Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act of 1934.
RISK FACTORS
An investment in our securities involves
a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other
information contained or incorporated by reference in this prospectus, including our consolidated financial statements and the
related notes, before making a decision to invest in our securities. You should also consider the risks, uncertainties and assumptions
discussed under Item 1A, “Risk Factors,” in Part I of our Annual Report on Form 10-K for the year ended December 31,
2017 and Item 1A, “Risk Factors,” in Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018
and any updates or other risks contained in other filings that we may make with the SEC after the date of this prospectus, all
of which are incorporated herein by reference, and may be amended, supplemented or superseded from time to time by other reports
we file with the SEC in the future and any additional prospectus supplement. If any of these risks actually occur, our business,
results of operations and financial condition could suffer. In that case, the market price of our common stock could decline,
and you may lose all or part of your investment.
RISKS RELATED TO THIS OFFERING
Investors will experience immediate
and substantial dilution in the book value per share of the securities purchased in this offering.
Investors purchasing securities in this
offering will incur immediate and substantial dilution in net tangible book value per share of our common stock. After giving
effect to the sale of
9,523,809 Class A Units, at an
assumed public offering price of $2.10 per Class A Unit (which was the last reported sale price of our common stock on the NYSE
American on October 8, 2018) assuming no sale of any Class B Units and after deducting the estimated underwriting discount and
estimated offering expenses payable by us, purchasers of our Class A units in this offering will incur immediate dilution of $0.10
per share in the net tangible book value of the common stock they acquire. For a further description of the dilution that investors
in this offering will experience, see “Dilution”.
In addition, to the extent that outstanding
stock options or warrants or preferred stock (including the exercise of any warrants) have been or may be exercised or converted
or other shares issued, you may experience further dilution.
Our management will have broad discretion
over the use of proceeds from this offering and may not use the proceeds effectively.
Our management will have broad discretion
over the use of proceeds from this offering. The net proceeds from this offering will be used to fund our and our subsidiaries’
preclinical and clinical programs (including, but not limited to, provide approximately $5.0-$7.0 in funding for manufacturing
scale-up activities to progress SYN-004 towards a potential Phase 3 (broad indication) clinical trial and/or initiate a Phase1/2
clinical trial(s) in a specialty population, approximately $7.5 million in funding for preclinical development and related manufacturing
activities in preparation for our IND and Phase 1 clinical trial for our SYN-020 program and required milestone payments) and
for working capital and general corporate purposes, including, to acquire, license or invest in complementary businesses, technologies,
product candidates or other intellectual property. Our management will have considerable discretion in the application of the
net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being
used appropriately. The net proceeds may be used for corporate purposes that do not improve our operating results or enhance the
value of our common stock.
Even if this offering is successful,
we will need to raise additional capital in the future to continue operations, which may not be available on acceptable terms,
or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development
efforts or other operations.
We have had recurring losses from operations,
negative operating cash flow and an accumulated deficit. We do not generate any cash from operations and must raise additional
funds in order to continue operating our business. We expect to continue to fund our operations primarily through equity and debt
financings in the future. Our cash requirements may vary from those now planned depending upon numerous factors, including the
result of future research and development activities. We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue research and development activities and initiate and conduct clinical trials of, and seek marketing
approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect
to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We expect
that our existing cash together with the proceeds from this offering, will be sufficient to meet our anticipated cash requirements
for the next twelve months. We will, however, require additional financing in order to complete our planned Phase 3 clinical trial
for SYN-004 and/or our planned Phase 2b/3 clinical trial for SYN-010. Accordingly, we will need to obtain substantial additional
funding in connection with our continuing operations. There are no other commitments by any person for future financing. Our securities
may be offered to other investors at a price lower than the price per share offered to current stockholders, or upon terms which
may be deemed more favorable than those offered to current stockholders. In addition, the issuance of securities in any future
financing may dilute an investor's equity ownership and have the effect of depressing the market price for our securities. Moreover,
we may issue derivative securities, including options and/or warrants, from time to time, to procure qualified personnel or for
other business reasons. The issuance of any such derivative securities, which is at the discretion of our board of directors,
may further dilute the equity ownership of our stockholders. No assurance can be given as to our ability to procure additional
financing, if required, and on terms deemed favorable to us. To the extent additional capital is required and cannot be raised
successfully, we may then have to limit our then current operations and/or may have to curtail certain, if not all, of our business
objectives and plans.
There is no established market for
the Series B Preferred or warrants being offered in this offering.
There is no established trading market
for the Series B Preferred or warrants and we do not expect a market to develop. In addition, we do not intend to apply for the
listing of the Series B Preferred or warrants on any national securities exchange or other trading market. Without an active trading
market, the liquidity of the Series B Preferred or warrants will be limited.
Holders of Series B Preferred will
have limited voting rights.
Except with respect to certain material
changes in the terms of the Series B Preferred and certain other matters and except as may be required by Nevada law, holders
of Series B Preferred will have no voting rights. Holders of Series B Preferred will have no right to vote for any members of
our board of directors.
The warrants are speculative and
holders of the warrants will not have rights of common stockholders until such warrants are exercised.
The warrants being offered do not confer
any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely
represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencing
on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price
per share equal to 120% of the public offering price, or $2.52 per share (assuming a public offering price of $2.10 per Class
A Unit, which was the last reported sale price of our common stock on the NYSE American on October 8, 2018) prior to three years
from the date of issuance, after which date any unexercised warrants will expire and have no further value. Moreover, there can
also be no assurance that the market price of the common stock will ever equal or exceed the exercise price of the warrants, and
consequently, whether it will ever be profitable for holders of the warrants to exercise the warrants.
The proceeds received from the exercise
of the warrants issued in this offering on a cash basis could be decreased upon the occurrence of certain events, which could
result in a decrease in our stock price and have a dilutive effect on our existing stockholders.
The warrants being offered do not confer
any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely
represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencing
on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price
per share equal to 120% of the public offering price, or $2.52 per share (assuming a public offering price of $2.10 per Class
A Unit, which was the last reported sale price of our common stock on the NYSE American on October 8, 2018) prior to five years
from the date of issuance, after which date any unexercised warrants will expire and have no further value. Moreover, there can
also be no assurance that the market price of the common stock will ever equal or exceed the exercise price of the warrants, and
consequently, whether it will ever be profitable for holders of the warrants to exercise the warrants.
RISKS RELATING TO OUR BUSINESS
We will need to raise additional
capital to operate our business and our failure to obtain funding when needed may force us to delay, reduce or eliminate our development
programs or commercialization efforts.
During the six months ended June 30, 2018,
our operating activities used net cash of approximately $10.4 million and as of June 30, 2018 our cash and cash equivalents were
$7.1 million. With the exception of the three months ended June 30, 2010, we have experienced significant losses since inception
and have a significant accumulated deficit. As of June 30, 2018, our accumulated deficit totaled approximately $200.8 million
on a consolidated basis. We expect to incur additional operating losses in the future and therefore expect our cumulative losses
to increase. With the exception of the quarter ended June 30, 2010, and limited laboratory revenues from Adeona Clinical Laboratory,
which we sold in March 2012, we have generated very minimal revenues. We do not expect to derive revenue from any source in the
near future until we or our potential partners successfully commercialize our products. We expect our expenses to increase in
connection with our anticipated activities, particularly as we continue research and development, initiate and conduct clinical
trials, and seek marketing approval for our product candidates. Until such time as we receive approval from the FDA and other
regulatory authorities for our product candidates, we will not be permitted to sell our products and therefore will not have product
revenues from the sale of products. For the foreseeable future we will have to fund all of our operations and capital expenditures
from equity and debt offerings, cash on hand, licensing and collaboration fees and grants, if any.
We will need to raise additional capital
to fund our operations and meet our current timelines and we cannot be certain that funding will be available on acceptable terms
on a timely basis, or at all. Based on our current plans, our cash and cash equivalents together with the proceeds of this offering
will not be sufficient to complete our planned Phase 3 clinical trial for SYN-004 or our planned Phase2b/3 clinical trial for
SYN-010. Any additional sources of financing will likely involve the issuance of our equity or debt securities, which will have
a dilutive effect on our stockholders. To the extent that we raise additional funds by issuing equity securities, our stockholders
may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our ability
to conduct our business. A failure otherwise to raise additional funds when needed in the future could result in us being unable
to complete planned preclinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory
authorities. In addition, we could be forced to delay, discontinue or curtail product development, forego sales and marketing
efforts, and forego licensing in attractive business opportunities. Our ability to raise capital through the sale of securities
may be limited by the rules of the SEC and NYSE American that place limits on the number and dollar amount of securities that
may be sold. There can be no assurances that we will be able to raise the funds needed, especially in light of the fact that our
ability to sell securities registered on our registration statement on Form S-3 will be limited until such time the market value
of our voting securities held by non-affiliates is $75 million or more. We also may be required to seek collaborators for our
product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise
be available.
We expect to continue to incur significant
operating and capital expenditures.
Other than with respect to the three months
ended December 31, 2017 and June 30, 2010, we have a history of losses and we have incurred, and will continue to incur, substantial
losses and negative operating cash flow. Even if we succeed in developing and commercializing one or more of our product candidates,
we may still incur substantial losses for the foreseeable future and may not sustain profitability. We expect that our pivotal
Phase 2b/3 and Phase 3 clinical trials will enroll a greater number of patients than our prior clinical trials and will be more
costly than our prior clinical trials. In addition, we anticipate a need for additional employees as we undertake later stage
clinical trials. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses
will substantially increase in the foreseeable future as we do the following:
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continue to undertake preclinical development and pivotal clinical trials for
our product candidates, including SYN-010 and SYN-004 (ribaxamase);
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seek regulatory approvals for our product candidates;
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develop our product candidates for commercialization;
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implement additional internal systems and infrastructure;
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license or acquire additional technologies;
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lease additional or alternative office facilities;
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manufacture product for clinical trials; and
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hire additional personnel, including members of our management team.
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We may experience negative cash flow for
the foreseeable future as we fund our development and clinical programs with capital expenditures. As a result, we will need to
generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or
achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our
common stock and underlying securities.
We currently have no significant
source of revenue and may never generate significant revenue. Currently, we have no products approved for commercial sale.
Our ability to generate revenue depends
heavily on:
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our ability to raise additional capital on a timely basis to continue to fund
our clinical trials;
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demonstration in current and future clinical trials that our lead product candidates,
SYN-010 for the treatment of IBS-C and SYN-004 (ribaxamase) for the prevention of
C. difficile
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our ability to seek and obtain regulatory approvals, including with respect to
the indications we are seeking;
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successful manufacture and commercialization of our product candidates; and
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market acceptance of our products.
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All of our existing product candidates
are in various stages of development and will require extensive additional clinical evaluation, regulatory review and approval,
significant marketing efforts and substantial investment before they could provide us with any revenue. As a result, even if we
successfully develop, achieve regulatory approval and commercialize our products, we may be unable to generate revenue for many
years, if at all. We do not anticipate that we will generate revenue from product sales for at least several years, if at all.
If we are unable to generate revenue from product sales, we will not become profitable, and we may be unable to continue our operations.
Our consolidated financial statements
have been prepared assuming that we will continue as a going concern.
Our consolidated financial statements
as of December 31, 2017 have been prepared under the assumption that we will continue as a going concern for the next twelve
months. In addition, our independent registered public accounting firm has issued a report that includes an explanatory paragraph
referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern
without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain
additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate
revenue. Our consolidated financial statements as of December 31, 2017 did not include any adjustments that might result
from the outcome of this uncertainty.
Our research and development efforts
may not succeed in developing commercially successful products and technologies, which may limit our ability to achieve profitability.
We are largely dependent on the success of our lead product candidates, SYN-004 (ribaxamase) and SYN-010, which require significant
additional clinical testing before we can seek regulatory approval and we cannot be certain that these product candidates will
receive regulatory approval or be successfully commercialized.
We must continue to explore opportunities
that may lead to new products and technologies. To accomplish this, we must commit substantial efforts, funds, and other resources
to research and development. A high rate of failure is inherent in the research and development of new products and technologies.
Any such expenditures that we make will be made without any assurance that our efforts will be successful. Failure can occur at
any point in the process, including after significant funds have been invested.
The success of our business currently
depends on our development, approval and commercialization of our lead product candidates, SYN-004 and SYN-010, which are our
only two product candidates for which we have conducted clinical trials. Even though we are pursuing a registration pathway for
each of these product candidates based on specific FDA input, there are many uncertainties known and unknown that may affect the
outcome of future clinical trials. All of our product candidates, including SYN-004 and SYN-010, will require additional clinical
and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient
commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. Regardless
of whether our clinical trials are deemed to be successful, promising new product candidates may fail to reach the market or may
only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability
to obtain necessary regulatory approvals or satisfy regulatory criteria, limited scope of approved uses, excessive costs to manufacture,
the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others.
Failure to obtain regulatory approvals of SYN-004 or SYN-010 in a timely manner would have a material adverse impact on our business.
Even if we successfully develop SYN-010, SYN-004 or other new products or enhancements, they may be quickly rendered obsolete
by changing customer preferences, changing industry standards, or competitors’ innovations. Innovations may not be quickly
accepted in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party
reimbursement. We cannot state with certainty when or whether any of our products under development will be launched, whether
we will be able to develop, license, or otherwise acquire drug candidates or products, or whether any products will be commercially
successful. Failure to launch successful new products or new indications for existing products may cause our products to become
obsolete, which may limit our ability to achieve profitability.
We are actively seeking and may
form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits
of such alliances or licensing arrangements.
We are actively seeking and may form or
seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties
that we believe will complement or augment our development and commercialization efforts with respect to our product candidates
and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other
charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management
and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process
is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other
alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for
collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety
and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable
to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic
transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering
into new strategic partnership agreements related to our product candidates could delay the development and commercialization
of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition
and results of operations.
We may not be able to retain rights
licensed to us by others to commercialize key products and may not be able to establish or maintain the relationships we need
to develop, manufacture, and market our products.
In addition to our own patent applications,
we also currently rely on licensing agreements with third party patent holders/licensors for our products. We have an exclusive
license agreement with CSMC relating to our IBS-C program. This agreement requires us or our sublicensee to use our best efforts
to commercialize each of the technologies as well as meet certain diligence requirements and timelines in order to keep the license
agreement in effect. In the event we or our sublicensee are not able to meet our diligence requirements, we may not be able to
retain the rights granted under our agreement or renegotiate our arrangement institution on reasonable terms, or at all. If the
license were to terminate and we were to lose the right to commercialize our products, our business opportunity would be adversely
affected. Furthermore, we currently have very limited product development capabilities, and limited marketing or sales capabilities.
For us to research, develop, and test our product candidates, we would need to contract with outside researchers, in most cases
those parties that did the original research and from whom we have licensed the technologies. Our ECC agreements with Intrexon
provide that Intrexon may terminate an agreement if we do not perform certain specified requirements, including developing therapies
considered superior. Our agreement with UT Austin allows the UT Austin to terminate its agreement if we fail to comply with the
terms of the agreement. Our agreement with CSMC allows CSMC to terminate its agreement if we fail to comply with the terms of
the agreement.
We can give no assurances that any of
our issued patents licensed to us or any of our other patent applications will provide us with significant proprietary protection
or be of commercial benefit to us. Furthermore, the issuance of a patent is not conclusive as to its validity or enforceability,
nor does the issuance of a patent provide the patent holder with freedom to operate without infringing the patent rights of others.
We will incur additional expenses
in connection with our arrangements with Intrexon, our development of SYN-004, SYN 010 and SYN-020, and our agreement with CSMC.
Pursuant to our ECC agreements with Intrexon,
we are responsible for future research and development expenses of product candidates developed under our collaboration, the effect
of which has and will continue to increase the level of our overall research and development expenses going forward. Our agreements
with CSMC requires that we initiate certain studies and file or have accepted an NDA within a certain amount of time, each of
which are costly and will require additional expenditures. Although all manufacturing, preclinical studies and human clinical
trials are expensive and difficult to design and implement, costs associated with the manufacturing, research and development
of biologic product candidates are generally greater in comparison to small molecule product candidates. We have added additional
personnel to support our ECC agreements with Intrexon, and research and development of our candidates, SYN-004, SYN-010 and SYN-020.
In addition, we have commenced or intend to commence manufacturing of SYN-004, SYN-010 and SYN-020 material to support our planned
preclinical and clinical studies which will require us to incur additional expenses.
Because our biologic programs are relatively
new, we have only recently assumed development responsibility and costs associated with such programs. In addition, because development
activities in collaboration with Intrexon are determined pursuant to joint steering committees comprised of Intrexon and ourselves
and we have limited product development experience, future development costs associated with these programs may be difficult to
anticipate and exceed our expectations. Our actual cash requirements may vary materially from our current expectations for a number
of other factors that may include, but are not limited to, unanticipated technical challenges, changes in the focus and direction
of our development activities or adjustments necessitated by changes in the competitive landscape in which we operate. If we are
unable to continue to financially support such collaborations due to our own working capital constraints, we may be forced to
delay our activities. If we are unable to obtain additional financing on terms acceptable to us or at all, we may be forced to
seek licensing partners or discontinue development.
Developments by competitors may
render our products or technologies obsolete or non-competitive.
Companies that currently sell or are developing
proprietary products for the prevention and treatment of
C. difficile
infection include: Actelion Pharmaceutical Ltd.,
Merck & Co. Inc., Merus B.V., Pfizer Inc., and Sanofi S.A. Companies that currently sell or are developing proprietary products
for IBS-C include: Actavis plc, Ironwood Pharmaceuticals, Inc., Synergy Pharmaceuticals Inc., and Takeda Pharmaceutical Company
Limited. Companies that currently sell or are developing proprietary products for pertussis include: GlaxoSmithKline plc, MitsubishiTanabe
Pharma Corporation and Sanofi S.A. Companies that sell or are developing products for the treatment of PKU include: BioMarin Pharmaceutical
Inc., Codexis, Inc. and Synlogic, Inc. Many of our competitors have significant financial and human resources. The infectious
disease market is highly competitive with many generic and proprietary intravenous and oral formulations available to physicians
and their patients. For our monoclonal antibodies, we currently do not expect to be able to deliver our infectious disease candidates
via the oral route and may thus be limited to the in-patient and/or acute treatment setting. In addition, academic research centers
may develop technologies that compete with our SYN-004, SYN-010, SYN-005, SYN-020 products and our other technologies. Should
clinicians or regulatory authorities view alternative therapeutic regiments as more effective than our products, this might delay
or prevent us from obtaining regulatory approval for our products, or it might prevent us from obtaining favorable reimbursement
rates from payers, such as Medicare, Medicaid, hospitals and private insurers.
We operate in a highly competitive
environment.
The pharmaceutical and biotechnology industries,
including the monoclonal antibody industry, are characterized by rapidly evolving technology and intense competition. Our competitors
include major multi-national pharmaceutical companies and biotechnology companies developing both generic and proprietary therapies
to treat serious diseases. Many of our competitors have drugs that have already been commercialized and therefore benefit from
being first to market their products. Many of these companies are well-established and possess technical, human, research and
development, financial, and sales and marketing resources significantly greater than ours. In addition, many of our potential
competitors have formed strategic collaborations, partnerships and other types of joint ventures with larger, well established
industry competitors that afford these companies potential research and development and commercialization advantages in the therapeutic
areas we are currently pursuing.
Academic research centers, governmental
agencies and other public and private research organizations are also conducting and financing research activities which may produce
products directly competitive to those being developed by us. In addition, many of these competitors may be able to obtain patent
protection, obtain FDA and other regulatory approvals and begin commercial sales of their products before us. These competitors
will compete with us in product sales as well as recruitment and retention of qualified scientific and management personnel, establishment
of clinical trial sites and patient enrollment for clinical trials, as well as in the acquisition of technologies and technology
licenses complementary to our programs or advantageous to our business.
Competitors could develop and/or
gain FDA approval of our product candidates for a different indication.
Many of our competitors may have more
resources than us. We cannot provide any assurances that our products will be FDA approved prior to those of our competitors.
We are subject to the risk that products containing our active ingredients that are already marketed to treat other indications,
or future FDA approved products containing our active ingredients that are marketed to treat other indications, may be prescribed
by physicians, or that physicians may substitute a competitor’s products, to treat the diseases for which we are intending
to commercialize; this is commonly referred to as “off-label” use. While under FDA regulations a competitor is not
allowed to promote off-label uses of its product, the FDA does not regulate the practice of medicine and, as a result, cannot
direct physicians to select certain products for their patients. Consequently, we might be limited in our ability to prevent off-label
use of a competitor’s product to treat the diseases we are intending to commercialize, even if we have issued method of
use patents for that indication. If we are not able to obtain and enforce our patents, if any, or otherwise receive orphan drug
protection, a competitor could develop and commercialize similar products for the same indications that we are pursuing. We cannot
provide any assurances that a competitor will not obtain FDA approval for a product that contains the same active ingredients
as our products.
If the parties we depend on for
supplying substance raw materials for our product candidates and certain manufacturing-related services do not timely supply these
products and services in sufficient quality or quantity, it may delay or impair our ability to develop, manufacture and market
our product candidates.
We rely on suppliers for the substance
raw materials of our product candidates and third parties for manufacturing-related services to produce material that meets appropriate
content, quality and stability standards and use in clinical trials of our products and, after approval, for commercial distribution.
To succeed, clinical trials require adequate supplies of study material, which may be difficult or uneconomical to procure or
manufacture and there can be no assurance that we will successfully procure such study material or even if procured, that we can
do so in quantities and in a timely manner to allow our clinical trials to proceed as planned. We and our suppliers and vendors
may not be able to (i) produce our study material to appropriate standards for use in clinical studies, (ii) perform under any
definitive manufacturing, supply or service agreements with us, or (iii) remain in business for a sufficient time to successfully
produce and market our product candidates. If we do not maintain important manufacturing and service relationships, we may fail
to find a replacement supplier or required vendor or manufacturer which could delay or impair our ability to obtain regulatory
approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement manufacturers
and vendors, we may not be able to enter into agreements with them on terms and conditions favorable to us and, there could be
a substantial delay before a new facility could be qualified and registered with the FDA and foreign regulatory authorities.
The third-party manufacturers of the active
pharmaceutical ingredient (API) and drug product for our lead product candidates, SYN-010 and SYN-004, are established cGMP manufacturers.
For all other therapeutic areas we have not yet established cGMP manufacturers for our biologic and drug candidates. We currently
have manufacturers for each of our lead product candidates as well as our SYN-020 program, however, we believe additional manufacturers
are available, if any of our manufacturers were to limit or terminate production or otherwise fail to meet the quality or delivery
requirements needed to satisfy the supply commitments, the process of locating and qualifying alternate sources could require
up to several months, during which time our production could be delayed. Any curtailment in the availability of SYN-004 or SYN-010
could have a material adverse effect on our business, financial position and results of operations. In addition, because regulatory
authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result
in production delays or higher raw material costs.
The manufacture of our product candidates
requires significant expertise and manufacturers may encounter difficulties in production, particularly in scaling up production.
These problems include difficulties with production costs and yields, quality control, including stability of the product and
quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign regulations.
We may experience longer than expected lead times with respect to the manufacture of SYN-004 (ribaxamase), which may result from
the increase in manufacturing scale necessary to conduct our anticipated Phase 3 clinical trial(s) and result in trial delays.
In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials,
increase the costs associated with conducting our clinical trials and, depending upon the period of delay, require us to commence
new clinical trials at significant additional expense or to terminate a clinical trial.
We are responsible for ensuring that each
of our contract manufacturers comply with the cGMP requirements of the FDA and other regulatory authorities from which we seek
to obtain product approval. While we oversee compliance, we do not have control over our manufacturers and their compliance with
regulatory requirements. These requirements include, among other things, quality control, quality assurance and the maintenance
of records and documentation. The approval process for NDAs includes a review of the manufacturer’s compliance with cGMP
requirements. We are responsible for regularly assessing a contract manufacturer’s compliance with cGMP requirements through
record reviews and periodic audits and for ensuring that the contract manufacturer takes responsibility and corrective action
for any identified deviations.
A failure to comply with these requirements
may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or
recall, or withdrawal of product approval. Furthermore, if our manufacturers fail to deliver the required commercial quantities
on a timely basis and at commercially reasonable prices, we may be unable to meet demand for any approved products and would lose
potential revenues.
We may not be able to manufacture
our product candidates in commercial quantities, which would prevent us from commercializing our product candidates.
To date, our product candidates have been
manufactured in small quantities for preclinical studies and clinical trials. If any of our product candidates is approved by
the FDA or comparable regulatory authorities in other countries for commercial sale, we will need to manufacture such product
candidate in larger quantities. We may not be able to increase successfully the manufacturing capacity for any of our product
candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation
studies, which the FDA must review and approve. If we are unable to increase successfully the manufacturing capacity for a product
candidate, the clinical trials as well as the regulatory approval or commercial launch of that product candidate may be delayed
or there may be a shortage in supply. Our product candidates require precise, high quality manufacturing. Our failure to achieve
and maintain these high quality manufacturing standards in collaboration with our third-party manufacturers, including the incidence
of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product
testing or delivery, cost overruns or other problems that could harm our business, financial condition and results of operations.
If we do not obtain the necessary
regulatory approvals in the U.S. and/or other countries we will not be able to sell our product candidates.
We cannot assure you that we will receive
the approvals necessary to commercialize any of our product candidates or any product candidates we acquire or develop in the
future. We will need FDA approval to commercialize our product candidates in the U.S. and approvals from the FDA-equivalent regulatory
authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. We will be required to conduct
clinical trials that will be costly. We cannot predict whether our clinical trials will demonstrate the safety and efficacy of
our product candidates or if the results of any clinical trials will be sufficient to advance to the next phase of development
or for approval from the FDA. We also cannot predict whether our research and clinical approaches will result in drugs or therapeutics
that the FDA considers safe and effective for the proposed indications. The FDA has substantial discretion in the drug approval
process. The approval process may be delayed by changes in government regulation, future legislation or administrative action
or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals may prevent
or delay commercialization of, and our ability to derive product revenues from our product candidates; and diminish any competitive
advantages that we may otherwise believe that we hold.
Even if we comply with all FDA requests,
the FDA may ultimately reject one or more of our NDAs or BLAs. We may never obtain regulatory clearance for any of our product
candidates. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by leaving us
without a saleable product, and therefore without any source of revenues, until another product candidate can be developed. There
is no guarantee that we will ever be able to develop or acquire another product candidate.
In addition, the FDA may require us to
conduct additional pre-clinical and clinical testing or to perform post-marketing studies, as a condition to granting marketing
approval of a product. The results generated after approval could result in loss of marketing approval, changes in product labeling,
and/or new or increased concerns about the side effects or efficacy of a product. The FDA has significant post-market authority,
including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information,
and compliance with FDA-approved risk evaluation and mitigation strategies. The FDA’s exercise of its authority has in some
cases resulted, and in the future could result, in delays or increased costs during product development, clinical trials and regulatory
review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of
approved products.
In foreign jurisdictions, we must also
receive approval from the appropriate regulatory authorities before we can commercialize any products, which can be time consuming
and costly. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures
described above. There can be no assurance that we will receive the approvals necessary to commercialize our product candidate
for sale outside the United States.
If the FDA approves any of our product
candidates, the labeling, manufacturing, packaging, adverse event reporting, storage, advertising, promotion and record-keeping
for our products will be subject to ongoing FDA requirements and continued regulatory oversight and review. Our drug manufacturers
and subcontractors that we retain will be required to comply with FDA and other regulations. We may also be subject to additional
FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market our product
candidates and/or may be subject to product recalls, seizures, suspension of regulatory approval, suspension of production, injunctions
or civil or criminal sanctions. The subsequent discovery of previously unknown problems with any marketed product, including adverse
events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal
of the product from the market.
Clinical trials are very expensive,
time-consuming, and difficult to design and implement.
Human clinical trials are very expensive
and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial
process is also time-consuming. We estimate that clinical trials for our product candidates would take at least several years
to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon
or repeat clinical trials. Commencement and completion of clinical trials may be delayed by several factors, including:
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obtaining an IND application with the FDA to commence clinical trials;
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identification of, and acceptable arrangements with, one or more clinical sites;
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obtaining IRB approval to commence clinical trials;
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unforeseen safety issues;
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determination of dosing;
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lack of effectiveness during clinical trials;
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slower than expected rates of patient recruitment;
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inability to monitor patients adequately during or after treatment;
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inability to obtain supply of our drug candidate in a timely manner;
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inability or unwillingness of medical investigators to follow our clinical protocols;
and
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unwillingness of the FDA or IRBs to permit the clinical trials to be initiated.
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In addition, we, IRBs or the FDA may suspend
our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if IRBs or the
FDA finds deficiencies in our submissions or conduct of our trials.
The results of our clinical trials
may not support our product candidate claims and the results of preclinical studies and completed clinical trials are not necessarily
predictive of future results.
To date, long-term safety and efficacy
have not yet been demonstrated in clinical trials for any of our product candidates. Favorable results in our early studies or
trials may not be repeated in later studies or trials. Even if our clinical trials are initiated and completed as planned, we
cannot be certain that the results will support our product candidate claims. Success in preclinical testing and early clinical
trials does not ensure that later clinical trials will be successful. Success of our predecessor P1A clinical product or positive
topline data from our previous SYN-004 Phase 1 and Phase 2 clinical trials, does not ensure success of SYN-004, and positive topline
data for our SYN-010 Phase 2 clinical trials does not ensure success of SYN-010. Furthermore, the FDA could determine that SYN-004
has not demonstrated safety and require additional clinical trials and safety data, despite positive results from our SYN-004
Phase 2b clinical trial and the determination by clinical sites investigators and an independent third party that the adverse
events that occurred in the group that received SYN-004 in our Phase 2b clinical trial were not drug related. We cannot be sure
that the results of later clinical trials would replicate the results of prior clinical trials and preclinical testing nor that
they would satisfy the requirements of the FDA or other regulatory agencies. Clinical trials may fail to demonstrate that our
product candidates are safe for humans and effective for indicated uses. A number of companies in the biopharmaceutical industry
have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding
promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products. Any
such failure could cause us or our sublicensee to abandon a product candidate and might delay development of other product candidates.
Preclinical and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory
approvals or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining FDA approval for
the affected product candidate and, ultimately, our ability to commercialize that product candidate.
If we encounter difficulties enrolling
patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
Delays in patient enrollment may result
in increased cost or may adversely affect timing or outcome of planned clinical trials, which could prevent completion of these
trials and adversely affect our ability to advance the development of our product candidates.
Delays in clinical testing could
result in increased costs to us and delay our ability to generate revenue.
We may experience delays in clinical testing
of our product candidates. We do not know whether planned clinical trials will begin on time, will need to be redesigned or will
be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory
approval to commence a clinical trial, in securing clinical trial agreements with prospective sites with acceptable terms, in
obtaining institutional review board approval to conduct a clinical trial at a prospective site, in recruiting patients to participate
in a clinical trial or in obtaining sufficient supplies of clinical trial materials. Manufacturing considerations for SYN-004
(ribaxamase) and our other product candidates may include an expected several month lead time following a decision to commence
any clinical trial(s) and capacity considerations of our third-party contract manufacturers to provide clinical supply of SYN-004
or our other product candidates could cause delays in clinical trials. Many factors affect patient enrollment, including the size
of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, competing
clinical trials and new drugs approved for the conditions we are investigating. Clinical investigators will need to decide whether
to offer their patients enrollment in clinical trials of our product candidates versus treating these patients with commercially
available drugs that have established safety and efficacy profiles. Any delays in completing our clinical trials will increase
our costs, slow down our product development and timeliness and approval process and delay our ability to generate revenue.
Patients who are administered our
product candidates may experience unexpected side effects or other safety risks that could cause a halt in their clinical development,
preclude approval of our product candidates or limit their commercial potential.
Our clinical trials may be suspended at
any time for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they
present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order the temporary
or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted
in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial patients.
For example, the FDA could determine that SYN-004 has not demonstrated safety and require additional clinical trials and safety
data, despite positive results from our SYN-004 Phase 2b clinical trial and the determination by clinical sites investigators
and an independent third party that the adverse events that occurred in the group that received SYN-004 in our Phase 2b clinical
trial were not drug related.
Administering any product candidate to
humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product
candidates and could result in the FDA or other regulatory authorities denying further development or approval of our product
candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human
use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse
health effects as a result of participating in our clinical trials. Any of these events could prevent us from achieving or maintaining
market acceptance of our product candidates and could substantially increase commercialization costs.
An NDA submitted under Section 505(b)(2)
subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval
of our product candidate.
We plan to submit SYN-010 to the FDA for
approval under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the submission of an NDA where at least some of the information
required for approval comes from studies that were not conducted by, or for, the applicant and on which the applicant has not
obtained a right of reference. The 505(b)(2) application would enable us to reference published literature and/or the FDA’s
previous findings of safety and effectiveness for the branded reference drug. For NDAs submitted under Section 505(b)(2) of the
FDCA, the patent certification and related provisions of the Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act,
such NDAs may be required to include certifications, known as paragraph IV certifications, that certify that any patents listed
in the Patent and Exclusivity Information Addendum of the FDA’s publication, Approved Drug Products with Therapeutic Equivalence
Evaluations, commonly known as the Orange Book, with respect to any product referenced in the 505(b)(2) application, are invalid,
unenforceable or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) NDA.
Under the Hatch-Waxman Act, the holder
of patents that the 505(b)(2) application references may file a patent infringement lawsuit after receiving notice of the paragraph
IV certification. Filing of a patent infringement lawsuit against the filer of the 505(b)(2) applicant within 45 days of the patent
owner’s receipt of notice triggers a one-time, automatic, 30-month stay of the FDA’s ability to approve the 505(b)(2)
NDA, unless patent litigation is resolved in the favor of the paragraph IV filer or the patent expires before that time. Accordingly,
we may invest a significant amount of time and expense in the development of one or more product candidates only to be subject
to significant delay and patent litigation before such product candidates may be commercialized, if at all. In addition, a 505(b)(2)
application will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical
entity, listed in the Orange Book for the referenced product has expired. The FDA may also require us to perform one or more additional
clinical studies or measurements to support the change from the branded reference drug, which could be time consuming and could
substantially delay our achievement of regulatory approvals for such product candidates. The FDA may also reject our future 505(b)(2)
submissions and require us to file such submissions under Section 505(b)(1) of the FDCA, which would require us to provide extensive
data to establish safety and effectiveness of the drug for the proposed use and could cause delay and be considerably more expensive
and time consuming. These factors, among others, may limit our ability to successfully commercialize our product candidates.
Our product candidates, if approved
for sale, may not gain acceptance among physicians, patients and the medical community, thereby limiting our potential to generate
revenues.
If one of our product candidates is approved
for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product by physicians,
healthcare professionals and third-party payors and our profitability and growth will depend on a number of factors, including:
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demonstration of safety and efficacy;
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changes in the practice guidelines and the standard of care for the targeted indication;
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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budget impact of adoption of our product on relevant drug formularies;
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the availability, cost and potential advantages of alternative treatments, including
less expensive generic drugs;
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pricing, reimbursement and cost effectiveness, which may be subject to regulatory
control;
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effectiveness of our or any of our partners’ sales and marketing strategies;
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the product labeling or product insert required by the FDA or regulatory authority
in other countries; and
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the availability of adequate third-party insurance coverage or reimbursement.
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If any product candidate that we develop
does not provide a treatment regimen that is as beneficial as, or is perceived as being as beneficial as, the current standard
of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other
regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products
will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our
ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve
an adequate level of acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product
would be substantially reduced. In addition, our efforts to educate the medical community and third-party payors on the benefits
of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion,
and may never be successful.
We depend on third parties, including
researchers and sublicensees, who are not under our control. If these third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates.
Since we have in-licensed some of our
product candidates, have sublicensed a product candidate and have collaboration agreements for the development of other product
candidates, we depend upon our sublicensee and independent investigators and scientific collaborators, such as universities and
medical institutions or private physician scientists, to advise us and to conduct our preclinical and clinical trials under agreements
with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to
our programs or the timing of their procurement of clinical-trial data or their compliance with applicable regulatory guidelines.
Should any of these scientific inventors/advisors or those of our sublicensee become disabled or die unexpectedly, or should they
fail to comply with applicable regulatory guidelines, we or our sublicensee may be forced to scale back or terminate development
of that program. They may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking
those programs ourselves. Failing to devote sufficient time and resources to our drug-development programs, or substandard performance
and failure to comply with regulatory guidelines, could result in delay of any FDA applications and our commercialization of the
drug candidate involved.
These collaborators may also have relationships
with other commercial entities, some of which may compete with us. Our collaborators assisting our competitors could harm our
competitive position. For example, we are highly dependent on scientific collaborators for our IBS-C development program, each
of whom are employed by third parties.
With respect to our product candidates
in collaboration with Intrexon, we are dependent upon Intrexon’s synthetic biology facilities and capabilities as we have
no such facilities and capabilities of our own. We are also reliant on their vectors, monoclonal antibody discovery, production
cell line development and know-how.
With respect to our product candidate
for pertussis in collaboration with University of Texas at Austin, we are dependent on its research laboratories as we have no
such facilities or capabilities of our own. If any of the foregoing were to become inaccessible or terminated, it would be difficult
for us to develop and commercialize our synthetic biologic product candidates.
We have in the past and expect to have
in the future agreements with third-party contract research organizations (CROs), under which we have delegated to the CROs the
responsibility to coordinate and monitor the conduct of our SYN-004 and SYN-010 clinical trials and to manage data for our clinical
programs. We, our CROs and our clinical sites are required to comply with current Good Clinical Practices, or cGCPs, regulations
and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials.
We have an ongoing obligation to monitor the activities conducted by our CROs and at our clinical sites to confirm compliance
with these requirements. In the future, if we, our CROs or our clinical sites fail to comply with applicable GCPs, the clinical
data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials
before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP
regulations, and will require a large number of test subjects. Our failure to comply with these regulations may require us to
repeat clinical trials, which would delay the regulatory approval process. If our CROs do not successfully carry out their contractual
duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data
they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons,
our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully
commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates
would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
We currently have no marketing,
sales or distribution organization and have no experience in marketing products as a company. If we are unable to establish marketing
and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able
to generate product revenue.
We currently have no marketing, sales
or distribution capabilities and have no experience in marketing products. We may develop an in-house marketing organization and
sales force, which will require significant capital expenditures, management resources and time. We will have to compete with
other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish
internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing
of our products; however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements.
Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or
no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if
we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us
with the sales and marketing efforts of our product candidates.
There can be no assurance that we will
be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators
to commercialize any product in the United States or overseas.
Even if our products are approved,
if doctors decide not to prescribe SYN-010 or hospitals decide not to prescribe SYN-004, we may be unable to generate sufficient
revenue to sustain our business.
To increase awareness and adoption of
our products once approved, we and our collaborators will need to educate doctors and hospitals on the benefits and value of our
products through published papers, presentations at scientific conferences and one-on-one education sessions. In addition, we
and our collaborators will need to assure doctors of our ability to obtain and maintain adequate reimbursement coverage from third-party
payors. We and our collaborators may need to hire additional commercial, scientific, technical, sales and marketing and other
personnel to support this process. If our educational efforts fail and medical practitioners do not decide to prescribe our products
in sufficient volume, we may be unable to generate sufficient revenue to sustain our business. In addition, factors outside of
our control, such as insurance reimbursement are expected to influence market acceptance of our products. Accordingly, even if
we receive regulatory approval for the use of our products, we may not be successful in generating revenue from the sale of our
products.
Reimbursement may not be available
for our product candidates, which would impede sales.
Market acceptance and sales of our product
candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage
as well as levels at which government authorities and third-party payers, such as private health insurers and health maintenance
organizations, reimburse patients for the price they pay for our products as well as levels at which these payors pay directly
for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement
will be available for any of our products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the
demand for, or the price of, our products. If coverage and reimbursement are not available or are available only at limited levels,
we may not be able to commercialize our products.
In recent years, officials have made numerous
proposals to change the health care system in the United States. These proposals include measures that would limit or prohibit
payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries,
particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. If our products
are or become subject to government regulation that limits or prohibits payment for our products, or that subjects the price of
our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products.
As a result of legislative proposals and
the trend towards managed health care in the United States, third-party payors are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements
and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA
has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse
patients for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs.
Healthcare reform measures could
hinder or prevent our product candidates’ commercial success.
The U.S. government and other governments
have shown significant interest in pursuing continued healthcare reform. Any government-adopted reform measures could adversely
impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement
available from governmental agencies or other third party payors. The continuing efforts of the U.S. and foreign governments,
insurance companies, managed care organizations and other payors of health care services to contain or reduce health care costs
may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues
and achieve and maintain profitability.
New laws, regulations and judicial decisions,
or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery
or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise
our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging
due to several reasons, including policies advanced by the current executive administration in the United States, new healthcare
legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the United States
and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system
in ways that could affect our ability to sell our products profitably.
If product liability lawsuits are
successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product
candidates.
We face an inherent risk of product liability
lawsuits related to the testing of our product candidates, and will face an even greater risk if we sell our product candidates
commercially. Currently, we are not aware of any anticipated product liability claims with respect to our product candidates.
In the future, an individual may bring a liability claim against us if one of our product candidates causes, or merely appears
to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we may incur substantial
liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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initiation of investigations by regulators;
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substantial monetary awards to patients or other claimants;
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distraction of management’s attention from our primary business;
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the inability to commercialize our product candidates.
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We have clinical trial liability insurance.
We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for our
product candidates. Our current insurance coverage may prove insufficient to cover any liability claims brought against us. In
addition, because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable
cost or obtain insurance coverage that will be adequate to satisfy liabilities that may arise.
We rely on patent applications and
various regulatory exclusivities to protect some of our product candidates and our ability to compete may be limited or eliminated
if we are not able to protect our products.
The patent positions of pharmaceutical
companies are uncertain and may involve complex legal and factual questions. We may incur significant expenses in protecting our
intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other
infringement litigation by or against us could cause us to incur significant expenses and divert the attention of our management.
Others may file patent applications or
obtain patents on similar technologies or compounds that compete with our products. We cannot predict how broad the claims in
any such patents or applications will be, and whether they will be allowed. Once claims have been issued, we cannot predict how
they will be construed or enforced. We may infringe intellectual property rights of others without being aware of it. If another
party claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large
sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign
our product, which may not be possible.
We also rely on trade secrets and proprietary
know-how to develop and maintain our competitive position. Some of our current or former employees, consultants, scientific advisors,
current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors
or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade
secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop
similar knowledge, methods, and know-how or gain access to our proprietary information through some other means.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated
with lawsuits.
If any other person files patent applications,
or is issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference
proceedings in the U.S. Patent and Trademark Office to determine priority of invention. We, or our licensors, may also need to
participate in interference proceedings involving our issued patents and pending applications of another entity.
The intellectual property environment
in the monoclonal antibody field is particularly complex, constantly evolving and highly fragmented. We have not conducted freedom-to-use
patent searches on all aspects of our product candidates or potential product candidates, and we may be unaware of relevant patents
and patent applications of third parties. In addition, the freedom-to-use patent searches that have been conducted may not have
identified all relevant issued patents or pending patents. We cannot provide assurance that our proposed products in this area
will not ultimately be held to infringe one or more valid claims owned by third parties which may exist or come to exist in the
future or that in such case we will be able to obtain a license from such parties on acceptable terms.
We cannot guarantee that the practice
of our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition
proceedings, either by opposing the validity of another’s foreign patent or by persons opposing the validity of our foreign
patents.
We may also face frivolous litigation
or lawsuits from various competitors or from litigious securities attorneys. The cost to us of any litigation or other proceeding
relating to these areas, even if deemed frivolous or resolved in our favor, could be substantial and could distract management
from our business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect
on our ability to continue our operations.
If we infringe the rights of others
we could be prevented from selling products or forced to pay damages.
If our products, methods, processes, and
other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or we may
be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling
to offer us a license on commercially acceptable terms.
We do not have a guarantee of patent
term restoration and marketing exclusivity of the ingredients for our drugs even if we are granted FDA approval of our products.
The U.S. Drug Price Competition and Patent
Term Restoration Act of 1984 (Hatch-Waxman) permits the FDA to approve Abbreviated New Drug Applications (ANDAs) for generic versions
of innovator drugs, as well as NDAs with less original clinical data, and provides patent restoration and exclusivity protections
to innovator drug manufacturers. The ANDA process permits competitor companies to obtain marketing approval for drugs with the
same active ingredient and for the same uses as innovator drugs, but does not require the conduct and submission of clinical studies
demonstrating safety and efficacy. As a result, a competitor could copy any of our drugs and only need to submit data demonstrating
that the copy is bioequivalent to gain marketing approval from the FDA. Hatch-Waxman requires a competitor that submits an ANDA,
or otherwise relies on safety and efficacy data for one of our drugs, to notify us and/or our business partners of potential infringement
of our patent rights. We and/or our business partners may sue the company for patent infringement, which would result in a 30-month
stay of approval of the competitor’s application. The discovery, trial and appeals process in such suits can take several
years. If the litigation is resolved in favor of the generic applicant or the challenged patent expires during the 30-month period,
the stay is lifted and the FDA may approve the application. Hatch-Waxman also allows competitors to market copies of innovator
products by submitting significantly less clinical data outside the ANDA context. Such applications, known as Section 505(b)(2)
NDAs may rely on clinical investigations not conducted by or for the applicant and for which the applicant has not obtained a
right of reference or use and are subject to the ANDA notification procedures described above.
The law also permits restoration of a
portion of a product’s patent term that is lost during clinical development and NDA review, and provides statutory protection,
known as exclusivity, against FDA approval or acceptance of certain competitor applications. Restoration can return up to five
years of patent term for a patent covering a new product or its use to compensate for time lost during product development and
regulatory review. The restoration period is generally one-half the time between the effective date of an IND and submission of
an NDA, plus the time between NDA submission and its approval (subject to the five-year limit), and no extension can extend total
patent life beyond 14 years after the drug approval date. Applications for patent term extension are subject to U.S. Patent and
Trademark Office (USPTO) approval, in conjunction with FDA. Approval of these applications takes at least nine months, and there
can be no guarantee that it will be given at all.
Hatch-Waxman also provides for differing
periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a “new
chemical entity” and those for a new formulation or indication for a previously-approved drug. If granted, marketing exclusivity
for the types of products that we are developing, which include only drugs with innovative changes to previously-approved products
using the same active ingredient, would prohibit the FDA from approving an ANDA or 505(b)(2) NDA relying on our safety and efficacy
data for three years. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does
not prohibit the FDA from approving applications for drugs with the same active ingredient but without our new innovative change.
These marketing exclusivity protections do not prohibit the FDA from approving a full NDA, even if it contains the innovative
change.
The technology on which our channel
partnering arrangements with Intrexon are based on early stage technology.
On August 8, 2012, we announced an exclusive
channel collaboration with Intrexon relating to the design, production, testing and commercialization of human recombinant monoclonal
antibodies for the treatment of certain infectious diseases. Although monoclonal antibody therapeutics are well established in
the biotechnology and pharmaceutical sectors, their use for the treatment of infectious disease is extremely limited. In order
for monoclonal antibodies to be effective for infectious diseases, they must not only properly target the organism of interest
(or its toxins), but may also need to overcome defenses and forms of resistance of such organisms. To accomplish this may require
the use of more than one specific monoclonal antibody, and mixtures of different monoclonal antibodies, which may create additional
unforeseen complications, including increased manufacturing complexity and expense. In order to be competitive, monoclonal antibodies
will be required to be produced at a low enough cost of goods in order to be profitably marketed. We have very limited development
and manufacturing experience in the field of monoclonal antibodies and infectious disease. We cannot assure that any monoclonal
antibody candidates will provide satisfactory
in vitro
and
in vivo
nonclinical results sufficient to warrant the
expense of cGMP manufacture and clinical testing in human clinical trials.
On August 10, 2015, we expanded our relationship
with Intrexon and entered into an ECC that governs a “channel collaboration” arrangement in which we intend to use
Intrexon’s technology for development of biotherapeutic products for the treatment of PKU in humans. The strategy is to
orally deliver a bacterium,
Lactococcus lactis
, that has been engineered to efficiently degrade phenylalanine in the GI
tract to prevent phenylalanine absorption into the blood. The strategy is supported by data from rodent studies. The extent to
which the data translate to large animal models and to a human therapeutic remains unknown. While genetically-modified versions
of
Lactococcus lactis
have been tested in human clinical trials for other indications, the regulatory paths for recombinant
bacterial products have not been fully established.
We do not expect to generate any
additional revenue from our sublicense with Meda AB due to recent developments in Europe.
On May 6, 2010, we entered into a sublicense
agreement with Meda AB whereby we were given the right to receive certain milestone payments totaling $17.5 million (including
an upfront payment of $2.5 million that was received in 2010), plus certain royalties on our flupirtine program. Meda AB informed
us that due to the decision of the European Medicines Agency (EMA) to limit the use of flupirtine for long-term pill and systemic
use, it has postponed its planned fibromyalgia clinical trials in the U.S. Therefore, we do not expect that the various milestones
set forth in the sublicense agreement will be achieved by Meda AB, or that Meda AB will develop flupirtine for fibromyalgia in
the U.S., Canada or Japan and accordingly we do not expect to receive any additional milestone payments or royalties on sales
in connection with the sublicense agreement.
We may fail to retain or recruit
necessary personnel, and we may be unable to secure the services of consultants.
As of September 30, 2018, we employed
25 individuals, 24 of whom are full-time employees. We have also engaged clinical consultants to advise us on our clinical programs
and regulatory consultants to advise us on our dealings with the FDA and other foreign regulatory authorities. We have been and
will be required to retain additional consultants and employees in order to fulfill our obligations under the ECC agreements with
Intrexon, our development of SYN 010 and SYN-004 and our agreement with CSMC. Our future performance will depend in part on our
ability to successfully integrate newly hired officers into our management team and our ability to develop an effective working
relationship among senior management.
Certain of our directors, scientific advisors,
and consultants serve as officers, directors, scientific advisors, or consultants of other biopharmaceutical or biotechnology
companies that might be developing competitive products to ours. Other than corporate opportunities, none of our directors are
obligated under any agreement or understanding with us to make any additional products or technologies available to us. Similarly,
we can give no assurances, and we do not expect and stockholders should not expect, that any biomedical or pharmaceutical product
or technology identified by any of our directors or affiliates in the future would be made available to us other than corporate
opportunities. We can give no assurances that any such other companies will not have interests that are in conflict with our interests.
Losing key personnel or failing to recruit
necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for
qualified personnel in the drug and biologic development areas, and we may not be able to attract and retain the qualified personnel
we would need to develop our business.
We rely on independent organizations,
advisors, and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval,
clinical management, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may
not always be available to us on a timely basis when we need them.
We expect to increase the size of
our organization, and we may experience difficulties in managing growth.
We are a small company with 25 employees
as of September 30, 2018. To continue our clinical trials and commercialize our product candidates, we will need to expand our
employee base for managerial, operational, financial and other resources. Future growth will impose significant added responsibilities
on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial
performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability
to manage any future growth effectively. To that end, we must be able to:
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manage development efforts effectively;
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manage our commercialization activities effectively;
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integrate additional management, administrative, manufacturing and sales and marketing personnel;
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maintain sufficient administrative, accounting and management information systems and controls; and
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hire and train additional qualified personnel.
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We may not be able to accomplish these tasks, and our failure
to accomplish any of them could harm our financial results and impact our ability to achieve development milestones.
Our management team may invest or
spend the proceeds of our prior offerings and future offerings in ways with which you may not agree or in ways which may not yield
a significant return.
Our management will have broad discretion
over the use of proceeds from our offerings. The net proceeds from our offerings, including sales made under the sales agreement
that we entered into on August 5, 2016 with FBR Capital Markets & Co. now known as B. Riley FBR, Inc. (the “B. Riley
FBR Sales Agreement”), will be used primarily for general corporate purposes, which may include, among other things, for
clinical trials for our product candidates, paying general and administrative expenses and accounts payable, increasing our working
capital, funding research and development and funding capital expenditures. We may also use a portion of the net proceeds for
licensing or acquiring intellectual property to incorporate into our products and product candidates or our research and development
programs and to in-license, acquire or invest in complementary businesses or products, although we have no commitments or agreements
with respect to any such licenses, acquisitions or investments as of the date of this filing supplement. Our management will have
considerable discretion in the application of the net proceeds, and investors will not have the opportunity, as part of their
investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes
that do not increase our operating results or enhance the value of our common stock. The failure of our management to use funds
effectively could have a material adverse effect on our business, cause the market price of our common stock to decline and impair
the commercialization of our products and/or delay the development of our product candidates. Pending their use, we may invest
the net proceeds from this offering in short-term, investment-grade, interest-bearing instruments and U.S. government securities.
These investments may not yield a favorable return to our stockholders.
RISKS RELATING TO OUR SECURITIES
We cannot assure you that our common
stock will be liquid or that it will remain listed on the NYSE American. A failure to regain compliance with the NYSE American
stockholders equity listing requirements or failure to continue to meet the other listing requirements could result in a de-listing
of our common stock.
Our common stock is listed on the NYSE
American. The NYSE American’s listing standards generally mandate that we meet certain requirements relating to stockholders’
equity, stock price, market capitalization, aggregate market value of publicly held shares and distribution requirements. We cannot
assure you that we will be able to maintain the continued listing standards of the NYSE American. The NYSE American requires companies
to meet certain continued listing criteria including a minimum stockholders’ equity of $6.0 million if an issuer has sustained
losses from continuing operations and/or net losses in its five most recent years, as outlined in the NYSE American Company Guide.
At June 30, 2018, we had stockholders’ deficit of $208.8 million. The NYSE American Company Guide also states that the NYSE
normally will not consider removing from listing securities of an issuer with total value of market capitalization of at least
$50.0 million and 1,100,000 shares publicly held, a market value of publicly held shares of at least $15.0 million and 400 round
lot shareholders. Although we have more than 1,100,000 shares publicly held and 400 round lot shareholders, our stock price is
volatile and, during the first two quarters of 2018, the price of our common stock experienced a sustained decrease resulting
in a period where our market capitalization fell below $50.0 million. Our market capitalization is currently below $50.0 million.
On March 7, 2018, we announced that we
received written communication from the NYSE American stating we were no longer in compliance with certain continued listing standards
as set forth in the NYSE American Company Guide. Specifically, based on our annual report on Form 10-K for the year ended December
31, 2017, and filed with the SEC on February 22, 2018, we are below compliance with Part 10, Section 1003(iii) of the NYSE American
Company Guide since we reported a stockholders’ deficit of $1.5 million and net losses in five of our most recent fiscal
years as of December 31, 2017. On April 3, 2018, we submitted a plan of compliance to the NYSE American outlining our plan to
regain compliance with certain continued listing standards as set forth in Part 10, Section 1003(iii) of the NYSE American Company
Guide by September 2, 2018, the conclusion of the compliance plan period. There can be no assurance that we can regain compliance
with the listing standard of the NYSE American, or that the NYSE American will continue to list our common stock if we regain
compliance, or if we continue to fail to maintain the minimum stockholders’ equity. In addition, in the future we may not
be able to maintain such minimum stockholders’ equity and/or issue additional equity securities in exchange for cash or
other assets, if available, to maintain certain minimum stockholders’ equity required by the NYSE American. If we are delisted
from the NYSE American then our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin
Board securities market, and then only if one or more registered broker-dealer market makers comply with quotation requirements.
If our common stock is delisted from the NYSE American due to our failure to regain compliance with the listing standards by the
end of the compliance period or for any other reason, and the market value of our shares of common stock held by non-affiliates
remains below $15 million, we will likely no longer be eligible to sell common stock pursuant to the B. Riley FBR Sales Agreement
or otherwise utilize our shelf registration statement. In addition, delisting of our common stock could depress our stock price,
substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable
to us, or at all. Delisting from the NYSE American could also have other negative results, including the potential loss of confidence
by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities. On May 18,
2018 we received notification from the NYSE American that NYSE Regulation has reviewed our plan of compliance and determined to
accept the plan and grant a plan period through September 2, 2019. NYSE Regulation staff will review our company periodically
for compliance with the initiatives outlined in the plan. If we are not in compliance with the continued listing standards by
September 2, 2019 or if we do not make progress consistent with the plan during the plan period, NYSE Regulation staff will initiate
delisting proceeding as appropriate.
If our common stock falls below $0.20
per share on a 30-trading-day average it will become subject to the continued listing evaluation and follow-up procedures set
forth in Section 1009 of the NYSE American Company Guide which could, among other things, result in initiation of immediate delisting
procedures. In the event that we were to fail to meet the requirements of NYSE American per share price requirement or stockholders
equity requirement and we could not timely cure such deficiency, our listing could become subject to NYSE American continued listing
evaluation and follow-up procedures, which could result in delisting procedures. Based on the low stock price on July 28,
2018, our board of directors approved a
one-for-thirty-five
proportionate
reverse stock split of our authorized number of shares of common stock and our outstanding number of shares of common stock that
we effected on August 10, 2018. However, there can be no assurance that the reverse stock split will result in a sustained higher
stock price that will allow us to meet the NYSE American stock price listing requirements or that the reverse stock split will
not inhibit our ability to seek equity financing as a remedy to regain compliance with NYSE American stockholders’ equity
requirements.
Holders of our warrants issued in
our October 2014 offering, and our November 2016 offering, and our Series A Preferred Stock have no rights as common stockholders
until they exercise their warrants or convert their Series A Preferred Stock and acquire our common stock.
Until the holders of the warrants we issued
in our October 2014 offering and our November 2016 offering and the holders of our Series A Preferred Stock acquire shares of
our common stock by exercising their warrants or converting their Series A Preferred Stock, respectively, the holders have no
rights as a stockholder with respect to the shares of common stock underlying their securities. Upon exercise of the warrants
or conversion of the Series A Preferred Stock, the holders will be entitled to exercise the rights of a common stockholder only
as to matters for which the record date occurs after the exercise date.
Because there is no established public
trading market for the October 2014 or November 2016 warrants or the Series A Preferred Stock we issued, the liquidity of each
such security is limited. We do not expect a market to develop, nor do we intend to apply to list the October 2014 or November
2016 warrants or the Series A Preferred Stock on any securities exchange. Upon exercise of the October 2014 or November 2016 warrants
and conversion of the Series A Preferred Stock, our stockholders will experience dilution.
The fundamental change purchase
feature of the warrants we issued in our November 2016 offering may delay or prevent an otherwise beneficial attempt to take over
our company.
The terms of the November 2016 warrants
require us to offer to purchase the warrants for cash in the event of a fundamental change, as defined. This feature may have
the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors.
Warrants are a risky investment.
Holders of outstanding warrants may not be able to recover the investment in the warrants, and the warrants may expire worthless.
Whether our outstanding warrants will
have any value will depend on the market conditions for, and the price of, our common stock, which conditions will depend on factors
related and unrelated to the success of our clinical development program, and cannot be predicted at this time.
If our common stock price does not increase
to an amount sufficiently above the exercise prices of the warrants during the periods the warrants are exercisable, holders of
warrants will be unable to recover any of their investment in the warrants. In fact, the warrants issued in November 2016 that
had an exercise price of $60.20 (post reverse stock split) expired unexercised because their exercise price was above the common
stock trading price. There can be no assurance that any of the factors that could impact the trading price of our common stock
will result in the trading price increasing to an amount that will exceed the exercise price or the price required for holders
of warrants to achieve a positive return on their investment in the warrants.
We may not have the funds necessary
to fulfill our obligation to repurchase the November 2016 warrants.
Under certain circumstances, if an extraordinary
transaction (as defined in the warrant agreement) occurs, holders of the warrants issued in November 2016 may require us to repurchase
the remaining unexercised portion of such warrants for an amount of cash equal to the value of the warrant as determined in accordance
with the Black Scholes option pricing model and the terms of the warrants. Our ability to repurchase the warrants depends on our
ability to generate cash flow in the future. To some extent, this is subject to general economic, financial, competitive, legislative
and regulatory factors and other factors that are beyond our control. We cannot assure you that we will maintain sufficient cash
reserves or that our business will generate cash flow from operations at levels sufficient to permit us to repurchase the warrants.
The issuance of shares of common
stock upon conversion of the Series A Preferred Stock would reduce the relative voting power of holders of our common stock, would
dilute the ownership of such holders and may adversely affect the market price of our common stock.
The conversion of the Series A Preferred
Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public
market of the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market prices
of our common stock. Sales by such holders of a substantial number of shares of our common stock in the public market, or the
perception that such sales might occur, could have a material adverse effect on the price of our common stock.
The holders of shares of the Series A Preferred Stock
may exercise significant influence over us.
The holders of the Series A Preferred
Stock will own approximately 9% of our shares of common stock on a fully diluted as-converted basis based on the number of shares
of common stock outstanding as of the date hereof.
In addition, under the terms of the Certificate
of Designation that governs the Series A Preferred Stock, the Series A Preferred Stock generally ranks, with respect to liquidation,
dividends and redemption, senior to other securities (including our common stock and Series B Preferred) and, so long as any shares
of Series A Preferred Stock remain outstanding, the approval of the holders of a majority of the Series A Preferred Stock outstanding
at the time of approval is required in order for us to, among other things, (i) alter or change adversely the powers, preferences
or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation; (ii) amend our Articles of Incorporation
or bylaws in any manner that adversely affects any powers, preferences or rights of the Series A Preferred Stock; (iii) authorize
or create any series or class of stock ranking as to redemption, distribution of assets upon a Liquidation Event (as defined in
the Certificate of Designation) or dividends senior to, or otherwise
pari passu
with, the Series A Preferred Stock; (iv)
declare or make any dividends other than dividend payments on the Series A Preferred Stock or other distributions payable solely
in common stock; (v) authorize any increase in the number of shares of Series A Preferred Stock or issue any additional shares
of Series A Preferred Stock; or (vi) enter into any agreement with respect to any of the foregoing.
The holders of Series A Preferred
Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders
and holders of our Series B Preferred Stock.
Upon our liquidation, dissolution or winding
up, the holders of the Series A Preferred Stock will be entitled to receive out of our assets, in preference to the holders of
the common stock and any junior preferred stock (including the Series B Preferred offered hereby), an amount per share equal to
the greater of (i) the sum of the Accreted Value (as defined in the Certificate of Designation) plus an amount equal to all accrued
or declared and unpaid dividends on the Series A Preferred Stock that have not previously been added to the Accrued Value, or
(ii) the amount that such shares would have been entitled to receive if they had converted into common stock immediately prior
to such liquidation, dissolution or winding up. In addition, upon consummation of a specified change of control transaction, each
holder of Series A Preferred Stock will be entitled to have us redeem the Series A Preferred Stock at a price specified in the
Certificate of Designation. These provisions may make it more costly for a potential acquirer to engage in a business combination
transaction with us. Provisions that have the effect of discouraging, delaying or preventing a change in control could limit the
opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that
some investors are willing to pay for our common stock. If there are insufficient assets to pay in full such amounts, then the
available assets will be ratably distributed to the holders of the Series A Preferred Stock in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon were paid in full. This will reduce the remaining
amount of our assets, if any, available to distribute to holders of our common stock. The holders of Series A Preferred Stock
also have a preferential right to receive cumulative dividends on the Accreted Value of each share of Series A Preferred Stock
at an initial rate of 2% per annum, compounded quarterly.
In addition, the holders of the Series
A Preferred Stock also have certain redemption and conversion rights.
Our obligations to the holders of Series
A Preferred Stock could limit our ability to obtain additional financing or increase our borrowing costs, which could have an
adverse effect on our financial condition. These preferential rights could also result in divergent interests between the holders
of shares of the Series A Preferred Stock and holders of our common stock and Series B Preferred.
The redemption right of the holders
of the Series A Preferred Stock may delay or prevent an otherwise beneficial change of control transaction or result in a depletion
of our cash in order to satisfy the redemption right of the holders Series A Preferred Stock.
The terms of the Series A Preferred Stock
provide the holders with the right to require us to redeem the stock upon a change of control for cash in the event of a fundamental
change, as defined. This feature may have the effect of delaying or preventing a change of control that would otherwise be beneficial
to investors or depleting our cash.
The market price of our common stock
has been and may continue to be volatile and adversely affected by various factors.
The market price of our common stock could
fluctuate significantly in response to various factors and events, including:
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our ability to execute our business plan;
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operating results below expectations;
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announcements concerning product development results, including clinical trial
results, or intellectual property rights of others;
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litigation or public concern about the safety of our potential products;
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our issuance of additional securities, including debt or equity or a combination
thereof, necessary to fund our operating expenses;
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announcements of technological innovations or new products by us or our competitors;
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loss of any strategic relationship;
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industry developments, including, without limitation, changes in healthcare policies
or practices or third-party reimbursement policies;
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economic and other external factors effecting U.S. or Global equity markets;
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period-to-period fluctuations in our financial results; and
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whether an active trading market in our common stock develops and is maintained.
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In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our articles of incorporation and
bylaws and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause
our stock price to decline.
Our articles of incorporation, as amended,
our amended and restated bylaws and Nevada law could make it more difficult for a third party to acquire us, even if closing such
a transaction would be beneficial to our stockholders. The board of directors could authorize the issuance of an additional series
of preferred stock that would grant holders preferred rights to our assets upon liquidation, special voting rights, the right
to receive dividends before dividends would be declared to common stockholders, and the right to the redemption of such shares,
possibly together with a premium, prior to the redemption of the common stock. To the extent that we do issue additional preferred
stock, the rights of holders of common stock could be impaired thereby, including without limitation, with respect to liquidation.
Provisions of our articles of incorporation,
as amended and our amended and restated bylaws may also prevent or frustrate attempts by our stockholders to replace or remove
our management. In particular, our articles of incorporation, as amended, and amended and restated bylaws, among other things:
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provide the board of directors with the ability to alter the bylaws without stockholder
approval; and
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provide that vacancies on the board of directors may be filled by a majority of
directors in office, although less than a quorum.
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Our failure to fulfill all of our
registration requirements may cause us to suffer liquidated damages, which may be very costly.
Pursuant to the terms of the registration
rights agreement that we entered into with Intrexon and an affiliated entity, we were required to file a registration statement
with respect to securities issued and are required to maintain the effectiveness of such registration statement. The failure to
do so could result in the payment of damages by us. There can be no assurance that we will be able to maintain the effectiveness
of any registration statement, and therefore there can be no assurance that we will not incur damages with respect to such agreements.
Pursuant to the terms of the registration
rights agreement that we entered into with holders of our Series A Preferred Stock, we are required to file a registration statement
with respect to the securities issued to them upon their request within certain time periods and are required to maintain the
effectiveness of such registration statement. The failure to do so could result in the payment of damages by us. There can be
no assurance that we will be able to meet the required filing deadlines or maintain the effectiveness of any registration statement,
and therefore there can be no assurance that we will not incur damages with respect to such agreements.
We do not intend to pay dividends
in the foreseeable future.
We have never paid cash dividends on our
common stock. We currently intend to retain our future earnings, if any, to finance the operation and growth of our business and
currently do not plan to pay any cash dividends in the foreseeable future. If we do not pay dividends, our common stock may be
less valuable because a return on your investment will only occur if the market price of our common stock price appreciates. Our
Series A Preferred Stockholders rank senior to our common stockholders with respect to dividends and, subject to any senior rights
of the Series A Preferred Stock, the holders of the Series B Preferred will participate, on an as-if-converted-to-common stock
basis, in any dividends to the holders of common stock.
Resales of our common stock in the
public market by our stockholders may cause the market price of our common stock to fall.
We may issue common stock from time to
time in connection with future offerings. Any issuance from time to time of new shares of our common stock, or our ability to
issue shares of common stock in future offerings, could result in resales of our common stock by our current stockholders concerned
about the potential dilution of their holdings. In turn, these resales could have the effect of depressing the market price for
our common stock.
The shares of common stock offered under the B. Riley
FBR Sales Agreement may be sold in “at the market” offerings, and investors who buy shares at different times will
likely pay different prices.
Investors who purchase shares that are
sold under the B. Riley FBR Sales Agreement at different times will likely pay different prices, and so may experience different
outcomes in their investment results. We will have discretion, subject to market demand, to vary the timing, prices, and numbers
of shares sold, and there is no minimum or maximum sales price. Investors may experience declines in the value of their shares
as a result of share sales made at prices lower than the prices they paid.
DESCRIPTION OF OUR
SECURITIES
Authorized Capital
Our authorized capital currently consists
of 200 million shares of common stock, par value $0.001 per share, and 10 million shares of preferred stock, par value $0.001
per share. As of October 8, 2018, 7,208,320 shares of common stock were issued and outstanding, and 120,000 shares of preferred
stock were issued and outstanding.
Common Stock
We may issue shares of our common stock
from time to time. We currently have authorized 200,000,000 million shares of common stock, par value $.001 per share. We may
offer shares of common stock alone or underlying the registered securities convertible into or exercisable for our common stock.
Voting.
The holders of our common
stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including
the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the shares of our
common stock entitled to vote in any election of directors can elect all of the directors standing for election.
Dividends.
Subject to preferences
that may be applicable to any then outstanding preferred stock, the holders of common stock are entitled to receive dividends,
if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation.
In the event of our
liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally
available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction
of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences.
The holders
of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions
applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and
issue in the future.
Fully Paid and Nonassessable
. All
of our outstanding shares of common stock are, and the shares of common stock to be issued under this prospectus will be, fully
paid and nonassessable.
In this prospectus, we have summarized
certain general features of our common stock under “Description of Our Securities—Common Stock”. We urge you,
however, to read the applicable prospectus supplement (and any related free writing prospectus that we may authorize to be provided
to you) related to any common stock being offered.
Preferred Stock
Our board of directors has the authority,
without action by our stockholders, to designate and issue up to 10 million shares of preferred stock in one or more series or
classes and to designate the rights, preferences and privileges of each series or class, which may be greater than the rights
of our common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights
of holders of our common stock until our board of directors determines the specific rights of the holders of the preferred stock.
However, the effects might include:
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restricting dividends on our common stock;
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diluting the voting power of our common stock;
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impairing liquidation rights of our common stock; or
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delaying or preventing a change in control of us without further action by our
stockholders.
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The board of directors’ authority
to issue preferred stock without stockholder approval could make it more difficult for a third-party to acquire control of our
company, and could discourage such attempt. We have no present plans to issue any shares of preferred stock.
Series A Preferred
We had 120,000 shares of Series A Preferred
Stock outstanding as of October 8, 2018.
The Series A Preferred Stock ranks senior
to the shares of our common stock, and any other class or series of stock issued by us with respect to dividend rights, redemption
rights and rights on the distribution of assets on our voluntary or involuntary liquidation, dissolution or winding up. Holders
of Series A Preferred Stock are entitled to a cumulative dividend at the rate of 2.0% per annum, payable quarterly in arrears,
as set forth in the Certificate of Designation of Series A Preferred Stock classifying the Series A Preferred Stock. The Series
A Preferred Stock is convertible at the option of the holders at any time into shares of common stock at a conversion price of
$18.90 per share (as adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018), subject to certain customary
anti-dilution adjustments.
Any conversion of Series A Preferred Stock
may be settled by us in shares of common stock only.
The holder’s ability to convert
the Series A Preferred Stock into common stock is subject to (i) a 19.99% blocker provision to comply with NYSE American Listing
Rules, (ii) if so elected by the holder, a 4.99% blocker provision that will prohibit beneficial ownership of more than 4.99%
of our outstanding shares common stock or voting power at any time, and (iii) applicable regulatory restrictions.
In the event of our liquidation, dissolution
or winding-up, holders of the Series A Preferred Stock are entitled to a preference on liquidation equal to the greater of (i)
an amount per share equal to the stated value plus any accrued and unpaid dividends on such share of Series A Preferred Stock
(the “Accreted Value”), and (ii) the amount such holders would receive in such liquidation if they converted their
shares of Series A Preferred Stock (based on the Accreted Value and without regard to any conversion limitation) into shares of
the common stock immediately prior to any such liquidation, dissolution or winding-up (the greater of (i) and (ii), is referred
to as the “Liquidation Value”).
Except as otherwise required by law, the
holders of Series A Preferred Stock have no voting rights, other than customary protections against adverse amendments and issuance
of
pari passu
or senior preferred stock. Upon certain change of control events involving our company, we will be required
to repurchase all of the Series A Preferred Stock at a redemption price equal to the greater of (i) the Accreted Value and (ii)
the amount that would be payable upon a change of control (as defined in the Certificate of Designation) in respect of common
stock issuable upon conversion of such share of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock
were converted into common stock immediately prior to the change of control.
On or at any time after (i) the VWAP (as
defined in the Certificate of Designation) for at least 20 trading days in any 30 trading day period is greater than $70.00 (as
adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018), subject to adjustment in the case of stock split,
stock dividends or the like we have the right, after providing notice not less than 6 months prior to the redemption date, to
redeem, in whole or in part, on a pro rata basis from all holders thereof based on the number of shares of Series A Preferred
Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption price per share of Series A Preferred Stock
of $7,875.00 (as adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018), subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred
Stock, or (ii) the five year anniversary of the issue date, we have the right to redeem, in whole or in part, on a pro rata basis
from all holders thereof based on the number of shares of Series A Preferred Stock then held, the outstanding Series A Preferred
Stock, for cash, at a redemption price per share equal to the Liquidation Value.
Warrants
As of October 8, 2018, we had issued and
outstanding warrants to purchase a total of 915,857 shares of our common stock outstanding at a weighted-average price of $75.16
(as adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018 without taking into account fractional shares
which are rounded up to the nearest whole number).
On November 18, 2016, we completed a public
offering of 714,286 shares of common stock (as adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018)
in combination with accompanying warrants to purchase an aggregate of 1,428,571 shares of the common stock(as adjusted to reflect
the 1-for-35 reverse stock split effected August 10, 2018), of which warrants to purchase 714,286 (as adjusted to reflect the
1-for-35 reverse stock split effected August 10, 2018 without taking into account fractional shares) shares of common stock are
outstanding (the “Series A Warrants”). The per share exercise price of the Series A Warrants is $50.05 (as adjusted
to reflect the 1-for-35 reverse stock split effected August 10, 2018) subject to further adjustment as specified in the warrant
agreements. The Series A Warrants may be exercised at any time until the four-year anniversary of the issuance date. The warrants
include a provision that if we were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased
from the holder for cash.
On October 10, 2014, we issued 14,059,616
units at a price of $1.47 per unit to certain institutional investors in a registered direct offering, each unit consisted of
one share of our common stock and a warrant to purchase 0.5 shares of common stock. The warrants, exercisable for an aggregate
of 200,852 (as adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018 without taking into account fractional
shares) shares of common stock, have an exercise price of $61.25 per share (as adjusted to reflect the 1-for-35 reverse stock
split effected August 10, 2018) and a life of five years. The warrants vested immediately and expire on October 10, 2019.
Options
As of October 8, 2018, options to purchase
an aggregate of 347,765 (as adjusted to reflect the 1-for-35 reverse stock split effected August 10, 2018 without taking
into account fractional shares) shares of common stock were outstanding under our equity incentive plans.
Stockholder Registration Rights
We are party to a registration rights
agreement (the “Registration Rights Agreement”) that provides the holder of the Series A Preferred Stock with certain
registration rights. Pursuant to the terms of the Registration Rights Agreement, we agreed to file a registration statement covering
resales of the shares of common stock issuable upon conversion of the Series A Preferred Stock with the SEC within 60 days following
receipt of a request at any time (as long as the requestor beneficially owns at least ten percent (10%) of our common stock then
outstanding or is otherwise deemed our affiliate) and to use reasonable best efforts to have the registration statement declared
effective within 120 days following receipt of such request.
We have agreed to pay certain penalties
if the registration statement is not declared effective by the SEC on or before the required deadline. After that deadline and
until such time as the registration statement is declared effective (or until we are no longer required to cause the registration
statement to be declared effective), we will be required to pay additional liquidated damages.
Pursuant to the terms of the registration
rights agreement that we entered into with Intrexon and an affiliated entity, we were required to file a registration statement
with respect to securities issued and are required to maintain the effectiveness of such registration statement. The failure to
do so could result in the payment of damages by us. The registration statement was declared effective on April 29, 2013.
Anti-Takeover Effects of Certain Provisions
of our Articles of Incorporation and Bylaws
Our Articles of Incorporation, as amended,
and amended and restated bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or
preventing a third party from acquiring control of the Company or changing its board of directors and management. According to
our Amended and Restated Bylaws and Articles of Incorporation, neither the holders of our common stock nor the holders of any
preferred stock we may issue in the future have cumulative voting rights in the election of our directors. The lack of cumulative
voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control
of our company by replacing its board of directors.
Authorized but Unissued Shares
Our authorized but unissued shares of
common stock and preferred stock will be available for future issuance without stockholder approval. We may use additional shares
for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions and as employee
compensation. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult
or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Anti-Takeover Effects of Nevada Law
Business Combinations
The “business combination”
provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statute (the “NRS”) generally prohibit a
Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested
stockholder for a period of two years after the date of the transaction in which the person became an interested stockholder,
unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status
or the combination is approved by the board of directors and thereafter is approved at a meeting of the stockholders by the affirmative
vote of stockholders representing at least 60% of the outstanding voting power held by disinterested stockholders, and extends
beyond the expiration of the two-year period, unless:
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the combination was approved by the board of directors prior to the person becoming
an interested stockholder or the transaction by which the person first became an interested stockholder was approved by the
board of directors before the person became an interested stockholder or the combination is later approved by a majority of
the voting power held by disinterested stockholders; or
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if the consideration to be paid by the interested stockholder is at least equal
to the highest of: (a) the highest price per share paid by the interested stockholder within the two years immediately preceding
the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever
is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the
interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation
value of the preferred stock, if it is higher.
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A “combination” is generally
defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer, or other disposition, in
one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value
equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5%
or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of the earning power or net
income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate or associate of an
interested stockholder.
In general, an “interested stockholder”
is a person who, together with affiliates and associates, owns (or within two years, did own) 10% or more of a corporation’s
voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may
discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their
stock at a price above the prevailing market price.
Control Share Acquisitions
The “control share” provisions
of Sections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations” that are Nevada corporations
with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and that conduct business
directly or indirectly in Nevada. The control share statute prohibits an acquirer, under certain circumstances, from voting its
shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains
approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more
but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally,
once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof
become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders
restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person
has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights
to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures
established for dissenters’ rights.
A corporation may elect to not be governed
by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws,
provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling
interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes,
and will be subject to these statutes if we are an “issuing corporation” as defined in such statutes.
The effect of the Nevada control share
statutes is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting
rights in the control shares as are conferred by a resolution of the stockholders at an annual or special meeting. The Nevada
control share law, if applicable, could have the effect of discouraging takeovers of our company.