Item 1A. Risk Factors
Risks Related to our Business
Our business may be materially adversely affected by the
recent coronavirus (COVID-19) outbreak.
The outbreak of the novel Coronavirus (COVID-19) has evolved
into a global pandemic. The coronavirus has spread to many regions of the world. The extent to which the coronavirus impacts our
business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted,
including new information that may emerge concerning the coronavirus and the actions to contain the coronavirus or treat its impact,
among others.
Should the coronavirus continue to spread, our business operations
could and will likely be delayed or interrupted. For instance, clinical use may be delayed due to among other items, availability
of clinicians, follow-up by patients, availability of facility administrators to coordinate product evaluations and intake, and
the ability to get product shipped to clinical sites. Site initiation, participant recruitment and enrollment, participant dosing,
distribution of clinical trial materials, study monitoring and data analysis may be paused or delayed due to changes in hospital
or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other
reasons related to the pandemic. If the coronavirus continues to spread, some participants and clinical investigators may not be
able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether voluntary or required)
may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, and we may be unable to
conduct our clinical trials. Further, if the spread of the coronavirus pandemic continues and our operations are adversely impacted,
we risk a delay, default and/or nonperformance under existing agreements which may increase our costs. These cost increases may
not be fully recoverable or adequately covered by insurance.
Infections and deaths related to the pandemic may disrupt the
United States’ healthcare and healthcare regulatory systems. Such disruptions could divert healthcare resources away from,
or materially delay FDA review and/or approval with respect to, our current and future clinical trials. It is unknown how long
these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory
review resulting from such disruptions could and will materially affect the development and study of our product candidates.
We currently utilize third parties to, among other things, manufacture
raw materials. If any third-party in the supply chain for materials used in the production of our product candidates are adversely
impacted by restrictions resulting from the coronavirus outbreak, our supply chain may be disrupted, limiting our ability to manufacture
our product candidates for our clinical trials, research and development operations and, in the case of our AC5®
Topical Gel product that was approved by the FDA in December 2018 and AC5TM Topical Hemostat product that we received
a CE Mark for in April 2020, commercialization.
Finally, while we believe that we currently have sufficient
supply of our product candidates to continue commercialization efforts, some of our product candidates or the materials contained
therein (such as the APIs for our AC5® product line), are manufactured from facilities in areas impacted by the
coronavirus, which could result in shortages due to ongoing efforts to address the outbreak. If any of the foregoing were to occur,
it could materially adversely affect our future revenues, financial condition, profitability, and cash flows.
In the event of a shelter-in-place order or other mandated
local travel restrictions, our employees conducting research and development or manufacturing activities may not be able to access
their laboratory or manufacturing space, and our core activities may be significantly limited or curtailed, possibly for an extended
period of time.
The spread of the coronavirus, which has caused a broad impact
globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material
economic effect on our business. This may also limit the ability of physicians to perform procedures for which AC5 could be used.
In addition, and as noted elsewhere, we believe that our current
cash on hand will meet our anticipated cash requirements into the first quarter of fiscal 2021. Accordingly, while the potential
economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is
likely to result in further, significant disruption of global financial markets, which may reduce our ability to access capital
either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from
the spread of the coronavirus could materially and adversely affect our business and the value of our common stock.
The ultimate impact of the current pandemic, or any other health
epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business,
our clinical trials, our research programs, healthcare systems or the global economy as a whole. However, these effects could have
a material impact on our operations, and we will continue to monitor the situation closely.
There is substantial doubt about our ability to continue
as a going concern.
We are a development stage company with no commercially marketed
products. Our initial product candidates are being prepared for initial commercial use. As a result, we have not generated any
revenue from operations since inception, and we have incurred substantial net losses to date. As of July 22, 2020, we believe that
our current cash will meet anticipated requirements into the first quarter of fiscal 2021 and we will need to raise additional
capital before then.
During the third quarter of Fiscal 2019 and the first quarter
of Fiscal 2020, we obtained additional cash to continue operations and fund our planned future operations, which include research
and development of our product candidates, steps related to seeking regulatory marketing authorization for our initial product
candidates, and planning for their commercialization in the U.S. and Europe. Even with the additional funds received from the 2019
SPA and the October 2019 SPA there exists substantial doubt about our ability to continue as a going concern.
We have incurred significant losses since inception. We
expect to continue to incur losses for the foreseeable future, and we may never generate revenue or achieve or maintain profitability.
As noted above under the risk factor entitled “There
is substantial doubt about our ability to continue as a going concern,” we are a development stage company
with no commercially marketed products. Consequently, we have incurred losses in each year since our inception and we expect that
losses will continue to be incurred in the foreseeable future in the operation of our business. To date, we have financed our operations
entirely through equity and debt investments by founders, other investors and third parties, and we expect to continue to rely
on these sources of funding, to the extent available in the foreseeable future. Losses from operations have resulted principally
from costs incurred in research and development programs and from general and administrative expenses, including significant costs
associated with establishing and maintaining intellectual property rights, significant legal and accounting costs incurred in connection
with both the closing of the Merger and complying with public company reporting and control obligations, and personnel expenses.
We have devoted much of our operational effort to date to the research and development of our core technology, including selecting
our initial product composition, conducting safety and other related tests, conducting a human trial for safety and performance,
developing methods for manufacturing scale-up, reproducibility and validation, and developing and protecting the intellectual property
rights underlying our technology platform.
We expect to continue to incur significant expenses and we anticipate
that those expenses and losses may increase in the foreseeable future as we seek to:
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develop our principal product candidates, and the underlying technology, including advancing applications and conducting biocompatibility and other preclinical studies;
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raise capital needed to fund our operations;
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enhance investor relations and corporate communications capabilities;
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conduct clinical trials on products and product candidates;
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attempt to obtain regulatory marketing authorizations for product candidates;
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build relationships with additional contract manufacturing partners, and invest in product and process development through such partners;
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maintain, expand and protect our intellectual property portfolio;
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advance additional product candidates and technologies through our research and development pipeline;
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seek to commercialize selected product candidates, which may require regulatory marketing authorization; and
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hire additional regulatory, clinical, quality control, scientific, financial, and management, consultants and advisors.
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To become and remain profitable, we must succeed in developing
and eventually commercializing product candidates with significant market potential. This will require us to be successful in a
number of challenging activities, including successfully completing preclinical testing and clinical trials of product candidates,
obtaining regulatory marketing authorization for our product candidates and manufacturing, marketing and selling any products for
which we have or may obtain marketing authorization. We are only in the preliminary stages of many of those activities. We may
never succeed in those activities and may never generate operating revenues or achieve profitability. Even if we do generate operating
revenues sufficient to achieve profitability, we may not be able to sustain or increase profitability. Our failure to generate
operating revenues or become and remain profitable would impair our ability to raise capital, expand our business or continue our
operations, all of which would depress the price of our Common Stock. A further decline or lack of increase in the prices of our
Common Stock could cause our stockholders to lose all or a part of their investment in the Company.
We will need substantial additional funding and may be
unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization
efforts and could cause our business to fail.
Based on our current operating expenses and working capital
requirements, as of July 22, 2020, we believe that our current cash on hand will meet our anticipated cash requirements into the
first quarter of fiscal 2021. Notwithstanding that, depending upon additional input from EU and US regulatory authorities, we may
need to raise additional capital before then. For example, on December 18, 2017, we voluntarily withdrew a 510(k) notification
for AC5® Topical Gel after receiving questions from the FDA for which an adequately comprehensive response could
not be provided within the FDA’s congressionally-mandated 90-day review period. While on October 1, 2018, we announced that
we both completed the necessary steps required to re-file our 510(k) submission for our AC5® Topical Gel, and filed
a 510(k) submission during the third calendar quarter of 2018, the resubmission process required us to expend a minimum of $100,000
that we had not anticipated spending and delayed the clearance of our 510(k) submission.
During the third quarter of Fiscal 2019 and the first quarter
of Fiscal 2020, we obtained additional cash to continue operations and fund our planned future operations, including the continuation
of our ongoing research and development efforts, the licensing or acquisition of new assets, and researching and developing any
potential patents, the related compounds and any further intellectual property that we may acquire. In addition, our plans may
change and/or we may use our capital resources more rapidly than we currently anticipate. We presently expect that our expenses
will increase in connection with our ongoing activities to support our business operations inclusive of regulatory applications
and approval of AC5® in the U.S. and Europe and therefore we will require additional funding. Our future capital
requirements will depend on many factors, including:
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the scope, progress and results of our research and development collaborations;
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the extent of potential direct or indirect grant funding for our research and development activities;
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the scope, progress, results, costs, timing and outcomes of any regulatory process and clinical trials conducted for any of our product candidates;
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the timing of entering into, and the terms of, any collaboration agreements with third parties relating to any of our product candidates;
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the timing of and the costs involved in obtaining regulatory marketing authorization for our product candidates;
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the costs of operating, expanding and enhancing our operations to support our clinical activities and, if our product candidates are approved, commercialization activities;
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the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
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the costs associated with maintaining and expanding our product pipeline;
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the costs associated with expanding our geographic focus;
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operating revenues, if any, received from sales of our product candidates, if any are approved by the FDA or other applicable regulatory agencies;
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the cost associated with being a public company, including obligations to regulatory agencies, and increased investor relations and corporate communications expenses; and
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the costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees.
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We intend to obtain additional financing for our business through
public or private securities offerings, the incurrence of additional indebtedness, or some combination of those sources. We may
to seek funding through additional collaborative arrangements with strategic partners if we determine them to be necessary or appropriate,
although these arrangements could require us to relinquish rights to our technology or product candidates and could result in our
receipt of only a portion of any revenues associated with the partnered product. We cannot provide any assurance that additional
financing from these sources will be available on favorable terms, if at all.
In addition, we are bound by certain contractual terms and obligations
that may limit or otherwise impact our ability to raise additional funding in the near-term including, but not limited to, provisions
in the Securities Purchase Agreements that we entered into on February 20, 2017 (the “2017 SPA”) and June 28, 2018
(the “2018 SPA”) in connection with the registered direct financings that closed on February 24, 2017 (the “2017
Financing”) and July 2, 2018 (the “2018 Financing”), respectively, in each case as described in greater detail
in the risk factor entitled “The terms of the 2017 Financing and 2018 Financing could impose additional challenges
on our ability to raise funding in the future ” below.
These restrictions and provisions could make it more challenging
for us to raise capital through the incurrence of additional debt or through future equity issuances. Further, if we do raise capital
through the sale of equity, or securities convertible into equity, the ownership of our then existing stockholders would be diluted,
which dilution could be significant depending on the price at which we may be able to sell our securities. Also, if we raise additional
capital through the incurrence of indebtedness, we may become subject to covenants restricting our business activities, and the
holders of debt instruments may have rights and privileges senior to those of our equity investors. Finally, servicing the interest
and principal repayment obligations under any debt facilities that we may enter into in the future could divert funds that would
otherwise be available to support research and development, clinical or commercialization activities.
If we are unable to obtain adequate financing on a timely basis
or on acceptable terms in the future, we would likely be required to delay, reduce or eliminate one or more of our product development
activities, which could cause our business to fail.
The terms of the 2017 Financing and 2018 Financing could
impose additional challenges on our ability to raise funding in the future.
In particular, both the 2017 SPA and 2018 SPA contain provisions
that provide that until such time as the three lead investors in the 2017 Financing and 2018 Financing, respectively, collectively
own less than 20% of the Series F Warrants or Series G Warrants as applicable, purchased by them pursuant to the 2017 SPA or 2018
SPA, as applicable, the Company is prohibited from effecting or entering into an agreement to effect any issuance by the Company
or any of its subsidiaries of Common Stock or securities convertible, exercisable or exchangeable for Common Stock (or a combination
of units thereof) involving a Variable Rate Transaction including, but not limited to, an equity line of credit or “At-the-Market”
financing facility.
As of July 22, 2020, none of the lead investors for either
the 2017 Financing or 2018 Financing have exercised or transferred any of their Series F Warrants and Series G Warrants. As defined
in the 2017 SPA and 2018 SPA, Variable Rate Transaction means a transaction in which the Company (a) issues or sells any debt
or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares
of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies
with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after
the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (excluding adjustments under customary anti-dilution
provisions) or (b) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of
credit, whereby the Company may issue securities at a future determined price. These provisions could make our securities less
attractive to investors and could limit our ability to obtain adequate financing on a timely basis or on acceptable terms in the
future, which could have significant harmful effects on our financial condition and business and could include substantial limitations
on our ability to continue to conduct operations.
Our short operating history may hinder our ability
to successfully meet our objectives.
We are a development stage company subject to the risks, uncertainties
and difficulties frequently encountered by early-stage companies in evolving markets. Our operations to date have been primarily
limited to organizing and staffing, developing and securing our technology and undertaking funding preclinical studies of our lead
product candidates, and funding one clinical trial. We have not demonstrated our ability to successfully complete large-scale,
pivotal clinical trials, reliably obtain regulatory marketing authorizations, manufacture a commercial scale product or arrange
for a third-party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.
Because of our limited operating history, we have limited insight
into trends that may emerge and affect our business, and errors may be made in developing an approach to address those trends and
the other challenges faced by development stage companies. Failure to adequately respond to such trends and challenges could cause
our business, results of operations and financial condition to suffer or fail. Further, our limited operating history may make
it difficult for our stockholders to make any predictions about our likelihood of future success or viability.
If we are not able to attract and retain qualified management
and scientific personnel, we may fail to develop our technologies and product candidates.
Our future success depends to a significant degree on the skills,
experience and efforts of the principal members of our scientific and management personnel. These members include Terrence Norchi,
MD, our President and Chief Executive Officer. The loss of Dr. Norchi or any of our other key personnel could harm our business
and might significantly delay or prevent the achievement of research, development or business objectives. Further, our operation
as a public company will require that we attract additional personnel to support the establishment of appropriate financial reporting
and internal controls systems. Competition for personnel is intense. We may not be able to attract, retain and/or successfully
integrate qualified scientific, financial and other management personnel, which could materially harm our business.
If we fail to properly manage any growth we may experience,
our business could be adversely affected.
We anticipate increasing the scale of our operations as we seek
to develop our product candidates, including hiring and training additional personnel and establishing appropriate systems for
a company with larger operations. The management of any growth we may experience will depend, among other things, upon our ability
to develop and improve our operational, financial and management controls, reporting systems and procedures. If we are unable to
manage any growth effectively, our operations and financial condition could be adversely affected.
If we fail to maintain appropriate internal controls in
the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business.
Our efforts to comply with Section 404 of the Sarbanes-Oxley
Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting requires
the commitment of significant financial and managerial resources. Internal control over financial reporting has inherent limitations,
including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions,
and fraud. If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely financial information,
and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC
or the Sarbanes-Oxley Act of 2002. This could result in a restatement of our financial statements, the imposition of sanctions,
including the inability of registered broker dealers to make a market in our stock, or investigation by regulatory authorities.
Any such action or other negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory
requirements or by disclosure of an accounting, reporting or control issue could adversely affect the trading price of our stock
and our business.
We rely significantly on information technology and any
failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability
to operate our business effectively.
We maintain sensitive data pertaining to our Company on our
computer networks, including information about our research and development activities, our intellectual property and other proprietary
business information. Our internal computer systems and those of third parties with which we contract may be vulnerable to damage
from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures, despite the implementation of security measures. System failures, accidents or security breaches could cause interruptions
to our operations, including material disruption of our research and development activities, result in significant data losses
or theft of our intellectual property or proprietary business information, and could require substantial expenditures to remedy.
To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications or inappropriate
disclosure of confidential or proprietary information, we could incur liability and our research and development programs could
be delayed, any of which would harm our business and operations.
Risks Related to Our Business, Financial Position
and Capital Requirements - Legal, political and economic uncertainty surrounding the exit of the United Kingdom from
the European Union is a source of instability and uncertainty.
Legal, political and economic uncertainty surrounding the exit of the United Kingdom from the European Union is a source of instability and uncertainty.
The uncertainty concerning the U.K’s legal, political
and economic relationship with the E.U. after the Transition Period may be a source of instability in the international markets,
create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
These developments, or the perception that any of them could
occur, have had, and may continue to have, a significant adverse effect on global economic conditions and the stability of global
financial markets, and could significantly reduce global market liquidity and limit the ability of key market participants to operate
in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the U.K.
financial and banking markets, as well as on the regulatory process in Europe. Asset valuations, currency exchange rates and credit
ratings may also be subject to increased market volatility.
If the U.K. and the E.U. are unable to negotiate acceptable
trading and customs terms or if other E.U. Member States pursue withdrawal, barrier-free access between the U.K. and other E.U.
Member States or among the European Economic Area (“E.E.A.”) overall could be diminished or eliminated. The long-term
effects of Brexit will depend on any agreements (or lack thereof) between the U.K. and the E.U. and, in particular, any
arrangements for the U.K. to retain access to E.U. markets after the Transition Period. Such a withdrawal from the E.U. is unprecedented,
and it is unclear how the U.K. access to the European single market for goods, capital, services and labor within the E.U., or
single market, and the wider commercial, legal and regulatory environment, will impact our U.K. operations.
We may also face new regulatory costs and challenges that could
have an adverse effect on our operations and development programs. For example, the U.K. could lose the benefits of global trade
agreements negotiated by the E.U. on behalf of its members, which may result in increased trade barriers that could make our doing
business in the E.U. and the E.E.A. more difficult. There may continue to be economic uncertainty surrounding the consequences
of Brexit, which could adversely affect our financial condition, results of operations, cash flows and market price of our
common stock.
Risks Related to the Development and
Commercialization of our Product Candidates
Applications for regulatory marketing authorization for
commercialization of our products or elements of our supply chain may not be accepted, or if accepted, may be voluntarily withdrawn
or eventually rejected, and the future success of our business is significantly dependent on the success of our being able to obtain
regulatory marketing authorization for our development stage candidates.
For example, on July 17, 2017, we filed a 510(k) notification
with the FDA for our AC5® Topical Gel. As previously announced on December 18, 2017, we voluntarily withdrew the
submission after receiving a communication from FDA near the end of the agency’s 90-day review period for a final decision
on 510(k) notifications. The communication contained questions for which a comprehensive response could not be provided in the
limited review time remaining on the submission. Given that it was not possible to respond in the time available, the Company made
the decision to withdraw the 510(k) notification, but noted at the time that it remained committed to continued collaboration with
FDA to appropriately address the outstanding questions and planned to submit a new 510(k) notification as soon as possible following
further discussion with the agency. On March 12, 2018, we announced that we were utilizing the FDA’s pre-submission process
to submit a proposed development strategy to the FDA to address the agency’s comments on our 510(k) notification. As indicated
in that March 12, 2018 announcement, we determined that providing additional data to the FDA would be the most expeditious path
forward for addressing the FDA’s comments, subject to any further comments that we may receive from the FDA.
On May 8, 2018, the Company announced that it would initiate
the previously disclosed study designed to address FDA comments on Arch’s previous 510(k) notification for its AC5®
Topical Gel. The agency provided feedback via the pre-submission process and indicated that the proposed study design was
acceptable to support the Company’s future marketing application. On June 15, 2018, the Company further announced that it
completed enrollment for its human skin sensitization study and that applications of the Company’s AC5® Topical
Gel were underway for all subjects.
On October 1, 2018 the Company announced that it submitted a
510(k) notification to the FDA for its AC5® Topical Gel (AC5®) and received acknowledgement from
the FDA that the submission has been received. On December 17, 2018, we announced that the 510(k) premarket notification
for AC5® Topical Gel has been reviewed and cleared by the FDA, allowing for the product to be marketed.
Our business plan is dependent on the success of our development
stage product candidates.
Our business is currently focused almost entirely on the development
and commercialization of our initial product candidates and products (“AC5”). Our reliance on AC5 means that, if we
are not able to obtain both regulatory marketing authorization and market acceptance of those product candidates, our chances for
success will be significantly reduced. We are also less likely to withstand competitive pressures if any of our competitors develops
and obtains regulatory marketing authorization for similar products or for products that may be more attractive to the market than
AC5. Our current dependence on AC5 increases the risk that our business will fail if our development efforts for AC5 experience
delays or other obstacles or are otherwise not successful.
The Chemistry, Manufacturing and Control (“CMC”)
process may be challenging.
Because of the complexity of our lead product candidates, the
CMC process, including but not limited to product scale-up activities and cGMP manufacturing for human use, may be difficult to
complete successfully within the parameters required by the FDA or its foreign counterparts. Peptide formulation optimization is
particularly challenging, and any delays could negatively impact our ability to conduct clinical trials and our subsequent commercialization
timeline. Furthermore, we have, and the third parties with whom we may establish relationships may also have, limited experience
with attempting to commercialize a self-assembling peptide as a medical device, which increases the risks associated with completing
the CMC process successfully, on time, or within the projected budget. Failure to complete the CMC process successfully would impact
our ability to complete product development activities, such as conducting clinical trials and submitting applications for regulatory
approval, which could affect the long-term viability of our business.
Our principal product candidates are inherently risky
because they are based on novel technologies.
We are subject to the risks of failure inherent in the development
of products based on new technologies. The novel nature of the AC5® devices creates significant challenges with
respect to product development and optimization, engineering, manufacturing, scale-up, quality systems, pre-clinical in vitro and
in vivo testing, government regulation and approval, third-party reimbursement and market acceptance. Our failure to overcome any
one of those challenges could harm our operations, ability to complete additional clinical trials, and overall chances for success.
Any changes in our supply chain, including to the third
party contract manufacturers, service providers, or other vendors, or in the processes that they employ could adversely affect
us.
We are dependent on third-parties in our supply chain, including
manufacturers, service providers, and other vendors, and the processes that they employ to make major and minor components of our
products, and this dependence exposes us to risks associated with regulatory requirements, delivery schedules, manufacturing capability,
quality control, quality assurance and costs. We make periodic changes within our supply chain, for example, as our business needs
evolve; and/or if a third party does not perform as agreed or desired; and/or if we decide to add an additional manufacturer, service
provider, or vendor where we were previously single sourced; and/or if processes are altered to meet evolving scale requirements.
For instance, the Company is harmonizing its US and European product supply chains by adding a supplier and a manufacturing process
to the list of approved suppliers and processes for the production of the AC5® Topical Gel that it intends to sell
in the United States. The Company filed documentation with the FDA related to these supply chain changes and announced on March
23, 2020 that the FDA provided the required clearance to market with the supply chain changes.
We cannot yet provide assurance that the changes or resulting product will prove acceptable to us.
The manufacturing, production, and sterilization methods
that we intend to be utilized are detailed and complex and are a difficult process to manage.
We intend to utilize third-party manufacturers to manufacture
and sterilize our products. We believe that our proposed manufacturing methods make our choice of manufacturer and sterilizer critical,
as they must possess sufficient expertise in synthetic organic chemistry and device manufacturing. If such manufacturers are unable
to properly manufacture to product specifications or sterilize our products adequately, that could severely limit our ability to
market our products.
Compliance with governmental regulations regarding the
treatment of animals used in research could increase our operating costs, which would adversely affect the commercialization of
our technology.
The Animal Welfare Act (“AWA”) is the federal law
that covers the treatment of certain animals used in research. Currently, the AWA imposes a wide variety of specific regulations
that govern the humane handling, care, treatment and transportation of certain animals by producers and users of research animals,
most notably relating to personnel, facilities, sanitation, cage size, and feeding, watering and shipping conditions. Third parties
with whom we contract are subject to registration, inspections and reporting requirements under the AWA. Furthermore, some states
have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals.
Comparable rules, regulations, and or obligations exist in many foreign jurisdictions. If our contractors or we fail to comply
with regulations concerning the treatment of animals used in research, we may be subject to fines and penalties and adverse publicity,
and our operations could be adversely affected.
If the FDA or similar foreign agencies or intermediaries
impose requirements or an alternative product classification more onerous than we anticipate, our business could be adversely affected.
The FDA and other regulatory authorities or related bodies
separately determine the classification of our products and product candidates. The development plan for our lead product candidates
is based on our anticipation of pursuing the medical device regulatory pathway, and in February 2015 we received confirmation from
The British Standards Institution (“BSI”), a European Notified Body (which is a private commercial entity designated
by the national government of a European Union (“EU”) member state as being competent to make independent judgments
about whether a medical device complies with applicable regulatory requirements), confirmed that AC5™ Topical Hemostat fulfills
the definition of a medical device within the EU and it was classified as such in consideration of the CE mark, receipt of which
was announced by the Company on April 13, 2020. The FDA also determined our AC5® Topical Gel to be a medical device.
If the FDA or similar foreign agencies or intermediaries deem our products to be a member of a category other than a medical device,
such as a drug or biologic, or impose additional requirements on our pre-clinical and clinical development than we presently anticipate,
financing needs would increase, the timeline for product approval would lengthen, the program complexity and resource requirements
world increase, and the probability of successfully commercializing a product would decrease. Any or all of those circumstances
would materially adversely affect our business.
We are subject to extensive and dynamic medical device
regulations outside of the United States, which may impede or hinder the approval
or sale of our products and, in some cases, may ultimately result
in an inability to obtain approval of certain products or may result in the recall or seizure of previously approved products.
In the European Union, we are required to comply with applicable
medical device directives, including the Medical Devices Directive, and obtain CE Marking in order to market medical device products.
The CE Mark is applied following approval from an independent notified body or declaration of conformity. As is the case in the
United States, the process of obtaining marketing approval or clearance from comparable agencies in foreign countries for new products,
or with respect to enhancements or modifications to existing products, could:
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take a significant period of time;
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require the expenditure of substantial resources;
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involve rigorous pre-clinical and clinical testing;
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require extensive post-marketing surveillance;
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require changes to products; and
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result in limitations on the indicated uses of products.
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In addition, exported devices are subject to the regulatory
requirements of each country to which the device is exported. Most foreign countries possess medical devices regulations and require
that they be applied to medical devices before they can be commercialized. There can be no assurance that we will receive the required
approvals for our products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive
post-market study requirements.
Our global regulatory environment is becoming increasingly stringent
and unpredictable, which could increase the time, cost and complexity of obtaining marketing authorization for our products, as
well as the clinical and regulatory costs of supporting those approvals. Several countries that did not have regulatory requirements
for medical devices have established such requirements in recent years and other countries have expanded existing regulations.
Certain regulators are exhibiting less flexibility by requiring, for example, the collection of local preclinical and/or clinical
data prior to approval. While harmonization of global regulations has been pursued, requirements continue to differ significantly
among countries. We expect the global regulatory environment to continue to evolve, which could impact our ability to obtain future
approvals for our products and increase the cost and time to obtain such approvals. By way of example, the European Union regulatory
bodies recently finalized a new Medical Device Regulation (“MDR”). The MDR changes several aspects of the existing
regulatory framework, such as clinical data requirements, and introduces new ones, such as Unique Device Identification (“UDI”).
We, and the Notified Bodies who will oversee compliance to the new MDR, face uncertainties in the upcoming years as the MDR is
rolled out and enforced, creating risks in several areas, including the CE Marking process, data transparency and application review
timetables.
If we are not able to secure and maintain relationships
with third parties that are capable of conducting clinical trials on our product candidates and support our regulatory submissions,
our product development efforts, and subsequent marketing authorization could be adversely impacted.
Our management has limited experience in conducting preclinical
development activities and clinical trials. As a result, we have relied and will need to continue to rely on third-party research
institutions, organizations and clinical investigators to conduct our preclinical and clinical trials and support our regulatory
submissions. If we are unable to reach agreement with qualified research institutions, organizations and clinical investigators
on acceptable terms, or if any resulting agreement is terminated prior to the completion of our clinical trials, then our product
development efforts could be materially delayed or otherwise harmed. Further, our reliance on third parties to conduct our clinical
trials and support our regulatory submissions will provide us with less control over the timing and cost of those trials, the ability
to recruit suitable subjects to participate in the trials, and the timing, cost, and probability of success for the regulatory
submissions. Moreover, the FDA and other regulatory authorities require that we comply with standards, commonly referred to as
good clinical practices (“GCP”), for conducting, recording and reporting the results of our preclinical development
activities and our clinical trials, to assure that data and reported results are credible and accurate and that the rights, safety
and confidentiality of trial participants are protected. Additionally, both we and any third-party contractor performing preclinical
and clinical studies are subject to regulations governing the treatment of human and animal subjects in performing those studies.
Our reliance on third parties that we do not control does not relieve us of those responsibilities and requirements. If those third
parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our preclinical development
activities or clinical trials in accordance with regulatory requirements or stated protocols, we may not be able to obtain, or
may be delayed in obtaining, marketing authorization for our product candidates and will not be able to, or may be delayed in our
efforts to, successfully commercialize our product candidates. Any of those circumstances would materially harm our business and
prospects.
Any clinical trials that are planned or are conducted
on our product candidates may not start or may fail.
Clinical trials are lengthy, complex and extremely expensive
processes with uncertain expenditures and results and frequent failures. While the Company has completed its first clinical trial
in Western Europe, clinical trials that are planned or which have or shall commence for any of our product candidates could be
delayed or fail for a number of reasons, including if:
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the FDA or other regulatory authorities, or other relevant decision-making bodies do not grant permission to proceed or place a trial on clinical hold due to safety concerns or other reasons;
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sufficient suitable subjects do not enroll, enroll more slowly than anticipated or remain in our trials;
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we fail to produce necessary amounts of product candidate;
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subjects experience an unacceptable rate of efficacy of the product candidate;
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subjects experience an unacceptable rate or severity of adverse side effects, demonstrating a lack of safety of the product candidate;
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any portion of the trial or related studies produces negative or inconclusive results or other adverse events;
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reports from preclinical or clinical testing on similar technologies and products raise safety and/or efficacy concerns;
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third-party clinical investigators lose their licenses or permits necessary to perform our clinical trials, do not perform their clinical trials on the anticipated schedule or consistent with the clinical trial protocol, GCP or regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;
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inspections of clinical trial sites by the FDA or an institutional review board (“IRB”) or other applicable regulatory authorities find violations that require us to undertake corrective action, suspend or terminate one or more testing sites, or prohibit us from using some or all of the resulting data in support of our marketing applications with the FDA or other applicable agencies;
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manufacturing facilities of our third-party manufacturers are ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practices (“cGMP”) or other applicable requirements;
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third-party contractors become debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements;
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the FDA or other regulatory authorities impose requirements on the design, structure or other features of the clinical trials for our product candidates that we and/or our third-party contractors are unable to satisfy;
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one or more IRB refuses to approve, suspends or terminates a trial at an investigational site, precludes enrollment of additional subjects, or withdraws its approval of the trial;
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the FDA or other regulatory authorities seek the advice of an advisory committee of physician and patient representatives that may view the risks of our product candidates as outweighing the benefits;
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the FDA or other regulatory authorities require us to expand the size and scope of the clinical trials, which we may not be able to do; or
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the FDA or other regulatory authorities impose prohibitive post-marketing restrictions on any of our product candidates that attain marketing authorization.
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Any delay or failure of one or more of our clinical trials may
occur at any stage of testing. Any such delay could cause our development costs to materially increase, and any such failure could
significantly impair our business plans, which would materially harm our financial condition and operations.
We cannot market and sell any product candidate in the
U.S. or in any other country or region if we fail to obtain the necessary marketing authorization, clearances or certifications
from applicable government agencies.
We cannot sell our product candidates in any country until regulatory
agencies grant marketing approval, clearance or other required certification. The process of obtaining such approval is lengthy,
expensive and uncertain. If we are able to obtain such approvals for our lead product candidate or any other product candidate
we may pursue, which we may never be able to do, it would likely be a process that takes many years to achieve.
To obtain marketing approvals in the U.S. for our product candidates,
we believe that we must, among other requirements, complete carefully controlled and well-designed clinical trials sufficient to
demonstrate to the FDA that the product candidate is safe and effective for each indication for which we seek approval. As described
above, many factors could cause those trials to be delayed or to fail.
We believe that the pathway to marketing approval in the U.S.
for our lead product candidate for internal use will likely be classified as a Class III medical device and require the process
of FDA Premarket Approval (“PMA“). This approval pathway can be lengthy and expensive and is estimated to take from
one to three years or longer from the time the PMA application is submitted to the FDA until approval is obtained, if approval
can be obtained at all.
Similarly, to obtain approval to market our product candidates
outside of the U.S., we will need to submit clinical data concerning our product candidates to and receive marketing approval or
other required certifications from governmental or other agencies in those countries, which in certain countries includes approval
of the price we intend to charge for a product. For instance, in order to obtain the certification needed to market our lead product
candidate in the EU, we believe that we will need to obtain a CE mark for the product, which entails scrutiny by applicable regulatory
agencies and bears some similarity to the PMA process, including completion of one or more successful clinical trials.
We may encounter delays or rejections if changes occur in regulatory
agency policies, if difficulties arise within regulatory or related agencies such as, for instance, any delays in their review
time, or if reports from preclinical and clinical testing on similar technology or products raise safety and/or efficacy concerns
during the period in which we develop a product candidate or during the period required for review of any application for marketing
approval or certification.
Any difficulties we encounter during the approval or certification
process for any of our product candidates would have a substantial adverse impact on our operations and financial condition and
could cause our business to fail.
We cannot guarantee that we will be able to effectively
market our product candidates.
A significant part of our success depends on the various marketing
strategies we plan to implement. Our business model has historically focused solely on product development, and we have never attempted
to commercialize any product. There can be no assurance as to the success of any such marketing strategy that we develop or that
we will be able to build a successful sales and marketing organization. If we cannot effectively market those products we seek
to commercialize directly, such products’ prospects will be harmed.
Any product for which we obtain required regulatory marketing
authorization could be subject to post-approval regulation, and we may be subject to penalties if we fail to comply with such post-approval
requirements.
Any product for which we are able to obtain marketing approval
or other required certifications, and for which we are able to obtain approval of the manufacturing processes, post-approval clinical
data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review
by the FDA and comparable foreign regulatory authorities, including through periodic inspections. These requirements include, without
limitation, submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements
relating to quality control, quality assurance and corresponding maintenance of records and documents. Maintaining compliance with
any such regulations that may be applicable to us or our product candidates in the future would require significant time, attention
and expense. Even if marketing approval of a product is granted, the approval may be subject to limitations on the indicated uses
for which the product may be marketed or other conditions of approval, or may contain requirements for costly and time consuming
post-marketing approval testing and surveillance to monitor the safety or efficacy of the product. Discovery after approval of
previously unknown problems with any approved product candidate or related manufacturing processes, or failure to comply with regulatory
requirements, may result in consequences to us such as:
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restrictions on the marketing or distribution of a product, including refusals to permit the import or export of the product;
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the requirement to include warning labels on the products;
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withdrawal or recall of the products from the market;
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refusal by the FDA or other regulatory agencies to approve pending applications or supplements to approved applications that we may submit;
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suspension of any ongoing clinical trials;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of marketing approvals or certifications; or
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civil or criminal penalties.
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If any of our product candidates achieves required regulatory
marketing approvals or certifications in the future, the subsequent occurrence of any such post-approval consequences would materially
adversely affect our business and operations.
Current or future legislation may make it more difficult
and costly for us to obtain marketing approval or other certifications of our product candidates.
In 2007, the Food and Drug Administration Amendments Act of
2007 (“FDAAA”) was adopted. This legislation grants significant powers to the FDA, many of which are aimed at assuring
the safety of medical products after approval. For example, the FDAAA grants the FDA authority to impose post-approval clinical
study requirements, require safety-related changes to product labeling and require the adoption of complex risk management plans.
Pursuant to the FDAAA, the FDA may require that a new product be used only by physicians with specialized training, only in specified
health care settings, or only in conjunction with special patient testing and monitoring. The legislation also includes requirements
for disclosing clinical study results to the public through a clinical study registry, and renewed requirements for conducting
clinical studies to generate information on the use of products in pediatric patients. Under the FDAAA, companies that violate
these laws are subject to substantial civil monetary penalties. The requirements and changes imposed by the FDAAA, or any other
new legislation, regulations or policies that grant the FDA or other regulatory agencies additional authority that further complicates
the process for obtaining marketing approval and/or further restricts or regulates post-marketing approval activities, could make
it more difficult and more costly for us to obtain and maintain approval of any of our product candidates.
Public perception of ethical and social issues may limit
or discourage the type of research we conduct.
Our clinical trials will involve human subjects, and third parties
with whom we contract also conduct research involving animal subjects. Governmental authorities could, for public health or other
purposes, limit the use of human or animal research or prohibit the practice of our technology. Further, ethical and other concerns
about our or our third-party contractors’ methods, particularly the use of human subjects in clinical trials or the use of
animal testing, could delay our research and preclinical and clinical trials, which would adversely affect our business and financial
condition.
Use of third parties to manufacture our product candidates
may increase the risk that preclinical development, clinical development and potential commercialization of our product candidates
could be delayed, prevented or impaired.
We have limited personnel with experience in medical device
development and manufacturing, do not own or operate manufacturing facilities, and generally lack the resources and the capabilities
to manufacture any of our product candidates on a clinical or commercial scale. We currently intend to outsource all or most of
the clinical and commercial manufacturing and packaging of our product candidates to third parties. However, we have not established
long-term agreements with any third-party manufacturers for the supply of any of our product candidates. There are a limited number
of manufacturers that operate under cGMP regulations and that are capable of and willing to manufacture our lead product candidates
utilizing the manufacturing methods that are required to produce our product candidates, and our product candidates will compete
with other product candidates for access to qualified manufacturing facilities. If we have difficulty locating third-party manufacturers
to develop our product candidates for preclinical and clinical work, then our product development programs will experience delays
and otherwise suffer. We may also be unable to enter into agreements for the commercial supply of products with third-party manufacturers
in the future or may be unable to do so when needed or on acceptable terms. Any such events could materially harm our business.
Reliance on third-party manufacturers entails risks to our business,
including without limitation:
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the failure of the third-party to maintain regulatory compliance, quality assurance, and general expertise in advanced manufacturing techniques and processes that may be necessary for the manufacture of our product candidates;
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limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
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failure of the third-party manufacturers to meet the demand for the product candidate, either from future customers or for preclinical or clinical trial needs;
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the possible breach of the manufacturing agreement by the third-party; and
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the possible termination or non-renewal of the agreement by the third-party at a time that is costly or inconvenient for us.
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The failure of any of our contract manufacturers to maintain
high manufacturing standards could result in harm to clinical trial, participants or patients using the products. Such failure
could also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing
or delivery, cost overruns or other problems that could seriously harm our business or profitability. Further, our contract manufacturers
will be required to adhere to FDA and other applicable regulations relating to manufacturing practices. Those regulations cover
all aspects of the manufacturing, testing, quality control and recordkeeping relating to our product candidates and any products
that we may commercialize in the future. The failure of our third-party manufacturers to comply with applicable regulations could
result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant
marketing approval or other required certifications of our product candidates, delays, suspension or withdrawal of approvals, license
revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect our business, financial condition and operations.
Materials necessary to manufacture our product candidates
may not be available on time, on commercially reasonable terms, or at all, which may delay or otherwise hinder the development
and commercialization of those product candidates.
We will rely on the manufacturers of our product candidates
to purchase from third-party suppliers the materials necessary to produce the compounds for preclinical and clinical studies and
may continue to rely on those suppliers for commercial distribution if we obtain marketing approval or other required certifications
for any of our product candidates. The materials to produce our products may not be available when needed or on commercially reasonable
terms, and the prices for such materials may be susceptible to fluctuations. We do not have any control over the process or timing
of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements relating to the commercial
production of any of these materials. If these materials cannot be obtained for our preclinical and clinical studies, product testing
and potential regulatory marketing authorization of our product candidates will be delayed, which would significantly impact our
ability to develop our product candidates and materially adversely affect our ability to meet our objectives and obtain operations
success.
We may not be successful in maintaining or establishing
collaborations, which could adversely affect our ability to develop and, if required regulatory authorizations are obtained, commercialize
our product candidates.
If required regulatory authorizations are obtained to
market any of our product candidates, then we may consider entering into additional collaboration arrangements with medical
technology, pharmaceutical or biotechnology companies and/or seek to establish strategic relationships with marketing
partners for the development, sale, marketing and/or distribution of our products within or outside of the U.S. If we elect
to expand our current relationship with NUIG and/or seek additional collaborators in the future but are unable to reach
agreements with NUIG and/or such other collaborators, as applicable, then we may fail to meet our business objectives for the
affected product or program. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and
implement, and we may not be successful in our efforts, if any, to establish and implement additional collaborations or other
alternative arrangements. The terms of any collaboration or other arrangements that we establish may not be favorable to us,
and the success of any such collaboration will depend heavily on the efforts and activities of our collaborators. Any failure
to engage successful collaborators could cause delays in our product development and/or commercialization efforts, which
could harm our financial condition and operational results.
We compete with other pharmaceutical and medical device
companies, including companies that may develop products that make our product candidates less attractive or obsolete.
The medical device, pharmaceutical and biotechnology industries
are highly competitive. If our product candidates become available for commercial sale, we will compete in that competitive marketplace.
There are several products on the market or in development that could be competitors with our lead product candidates. Further,
most of our competitors have greater resources or capabilities and greater experience in the development, approval and commercialization
of medical devices or other products than we do. We may not be able to compete successfully against them. We also compete for funding
with other companies in our industry that are focused on discovering and developing novel improvements in surgical bleeding prevention.
We anticipate that competition in our industry will increase.
In addition, the healthcare industry is characterized by rapid technological change, resulting in new product introductions and
other technological advancements. Our competitors may develop and market products that render our lead product candidate or any
future product candidate we may seek to develop non-competitive or otherwise obsolete. Any such circumstances could cause our operations
to suffer.
If we fail to generate market acceptance of our product
candidates and establish programs to educate and train surgeons as to the distinctive characteristics of our product candidates,
we will not be able to generate revenues on our product candidates.
Acceptance in the marketplace of our lead product candidates
depends in part on our and our third-party contractors’ ability to establish programs for the training of surgeons in the
proper usage of those product candidates, which will require significant expenditure of resources. Convincing surgeons to dedicate
the time and energy necessary to properly train to use new products and techniques is challenging, and we may not be successful
in those efforts. If surgeons are not properly trained, they may ineffectively use our product candidates. Such misuse could result
in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us. Accordingly, even if our product
candidates are superior to alternative treatments, our success will depend on our ability to gain and maintain market acceptance
for those product candidates among certain select groups of the population and develop programs to effectively train them to use
those products. If we fail to do so, we will not be able to generate revenue from product sales and our business, financial condition
and results of operations will be adversely affected.
We face uncertainty related to pricing, reimbursement
and healthcare reform, which could reduce our potential revenues.
If our product candidates are approved for commercialization,
any sales will depend in part on the availability of direct or indirect coverage and reimbursement from third-party payers such
as government insurance programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and
other healthcare related organizations. If our product candidates obtain marketing approval, pricing and reimbursement may be uncertain.
Both the federal and state governments in the U.S. and foreign governments continue to propose and pass new legislation affecting
coverage and reimbursement policies, which are designed to contain or reduce the cost of healthcare. Further, federal, state and
foreign healthcare proposals and reforms could limit the prices that can be charged for the product candidates that we may develop,
which may limit our commercial opportunity. Adoption of our product candidates by the medical community may be limited if doctors
and hospitals do not receive adequate partial or full reimbursement for use of our products or procedures in which our products
are used, if any are commercialized. In some foreign jurisdictions, marketing approval or allowance could be dependent upon pre-marketing
price negotiations. As a result, any denial of private or government payer coverage or inadequate reimbursement for procedures
performed using our products, before or upon commercialization, could harm our business and reduce our prospects for generating
revenue.
In addition, the U.S. Congress periodically adopts and changes
legislation regarding health insurance. As a result, substantial changes to the system for paying for healthcare in the U.S. may
include some combination of modifications to the existing system of private payers and government programs, such as Medicare, Medicaid
and State Children’s Health Insurance Program, as well as other changes. Restructuring the coverage of medical care in the
U.S. could impact reimbursement for medical devices such as our product candidates. If reimbursement for our approved product candidates,
if any, is substantially less than we expect, or rebate obligations associated with them are substantially increased, our business
could be materially and adversely impacted.
The use of our product candidates in human subjects may
expose us to product liability claims, and we may not be able to obtain adequate insurance or otherwise defend against any such
claims.
We face an inherent risk of product liability claims and currently
have clinical trial liability coverage. We will need to obtain additional product liability insurance coverage if and when we begin
commercialization of any of our product candidates. If claims against us exceed any applicable insurance coverage we may obtain,
then our business could be adversely impacted. Regardless of whether we would be ultimately successful in any product liability
litigation, such litigation could consume substantial amounts of our financial and managerial resources, which could significantly
harm our business.
Risks Related to our Intellectual
Property
If we are unable to obtain and maintain protection for
intellectual property rights that we own, seek, or have licensed from other parties, the value of our technology and products will
be adversely affected.
Our success will depend in large part on our ability to obtain
and maintain protection in the U.S. and other countries for the intellectual property rights covering or incorporated into our
technology and products. The ability to obtain patents covering technology in the field of medical devices generally is highly
uncertain and involves complex legal, technical, scientific and factual questions. We may not be able to obtain and maintain patent
protection relating to our technology or products. Many of our owned or licensed patent applications are pending. Even if issued,
patents issued or licensed to us may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, or determined
not to cover our product candidates or our competitors’ products, which could limit our ability to stop competitors from
marketing identical or similar products. Because our patent portfolio includes certain patents and applications that are in-licensed
on a non-exclusive basis, other parties may be able to develop, manufacture, market and sell products with similar features covered
by the same patent rights and technologies, which in turn could significantly undercut the value of any of our product candidates
and adversely affect our business. Our licensed MIT European patent No. 1879606 was opposed; however, this patent was maintained
in amended form following an administrative hearing. Both parties have appealed this decision. A decision is not expected before
the end of 2020. If the Opponents prevail in the appeal, European Patent No. 1879606 will be fully or partially invalidated, resulting
in potential loss of rights. European patent No. 2581097 was opposed. The Opposition Division revoked the patent. This decision
was appealed. If the Opponent prevails in the appeal, European Patent No. 2581097 could be fully or partially invalidated, resulting
in potential loss of rights. Further, we cannot be certain that we were the first to make the inventions claimed in the patents
we own or license, or that protection of the inventions set forth in those patents was the first to be filed in the U.S. Third
parties that have filed patents or patent applications covering similar technologies or processes may challenge our claim of sole
right to use the intellectual property covered by the patents we own or exclusively license. Moreover, changes in applicable intellectual
property laws or interpretations thereof in the U.S. and other countries may diminish the value of our intellectual property rights
or narrow the scope of our patent protection. Any failure to obtain or maintain adequate protection for our intellectual property
would materially harm our business, product development programs and prospects. In addition, our proprietary information, trade
secrets and know-how are important components of our intellectual property rights. We seek to protect our proprietary information,
trade secrets, know-how and confidential information, in part, with confidentiality agreements with our employees, corporate partners,
outside scientific collaborators, sponsored researchers, consultants and other advisors. We also have invention or patent assignment
agreements with our employees and certain consultants and advisors. If our employees or consultants breach those agreements, we
may not have adequate remedies for any of those breaches. In addition, our proprietary information, trade secrets and know-how
may otherwise become known to or be independently developed by others. Enforcing a claim that a party illegally obtained and/or
for which a party is using our proprietary information, trade secrets and/or know-how is difficult, expensive and time consuming,
and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secrets. Costly and
time-consuming litigation could be necessary to seek to defend, enforce and/or determine the scope of our intellectual property
rights, and failure to obtain or maintain protection thereof could adversely affect our competitive business position and results
of operations.
Many of our owned or licensed patent applications are
pending, and our patent portfolio includes certain patents and applications that are in-licensed on a non-exclusive basis.
As of July 6, 2020, we either own or license from others a number
of U.S. patents, U.S. patent applications, foreign patents and foreign patent applications.
Six patent portfolios assigned to Arch Biosurgery, Inc. include
a total of 34 patents and pending applications in a total of nine jurisdictions, including twelve patents and pending applications
in the US. These portfolios cover self-assembling peptides, formulations and methods of use thereof and self-assembling peptidomimetics
and methods of use thereof, including seven issued US patents (US 9,415,084; US 9,162,005; US 9,789,157; US 9,821,022; US 9,339,476;
US 10,314,886; and US 10,682,386) that expire between 2026 and 2034 (absent patent
term extension) as well as fourteen patents that have been either allowed, issued or granted in foreign jurisdictions.
We have entered into a license agreement with Massachusetts
Institute of Technology and Versitech Limited (“MIT”) pursuant to which we have been granted exclusive rights under
two portfolios of patents and non-exclusive rights under another three portfolios of patents.
The two portfolios exclusively licensed from MIT include a total
of 22 patents and pending applications drawn to self-assembling peptides, formulations and methods of use thereof and self-assembling
peptidomimetics and methods of use thereof in a total of nine jurisdictions. The portfolios include five issued US patents (US
9,511,113; US 9,084,837; US 10,137,166; US 9,327,010; and US 9,364,513) that expire between 2026 and 2027 (absent patent term extension),
as well as fourteen patents that have been either allowed, issued or granted in foreign jurisdictions.
The three portfolios non-exclusively licensed from MIT include
a number of US and foreign applications, including four issued US patents (US 7,449,180; US 7,846,891; US 7,713,923; and US 8,901,084)
that expire between 2021 and 2024 (absent patent term extension), as well as five patents that have been either allowed, issued
or granted in foreign jurisdictions.
If we lose certain intellectual property rights owned
by third parties and licensed to us, our business could be materially harmed.
We have entered into certain in-license agreements with
MIT and with certain other third parties, and may seek to enter into additional in-license agreements relating to other
intellectual property rights in the future. To the extent we and our product candidates rely heavily on any such in-licensed
intellectual property, we are subject to our and the counterparty’s compliance with the terms of such agreements in
order to maintain those rights. Presently, we, our lead product candidates and our business plans are dependent on the patent
and other intellectual property rights that are licensed to us under our license agreement with MIT. Although that agreement
has a durational term through the life of the licensed patents, it also imposes certain diligence, capital raising, and other
obligations on us, our breach of which could permit MIT to terminate the agreement. Further, we are responsible for all
patent prosecution and maintenance fees under that agreement, and a failure to pay such fees on a timely basis could also
entitle MIT to terminate the agreement. Any failure by us to satisfy our obligations under our license agreement with MIT or
any other dispute or other issue relating to that agreement could cause us to lose some or all of our rights to use certain
intellectual property that is material to our business and our lead product candidates, which would materially harm our
product development efforts and could cause our business to fail.
If we infringe or are alleged to infringe the intellectual
property rights of third parties, our business and financial condition could suffer.
Our research, development and commercialization activities,
as well as any product candidates or products resulting from those activities, may infringe or be accused of infringing a patent
or other intellectual property under which we do not hold a license or other rights. Third parties may own or control those patents
or other rights in the U.S. or abroad, and could bring claims against us that would cause us to incur substantial time, expense,
and diversion of management attention. If a patent or other intellectual property infringement suit were brought against us, we
could be forced to stop or delay research, development, manufacturing or sales, if any, of the applicable product or product candidate
that is the subject of the suit. In order to avoid or settle potential claims with respect to any of the patent or other intellectual
property rights of third parties, we may choose or be required to seek a license from a third-party and be required to pay license
fees or royalties or both. Any such license may not be available on acceptable terms, or at all. Even if we or our future collaborators
were able to obtain a license, the rights granted to us or them could be non-exclusive, which could result in our competitors gaining
access to the same intellectual property rights and materially negatively affecting the commercialization potential of our planned
products. Ultimately, we could be prevented from commercializing one or more product candidates, or be forced to cease some aspects
of our business operations, if, as a result of actual or threatened infringement claims, we are unable to enter into licenses on
acceptable terms or at all or otherwise settle such claims. Further, if any such claims were successful against us, we could be
forced to pay substantial damages. Any of those results could significantly harm our business, prospects and operations.
Risks Related to Ownership of our
Common Stock
There is not now, and there may not ever be, an active
market for our Common Stock, which trades in the over-the-counter market in low volumes and at volatile prices.
There currently is a limited market for our Common Stock. Although
our Common Stock is quoted on the OTCQB, an over-the-counter quotation system, trading of our Common Stock is extremely limited
and sporadic and generally at very low volumes. Further, the price at which our Common Stock may trade is volatile and we expect
that it will continue to fluctuate significantly in response to various factors, many of which are beyond our control. The stock
market in general, and securities of small-cap companies driven by novel technologies in particular, has experienced extreme price
and volume fluctuations in recent years. Continued market fluctuations could result in further volatility in the price at which
our Common Stock may trade, which could cause its value to decline. To the extent we seek to raise capital in the future through
the issuance of equity, those efforts could be limited or hindered by low and/or volatile market prices for our Common Stock.
We do not now meet the initial listing standards of the Nasdaq
Stock Market or any other national securities exchange. We presently anticipate that our Common Stock will continue to be quoted
on the OTCQB or another over-the-counter quotation system. In those venues, our stockholders may find it difficult to obtain accurate
quotations as to the market value of their shares of our Common Stock, and may find few buyers to purchase their stock and few
market makers to support its price.
A more active market for our Common Stock may never develop.
As a result, investors must bear the economic risk of holding their shares of our Common Stock for an indefinite period of time.
Our Common Stock is a “penny stock.”
The SEC has adopted regulations that generally define “penny
stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market
price of our Common Stock is, and is expected to continue to be in the near term, less than $5.00 per share and is therefore a
“penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. Those rules may restrict the ability of brokers or dealers to sell our Common Stock and may affect
the ability of our stockholders to sell their shares of our Common Stock. In addition, if our Common Stock continues to be quoted
on the OTCQB as we expect, then our stockholders may find it difficult to obtain accurate quotations for our stock, and may find
few buyers to purchase our stock and few market makers to support its price.
If we issue additional shares in the future, including
issuances of shares upon exercise of the Series J Warrants, Series I Warrants, Placement Agent Warrants, Series H Warrants, Series
G Warrants, Series F Warrants, and Series E Warrants, our existing stockholders will be diluted.
As of July 1, 2020, our articles of incorporation
authorize the issuance of up to 800,000,000 shares of Common Stock. In June 2020, we issued certain of holders of our Series
D Warrants Series J Warrants to acquire up to 3,886,364 shares of our Common Stock at an initial exercise price of $0.25 per
share as consideration for those holders exercising their Series D Warrants in full to acquire 5,181,819 shares of our Common
Stock at $0.18 per share. As of July 22, 2020, up to 3,886,364 shares may be acquired upon the exercise of the Series J
Warrants.
In connection with the October 2019 Financing that closed on
October 18, 2019, we issued an aggregate of 14,285,714 shares of our Common Stock, which equaled approximately 8% of the 173,577,233
shares of our Common Stock that were issued and outstanding immediately prior to the commencement of the October 2019 Financing.
Upon the closing of the October 2019 Financing, we also issued Series I Warrants to acquire up to an additional 14,285,714 shares
of our Common Stock at an initial exercise price of $0.22 per share and additional warrants to acquire up to an additional 1,071,429
shares of our Common Stock at an initial exercise price of $0.21875 per share to designees of H.C. Wainwright & Co., LLC, the
placement agent that the Company engaged in connection with the October 2019 Financing (the “Placement Agent Warrants”).
As of July 22, 2020, up to 14,285,714 shares may be acquired upon the exercise of the Series I Warrants and up to 1,071,429 shares
may be acquired upon the exercise of the Placement Agent Warrants.
In connection with the financing that closed on May 14, 2019
(the “2019 Financing”), we issued an aggregate of 8,615,384 shares of our Common Stock, which equaled approximately
5% of the 164,961,849 shares of our Common Stock that were issued and outstanding immediately prior to the commencement of the
2019 Financing. Upon the closing of the 2019 Financing, we also issued Series H Warrants to acquire up to an additional 8,615,384
shares of our Common Stock at an initial exercise price of $0.40 per share. As of July 22, 2020, up to 8,615,384 shares may be
acquired upon the exercise of the Series H Warrants.
In connection with the 2018 Financing that closed on July 2,
2018, we issued an aggregate of 9,070,000 shares of our Common Stock, which equaled approximately 6% of the 154,052,013 shares
of our Common Stock that were issued and outstanding immediately prior to the commencement of the 2018 Financing. Upon the closing
of the 2018 Financing, we also issued Series G Warrants to acquire up to an additional 6,802,500 shares of our Common Stock at
an initial exercise price of $0.70 per share. As of July 22, 2020, up to 6,802,500 shares may be acquired upon the exercise of
the Series G Warrants.
In connection with the 2017 Financing that closed on February
24, 2017, we issued an aggregate of 10,166,664 shares of our Common Stock, which equaled approximately 7% of the 136,745,712 shares
of our Common Stock that were issued and outstanding immediately prior to the commencement of the 2017 Financing. Upon the closing
of the 2017 Financing, we also issued Series F Warrants to acquire up to an additional 5,591,664 shares of our Common Stock at
an initial exercise price of $0.75 per share. As of July 22, 2020, up to 5,591,664 shares may be acquired upon the exercise of
the Series F Warrants.
In connection with the 2016 Private Placement Financing that
closed on May 26, 2016, we issued an aggregate of 9,418,334 shares of our Common Stock, which equaled approximately 8% of the 118,592,070
shares of our Common Stock that were issued and outstanding immediately prior to the commencement of the 2016 Private Placement
Financing. Upon the closing of the 2016 Private Placement Financing, we also issued Series E Warrants to acquire up to an additional
7,063,748 shares of our Common Stock at an initial exercise price of $0.4380 per share. As of July 22, 2020, up to 4,214,582 shares
may be acquired upon the exercise of the Series E Warrants.
Additionally, as of July 22, 2020, 4,788,354 shares of Common
Stock were reserved for future issuance under the 2013 Plan, of which 18,210,002 shares are subject to outstanding option awards
granted under the 2013 Plan at exercise prices ranging from $0.17 to $0.65 per share and with a weighted average exercise price
of $0.36 per share and the numbers issuable under the 2013 Plan will increase by up to 3 million shares on the first business day
of each following fiscal year as set forth in the 2013 Plan. Finally, in addition to the Series J Warrants, Series I Warrants,
Placement Agent Warrants, Series H Warrants granted in connection with the 2019 Financing, the Series G Warrants granted in connection
with the 2018 Financing, the Series F Warrants granted in connection with the 2017 Financing, and the Series E Warrants granted
in connection with the 2016 Private Placement Financing, there are currently outstanding warrants to acquire up to 145,985 shares
of our Common Stock. Any future grants of options, warrants or other securities exercisable or convertible into our Common Stock,
or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market
price of our Common Stock.
In addition to capital raising activities, other possible business
and financial uses for our authorized Common Stock include, without limitation, future stock splits, acquiring other companies,
businesses or products in exchange for shares of Common Stock, issuing shares of our Common Stock to partners in connection with
strategic alliances, attracting and retaining employees by the issuance of additional securities under our various equity compensation
plans, compensating consultants by issuing shares or options to purchase shares of our Common Stock, or other transactions and
corporate purposes that our Board of Directors deems are in the Company’s best interest. By way of example, on (i) August
9, 2016, we issued 225,000 shares of restricted stock and options to purchase up to an additional 375,000 shares of Common Stock
at an exercise price of price of $0.72 per share in connection with our entrance into a consulting agreement with Acorn Management
Partners, LLC (“Acorn”) in consideration of the services to be provided under and in accordance with the terms of such
consulting agreement; and (ii) August 6, 2015, we issued an aggregate of 600,000 shares of restricted stock in connection with
our entrance into separate consulting agreements with two investor relations firms, Excelsior Global Advisors LLC and Acorn, in
each case in consideration of the services to be provided under and in accordance with the terms of each consulting agreement.
Additionally, shares of Common Stock could be used for anti-takeover purposes or to delay or prevent changes in control or management
of the Company. We cannot provide assurances that any issuances of Common Stock will be consummated on favorable terms or at all,
that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of our Common
Stock. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price
of the outstanding shares of our Common Stock. If we issue any such additional shares, such issuance will reduce the proportionate
ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Future sales of our Common Stock or rights to purchase
Common Stock, or the perception that such sales could occur, could cause our stock price to fall.
As noted above under the risk factor entitled,
“We will need substantial additional funding and may be unable to raise capital when needed, which would force us
to delay, reduce or eliminate our product development programs or commercialization efforts and could cause our business to
fail,” as of July 22, 2020 we believe that our current cash on hand will meet our anticipated cash requirements into
the first quarter of fiscal 2021. To raise capital, we may sell Common Stock, convertible securities or other equity
securities in one or more transactions at prices and in a manner we determine from time to time. Any such sales of our Common
Stock by us or resale of our Common Stock by our existing stockholders could cause the market price of our Common Stock to
decline.
Financial Industry Regulatory Authority (“FINRA”)
sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described
above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities
to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated
its belief that there is a high probability that speculative low-priced securities will not be suitable for at least some customers.
These FINRA requirements make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common
Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the
market for our shares.
There may be additional risks because we completed a reverse
merger transaction in June 2013.
Additional risks may exist because we completed a “reverse
merger” transaction in June 2013. Securities analysts of major brokerage firms may not provide coverage of the Company because
there may be little incentive to brokerage firms to recommend the purchase of our Common Stock. There may also be increased scrutiny
by the SEC and other government agencies and holders of our securities due to the nature of the transaction, as there has been
increased focus on transactions such as the Merger in recent years. Further, since the Company existed as a “shell company”
under applicable rules of the SEC up until the closing of the Merger on June 26, 2013, there will be certain restrictions and limitations
on the Company going forward relating to any potential future issuances of additional securities to raise funding and compliance
with applicable SEC rules and regulations.
Certain of our directors and officers own a significant
percentage of our capital stock and are able to exercise significant influence over the Company.
Certain of our directors and executive officers own a significant
percentage of our outstanding capital stock. As of July 22, 2020, Dr. Terrence W. Norchi, our Chairman of the Board, President
and Chief Executive Officer, James R. Sulat, a director and Punit Dhillon, a director beneficially own (as determined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) approximately 11% of our shares of Common Stock. Accordingly,
these members of our Board of Directors and management team have substantial voting power to approve matters requiring stockholder
approval, including without limitation the election of directors, and have significant influence over our affairs. This concentration
of ownership could have the effect of delaying or preventing a change in control of our Company, even if such a change in control
would be beneficial to our stockholders.
The elimination of monetary liability against our directors
and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result
in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our articles of incorporation eliminate the personal liability
of our directors and officers to our Company and our stockholders for damages for breach of fiduciary duty as a director or officer
to the extent permissible under Nevada law. Further, our amended and restated bylaws provide that we are obligated to indemnify
any of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, advance the
expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition.
Those indemnification obligations could result in our Company
incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we
may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against any of our
current or former directors or officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative
litigation by our stockholders against our directors and officers even if such actions, if successful, might otherwise benefit
us or our stockholders.
We are subject to the reporting requirements of federal
securities laws, compliance with which involves significant time, expense and expertise.
We are a public reporting company in the U.S., and, accordingly,
are subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the
obligations imposed by the Sarbanes-Oxley Act. The costs associated with preparing and filing annual, quarterly and current reports,
proxy statements and other information with the SEC in the ordinary course, as well as preparing and filing audited financial statements,
has caused, and could continue to cause, our operational expenses to remain at higher levels or continue to increase.
Shares of our Common Stock that have not been registered
under federal securities laws are subject to resale restrictions imposed by Rule 144. In addition, any shares of our Common Stock
that are held by affiliates, including any that are registered, will be subject to the resale restrictions of Rule 144.
Rule 144 imposes requirements on us and our stockholders
that must be met in order to effect a sale thereunder. As a result, it will be more difficult for us to raise funding to support
our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act,
which could cause us to expend significant additional time and cash resources and which we presently have no intention to pursue.
Further, it may be more difficult for us to compensate our employees and consultants with our securities instead of cash. We were
a shell company prior to the closing of the Merger, and such status could also limit our use of our securities to pay for any acquisitions
we may seek to pursue in the future (although none are currently planned), and could cause the value of our securities to decline.
In addition, any shares held by affiliates, including shares received in any registered offering, will be subject to certain additional
requirements in order to effect a sale of such shares under Rule 144.
We do not intend to pay cash dividends on our capital
stock in the foreseeable future.
We have never declared or paid any dividends on our shares and
do not anticipate paying any such dividends in the foreseeable future. Any future payment of cash dividends would depend on our
financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated
cash requirements and other factors and will be at the discretion of our Board of Directors.
We are at risk of securities class action litigation that
could result in substantial costs and divert management’s attention and resources.
In the past, securities class action litigation has been brought
against companies following periods of volatility of its securities in the marketplace, particularly following a company’s
initial public offering. Due to the volatility of our stock price, we could be the target of securities litigation in the future.
Securities litigation could result in substantial costs and divert management’s attention and resources.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve
risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as “if,”
“shall,” “may,” “might,” “will likely result,” “should,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,”
“goal,” “objective,” “predict,” “potential” or “continue,” or the negative
of these terms or other comparable terminology. All statements made in this report on Form 10-Q other than statements of historical
fact are statements that could be deemed forward-looking statements, including without limitation statements about our business
plan, our plan of operations and our need to obtain future financing. These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and
the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. These risks include, by way of example and not in limitation, risks related to:
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Our ability to continue as a going concern;
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Our ability to obtain financing necessary to operate our business;
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Our limited operating history;
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The results of our research and development activities, including uncertainties relating to the preclinical and clinical testing of our product candidates;
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The early stage of our primary product candidate presently under development;
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Our ability to develop, obtain required approvals for and commercialize our product candidates;
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Our ability to recruit and retain qualified personnel;
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Our ability to obtain and maintain protection of our intellectual property;
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Our dependence on third-party manufacturers, suppliers, research organizations, academic institutions, testing laboratories and other potential collaborators;
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The size and growth of the potential markets for any of our approved product candidates, and the rate and degree of market acceptance of any of our approved product candidates;
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Our ability to successfully complete potential acquisitions and collaborative arrangements;
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Competition in our industry;
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General economic and business conditions; and
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Other factors discussed under the section entitled “Risk Factors”.
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New risks emerge in our rapidly-changing industry from time
to time. As a result, it is not possible for our management to predict all risks, nor can we assess the impact of all factors on
our business. If any such risks or uncertainties materialize or such assumptions prove incorrect, our results could differ materially
from those expressed or implied by such forward-looking statements and assumptions. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. These
forward-looking statements speak only as of the date of this report on Form 10-Q. Except as required by applicable law, we do not
intend to update any of these forward-looking statements.