Item
1. BUSINESS
COMPANY
OVERVIEW
CytRx
Corporation (“CytRx”) is a biopharmaceutical research and development company specializing in oncology. The Company’s
focus has been on the discovery, research and clinical development of novel anti-cancer drug candidates that employ novel linker technologies
to enhance the accumulation and release of cytotoxic anti-cancer agents at the tumor. During 2017, CytRx’s discovery laboratory,
located in Freiburg, Germany, synthesized and tested over 75 rationally designed drug conjugates with highly potent payloads, culminating
in the creation of two distinct classes of compounds. Four lead candidates (LADR-7 through LADR-10) were selected based on in vitro
and animal studies, in several different cancer models, stability, and manufacturing feasibility. In addition, a novel albumin companion
diagnostic, ACDx™, was developed to identify patients with cancer who are most likely to benefit from treatment with these drug
candidates.
On
June 1, 2018, CytRx launched Centurion BioPharma Corporation (“Centurion”), a private subsidiary, and transferred all of
its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In connection with said transfer,
the Company and Centurion entered into a Management Services Agreement whereby the Company agreed to render advisory, consulting, financial
and administrative services to Centurion, for which Centurion shall reimburse the Company for the cost of such services plus a 5% service
charge. The Management Services Agreement may be terminated by either party at any time. Centurion is focused on the development of personalized
medicine for solid tumor treatment. On December 21, 2018, CytRx announced that Centurion had concluded the pre-clinical phase of development
for its four LADR™ drug candidates, and for its albumin companion diagnostic (ACDx™). As a result of completing this work,
operations taking place at the pre-clinical laboratory in Freiburg, Germany would no longer be needed and, accordingly, the lab was closed
at the end of January 2019.
We
are a Delaware corporation, incorporated in 1985. Our corporate offices are located at 11726 San Vicente Boulevard, Suite 650, Los Angeles,
California 90049, and our telephone number is (310) 826-5648. Our web site is located at http://www.cytrx.com. We do not incorporate
by reference into this Annual Report the information on, or accessible through, our website, and you should not consider it as part of
this Annual Report.
LADR
Drug Discovery Platform and Centurion
Centurion’s
LADR™ (Linker Activated Drug Release) is a platform for formulating cytotoxic cancer drugs that offer improved efficacy with reduced
side effects. LADR combines our expertise in linker chemistry and albumin biology to create a pipeline of anti-cancer molecules that
deliver prodrugs to the tumor environment and then activate the drug inside the tumor. Such a trojan horse strategy reduces off-target
side effects outside the tumor, thus allowing 10-1,000 fold higher dosing to be given.
The
first-generation (“gen”) product candidate employing our tumor targeting and drug release system is aldoxorubicin, described
below. Our next-gen products are composed of two classes of ultra-high potency albumin-binding drug conjugates, termed LADR 7 through
LADR 10. These drug conjugates combine the proprietary LADR™ linkers with novel derivatives of the auristatin and maytansinoid
drug classes. These payloads historically have required a targeting antibody for successful administration to humans. Our drug conjugates
eliminate the need for a targeting antibody and provide a small molecule therapeutic option with potential broader applicability.
Centurion’s
postulated mechanism of action for the albumin-binding drug conjugates is as follows:
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after
administration, the linker portion of the drug conjugate forms a rapid and specific covalent bond to the cysteine-34 position of
circulating albumin; |
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circulating
albumin preferentially accumulates at the tumors, bypassing concentration in other non-tumor sites, including the heart, liver and
gastrointestinal tract due to a mechanism called “Enhanced Permeability and Retention”; |
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once
localized at the tumor, the acid-sensitive linker is cleaved due to the specific conditions within the tumor and in the tumor microenvironment;
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active drug is then released into the tumor. |
Centurion’s
novel companion diagnostic, ACDx™ (albumin companion diagnostic), was developed to identify patients with cancer who are most likely
to benefit from treatment with the four LADR lead assets.
On
March 9, 2022, Centurion was merged into the Company.
Business
Strategy for LADR™ Platform
Currently,
the Company continues to work on identifying partnership or financing opportunities for LADR™ ultra-high potency drug conjugates
and their albumin companion diagnostic. We have concluded all research and development on LADR and its companion
diagnostic and continue to focus on identifying partnership or financing opportunities.
Aldoxorubicin
Until
July 2017, we were concentrating on the research and clinical development of aldoxorubicin, which is the widely-used cytotoxin doxorubicin,
modified with our LADR delivery and concentraction system. Modifying doxorubicin with our LADR™ system allows for delivery of higher
amounts of doxorubicin (3½ to 4 times) without several of the major dose-limiting toxicities seen with administration of doxorubicin
alone.
On
July 27, 2017, we entered into an exclusive worldwide license with ImmunityBio, Inc. (formerly known as NantCell, Inc. (“ImmunityBio”)),
granting to ImmunityBio the exclusive rights to develop, manufacture and commercialize aldoxorubicin in all indications. As a result,
the Company is no longer working on development of aldoxorubicin (ImmunityBio merged with NantKwest, Inc. in March 2021). As part of
the license, ImmunityBio made a strategic investment of $13 million in CytRx common stock at $6.60 per share, a premium of 92% to the
market price on that date. We also issued ImmunityBio a warrant to purchase up to 500,000 shares of common stock at $6.60, which expired
on January 26, 2019. We are entitled to receive up to an aggregate of $343 million in potential milestone payments contingent upon achievement
of certain regulatory approvals and commercial milestones. We are also entitled to receive ascending double-digit royalties for net sales
for soft tissue sarcomas and mid to high single digit royalties for other indications. There can be no assurance that ImmunityBio will
achieve such milestones, approvals or sales with respect to aldoxorubicin. ImmunityBio has initiated a Phase 2, randomized, three-cohort,
open-label registrational-intent study for first-line and second-line treatment of locally advanced or metastatic pancreatic cancer,
which includes aldoxorubicin. On October 13, 2021, ImmunityBio announced that the trial’s Cohort C was fully enrolled. In January
2022 at the ASCO Gastrointestinal Cancer Symposium, they reported that 27% of third-line or greater patients (17/63) remain on study
and that the median overall survival in this highly advanced group of patients (who failed two to six prior lines of treatment) is 5.8
months (95% CI: 3.9, 6.9 months) exceeding the approximately three-month historical median overall survival. Of the 63 patients, 30 (48%)
had progressed after two prior lines of therapy. Median overall survival in this group was 6.3 months (95% CI: 5.0, 9.8 months), more
than doubling the historical overall survival. (Survival of three months as reported by Manax et al ASCO GI 2019). In Cohort C, four
patients (7%) experienced treatment-related SAEs that included peripheral edema, pyrexia, anemia and atrial flutter. No treatment-related
deaths were reported. Based on the strength of earlier data and the significant unmet medical need, ImmunityBio submitted an amendment
to the U.S. Food and Drug Administration (the “FDA”) to increase enrollment in Cohort C and plan to meet with the
FDA in 2022 to discuss a potential path for the approval of combination therapies for pancreatic cancer.
Aldoxorubicin
is a conjugate of the commonly prescribed cytotoxin agent doxorubicin that binds to circulating albumin in the bloodstream and is believed
to concentrate the drug at the site of the tumor. Aldoxorubicin, has been tested in over 600 patients with various types of cancer. Specifically,
it is comprised of (6-maleimidocaproyl) hydrazine, an acid-sensitive molecule that is conjugated to doxorubicin. The initial indication
for aldoxorubicin was for patients with advanced soft tissue sarcomas (STS).
Aldoxorubicin
has received Orphan Drug Designation (ODD) by the U.S. FDA for the treatment of STS. ODD provides several benefits, including seven years
of market exclusivity after approval, certain R&D related tax credits, and protocol assistance by the FDA. European regulators granted
aldoxorubicin Orphan designation for STS, which confers ten years of market exclusivity, among other benefits.
ImmunityBio
also lists ongoing clinical studies in head and neck and triple-negative breast cancer and has submitted a protocol with the FDA for
glioblastoma; it is currently reviewing its options in STS.
Molecular
Chaperone Assets (Orphayzme)
In
2011, CytRx sold the rights to arimoclomol and iroxanadine, based on molecular chaperone regulation technology, to Orphazyme A/S (formerly
Orphazyme ApS) in exchange for a one-time, upfront payment and the right to receive up to a total of $120 million in milestone payments
upon the achievement of certain pre-specified regulatory and business milestones, as well as royalty payments based on a specified percentage
of any net sales of products derived from arimoclomol. As a result of Orphazyme’s disclosure that the pivotal phase 3 clinical
trial for arimoclomol in Amyotrophic Lateral Sclerosis did not meet its primary and secondary endpoints, the maximum amount that CytRx
has the right to receive is now approximately $100 million. Orphazyme is testing arimoclomol in Niemann-Pick disease Type C (“NPC”)
and Gaucher disease. Orphazyme has highlighted positive Phase 2/3 clinical trial data in patients with NPC and previously submitted a
New Drug Application (“NDA”) with the FDA. On June 18, 2021, Orphazyme announced it had received a Complete Response
Letter from the FDA indicating the need for additional data. In late October 2021, Orphazyme announced it held a Type A meeting with
the FDA, at which the FDA recommended that Orphazyme submit additional data, information and analyses to address certain topics in the
Complete Response Letter and engage in further interactions with the FDA to identify a pathway to resubmission. The FDA concurred with
Orphazyme’s proposal to remove the cognition domain from the NPC Clinical Severity Scale (“NPCCSS”) endpoint, with
the result that the primary endpoint is permitted to be recalculated using the 4- domain NPCCSS, subject to the submission of additional
requested information which Orphazyme has publicly indicated that it intends
to provide. To bolster the confirmatory evidence already submitted, the FDA affirmed that it would require additional in vivo or pharmacodynamic
(PD)/pharmacokinetic (PK) data. Orphazyme is planning to request a Type C Meeting
with the FDA in the second quarter of 2022. Subject to discussions with the regulatory body, Orphazyme has publicly indicated that it
plans to resubmit the NDA for arimoclomol in the second half of 2022.
Orphazyme
had also submitted a Marketing Authorization Application (“MAA”) with the European Medicines Agency (the “EMA”).
In February 2022, Orphazyme announced that although they had received positive feedback from the Committee
for Medicinal Products for Human Use (“CHMP”) of the EMA, they were notified by the CHMP of a negative trend vote
on the MAA for arimoclomol for NPC following an oral explanation. The trend vote indicates that the CHMP’s current orientation
is to not approve arimoclomol when it convenes by the end of March 2022. Orphazyme has publicly
indicated that it considers it unlikely that this position will change before the formal vote is undertaken in March 2022. Orphazyme
has publicly indicated that it will assess its strategic options and provide an update to the market at the applicable time.
Innovive
Acquisition Agreement
On
September 19, 2008, we completed our merger acquisition of Innovive Pharmaceuticals, Inc., or Innovive, and its clinical-stage cancer
product candidates, including aldoxorubicin and tamibarotene. Under the merger agreement by which we acquired Innovive, we agreed to
pay the former Innovive stockholders up to approximately $18.3 million of future earnout merger consideration, subject to our achievement
of specified net sales under the Innovive license agreements. The earnout merger consideration, if any, will be payable in shares of
our common stock, subject to specified conditions, or, at our election, in cash or by a combination of shares of our common stock and
cash. Our common stock will be valued for purposes of any future earnout merger consideration based upon the trading price of our common
stock at the time the earnout merger consideration is paid. The earnout will be accrued if and when earned. As of December 31, 2021 and
2020, no amounts were due under this agreement.
Research
and Development
Expenditures
for research and development activities related to continuing operations were $0 for the year ended December 31, 2021 and $0.8 million
for the year ended December 31, 2020, or approximately 0% and 12%, respectively, of our total expenses. For further information regarding
our research and development activities, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” below.
Commercialization
and Marketing
We
currently have no sales, marketing or commercial product distribution capabilities or experience in marketing products.
We
are searching for a development and commercialization partner or a financing for our LADR drug candidates and do not currently plan on
commercializing them ourselves. Over the past two years, we have been unable to attract a development and commercial partner nor a financing
for this endeavor; however, we are continuing to pursue all possibilities.
Patents
and Proprietary Technology
We
actively seek patent protection for our technologies, processes, uses, and ongoing improvements and consider our patents and other intellectual
property to be critical to our business. We regularly evaluate the patentability of new inventions and improvements developed by us or
our collaborators, and, whenever appropriate, will endeavor to file U.S. and international patent applications to protect these new inventions
and improvements. We cannot be certain that any of the current pending patent applications we have filed or licensed, or any new patent
applications we may file or license, will ever be issued in the U.S. or any other country. There also is no assurance that any issued
patents will be effective to prevent others from using our products or processes. It is also possible that any patents issued to us,
as well as those we have licensed or may license in the future, may be held invalid or unenforceable by a court, or third parties could
obtain patents that we would need to either license or to design around, which we may be unable to do. Current and future competitors
may have licensed or filed patent applications or received patents and may acquire additional patents and proprietary rights relating
to compounds, products or processes that may be competitive with ours.
In
addition to patent protection, we attempt to protect our proprietary products, processes and other information by relying on trade secrets
and non-disclosure agreements with our employees, consultants and certain other persons who have access to such products, processes and
information. Under the agreements, all inventions conceived by employees are our exclusive property, but there is no assurance that these
agreements will afford significant protection against misappropriation or unauthorized disclosure of our trade secrets and confidential
information.
As
of December 31, 2021, we have three pending U.S. patent applications and thirty-eight pending foreign patent applications and twenty-two
granted foreign patents covering our LADRTM-related technology including LADR-7, LADR-8, LADR-9 and LADR-10. The un-extended
patent term of patents that issue covering our LADRTM-related technology is between June 2036 and November 2038. We also have
one pending US patent application and fourteen pending foreign patent applications covering our albumin companion diagnostic (ACDxTM).
The un-extended patent term of patents that issue covering our ACDxTM is July 2039. The patents and patent applications covering
our LADRTM-related technology, and ACDxTM are assigned to Centurion BioPharma Corporation. In conjunction with
our July 27, 2017 ImmunityBio licensing agreement, we granted ImmunityBio an exclusive license to all our aldoxorubicin-related patents,
including the rights in three granted U.S. patents, eighteen granted foreign patents and eight pending foreign patent applications covering
aldoxorubicin and related technologies. Our intellectual property holdings relating to aldoxorubicin, and related technologies include
an exclusive license from Vergell Medical, S.A. or Vergell. Patents and applications that cover pharmaceutical compositions comprising
aldoxorubicin and their use in treating cancer (including glioblastoma) have un-extended patent terms expiring between December 2033
and June 2034.
LICENSE
AGREEMENTS
Aldoxorubicin
We
are the licensee of patent rights held by KTB Tumorforschungs GmbH (“KTB”) for the worldwide development and commercialization
of aldoxorubicin under a license agreement dated April 17, 2006. In February 2017, we received notice that KTB had transferred and assigned
its rights and obligations under the license to Vergell Medical, S.A., or Vergell. The license is exclusive and applies to all products
that may be subject to the licensed intellectual property in all fields of use. We may sublicense the intellectual property in our sole
discretion. Pursuant to an amendment to the license agreement entered into in March 2014, we also have a non-exclusive worldwide license
to any additional technology that is claimed or disclosed in the licensed patents and patent applications for use in the field of oncology.
Under
the agreement, we must make payments to Vergell in the aggregate of up to $7.5 million upon meeting clinical and regulatory milestones,
and up to and including the product’s second final marketing approval. We also agreed to pay:
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reasonable royalties based on a percentage of net sales (as defined in the agreement); |
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percentage of any non-royalty sub-licensing income (as defined in the agreement); and |
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of $1 million for each additional final marketing approval that we obtain. |
In
the event that we must pay a third party in order to exercise our rights to the intellectual property under the agreement, we are entitled
to deduct a percentage of those payments from the royalties due Vergell, up to an agreed upon cap.
Under
the agreement with Vergell, we must use commercially reasonable efforts to conduct the research and development activities we determine
are necessary to obtain regulatory approval to market aldoxorubicin in those countries that we determine are commercially feasible. Under
the agreement, Vergell is to use its commercially reasonable efforts to provide us with access to suppliers of the active pharmaceutical
ingredient, or API, of aldoxorubicin, on the same terms and conditions as may be provided to Vergell by those suppliers.
The
agreement will expire on a product-by-product basis upon the expiration of the subject patent rights. We have the right to terminate
the agreement on 30 days’ notice, provided we pay a cash penalty to Vergell. Vergell may terminate the agreement if we are in breach
and the breach is not cured within a specified cure period, or if we fail to use diligent and commercial efforts to meet specified clinical
milestones.
Molecular
Chaperone Assets
The
agreement relating to our worldwide rights to arimoclomol provides for our payment up to an aggregate of $3.65 million upon receipt of
milestone payments from Orphazyme.
Competition
The
biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis
on proprietary products. While we believe that our LADR™ technology platform and ultra-high potency albumin-bind drug conjugates
provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty
pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions.
Any drug candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become
available in the future.
Many
competitors and potential competitors have substantially greater scientific, research and product development capabilities, as well as
greater financial, marketing and human resources than we do. In addition, many specialized biotechnology firms have formed collaborations
with large, established companies to support the research, development and commercialization of products that may be competitive with
ours.
There
are many companies developing antibody-drug conjugates (ADC) for the treatment of cancer and some that use the same classes of cytotoxic
payloads as we are currently using. These include Takeda Pharmaceutical Co. Ltd. and Seattle Genetics Inc. who market Adcetris®,
and F. Hoffmann-LaRoche Ltd./Genentech who market Kadcyla®. According to www.clinicaltrials.gov, many other major pharmaceutical
companies, including Celgene and GlaxoSmithKline are testing an ADC in either on-going or currently enrolling clinical trials. Other
companies have created or have programs to create cell-killing agents for attachment to antibodies or other targeting agents. These companies
may compete with us for technology out-license arrangements.
In
addition to ADCs, we face competition from other nanomedicine platforms developing targeted therapies, including platforms focused on
nanoparticles and liposomes. Non-ADC therapies may be in development for the cancer types we or our partners elect to pursue. Further,
these companies may also compete with us for technology out-license arrangements.
Continuing
development of conventional and targeted cytotoxins by large pharmaceutical companies and biotechnology companies may result in new compounds
that may compete with our product candidates. More recently, immuno-oncology therapies that stimulate the body’s own defense system
to attack cancers are being developed by certain of these companies and some have been approved for use as cancer therapeutics. In the
future, immuno-oncology agents including cell therapies, targeted therapies or cytotoxic treatments may compete with our product candidates.
Other companies have created or have programs to create potent cell-killing agents for attachment to tumor targeting agents. These companies
may compete with us for technology out-license arrangements.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective,
have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors
also may obtain FDA or other regulatory approval for their products more rapidly than we obtain approval for ours. In addition, our ability
to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. If
our drug candidates achieve marketing approval, we expect that they will be priced at a significant premium over competitive generic
products.
Many
companies, including large pharmaceutical and biotechnology firms with financial resources, research and development staffs, and facilities
that may be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research and development
of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire, through license or
otherwise, existing or potential new products, we will be competing with numerous other companies, many of which will have substantially
greater financial resources, large acquisition and research and development staffs that may give those companies a competitive advantage
over us in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products
marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized
by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective than
those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive products
for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional competitive
products are under development and may also include products currently under development that we are not aware of or products that may
be developed in the future.
Government
Regulation
Regulation
of Pharmaceuticals in the United States
The
U.S. and other developed countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping,
advertising, promotion, export, marketing and distribution of drugs and biologic products. In the United States, the FDA, under the Federal
Food, Drug, and Cosmetic Act (“FDCA”), the Public Health Service (“PHS”) Act and other federal statutes and regulations,
regulates pharmaceutical and biologic products and product candidates, and the parties engaged in the development, testing, manufacture,
distribution, storage, marketing, labeling, advertising, and/or commercialization thereof (in addition to any other related activities)
are subject to rigorous pre- and post-market requirements.
To
obtain FDA approval for a new drug candidate, we must, among other requirements, submit data supporting the candidate’s safety
and efficacy for the intended indication(s), as well as detailed information on the manufacture and composition of the product candidate.
In most cases, this will require extensive laboratory tests and preclinical and clinical trials. The collection of these data, as well
as the preparation of applications for review by the FDA involve significant time and expense and are inherently complex and uncertain.
The FDA may not act quickly or favorably in reviewing these applications, and we (and/or any current or future partners in development)
may encounter significant difficulties or costs in our (and/or their) efforts to obtain FDA approvals that could delay or preclude the
U.S. commercialization of one or more of our product candidates.
The
process required by the FDA before a new drug may be marketed in the U.S. generally involves some or all of the following key steps:
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completion
of nonclinical studies, such as laboratory tests, animal studies, and formulation studies, performed in compliance with FDA regulations
for good laboratory practices (“GLPs”) and other applicable regulations; |
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design
of a clinical protocol and its submission to the FDA as part of an Investigational New Drug application (“IND”), which
must become effective before human clinical trials may begin; |
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performance
of adequate and well-controlled human clinical trials according to good clinical practices (“GCPs”) to establish the
safety and efficacy of the product candidate for its intended use; |
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submission
of an NDA to the FDA along with payment of the application user fee and FDA acceptance of that NDA as a complete submission eligible
for substantive review; |
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satisfactory
completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient, or API,
and finished drug product are produced and tested to assess readiness for commercial manufacturing and conformance to the manufacturing-related
elements of the application, to conduct a data integrity audit, and to assess compliance with current good manufacturing practices
(“cGMPs”), in order to assure that the facilities, methods and controls are adequate to preserve the drug candidate’s
identity, strength, quality and purity; |
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possible
inspection of selected clinical study sites to confirm compliance with GCP requirements and data integrity; and |
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FDA
substantive review and approval of the NDA, including satisfactory completion of an FDA advisory committee review of the product
candidate, if applicable, which must occur prior to any commercial marketing or sale of the drug product in the United States. Preclinical
Studies |
After
a therapeutic candidate is identified for development, it enters the preclinical or nonclinical testing stage. Preclinical studies include
laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy.
Preclinical tests intended for submission to the FDA to support the safety of a product candidate must be conducted in compliance with
GLP regulations and the United States Department of Agriculture’s Animal Welfare Act, if applicable. A drug sponsor must submit
the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature,
among other things, to the FDA as part of an IND. Some nonclinical testing may continue after the IND is submitted. In addition to including
the results of the nonclinical studies, the IND will include one or more clinical protocols detailing, among other things, the objectives
of the clinical trial and the safety and effectiveness criteria to be evaluated.
An
IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related
to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA
must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA
allowing clinical trials to commence. A clinical hold may occur at any time during the life of an IND and may affect one or more specific
studies or all studies conducted under the IND. Occasionally, clinical holds are imposed due to manufacturing issues that may present
safety issues for the clinical study subjects.
Human
Clinical Trials in Support of an NDA
The
clinical investigation of an investigational new drug is divided into three phases that typically are conducted sequentially but may
overlap or be combined. The three phases are as follows:
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Phase
1. Phase 1 includes initial clinical trials introducing an investigational new drug into humans and may be conducted in subjects
with the target disease or healthy volunteers. These trials are designed to determine the metabolism and pharmacologic actions of
the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. |
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Phase
2. Phase 2 includes the controlled clinical trials conducted to evaluate the effectiveness of the drug candidate for a particular
indication or indications in subjects with the disease or condition under study and to determine the common short-term side effects
and risks associated with the drug. Phase 2 trials are typically well controlled, closely monitored, and conducted in a relatively
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Phase
3. Phase 3 trials are typically large trials performed after preliminary evidence suggesting effectiveness of the drug candidate
has been obtained. They are intended to gather additional information about the effectiveness and safety that is needed to evaluate
the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling and product marketing approval.
Phase 3 trials usually are conducted at geographically dispersed clinical study sites. |
A
clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing
approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily
indicative that the study will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made
until the protocol and data have been submitted to and reviewed by the FDA. Human clinical trials are inherently uncertain and Phase
1, Phase 2 and Phase 3 testing may not be successfully completed.
A
pivotal trial is a clinical trial that is believed to satisfy FDA requirements for the evaluation of a product candidate’s safety
and efficacy such that it can be used, alone or with other pivotal or non-pivotal trials, to support regulatory approval. Generally,
pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of
clinical benefit, particularly in an area of unmet medical need.
Clinical
trials must be conducted under the supervision of one or more qualified investigators in accordance with the FDA’s GCP requirements.
They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion
criteria and the safety and effectiveness criteria to be evaluated. Each protocol, and any subsequent material amendment to the protocol,
must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to
the FDA annually. Sponsors also must report to the FDA serious and unexpected adverse reactions in a timely manner, any clinically important
increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure or any findings
from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product or therapeutic
candidate. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, via a clinical hold, or impose
other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or that the subjects
are being exposed to an unacceptable health risk. An institutional review board (“IRB”), is responsible for ensuring that
human subjects in clinical studies are protected from inappropriate study risks. An IRB at each institution participating in the clinical
trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information
regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative,
monitor the trial until completed and otherwise comply with IRB regulations. The IRB also may halt a study, either temporarily or permanently,
for failure to comply with GCP or the IRB’s requirements, or if the investigational new drug has been associated with unexpected
serious harm to patients.
During
the development of a new drug product candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically,
prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These
meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice
on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results
and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new therapeutic.
Post-approval
trials, sometimes referred to as “Phase 4” clinical trials, may be conducted after initial marketing approval. These trials
are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA
may mandate the performance of “Phase 4” clinical trials.
Concurrent
with clinical trials, sponsors usually complete additional animal safety studies, develop additional information about the chemistry
and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate
in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product
candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, and purity of the
finished drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate
that the product candidate does not undergo unacceptable deterioration over its shelf life.
Marketing
Application Submission and FDA Review
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the
product candidate is submitted to the FDA in the form of an NDA requesting approval to market the drug for one or more indications. An
NDA includes all relevant data available from pertinent nonclinical studies and clinical trials, including negative or ambiguous results
as well as positive findings, together with detailed information on the product candidate’s chemistry, manufacturing, and controls,
or CMC, and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and
quantity to establish the safety and efficacy of the product candidate for its intended use to the satisfaction of the FDA.
Under
the Prescription Drug User Fee Act (“PDUFA”), each NDA must be accompanied by a significant user fee. The FDA adjusts the
PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for prescription drug products. Fee waivers or reductions
are available in certain circumstances, such as where a waiver is necessary to protect the public health, where the fee would present
a significant barrier to innovation, or where the applicant is a small business submitting its first human therapeutic application for
review.
Under
the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months from receipt in which to complete its initial review
of a standard NDA for a drug that is not a new molecular entity, and six months from the receipt date for an application with priority
review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for
additional information or clarification and a sponsor’s process to respond to such inquiries. As a result, the NDA review process
can be very lengthy. Most innovative drug products (other than biological products) obtain FDA marketing approval pursuant to an NDA
submitted under Section 505(b)(1) of the FDCA, commonly referred to as a traditional (or full) NDA.
The
FDA conducts a preliminary review of all NDAs it receives to ensure that they are sufficiently complete for substantive review before
it accepts them for filing. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission,
and may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with
the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. The FDA has 60
days after submission of an NDA to conduct an initial review to determine whether it is sufficient to accept for filing. If the submission
is accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA reviews the NDA to determine, among other things,
whether the proposed product is safe and effective for its intended use, whether it has an acceptable purity profile and whether the
product is being manufactured in accordance with cGMPs. During its review of an NDA, the FDA may refer the application to an advisory
committee of independent experts for a recommendation as to whether the application should be approved. An advisory committee is a panel
of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to
whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee,
but it typically follows such recommendations. Data from clinical trials are not always conclusive, and the FDA or its advisory committee
may interpret data differently than the NDA sponsor interprets the same data. The FDA may also re-analyze the clinical trial data, which
could result in extensive discussions between the FDA and the applicant during the review process.
Before
approving an NDA, the FDA will typically inspect the facilities at which the product is manufactured. The FDA will not approve the product
unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure
consistent production of the product within required specifications. Additionally, before approving the NDA, the FDA will typically inspect
one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements
and to assure the integrity of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party
contractors, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production
and quality control.
The
FDA also may require the submission of a risk evaluation and mitigation strategy, or “REMS,” if it determines that a REMS
is necessary to ensure that the benefits of the drug outweigh its risks and to assure the safe use of the product. A REMS could include
medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution
methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific
REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor must include a proposed REMS within its
NDA submission.
After
evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding
the manufacturing facilities where the drug product or its API will be produced and the clinical trial sites, the FDA will either issue
an approval letter or, in some cases, a complete response letter (“CRL”) that describes all of the specific deficiencies
that the FDA has identified in the NDA. A CRL indicates that the review cycle of the application is complete but that the application
will not be approved in its present form. The deficiencies identified may be minor (e.g., requiring labeling changes) or major (e.g.,
requiring additional clinical trials and/or other time-consuming and expensive measures to generate the requisite safety and/or efficacy
data). After receiving a CRL, an applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter or
withdraw the application. FDA will issue a letter within 30 days of an NDA resubmission acknowledging receipt and informing the applicant
as follows. For resubmissions deemed to be complete responses to all deficiencies identified in the CRL, such letter will contain FDA’s
designation of the resubmission as Class 1 or Class 2 (based on the nature of information received therein) and the corresponding due
date by which it will take action (2 months for Class 1 resubmissions and 6 months for Class 2. If FDA does not find the resubmission
to be a complete response to all CRL deficiencies, the FDA will inform the applicant, and the FDA’s “review clock”
will not start until a complete response is received.
Even
if a drug product receives NDA approval, the approval may be significantly limited to specific indications and dosages and/or subject
to limitations, specific labeling requirements, and/or other conditions that must be met to lawfully market the product in the United
States, any or all of which could restrict the commercial value of the product. For example, the FDA may require that certain contraindications,
warnings, and/or precautions be included in the product’s labeling. The FDA may also impose restrictions and conditions on product
distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may
require post marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a
product’s safety and effectiveness, and/or testing and surveillance programs to monitor the safety of approved products that have
been commercialized.
Post-Approval
Requirements for Prescription Drugs
Following
approval of a new drug product, the manufacturer and the approved drug are subject to pervasive and continuing regulation by the FDA,
including, among other things, monitoring and recordkeeping activities, reporting of adverse experiences with the product, product sampling
and distribution restrictions, and promotion and advertising requirements.
Promotional
communications must be carefully crafted to ensure compliance with all applicable FDA regulations pertaining to prescription-drug marketing
and labeling. In particular, prescription-drug advertisements must generally (1) not be false or misleading, (2) present a “fair
balance” of information describing both the risks and benefits associated with the drug, (3) include facts that are “material”
to the product’s advertised uses, and (4) include a “brief summary” that mentions every risk described in the product’s
labeling. Further, where the intended use of a prescription drug differs from the intended use approved by FDA, as listed in the product’s
approved NDA, FDA has asserted that the product is an unapproved “new drug” and taken enforcement action against sponsors
for introducing such unapproved new drugs into interstate commerce in violation of the FDCA. This prohibited practice is also called
“off-label” promotion. Although physicians may prescribe legally available products for off-label uses, sponsors may not
legally market or promote such uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of
off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
To
market an approved drug product for a new indication (i.e., beyond and/or differing from that set forth in the approved NDA), the sponsor
must submit a new NDA (or NDA supplement), which, in many cases, will require the completion of adequate and well-controlled clinical
trials to demonstrate the product’s safety and efficacy in the new indication. There is no guarantee that FDA will approve an NDA
seeking an expansion of an approved drug’s labeling and/or indications for use more quickly than an NDA involving a novel product
(i.e., that has never been approved for any indication) or ever. Relatedly, if the sponsor (or a contractor, partner, or other
affiliated party) makes any post-market modifications to an approved drug or the production thereof, including changes in labeling or
manufacturing processes or facilities, among other things, it may be required to submit and obtain FDA approval of a new NDA or an NDA
supplement.
In
addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP
regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and
drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory
controls, records and reports and returned or salvaged products. Drug manufacturers and other entities involved in the manufacture and
distribution of approved drugs are required to register their establishments with the FDA and some state agencies, and are subject to
periodic unannounced inspections by the FDA for compliance with cGMPs and other requirements. Changes to the manufacturing process, specifications
or container closure system for an approved drug product are strictly regulated and often require prior FDA approval before being implemented.
FDA regulations also require, among other things, the investigation and correction of any deviations from cGMPs and the imposition of
reporting and documentation requirements upon the NDA sponsor and any third-party manufacturers involved in producing the approved drug
product. Accordingly, both sponsors and manufacturers must continue to expend time, money, and effort on systems relating to production
and quality control to maintain cGMP compliance and other aspects of quality control and quality assurance, and to ensure ongoing compliance
with other statutory requirements the FDCA. We anticipate that the products we may commercialize in the United States (if any) will be
manufactured by our strategic partners (including licensees) or contractors (including any third parties who may be engaged by us or
one of our partners to conduct any commercialization activities, as well as downstream subcontractors, as applicable) and we may, thus,
be subject to enforcement action for any such third parties’ failures to comply with the applicable postmarket regulations or otherwise
be adversely affected by any of our partners’ or contractors’ compliance issues.
The
FDA may withdraw its approval for a drug product if compliance with regulatory requirements is not maintained or unexpected problems
occur after the product reaches the market. Later discovery of previously unknown problems with a drug, including serious and/or unexpected
adverse experiences, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the
approved labeling to add new safety information; imposition of post-market studies to assess new safety risks; or the imposition of distribution
or other restrictions under a REMS.
We
and/or our present or future suppliers, contract manufacturers, and/or other affiliates involved in one or more of our current or future
U.S. development and/or commercialization activities (if applicable) may not be able to comply with all FDA regulatory requirements.
For example, we may believe that all clinical studies are being conducted in accordance with the FDA’s IND regulations and that
none of our investigational products are being promoted with claims of safety and/or effectiveness for the intended use(s) for which
they are under investigation, but the FDA may determine otherwise, which could subject us to enforcement action and/or delay or prevent
the ultimate approval of our applicable product candidate(s). From a postmarket perspective, with regard to any products we may commercialize
in the United States in the future, we may believe our manufacturing operations (including that of our partners and/or contractors, as
applicable) are fully compliant with cGMPs and that all promotional communications disseminated by or on behalf of us are consistent
with FDA’s prescription-drug marketing requirements, but the FDA may disagree and take enforcement action against us. Accordingly,
we could be subject to a number of adverse enforcement actions and/or penalties in connection with any failure(s) to comply with the
FDCA and/or its implementing regulations at any stage in development and/or commercialization (if applicable), including, but not limited
to, the following:
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restrictions
on the marketing or manufacturing of approved products, market withdrawal, recalls; |
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fines,
warning letters, untitled letters, public warnings, consumer advisories, “dear doctor” letters, and other similar publications
or issuances; |
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refusal
of the FDA to approve pending NDAs or supplements to approved NDAs; |
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seizure,
detention, import alerts; |
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injunctions
or the imposition of civil or criminal penalties; |
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consent
decrees, corporate integrity agreements, debarment, or exclusion from federal healthcare programs; or |
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mandated
modification of promotional materials and labeling and the issuance of corrective information. |
We
and our manufacturers and other partners in development and/or (future) commercialization, as applicable, also will be subject to regulation
under the Occupational Safety and Health Act, the National Environmental Policy Act, the Nuclear Energy and Radiation Control Act, the
Toxic Substance Control Act and the Resource Conservation and Recovery Act. We also will be subject to a variety of federal, state and
local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and radioactive and
biological materials.
We
will also be subject to a variety of regulations governing clinical trials and sales of our products outside the U.S. Whether or not
FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions
must be obtained prior to the commencement of marketing the product in those countries. The approval process varies from one regulatory
authority to another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia,
regulatory requirements and approval processes are similar, in principle, to those in the U.S.
Other
U.S. Healthcare Laws and Regulations
Healthcare
Reform Measures
On
March 23, 2010, former President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) (the “ACA”)
and on March 30, 2010, he signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly
referred to as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance,
the provision of healthcare, conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients, and other
healthcare policy reforms. Through the law-making process, substantial changes have been and continue to be made to the current system
for paying for healthcare in the U.S., including changes made to extend medical benefits to certain Americans who lacked insurance coverage
and to contain or reduce healthcare costs (such as by reducing or conditioning reimbursement amounts for healthcare services and drugs,
and imposing additional taxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation was one
of the most comprehensive and significant reforms ever experienced by the U.S. in the healthcare industry and has significantly changed
the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance
and incentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisions were designed
to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant portion of the cost
of providing care. This environment has caused changes in the purchasing habits of consumers and providers and resulted in specific attention
to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. This attention may result in our current
commercial products, products we may commercialize or promote in the future, and our therapeutic candidates, being chosen less frequently
or the pricing being substantially lowered. At this stage, it is difficult to estimate the full extent of the direct or indirect impact
of the Healthcare Reform Law on us.
These
structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare,
Medicaid, and the State Children’s Health Insurance Program), creation of government-sponsored healthcare insurance sources, or
some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement
for prescribed drugs and pharmaceuticals, including our current commercial products, those we and our development or commercialization
partners are currently developing or those that we may commercialize or promote in the future. If reimbursement for the products we currently
commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or
otherwise adversely affected in the future, or rebate obligations associated with them are substantially increased, it could have a material
adverse effect on our reputation, business, financial condition or results of operations.
Extending
medical benefits to those who currently lack coverage will likely result in substantial costs to the U.S. federal government, which may
force significant additional changes to the healthcare system in the U.S. Much of the funding for expanded healthcare coverage may be
sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering care, improving the
effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost
of care and increased enforcement activities. Cost of care could be reduced further by decreasing the level of reimbursement for medical
services or products (including our current commercial products, our development or commercialization partners or any product we may
commercialize or promote, or those therapeutic candidates currently being developed by us), or by restricting coverage (and, thereby,
utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for our current commercial
products, any product we may commercialize or promote, or any therapeutic candidate, or for which we receive marketing approval in the
future, could have a material adverse effect on our reputation, business, financial condition or results of operations.
Several
states and private entities initially mounted legal challenges to the Healthcare Reform Law, in particular, the ACA, and they continue
to litigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of the ACA at
issue as constitutional. However, the U.S. Supreme Court held that the legislation improperly required the states to expand their Medicaid
programs to cover more individuals. As a result, states have a choice as to whether they will expand the number of individuals covered
by their respective state Medicaid programs. Some states have not expanded their Medicaid programs and have chosen to develop other cost-saving
and coverage measures to provide care to currently uninsured individuals. Many of these efforts to date have included the institution
of Medicaid-managed care programs. The manner in which these cost-saving and coverage measures are implemented could have a material
adverse effect on our reputation, business, financial condition or results of operations, particularly once we and/or any of our partners
have products on the U.S. market, if ever.
Further,
the healthcare regulatory environment has seen significant changes in recent years and is still in flux. Legislative initiatives to modify,
limit, replace, or repeal the ACA and judicial challenges have continued. We cannot predict the extent to which our business may be impacted
by legal challenges to the ACA or other aspects of the Healthcare Reform Law or other changes to the current laws and regulations. The
financial impact of U.S. healthcare reform legislation over the next few years will depend on a number of factors, including the policies
reflected in implementing regulations and guidance and changes in sales volumes for therapeutics affected by the legislation. From time
to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantly change the statutory provisions
governing coverage, reimbursement, and marketing of pharmaceutical products. In addition, third-party payor coverage and reimbursement
policies are often revised or interpreted in ways that may significantly affect our business and any products we or our partners may
commercialize in the future, as well as the prospects and/or viability of our product candidates.
During
his time in office, former President Trump supported the repeal of all or portions of the ACA. President Trump also issued an executive
order in which he stated that it is his administration’s policy to seek the prompt repeal of the ACA and in which he directed executive
departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the ACA to
the maximum extent permitted by law. Congress has enacted legislation that repeals certain portions of the ACA, including but not limited
to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision that eliminates the penalty under the ACA’s individual
mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of 2018, passed in February 2018, which, among other things,
repealed the Independent Payment Advisory Board (which was established by the ACA and was intended to reduce the rate of growth in Medicare
spending).
Additionally,
in December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the ACA is, therefore,
invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded the case back to the
lower court to reassess whether and how such holding affects the validity of the rest of the ACA. The Fifth Circuit’s decision
on the individual mandate was appealed to the U.S. Supreme Court. On June 17, 2021, the Supreme Court held that the plaintiffs (comprised
of the state of Texas, as well as numerous other states and certain individuals) did not have standing to challenge the constitutionality
of the ACA’s individual mandate and, accordingly, vacated the Fifth Circuit’s decision and instructed the district court
to dismiss the case. As a result, the ACA will remain in-effect in its current form for the foreseeable future; however, we cannot predict
what additional challenges may arise in the future, the outcome thereof, or the impact any such actions may have on our business.
The
Biden administration also introduced various measures in 2021 focusing on healthcare and drug pricing, in particular. For example, on
January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health
insurance coverage through the ACA marketplace, which began on February 15, 2021, and remained open through August 15, 2021. The executive
order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare,
including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements and policies that
create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. On the legislative front, the
American Rescue Plan Act of 2021 was signed into law on March 11, 2021, which, in relevant part, eliminates the statutory Medicaid drug
rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source drugs and innovator multiple source
drugs, beginning January 1, 2024. And, in July 2021, the Biden administration released an executive order entitled, “Promoting
Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response, on September 9, 2021,
HHS released a “Comprehensive Plan for Addressing High Drug Prices” that outlines principles for drug pricing reform and
sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take
to advance these principles. And, in November 2021, President Biden announced the “Prescription Drug Pricing Plan” as part
of the Build Back Better Act (H.R. 5376) passed by the House of Representatives on November 19, 2021, which aims to lower prescription
drug pricing by, among other things, allowing Medicare to negotiate prices for certain high-cost prescription drugs covered under Medicare
Part D and Part B after the drugs have been on the market for a certain number of years and imposing tax penalties on drug manufacturers
that refuse to negotiate pricing with Medicare or increase drug prices “faster than inflation.” If enacted, this bill could
have a substantial impact on our business. In the coming years, additional legislative and regulatory changes could be made to governmental
health programs that could significantly impact pharmaceutical companies and the success of our product candidates. At the state level,
legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure
and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
There
is uncertainty as to what healthcare programs and regulations may be implemented or changed at the federal and/or state level in the
U.S. or the effect of any future legislation or regulation. Furthermore, we cannot predict what actions the Biden administration will
implement in connection with the Health Reform Law. However, it is possible that such initiatives could have an adverse effect on our
or our partners’ ability to obtain approval for and/or successfully commercialize products in the U.S. in the future.
Fraud
and Abuse, Transparency, and Privacy
In
the United States, we may be subject to various federal and state laws and regulations regarding fraud and abuse in the healthcare industry,
as well as industry standards and guidance, such as the codes issued by the Pharmaceutical Research and Manufacturers of America (or
“PhRMA Codes”), which some states reference or incorporate in their statutes and regulations. These laws, regulations, standards,
and guidance may impact, among other things, our sales and marketing activities and our relationships with healthcare providers and patients.
In addition, we may be subject to patient privacy regulations by both the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include but are not limited to:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering
or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of
an individual for, or the purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program,
such as the Medicare and Medicaid programs; |
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the False Claim Act, which prohibit, among other
things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from the federal government,
including Medicare, Medicaid, or other third-party payors, that are false or fraudulent; |
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The
federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes federal criminal and civil
liability for executing, or attempting to execute, a scheme to defraud any healthcare benefit program and making false statements
relating to healthcare matters; |
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the
federal transparency laws, including the Physician Payments Sunshine Act, which requires applicable manufacturers of covered drugs
to disclose payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment
interests; |
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing
regulations, also imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health
information; and |
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines, state laws that require pharmaceutical manufacturers to report
certain pricing or payment information, and state laws governing the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and are not preempted by HIPAA, thus complicating compliance efforts. |
Because
of the breadth of these laws and the narrow scope of the statutory or regulatory exceptions and safe harbors available, our current or
future activities, policies, and/or arrangements could be challenged under one or more of these laws. In addition, the federal government
has identified relationships between drug companies (and other medical-product manufacturers) and healthcare providers as particularly
susceptible to fraud and abuse and, thus, our relationships may be subject to heightened regulatory scrutiny, particularly once we have
one or more products on the U.S. market, if ever. Further, many of the applicable healthcare laws and regulations are subject to varying
and/or evolving interpretations, which makes achieving and maintaining consistent compliance more difficult. We may have to devote substantial
costs, resources, and time to compliance efforts, particularly once one or more of our product candidates, or any other products to which
we may obtain commercialization rights in the future, is marketed in the United States. If any of our past, current, or future operations
and/or arrangements are found to be in violation of If our operations are found to be in violation of any healthcare laws or regulations
that may apply to us, we may be subject to significant civil, criminal, and/or administrative penalties; damages; fines; personal imprisonment;
exclusion from government-funded programs, such as Medicare and Medicaid; additional reporting requirements and oversight under a corporate
integrity (or deferred prosecution or other similar) agreement with the applicable federal or state agency or agencies (such as the U.S.
Office of Inspector General (“OIG”), the U.S. Department of Justice (“DOJ”), or state attorneys general); and/or
the curtailment or restructuring of our operations. Any adverse enforcement action initiated against us based on actual or alleged violations
of one or more of the healthcare laws and regulations could have a material adverse effect on our business, even if we are ultimately
successful in defending against such claims.
Employees
As
of March 23, 2022, we had three full-time employees.
Available
Information
We
maintain a website at www.cytrx.com and make available there, free of charge, our periodic reports filed with the Securities and Exchange
Commission, or SEC, as soon as is reasonably practicable after filing. Among other things, we post on our website our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments and Code of Business Conduct and Ethics. The SEC
maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers
such as us that file electronically with the SEC.
Item
1A. RISK FACTORS
We
are subject to various risks that may materially harm our business, prospects, financial condition and results of operations. An investment
in our common stock is speculative and involves a high degree of risk. In evaluating an investment in our common stock, you should carefully
consider the risks described below, together with the other information included in this Form 10-K, including the consolidated financial
statements and related notes.
You
should carefully consider the risks and uncertainties facing our business. The risks described below are not the only risks we face.
If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties later materialize,
that are not presently known to us or that we currently deem immaterial, then our business, prospects, results of operations and financial
condition could be materially adversely affected. In that event, the trading price of our common stock could decline, and you may lose
all or part of your investment in our shares. The risks discussed below include forward-looking statements, and our actual results may
differ substantially from those discussed in these forward-looking statements. Our business is also subject to the risks that affect
many other companies, such as employment relations, general economic conditions and geopolitical events. Further, additional risks not
currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations,
liquidity and stock price.
Risk
Factor Summary
Below
is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address
all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face,
can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in
this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock.
Risks
Associated With Our Business:
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We
have operated at a loss and will likely continue to operate at a loss for the foreseeable future. |
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Because
we have no source of significant recurring revenue, we must depend on capital raising to sustain our operations, and our ability
to raise capital may be severely limited. |
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If
Orphazyme fails to successfully develop and commercialize arimoclomol, our business prospects will be materially adversely affected. |
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If
ImmunityBio fails to successfully develop aldoxorubicin or our exclusive licensing arrangement with ImmunityBio is otherwise unsuccessful,
our business prospects will be materially adversely affected. |
Risks
Associated With Drug Discovery and Development:
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● |
If
the projected development goals for our product candidates are not achieved in the expected time frames, the commercialization of
our products may be delayed and our business prospects may suffer. Our financial projections also may prove to be materially inaccurate. |
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The
regulatory approval process is lengthy, time consuming and inherently unpredictable, and if our products or those we have sold or
licensed are not successfully developed and approved by the FDA or foreign regulatory authorities, we may be forced to reduce or
curtail our operations. |
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Clinical
drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may
not be predictive of future trial results. |
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We
may be unable to protect our intellectual property rights, which could adversely affect our ability to compete effectively. |
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If
our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses
from others to develop or market them. |
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The
results of pre-clinical studies or early clinical trials are not necessarily predictive of future results, and our ultra-high potency
albumin-binding drug conjugates may not have favorable results in later clinical trials or receive regulatory approval. |
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Any
products that we develop or are sold or licensed may become subject to unfavorable pricing regulations or third-party coverage and
reimbursement policies, which could have a material adverse effect on our business. |
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Healthcare
legislative reform measures could hinder or prevent the commercial success of our products and product candidates. |
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We
may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect
our business, operations and financial condition. |
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We
will be required to pay substantial milestone and other payments relating to the commercialization of our products. |
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The
COVID-19 pandemic could adversely impact our business and prospects, including active and planned clinical trials by ImmunityBio
and Orphazyme. |
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In
the event of a dispute regarding our international drug development, it may be necessary for us to resolve the dispute in the foreign
country of dispute, where we would be faced with unfamiliar laws and procedures. |
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Drug
discovery is a complex, time-consuming and expensive process, and we may not succeed in creating new product candidates. |
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We
have a limited operating history in drug discovery, which is inherently risky, and we may not succeed in addressing these risks. |
General
Risk Factors:
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We
are subject to intense competition, and we may not compete successfully. |
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We
are subject to potential liabilities from clinical testing and future product liability claims. |
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We
may be unable to successfully acquire additional technologies or products. If we require additional technologies or products, our
product development plans may change and the ownership interests of our shareholders could be diluted. |
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The
impact and results of our exploration of any strategic alternatives are uncertain and may not be successful. |
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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. |
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Our
business continuity and disaster recovery plans may not adequately protect us from a serious disaster. |
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You
may experience future dilution as a result of future equity offerings or other equity issuances. |
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Our
outstanding options and warrants and the availability for resale of the underlying shares may adversely affect the trading price
of our common stock. |
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We
cannot assure investors that our internal controls will prevent future material weaknesses. |
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We
could be subject to legal actions that could adversely affect our financial condition. |
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Our
anti-takeover measures may make it more difficult to change our management, or may discourage others from acquiring us, and thereby
adversely affect stockholder value. |
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Our
restated by-laws, as amended, designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain
types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. |
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We
may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock. |
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We
do not expect to pay any cash dividends on our common stock. |
Risks
Associated With Our Business
We
have operated at a loss and will likely continue to operate at a loss for the foreseeable future.
We
have operated at a loss due to our ongoing expenditures for research and development of our product candidates and for general and administrative
purposes, and lack of significant recurring revenues. We incurred a net loss of $13.0 million for the year ended December 31, 2021 and
$6.7 million for the year ended December 31, 2020 and had an accumulated deficit as of December 31, 2021 of $483.9 million. We are likely
to continue to incur losses unless and until we are able to earn milestones and royalties from our existing licensing and sale agreements
and/or conclude a successful strategic partnership or financing for our LADR™ technology. These losses, among other things, have
had and will continue to have an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks
and uncertainties associated with our product development efforts, we are unable to predict when we may become profitable, if at all.
If we do not become profitable or are unable to maintain future profitability, the market value of our common stock will be adversely
affected. These factors individually and collectively raise a substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting
firm has included an explanatory paragraph in its report as of and for the year ended December 31, 2021 expressing substantial doubt
in our ability to continue as a going concern based on our recurring and continuing losses from operations and our need for additional
funding to continue operations. Our consolidated financial statements do not include any adjustments that might result from the outcome
of this going concern uncertainty and have been prepared under the assumption that we will continue to operate as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. If we are unable to continue
as a going concern, we may be forced to liquidate our assets which would have an adverse impact on our business and developmental activities.
In such a scenario, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected
in our financial statements. The reaction of investors to the inclusion of a going concern statement by our independent registered public
accounting firm and our potential inability to continue as a going concern may materially adversely affect our stock price and our ability
to raise new capital or to enter into strategic alliances.
Because
we have no source of significant recurring revenue, we must depend on capital raising to sustain our operations, and our ability to raise
capital may be severely limited.
Developing
products and conducting clinical trials require substantial amounts of capital. In July 2021, we were able raise some capital through
the sale of common stock registered under our “shelf” registration on Form S-3, as well as through the related private
placement of certain warrants and the preferred investment option. We will likely need to raise additional capital to fund our general
and administrative expenses and, if we determine to develop products based on Centurion’s LADR™ technology platform, we will
need to raise additional capital to fund development of product candidates, prepare, file, prosecute, maintain, enforce and defend patent
and other proprietary rights, and develop and implement sales, marketing and distribution capabilities. However, we have no available
authorized common shares to issue, making capital raising significantly more challenging.
At
December 31, 2021, we had cash and cash equivalents of approximately $6.8 million. Management believes that our current resources will
be sufficient to fund our operations through December 31, 2022. This estimate is based, in part, upon our currently projected
expenditures for 2022 and the first three months of 2023 of approximately $6.5 million (unaudited) to fund our operating activities.
These projected expenditures are also based upon numerous other assumptions and subject to many uncertainties, and actual expenditures
may be significantly different from these projections. We will ultimately be required to obtain additional funding in order to execute
our long-term business plans, although we do not currently have commitments from any third parties to provide us with long term debt
or capital. We cannot assure that additional funding will be available on favorable terms, or at all. If we fail to obtain additional
funding when needed, we may not be able to execute our business plans and our business may suffer, which would have a material adverse
effect on our financial position, results of operations and cash flows.
If
we raise additional funds by issuing equity securities, dilution to stockholders may result and new investors could have rights superior
to current equity holders. In addition, debt financing, if available, may include restrictive covenants. If adequate funds are not available
to us, we may have to liquidate some or all of our assets or delay or reduce the scope of or eliminate some portion or all of our development
programs. We also may have to license to other companies our product candidates or technologies that we would prefer to develop and commercialize
ourselves.
On
March 15, 2022, CytRx Corporation (the “Company”) held a special meeting of stockholders (the “Special
Meeting”), which was originally opened and subsequently adjourned on September 23, 2021, at which meeting the Company’s
stockholders, by an affirmative vote of the majority of the Company’s outstanding shares of capital stock, approved the
amendment to the Company’s Restated Certificate of Incorporation (the “Certificate of Incorporation”) to effect an
increase in the number of shares of authorized common stock, par value $0.001 per share, from 41,666,666 shares to 62,393,940
shares, and to make a corresponding change to the number of authorized shares of capital stock in order to comply with the
Company’s contractual obligations under a securities purchase agreement entered into on July 13, 2021 (the “Authorized
Share Increase Amendment”). The number of shares of authorized preferred stock of the Company remains unchanged.
On
March 15, 2022, the Company filed a Certificate of Amendment to Restated Certificate of Incorporation (the”Certificate of Amendment”)
with the Secretary of State of Delaware to effect the Authorized Share Increase Amendment.
As
of March 23, 2022, we have no additional shares of common stock that are authorized and unissued. We would need approval of our stockholders
to increase our authorized shares of our common stock in order to raise additional capital in excess of this amount of shares.
If
Orphazyme fails to successfully develop and commercialize arimoclomol, our business prospects will be materially adversely affected.
In
2011, CytRx sold the rights to arimoclomol and iroxanadine, based on molecular chaperone regulation technology, to Orphazyme in exchange
for a one-time, upfront payment and the right to receive up to a total of $120 million in milestone payments upon the achievement of
certain pre-specified regulatory and business milestones, as well as single- and double-digit royalty payments based on a specified percentage
of any net sales of products derived from arimoclomol. Orphazyme announced in March and May of 2021 that pivotal phase 3 clinical trials
assessing the safety and efficacy of arimoclomol in treating ALS and IBM, respectively, did not meet their primary or secondary endpoints
and that it has ceased development of, and its pursuit of regulatory approvals for, arimoclomol for such indications. As a result, the
maximum amount that we are eligible to receive in future milestone payments under the agreement with Orphazyme is now approximately $100
million. There can be no assurance that said amount or any portion thereof will be realized, as such realization is contingent upon certain
regulatory approvals of arimoclomol for indications other than the prevention or treatment of ALS or stroke and other contingencies over
which we have no control. Orphazyme is testing arimoclomol in NPC and Gaucher disease. On June 18, 2021, Orphazyme announced it received
a CRL from the FDA, identifying certain deficiencies in the NDA that precluded its approval. In particular, Orphazyme announced that
the CRL was issued based on the need for additional confirmatory evidence, as well as additional qualitative and quantitative evidence
to further substantiate the validity of the 5-domain NPC Clinical Severity Scale (“NPCCSS”), specifically the swallow domain,
in the context of a lack of significant findings when using the FDA’s preferred and recommended statistical approach. In late October
2021, Orphazyme announced it held a Type A meeting with the FDA where the FDA recommended that Orphazyme submit additional data, information
and analyses to address certain topics in the CRL and engage in further interactions with the FDA to identify a pathway to resubmission.
The FDA concurred with Orphazyme’s proposal to remove the cognition domain from the NPCCSS endpoint, with the result that the primary
endpoint is permitted to be recalculated using the 4- domain NPCCSS, subject to the submission of additional requested information which
Orphazyme intends to provide. The FDA also affirmed that it would require additional in vivo or pharmacodynamic (PD)/pharmacokinetic
(PK) data. Orphazyme is planning to request a Type C Meeting with the FDA in the
second quarter of 2022 to discuss its progress in redressing the deficiencies identified in the CRL and plans for resubmission. Subject
to FDA’s feedback in the Type C meeting and any other pertinent discussions with the regulatory body, Orphazyme plans to resubmit
the NDA for arimoclomol in the second half of 2022. However, there are a number of uncertainties inherent in clinical investigation that
may hinder Orphazyme’s plans for generating additional data, meeting with FDA, and/or resubmitting the NDA. And, even if Orphazyme
properly implements FDA’s feedback and resubmits the NDA with the additional confirmatory evidence and qualitative and quantitative
data that FDA requested, there is no guarantee that FDA will approve the resubmitted version of the NDA.
Orphazyme
has also submitted a MAA with the EMA. In February 2022, Orphazyme announced that they
were notified by the CHMP of a negative trend vote on the MAA for arimoclomol in NPC following an oral explanation. The trend
vote indicates that the CHMP’s current orientation is to not approve arimoclomol when it convenes by the end of March 2022. Orphazyme
considers it unlikely that this position will change before the formal vote is undertaken in March 2022. They will assess their strategic
options and provide an update to the market at the applicable time
The
potential revenue from our arrangement with Orphazyme is based on contingent payments, which will depend upon Orphazyme’s ability
to achieve regulatory approvals and successfully market and sell products derived from arimoclomol. Our ability to realize the maximum
amount of aggregate milestone payments initially set forth in our agreement with Orphazyme has been reduced by approximately $20 million
due to Orphazyme’s unsuccessful pivotal studies of arimoclomol for ALS and IBM and subsequent decision to cease arimoclomol’s
development with regard such indications. While Orphazyme has progressed further in connection with its development of arimoclomol for
NPC (than for ALS or IBM), its efforts to obtain the FDA and EMA approvals needed to lawfully market arimoclomol for NPC in the United
States and the EU, respectively, have been unsuccessful thus far and may never succeed. We will not be involved in this process and will
depend entirely on Orphazyme, which may fail to develop or effectively commercialize products derived from arimoclomol for many reasons,
including if they:
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● |
decide
not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise,
limited cash resources or specialized equipment limitations, or the belief that other drug development programs may have a higher
likelihood of obtaining regulatory approval or may potentially generate a greater return on investment; |
|
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|
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do
not have sufficient resources necessary to carry arimoclomol through clinical development, regulatory approval and commercialization; |
|
|
|
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cannot
obtain the necessary regulatory approvals for arimoclomol; or |
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decide
to pursue a competitive drug candidate. |
If
Orphazyme does not obtain the regulatory approvals for arimoclomol that are necessary to trigger the corresponding milestone payments
to us under our agreement, or if their research and development or commercialization efforts are, otherwise, unsuccessful, we will not
realize the anticipated commercial benefits of the arrangement and our business prospects will be materially and adversely affected.
If
ImmunityBio fails to successfully develop aldoxorubicin or our exclusive licensing arrangement with ImmunityBio is otherwise unsuccessful,
our business prospects will be materially and adversely affected.
In
July 2017, we entered into an exclusive licensing agreement with ImmunityBio to complete the clinical development of and commercialization
of aldoxorubicin. Under this agreement, ImmunityBio has committed to provide substantial funding, as well as significant capabilities
in clinical development, regulatory affairs, marketing and sales.
If,
for any reason, ImmunityBio does not devote sufficient time and resources to the development and commercialization of aldoxorubicin,
we will not realize the potential commercial benefits of the arrangement, and our results of operations will be adversely affected. In
addition, if ImmunityBio were to breach or terminate its arrangement with us, the development and commercialization of aldoxorubicin
could be delayed, curtailed or terminated, and we may not have sufficient financial resources or capabilities to continue development
and commercialization of aldoxorubicin on our own.
Under
our agreement with ImmunityBio, they may opt out of a project by giving us twelve months’ prior written notice. If ImmunityBio
were to exercise its right to opt out of a program or to terminate the licensing agreement, the development and commercialization of
aldoxorubicin would be adversely affected, our potential for generating revenue from this program would be adversely affected and attracting
new partners would be made more difficult.
Much
of the potential revenue from our existing and future arrangement with ImmunityBio will consist of contingent payments, such as payments
for achieving development and commercialization milestones and single- and double-digit royalties payable on commercial sales of successfully
developed aldoxorubicin. The milestone, royalty and other revenue that we may receive under this arrangement will depend upon our, and
ImmunityBio’s ability to successfully develop, introduce, market, commercialize and sell aldoxorubicin. We will not be directly
involved in this process and will depend entirely on ImmunityBio, which may fail to develop or effectively commercialize aldoxorubicin
for many reasons including if they:
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● |
decide
not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise,
limited cash resources or specialized equipment limitations, or the belief that other drug development programs may have a higher
likelihood of obtaining regulatory approval or may potentially generate a greater return on investment; |
|
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do
not have sufficient resources necessary to carry aldoxorubicin through clinical development, regulatory approval and commercialization; |
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cannot
obtain the necessary regulatory approvals for aldoxorubicin; or |
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decide
to pursue a competitive drug candidate. |
If
ImmunityBio fails to develop or effectively commercialize aldoxorubicin or for any of the other reasons described above, we may not be
able to develop and commercialize that drug independently or replace ImmunityBio with another suitable partner in a reasonable period
of time and on commercially reasonable terms, if at all.
Risks
Associated With Drug Discovery and Development
If
the projected development goals for our product candidates are not achieved in the expected time frames, the commercialization of our
products may be delayed and our business prospects may suffer. Our financial projections also may prove to be materially inaccurate.
From
time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development
goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and
clinical trials and the submission of regulatory filings.
We
also may disclose projected expenditures or other forecasts for future periods. These and other financial projections are based on management’s
current expectations and do not contain any margin of error or cushion for any specific uncertainties, or for the uncertainties inherent
in all financial forecasting.
The
actual timing of milestones and actual expenditures or other financial results can vary dramatically compared to our estimates, in some
cases for reasons beyond our control or the control of companies that have licensed or purchased our product candidates. If these milestones
or financial projections are not met, the development and commercialization of our product candidates may be delayed and our business
prospects may suffer. The assumptions management has used to produce these projections may significantly change or prove to be inaccurate.
Accordingly, you should not unduly rely on any of these financial projections.
The
regulatory approval process is lengthy, time consuming and inherently unpredictable, and if our products or those we have sold or licensed
are not successfully developed and approved by the FDA or foreign regulatory authorities, we may be forced to reduce or curtail our operations.
All
of our product candidates in development or those licensed or sold must be approved by the FDA or corresponding foreign governmental
agencies before they can be marketed. The process for obtaining FDA and foreign government approvals is both time-consuming and costly,
with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing,
including post-approval testing, which may take longer or cost more than we or our licensees, if any, anticipate, and may prove unsuccessful
due to numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations,
or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical
development and may vary among jurisdictions. None of our product candidates in development or licensed or sold to third parties have
received regulatory approval.
Numerous
factors could affect the timing, cost or outcome of product development efforts, including the following:
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difficulty
in enrolling patients in conformity with required protocols or projected timelines; |
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requirements
for clinical trial design imposed by the FDA; |
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unexpected
adverse reactions by patients in trials; |
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difficulty
in obtaining clinical supplies of the product; |
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changes
in or our inability to comply with FDA or foreign governmental product testing, manufacturing or marketing requirements; |
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regulatory
inspections of clinical trials or manufacturing facilities, which may, among other things, require us or our manufacturers or licensees
to undertake corrective action or suspend or terminate the affected clinical trials if investigators find them not to be in compliance
with applicable regulatory requirements; |
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inability
to generate statistically significant data confirming the safety and efficacy of the product being tested; |
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modification
of the product during testing; and |
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reallocation
of our limited financial and other resources to other clinical programs. |
It
is possible that none of the product candidates we develop or have sold or licensed will obtain the regulatory approvals necessary for
us to begin selling them or making us eligible to receive milestone or royalty payments. The time required to obtain FDA and foreign
governmental approvals is unpredictable, but often can take years following the commencement of clinical trials, depending upon the complexity
of the product candidate. Any analysis performed on data from clinical activities is subject to confirmation and interpretation by regulatory
authorities, which could delay, limit or prevent regulatory approval. In addition, even if regulatory approval was obtained, regulatory
authorities may approve any product candidates for fewer or more limited indications than requested, may not approve the intended price
for such products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product
candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that
product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for the product candidates that we develop,
have sold or licensed.
Furthermore,
even if regulatory approvals are obtained, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage,
import, export, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements.
These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued
compliance with current good manufacturing practices, or cGMPs, and good clinical practices, or cGCPs, for any clinical trials that we
conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity
or frequency, or with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result
in, among other things:
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restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; |
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fines,
warning letters or holds on clinical trials; |
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refusal
by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension
or revocation of product license approvals; |
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product
seizure or detention, or refusal to permit the import or export of products; and |
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injunctions
or the imposition of civil or criminal penalties. |
The
FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation
or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval
that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business. We will also be
subject to periodic inspections and the potential for mandatory post- approval clinical trials required by the FDA and other U.S. and
foreign regulatory authorities. Any delay or failure in obtaining required approvals or to comply with post-approval regulatory requirements
could have a material adverse effect on our ability to generate revenue from the particular product candidate. The failure to comply
with any post-approval regulatory requirements also could result in the rescission of the related regulatory approvals or the suspension
of sales of the offending product.
Clinical
drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not
be predictive of future trial results.
Clinical
testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during
the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive
of the results of later-stage clinical trials. Product candidates in later stages of clinical development may fail to show the desired
safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in
the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or safety profiles,
notwithstanding promising results in earlier trials. For example, aldoxorubicin has shown encouraging preliminary clinical results in
our Phase 2b clinical trial as a treatment for STS. These conclusions may not be reproduced in future clinical trial results. For instance,
the Phase 3 pivotal clinical trial testing aldoxorubicin as a treatment for STS narrowly missed statistical significance although it
demonstrated a statistically significant improvement in PFS over investigator’s choice in 312 patients treated in North America
and Australia. Accordingly, our development partner may ultimately be unable to provide the FDA and/or other U.S. and foreign regulatory
authorities with satisfactory data on clinical safety and efficacy sufficient to obtain approval from the FDA of aldoxorubicin for any
indication.
Further
delays may occur in clinical trials of product candidates. We do not know whether ongoing clinical trials will be completed on schedule
or at all, or whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule,
if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
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obtaining
regulatory approval to commence a trial; |
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reaching
agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
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obtaining
institutional review board approval at each clinical trial site; |
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recruiting
suitable patients to participate in a trial; |
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having
patients complete a trial or return for post-treatment follow-up; |
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clinical
trial sites deviating from trial protocol or dropping out of a trial; |
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adding
new clinical trial sites; or |
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manufacturing
sufficient quantities of product candidate for use in clinical trials. |
We
may be unable to protect our intellectual property rights, which could adversely affect our ability to compete effectively.
We
will be able to protect our technologies from unauthorized use by third parties only to the extent that we have rights to valid and enforceable
patents or other proprietary rights that cover them. Although we have rights to patents and patent applications directed to our product
candidates, these patents and applications may not prevent third parties from developing or commercializing similar or identical technologies.
In addition, our patents may be held to be invalid if challenged by third parties, and our patent applications may not result in the
issuance of patents.
The
patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date in the United States and in many foreign countries. The application and enforcement of patent laws and regulations
in foreign countries is even more uncertain. Accordingly, we may not be able to effectively file, protect or defend our proprietary rights
on a consistent basis. Many of the patents and patent applications on which we rely were issued or filed by third parties prior to the
time we acquired rights to them. The validity, enforceability and ownership of those patents and patent applications may be challenged,
and if a court decides that our patents are not valid, we will not have the right to stop others from using our inventions. There is
also the risk that, even if the validity of our patents is upheld, a court may refuse to stop others on the ground that their activities
do not infringe our patents.
Any
litigation brought by us to protect our intellectual property rights could be costly and have a material adverse effect on our operating
results or financial condition, make it more difficult for us to enter into strategic alliances with third parties to develop our products,
or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient
to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be
materially and adversely affected.
We
also rely on certain proprietary trade secrets and know-how, especially where we believe patent protection is not appropriate or obtainable.
Trade secrets and know-how are difficult to protect. Although we have taken measures to protect our unpatented trade secrets and know-how,
including the use of confidentiality and invention assignment agreements with our employees, consultants and some of our contractors,
it is possible that these persons may disclose our trade secrets or know-how or that our competitors may independently develop or otherwise
discover our trade secrets and know-how.
If
our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses from
others to develop or market them.
Our
competitors or others may have patent rights that they choose to assert against us or our licensees, suppliers, customers or potential
collaborators. Moreover, we may not know about patents or patent applications that our products would infringe. For example, because
patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending
applications unknown to us that may later result in issued patents that our product candidates would infringe. In addition, if third
parties file patent applications or obtain patents claiming technology also claimed by us or our licensors in issued patents or pending
applications, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of
invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign
tribunals to defend the patentability of our foreign patent applications.
If
a third-party claims that we are infringing on its proprietary rights, any of the following may occur:
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may become involved in time-consuming and expensive litigation, even if the claim is without merit; |
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we
may become liable for substantial damages for past infringement if a court decides that our technology infringes a competitor’s
patent; |
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a
court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available
on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our
patents; and |
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we
may have to redesign our product candidates or technology so that it does not infringe patent rights of others, which may not be
possible or commercially feasible. |
If
any of these events occurs, our business and prospects will suffer and the market price of our common stock will likely decline substantially.
The
results of pre-clinical studies or early clinical trials are not necessarily predictive of future results, and our ultra-high potency
albumin-binding drug conjugates may not have favorable results in later clinical trials or receive regulatory approval.
Success
in pre-clinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate
the efficacy and safety of our ultra-high potency albumin-binding drug conjugates. A number of companies in the pharmaceutical and biotechnology
industries, including those with greater resources and experience than we have, have suffered significant setbacks in clinical trials,
even after seeing promising results in earlier clinical trials. We do not know whether the clinical trials we may conduct will demonstrate
adequate efficacy and safety to result in regulatory approval to market them in any particular jurisdiction. If our clinical trials do
not produce favorable results, our ability to achieve regulatory approval for these drug candidates will be adversely impacted and the
value of our stock may decline.
The
successful commercialization of our product candidates that are approved for marketing in the United States, if any, and/or any other
products that we or our partners may commercialize in the future will likely depend, in-part, on the coverage and reimbursement policies
of third-party payors, which, if unfavorable, could have a material adverse effect on our business.
The
commercial success of our product candidates that are approved for marketing in the United States, if any, as well as any other products
that we may or our partners may commercialize in the future, may depend, in significant part, on the extent to such products will be
covered and reimbursed by third-party payors, including government healthcare programs, such as Medicare and Medicaid, private insurers,
and managed care organizations. Patients for whom prescription drugs are prescribed and prescribing practitioners generally rely on third-party
payors to reimburse all or part of the associated healthcare costs. Without adequate coverage and reimbursement, patients and providers
are unlikely to use or prescribe any products that we or our partners may commercialize or from which we may, otherwise, generate revenue
in connection with commercial sales.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, there
is no uniform policy of coverage and reimbursement. Accordingly, third-party payors, including private insurers and governmental payors,
such as Medicare and Medicaid, play an important role in determining the extent to which new drugs and biologics will be covered and
reimbursed. The Medicare program covers certain individuals aged 65 or older, as well as certain people under 65 with disabilities and
individuals suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers eligible individuals
and families who have limited financial means. The Medicare and Medicaid programs are increasingly used as models for how private payors
and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. It is difficult to predict at
this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates and any other
products we or our partners may commercialize or to which we may have commercialization rights or interests.
Third-party
payors may deny coverage or reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment
methods, as determined by the third-party payor, and most, if not all, payors will deny coverage for products used or administered for
an unapproved indication. Third-party payors also typically refuse to cover and reimburse for experimental procedures and devices. Furthermore,
third-party payors are increasingly challenging the prices charged for medical products and services. And, the U.S. government and state
legislatures have shown significant interest in implementing healthcare cost-containment programs, including price controls, restrictions
on reimbursement, discount and rebate requirements, and requirements for substitution of generic products. Such measures, and the enactment
of any more restrictive updates thereto and/or new measures could further limit our potential profitability and commercial success in
connection with any products we or our partners may market in the United States. We cannot predict whether, or the extent to which, government
and/or private payors will cover any products we or our partners may commercialize in the future, and there can be no assurances that
such coverage and reimbursement levels, as applicable, will be sufficient to allow us to profit from the commercial sale of such product(s)
in light of our costs from development and other related activities and any current or future arrangements with our development and/or
commercialization partners.
Any
products that we develop or are sold or licensed may become subject to unfavorable pricing regulations and/or third-party coverage and
reimbursement policies, which could have a material adverse effect on our business.
Our
product candidates are intended to be marketed primarily to hospitals, which generally receive reimbursement for the health care services
they provide to their patients from third-party payors, such as Medicare, Medicaid and other domestic and international government programs,
private insurance plans and managed care programs.
Such
drugs will likely need to be administered under the supervision of a physician. Under currently applicable law, drugs that are not usually
self-administered may be eligible for coverage by the Medicare program if:
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are “incidental” to a physician’s services; |
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are “reasonable and necessary” for the diagnosis or treatment of the illness or injury for which they are administered
according to accepted standard of medical practice; |
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are not excluded as immunizations; and |
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have been approved by the FDA. |
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party
payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining
the extent to which new drugs and biologics will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or
older, disabled or suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers certain individuals
and families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private payors
and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. It is difficult to predict at
this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Most
third-party payors may deny coverage or reimbursement if they determine that a medical product was not used in accordance with cost-effective
treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse
to cover and reimburse for experimental procedures and devices. Furthermore, because our programs are in the early stages of development,
we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. Increasingly, third-party
payors are requiring that drug companies provide them with predetermined discounts from list prices, and are challenging the prices charged
for medical products. If the price we are able to charge for any products we develop is inadequate in light of our development and other
costs, our profitability could be adversely affected.
Healthcare
legislative reform measures could hinder or prevent the commercial success of our products and product candidates.
In
the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system that could affect our future revenues and profitability. Federal and state lawmakers regularly propose and, at times, enact legislation
that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products
and services. For example, in March 2010, the Patient Protection and Affordable Care Act (the “ACA”), as amended by the Health
Care and Education Reconciliation Act, or collectively, the “Healthcare Reform Law,” became law in the United States. It
contains a number of provisions regarding health insurance, the provision of healthcare, conditions to reimbursement for healthcare services
provided to Medicare and Medicaid patients, and other healthcare policy reforms. Through the law-making process, substantial changes
have been and continue to be made to the current system for paying for healthcare in the United States, including changes made to extend
medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or
conditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on
pharmaceutical and medical device companies). This legislation was one of the most comprehensive and significant reforms ever experienced
by the United States in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and
private insurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies,
among others. Additionally, the Healthcare Reform Law’s provisions were designed to encourage providers to find cost savings in
their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. This environment has caused
changes in the purchasing habits of consumers and providers and resulted in specific attention to the pricing negotiation, product selection
and utilization review surrounding pharmaceuticals. This attention may result in any products we may commercialize or promote in the
future, and/or our therapeutic candidates, as applicable, being chosen less frequently or subject to substantially lowered pricing.
These
structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare,
Medicaid, and the State Children’s Health Insurance Program), creation of government-sponsored healthcare insurance sources, or
some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement
for prescribed drugs and pharmaceuticals, including our current commercial products, those we and our development or commercialization
partners are currently developing or those that we may commercialize or promote in the future. If reimbursement for the products we currently
commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or
otherwise adversely affected in the future, or rebate obligations associated with them are substantially increased, it could have a material
adverse effect on our reputation, business, financial condition or results of operations.
Further,
there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which
have resulted in several recent Congressional inquiries and proposed and enacted bills designed to, among other things, bring more transparency
to prescription drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for products. In addition, the United States government, state legislatures, and foreign governments have
shown significant interest in implementing drug cost containment programs, including price-controls, restrictions on reimbursement and
requirements for substitution of generic products for branded prescription drugs to limit the growth of government paid health care costs.
For example, the United States government has passed legislation requiring pharmaceutical manufacturers to provide rebates and discounts
to certain entities and governmental payors to participate in federal healthcare programs. Further, Congress and the current administration
have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs, and the current
administration recently released a “Blueprint”, or plan, to reduce the cost of drugs. The current administration’s
Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement. Individual
states in the United States have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We
anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and commercial payers
to reduce prescription drug costs
while expanding individual healthcare benefits. Additional changes that may affect our business include those governing enrollment
in federal healthcare programs, reimbursement changes, fraud and abuse enforcement, and expansion of new programs, such as Medicare payment
for performance initiatives. The ultimate implementation of any healthcare reform legislation and any new
laws and regulations, and its impact on us, is impossible to predict. Any significant reforms made to the healthcare system in the United
States, or in other jurisdictions, may have an adverse effect on our business, financial condition, results of operations and
prospects.
We
may also be subject to federal and state healthcare laws and regulations relating to our current and/or future operations, and our failure
to comply with those laws could adversely affect our business, operations and financial condition.
If
we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations
may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation,
the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact,
among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation
by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting,
receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service
or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare
and Medicaid programs; |
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the
federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be
presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply
to entities that provide coding and billing advice to customers; |
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federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters; |
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the
federal physician sunshine requirements under the Affordable Care Act, which requires manufacturers of drugs, devices, biologics,
and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other
transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held
by physicians and other healthcare providers and their immediate family members; |
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the
federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy
of protected health information; and |
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal
government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws
that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
For instance, the California Consumer Privacy Act, or the CCPA, became effective on January 1, 2020. The CCPA gives California residents
expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed
information about how their personal information is used by requiring covered companies to provide new disclosures to California
consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information.
The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to
increase data breach litigation. Although there are limited exemptions for clinical trial data and the CCPA’s implementation
standards and enforcement practices are likely to remain uncertain for the foreseeable future, the CCPA may increase our compliance
costs and potential liability. Many similar privacy laws have been proposed at the federal level and in other states. |
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our
business activities could be subject to challenge under one or more of such laws. In addition, the federal government has identified
relationships between drug companies (and other medical-product manufacturers) and healthcare providers as particularly susceptible to
fraud and abuse and, thus, our relationships may be subject to heightened regulatory scrutiny, particularly once we have one or more
products on the U.S. market, if ever. Further, many of the applicable healthcare laws and regulations are subject to varying and/or evolving
interpretations, which makes achieving and maintaining consistent compliance more difficult.
Achieving
and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we
successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the
operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from
participation in federal and state healthcare programs, imprisonment, or the curtailment or restructuring of our operations, any of which
could adversely affect our ability to operate our business and our financial results.
We
will be required to pay substantial milestone and other payments relating to the commercialization of our products.
Aldoxorubicin
The
agreement relating to our worldwide rights to aldoxorubicin provides for our payment of up to an aggregate of $7.5 million upon meeting
specified clinical and regulatory milestones up to and including the product’s second, final marketing approval. We also will be
obliged to pay:
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commercially
reasonable royalties based on a percentage of net sales (as defined in the agreement); |
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percentage of any non-royalty sub-licensing income (as defined in the agreement); and |
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milestones
of $1,000,000 for each additional final marketing approval that we might obtain. |
Arimoclomol
The
agreement relating to our worldwide rights to arimoclomol provides for our payment of up to an aggregate of $3.65 million upon receipt
of milestone payments from Orphayzme A/S.
Innovive
Under
the merger agreement by which we acquired Innovive, we agreed to pay the former Innovive stockholders a total of up to approximately
$18.3 million of future earnout merger consideration, subject to our achievement of specified net sales under the Innovive license agreements.
The earnout merger consideration, if any, will be payable in shares of our common stock, subject to specified conditions, or, at our
election, in cash or by a combination of shares of our common stock and cash. Our common stock will be valued for purposes of any future
earnout merger consideration based upon the trading price of our common stock at the time the earnout merger consideration is paid.
The
ongoing COVID-19 pandemic could adversely impact our business and prospects, including active and planned clinical trials by ImmunityBio
and Orphazyme.
In
December 2019, a novel strain of coronavirus, COVID-19, was first identified in China and has surfaced in several regions across the
world. In March 2020, the disease was declared a pandemic by the World Health Organization. The COVID-19 pandemic has, from time to time,
led to government-imposed quarantines, limitations on business activity and shelter-in-place mandates to mitigate or contain the virus,
and has contributed to financial market volatility and uncertainty, significant disruptions in general commercial activity and the global
economy.
As
the COVID-19 pandemic continues to evolve, the companies which we are working to develop and commercialize our products, ImmunityBio
and Orphazyme, could be materially and adversely affected by the risks, or the public perception of the risks, related to the COVID-19
pandemic, which could cause delays in our potential timing of receipts of milestones and royalties within the disclosed time periods
and expected costs. The disruptions to ImmunityBio and Orphazyme could include:
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delays
or difficulties in recruiting and enrolling new patients in their clinical trials; |
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; |
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diversion
of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as their clinical
trial sites and hospital staff supporting the conduct of their clinical trials; |
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interruption
of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by
federal or state governments, employers and others; |
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limitations
in employee resources that would otherwise be focused on the conduct of their clinical trials, including because of sickness of employees
or their families or the desire of employees to avoid contact with large groups of people; |
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interruption
in global shipping that may affect the transport of clinical trial supplies and materials, such as investigational drug product used
in their clinical trials; |
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delays
in receiving approval from the FDA and local regulatory authorities to initiate their planned clinical trials; |
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changes
in FDA and local regulation as part of a response to the COVID-19 coronavirus outbreak which may change the ways in which clinical
trials are conducted of discontinue clinical trials altogether; |
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delays
in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee
resources or forced furlough of government employees; |
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delay
in the timing of other interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and
attention to approval of other therapeutics or other activities related to COVID-19; and |
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refusal
of the FDA to accept data from clinical trials in affected geographies outside the United States. |
The
extent to which the COVID-19 pandemic may impact our business and prospects will depend on future developments, which are highly uncertain
and cannot be predicted with confidence, such as the duration of the pandemic, new variants of the coronavirus, travel restrictions and
social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions
taken in the United States and other countries to contain and treat the disease.
In
the event of a dispute regarding our international drug development, it may be necessary for us to resolve the dispute in the foreign
country of dispute, where we would be faced with unfamiliar laws and procedures.
The
resolution of disputes in foreign countries can be costly and time consuming, similar to the situation in the United States. In a foreign
country, we face the additional burden of understanding unfamiliar laws and procedures. We may not be entitled to a jury trial, as we
might be in the United States. Further, to litigate in any foreign country, we would be faced with the necessity of hiring lawyers and
other professionals who are familiar with the foreign laws. For these reasons, we may incur unforeseen expenses if we are forced to resolve
a dispute in a foreign country.
Drug
discovery is a complex, time-consuming and expensive process, and we may not succeed in creating new product candidates.
Conducting
drug discovery and pre-clinical development of our albumin-binding technology is a complex and expensive process that will take many
years. Accordingly, we cannot be sure whether or when our drug discovery and pre-clinical development activities will succeed in developing
any new product candidates. In addition, any product candidates that we develop in pre-clinical testing may not demonstrate success in
clinical trials required for marketing approval.
Any
deficiency in the design, implementation or oversight of our drug discovery and pre-clinical testing programs could cause us to incur
significant additional costs, experience significant delays, prevent us from obtaining marketing approval for any product candidate that
may result from these programs or abandon development of certain product candidates. If any of these risks materializes, it could harm
our business and cause our stock price to decline.
General
Risk Factors
We
are subject to intense competition, and we may not compete successfully.
Many
companies, including large pharmaceutical and biotechnology firms with financial resources, research and development staffs, and facilities
that may be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research and development
of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire, through license or
otherwise, existing or potential new products, we will be competing with numerous other companies, many of which will have substantially
greater financial resources and large acquisition staffs that may give those companies a competitive advantage over us in identifying
and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products marketed by companies
that in many cases will have substantially greater marketing resources than we have. The industry is characterized by rapid technological
advances and competitors may develop their products more rapidly and such products may be more effective than those currently under development
or that may be developed in the future by our strategic partners or licensees. Competitive products for a number of the disease indications
that we have targeted are currently being marketed by other parties, and additional competitive products are under development and may
also include products currently under development that we are not aware of or products that may be developed in the future.
As
a result, these competitors may:
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succeed in developing competitive products sooner than us or our strategic partners or licensees;
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obtain FDA or foreign governmental approvals for their products before we can obtain approval of any of our products;
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obtain patents that block or otherwise inhibit the development and commercialization of our product candidate candidates;
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develop products that are safer or more effective than our products;
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devote greater resources than us to marketing or selling products;
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introduce or adapt more quickly than us to new technologies and other scientific advances;
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introduce products that render our products obsolete;
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withstand price competition more successfully than us or our strategic partners or licensees;
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negotiate third-party strategic alliances or licensing arrangements more effectively than us; and
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take better advantage than us of other opportunities.
We
are subject to potential liabilities from clinical testing and future product liability claims.
If
any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our
products or, if we obtain marketing approval and commercialize our products, by patients using our commercially marketed products. Even
if one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We maintain
clinical trial insurance for our ongoing clinical trials, and we plan to seek to obtain similar insurance for any other clinical trials
that we conduct. We also would seek to obtain product liability insurance covering the commercial marketing of our product candidates.
We may not be able to obtain additional insurance, however, and any insurance obtained by us may prove inadequate in the event of a claim
against us. Any claims asserted against us also may divert management’s attention from our operations, and we may have to incur
substantial costs to defend such claims even if they are unsuccessful.
We
may be unable to successfully acquire additional technologies or products. If we require additional technologies or products, our product
development plans may change and the ownership interests of our shareholders could be diluted.
We
may seek to acquire additional technologies by licensing or purchasing such technologies, or through a merger or acquisition of one or
more companies that own such technologies. We have no current understanding or agreement to acquire any technologies, however, and we
may not be able to identify or successfully acquire any additional technologies. We also may seek to acquire products from third parties
that already are being marketed or have been approved for marketing, although we have not currently identified any of these products.
We do not have any prior experience in acquiring or marketing products approved for marketing and may need to find third parties to market
any products that we might acquire.
We
have focused our product development efforts on our oncology and neurodegenerative drug candidates, which we believe have the greatest
revenue potential. If we acquire additional technologies or product candidates, we may determine to make further changes to our product
development plans and business strategy to capitalize on opportunities presented by the new technologies and product candidates.
We
may determine to issue shares of our common stock to acquire additional technologies or products or in connection with a merger or acquisition
of another company. To the extent we do so, the ownership interest of our stockholders will be diluted accordingly.
The
impact and results of our exploration of any strategic alternatives are uncertain and may not be successful.
From
time to time, we may consider strategic alternatives available to us to enhance shareholder value. Strategic alternatives could include
acquisition transactions and/or strategic partnerships with one or more parties, the licensing of some of our proprietary technologies,
or other possible transactions. Any strategic transaction that is completed ultimately may not deliver the anticipated benefits or enhance
shareholder value. Further, we may devote a significant amount of our management resources to such a transaction, which could negatively
impact our operations. We may incur significant costs in connection with seeking certain acquisitions or other strategic opportunities
regardless of whether the transaction is completed, which could materially and adversely affect our liquidity and capital resources.
In the event that we consummate an acquisition or strategic alternative in the future, there is no assurance that we would fully realize
the potential benefits of such a transaction. Integration may be difficult and unpredictable, and acquisition-related integration costs,
including certain non-recurring charges, could materially and adversely affect our results of operations. Moreover, integrating assets
and businesses may significantly burden management and internal resources, including the potential loss or unavailability of key personnel.
If we fail to successfully integrate any assets and businesses we acquire, we may not fully realize the potential benefits we expect,
and our operating results could be adversely affected. If we pay for an acquisition in cash, it would reduce our cash available for operations
or cause us to incur additional debt, and if we pay with our stock it could be dilutive to our stockholders.
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
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 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 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 development programs could be delayed, any of which would harm our business and operations.
Our
business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural
disasters could severely disrupt our operations or the operations of manufacturing facilities and have a material adverse effect on our
business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event occurred that
prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as manufacturing
facilities, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business
for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and may
not prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited
nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business, financial
condition, results of operations and prospects.
Global,
market and economic conditions may negatively impact our business, financial condition and share price.
Concerns
over inflation, geopolitical issues, the U.S. financial markets, foreign exchange rates, capital and exchange controls, unstable global
credit markets and financial conditions and the COVID-19 pandemic, have led to periods of significant economic instability, declines
in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic
growth going forward, and increased unemployment rates. Our general business strategy may be adversely affected by any such economic
downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions
continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly,
and more dilutive. In addition, there is a risk that one or more of our current or future service providers and other partners could
be negatively affected by difficult economic times, which could adversely affect our ability to attain our operating goals on schedule
and on budget or meet our business and financial objectives.
In
addition, we face several risks associated with international business and are subject to global events beyond our control, including
war, public health crises, such as pandemics and epidemics, trade disputes, economic sanctions, trade wars and their collateral impacts
and other international events. Any of these changes could have a material adverse effect on our reputation, business, financial condition
or results of operations. There may be changes to our business if there is instability, disruption or destruction in a significant geographic
region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters,
including famine, flood, fire, earthquake, storm or disease. In February 2022, armed conflict escalated between Russia and Ukraine. The
sanctions announced by the United States and other countries, following Russia’s invasion of Ukraine against Russia to date include
restrictions on selling or importing goods, services or technology in or from affected regions and travel bans and asset freezes impacting
connected individuals and political, military, business and financial organizations in Russia. The United States and other countries
could impose wider sanctions and take other actions should the conflict further escalate. It is not possible to predict the broader consequences
of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on
macroeconomic conditions, currency exchange rates and financial markets, all of which could impact our business, financial condition
and results of operations.]
We
may not be successful in hiring and retaining key employees, which may harm our business.
Our
business is highly dependent upon the continued services of our senior management and key personnel. As such, our future success depends
on our ability to identify, attract, hire or engage, retain, and motivate well-qualified personnel. Our operations require qualified
personnel with expertise in pharmaceutical development and clinical research We must compete for qualified individuals with numerous
companies, universities, and other research institutions. Competition for such individuals is intense, and, when the need arises, we
may not be able to hire the personnel necessary to support our efforts. There can be no assurance that these professionals will be available
in the market, or that we will be able to retain existing professionals or to meet or to continue to meet their compensation requirements.
An
overall tightening and increasingly competitive labor market in the U.S. employment market generally, especially in response to the COVID-19
pandemic, has been recently observed in the United States. Sustained labor shortage or increased turnover rates within our employee base,
caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime
to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate
and our overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures
we may take to respond to a decrease in labor availability, such as third-party outsourcing have unintended negative effects, our business
could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by the COVID-19
pandemic or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations,
liquidity or cash flows.]
You
may experience future dilution as a result of future equity offerings or other equity issuances.
To
raise additional capital, we may in the future offer additional shares of our common stock, preferred stock or other securities convertible
into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities in any other
offering at a price per share that is equal to or greater than the price per share that you may have paid for any of such securities
that you currently hold. The price per share at which we sell additional shares of our common stock or other securities convertible into
or exchangeable for our common stock in future transactions may be higher or lower than the price per share that you may have paid for
previously for shares of our common stock. To the extent we raise additional capital by issuing equity securities or obtaining borrowings
convertible into equity, ownership dilution to existing stockholders may result and future investors may be granted rights superior to
those of existing stockholders.
Our
outstanding options, warrants, convertible preferred shares, preferred investment option and the availability for resale of the underlying
shares may adversely affect the trading price of our common stock.
As
of December 31, 2021, we had outstanding stock options to purchase 2,827,829 shares of our common stock at a weighted-average
exercise price of $4.92 per share and outstanding warrants to purchase 4,147 shares of common stock at a weighted-average exercise
price of $33.60 per share. In addition, there are 8,240 preferred shares outstanding that can be converted into 9,336,637 shares of
common stock, as well as preferred investment options that can be exercised for up to 11,363,637 shares of common stock at an
exercise price of $0.88 per share. These outstanding convertible instruments could adversely affect our ability to obtain future
financing or engage in certain mergers or other transactions, since the holders of these outstanding securities can be expected to
exercise or convert them (as applicable) at a time when we may be able to obtain additional capital through a new offering of
securities on terms more favorable to us than the terms of these outstanding convertible instruments. For the life of the these
outstanding convertible instruments, the holders have the opportunity to profit from a rise in the market price of our common stock
without assuming the risk of ownership. The issuance of shares upon the exercise or conversion (as applicable) of these outstanding
convertible instruments will also dilute the ownership interests of our existing stockholders. Many of our outstanding warrants
contain anti-dilution provisions pertaining to dividends with respect to our common stock. In the event that these anti-dilution
provisions are triggered by us in the future, we would likewise be required to reduce the exercise price or conversion price (as
applicable), and increase the number of shares underlying those convertible instruments, which would have a dilutive effect on our
stockholders.
We
have registered with the SEC the resale by the holders of some of the shares of our common stock issuable upon exercise or conversion
(as applicable) of our outstanding convertible instruments. The availability of these shares for public resale, as well as actual resales
of these shares, could adversely affect the trading price of our common stock.
We
cannot assure investors that our internal controls will prevent future material weaknesses.
Section
404 of the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and
disclosure controls and procedures. We are required to furnish a report by management on, among other things, the effectiveness of our
internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management
in our internal control over financial reporting.
There
can be no assurance that we will not suffer from material weaknesses in the future. If we fail to remediate these material weaknesses
or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could result in a material
misstatement of our annual or quarterly consolidated financial statements that would not be prevented or detected on a timely basis and
which could cause investors and other users to lose confidence in our consolidated financial statements, limit our ability to raise capital
and have a negative effect on the trading price of our common stock. Additionally, failure to remediate the material weaknesses or otherwise
failing to maintain effective internal controls over financial reporting may also negatively impact our operating results and financial
condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and regulatory
actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.
We
are subject to legal actions that could adversely affect our financial condition.
From
time to time, we may be involved in legal proceedings that arise in the ordinary course of business. Securities-related class action
and derivative lawsuits have often been brought against companies, including many biotechnology companies, which experience volatility
in the market price of their securities. This risk is especially relevant for biotechnology and biopharmaceutical companies such as ours,
which often experience significant stock price volatility in connection with their product development programs.
We
must pay the first legal fees and other litigation expenses incurred up to the application retention, or deductible, amounts under our
insurance policies, including our director’s and officer’s and other liability insurance policies, and the insurance may
not be sufficient to cover all of the liabilities that we may incur in connection with the pending or possible future legal actions.
As a result, any future legal actions may adversely affect out financial condition.
Our
anti-takeover measures may make it more difficult to change our management, or may discourage others from acquiring us, and thereby adversely
affect stockholder value.
We
have a stockholder rights plan and provisions in our restated by-laws, as amended, that are intended to protect our stockholders’
interests by encouraging anyone seeking control of our company to negotiate with our board of directors. These provisions may discourage
or prevent a person or group from acquiring us without the approval of our board of directors, even if the acquisition would be beneficial
to our stockholders.
We
have a classified board of directors, which means that at least two stockholder meetings, instead of one, will be required to effect
a change in the majority control of our board of directors. This applies to every election of directors, not just an election occurring
after a change in control. The classification of our board increases the amount of time it takes to change majority control of our board
of directors and may cause potential acquirers to lose interest in a potential purchase of us, regardless of whether our purchase would
be beneficial to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes
it more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change the
strategic direction or operational performance of our company.
Our
by-laws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding
shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any
incumbent director without cause. Our by-laws also provide that a stockholder must give us not fewer than 120 days but not more than
150 days’ notice of a proposal or director nomination that such stockholder desires to present at any annual meeting or special
meeting of our stockholders. Such provision prevents a stockholder from making a proposal or director nomination at a stockholder meeting
without us having advance notice of that proposal or director nomination. This could make a change in control more difficult by providing
our directors with more time to prepare an opposition to a proposed change in control. By making it more difficult to remove or install
new directors, these by-law provisions may also make our existing management less responsive to the views of our stockholders with respect
to our operations and other issues such as management selection and management compensation.
We
are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which may also prevent or delay a
takeover of us that may be beneficial to our stockholders.
Our
restated by-laws, as amended, designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or other employees.
Our
by-laws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the
sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach
of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising
pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim that is governed by the internal
affairs doctrine. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have
notice of and to have consented to this provision of our by-laws. This choice-of-forum provision may limit our stockholders’ ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which
may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated by-laws inapplicable
or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated
with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
The
Series C Certificate of Designation contains covenants that could limit our financing options and liquidity position, which would limit
our ability to grow our business.
Covenants
in the certificate of designation (the “Series C Certificate of Designation”) for our Preferred Stock (as defined below)
impose operating and financial restrictions on us. These restrictions prohibit or limit our ability to, among other things:
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pay
cash dividends to our stockholders, subject to certain limited exceptions; |
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redeem
or repurchase our common stock or other equity; or |
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issue
any classes of stock senior to the Preferred Stock in right of dividends, redemption or distribution of assets upon certain liquidation
events. |
These
restrictions may limit our ability to obtain additional financing, withstand downturns in our business or take advantage of business
opportunities.
We
may issue additional classes of preferred stock in the future, and the terms of the preferred stock may reduce the value of our common
stock.
We
are authorized to issue shares of preferred stock in one or more series. In the past, we have issued shares of preferred stock, including
shares of our Preferred Stock issued in 2021. Our board of directors may determine the terms of future preferred stock offerings without
further action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding common
stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends
and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our
assets to a third party.
We
do not expect to pay any cash dividends on our common stock.
We
have not declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying any cash
dividends in the foreseeable future. Because we do not anticipate paying cash dividends for the foreseeable future, our stockholders
will not realize a return on their investment in our common stock except to the extent of any appreciation in the value of our common
stock. Our common stock may not appreciate in value, or it may decline in value.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under
Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s
ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research and development
tax credits) to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there
is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year
period. Similar rules may apply under state tax laws. As a result of a previous ownership change, our annual utilization of approximately
$67.6 million in federal net operating loss carryforwards became substantially limited. If we experience ownership changes
as a result of future transactions in our stock, we may be further limited in our ability to use our net operating loss carryforwards
and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net
operating loss carryforwards and other tax assets could potentially result in increased future tax liability to us on any net income
that we may earn in the future.