markets with leading companies
and research institutions.
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The Company will face
intense competition from drugs that have already been approved and accepted by the medical community for the treatment of the
conditions for which the Company may develop drugs. The Company also expects to face competition from new drugs that enter the
market. The Company believes there are a significant number of drugs currently under development that may become commercially
available in the future, for the treatment of conditions for which the Company may try to develop drugs. These drugs may be more
effective, safer, less expensive, or marketed and sold more effectively, than any products the Company develops. It is possible
that the potential advantages of PATrOL™-derived therapies (including, among other potential advantages, the ability to
systemically deliver drugs and get broad tissue distribution and penetration across the blood-brain barrier, minimal to no innate
or adaptive immune responses after single dose or multiple-dose administration, preferential selectivity to mutant targets, and dose schedules to address the disease appropriately or that is viable in the marketplace) do not materialize.
The Company’s competitors
may develop or commercialize products with significant advantages over any products the Company is able to develop and commercialize
based on many different factors, including:
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the safety and effectiveness of the Company’s products relative to alternative therapies,
if any;
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the ease with which the Company’s products can be administered and the extent to which
patients accept relatively new routes of administration;
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the timing and scope of regulatory approvals for these products;
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the availability and cost of manufacturing, marketing and sales capabilities;
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price;
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reimbursement coverage; and
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patent position.
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Any collaboration
arrangement that the Company may enter into in the future may not be successful, which could adversely affect the Company’s
ability to develop and commercialize the Company’s current and potential future product candidates.
The Company may seek
collaboration arrangements with pharmaceutical companies for the development or commercialization of its current and potential
future product candidates. To the extent that the Company decides to enter into collaboration agreements, the Company will face
significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming
to negotiate, execute and implement. The Company may not be successful in its efforts to establish and implement collaborations
or other alternative arrangements should the Company choose to enter into such arrangements, and the terms of the arrangements
may not be favorable to the Company. If and when the Company collaborates with a third party for development and commercialization
of a product candidate, the Company can expect to relinquish some or all of the control over the future success of that product
candidate to the third party. The success of the Company’s collaboration arrangements will depend heavily on the efforts
and activities of its collaborators. Collaborators generally have significant discretion in determining the efforts and resources
that they will apply to these collaborations. As such, the Company’s inability to control its collaborators, and the potentially
adverse results of the Company’s collaborators, may materially and adversely affect the Company’s product candidates
and, more generally, the Company’s PATrOL™ platform, and the Company may not be able to conduct its program in the
manner or on the time schedule it currently contemplates, which could negatively impact its business.
If the Company’s
potential future collaborations do not result in the successful discovery, development and commercialization of products or if
one of the Company’s collaborators terminates its agreement with the Company, the Company may not receive any future research
funding or milestone or royalty payments under the collaboration. If the Company does not receive the funding it expects under
these agreements, the Company’s development of its technology and product candidates could be delayed and the Company may
need additional resources to develop product candidates and its technology.
Finally,
disagreements between parties to a collaboration arrangement can lead to delays in developing or commercializing the applicable
product candidate and can be difficult to resolve in a mutually beneficial manner. In some cases, collaborations with biopharmaceutical
companies and other third parties are terminated or allowed to expire by the other party. Any such termination or expiration would
adversely affect the Company’s business, financial condition and results of operations.
The Company,
or any future collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for the Company’s
product candidates.
Regulatory authorities
in some jurisdictions, including the U.S. and Europe, may designate drugs for relatively small patient populations as orphan drugs.
Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease
or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the U.S. In the
U.S. and Europe, obtaining orphan drug approval may allow the Company to obtain financial incentives, such as an extended period
of exclusivity during which only the Company is allowed to market the orphan drug for the orphan indications that the Company
is developing. While the Company may seek orphan drug designation from the FDA for any of its product candidates, the Company,
or any future collaborators, may not be granted orphan drug designations for its product candidates in the U.S. or in other jurisdictions.
Even if the Company
or any future collaborators obtain orphan drug designation for a product candidate, the Company or such collaborators may not
be able to obtain orphan drug exclusivity for that product candidate. Generally, a product with orphan drug designation only becomes
entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation,
in which case the FDA or the EMA will be precluded from approving another marketing application for the same drug for that indication
for the applicable exclusivity period. The applicable exclusivity period is seven years in the U.S. and ten years in Europe. The
European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or
if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost
if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to
assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if the Company
or any future collaborators obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product
from competition because FDA has taken the position that, under certain circumstances, another drug with the same active chemical
and pharmacological characteristics, or moiety, can be approved for the same condition. Specifically, the FDA’s regulations
provide that it can approve another drug with the same active moiety for the same condition if the FDA concludes that the later
drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
The Company
is subject to a multitude of manufacturing risks, any of which could substantially increase the Company’s costs and limit
supply of its product candidates.
The process of manufacturing
the Company’s product candidates is complex, highly regulated, and subject to several risks. For example, the process of
manufacturing the Company’s product candidates is extremely susceptible to product loss due to contamination, equipment
failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing
processes for any of the Company’s product candidates could result in reduced production yields, product defects, and other
supply disruptions. If microbial, viral, or other contaminations are discovered in the Company’s product candidates or in
the manufacturing facilities in which its product candidates are made, such manufacturing facilities may need to be closed for
an extended period of time to investigate and remedy the contamination. In addition, the manufacturing facilities in which its
product candidates are made could be adversely affected by equipment failures, labor shortages, natural disasters, power failures
and numerous other factors. For instance, the Company’s therapeutic molecules are complex and comprised of both peptides
and nucleic acids, and it may be difficult or impossible to find GLP and GMP-grade manufacturers, manufacturing may be cost prohibitive
and manufacturing may not be available to fulfill regulatory requirements.
In addition, any adverse
developments affecting manufacturing operations for the Company’s product candidates may result in shipment delays, inventory
shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of the Company’s product candidates.
The Company also may need to take inventory write-offs and incur other charges and expenses for product candidates that fail to
meet specifications, undertake costly remediation efforts or seek costlier manufacturing alternatives.
The Company
relies, and will continue to rely, predominantly, on third parties to manufacture the Company’s preclinical and clinical
drug supplies and the Company’s business, financial condition and results of operations could be harmed if those third parties
fail to provide the Company with sufficient quantities of drug product, or fail to do so at acceptable quality levels, prices,
or timelines.
The Company has the
capability internally to manufacture small quantities of its drugs for preclinical studies. However, the Company does not currently
have, nor does the Company plan to acquire, the infrastructure or capability internally to manufacture the Company’s clinical
drug supplies for use in its clinical trials, and the Company lacks the resources and the capability to manufacture any of the
Company’s product candidates on a clinical or commercial scale. The Company relies on its manufacturers to purchase from
third-party suppliers the materials necessary to produce the Company’s product candidates for the Company’s clinical
trials. There are a limited number of suppliers for raw materials that the Company uses to manufacture its product candidates,
and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary
to produce the Company’s product candidates for its clinical trials, and, if approved, ultimately for commercial sale. The
Company does not have any control over the process or timing of the acquisition of these raw materials by the Company’s
manufacturers. Any significant delay or discontinuity in the supply of a product candidate, or the raw material components thereof,
for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of the
Company’s clinical trials, product testing and potential regulatory approval of the Company’s product candidates,
which could harm the Company’s business, financial condition and results of operations.
If the Company
is unable to develop its own commercial organization or enter into agreements with third parties to sell and market the Company’s
product candidates, the Company may be unable to generate significant revenues.
The Company does not have a
sales and marketing organization, and the Company has no experience as a company in the sales, marketing and distribution of pharmaceutical
products. If any of the Company’s product candidates are approved for commercialization, the Company may be required to
develop its own sales, marketing and distribution capabilities, or make arrangements with a third party to perform sales and marketing
services. Developing a sales force for any resulting product or any product resulting from any of the Company’s other product
candidates is expensive and time consuming and could delay any product launch. The Company may be unable to establish and manage
an effective sales force in a timely or cost-effective manner, if at all, and any sales force the Company does establish may not
be capable of generating sufficient demand for the Company’s product candidates. To the extent that the Company enters into
arrangements with collaborators or other third parties to perform sales and marketing services, the Company’s product revenues
are likely to be lower than if the Company marketed and sold its product candidates independently. If the Company is unable to
establish adequate sales and marketing capabilities, independently or with others, the Company may not be able to generate significant
revenues and may not become profitable.
The commercial
success of the Company’s product candidates depends upon their market acceptance among physicians, patients, healthcare
payors and the medical community.
Even if the Company’s
product candidates obtain regulatory approval, the Company’s products, if any, may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market acceptance of any of the Company’s approved
product candidates will depend on a number of factors, including:
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the effectiveness of the Company’s approved product candidates as compared to currently
available products;
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patient willingness to adopt the Company’s approved product candidates in place of
current therapies;
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the Company’s ability to provide acceptable evidence of safety and efficacy;
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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restrictions on use in combination with other products;
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availability of alternative treatments;
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pricing and cost-effectiveness assuming either competitive or potential premium pricing
requirements, based on the profile of the Company’s product candidates and target markets;
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effectiveness of the Company’s or its partners’ sales and marketing strategy;
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the Company’s ability to obtain sufficient third-party coverage or reimbursement;
and
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potential product liability claims.
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In addition, the potential
market opportunity for the Company’s product candidates is difficult to precisely estimate. The Company’s estimates
of the potential market opportunity for its product candidates include several key assumptions based on the Company’s industry
knowledge, industry publications, third-party research reports and other surveys. Independent sources have not verified all of
the Company’s assumptions. If any of these assumptions proves to be inaccurate, then the actual market for the Company’s
product candidates could be smaller than the Company’s estimates of its potential market opportunity. If the actual market
for the Company’s product candidates is smaller than the Company expects, the Company’s product revenue may be limited,
it may be harder than expected to raise funds and it may be more difficult for the Company to achieve or maintain profitability.
If the Company fails to achieve market acceptance of the Company’s product candidates in the U.S. and abroad, the Company’s
revenue will be limited and it will be more difficult to achieve profitability.
If the Company
fails to obtain and sustain an adequate level of reimbursement for its potential products by third-party payors, potential future
sales would be materially adversely affected.
There will be no viable
commercial market for the Company’s product candidates, if approved, without reimbursement from third-party payors. Reimbursement
policies may be affected by future healthcare reform measures. The Company cannot be certain that reimbursement will be available
for its current product candidates or any other product candidate the Company may develop. Additionally, even if there is a viable
commercial market, if the level of reimbursement is below the Company’s expectations, the Company’s anticipated revenue
and gross margins will be adversely affected.
Third-party payors,
such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and
the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance
plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated
into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private
payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence
on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare,
may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors
limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered
indications. Cost-control initiatives could decrease the price the Company might establish for products, which could result in
product revenues being lower than anticipated. The Company believes its drugs will be priced significantly higher than existing
generic drugs and consistent with current branded drugs. If the Company is unable to show a significant benefit relative to existing
generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for the Company’s drugs,
which would significantly reduce the likelihood of the Company’s products gaining market acceptance.
The Company expects
that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of the Company’s potential
products in determining whether to approve reimbursement for such products and at what level. Obtaining these approvals can be
a time consuming and expensive process. The Company’s business, financial condition and results of operations would be materially
adversely affected if the Company does not receive approval for reimbursement of its potential products from private insurers
on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal
intermediaries. Medicare Part B, which covers medical insurance to Medicare patients as discussed below, does not require participating
insurance plans to cover all drugs that have been approved by the FDA. The Company’s business, financial condition and results
of operations could be materially adversely affected if Part B medical insurance were to limit access to, or deny or limit reimbursement
of, the Company’s product candidates or other potential products.
Reimbursement systems
in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country
basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted.
The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries,
the Company may be required to conduct a clinical trial that compares the cost-effectiveness of its products to other available
therapies.
If the prices for
the Company’s potential products are reduced or if governmental and other third-party payors do not provide adequate coverage
and reimbursement of the Company’s drugs, the Company’s future revenue, cash flows and prospects for profitability
will suffer.
The Company
is exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden upon
the Company, should lawsuits be filed against the Company.
The Company’s
business exposes it to potential product liability and other liability risks that are inherent in the testing, manufacturing and
marketing of pharmaceutical formulations and products. In addition, the use in the Company’s anticipated clinical trials
of pharmaceutical products and the subsequent sale of these products by the Company or its potential collaborators may cause the
Company to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against
the Company could have a material adverse effect on the Company’s business, financial condition and results of operations.
Because the Company
does not currently have any clinical trials ongoing, it does not currently carry product liability insurance. The Company anticipates
obtaining such insurance upon initiation of its clinical development activities; however, the Company may be unable to obtain
product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded
in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series
of claims brought against the Company could adversely affect the Company’s results of operations and business if judgments
therewith exceed the Company’s insurance coverage.
If the Company
fails to retain current members of its management, or to attract and keep additional key personnel, the Company may be unable
to successfully develop or commercialize the Company’s product candidates.
The Company’s success
depends on the Company’s continued ability to attract, retain and motivate highly qualified management and scientific personnel.
As of August 9, 2019, the Company had six employees. The Company will rely primarily on outsourcing research, development and
clinical trial activities, and manufacturing operations, as well as other functions critical to its business. The Company believes
this approach enhances its ability to focus on its core product opportunities, allocate resources efficiently to different projects
and allocate internal resources more effectively. The Company has filled several key open positions and is currently recruiting
for a few remaining positions. However, competition for qualified personnel is intense. The Company may not be successful in attracting
qualified personnel to fulfill the Company’s current or future needs. In the event the Company is unable to fill critical
open employment positions, the Company may need to delay its operational activities and goals, including the development of its
product candidates, and may have difficulty in meeting its obligations as a public company. The Company does not maintain “key
person” insurance on any of its employees.
In addition, competitors
and others are likely in the future to attempt to recruit the Company’s employees. The loss of the services of any of the
Company’s key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring
such personnel, particularly senior management and other technical personnel, could materially and adversely affect the Company’s
business, financial condition and results of operations. In addition, the replacement of key personnel likely would involve significant
time and costs, and may significantly delay or prevent the achievement of the Company’s business objectives.
From time to time,
the Company’s management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical
and regulatory development programs and other customary matters. These scientific advisors and consultants are not the Company’s
employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability
to the Company. In addition, the Company’s scientific advisors may have arrangements with other companies to assist those
companies in developing products or technologies that may compete with the Company’s.
The Company
will need to increase the size of the Company’s organization and may not successfully manage the Company’s growth.
The Company is a preclinical-stage
pharmaceutical company with a small number of employees, and the Company’s management systems currently in place are not
likely to be adequate to support the Company’s future growth plans. The Company’s ability to grow and to manage its
growth effectively will require the Company to hire, train, retain, manage and motivate additional employees and to implement
and improve its operational, financial and management systems. These demands also may require the hiring of additional senior
management personnel or the development of additional expertise by the Company’s senior management personnel. Hiring a significant
number of additional employees, particularly those at the management level, would increase the Company’s expenses significantly.
Moreover, if the Company fails to expand and enhance its operational, financial and management systems in conjunction with its
potential future growth, such failure could have a material adverse effect on the Company’s business, financial condition
and results of operations.
Because the
Company’s Chief Executive Officer is involved with several unaffiliated privately-held companies, he may experience conflicts
of interest and competing demands for his time and attention.
Dr. Dietrich Stephan,
the Company’s Chief Executive Officer, is a member of the governing bodies of several unaffiliated privately-held companies,
as well as a general partner of Cyto Ventures. Although Dr. Stephan expects to devote substantially all of his time to the Company,
he expects to continue in each of these positions for the foreseeable future. Conflicts of interest could arise with respect to
business opportunities that could be advantageous to third party organizations affiliated with Dr. Stephan, on the one hand, and
the Company, on the other hand.
The majority of the Company’s
current management lacks public company experience, which could put the Company at greater risk of incurring fines or regulatory
actions for failure to comply with federal securities laws and could put the Company at a competitive disadvantage and require
the Company’s management to devote additional time and resources to ensure compliance with applicable corporate governance
requirements.
The majority of the
Company’s current executive officers do not have experience in managing and operating a public company, which could have
an adverse effect on their ability to quickly respond to problems or adequately address issues and matters applicable to public
companies. Any failure to comply with federal securities laws, rules or regulations could subject the Company to fines or regulatory
actions, which may materially adversely affect the Company’s business, financial condition and results of operations. Further,
since the Company’s current executive officers do not have experience managing and operating a public company, the Company
may need to dedicate additional time and resources to comply with legally mandated corporate governance policies relative to the
Company’s competitors whose management teams have more public company experience.
The Company
relies significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology,
including any cybersecurity incidents, could harm the Company’s ability to operate the Company’s business effectively.
Despite the implementation
of security measures, the Company’s internal computer systems and those of third parties with which the Company contracts
are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. System failures, accidents or security breaches could cause interruptions in the Company’s operations,
and could result in a material disruption of the Company’s drug development and preclinical and clinical activities and
business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of drug development
or clinical trial data could result in delays in the Company’s regulatory approval efforts and significantly increase the
Company’s costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in
a loss of, or damage to, the Company’s data or applications, or inappropriate disclosure of confidential or proprietary
information, the Company could incur liability and its development programs and the development of its product candidates could
be delayed.
The Company’s
employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards
and requirements.
The Company is exposed
to the risk of employee or consultant fraud or other misconduct. Misconduct by the Company’s employees or consultants could
include, among other things, intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply
with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial
information or data accurately or disclose unauthorized activities to the Company. In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing
and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, sales commissions, customer incentive programs and other business arrangements. Employee and consultant misconduct
also could involve the improper use of information obtained in the course of clinical trials, which could result in regulatory
sanctions and serious harm to the Company’s reputation. It is not always possible to identify and deter such misconduct,
and the precautions the Company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting the Company from governmental investigations or other actions or lawsuits stemming from a failure
to be in compliance with such laws or regulations. If any such actions are instituted against the Company, and the Company is
not successful in defending itself or asserting the Company’s rights, those actions could have a material adverse effect
on the Company’s business, financial condition and results of operations, and result in the imposition of significant fines
or other sanctions against the Company.
Business disruptions
such as natural disasters could seriously harm the Company’s future revenues and financial condition and increase its costs
and expenses.
The Company and its
suppliers may experience a disruption in their business as a result of natural disasters. A significant natural disaster, such
as an earthquake, hurricane, flood or fire, could severely damage or destroy the Company’s headquarters or facilities or
the facilities of the Company’s manufacturers or suppliers, which could have a material and adverse effect on the Company’s
business, financial condition and results of operations. In addition, terrorist acts or acts of war targeted at the U.S., and
specifically the Pittsburgh, Pennsylvania and greater New York, New York regions, could cause damage or disruption to the Company,
its employees, facilities, partners and suppliers, which could have a material adverse effect on the Company’s business,
financial condition and results of operations.
The Company
may engage in strategic transactions that could impact its liquidity, increase its expenses and present significant distractions
to its management.
From time to time, the
Company may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing
of products, product candidates or technologies. Additional potential transactions that the Company may consider include a variety
of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures,
business combinations and investments. Any such transaction may require the Company to incur non-recurring or other charges, may
increase the Company’s near- and long-term expenditures and may pose significant integration challenges or disrupt the Company’s
management or business, which could adversely affect the Company’s business, financial condition and results of operations.
For example, these transactions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of the Company’s business and diversion of the Company’s management’s
time and attention in order to develop acquired products, product candidates or technologies;
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incurrence of substantial debt or dilutive issuances of equity securities to pay for any
of these transactions;
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higher-than-expected transaction and integration costs;
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write-downs of assets or goodwill or impairment charges;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses
or product lines with the Company’s operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses or
product lines due to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
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Accordingly, although
there can be no assurance that the Company will undertake or successfully complete any transactions of the nature described above,
any transactions that the Company does complete may be subject to the foregoing or other risks, and could have a material adverse
effect on the Company’s business, financial condition and results of operations.
The estimates
and judgments the Company makes, or the assumptions on which the Company relies, in preparing its financial statements could prove
inaccurate.
The Company’s
financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of the Company’s assets, liabilities, revenues
and expenses, the amounts of charges accrued by the Company and related disclosure of contingent assets and liabilities. The Company
bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under
the circumstances. The Company cannot assure, however, that the Company’s estimates, or the assumptions underlying them,
will not change over time or otherwise prove inaccurate. For example, the Company’s estimates as they relate to anticipated
timelines and milestones for its preclinical development or clinical trials may prove to be inaccurate. If this is the case, the
Company may be required to restate its financial statements, which could, in turn, subject the Company to securities class action
litigation. Defending against such potential litigation relating to a restatement of the Company’s financial statements
would be expensive and would require significant attention and resources of the Company’s management. Moreover, the Company’s
insurance to cover its obligations with respect to the ultimate resolution of any such litigation may be inadequate. As a result
of these factors, any such potential litigation could have a material adverse effect on the Company’s financial results
or harm its business.
We may be unable
to continue the development of, or sell or otherwise monetize, the assets, technologies and operations of the Company as conducted
prior to the completion of the Merger, in which case we may be required to take write-downs, write-offs and impairment or other
charges associated with the carrying values of such assets. Any such charges could negatively affect our business, assets, liabilities,
prospects, outlook, financial condition and results of operations.
Although at present
the Company intends to primarily conduct the operations of Legacy NeuBase on a going-forward basis, the Company’s management
has not fully evaluated whether to further pursue the operations of the Company as conducted prior to completion of the
Merger. The Company may further pursue such opportunities or may explore strategic alternatives for the assets associated
with our pre-Merger activities, including a sale of such assets. There can be no assurance, however, that we will be
successful at such efforts or sell or other monetize such assets on acceptable terms, if at all. As a result of the proposed
operations of the Company, we may be required to take write-offs or write-downs, and impairment or other charges
associated with classifying such assets as held-for-sale and recording the carrying values of such assets at fair market
value. As a result, we may be forced to write-down or write-off such assets, in some cases completely, or incur impairment or
other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition
and results of operations.
Risks Related to the Company’s Intellectual Property
The Company
may not be successful in obtaining or maintaining necessary rights to its product candidates through acquisitions and in-licenses.
Because several of
the Company’s programs currently require the use of proprietary rights held by third parties, the growth of the Company’s
business will likely depend in part on the Company’s ability to maintain and exploit these proprietary rights. In addition,
the Company may need to acquire or in-license additional intellectual property in the future. The Company may be unable to acquire
or in-license any compositions, methods of use, processes or other intellectual property rights from third parties that the Company
identifies as necessary for its product candidates. The Company faces competition with regard to acquiring and in-licensing third-party
intellectual property rights, including from a number of more established companies. These established companies may have a competitive
advantage over the Company due to their size, cash resources and greater clinical development and commercialization capabilities.
In addition, companies that perceive the Company to be a competitor may be unwilling to assign or license intellectual property
rights to the Company. The Company also may be unable to acquire or in-license third-party intellectual property rights on terms
that would allow it to make an appropriate return on the Company’s investment, and the Company may not be able to market
products or perform research and development or other activities covered by these patents.
The Company may enter
into collaboration agreements with U.S. and foreign academic institutions to accelerate development of the Company’s current
or future preclinical product candidates. Typically, these agreements include an option for the company to negotiate a license
to the institution’s intellectual property rights resulting from the collaboration. Even with such an option, the Company
may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to the Company. If the
Company is unable to license rights from a collaborating institution, the institution may offer the intellectual property rights
to other parties, potentially blocking the Company’s ability to pursue its desired program.
If the Company is
unable to successfully obtain required third-party intellectual property rights or maintain the Company’s existing intellectual
property rights, the Company may need to abandon development of the related program and the Company’s business, financial
condition and results of operations could be materially and adversely affected.
If the Company
fails to comply with its obligations in the agreements under which the Company in-licenses intellectual property and other rights
from third parties or otherwise experiences disruptions to the Company’s business relationships with the Company’s
licensors, the Company could lose intellectual property rights that are important to its business.
The Company’s
license agreement with Carnegie Mellon University (the “CMU License Agreement”), as the licensor (the “Licensor”),
is important to the Company’s business, and the Company expects to enter into additional license agreements in the future.
The CMU License Agreement imposes, and the Company expects that future license agreements will impose, various royalties, sublicensing
fees and other obligations on the Company. If the Company fails to comply with the Company’s obligations under these agreements,
or if the Company files for bankruptcy, the Company may be required to make certain payments to the Licensor, the Company may
lose the exclusivity of its license, or the Licensor may have the right to terminate the license, in which event the Company would
not be able to develop or market products covered by the license. Additionally, the royalties and other payments associated with
these licenses could materially and adversely affect the Company’s business, financial condition and results of operations.
Pursuant to the terms
of the CMU License Agreement, the Licensor has the right to terminate the CMU License Agreement with respect to the program licensed
under certain circumstances, including, but not limited to: (i) if the Company does not pay amounts when due and within the applicable
cure periods or (ii) if the Company files or has filed against the Company a petition in bankruptcy or makes an assignment for
the benefit of creditors. In the event the CMU License Agreement is terminated by the Licensor, all licenses (or, in the determination
of the Licensor, the exclusivity of such licenses) granted to the Company by the Licensor will terminate immediately.
In some cases, patent
prosecution of the Company’s licensed technology may be controlled solely by the licensor. If the Company’s licensor
fails to obtain and maintain patent or other protection for the proprietary intellectual property the Company in-licenses, then
the Company could lose its rights to the intellectual property or its exclusivity with respect to those rights, and its competitors
could market competing products using the intellectual property. In certain cases, the Company may control the prosecution of
patents resulting from licensed technology. In the event the Company breaches any of the Company’s obligations related to
such prosecution, the Company may incur significant liability to the Company’s licensing partners. Licensing of intellectual
property is of critical importance to the Company’s business and involves complex legal, business and scientific issues.
Disputes may arise regarding intellectual property subject to a licensing agreement, including, but not limited to:
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the scope of rights granted under the license agreement and other interpretation-related
issues;
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the extent to which the Company’s technology and processes infringe on intellectual
property of the licensor that is not subject to the licensing agreement;
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the sublicensing of patent and other rights;
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the Company’s diligence obligations under the license agreement and what activities
satisfy those diligence obligations;
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the ownership of inventions and know-how resulting from the joint creation or use of intellectual
property by the Company’s licensors and the Company and the Company’s collaborators; and
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the priority of invention of patented technology.
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If disputes over intellectual
property and other rights that the Company has in-licensed prevent or impair the Company’s ability to maintain the Company’s
current licensing arrangements on acceptable terms, the Company may be unable to successfully develop and commercialize the affected
product candidates. If the Company fails to comply with any such obligations to the Company’s licensor, such licensor may
terminate their licenses to the Company, in which case the Company would not be able to market products covered by these licenses.
The loss of the Company’s licenses would have a material adverse effect on the Company’s business.
The Company
may be required to pay royalties and sublicensing fees pursuant to the CMU License Agreement, which could adversely affect the
overall profitability for the Company of any products that the Company may seek to commercialize.
Under the terms of
the CMU License Agreement, the Company will be required to pay royalties on future worldwide net product sales and a percentage
of sublicensing fees that the Company may earn. These royalty payments and sublicensing fees could adversely affect the overall
profitability for the Company of any products that it may seek to commercialize.
The Company
may not be able to protect its proprietary or licensed technology in the marketplace.
The Company depends
on the Company’s ability to protect its proprietary or licensed technology. The Company relies on trade secret, patent,
copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which
offer only limited protection. The Company’s success depends in large part on the Company’s ability and any licensor’s
or licensee’s ability to obtain and maintain patent protection in the U.S. and other countries with respect to the Company’s
proprietary or licensed technology and products. The Company currently in-licenses some of the Company’s intellectual property
rights to develop the Company’s product candidates and may in-license additional intellectual property rights in the future.
The Company cannot be certain that patent enforcement activities by its current or future licensors have been or will be conducted
in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property
rights. The Company also cannot be certain that its current or future licensors will allocate sufficient resources or prioritize
their or the Company’s enforcement of such patents. Even if the Company is not a party to these legal actions, an adverse
outcome could prevent the Company from continuing to license intellectual property that the Company may need to operate its business,
which would have a material adverse effect on its business, financial condition and results of operations.
The Company believes
it will be able to obtain, through prosecution of patent applications covering the Company’s owned technology and technology
licensed from others, adequate patent protection for the Company’s proprietary drug technology, including those related
to the Company’s in-licensed intellectual property. If the Company is compelled to spend significant time and money protecting
or enforcing its licensed patents and future patents the Company may own, designing around patents held by others or licensing
or acquiring, potentially for large fees, patents or other proprietary rights held by others, the Company’s business, financial
condition and results of operations may be materially and adversely affected. If the Company is unable to effectively protect
the intellectual property that the Company owns or in-licenses, other companies may be able to offer the same or similar products
for sale, which could materially adversely affect the Company’s business, financial condition and results of operations.
The patents of others from whom the Company may license technology, and any future patents the Company may own, may be challenged,
narrowed, invalidated or circumvented, which could limit the Company’s ability to stop competitors from marketing the same
or similar products or limit the length of term of patent protection that the Company may have for its products.
Obtaining and
maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by governmental patent agencies, and the Company’s patent protection for licensed patents, licensed pending patent
applications and potential future patent applications and patents could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance
fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will be due to be paid
to the U.S. Patent and Trademark Office (“USPTO”) and various governmental patent agencies outside of the U.S. in
several stages over the lifetime of the applicable patent and/or patent application. The USPTO and various non-U.S. governmental
patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the
patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance
with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent
or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs with
respect to the Company’s in-licensed patents or patent applications the Company may file in the future, the Company’s
competitors might be able to use its technologies, which would have a material adverse effect on the Company’s business,
financial condition and results of operations.
The patent positions
of pharmaceutical products are often complex and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S.
and many jurisdictions outside of the U.S. is not consistent. For example, in many jurisdictions, the support standards for pharmaceutical
patents are becoming increasingly strict. Some countries prohibit method of treatment claims in patents. Changes in either the
patent laws or interpretations of patent laws in the U.S. and other countries may diminish the value of the Company’s licensed
or owned intellectual property or create uncertainty. In addition, publication of information related to the Company’s current
product candidates and potential products may prevent the Company from obtaining or enforcing patents relating to these product
candidates and potential products, including without limitation composition-of-matter patents, which are generally believed to
offer the strongest patent protection.
Patents that the Company
currently licenses and patents that the Company may own or license in the future do not necessarily ensure the protection of the
Company’s licensed or owned intellectual property for a number of reasons, including, without limitation, the following:
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the patents may not be broad or strong enough to prevent competition from other products
that are identical or similar to the Company’s product candidates;
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there can be no assurance that the term of a patent can be extended under the provisions
of patent term extensions afforded by U.S. law or similar provisions in foreign countries, where available;
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the issued patents and patents that the Company may obtain or license in the future may
not prevent generic entry into the market for the Company’s product candidates;
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the Company, or third parties from whom the Company in-licenses or may license patents,
may be required to disclaim part of the term of one or more patents;
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there may be prior art of which the Company is not aware that may affect the validity or
enforceability of a patent claim;
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there may be prior art of which the Company is aware, which the Company does not believe
affects the validity or enforceability of a patent claim, but which, nonetheless, ultimately may be found to affect the validity
or enforceability of a patent claim;
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there may be other patents issued to others that will affect the Company’s freedom
to operate;
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if the patents are challenged, a court could determine that they are invalid or unenforceable;
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there might be a significant change in the law that governs patentability, validity and
infringement of the Company’s licensed patents or any future patents the Company may own that adversely affects the
scope of the Company’s patent rights;
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a court could determine that a competitor’s technology or product does not infringe
the Company’s licensed patents or any future patents the Company may own; and
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the patents could irretrievably lapse due to failure to pay fees or otherwise comply with
regulations or could be subject to compulsory licensing.
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If the Company encounters
delays in the Company’s development or clinical trials, the period of time during which the Company could market its potential
products under patent protection would be reduced.
The Company’s
competitors may be able to circumvent its licensed patents or future patents the Company may own by developing similar or alternative
technologies or products in a non-infringing manner. The Company’s competitors may seek to market generic versions of any
approved products by submitting abbreviated new drug applications to the FDA in which the Company’s competitors claim that
the Company’s licensed patents or any future patents the Company may own are invalid, unenforceable or not infringed. Alternatively,
the Company’s competitors may seek approval to market their own products similar to or otherwise competitive with the Company’s
products. In these circumstances, the Company may need to defend or assert the Company’s licensed patents or any future
patents the Company may own, including by filing lawsuits alleging patent infringement. In any of these types of proceedings,
a court or other agency with jurisdiction may find the Company’s licensed patents or any future patents the Company may
own invalid or unenforceable. The Company may also fail to identify patentable aspects of its research and development before
it is too late to obtain patent protection. Even if the Company owns or in-licenses valid and enforceable patents, these patents
still may not provide protection against competing products or processes sufficient to achieve the Company’s business objectives.
The issuance of a
patent is not conclusive as to its inventorship, scope, ownership, priority, validity or enforceability. In this regard, third
parties may challenge the Company’s licensed patents or any future patents the Company may own in the courts or patent offices
in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed,
invalidated or held unenforceable, in whole or in part, which could limit the Company’s ability to stop others from using
or commercializing similar or identical technology and products, or limit the duration of the patent protection of the Company’s
technology and potential 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.
The Company
may infringe the intellectual property rights of others, which may prevent or delay its drug development efforts and prevent the
Company from commercializing or increase the costs of commercializing the Company’s products.
The Company’s
commercial success depends significantly on the Company’s ability to operate without infringing the patents and other intellectual
property rights of third parties. For example, there could be issued patents of which the Company is not aware that the Company’s
current or potential future product candidates infringe. There also could be patents that the Company believes the Company does
not infringe, but that the Company may ultimately be found to infringe. The Company has licensed intellectual property from Carnegie
Mellon University under the CMU License Agreement, and prior generation intellectual property was licensed to other entities.
Such intellectual property, in conjunction with further developed technologies for gene editing therapies using such intellectual
property, may overlap with the Company’s own intellectual property.
Furthermore, because
the nucleic acid therapeutics intellectual property landscape is still evolving and the Company’s product candidates have
not been through clinical trials or commercialized, it is difficult to conclusively assess the Company’s freedom to operate
without infringing third party rights. There are numerous companies that have pending patent applications and issued patents directed
to certain aspects of nucleic acid therapeutics. The Company is aware of third party competitors in the oligonucleotide therapeutics
space, whose patent filings and/or issued patents may include claims directed to targets and/or products related to some of the
Company’s programs. It is possible that at the time that the Company commercializes its products these third-party patent
portfolios may include issued patent claims that cover the Company’s products or critical features of their production or
use. The Company’s competitive position may suffer if patents issued to third parties or other third party intellectual
property rights cover, or may be alleged to cover, the Company’s products or elements thereof, or methods of manufacture
or use relevant to the Company’s development plans. In such cases, the Company may not be in a position to develop or commercialize
product candidates unless the Company successfully pursues litigation to nullify or invalidate the third party intellectual property
right concerned or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable
terms.
Moreover, patent applications
are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were
filed. Because patents can take many years to issue, there may be currently pending applications of which the Company is unaware
that may later result in issued patents that the Company’s product candidates or potential products infringe. For example,
pending applications may exist that claim or can be amended to claim subject matter that the Company’s product candidates
or potential products infringe. Competitors may file continuing patent applications claiming priority to already issued patents
in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family
and attempt to cover the Company’s product candidates.
Third parties may
assert that the Company is employing their proprietary technology without authorization and may sue the Company for patent or
other intellectual property infringement. These lawsuits are costly and could adversely affect the Company’s business, financial
condition and results of operations and divert the attention of managerial and scientific personnel. If the Company is sued for
patent infringement, the Company would need to demonstrate that its product candidates, potential products or methods either do
not infringe the claims of the relevant patent or that the patent claims are invalid, and the Company may not be able to do this.
Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence
to overcome the presumption of validity enjoyed by issued patents. Even if the Company is successful in these proceedings, the
Company may incur substantial costs and the time and attention of the Company’s management and scientific personnel could
be diverted in pursuing these proceedings, which could have a material adverse effect on the Company. In addition, the Company
may not have sufficient resources to bring these actions to a successful conclusion. If a court holds that any third-party patents
are valid, enforceable and cover the Company’s products or their use, the holders of any of these patents may be able to
block the Company’s ability to commercialize its products unless it acquires or obtains a license under the applicable patents
or until the patents expire.
The Company may not
be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability
to secure licenses or alternative technology could result in delays in the introduction of the Company’s products or lead
to prohibition of the manufacture or sale of products by the Company. Even if the Company is able to obtain a license, it may
be non-exclusive, thereby giving the Company’s competitors access to the same technologies licensed to the Company. The
Company could be forced, including by court order, to cease commercializing the infringing technology or product. In addition,
in any such proceeding or litigation, the Company could be found liable for monetary damages, including treble damages and attorneys’
fees, if the Company is found to have willfully infringed a patent. A finding of infringement could prevent the Company from commercializing
its product candidates or force the Company to cease some of its business operations, which could materially and adversely affect
the Company’s business, financial condition and results of operations. Any claims by third parties that the Company has
misappropriated their confidential information or trade secrets could have a similar material and adverse effect on the Company’s
business, financial condition and results of operations. In addition, any uncertainties resulting from the initiation and continuation
of any litigation could have a material adverse effect on the Company’s ability to raise the funds necessary to continue
the Company’s operations.
Any claims or
lawsuits relating to infringement of intellectual property rights brought by or against the Company will be costly and time consuming
and may adversely affect its business, financial condition and results of operations.
The Company may be
required to initiate litigation to enforce or defend its licensed and owned intellectual property. Lawsuits to protect the Company’s
intellectual property rights can be very time consuming and costly. There is a substantial amount of litigation involving patent
and other intellectual property rights in the pharmaceutical industry generally. Such litigation or proceedings could substantially
increase the Company’s operating expenses and reduce the resources available for development activities or any future sales,
marketing or distribution activities.
In any infringement
litigation, any award of monetary damages the Company receives may not be commercially valuable. Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of the Company’s
confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that the Company
will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years
before they are resolved. Further, any claims the Company asserts against a perceived infringer could provoke these parties to
assert counterclaims against the Company alleging that the Company has infringed their patents. Some of the Company’s competitors
may be able to sustain the costs of such litigation or proceedings more effectively than the Company can because of their greater
financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on the Company’s ability to compete in the marketplace.
In addition, the Company’s
licensed patents and patent applications, and patents and patent applications that the Company may apply for, own or license in
the future, could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings
and other forms of post-grant review. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing
of the scope of, any of the Company’s licensed patents and patent applications and patents and patent applications that
the Company may apply for, own or license in the future subject to challenge. Any of these challenges, regardless of their success,
would likely be time consuming and expensive to defend and resolve and would divert the Company’s management and scientific
personnel’s time and attention.
Changes in U.S.
patent law could diminish the value of patents in general, thereby impairing the Company’s ability to protect the Company’s
product candidates or potential products.
As is the case with
other pharmaceutical companies, the Company’s success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity and is costly,
time-consuming and inherently uncertain. For example, the U.S. previously enacted and is currently implementing wide-ranging patent
reform legislation. Specifically, on September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”)
was signed into law and included a number of significant changes to U.S. patent law, and many of the provisions became effective
in March 2013. However, it may take the courts years to interpret the provisions of the Leahy-Smith Act, and the implementation
of the statute could increase the uncertainties and costs surrounding the prosecution of the Company’s licensed and future
patent applications and the enforcement or defense of the Company’s licensed and future patents, all of which could have
a material adverse effect on the Company’s business, financial condition and results of operations.
In addition, the U.S.
Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in
certain circumstances or weakening the rights of patent owners in certain situations. The recent decision by the U.S. Supreme
Court in
Association for Molecular Pathology v. Myriad Genetics, Inc.
precludes a claim to a nucleic acid having
a stated nucleotide sequence which is identical to a sequence found in nature and unmodified. The Company currently is not aware
of an immediate impact of this decision on the Company’s patents or patent applications which contain modifications that
the Company believes are not found in nature. However, this decision has yet to be clearly interpreted by courts and by the USPTO.
The Company cannot make assurances that the interpretations of this decision or subsequent rulings will not adversely impact the
Company’s patents or patent applications. In addition to increasing uncertainty with regard to the Company’s ability
to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once
obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents
could change in unpredictable ways that would weaken the Company’s ability to obtain new patents or to enforce patents that
the Company might obtain in the future.
The Company
may not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting
and defending patents on product candidates throughout the world would be prohibitively expensive. Competitors may use the Company’s
licensed and owned technologies in jurisdictions where the Company has not licensed or obtained patent protection to develop their
own products and, further, may export otherwise infringing products to territories where the Company may obtain or license patent
protection, but where patent enforcement is not as strong as that in the U.S. These products may compete with the Company’s
products in jurisdictions where the Company does not have any issued or licensed patents, and any future patent claims or other
intellectual property rights may not be effective or sufficient to prevent them from so 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 and other intellectual property
protection, particularly those relating to pharmaceuticals, which could make it difficult for the Company to stop the infringement
of the Company’s licensed patents and future patents the Company may own, or marketing of competing products in violation
of the Company’s proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights
to the same extent or in the same manner as the laws of the U.S. As a result, the Company may encounter significant problems in
protecting and defending its licensed and owned intellectual property both in the U.S. and abroad. For example, China currently
affords less protection to a company’s intellectual property than some other jurisdictions. As such, the lack of strong
patent and other intellectual property protection in China may significantly increase the Company’s vulnerability regarding
unauthorized disclosure or use of its intellectual property and undermine its competitive position. Proceedings to enforce the
Company’s future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert its efforts
and attention from other aspects of the Company’s business.
The Company
may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect
the Company’s proprietary and licensed technology and processes, the Company relies in part on confidentiality agreements
with its corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers
and other advisors. These agreements may not effectively prevent disclosure of the Company’s confidential information and
may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may
independently discover the Company’s trade secrets and proprietary information. Failure to obtain or maintain trade secret
protection could adversely affect the Company’s competitive business position.
The Company
may be subject to claims that the Company’s employees, consultants or independent contractors have wrongfully used or disclosed
confidential information of third parties.
The Company expects
to employ individuals who were previously employed at other pharmaceutical companies. Although the Company has no knowledge of
any such claims against the Company, the Company may be subject to claims that it or its employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed confidential information of the Company’s employees’
former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of
success in defending these claims, and even if the Company is successful, litigation could result in substantial cost and be a
distraction to the Company’s management and other employees.
The Company
may be subject to claims challenging the inventorship of its licensed patents, any future patents the Company may own and other
intellectual property.
Although the Company
is not currently experiencing any claims challenging the inventorship of its licensed patents or the Company’s licensed
or owned intellectual property, the Company may in the future be subject to claims that former employees, collaborators or other
third parties have an interest in the Company’s licensed patents or other licensed or owned intellectual property as an
inventor or co-inventor. For example, the Company may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing the Company’s product candidates. Litigation may be necessary to defend against
these and other claims challenging inventorship. If the Company fails in defending any such claims, in addition to paying monetary
damages, the Company may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable
intellectual property. Such an outcome could have a material adverse effect on the Company’s business, financial condition
and results of operations. Even if the Company is successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees.
If the Company
does not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of
the Company’s licensed patents and any future patents the Company may own, the Company’s business, financial condition
and results of operations may be materially and adversely affected.
Depending upon the
timing, duration and specifics of FDA regulatory approval for the Company’s product candidates, one or more of its licensed
U.S. patents or future U.S. patents that the Company may license or own may be eligible for limited patent term restoration under
the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman
Amendments permit a patent restoration term of up to five years as compensation for patent term lost during drug development and
the FDA regulatory review process. This period is generally one-half the time between the effective date of an IND (falling after
issuance of the patent) and the submission date of an NDA, plus the time between the submission date of an NDA and the approval
of that application. Patent term restorations, however, cannot extend the remaining term of a patent beyond a total of 14 years
from the date of product approval by the FDA.
The application for
patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain
approval of the application for patent term extension. The Company may not be granted an extension because of, for example, 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 the
Company requests. If the Company is unable to obtain patent term extension or restoration or the term of any such extension is
less than the Company requests, the period during which the Company will have the right to exclusively market its product will
be shortened and the Company’s competitors may obtain earlier approval of competing products, and the Company’s ability
to generate revenues could be materially adversely affected.
Risks Related to Government Regulation of the Company
The Company
is very early in its development efforts. All of its product candidates are still in preclinical development. If the Company is
unable to advance its product candidates to clinical development, obtain regulatory approval and ultimately commercialize its
product candidates or experience significant delays in doing so, its business will be materially harmed.
The Company is very early
in its development efforts, and all of its product candidates are still in preclinical development. The Company has invested substantially
all of its efforts and financial resources in the identification and preclinical development of ASOs, including the development
program for the treatment of Huntington’s Disease. The Company’s ability to generate product revenues, which it does
not expect will occur for many years, if ever, will depend on the successful development and eventual commercialization of its
product candidates, which may never occur. The Company currently generates no revenue from sales of any products, and it may never
be able to develop or commercialize a marketable product. In addition, certain of the Company’s product candidate development
programs contemplate the development of companion diagnostics, which are assays or tests to identify an appropriate patient population.
Companion diagnostics are subject to regulation as medical devices and must themselves be approved for marketing by the FDA or
certain other foreign regulatory agencies before the Company may commercialize its products. The success of its product candidates
will depend on several factors, including the following:
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successful completion of preclinical studies;
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approval of INDs for the Company’s planned clinical trials or future clinical trials;
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successful enrollment in, and completion of, clinical trials;
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successful development of companion diagnostics for use with certain of the Company’s
product candidates;
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receipt of regulatory approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party
manufacturers for clinical supply and commercial manufacturing;
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obtaining and maintaining patent and trade secret protection or regulatory exclusivity for
the Company’s product candidates;
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launching commercial sales of the Company’s product candidates, if and when approved,
whether alone or in collaboration with others;
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acceptance of the product candidates, if and when approved, by patients, the medical community
and third-party payors;
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effectively competing with other therapies;
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obtaining and maintaining third-party insurance coverage and adequate reimbursement;
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enforcing and defending intellectual property rights and claims; and
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maintaining a continued acceptable safety profile of the product candidates following approval.
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If the Company does
not achieve one or more of these factors in a timely manner or at all, it could experience significant delays or an inability
to successfully commercialize its product candidates, which would materially harm its business. If the Company does not receive
regulatory approvals for its product candidates, the Company may not be able to continue its operations.
Furthermore, the FDA
has relatively limited experience with nucleic acid therapeutics, which may increase the complexity, uncertainty and length of
the regulatory review process for the Company’s product candidates. To date, the FDA has approved few nucleic acid therapeutics
for marketing and commercialization, and the FDA and its foreign counterparts have not yet established any definitive policies,
practices or guidelines specifically in relation to these drugs. The lack of policies, practices or guidelines specific to nucleic
acid therapeutics may hinder or slow review by the FDA of any regulatory filings that the Company may submit. Moreover, the FDA
may respond to these submissions by defining requirements the Company may not have anticipated. Such responses could lead to significant
delays in the development of the Company’s product candidates. In addition, because there may be approved treatments for
some of the diseases for which the Company may seek approval, in order to receive regulatory approval, the Company may need to
demonstrate through clinical trials that the product candidates the Company develops to treat these diseases, if any, are not
only safe and effective, but safer or more effective than existing products. Furthermore, in recent years, there has been increased
public and political pressure on the FDA with respect to the approval process for new drugs, and the FDA’s standards, especially
regarding drug safety, appear to have become more stringent. As a result of the foregoing factors, the Company may never receive
regulatory approval to market and commercialize any product candidate.
Preclinical
and clinical trials are expensive, time-consuming and difficult to design and implement, and involve uncertain outcomes. Furthermore,
results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical
trials.
All of the Company’s
product candidates are still in the preclinical stage, and their risk of failure is high. Before the Company can commence clinical
trials for a product candidate, it must complete extensive preclinical testing and studies that support the Company’s planned
INDs in the U.S., or similar applications in other jurisdictions. The Company cannot be certain of the timely completion or outcome
of its preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept the Company’s
proposed clinical programs or if the outcome of the Company’s preclinical testing and studies will ultimately support the
further development of its programs. It is also impossible to predict when or if any of the Company’s product candidates
will complete clinical trials evaluating their safety and effectiveness in humans or will receive regulatory approval. To obtain
the requisite regulatory approvals to market and sell any of the Company’s product candidates, the Company must demonstrate
through extensive preclinical studies and clinical trials that its product candidates are safe and effective in humans for use
in each target indication. To date, the Company has never advanced a product candidate into a clinical trial. Preclinical and
clinical testing is expensive and can take many years to complete, and the outcome is inherently uncertain. Failure can occur
at any time during the preclinical or clinical trial process. The Company’s preclinical programs may experience delays or
may never advance to clinical trials, which would adversely affect its ability to obtain regulatory approvals or commercialize
these programs on a timely basis or at all, which would have an adverse effect on its business
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Additionally, the
results of preclinical studies and future clinical trials of product candidates may not be predictive of the results of later-stage
clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results
despite having progressed through preclinical studies and initial clinical trials. Many companies in the pharmaceutical industry
have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding
promising results in earlier studies. Similarly, the Company’s future clinical trial results may not be successful for these
or other reasons.
This product candidate
development risk is heightened by any changes in the anticipated clinical trials compared to the completed clinical trials. As
product candidates are developed from preclinical through early to late stage clinical trials towards approval and commercialization,
it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered
along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize
the product candidates for late stage clinical trials, approval and commercialization, such changes carry the risk that they will
not achieve these intended objectives.
Any of these changes
could make the results of the Company’s anticipated clinical trials or other future clinical trials the Company may initiate
less predictable and could cause the Company’s product candidates to perform differently, including causing toxicities,
which could delay completion of the Company’s clinical trials, delay approval of its product candidates, and/or jeopardize
the Company’s ability to commence product sales and generate revenues.
The Company
may rely on third parties to conduct investigator-sponsored clinical trials of the Company’s product candidates. Any failure
by a third party to meet its obligations with respect to the clinical development of the Company’s product candidates may
delay or impair its ability to obtain regulatory approval for other product candidates.
The Company may rely
on academic and private non-academic institutions to conduct and sponsor clinical trials relating to its product candidates. The
Company will not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA or non-U.S.
regulatory authorities will not view these investigator-sponsored trials as providing adequate support for future clinical trials,
whether controlled by the Company or third parties, for any one or more reasons, including elements of the design or execution
of the trials or safety concerns or other trial results.
Such arrangements
will likely provide the Company certain information rights with respect to the investigator-sponsored trials, including access
to and the ability to use and reference the data, including for the Company’s own regulatory filings, resulting from the
investigator-sponsored trials. However, the Company would not have control over the timing and reporting of the data from investigator-sponsored
trials, nor would the Company own the data from the investigator-sponsored trials. If the Company is unable to confirm or replicate
the results from the investigator-sponsored trials or if negative results are obtained, the Company would likely be further delayed
or prevented from advancing further clinical development of its product candidates. Further, if investigators or institutions
breach their obligations with respect to the clinical development of the Company’s product candidates, or if the data proves
to be inadequate compared to the first-hand knowledge the Company might have gained had the investigator-sponsored trials been
sponsored and conducted by the Company, then the Company’s ability to design and conduct any future clinical trials itself
may be adversely affected.
Additionally, the
FDA or non-U.S. regulatory authorities may disagree with the sufficiency of the Company’s right of reference to the preclinical,
manufacturing or clinical data generated by these investigator-sponsored trials, or its interpretation of preclinical, manufacturing
or clinical data from these investigator-sponsored trials. If so, the FDA or other non-U.S. regulatory authorities may require
the Company to obtain and submit additional preclinical, manufacturing, or clinical data before the Company may initiate its anticipated
trials and/or may not accept such additional data as adequate to initiate its anticipated trials.
The Company’s
product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization
or have other significant adverse implications on the Company’s business, financial condition and results of operations.
Undesirable side effects
observed in preclinical studies or in clinical trials with the Company’s product candidates could interrupt, delay or halt
their development and could result in the denial of regulatory approval by the FDA, the EMA or comparable foreign authorities
for any or all targeted indications or adversely affect the marketability of any such product candidates that receive regulatory
approval. In turn, this could eliminate or limit the Company’s ability to commercialize its product candidates.
The Company’s
product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with other drugs. There
are also risks associated with additional requirements the FDA, the EMA or comparable foreign authorities may impose for marketing
approval with regard to a particular disease.
The Company’s
product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines,
appropriate promotional activities, a post-marketing observational study, and ongoing safety and reporting mechanisms, among other
requirements. Prescribing could be limited to physician specialists or physicians trained in the use of the drug, or could be
limited to a more restricted patient population. Any risk management program required for approval of the Company’s product
candidates could potentially have an adverse effect on the Company’s business, financial condition and results of operations.
Undesirable side effects
involving the Company’s product candidates may have other significant adverse implications on the Company’s business,
financial condition and results of operations. For example:
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the Company may be unable to obtain additional financing on acceptable terms, if at all;
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the Company’s collaborators may terminate any development agreements covering these
product candidates;
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if any development agreements are terminated, the Company may determine not to further develop
the affected product candidates due to resource constraints and may not be able to establish additional collaborations for
their further development on acceptable terms, if at all;
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if the Company were to later continue the development of these product candidates and receive
regulatory approval, earlier findings may significantly limit their marketability and thus significantly lower the Company’s
potential future revenues from their commercialization;
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the Company may be subject to product liability or stockholder litigation; and
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the Company may be unable to attract and retain key employees.
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In addition, if any of
the Company’s product candidates receive marketing approval and the Company or others later identify undesirable side effects
caused by the product:
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regulatory authorities may withdraw their approval of the product, or the Company or the
Company’s partners may decide to cease marketing and sale of the product voluntarily;
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the Company may be required to change the way the product is administered, conduct additional
preclinical studies or additional clinical trials after initial clinical trials regarding the product, change the labeling
of the product, or change the product’s manufacturing facilities; and
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the Company’s reputation may suffer.
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Any of these events
could prevent the Company from achieving or maintaining market acceptance of the affected product and could substantially increase
the costs and expenses of commercializing the product, which in turn could delay or prevent the Company from generating significant
revenues from the sale of the product.
Delays in the
commencement or completion of clinical trials could result in increased costs to the Company and delay the Company’s ability
to establish strategic collaborations.
Delays in the commencement
or completion of clinical trials could significantly impact the Company’s drug development costs. The Company does not know
whether anticipated clinical trials will begin on time or be completed on schedule, if at all. The commencement of clinical trials
can be delayed for a variety of reasons, including, but not limited to, delays related to:
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obtaining regulatory approval to commence one or more clinical trials;
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reaching agreement on acceptable terms with prospective third-party contract research organizations
(“CROs”) and clinical trial sites;
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manufacturing sufficient quantities of a product candidate or other materials necessary
to conduct clinical trials;
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obtaining institutional review board approval to conduct one or more clinical trials at
a prospective site;
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recruiting and enrolling patients to participate in one or more clinical trials; and
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the failure of the Company’s collaborators to adequately resource the Company’s
product candidates due to their focus on other programs or as a result of general market conditions.
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In addition, once a clinical
trial has begun, it may be suspended or terminated by the Company, the Company’s collaborators, the institutional review
boards or data safety monitoring boards charged with overseeing the Company’s clinical trials, the FDA, the EMA or comparable
foreign authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or clinical
protocols;
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inspection of the clinical trial operations or clinical trial site by the FDA, the EMA or
comparable foreign authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues;
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lack of adequate funding to continue the clinical trials; and
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lack of patient enrollment in clinical studies.
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If the Company experiences
delays in the completion or termination of any clinical trial of its product candidates, the commercial prospects of the Company’s
product candidates will be harmed, and the Company’s ability to commence product sales and generate product revenues from
any of the Company’s product candidates will be delayed. In addition, any delays in completing the Company’s clinical
trials will increase the Company’s costs and slow down its product candidate development and approval process. Delays in
completing the Company’s clinical trials could also allow the Company’s competitors to obtain marketing approval before
the Company does or shorten the patent protection period during which the Company may have the exclusive right to commercialize
its product candidates. Any of these occurrences may harm the Company’s business, financial condition and prospects significantly.
In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of the Company’s product candidates.
If the Company
experiences delays in the enrollment of patients in its clinical trials, the Company’s receipt of necessary regulatory approvals
could be delayed or prevented.
The Company may not
be able to initiate or continue clinical trials for the Company’s product candidates if the Company is unable to locate
and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory
authorities. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including
the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial,
the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential
advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for
the indications the Company is investigating.
If the Company fails
to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical
trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial
is safe and effective. Additionally, enrollment delays in the Company’s clinical trials may result in increased development
costs for the Company’s product candidates, which would cause the value of the Company to decline and limit its ability
to obtain additional financing. The Company’s inability to enroll a sufficient number of patients for any of its future
clinical trials would result in significant delays or may require the Company to abandon one or more clinical trials altogether.
The Company
intends to rely on third parties to conduct its preclinical studies and clinical trials and perform other tasks. If these third
parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements,
the Company may not be able to obtain regulatory approval for or commercialize its product candidates and its business, financial
condition and results of operations could be substantially harmed.
The
Company intends to rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor
and manage data for the Company’s ongoing preclinical and anticipated clinical programs. Nevertheless, the Company maintains
responsibility for ensuring that each of the Company’s preclinical studies are, and anticipated clinical studies will be,
conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and the Company’s reliance
on these third parties does not relieve the Company of its regulatory responsibilities. The Company and its CROs and other vendors
are required to comply with current requirements on good manufacturing practices (“cGMP”), good clinical practices
(“GCP”) and good laboratory practices (“GLP”), which are a collection of laws and regulations enforced
by the FDA, the EMA and comparable foreign authorities for all of the Company’s product candidates in clinical development.
Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors,
principal investigators, preclinical study and clinical trial sites, and other contractors. If the Company or any of its CROs
or vendors fails to comply with applicable regulations, the data generated in the Company’s preclinical studies and clinical
trials may be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require the Company to perform additional
preclinical studies and clinical trials before approving the Company’s marketing applications. The Company cannot assure
you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of the Company’s
clinical trials comply with GCP regulations. In addition, the Company’s clinical trials must be conducted with products
produced consistent with cGMP regulations. The Company’s failure to comply with these regulations may require it to repeat
clinical trials, which would delay the development and regulatory approval processes.
The Company may also
not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, the Company’s
CROs will not be the Company’s employees, and except for remedies available to the Company under its agreements with such
CROs, the Company will not be able to control whether or not they devote sufficient time and resources to the Company’s
ongoing preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet
expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the
failure to adhere to the Company’s protocols, regulatory requirements, or for other reasons, the Company’s clinical
trials may be extended, delayed or terminated and the Company may not be able to obtain regulatory approval for or successfully
commercialize the Company’s product candidates. CROs may also generate higher costs than anticipated. As a result, the Company’s
business, financial condition and results of operations and the commercial prospects for the Company’s product candidates
could be materially and adversely affected, its costs could increase, and its ability to generate revenue could be delayed.
Switching or adding
additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management
time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a
result, delays occur, which can materially impact the Company’s ability to meet its desired development timelines. There
can be no assurance that the Company will not encounter similar challenges or delays in the future or that these delays or challenges
will not have a material adverse effect on the Company’s business, financial condition or results of operations.
The Company’s
product candidates are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be
costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize the Company’s
product candidates.
The clinical development,
manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of the Company’s
product candidates are subject to extensive regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities
in foreign markets. In the U.S., neither the Company nor the Company’s collaborators are permitted to market the Company’s
product candidates until the Company or the Company’s collaborators receive approval of a new drug application (“NDA”)
from the FDA or receive similar approvals abroad. The process of obtaining these approvals is expensive, often takes many years,
and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or
regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult
for the Company to achieve such approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel
discussions may make it more expensive to develop and commercialize such product candidates. In addition, as a company, the Company
has not previously filed NDAs with the FDA or filed similar applications with other foreign regulatory agencies. This lack of
experience may impede the Company’s ability to obtain FDA or other foreign regulatory agency approval in a timely manner,
if at all, for the Company’s product candidates for which development and commercialization is the Company’s responsibility.
Despite the time and
expense invested, regulatory approval is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit
or deny approval of a product candidate for many reasons, including:
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a product candidate may not be deemed safe or effective;
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agency officials of the FDA, the EMA or comparable foreign authorities may not find the
data from non-clinical or preclinical studies and clinical trials generated during development to be sufficient;
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the FDA, the EMA or comparable foreign authorities may not approve the Company’s third-party
manufacturers’ processes or facilities; or
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the FDA, the EMA or a comparable foreign authority may change its approval policies or adopt
new regulations.
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The Company’s
inability to obtain these approvals would prevent the Company from commercializing its product candidates.
The FDA, the
NIH and the EMA have demonstrated caution in their regulation of gene therapy treatments, and ethical and legal concerns about
gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization
of the Company’s product candidates, which may be difficult to predict.
The FDA, NIH and the
EMA have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example,
the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level
in the United States, as well as U.S. congressional committees and other governments or governing agencies, have also expressed
interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of
the Company’s product candidates.
Regulatory requirements
in the U.S. and in other jurisdictions governing gene therapy products have changed frequently and may continue to change in the
future. The FDA established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research
to consolidate the review of gene therapy and related products, and established the Cellular, Tissue and Gene Therapies Advisory
Committee to advise this review. Prior to submitting an IND, the Company’s human clinical trials will be subject to review
by the NIH Office of Biotechnology Activities (“OBA”) Recombinant DNA Advisory Committee (the “RAC”).
Following an initial review, RAC members make a recommendation as to whether the protocol raises important scientific, safety,
medical, ethical or social issues that warrant in-depth discussion at the RAC’s quarterly meetings. Even though the FDA
decides whether individual gene therapy protocols may proceed under an IND, the RAC’s recommendations are shared with the
FDA and the RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed
the trial design and details and has not objected to its initiation or has notified the sponsor that the study may begin. Conversely,
the FDA can put an IND on a clinical hold even if the RAC has provided a favorable review or has recommended against an in-depth,
public review. Moreover, under guidelines published by the NIH, patient enrollment in the Company’s future gene silencing
clinical trials cannot begin until the investigator for such clinical trial has received a letter from the OBA indicating that
the RAC review process has been completed; and Institutional Biosafety Committee, or IBC, approval as well as all other applicable
regulatory authorizations have been obtained. In addition to the government regulators, the IBC and institutional review board
(“IRB”) of each institution at which the Company will conduct clinical trials of its product candidates, or a central
IRB if appropriate, would need to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments
in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements
for approval of any of the Company’s product candidates. Similarly, the EMA governs the development of gene therapies in
the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products
and require that the Company complies with these new guidelines. These regulatory review agencies and committees and the new requirements
or guidelines they promulgate may lengthen the regulatory review process, require the Company to perform additional studies or
trials, increase the Company’s development costs, lead to changes in regulatory positions and interpretations, delay or
prevent approval and commercialization of the Company’s product candidates or lead to significant post-approval limitations
or restrictions. As the Company advances its product candidates, the Company will be required to consult with these regulatory
agencies and committees and comply with applicable requirements and guidelines. If the Company fails to do so, it may be required
to delay or discontinue development of such product candidates. These additional processes may result in a review and approval
process that is longer than the Company otherwise would have expected. Delays as a result of an increased or lengthier regulatory
approval process or further restrictions on the development of the Company’s product candidates can be costly and could
negatively impact the Company’s or its collaborators’ ability to complete clinical trials and commercialize the Company’s
current and future product candidates in a timely manner, if at all.
Even if the
Company’s product candidates receive regulatory approval in the U.S., it may never receive approval or commercialize the
Company’s products outside of the U.S.
In order to market
any products outside of the U.S., the Company must establish and comply with numerous and varying regulatory requirements of other
countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and
additional administrative review periods. The time required to obtain approval in other countries might differ from that required
to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding
FDA approval in the U.S. as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another,
but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in
others. Failure to obtain regulatory approval in other countries or any delay seeking or obtaining such approval would impair
the Company’s ability to develop foreign markets for its product candidates.
Even if any
of the Company’s product candidates receive regulatory approval, its product candidates may still face future development
and regulatory difficulties.
If any of the Company’s
product candidates receive regulatory approval, the FDA, the EMA or comparable foreign authorities may still impose significant
restrictions on the indicated uses or marketing of the product candidates or impose ongoing requirements for potentially costly
post-approval studies and trials. In addition, regulatory agencies subject a product, its manufacturer and the manufacturer’s
facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product,
including adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured,
a regulatory agency may impose restrictions on that product, the Company’s collaborators or the Company, including requiring
withdrawal of the product from the market. The Company’s product candidates will also be subject to ongoing FDA, EMA or
comparable foreign authorities’ requirements for the labeling, packaging, storage, advertising, promotion, record-keeping
and submission of safety and other post-market information on the drug. If the Company’s product candidates fail to comply
with applicable regulatory requirements, a regulatory agency may:
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issue warning letters or other notices of possible violations;
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impose civil or criminal penalties or fines or seek disgorgement of revenue or profits;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications filed by
the Company or the Company’s collaborators;
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withdraw any regulatory approvals;
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impose restrictions on operations, including costly new manufacturing requirements, or shut
down the Company’s manufacturing operations; or
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seize or detain products or require a product recall.
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The FDA, the
EMA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
The FDA, the EMA and
comparable foreign authorities strictly regulate the promotional claims that may be made about prescription products, such as
the Company’s product candidates, if approved. In particular, a product may not be promoted for uses that are not approved
by the FDA, the EMA or comparable foreign authorities as reflected in the product’s approved labeling. If the Company receives
marketing approval for its product candidates for the Company’s proposed indications, physicians may nevertheless use the
Company’s products for their patients in a manner that is inconsistent with the approved label, if the physicians personally
believe in their professional medical judgment that the Company’s products could be used in such manner. However, if the
Company is found to have promoted its products for any off-label uses, the federal government could levy civil, criminal or administrative
penalties, and seek fines against the Company. Such enforcement has become more common in the industry. The FDA, the EMA or comparable
foreign authorities could also request that the Company enter into a consent decree or a corporate integrity agreement, or seek
a permanent injunction against the Company under which specified promotional conduct is monitored, changed or curtailed. If the
Company cannot successfully manage the promotion of its product candidates, if approved, the Company could become subject to significant
liability, which would materially adversely affect the Company’s business, financial condition and results of operations.
The
Company and its potential contract manufacturers are subject to significant regulation with respect to manufacturing the Company’s
product candidates. The manufacturing facilities on which the Company will rely may not continue to meet regulatory requirements.
All
entities involved in the preparation of therapeutics for clinical trials or commercial sale, including the Company’s potential
contract manufacturers for its product candidates, are subject to extensive regulation. Components of a finished therapeutic product
approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations
govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the
quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction
of contaminants or to inadvertent changes in the properties or stability of the Company’s product candidates that may not
be detectable in final product testing. The Company or its potential contract manufacturers must supply all necessary documentation
in support of an NDA or marketing authorization application (“MAA”) on a timely basis and must adhere to GLP and cGMP
regulations enforced by the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of
the Company’s potential contract manufacturers may not have produced a commercially approved pharmaceutical product and
therefore may not have obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some
or all of the Company’s potential third-party contractors must pass a pre-approval inspection for compliance with the applicable
regulations as a condition of regulatory approval of the Company’s product candidates or any of its other potential products.
In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation
of the Company’s product candidates or any of the Company’s other potential products or the associated quality systems
for compliance with the regulations applicable to the activities being conducted. Although the Company plans to oversee the contract
manufacturers, the Company cannot control the manufacturing process of, and will be completely dependent on, the Company’s
contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval
plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations
are corrected to the satisfaction of the regulatory authority, if ever.
The
regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of the
Company’s potential third-party contractors. If any such inspection or audit identifies a failure to comply with applicable
regulations or if a violation of the Company’s product specifications or applicable regulations occurs independent of such
an inspection or audit, the Company or the relevant regulatory authority may require remedial measures that may be costly or time
consuming for the Company or a third party to implement, and that may include the temporary or permanent suspension of a clinical
trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon the Company
or third parties with whom the Company may contract could materially harm the Company’s business, financial condition and
results of operations.
If the Company or
any of its potential third-party manufacturers fail to maintain regulatory compliance, the FDA, the EMA or comparable foreign
authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product
candidate, withdrawal of an approval, or suspension of production. As a result, the Company’s business, financial condition
and results of operations may be materially and adversely affected.
Additionally, if supply
from one manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA
variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require
additional studies or trials if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve
substantial costs and is likely to result in a delay in the Company’s desired clinical and commercial timelines.
These factors could
cause the Company to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required
approvals, or commercialization of the Company’s product candidates. Furthermore, if the Company’s suppliers fail
to meet contractual requirements and the Company is unable to secure one or more replacement suppliers capable of production at
a substantially equivalent cost, the Company’s clinical trials may be delayed or the Company could lose potential revenue.
Current and
future legislation may increase the difficulty and cost of commercializing the Company’s product candidates and may affect
the prices the Company may obtain if the Company’s product candidates are approved for commercialization.
In the U.S. and some
foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare
system that could prevent or delay regulatory approval of the Company’s product candidates, restrict or regulate post-marketing
activities and affect the Company’s ability to profitably sell any of the Company’s product candidates for which the
Company obtains regulatory approval.
In the U.S., the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for
pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement
rate that the Company receives for any of its approved products. While the MMA only applies to drug benefits for Medicare beneficiaries,
private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore,
any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
In March 2010,
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively
the “ACA”), was enacted. The ACA was intended to broaden access to health insurance, reduce or constrain the growth
of healthcare spending, enhance remedies against healthcare 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 ACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate
amount for both branded and generic drugs and revised the definition of “average manufacturer price,” (“AMP”),
which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also
expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products
that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services, which administers
the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories
of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the ACA imposed a significant annual fee
on companies that manufacture or import branded prescription drug products. Legislative and regulatory proposals have been introduced
at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products.
There have
been recent public announcements by members of the U.S. Congress, President Trump and his administration regarding their
plans to repeal and replace the ACA and Medicare. For example, on December 22, 2017, President Trump signed into law
the Tax Cuts and Jobs Act of 2017,
which, among other things, eliminated the individual mandate requiring most
Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective
January 1, 2019. The Company is not sure 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
the Company’s product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the
FDA’s approval process may significantly delay or prevent marketing approval, as well as subject the Company to more
stringent product labeling and post-marketing approval testing and other requirements.
Additionally, there
has been heightened governmental scrutiny in the U.S. of pharmaceutical pricing practices in light of the rising cost of prescription
drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and
state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between
pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal
level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that
could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare
Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under
Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released
a “Blueprint,” or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals
to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize
manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers.
The U.S. Department of Health and Human Services has already started the process of soliciting feedback on some of these measures
and, at the same, is immediately implementing others under its existing authority. While some proposed measures will require authorization
through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue
to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly
passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including
price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
The Company expects
that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria
and in additional downward pressure on the price that the Company receives for any approved drug. Any reduction in reimbursement
from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation
of cost containment measures or other healthcare reforms may prevent the Company from being able to generate revenue, attain profitability,
or commercialize its drugs.
In Europe, the United
Kingdom has indicated its intent to withdraw from the European Union in the future. A significant portion of the regulatory framework
in the United Kingdom is derived from the regulations of the European UnionThe Company cannot predict what consequences the withdrawal
of the United Kingdom from the European Union, if it occurs, might have on the regulatory frameworks of the United Kingdom or
the European Union, or on the Company’s future operations, if any, in these jurisdictions.
Changes in government
funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel,
properly administer drug innovation, or prevent the Company’s product candidates from being developed or commercialized,
which could negatively impact the Company’s business, financial condition and results of operations.
The ability of the
FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels, ability to
hire and retain key personnel, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated
in recent years as a result. In addition, government funding of other agencies that fund research and development activities is
subject to the political process, which is inherently fluid and unpredictable.
In December 2016,
the 21st Century Cures Act was signed into law. This new legislation is designed to advance medical innovation and empower the
FDA with the authority to directly hire positions related to drug and device development and review. However, government proposals
to reduce or eliminate budgetary deficits may include reduced allocations to the FDA and other related government agencies. These
budgetary pressures may result in a reduced ability by the FDA to perform their respective roles; including the related impact
to academic institutions and research laboratories whose funding is fully or partially dependent on both the level and timing
of funding from government sources.
Disruptions at the
FDA and other agencies may also slow the time necessary for the Company’s product candidates to be reviewed or approved
by necessary government agencies, which could adversely affect its business, financial condition and results of operations.
The Company
is subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or
prevail in any litigation related to noncompliance could harm the Company’s business, financial condition and results of
operations.
In the U.S., the Company
is subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims
laws and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The federal
Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer, or a party acting on its behalf,
to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business,
including the purchase, order or prescription of a particular drug, or other good or service for which payment in whole or in
part may be made under a federal healthcare program, such as Medicare or Medicaid. Although the Company seeks to structure its
business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult
to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that the Company’s
practices may be challenged under the federal Anti-Kickback Statute.
The federal False
Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government,
including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items
or services that were not provided as claimed, or claims for medically unnecessary items or services. Under the Health Insurance
Portability and Accountability Act of 1996, the Company is prohibited from knowingly and willfully executing a scheme to defraud
any healthcare benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare
benefits, items or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws
may be punishable by criminal or civil sanctions, including penalties, fines or exclusion or suspension from federal and state
healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private
individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under
the false claims laws of several states.
Many states have adopted
laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed
by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companies to
comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the
Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states
also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state.
There are ambiguities as to what is required to comply with these state requirements and if the Company fails to comply with an
applicable state law requirement, it could be subject to penalties.
Neither the government
nor the courts have provided definitive guidance on the application of fraud and abuse laws to the Company’s business. Law
enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of the Company’s
practices may be challenged under these laws. Efforts to ensure that the Company’s business arrangements with third parties
will comply with applicable healthcare laws and regulations will involve substantial costs. If the Company is found in violation
of one of these laws, the Company could be subject to significant civil, criminal and administrative penalties, damages, fines,
exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of the Company’s
operations. If this occurs, the Company’s business, financial condition and results of operations may be materially adversely
affected.
If the Company
faces allegations of noncompliance with the law and encounter sanctions, its reputation, revenues and liquidity may suffer, and
any of the Company’s product candidates that are ultimately approved for commercialization could be subject to restrictions
or withdrawal from the market.
Any government investigation
of alleged violations of law could require the Company to expend significant time and resources in response, and could generate
negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect the Company’s
ability to generate revenues from any of its product candidates that are ultimately approved for commercialization. If regulatory
sanctions are applied or if regulatory approval is withdrawn, the Company’s business, financial condition and results of
operations will be adversely affected. Additionally, if the Company is unable to generate revenues from product sales, the Company’s
potential for achieving profitability will be diminished and the Company’s need to raise capital to fund its operations
will increase.
Risks Related
to our Common Stock
The
market price
of our common stock is expected to be volatile; we may also incur significant costs from class action litigation
due to the Merger.
The trading price of the Company’s
is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including
the following:
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our ability to conduct and achieve positive outcomes from our preclinical activities on
the PATrOL™ platform and disease specific programs;
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results from, and any delays in, anticipated in-vitro or in-vivo preclinical studies;
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contracting with third parties such as academic institutions, and various CROs who will
perform such studies, or the potential lack of performance of such organizations;
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acceptance of INDs by the FDA or similar regulatory filing by comparable foreign regulatory
authorities for the conduct of clinical trials of the Company’s product candidates and the Company’s proposed
design of future clinical trials;
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clinical testing is expensive and can take many years to complete, and its outcome is inherently
uncertain, so failure can occur at any time during the clinical trial process;
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delays in publications of research findings;
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significant lawsuits, including patent or stockholder litigation;
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inability to obtain additional funding;
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failure to successfully develop and commercialize the Company’s product candidates;
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changes in laws or regulations applicable to the Company’s product candidates;
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inability to obtain adequate product supply for the Company’s product candidates,
or the inability to do so at acceptable prices or in an acceptable timeframe;
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unanticipated serious safety concerns related to any of the Company’s product candidates;
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adverse regulatory decisions;
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introduction of new products or technologies by the Company’s competitors;
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failure to meet or exceed drug development or financial projections the Company provides
to the public;
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failure to meet or exceed the estimates and projections of the investment community;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and
the investment community;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital
commitments by the Company or the Company’s competitors;
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disputes or other developments relating to proprietary rights, including patents, litigation
matters and the Company’s ability to obtain patent protection for the Company’s licensed and owned technologies;
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additions or departures of key scientific or management personnel;
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changes in the market valuations of similar companies;
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general economic and market conditions and overall fluctuations in the U.S. equity market;
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sales of the Company’s common stock by the Company or its stockholders in the future;
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trading volume of the Company’s common stock;
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period-to-period fluctuations in the Company’s financial results;
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changes in the structure of health care payments;
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changes in the Nasdaq listing of the Company’s stock; and
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recommendations of equity analysts covering the Company’s stock.
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In addition, the stock
market, and equity values of small pharmaceutical companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry
factors may negatively affect the market price of the Company’s common stock, regardless of our actual operating performance.
Further, a decline in the financial markets and related factors beyond our control may cause our stock price to decline rapidly
and unexpectedly.
In
the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted
class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs
and diversion of management attention and resources, which could significantly harm the Company’s profitability and reputation.
The Company’s
management owns a significant percentage of the Company’s stock and is able to exert significant control over matters subject
to stockholder approval.
Dr. Stephan, our President, Chief Executive Officer and a director of the Company, holds a significant number of shares of
the Company’s outstanding Common Stock and an option to purchase additional shares of Common Stock. Accordingly, Dr.
Stephan has the ability to influence the Company through this ownership position.
This significant concentration
of stock ownership may adversely affect the trading price for the Company’s common stock because investors often perceive
disadvantages in owning stock in companies with controlling stockholders. As a result, Dr. Stephan could significantly influence
all matters requiring approval by the Company’s stockholders, including the election of directors and the approval of mergers
or other business combination transactions. Dr. Stephan may be able to determine all matters requiring stockholder approval. The
interests of these stockholders may not always coincide with the Company’s interests or the interests of other stockholders.
This may also prevent or discourage unsolicited acquisition proposals or offers for the Company’s common stock that you
may feel are in your best interests as one of the Company’s stockholders, and he may act in a manner that advances his best
interests and not necessarily those of other stockholders, including seeking a premium value for his common stock, and might affect
the prevailing market price for the Company’s common stock.
The Company’s
internal control over financial reporting may not meet the standards required by Section 404 of the Sarbanes-Oxley Act, and
failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act, could have a material adverse effect on the Company’s business and share price.
If and when the Company
ceases to be a “non-accelerated filer,” our management will be required to report on the effectiveness of the Company’s
internal control over financial reporting. The rules governing the standards that must be met for the Company’s management
to assess the Company’s internal control over financial reporting are complex and require significant documentation, testing
and possible remediation. The Company expects that compliance with these rules and regulations will continue to substantially
increase the Company’s legal and financial compliance costs and will make some activities more time-consuming and costly,
and the Company’s management and other personnel will devote a substantial amount of time to these compliance requirements.
In connection with
the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify
deficiencies or material weaknesses that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the
implementation of any requested improvements and receiving a favorable attestation in connection with the attestation provided
by our independent registered public accounting firm. Failure to achieve and maintain an effective internal control environment
could have a material adverse effect on our business, financial condition and results of operations and could limit our ability
to report the Company’s financial results accurately and in a timely manner.
The Company
may take advantage of specified reduced disclosure requirements applicable to a “smaller reporting company” under
Regulation S-K, and the information that the Company provides to stockholders may be different than they might receive from other
public companies.
The Company is a “smaller
reporting company,” as defined under Regulation S-K. As a smaller reporting company, the Company may take advantage of specified
reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include,
among other things, scaled disclosure requirements, including about our executive compensation arrangements.
We intend to continue
to take advantage of certain of the scaled disclosure requirements of smaller reporting companies. The Company may continue to
take advantage of these allowances until it is no longer a smaller reporting company. The Company will cease to be a smaller reporting
company if the Company has (i) more than $250 million in market value of its shares held by non-affiliates as of the last business
day of its second fiscal quarter or (ii) more than $100 million of annual revenues in its most recent fiscal year completed before
the last business day of its second fiscal quarter and a market value of its shares held by non-affiliates more than $700 million
as of the last business day of its second fiscal quarter. The Company may choose to take advantage of some but not all of these
scaled disclosure requirements. Therefore, the information that Company provides stockholders may be different than one might
get from other public companies. Further, if some investors find the Company’s ordinary shares less attractive as a result,
there may be a less active trading market for the Company’s ordinary shares and the market price of such ordinary shares
may be more volatile.
If securities
or industry analysts do not publish research, or publish inaccurate or unfavorable research, about the Company’s business,
the Company’s stock price and trading volume could decline.
The trading market
for the Company’s common stock depends, in part, on the research and reports that securities or industry analysts publish
about the Company or its business. If one or more of the analysts who cover the Company downgrade the Company’s stock or
publish inaccurate or unfavorable research about the Company’s business, the Company’s stock price would likely decline.
In addition, if the Company’s operating results fail to meet the forecast of analysts, the Company’s stock price would
likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on the Company regularly,
demand for the Company’s common stock could decrease, which might cause the Company’s stock price and trading volume
to decline.
Sales of a substantial
number of shares of the Company’s common stock in the public market by the Company’s stockholders, future issuances
of the Company’s common stock or rights to purchase the Company’s common stock, could cause the Company’s stock
price to fall.
Sales of a substantial
number of shares of the Company’s common stock by the Company’s existing stockholders in the public market, or the
perception that these sales might occur, could depress the market price of the Company’s common stock and could impair the
Company’s ability to raise capital through the sale of additional equity securities. The Company is unable to predict the
effect that such sales may have on the prevailing market price of the Company’s common stock.
The Company’s
amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal
district courts of the United States are the exclusive forums for substantially all disputes between the Company and its stockholders
other than actions arising under the Securities Act or the Exchange Act, which could limit the Company’s stockholders’
ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, or employees.
The Company’s amended
and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum
for:
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any derivative action or proceeding brought on its behalf;
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any action asserting a breach of fiduciary duty;
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any action asserting a claim against the Company
arising under the Delaware General Corporation Law, the Company’s amended and restated certificate of incorporation,
or the Company’s bylaws; and
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any action asserting a claim against the Company
that is governed by the internal-affairs doctrine.
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These exclusive forum
provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with
the Company or its directors, officers, or other employees, which may discourage lawsuits against the Company and its directors,
officers, and other employees. If a court were to find either exclusive forum provision in the Company’s amended and restated
certificate of incorporation to be inapplicable or unenforceable in an action, it may incur additional costs associated with resolving
the dispute in other jurisdictions, which could harm the Company’s business.
Anti-takeover
provisions in the Company’s charter documents and under Delaware law could make an acquisition of the Company more difficult
and may prevent attempts by the Company’s stockholders to replace or remove the Company’s management.
Provisions in the
Company’s certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions
include a classified board of directors and the ability of the board of directors to issue preferred stock without stockholder
approval. Although the Company believe these provisions collectively will provide for an opportunity to receive higher bids by
requiring potential acquirers to negotiate with the Company’s board of directors, they would apply even if the offer may
be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the Company’s
stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the
board of directors, which is responsible for appointing the members of management.
Certain provisions
of Delaware corporate law deter hostile takeovers. Specifically, Section 203 of the Delaware General Corporation Law prohibits
a Delaware corporation from engaging in a business combination with an “interested stockholder” for a period of three
years following the date the person first became an interested stockholder, unless (with certain exceptions) the business combination
or the transaction by which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business
combination” includes a merger, asset or stock sale, or certain other transactions resulting in a financial benefit to the
interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates,
beneficially owns or within three years prior to becoming an “interested stockholder” did own, 15% or more of a corporation’s
outstanding voting stock. While this statute permits a corporation to opt out of these protective provisions in its certificate
of incorporation, the Company’s certificate of incorporation does not include any such opt-out provision.
Our
pre-Merger net operating loss carryforwards and certain other tax attributes may be subject to limitations. The pre-Merger
net operating loss carryforwards and certain other tax attributes of us may also be subject to limitations as a result of
ownership changes resulting from the Merger.
In general, a corporation
that undergoes an “ownership change,” as defined in Section 382 of the Code, is subject to limitations on its ability
to utilize its pre-change NOLs to offset future taxable income (the “Section 382 Limitation”). Such an ownership change
occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more
of a corporation’s common stock, applying certain look-through and aggregation rules, increases by more than 50 percentage
points over such stockholders’ lowest percentage ownership during the testing period, generally three years. Due to the
ownership change of the Company upon completion of the Merger, the Company’s NOLs and certain other tax attributes will
be subject to the Section 382 Limitation. Consequently, even if the Company achieves profitability, it may not be able to utilize
a material portion of its NOLs and certain other tax attributes because of the Section 382 Limitation, which could have a material
adverse effect on cash flow and results of operations. As of December 31, 2018, the Company estimated that it had approximately
$69 million in NOL carryforwards. It is likely that the Section 382 Limitation will cause a significant portion of the Company’s
net operating loss carryforwards to never be utilized. In addition, if the Company is determined to have discontinued its historic
business following the completion of the Merger, subject to certain exceptions, the Section 382 Limitation could eliminate all
possibility of utilizing its NOL carryforwards.
The Company
may never pay dividends on the Company’s common stock so any returns would be limited to the appreciation of the Company’s
stock.
The Company currently
anticipates that it will retain future earnings for the development, operation and expansion of the Company’s business and
do not anticipate it will declare or pay any cash dividends for the foreseeable future. In addition, the terms of any future debt
agreements may preclude the Company from paying dividends. Any return to stockholders will therefore be limited to the appreciation
of their stock.