Item
1A. Risk Factors
Summary
of Risk Factors
Investing
in our common stock involves significant risks. You should carefully consider the risks and uncertainties described below, together with
all of the other information in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our audited financial statements and related notes, and other filings we have made and
make in the future with the Securities and Exchange Commission. If any of the following risks are realized, our business, financial condition,
results of operations and prospects could be materially and adversely affected. In such case, the trading price of our common stock would
likely decline, and you may lose all or part of your investment. Below is a summary of some of the risks we face:
| ● | we
may not be successful in identifying and implementing any strategic alternatives, including
a potential merger, business combination, investment into the Company, asset sale or other
strategic transaction, and any such strategic transaction that we may consummate in the future
could have negative consequences; |
| ● | even
if we are successful in completing a strategic alternative, we may be exposed to other operational
and financial risks; |
| ● | our
ability to consummate a strategic alternative depends upon our ability to retain our employees
required to consummate such transaction; |
| ● | we
may become involved in securities litigation that could divert management’s attention
and harm our business, and insurance coverage may not be sufficient to cover all costs and
damages; |
| ● | if
we decide to dissolve and liquidate, the amount of cash that may be available for distribution
to our stockholders is uncertain; |
| ● | we
have had a history of losses and no revenue; |
| ● | we
are an early-stage biotechnology company and may never be able to successfully develop marketable
products or generate any revenue. We have a limited relevant operating history upon which
an evaluation of our performance and prospects can be made. There is no assurance that our
future operations will result in profits. If we cannot generate sufficient revenues, we may
suspend or cease operations; |
| ● | if
we fail to demonstrate efficacy or safety in any future research and clinical trials, our
future business prospects, financial condition and operating results will be materially adversely
affected; |
| ● | if
any future clinical trials are delayed, suspended or terminated, we may be unable to develop
future product candidates on a timely basis, which would adversely affect our ability to
obtain regulatory approvals, increase our development costs and delay or prevent commercialization
of any approved products; |
| ● | our
future success depends on our Chief Executive Officer and our Chief Financial Officer; |
| ● | we
may seek to establish development and commercialization collaborations, and, if we are not
able to establish them on commercially reasonable terms, we may have to alter our development
and commercialization plans; |
| ● | we
have not been successful to date in our efforts to develop commercially viable formulations
in our product candidates; |
| ● | we
may not be successful in our efforts to develop commercially viable formulations for our
product candidates; |
| ● | our
future research and development plans will require substantial additional future funding
which could impact our operational and financial condition. Without the required additional
funds, we will likely cease operations; |
| ● | if
we do not achieve any future projected development goals in the time frames we announce and
expect, the commercialization of any such future products may be delayed and, as a result,
our stock price may decline; |
| ● | even
if we are able to develop future potential drug candidates, we may not be able to obtain
regulatory approval, or if approved, we may not be able to generate significant revenues
or successfully commercialize our products, which will adversely affect our financial results
and financial condition, and we will have to delay or terminate some or all of our research
and development plans, which may force us to cease operations; |
| ● | even
if we are successful in developing future drug candidates, we may not be able to market or
generate sales of such future products to the extent anticipated. Our business may fail,
and investors could lose all of their investment in our Company; |
| ● | interim
and preliminary or topline data from our future clinical trials that we announce or publish
from time to time may change as more patient data become available and are subject to audit
and verification procedures that could result in material changes in the final data; |
| ● | any
future product candidate we are able to develop and commercialize would compete in the marketplace
with existing therapies and new therapies that may become available in the future. These
competitive therapies may be more effective, safer, better tolerated, less costly, more easily
administered or offer other advantages over any product we seek to market; |
| ● | the
use of any of our future products in clinical trials, and the results of those trials, may
expose us to liability claims, which may cost us significant amounts of money to defend against
or pay out, causing our business to suffer; |
| ● | if
we fail to establish and maintain proper and effective internal control over financial reporting
in the future, our ability to produce accurate and timely financial statements could be impaired,
which could harm our operating results, investors’ views of us and, as a result, the
value of our common stock; |
| ● | if
securities or industry analysts do not publish or cease publishing research or reports about
us, our business or our market, or if they change their recommendations regarding our stock
adversely, our stock price and trading volume could decline; and |
| ● | if
we are not able to comply with the applicable continued listing requirements or standards
of Nasdaq, our common stock could be delisted; |
We
operate in an environment that involves a number of risks and uncertainties. The risks and uncertainties described in this Quarterly
Report on Form 10-Q are not the only risks and uncertainties that we face. Additional risks and uncertainties that presently are not
considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. If any of the
risks described in this Quarterly Report on Form 10-Q actually occur, our business, operating results and financial position could be
adversely affected.
Risks
Related to Strategic Alternative Process and Potential Strategic Transaction
We
may not be successful in identifying and implementing any strategic alternatives, including a potential merger, business combination,
investment into the Company, asset sale or other strategic transaction, and any such strategic transaction that we may consummate in
the future could have negative consequences.
On
November 17, 2022, we announced our retention of Ladenburg Thalmann & Co. Inc. as a financial advisor to assist us in exploring strategic
alternatives. Potential strategic alternatives that may be explored or evaluated as part of this process include a merger, business combination,
investment into the Company, asset sale or other strategic transaction. Our board of directors has not set a timetable for the conclusion
of this review, nor has it made any definitive decisions related to taking any further actions or potential strategic options at this
time or at all.
The
process of continuing to evaluate these strategic alternatives is costly, time-consuming and complex, and we have incurred, and may in
the future incur, significant costs related to this continued evaluation, such as legal and accounting fees and expenses and other related
charges. We may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will
be incurred regardless of whether any such course of action is implemented or transaction is completed, decreasing the remaining cash
available for use in our business.
Potential
counterparties in a strategic transaction involving our Company may place minimal or no value on our assets. Further, the development
and any potential commercialization of our product candidates will require substantial additional cash to fund the costs associated with
conducting the necessary preclinical and clinical testing and obtaining regulatory approval. Consequently, any potential counterparty
in a strategic transaction involving our Company may choose not to spend additional resources and continue to utilize the Company’s
peptide library and technology platform and may attribute little or no value, in such a transaction, to those product assets.
There
can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued,
successfully consummated, lead to increased stockholder value, or achieve the anticipated results. If we are unable to consummate a strategic
transaction, our board of directors may decide to pursue a dissolution and liquidation.
Even
if we are successful in completing a strategic alternative, we may be exposed to other operational and financial risks.
Although
there can be no assurance that a strategic alternative will result from the process we have undertaken to identify and evaluate strategic
alternatives, the negotiation and consummation of any such transaction will require significant time on the part of our management, which
results in disruption to our business.
The
negotiation and consummation of any such transaction may also require more time or greater cash resources than we anticipate and expose
us to other operational and financial risks, including:
| ● | increased
near-term and long-term expenditures; |
| | |
| ● | exposure
to unknown liabilities; |
| | |
| ● | higher
than expected acquisition or integration costs; |
| | |
| ● | incurrence
of substantial debt or dilutive issuances of equity securities to fund future operations; |
| | |
| ● | write-downs
of assets or goodwill or incurrence of non-recurring, impairment or other charges; |
| | |
| ● | increased
amortization expenses; |
| | |
| ● | difficulty
and cost in combining the operations and personnel of any acquired business with our operations
and personnel; |
| | |
| ● | impairment
of relationships with key suppliers or customers of any acquired business due to changes
in management and ownership; |
| | |
| ● | inability
to retain key employees of our Company or any acquired business; and |
| | |
| ● | possibility
of future litigation. |
Any
of the foregoing risks could have a material adverse effect on our business, financial condition and prospects.
Our
ability to consummate a strategic alternative depends on our ability to retain our employees required to consummate such transaction.
Our
ability to consummate a strategic alternative depends upon our ability to retain our employees required to consummate such a transaction,
the loss of whose services may adversely impact the ability to consummate such transaction. If we are unable to successfully retain these
employees, we are at risk of a disruption to our exploration and consummation of a strategic alternative as well as business operations.
We
may become involved in securities litigation that could divert management’s attention and harm the Company’s business, and
insurance coverage may not be sufficient to cover all costs and damages.
In
the past, securities litigation has often followed certain significant business transactions, such as the sale of a company or announcement
of any other strategic transaction, or the announcement of negative events, such as negative results from clinical trials. We may be
exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and
resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic alternative
or the ultimate value our stockholders receive in any such transaction.
If
we decide to dissolve and liquidate our Company, the amount of cash that may be available for distribution to our stockholders is uncertain.
If
our board of directors decides to pursue a dissolution and liquidation of our Company, the amount of cash that may be available for distribution
to our stockholders is uncertain. This amount will depend on the resolution of our financial commitments and contingent liabilities and
the timing of the decision to liquidate. Our financial commitments and contingent liabilities include: (i) personnel costs, including
severance; (ii) contractual obligations to vendors and clinical study sites; and (iii) non-cancelable lease obligations.
Risks
Related to Our Financial Position and Need for Additional Capital
We
have had a history of losses and no revenue.
We
have generated substantial accumulated losses since our inception. We have not generated any revenues from our operations to date and
do not expect to generate any revenue in the near future. As a result, our management expects the business to continue to experience
negative cash flow for the foreseeable future. We can offer no assurance that we will ever operate profitably or that we will generate
positive cash flow in the future.
Until
we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing or one or
more strategic alternatives (as discussed above). We will need to raise additional funds, and such funds may not be available on commercially
acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take
advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business,
financial condition and results of operations. In the event we are not able to continue operations, investors will likely suffer a complete
loss of their investments in our securities.
We
are an early-stage biotechnology company and may never be able to successfully develop marketable products or generate any revenue. We
have a limited relevant operating history upon which an evaluation of our performance and prospects can be made. There is no assurance
that our future operations will result in profits. If we cannot generate sufficient revenues, we may suspend or cease operations.
We
are an early-stage company. Our operations to date have been limited to organizing and staffing our Company, business planning, raising
capital, identifying MDPs for further research, developing our intellectual property portfolio, performing research on identified MDPs
and our novel analogs and progressing our most advanced drug candidate into and through clinical studies. We have not generated any revenues
to date. All of our novel peptide analogs are in the concept, research or early clinical stages. We have not been able to identify suitable
formulations for our CB4211 or CB5138-3 product candidates and there can be no assurances that we will be able to develop suitable formulations
for any future product candidates. Moreover, we cannot be certain that any research and development efforts that we may undertake in
the future will be successful or, if successful, that our novel peptide analogs will ever be approved by the FDA. We have no relevant
operating history upon which an evaluation of our performance and prospects can be made. We are subject to all of the business risks
associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, evaluating and implementing
a strategic alternative (as discussed above), failure of potential drug candidates either in research, preclinical testing or in clinical
trials, and failure to establish business relationships and competitive advantages against other companies. If we fail to become profitable,
we may be forced to suspend or cease operations.
If
we fail to demonstrate efficacy or safety in any future research and clinical trials, our future business prospects, financial condition
and operating results will be materially adversely affected.
The
success of any future research and development efforts will greatly depend on our ability to demonstrate efficacy of our novel peptide
analogs in non-clinical studies, as well as in clinical trials. Non-clinical studies involve testing potential drug candidates in appropriate
non-human disease models to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve
clinical testing in humans. If certain non-clinical data reveals potential safety issues or the results are inconsistent with an expectation
of the potential drug’s efficacy in humans, the program may be discontinued or the regulatory agencies may require additional testing
before allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to
suspend further testing on our potential drugs if, in the judgment of our management and advisors, the non-clinical test results do not
support further development. For example, in December 2022, we announced that we had suspended further IND-enabling activities for our
CB5138-3 product candidate due to challenges in identifying a suitable formulation for clinical development.
Moreover,
success in future research, preclinical testing and early clinical trials does not ensure that later clinical trials will be successful,
and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and non-clinical
testing. Any future clinical trial process may fail to demonstrate that our potential drug candidates are safe for humans and effective
for indicated uses. This failure would cause us to abandon a drug candidate and may delay development of other potential drug candidates.
Any delay in, or termination of, future non-clinical testing or clinical trials will delay the filing of any future investigational new
drug application and new drug application with the FDA or the equivalent applications with pharmaceutical regulatory authorities outside
the United States and, ultimately, our ability to commercialize any potential drugs and generate product revenues. In addition, our Phase
1a/1b trial of CB4211, our most advanced drug candidate, involved, and we expect that any future early clinical trials that we may conduct
will involve, small patient populations. Because of these small sample sizes, the results of these early clinical trials, including the
topline data from our CB4211 Phase 1a/1b trial, may not be indicative of future results.
Risks
Related to Discovery, Development and Commercialization
If
any future clinical trials are delayed, suspended or terminated, we may be unable to develop future product candidates on a timely basis,
which would adversely affect our ability to obtain regulatory approvals, increase our development costs and delay or prevent commercialization
of any approved products.
We
cannot predict whether we will encounter problems with our future clinical trials that will cause regulatory agencies, institutional
review boards, or us to suspend or delay a trial. We have experienced delays in both our CB4211 and CB5138-3 programs. Our Phase 1a/1b
clinical trial for CB4211 was suspended in November 2018 in order to address injection site reactions, and was delayed again in March
2020 due to impacts of the COVID-19 pandemic. Our planned IND filing for our CB5138-3 product candidate was delayed from the second half
of 2022 to the second half of 2023 due to the observation of injection site reactions in our preclinical toxicology studies. Ultimately,
our efforts to mitigate these injection site reactions by improving the formulation for this product candidate were unsuccessful and
in December 2022, we announced that we had suspended further IND-enabling activities for this peptide.
Clinical
trials and clinical data collection protocols can be delayed for a variety of reasons, including:
| ● | unanticipated
consequences of the formulation of the product candidate requiring us to pause the trial
to investigate alternative formulations; |
| ● | the
occurrence of unacceptable drug-related side effects or adverse events experienced by participants
in our clinical trials; |
| ● | discussions
with the FDA regarding the scope or design of our clinical trials and clinical data collection
protocols; |
| ● | delays
or the inability to obtain required approvals from institutional review boards or other responsible
entities at clinical sites selected for participation in our existing or future clinical
trials; |
| ● | adverse
findings in clinical or nonclinical studies related to the safety of our product candidates
in humans; |
| ● | the
amendment of clinical trial or data collection protocols to reflect changes in regulatory
requirements and guidance or other reasons, as well as subsequent re-examination of amendments
of clinical trial or data collection protocols by institutional review boards or other responsible
bodies; and |
| ● | the
need to repeat or conduct additional clinical trials as a result of inconclusive or negative
results, failure to replicate positive early clinical data in subsequent clinical trials,
failure to deliver an efficacious dose of a product candidate, poorly executed testing, a
failure of a clinical site to adhere to the clinical protocol, an unacceptable study design
or other problems. |
In
addition, a future clinical trial or development program may be suspended or terminated by us, institutional review boards, the FDA or
other responsible bodies due to a number of factors, including:
| ● | failure
to conduct the clinical trial in accordance with regulatory requirements or our clinical
protocols; |
| ● | inspection
of the clinical trial operations or trial sites by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold; |
| ● | inability
to resume a suspended trial in a timely manner, which we cannot predict with certainty, if
at all; |
| ● | unforeseen
safety issues or any determination that a trial presents unacceptable health risks; |
| ● | inability
to deliver an efficacious dose of a product candidate; and |
| ● | lack
of adequate funding to continue the clinical trial. |
If
the results of our future clinical trials are not available when we expect or if we encounter any delay in the analysis of data from
our future clinical trials, we may be unable to conduct additional clinical trials on the schedule we anticipate. Many of the factors
that cause, or lead to, a delay in the commencement or completion of future clinical trials may also ultimately lead to the denial of
regulatory approval of a future product candidate. Any delays in completing a clinical trial could increase our development costs, delay
or prevent the availability of topline data expected to be available from the trial, delay product development and regulatory submission
process or make it difficult to raise additional capital.
If
we do not achieve any future projected development goals in the time frames we announce and expect, the commercialization of any such
future products may be delayed and, as a result, our stock price may decline.
From
time to time, we have estimated the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other product
development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific
studies and clinical trials and the submission of regulatory filings. From time to time, we have publicly announced and may in the future
publicly announce the expected timing of some of these milestones. All of these milestones have been and will be based on numerous assumptions,
including timely performance by our CROs and other vendors, positive clinical and preclinical results, our ability to develop commercially
viable formulations for our product candidates, and sufficient funding from partnering and general fundraising. The actual timing of
these milestones have varied dramatically compared to our estimates, in some cases for reasons beyond our control. For example, we initially
projected that we would have topline results from our 1a/1b clinical trial for CB4211 trial in early 2019. The trial was substantially
delayed, and we did not release topline results for this study until August of 2021. For our CB5138-3 product candidate, we initially
projected that we would file an IND for this program in the second half of 2022. We later revised this estimate to the second half of
2023 and, in December 2022, we announced the suspension of IND-enabling activities for this program due to challenges in identifying
a suitable formulation for clinical development. The delays in each of these programs resulted in declines in our stock price. If we
fail to meet future milestones as publicly announced, or at all, our revenue may be lower than expected, the commercialization of our
products may be delayed or never achieved and, as a result, our stock price may decline.
Our
future success depends on our Chief Executive Officer and Chief Financial Officer.
We
are highly dependent on our Chief Executive Officer and Chief Financial Officer who are employed “at will,” meaning they
may terminate the employment relationship at any time. We do not maintain “key person” insurance for any of the key members
of our team. We have in the past and may in the future continue to experience changes in our executive management team resulting from
the departure of executives or subsequent hiring of new executives. The loss of the services of our Chief Executive Officer or Chief
Financial Officer could impede our ongoing exploration of strategic alternatives, as discussed above.
We
may seek to establish development and commercialization collaborations, and, if we are not able to establish them on commercially reasonable
terms, we may have to alter our development and commercialization plans.
Our
potential future drug development programs and the potential commercialization of our future drug candidates will require substantial
additional cash to fund expenses. We may decide to collaborate with biopharmaceutical companies in connection with the development or
commercialization of our potential future drug candidates.
We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive collaboration agreement will depend,
among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed
collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the expected efficacy,
safety and tolerability of the subject product candidate, the design or results of clinical trials, the likelihood of approval by the
FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate to patients, the potential reimbursement rates for such product candidates,
the potential of competing products, the strength of our data supporting the mechanism of action of the subject product candidate, the
existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without
regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product
candidates or technologies for similar disease indications on which to collaborate, and whether such alternative collaboration project
could be more attractive than one with us for our product candidate.
There
are a limited number of large biopharmaceutical companies with whom we could potentially collaborate, and collaborations are complex
and time-consuming to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms or
at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate,
reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce
the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities
at our own expense. If we elect to increase our expenditures to fund future development or commercialization activities on our own, we
may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds,
we may not be able to further develop future product candidates or bring them to market and generate product revenue.
We
may not be successful in any future efforts to identify or discover potential drug development candidates.
A
key element of our strategy has been to identify and test MDPs and novel analogs that play a role in cellular processes underlying our
targeted disease indications. Any drug discovery efforts may not be successful in identifying novel peptide analogs that are useful in
treating disease. Our research programs may initially show promise in identifying potential drug development candidates, yet fail to
yield candidates for preclinical and clinical development. For example, in December 2022, we announced that we had suspended further
IND-enabling activities for our CB5138-3 product candidate due to challenges in identifying a suitable formulation for clinical development.
Similarly, we have not been able to identify a formulation for CB4211 that would be suitable to move it forward to the next stage of
clinical development. There are a number of reasons why any future research efforts may not yield appropriate development candidates,
including:
| ● | the
research methodology used may not be successful in identifying appropriate potential drug
development candidates; |
| ● | we
may not be able to identify the mechanism of action for potential drug candidates, which
may make it more difficult to develop and commercialize such drug candidates due to the potential
desire of the FDA and other regulatory bodies, potential partners, physicians and patients
to understand such mechanism of action; or |
| ● | potential
drug development candidates may, on further study, be shown not to be effective in humans,
or to have unacceptable toxicities, harmful side effects, properties that make them difficult
or impossible to formulate in a commercial fashion, or other characteristics that indicate
that they are unlikely to be medicines that will receive marketing approval and achieve market
acceptance. |
We
have not been successful to date in our efforts to develop commercially viable formulations for our product candidates.
Our
product candidates are comprised of novel peptide analogs. We expect that our product candidates will need to be delivered via subcutaneous
injection and may cause local injection site reactions (“ISRs”), which is a common finding in peptide therapeutic product
candidates. While not necessarily adverse to patients’ health, ISRs could substantially limit the commercial appeal of our product
candidates, and we may decide or be required to perform additional preclinical studies or to halt
or delay further clinical development of our product candidates. To date, we have not been able to identify suitable formulations for
our CB4211 or CB5138-3 product candidates. It is possible that other product candidates that we may identify will also result
in ISRs. Our approach to address these ISRs is to develop novel formulations that decrease or eliminate these reactions. If we are unable
to successfully develop such formulations, we may decide to abandon those drug candidates as we have done with CB5138-3. Any efforts
to identify alternate drug candidates that do not cause ISRs would take additional time and expense and may not be successful.
Our
future research and development plans will require substantial additional funding which could impact our operational and financial condition.
Without the required additional funds, we will likely cease operations.
It
will take several years before we are able to develop potentially marketable products, if at all. Our future research and development
plans will require substantial additional capital to:
| ● | conduct
research, preclinical testing and human studies; |
| ● | manufacture
any future drug development candidate or product at pilot and commercial scale; |
| ● | develop
and manufacture devices compatible with our drug products that are suitable for use by patients
to inject our drug products on a chronic basis; and |
| ● | establish
and develop quality control, regulatory, and administrative capabilities to support these
programs. |
Our
future operating and capital needs will depend on many factors, including:
| ● | the
pace of scientific progress in our future research programs and the magnitude of these programs; |
| ● | the
scope and results of preclinical testing and human studies; |
| ● | the
time and costs involved in obtaining regulatory approvals; |
| ● | the
time and costs involved in preparing, filing, prosecuting, securing, maintaining and enforcing
intellectual property rights; |
| ● | the
complexity of any delivery device that we develop for use in combination with our drug products; |
| ● | competing
technological and market developments; |
| ● | our
ability to establish additional collaborations; |
| ● | changes
in any future collaborations; |
| ● | the
cost of manufacturing any drug products and any related delivery device; and |
| ● | the
cost and effectiveness of efforts to commercialize and market any products. |
We
base our outlook regarding the need for funds on many uncertain variables. Such uncertainties include the initiation and success of any
future research and development initiatives, regulatory approvals, the timing of events outside our direct control such as negotiations
with potential strategic partners, and other factors. Any of these uncertain events can significantly change our cash requirements as
they determine such one-time events as the receipt or payment of major milestones and other payments.
Additional
funds will be required to support our operations, and if we are unable to obtain them on favorable terms or at all, we may be required
to cease or reduce future research and development of our drug product programs, sell or abandon some or all of our intellectual property,
merge with another entity or cease operations.
Even
if we are able to develop future potential drug candidates, we may not be able to obtain regulatory approval, or if approved, we may
not be able to generate significant revenues or successfully commercialize our products, which will adversely affect our financial results
and financial condition, and we will have to delay or terminate some or all of our research and development plans, which may force us
to cease operations.
All
of our future potential drug candidates will require extensive additional research and development, including preclinical testing and
clinical trials, as well as regulatory approvals, before we can market them. We cannot predict if or when any future potential drug candidate
will be approved for marketing. There are many reasons that we may fail in our efforts to develop our future potential drug candidates.
These include:
| ● | the
possibility that preclinical testing or clinical trials may show that our potential drugs
are ineffective and/or cause undesirable or harmful side effects or toxicities; |
| ● | we
may not be able to develop commercially viable formulations for our potential drug candidates; |
| ● | our
potential drugs may prove to be too expensive to manufacture or administer to patients; |
| ● | our
potential drugs may have routes of administration that are less convenient or acceptable
to patients; |
| ● | we
may not understand the mechanism of action of our potential drugs, which could negatively
impact our ability to recruit patients to participate in the clinical trials necessary for
regulatory approval of our potential drugs; |
| ● | our
potential drugs may fail to receive necessary regulatory approvals from the FDA or foreign
regulatory authorities in a timely manner, or at all; |
| ● | even
if our potential drugs are approved, we may not be able to produce them in commercial quantities
or at reasonable costs; |
| ● | even
if our potential drugs are approved, they may not achieve commercial acceptance; |
| ● | even
if our potential drugs are approved and commercially launched, the costs of any delivery
device used in combination with our drug products may result in an overall manufacturing
cost that is not competitive with competing products that do not require a delivery device; |
| ● | even
if our potential drugs are approved and commercially launched, they may not receive desirable
payor reimbursement and formulary access; |
| | |
| ● | regulatory
or governmental authorities may apply restrictions to any of our potential drugs, which could
adversely affect their commercial success; and |
| ● | the
proprietary rights of other parties may prevent us or our potential collaborative partners
from marketing our potential drugs. |
If
we fail to develop future potential drug candidates, our financial results and financial condition will be adversely affected, we will
have to delay or terminate some or all of our research and development plans and may be forced to cease operations.
Risks
Related to Our Reliance on Third Parties
If
we do not maintain the support of qualified scientific collaborators, our revenue, growth and profitability will likely be limited, which
would have a material adverse effect on our business.
We
will need to maintain our existing relationships with leading scientists and/or establish new relationships with scientific collaborators.
We believe that such relationships are pivotal to establishing products using our technologies as a standard of care for various disease
indications. There is no assurance that our founders, scientific advisors or research partners will continue to work with us or that
we will be able to attract additional research partners. If we are not able to establish scientific relationships to assist in future
research and development, we may not be able to successfully develop potential drug candidates in the future. If this happens, our business
will be adversely affected.
We
expect to rely on third parties to conduct any future clinical trials and some aspects of any future research and preclinical testing.
These third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or
preclinical testing.
We
expect to rely on third parties to conduct some aspects of our future research and expect to rely on third parties to conduct additional
aspects of our future research and preclinical testing, as well as any future clinical trials. Any of these third parties may terminate
their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our future product research
and development activities.
Our
reliance on these third parties for future research and development activities will reduce our control over these activities but will
not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted
in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards,
commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of clinical trials to assure that
data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.
We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal
sanctions.
Furthermore,
these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do
not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory
requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our future
drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines. For example,
we experienced delays in receiving the data from our third-party CRO conducting our CB4211 Phase 1b study, which delayed our analysis
and release of topline data.
We
expect to rely on other third parties to store and distribute drug supplies for our future clinical trials. Any performance failure on
the part of our distributors could delay clinical development or marketing approval of our future drug candidates or commercialization
of any future products, producing additional losses and depriving us of potential product revenue.
Risks
Related to Product Development and Regulatory Approval
Even
if we are successful in developing future drug candidates, we may not be able to market or generate sales of such future products to
the extent anticipated. Our business may fail, and investors could lose all of their investment in our Company.
Assuming
that we are successful in developing any future potential drug candidates and receiving regulatory clearances to market our potential
products, our ability to successfully penetrate the market and generate sales of such future products may be limited by a number of factors,
including the following:
| ● | if
our competitors receive regulatory approvals for and begin marketing similar products in
the United States, the European Union (“EU”), Japan and other territories before
we do, greater awareness of their products as compared to ours will cause our competitive
position to suffer; |
| ● | information
from our competitors or the academic community indicating that current products or new products
are more effective, have better safety or tolerability profiles or offer compelling other
benefits than our future products could impede our market penetration or decrease our future
market share; and |
| ● | the
pricing and reimbursement environment for our future products, as well as pricing and reimbursement
decisions by our competitors and by payers, may have an effect on our revenues. |
If
any of these occur, our business could be adversely affected.
Interim
and preliminary or topline data from our future clinical trials that we announce or publish from time to time may change as more patient
data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From
time to time, we may publish interim topline or preliminary data from our future clinical trials. Interim data from future clinical trials
that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues
and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may
result in the final data being materially different from the preliminary or topline data we previously published. As a result, interim
and preliminary data should be viewed with caution until the final data are available. Adverse differences between interim or preliminary
or topline data and final data could significantly harm our reputation and business prospects.
Any
future product candidate we are able to develop and commercialize would compete in the marketplace with existing therapies and new therapies
that may become available in the future. These competitive therapies may be more effective, safer, better tolerated, less costly, more
easily administered or offer other advantages over any product we seek to market.
There
are numerous therapies currently marketed to treat IPF, diabetes, cancer, and other diseases for which our future potential product candidates
may be indicated. These therapies are varied in their design, therapeutic application and mechanism of action and may provide significant
competition for any of our future product candidates for which we obtain market approval. New products may also become available that
provide efficacy, safety, tolerability, convenience and other benefits that are not provided by currently marketed therapies. As a result,
they may provide significant competition for any of our future product candidates for which we obtain market approval. Our commercial
opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, better tolerated, more
effective, have fewer or less severe side effects, are more conveniently administered (i.e., are administered via methods other than
subcutaneous injection) or stored or are less expensive than any products that we may develop. Our competitors also may obtain FDA or
other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in
many cases by insurers’ or other third-party payers’ reimbursement polices seeking to encourage the use of existing products
that are generic or are otherwise less expensive to provide.
The
use of any of our future product candidates in clinical trials, and the results of those trials, may expose us to liability claims, which
may cost us significant amounts of money to defend against or pay out, causing our business to suffer.
The
nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our potential
products. If any of our future drug candidates are used in clinical trials, or if any of our future drug candidates become marketed products,
they could potentially harm people or allegedly harm people, possibly subjecting us to costly and damaging product liability claims.
Some of the patients who participate in clinical trials are already ill when they enter a trial or may intentionally or unintentionally
fail to meet the exclusion criteria. The waivers we obtain may not be enforceable and may not protect us from liability or the costs
of product liability litigation. Although we obtained product liability insurance, which we believe is adequate, we are subject to the
risk that our insurance will not be sufficient to cover claims. We anticipate that we will need to increase our insurance coverage if
we successfully commercialize any product candidate. The insurance costs along with the defense or payment of liabilities above the amount
of coverage could cost us significant amounts of money and management distraction from other elements of the business, decrease demand
for any product candidates that we may develop, injure our reputation and attract significant negative media attention, and lead to the
withdrawal of clinical trial participants, causing our business to suffer. We may not be able to maintain insurance coverage at a reasonable
cost or in an amount adequate to satisfy any liability that may arise.
Compliance
with laws and regulations pertaining to the privacy and security of health information may be time consuming, difficult and costly, particularly
in light of increased focus on privacy issues in countries around the world, including the United States and the EU.
We
are subject to various domestic and international privacy and security regulations. The confidentiality, collection, use and disclosure
of personal data, including clinical trial patient-specific information, are subject to governmental regulation generally in the country
that the personal data were collected or used. In the United States, we are subject, or expect to be subject, to various state and federal
privacy and data security regulations, including but not limited to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009. HIPAA mandates, among other things, the
adoption of uniform standards for the electronic exchange of information in common health care transactions, as well as standards relating
to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and
technical safeguards to protect such information. In the EU, personal data includes any information that relates to an identified or
identifiable natural person with health information carrying additional obligations, including obtaining the explicit consent from the
individual for collection, use or disclosure of the information. In addition, the protection of and cross-border transfers of such data
out of the EU has become more stringent with the EU’s General Data Protection Regulation which came into effect in May 2018. Furthermore,
the legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount
of focus on privacy and data protection issues. The United States and the EU and its member states continue to issue new privacy and
data protection rules and regulations that relate to personal data and health information. Compliance with these laws may be time consuming,
difficult and costly. If we fail to comply with applicable laws, regulations or duties relating to the use, privacy or security of personal
data, we could be subject to the imposition of significant civil and criminal penalties, be forced to alter our business practices and
suffer reputational harm.
We
may not be able to obtain agreement with regulatory authorities regarding an acceptable development plan for our future product candidates,
the outcome of our future clinical trials may not be favorable or, even if favorable, regulatory authorities may not find the results
of our future clinical trials to be sufficient for marketing approval.
In
the United States, the FDA generally requires two adequate and well-controlled pivotal clinical trials to approve a new drug application
(“NDA”). Furthermore, for full approval of an NDA, the FDA requires a demonstration of efficacy based on a clinical benefit
endpoint. The FDA may grant accelerated approval based on a surrogate endpoint reasonably likely to predict clinical benefit. Even if
any future pivotal clinical trials for a specific indication were to achieve their primary endpoints and may be reasonably believed by
us to be likely to predict clinical benefit, the FDA may not accept the results of such trials or approve our future product candidates
on an accelerated basis, or at all. It is also possible that the FDA may refuse to accept for filing and review any regulatory application
we submit for regulatory approval in the United States. Even if our regulatory application is accepted for review, there may be delays
in the FDA’s review process, and the FDA may determine that such regulatory application does not contain adequate clinical or other
data or support the approval of our future product candidate. In such a case, the FDA may issue a complete response letter that may require
that we conduct and/or complete additional clinical trials and preclinical studies or provide additional information or data before it
will reconsider an application for approval. Any such requirements may be substantial, expensive and time-consuming, and there is no
guarantee that we will continue to pursue such application or that the FDA will ultimately decide that any such application supports
the approval of our future product candidate. Furthermore, the FDA may also refer any regulatory application to an advisory committee
for review and recommendation as to whether, and under what conditions, the application should be approved. While the FDA is not bound
by the recommendation of an advisory committee, it considers such recommendations carefully when making decisions. Delay or failure to
obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our
ability to generate sufficient revenue to maintain our business.
The
regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our
future product candidates under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization
of our future product candidates and adversely impact our ability to generate revenue, our business and our results of operations.
The
development, research, testing, manufacturing, labeling, approval, selling, import, export, marketing, promotion and distribution of
drug products are subject to extensive and evolving regulation by federal, state and local governmental authorities in the United States,
principally the FDA, and by foreign regulatory authorities, which regulations differ from country to country. Neither we nor any future
collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of an NDA
from the FDA.
Obtaining
regulatory approval of an NDA can be a lengthy, expensive and uncertain process. Prior to obtaining approval to commercialize our future
product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA or other foreign regulatory authorities, that such product candidates are safe and
effective for their intended uses. The number of nonclinical studies and clinical trials that will be required for regulatory approval
varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations
applicable to any particular product candidate.
Results
from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data
for our future product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory
authorities. Administering product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical
trials and result in the FDA or other regulatory authorities denying approval of a product candidate for any or all indications. The
FDA may also require us to conduct additional studies or trials for our product candidates either prior to or post-approval, such as
additional clinical pharmacology studies or safety or efficacy studies or trials, or it may object to elements of our clinical development
program such as the primary endpoints or the number of subjects in our clinical trials.
The
FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional
nonclinical or clinical testing or abandon a program for many reasons, including:
| ● | the
FDA or the applicable foreign regulatory authority’s disagreement with the design or
implementation of our clinical trials; |
| ● | negative
or ambiguous results from our clinical trials or results that may not meet the level of statistical
significance required by the FDA or comparable foreign regulatory authorities for approval; |
| ● | serious
and unexpected drug-related side effects experienced by participants in our clinical trials; |
| ● | our
inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory
authority that our product candidates are safe and effective for the proposed indication; |
| ● | the
FDA’s or the applicable foreign regulatory authority’s disagreement with the
interpretation of data from nonclinical studies or clinical trials; |
| ● | our
inability to demonstrate the clinical and other benefits of our product candidates outweigh
any safety or other perceived risks; |
| ● | the
FDA’s or the applicable foreign regulatory authority’s requirement for additional
nonclinical studies or clinical trials; |
| ● | the
FDA’s or the applicable foreign regulatory authority’s disagreement regarding
the formulation, labeling and/or the specifications of our product candidates; |
| ● | the
FDA’s or the applicable foreign regulatory authority’s failure to approve the
manufacturing processes or facilities of third-party manufacturers with which we contract; |
| ● | the
potential for approval policies or regulations of the FDA or the applicable foreign regulatory
authorities to significantly change in a manner rendering our clinical data insufficient
for approval; or |
| ● | the
FDA or the applicable foreign regulatory authority’s disagreement with the sufficiency
of the clinical, non-clinical and/or quality data in the NDA or comparable marketing authorization
application. |
Of
the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes
and are commercialized. The lengthy development and approval process as well as the unpredictability of future clinical trial results
may result in our failing to obtain regulatory approval to market our future product candidates, which would significantly harm our business,
financial condition, results of operations and prospects.
Any
future product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and
could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply
with regulatory requirements or if we experience unanticipated problems with our future product candidates, when and if any of them are
approved.
Our
future product candidates and the activities associated with their development and potential commercialization, including their testing,
manufacturing, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive
regulation by the FDA and other U.S. and international regulatory authorities. These requirements include submissions of safety and other
post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, including current
cGMP, quality control, quality assurance and corresponding maintenance of records and documents, including periodic inspections by the
FDA and other regulatory authorities and requirements regarding the distribution of samples to providers and recordkeeping.
The
FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy
of any approved product. The FDA closely regulates the post-approval marketing and promotion of drugs and biologics to ensure drugs and
biologics are marketed only for the approved disease indications and in accordance with the provisions of the approved labeling. The
FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products. If we promote our future product
candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance with FDA regulations, we may
be subject to enforcement action. Violations of the Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may
lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection
laws and similar laws in international jurisdictions.
In
addition, later discovery of previously unknown adverse events or other problems with our future product candidates, manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
| ● | restrictions
on such product candidates, manufacturers or manufacturing processes; |
| ● | restrictions
on the labeling or marketing of a product; |
| ● | restrictions
on product distribution or use; |
| ● | requirements
to conduct post-marketing studies or clinical trials; |
| ● | warning
or untitled letters; |
| ● | withdrawal
of any approved product from the market; |
| ● | refusal
to approve pending applications or supplements to approved applications that we submit; |
| ● | recall
of product candidates; |
| ● | restrictions
on product distribution or use; |
| ● | fines,
restitution or disgorgement of profits or revenues; |
| ● | suspension
or withdrawal of marketing approvals; |
| ● | refusal
to permit the import or export of our product candidates; |
| ● | injunctions
or the imposition of civil or criminal penalties. |
Non-compliance with
European requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products
for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the EU’s requirements
regarding the protection of personal information can also lead to significant penalties and sanctions.
The
patent positions of biopharmaceutical products are complex and uncertain, and we may not be able to protect our patented or other intellectual
property. If we cannot protect this property, we may be prevented from using it, or our competitors may use it, and our business could
suffer significant harm. Also, the time and money we spend on acquiring and enforcing patents and other intellectual property will reduce
the time and money we have available for our business.
We
own or exclusively license patents and patent applications related to our MDPs and potential drug candidates comprised of novel analogs.
However, neither patents nor patent applications ensure the protection of our intellectual property for a number of reasons, including
the following:
| ● | The
United States Supreme Court rendered a decision in Molecular Pathology vs. Myriad Genetics,
Inc., 133 S.Ct. 2107 (2013) (“Myriad”), in which the court held that naturally
occurring DNA segments are products of nature and not patentable as compositions of matter.
On March 4, 2014, the United States Patent and Trademark Office (“USPTO”)
issued guidelines for examination of such claims that, among other things, extended the Myriad
decision to any natural product. Since MDPs are natural products isolated from cells, the
USPTO guidelines may affect allowability of some of our patent claims (pertaining to natural
MDP sequences) that are filed in the USPTO but are not yet issued. Further, while the USPTO
guidelines are not binding on the courts, it is likely that as the law of subject matter
eligibility continues to develop, Myriad will be extended to natural products other than
DNA. Thus, our issued U.S. patent claims directed to MDPs as compositions of matter may be
vulnerable to challenge by competitors who seek to have our claims rendered invalid. While
Myriad and the USPTO guidelines described above will affect our patents only in the United
States, there is no certainty that similar laws or regulations will not be adopted in other
jurisdictions. |
| ● | Competitors
may interfere with our patenting process in a variety of ways. Competitors may claim that
they invented the claimed invention prior to us. Competitors may also claim that we are infringing
their patents and restrict our freedom to operate. Competitors may also contest our patents
and patent applications, if issued, by showing in various patent offices that, among other
reasons, the patented subject matter was not original, was not novel or was obvious. In litigation,
a competitor could claim that our patents and patent applications are not valid or enforceable
for a number of reasons. If a court agrees, we would lose some or all of our patent protection. |
| ● | As
a company, we have no meaningful experience with competitors interfering with our patents
or patent applications. In order to enforce our intellectual property, we may need to file
a lawsuit against a competitor. Enforcing our intellectual property in a lawsuit can take
significant time and money. We may not have the resources to enforce our intellectual property
if a third party infringes an issued patent claim. Infringement lawsuits may require significant
time and money resources. If we do not have such resources, for patents that we have licensed
from a third party, the licensor is not obligated to help us enforce our patent rights. If
the licensor does take action by filing a lawsuit claiming infringement, we will not be able
to participate in the suit and therefore will not have control over the proceedings or the
outcome of the suit. |
| ● | Because
of the time, money and effort involved in obtaining and enforcing patents, our management
may spend less time and resources on other aspects of our business than they otherwise would,
which could increase our operating expenses and delay any future product programs. |
| ● | There
can be no assurance that any of our patent applications, including any licensed patent applications,
will result in the issuance of patents, and we cannot predict the breadth of claims that
may be allowed in our currently pending patent applications or in patent applications we
may file or license from others in the future. |
| ● | Issuance
of a patent may not provide much practical protection. If we receive a patent of narrow scope,
then it may be easy for competitors to design products that do not infringe our patent(s). |
| ● | If
a court decides that the method of manufacture or use of any of our drug candidates infringes
on a third-party patent, we may have to pay substantial damages for infringement. |
| ● | A
court may prohibit us from making, selling or licensing a potential drug candidate unless
the patent holder grants a license. A patent holder is not required to grant a license. If
a license is available, we may have to pay substantial royalties or grant cross licenses
to our patents, and the license terms may be unacceptable. |
| ● | Redesigning
our potential drug candidates so that they do not infringe on other patents may not be possible
or could require substantial funds and time. |
It
is also unclear whether our trade secrets are adequately protected. While we use reasonable efforts to protect our trade secrets, our
employees or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that someone illegally
obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside
the United States are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge,
methods and know-how. We may also support and collaborate in research conducted by government organizations, hospitals, universities
or other educational institutions. These research partners may be unable or unwilling to grant us exclusive rights to technology or products
derived from these collaborations prior to entering into the relationship.
If
we do not obtain required intellectual property rights, we could encounter delays in any future drug development efforts while we attempt
to design around other patents or even be prohibited from developing, manufacturing or selling potential drug candidates requiring these
rights or licenses. There is also a risk that disputes may arise as to the rights to technology or potential drug candidates developed
in collaboration with other parties.
General
Risk Factors
If
we fail to establish and maintain proper and effective internal control over financial reporting in the future, our ability to produce
accurate and timely financial statements could be impaired, which could harm our operating results, investors’ views of us and,
as a result, the value of our common stock.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
controls and procedures and that we furnish a report by management on, among other things, the effectiveness of our internal control
over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our
internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements
will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from
our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for
as long as we are not an accelerated filer or large accelerated filer, we intend to take advantage of the exemption permitting us not
to comply with the independent registered public accounting firm attestation requirement.
Our
compliance with Section 404 will require us to document and evaluate our internal control over financial reporting, which is both
costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants
and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue taking steps
to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous
reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not
be able to conclude that our internal control over financial reporting is effective as required by Section 404. For example, we
concluded as of the end of the first quarter of 2023 that our disclosure controls and procedures were not effective due
to a material weakness. The material weakness relates to a lack of segregation of duties as we currently have only one employee
assigned to positions that involve processing financial information. As a result, not all of our journal entries and account reconciliations
have been reviewed by someone other than the preparer, heightening the risk of error or fraud. There can be no assurance of when, if
ever, we will be able to remediate the identified material weaknesses. The presence of this or other material weaknesses could result
in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition,
if we are not able to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Capital Market (“Nasdaq”).
If material weaknesses or deficiencies in our internal controls exist and go undetected or unremedied, our financial statements could
contain material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and
cause the price of our common stock to decline.
Significant
disruptions of information technology systems or security breaches could adversely affect our business.
We
are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course
of business, we collect, store and transmit large amounts of confidential information (including, among other things, trade secrets or
other intellectual property, proprietary business information and personal information). It is critical that we do so in a secure manner
to maintain the confidentiality and integrity of such confidential information. We also have outsourced elements of our operations to
third parties, and as a result we have managed, and may in the future continue to manage, a number of third-party vendors who may or
could have access to our confidential information. Attacks on information technology systems are increasing in their frequency, levels
of persistence, sophistication and intensity, and they are being conducted by increasingly sophisticated and organized groups and individuals
with a wide range of motives and expertise. The size and complexity of our information technology systems, and those of third-party vendors
with whom we contract, and the large amounts of confidential information potentially stored on those systems, make such systems vulnerable
to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors, and/or
business partners, or from cyber-attacks by malicious third parties. Cyber-attacks could include the deployment of harmful malware, ransomware,
denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity
and availability of information.
Significant
disruptions of our information technology systems, or those of our third-party vendors, or security breaches could adversely affect our
business operations and/or result in the loss, misappropriation and/or unauthorized access, use or disclosure of, or the prevention of
access to, confidential information, including, among other things, trade secrets or other intellectual property, proprietary business
information and personal information, and could result in financial, legal, business and reputational harm to us.
Any
failure or perceived failure by us or any third-party collaborators, service providers, contractors or consultants to comply with our
privacy, confidentiality, data security or similar obligations to third parties, or any data security incidents or other security breaches
that result in the unauthorized access, release or transfer of sensitive information, including personally identifiable information,
may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us, could cause
third parties to lose trust in us or could result in claims by third parties asserting that we have breached our privacy, confidentiality,
data security or similar obligations, any of which could have a material adverse effect on our reputation, business, financial condition
or results of operations. Moreover, data security incidents and other security breaches can be difficult to detect, and any delay in
identifying them may lead to increased harm. While we have implemented data security measures intended to protect our information technology
systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or data security
incidents.
Public
health crises such as pandemics or similar outbreaks could adversely impact our business.
Public
health crises such as pandemics or similar outbreaks could adversely impact our business.
The
trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic
and the resulting impact on the macroeconomic environment, including rising interest rates, inflation and recessionary fears. Future
public health crises, including pandemics or similar outbreaks such as COVID-19, may adversely impact our business, strategy and financial
condition. The extent to which any public health crises impacts our business, strategy or financial condition will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, such as the emergence of novel variants, the impact of vaccinations
and vaccination rates, travel restrictions and actions to contain new outbreaks or resurgences or treat its impact, such as social distancing
and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness
of actions taken in the United States and other countries to contain and treat resurgences or novel variants.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they
change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about
us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock
adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analysts
who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.
The
price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for holders of our common
stock.
The
market price of our common stock has been and is likely to continue to be volatile. The stock market in general, and the market for biotechnology
companies in particular has experienced extreme volatility that can be unrelated to the operating performance of particular companies.
The market price for our common stock may be influenced by many factors, including:
| ● | results
of preclinical studies or clinical trials of our future product candidates or those of our
competitors: |
| ● | unanticipated
or serious safety concerns related to the use of any of our future product candidates; |
| ● | challenges
in developing commercially viable formulations for our future product candidates; |
| ● | adverse
regulatory decisions, including failure to receive regulatory approval for any of our future
product candidates; |
| ● | the
success of competitive drugs or technologies; |
| ● | regulatory
or legal developments in the United States and other countries applicable to our future product
candidates; |
| ● | the
size and growth of our prospective patient populations; |
| ● | developments
concerning our future collaborators, our external manufacturers or in-house manufacturing
capabilities; |
| ● | inability
to obtain adequate product supply for any future product candidate for preclinical studies,
clinical trials or future commercial sale or inability to do so at acceptable prices; |
| ● | developments
or disputes concerning patent applications, issued patents or other proprietary rights; |
| ● | the
recruitment or departure of key personnel; |
| ● | the
level of expenses related to any of our future product candidates or clinical development
programs; |
| ● | the
results of our efforts to discover, develop, acquire or in-license additional product candidates
or drugs; |
| ● | actual
or anticipated changes in estimates as to financial results, development timelines or recommendations
by securities analysts or publications of research reports about us or our industry; |
| ● | variations
in our financial results or those of companies that are perceived to be similar to us; |
| ● | changes
in the structure of healthcare payment systems; |
| ● | market
conditions in the biotechnology sector; |
| ● | our
cash position or the announcement or expectation of additional financing efforts; |
| ● | the
impact of rising inflation, including wage inflation; |
| ● | general
macroeconomic, industry, geopolitical and market conditions; and |
| ● | other
factors, including those described in this “Risk Factors” section, many of which
are beyond our control. |
If
we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, our common stock could be delisted.
Our
common stock is currently listed on Nasdaq. To maintain this listing, we must satisfy continued listing requirements and standards. There
can be no assurances that we will be able to comply with the applicable listing requirements and standards. For example, in November
2021, we received a notice from the Nasdaq Listing Qualifications Department notifying us that for 30 consecutive trading days, the bid
price of our common stock had closed below the minimum $1.00 per share requirement. In accordance with Nasdaq’s listing rules,
we were afforded a grace period of 180 calendar days, or until May 9, 2022, to regain compliance with the bid price requirement. In order
to regain compliance, the bid price of our common stock had to close at a price of at least $1.00 per share for a minimum of 10 consecutive
trading days.
On
May 10, 2022, Nasdaq notified us that we had not regained compliance by May 9, 2022, but that Nasdaq had granted us an additional 180
day period to regain compliance because we met the continued listing requirement for market value of publicly held shares and all other
applicable Nasdaq listing requirements (other than the minimum closing bid price requirement) and we provided written notice to Nasdaq
of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. On September
23, 2022, we executed a reverse stock split of our common stock at a ratio of 1-for-30. In response to their non-compliance notification
on May 10, 2022, and as a result of the reverse stock split, we received notification from The Nasdaq Stock Market Listing Qualifications
Staff on October 7, 2022, that we were in compliance with its minimum bid price requirement and the matter was closed.
If
our common stock is delisted from Nasdaq and is not eligible for quotation or listing on another market or exchange, including as a result
of our failure to meet the bid price requirement, trading of our shares of common stock could be conducted only in the over-the-counter
market or on an electronic bulletin board established for unlisted securities. In such event, it would likely become more difficult to
dispose of, or obtain accurate price quotations for, shares of our common stock.
Our
business could be negatively affected as a result of significant stockholders or potential stockholders attempting to effect changes
or acquire control over the Company, which could cause us to incur significant expense, hinder execution of our business strategy and
impact the trading value of our securities.
Our
stockholders may from time-to-time attempt to effect changes, engage in proxy solicitations or advance stockholder proposals. Responding
to proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting
the attention of our board of directors and senior management from the pursuit of business strategies. Any of these impacts could materially
and adversely affect our business and operating results. Further, the market price of our common stock, which has been trading below
book value, could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties described
above.
The
requirements of being a public company may strain our resources, divert management’s attention and require us to disclose information
that is helpful to competitors, make us more attractive to potential litigants and make it more difficult to attract and retain qualified
personnel.
As
a public company, we are subject to the reporting requirements of the Securities Act of 1933, as amended, the Exchange Act, the Sarbanes-Oxley
Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and applicable Canadian securities rules and regulations.
Despite reforms made possible by the JOBS Act, compliance with these rules and regulations creates significant legal and financial compliance
costs and makes some activities difficult, time-consuming or costly. The Exchange Act and applicable Canadian provincial securities legislation
require, among other things, that we file annual, quarterly and current reports with respect to our business and operating results.
Additionally,
the Sarbanes-Oxley Act and the related rules and regulations of the SEC and Nasdaq require us to implement particular corporate governance
practices and adhere to a variety of reporting requirements and complex accounting rules. Among other things, we are subject to rules
regarding the independence of the members of our board of directors and committees of the board and their experience in finance and accounting
matters, rules regarding the diversity of our board of directors and certain of our executive officers are required to provide certifications
in connection with our quarterly and annual reports filed with the SEC. The perceived personal risk associated with these rules may deter
qualified individuals from accepting these positions. Accordingly, we may be unable to attract and retain qualified officers and directors.
If we are unable to attract and retain qualified officers and directors, our business and our ability to maintain the listing of our
shares of common stock on Nasdaq or another stock exchange could be adversely affected.
Changes
in U.S. federal income and other tax laws could adversely affect us.
New
U.S. legislation or regulations that could affect our tax burden could be enacted by the U.S. government. We cannot predict the timing
or extent of such tax-related developments that could have a negative impact on our financial results. Additionally,
we use our best judgment in attempting to quantify and reserve for these tax obligations. However, a challenge by a taxing authority,
our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions could
have a material adverse effect on our business, results of operations, or financial condition.
Unfavorable
global macroeconomic conditions and geopolitical uncertainty could adversely affect our business, financial condition or results of operations.
Our
results of operations could be adversely affected by general conditions in the global economy, such as the inflationary environment,
financial institution instability and recessionary fears, in the global financial markets and due to geopolitical uncertainty, such as
the ongoing conflict in Ukraine and rising tensions between China and Taiwan. For example, the global financial crisis caused extreme
volatility and disruptions in the capital and credit markets, and the recent and ongoing armed conflict in Ukraine had similar impacts
on the global financial markets. A severe or prolonged economic downturn, such as a global financial crisis, could result in a variety
of risks to our business, including, weakened demand for our product candidates and our weakened ability to raise additional capital
when needed on acceptable terms, if at all. A weak or declining economy could also strain our future suppliers, possibly resulting in
supply disruptions. Any of the foregoing could harm our business, and we cannot anticipate all of the ways in which the current macroeconomic
climate, geopolitical uncertainty and financial market conditions could adversely impact our business.
We
maintain our cash at financial institutions. The failure of financial institutions could adversely affect our ability to pay our operational
expenses or make other payments.
Our
cash is held at banking institutions in non-interest-bearing and interest-bearing accounts. If such banking institutions were to fail,
similar to Silicon Valley Bank in March 2023, we could lose access to our accounts or our assets held in our accounts or our access to
our accounts or assets may be materially delayed. Any material loss that we may experience in the future or inability for a material
time period to access our cash and cash equivalents could have an adverse effect on our ability to pay our operational expenses or make
other payments, which could adversely affect our business.
We
or the future third parties upon whom we may depend may be adversely affected by natural disasters, and our business continuity and disaster
recovery plans may not adequately protect us from a serious disaster.
Natural
disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial
condition and prospects. For example, our corporate headquarters are located in the San Francisco Bay Area, which has experienced both
severe earthquakes and the effects of wildfires. We do not carry earthquake insurance. In addition,
the long-term effects of climate change on general economic conditions and the biopharmaceutical industry in particular are unclear,
and may heighten or intensify existing risk of natural disasters. If an earthquake, wildfire, other natural disaster, power outage
or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure
or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial
period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster
or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity
plans, which could have a material adverse effect on our business.
Our
employees, directors, and potential future principal investigators, CROs and consultants may engage in misconduct or other improper activities,
including non-compliance with regulatory standards and requirements and insider trading.
We
are exposed to the risk of fraud or other misconduct by our employees, directors, and potential future principal investigators, consultants
and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of FDA and non-U.S.
regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations
in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular,
sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent
fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range
of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such
misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory
sanctions and cause serious harm to our reputation. We have adopted a code of ethics, but it is not always possible to identify and deter
employee or director misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from
a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions.