Item 1A. Risk Factors.
Our operations and financial results
are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial
condition, result of operations, cash flows, and the trading price of our common stock. There are numerous and varied risks as
set forth below that may prevent us from achieving our goals, and the risks we describe are not the only ones facing us. If any
of these risks actually occur, or if any risks or uncertainties not presently known to us or that we currently deem immaterial
impair our business or operations, then our business, financial condition or results of operations may be materially adversely
affected. In such cases, the trading price of our common stock could decline and investors could lose all or part of their investment.
Risks related to our financial position
and need for additional capital
We have limited liquidity.
As of September 30,
2018, our cash and cash equivalents balance was $0.1 million, which we believe will not be sufficient to fund our anticipated level
of operations for at least the next 12 months, and our working capital deficit was $14.5 million. Our cash used in operations was
$11.6 million and $12.3 million for the fiscal years ended December 31, 2017 and 2016, respectively and $8.3 million for the nine
months ended September 30, 2018.
We have financed our
operations to date through private placements and public offerings of common and preferred stock and convertible debt securities
and borrowings under secured loans. Our revenue to date has been immaterial and consisted of royalties on licensed patents and
sales of Ceplene used in clinical trials.
Our ability to continue
operations depends on our ability to access the capital markets, license our technology to third parties and obtain regulatory
approval to market our drugs. We expect to finance our cash needs from additional equity or debt financing, or strategic alliances
on products until we can achieve profitability and positive cash flows from operating activities, if ever.
We have incurred operating losses
since our inception. We expect to incur operating losses for the foreseeable future and may never achieve or maintain profitability.
Since our inception
in July 2010, we have incurred significant losses and expect to continue to operate at a net loss in the foreseeable future. Our
net loss was $13.2 million and $14.7 million for nine months ended September 30, 2018 and 2017, and our accumulated deficit as
of September 30, 2018 was $126.8 million. Our cash used in operations was $8.3 million and $5.2 million for the nine months ended
September 30, 2018 and 2017, respectively. We have devoted substantially all of our financial resources and efforts on the development
of bertilimumab, our phase 2 drug candidate for the treatment of inflammatory diseases, and our other drug candidates. We are still
in the early stages of development of our product candidates. We expect to continue to incur significant expenses and operating
losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate
that our expenses will increase substantially as we continue the research and development of our product candidates.
We have limited capital
resources and operations since inception have been funded with the proceeds from equity and debt financings and license fee arrangements.
As of September 30, 2018, we had $0.1 million in cash and cash equivalents. We intend to finance our need for working capital from
additional equity or debt financing, the sale of its Ceplene assets and a collaboration or other agreement with respect to bertilimumab.
We cannot assure you that we will be able to obtain sufficient funding to continue our operations. Any financing, sale of assets
or collaboration agreement may be on terms that are not favorable to us and may not be available on any terms. If we fail to raise
additional capital or obtain substantial cash inflows from potential partners within the next six months, we may be forced to curtail
or cease operations.
To become and remain
profitable, we must, either alone or with partners, succeed in developing and eventually commercializing products that generate
significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical
testing and clinical trials of our product candidates, discovering additional product candidates, obtaining regulatory approval
for these product candidates and manufacturing, marketing and selling any products for which we may obtain regulatory approval,
and establishing and managing our collaborations at various stages of each candidate’s development. We are only in the preliminary
stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that
are significant enough to achieve profitability.
Other than Ceplene,
none of the Company’s drug candidates has received FDA or foreign regulatory marketing approval. In order to grant marketing
approval, the FDA or foreign regulatory agencies must conclude that clinical data establish the safety and efficacy of the Company’s
drug candidates. Furthermore, the Company’s strategy includes entering into collaborations with third parties to participate
in the development and commercialization of its products. In the event that third parties have control over the preclinical development
or clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party
rather than under the Company’s control. The Company cannot forecast with any degree of certainty which of its drug candidates
will be subject to future collaborations or how such arrangements would affect its development plan or capital requirements.
Because of the numerous
risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount
of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the FDA or EMA to perform
studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development
of any of our product candidates, our expenses could increase and revenue could be further delayed.
Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and
remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain
our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of
our Company could also cause you to lose part or all of your investment.
The estimates and judgments we make,
or the assumptions on which we rely, in preparing our consolidated financial statements could prove inaccurate.
Our consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation
of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our
assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent assets and
liabilities. Such estimates and judgments include revenue recognition, inventory, valuation of stock-based awards, research and
development expenses and income tax. We base our estimates on historical experience, facts and circumstances known to us and on
various other assumptions that we believe to be reasonable under the circumstances. We cannot provide assurances, however, that
our estimates, or the assumptions underlying them, will not change over time or otherwise prove inaccurate. If this is the case,
we may be required to restate our consolidated financial statements, which could, in turn, subject us to securities class action
litigation. Defending against such potential litigation relating to a restatement of our consolidated financial statements would
be expensive and would require significant attention and resources of our management. Moreover, our insurance to cover our obligations
with respect to the ultimate resolution of any such litigation may be inadequate. As a result of these factors, any such potential
litigation could have a material adverse effect on our financial results and cause our stock price to decline, which could in turn
subject us to securities class action litigation.
We will require substantial additional
funding, which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital,
we will be unable to complete the development and commercialization of our product candidates or continue our development programs.
Our operations have
consumed substantial amounts of cash since our inception in 2010. We will require additional capital for the further development
and commercialization of our product candidates and to fund our other operating expenses and capital expenditures.
We cannot be certain
that additional funding will be available on acceptable terms or at all. If we are unable to raise additional capital in sufficient
amounts or on terms acceptable to us we may need to significantly delay, scale back or discontinue the development or commercialization
of one or more of our product candidates. We may need to seek collaborators for one or more of our current or future product candidates
at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any
of these events could significantly harm our business, financial condition and results of operations.
We expect that a large
percentage of our future research and development expenses will be incurred in support of current and future preclinical and clinical
development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. We test our product
candidates in numerous preclinical studies for toxicology, safety and efficacy. We then conduct early stage clinical trials for
each drug candidate. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain
product candidates or programs in order to focus resources on more promising product candidates or programs. Completion of clinical
trials may take several years but the length of time generally varies according to the type, complexity, novelty and intended use
of a drug candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising
during clinical development.
In order to carry out
our business plan and implement our strategy, we will need to obtain additional financing and may choose to raise additional funds
through public or private equity or debt financing, licensing arrangements, strategic collaborations, asset sales, government grants,
or other arrangements. We cannot be sure that any additional funding will be available on terms favorable to us, or at all. Furthermore,
any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available,
may subject us to restrictive covenants and significant interest costs. We may be required to relinquish our rights to certain
of our product candidates or marketing territories if we obtain funding through licensing arrangements or strategic collaborations.
In addition, certain
investors may be unwilling to invest in our securities if we are unable to maintain the listing of our common stock on a United
States national securities exchange. Our inability to raise capital when needed would harm our business, financial condition and
results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.
The report of the Independent Registered
Public Accounting Firm on our financial statements for the year ended December 31, 2017 includes an explanatory paragraph that
expresses substantial doubt about our ability to continue as a going concern.
The Independent Registered
Public Accounting Firm’s Report issued in connection with our audited financial statements for the year ended December 31,
2017 states that there is “substantial doubt about our ability to continue as a going concern”. Our ability to continue
as a going concern is dependent on a combination of several factors, including, our ability to raise capital by issuing debt or
equity securities to investors, license or sell our product candidates to other pharmaceutical companies, and generate revenues
from successfully developed products. If we are not able to continue our business as a going concern, we may be forced to liquidate
our assets for an amount less than the value at which those assets are carried on our financial statements, and it is likely that
investors will lose part or all of their investment.
We may be exposed to market risk
and interest rate risk that may adversely impact our financial position, results of operations or cash flows.
We may be exposed to
market risk, i.e
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the risk of loss related to changes in market prices, including foreign exchange rates, of financial instruments
that may adversely impact our financial position, results of operations or cash flows. In addition, our investments may be exposed
to market risk due to fluctuation in interest rates, which may affect its interest income and the fair market value of investments,
if any. At present, our investments consist primarily of cash and cash equivalents. We may invest in investment-grade marketable
securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government
debt securities. The primary objective of our investment activities is to preserve principal while maximizing the income that we
receive from our investments without significantly increasing risk of loss.
We are exposed to fluctuations in
currency exchange rates, which could have an adverse effect on us.
Our foreign currency
exposures give rise to market risk associated with exchange rate movements of the United States dollar, our functional and reporting
currency, mainly against the New Israeli Shekel, (“NIS”), the Euro and the British pound sterling. A significant portion
of our expenses are denominated in United States dollars (with certain expenses payable to Israeli personnel, including sub-contractors
and consultants, in the NIS). Our United States dollar expenses consist principally of payments made to personnel in the United
States, including sub-contractors and consultants for preclinical studies, clinical trials and other research and development activities.
We anticipate that the bulk of our expenses will continue to be denominated in United States dollars and the NIS. If the United
States dollar fluctuates significantly against the NIS, the Euro or the British pound sterling it may have a negative impact on
our results of operations.
To date, we have not
engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial
exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately
protect us from the material adverse effects of such fluctuations. Exchange rate fluctuations resulting in a devaluation of the
NIS, the Euro or the British pound sterling compared with the United States dollar could have a material adverse impact on our
results of operations and share price.
We are in default under our agreement
for the acquisition of the European rights to Ceplene. If not cured, we bear significant risk to our business plan regarding Ceplene,
including the loss of such rights.
Under an asset purchase
agreement between Immune and Meda Pharma SARL (“Meda”), we were obligated to make a payment to Meda of $1,500,000 (the
“First Initial Consideration”) no later than December 15, 2017. Under that agreement, we had a 30-day grace period
to make the payment or work out a payment plan with Meda. On January 31, 2018, Meda delivered to us a default notice under the
asset purchase agreement, demanding payment of the First Initial Consideration no later than February 15, 2018. We have yet to
make this payment. Accordingly, Meda could terminate the asset purchase agreement, and cause the loss by us of certain Ceplene-related
assets without consideration to us and cancel our further obligations under the agreement. If such action were to occur, we
would need to either work out a license with Meda or renegotiate terms of a purchase of the European Ceplene rights from Meda.
There can be no guarantee that we would be able to work out such a deal. Loss of the Ceplene related assets would materially
impair our ability to execute our business plan with respect to our oncology related assets and have a negative effect on our financial
condition.
Our level of indebtedness could adversely affect our business,
financial condition and results of operations and our ability to meet our payment obligations under such indebtedness.
As of September 30,
2018, we had approximately $8.3 million of indebtedness, net of debt discount and issuance costs, outstanding. This level of debt
could have significant consequences on our future operations, including:
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increasing our vulnerability to adverse economic and industry conditions;
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making it more difficult for us to meet our payment and other obligations under our existing indebtedness;
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making it more difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements
or other purposes;
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requiring the dedication of a substantial portion of any cash flow from operations to service our indebtedness, thereby reducing
the amount of cash flow available for other purposes, including capital expenditures;
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placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to
capital than we have; and
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limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete.
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Any of the above-listed
factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our
payment obligations under our convertible notes.
Our ability to meet
our payment and other obligations under our indebtedness depends on our ability to generate significant cash flow in the future.
This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other
factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future
borrowings will be available to us, in an amount sufficient to enable us to meet our payment obligations under the convertible
notes and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we
may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital.
If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under our existing
indebtedness.
Servicing our indebtedness requires a significant amount
of cash or common stock, and we may not have sufficient cash flow from our business to service our debt.
We will be required
to pay accrued interest on our indebtedness in cash or, in certain circumstances, shares of our common stock. Our ability to make
scheduled payments of interest depends on our future performance, which is subject to economic, financial, competitive and other
factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt
in cash and make necessary capital expenditures.
If we are unable to
generate sufficient cash flow to satisfy payment obligations under our existing indebtedness, we may be required to adopt one or
more alternatives, such as selling assets or obtaining additional equity capital on terms that may be onerous or highly dilutive.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in
a default on our debt obligations.
We are subject to a
number of restrictive covenants, which may restrict our business and financing activities. Such restrictions may affect, and in
many respects limit or prohibit, among other things, our ability to:
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incur additional indebtedness for borrowed money (except permitted indebtedness);
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grant liens (except permitted liens);
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repurchase shares of common stock or common stock equivalents (subject to certain limited exceptions);
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repay or repurchase outstanding indebtedness (subject to certain limited exceptions);
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pay cash dividends or distributions on our equity securities; or
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enter into certain related party transactions.
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These restrictions
may prevent us from taking actions that we believe would be in the best interests of our business, and may make it difficult for
us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We also
may incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and
operational flexibility. If we are unable to service our indebtedness, we may be required to restructure or refinance all or part
of our existing debt, sell assets, reduce capital expenditures, borrow more money or raise equity, some or all of which may not
be available to us on terms acceptable to us, if at all, or such alternative strategies may yield insufficient funds to make required
payments on our indebtedness. In addition, our ability to comply with the restrictive covenants in our indebtedness could be affected
by our future performance and events or circumstances beyond our control. Failure to comply with these covenants would result in
an event of default under such indebtedness, the potential acceleration of our obligation to repay outstanding debt and the potential
foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness. We
cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with
these agreements. Any of the above risks could materially adversely affect our business, financial condition, cash flows and results
of operations.
Risks Related to Our Business and Industry
We are heavily dependent on the success
of our technologies and product candidates, and we cannot give any assurance that any of our product candidates will receive regulatory
approval, which is necessary before they can be commercialized.
To date, we have invested
a significant portion of our efforts and financial resources in the acquisition and development of our product candidates. We have
not demonstrated our ability to perform the functions necessary for the successful acquisition, development or commercialization
of the technologies we are seeking to develop. As an early stage company, we have limited experience and have not yet demonstrated
an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly
evolving fields, particularly in the biopharmaceutical area. Our future success is substantially dependent on our ability to successfully
develop, obtain regulatory approval for, and then successfully commercialize such product candidates. Our product candidates are
currently in preclinical development or in clinical trials. Our business depends entirely on the successful development and commercialization
of our product candidates, which may never occur. We currently generate no revenues from the sale of any drugs, and we may never
be able to develop or commercialize a marketable drug.
The successful development,
and any commercialization, of our technologies and any product candidates would require us to successfully perform a variety of
functions, including:
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developing our technology platform;
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identifying, developing, manufacturing and commercializing product candidates;
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entering into successful licensing and other arrangements with product development partners;
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participating in regulatory approval processes;
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formulating and manufacturing products; and
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conducting sales and marketing activities.
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Our operations have
been limited to organizing our company, acquiring, developing and securing our proprietary technology and identifying and obtaining
early preclinical data or clinical data for various product candidates. These operations provide a limited basis for you to assess
our ability to continue to develop our technology, identify product candidates, develop and commercialize any product candidates
we are able to identify and enter into successful collaborative arrangements with other companies, as well as for you to assess
the advisability of investing in our securities. Each of these requirements will require substantial time, effort and financial
resources.
Each of our product
candidates will require additional preclinical or clinical development, management of preclinical, clinical and manufacturing activities,
regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, and significant
marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote any of our product
candidates before we receive regulatory approval from the FDA, or comparable foreign regulatory authorities, and we may never receive
such regulatory approval for any of our product candidates. In addition, our product development programs contemplate the development
of companion diagnostics by our third-party collaborators. Companion diagnostics are subject to regulation as medical devices and
must themselves be cleared or approved for marketing by the FDA or certain other foreign regulatory agencies before we may commercialize
our product candidates.
Clinical drug development involves
a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future
trial results.
Clinical testing is
expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the
clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive
of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired
safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. It is not uncommon
for companies in the biopharmaceutical industry to suffer significant setbacks in advanced clinical trials due to lack of efficacy
or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.
Product candidate development
risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates
are developed through preclinical to early and late stage clinical trials towards approval and commercialization, it is customary
that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way
in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product
candidates for late stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve
these intended objectives.
We have not previously
initiated or completed a corporate-sponsored clinical trial. Consequently, we may not have the necessary capabilities, including
adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate, in a way that leads
to our obtaining marketing approval for our product candidates in a timely manner, or at all.
In the event we are
able to conduct a pivotal clinical trial of a product candidate, the results of such trial may not be adequate to support marketing
approval. Because our product candidates are intended for use in life- threatening diseases, in some cases we ultimately intend
to seek marketing approval for each product candidate based on the results of a single pivotal clinical trial. As a result, these
trials may receive enhanced scrutiny from the FDA. For any such pivotal trial, if the FDA disagrees with our choice of primary
endpoint or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding
factors, or are not adequately supported by other study endpoints, including possibly overall survival or complete response rate,
the FDA may refuse to approve a BLA or an NDA based on such pivotal trial. The FDA may require additional clinical trials as a
condition for approving our product candidates.
Delays in clinical testing could
result in increased costs to us and delay our ability to generate revenue.
Although we are planning
for certain clinical trials relating to bertilimumab, we may experience delays in our clinical trials and we do not know whether
planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all.
Clinical trials can be delayed for a variety of reasons, including delays related to:
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reaching agreement on acceptable terms with prospective CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining IRB, approval at each site;
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recruiting suitable patients to participate in a trial;
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clinical sites deviating from trial protocol or dropping out of a trial;
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having patients complete a trial or return for post-treatment follow-up;
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developing and validating companion diagnostics on a timely basis, if required;
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adding new clinical trial sites;
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manufacturing sufficient quantities of product candidate for use in clinical trials; or
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Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
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Furthermore, we intend
to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we intend to have agreements
governing their committed activities, for which we will have limited influence over their actual performance. We could encounter
delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted,
by the Data Safety Monitoring Board (“DSMB”), for such trial or by the FDA or other regulatory authorities. Such authorities
may impose such a suspension or termination 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 site by the FDA or
other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects,
failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate
funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of
our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product
revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase
our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales
and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition,
many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead
to the denial of regulatory approval of our product candidates.
Competition for patients in conducting
clinical trials may prevent or delay product development and strain our limited financial resources.
Many pharmaceutical
companies are conducting clinical trials in patients with the disease indications that our potential drug products target. As a
result, we must compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent requirements
for participation in clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible
patients may be enrolled in competing studies and who are consequently not available to us for our clinical trials. Our clinical
trials may be delayed or terminated due to the inability to enroll enough patients. Patient enrollment depends on many factors,
including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites and
the eligibility criteria for the study. The delay or inability to meet planned patient enrollment may result in increased costs
and delays or termination of the trial, which could have a harmful effect on our ability to develop products.
The regulatory review and approval
processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are
ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to
obtain approval from the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement
of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition,
review and approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during
the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory
approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we
may seek to develop in the future will ever obtain regulatory approval.
Our product candidates
could fail to receive regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
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the FDA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we contemplate developing with partners; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.
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In addition, even if
we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications
than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance
of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims
necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially
harm the commercial prospects for our product candidates.
Other than with respect
to Ceplene, we have not previously submitted a BLA or an NDA to the FDA or similar drug approval filings to comparable foreign
authorities for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical
trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful
in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.
Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent,
in part, upon our collaborators’ ability to obtain regulatory approval of the companion diagnostics to be used with our product
candidates, as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights.
If the markets for patients that we are targeting for our product candidates are not as significant as we estimate, we may not
generate significant revenues from sales of such products, if approved.
We plan to seek regulatory
approval to commercialize our product candidates both in the United States, the European Union and in additional foreign countries.
While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries
we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing,
among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict
success in these jurisdictions.
Healthcare reform measures could
hinder or prevent our product candidates’ commercial success.
In both the United
States and certain foreign jurisdictions, there have been and we expect there will continue to be a number of legislative and regulatory
changes to the health care system that could impact our ability to sell our products profitably. The U.S. government and other
governments have shown significant interest in pursuing healthcare reform. In particular, the Medicare Modernization Act of 2003
revised the payment methodology for many products under the Medicare program in the United States. This has resulted in lower rates
of reimbursement. In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation
Act, collectively the Affordable Care Act (“PPACA”), was enacted. The PPACA substantially changes the way healthcare
is financed by both governmental and private insurers. Further, The Tax Cuts and Jobs Act of 2017 repealed the requirement that
individuals maintain health insurance coverage or face a penalty (known as the “individual mandate”). The removal of
this provision, coupled with the threat of the repeal of other PPACA provisions, may increase instability of the insurance marketplace
and may have consequences for the coverage and accessibility of prescription drugs. President Trump and HHS Secretary Azar have
announced support for regulatory provisions that would limit the PPACA and number of healthcare reform programs initiated under
the Obama administration. Such government-adopted reform measures may adversely impact the pricing of healthcare products and services
in the U.S. or internationally and the amount of reimbursement available from governmental agencies or other third-party payors.
Legislative changes
to or regulatory changes under the ACA remain possible under the current administration. The American Health Care Act of 2017 (“AHCA”),
which would repeal and replace key portions of the ACA, was passed by the U.S. House of Representatives but ultimately was not
passed by the U.S. Senate. In addition, in January 2017, President Trump signed an Executive Order directing federal agencies with
authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision
of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers
of pharmaceuticals or medical devices. More recently, the Senate Republicans introduced and then updated a bill to replace the
ACA known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislation to repeal the ACA without
companion legislation to replace it, and a "skinny" version of the Better Care Reconciliation Act of 2017. Each of these
measures was rejected by the full Senate. In December 2017, tax reform legislation was signed into law that eliminates the individual
insurance mandate provisions of the ACA. Congress will likely consider other legislation to replace elements of the ACA. We expect
that the ACA, as currently enacted or as it may be amended in the future, and other healthcare reform measures that may be adopted
in the future could have a material adverse effect on our industry generally and on our ability to successfully commercialize our
products.
We expect that the
ACA, as well as other healthcare reform measures that have and may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we receive for products and could seriously harm our future revenues.
Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments
from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able
to generate revenue, attain profitability or commercialize our products.
There have been, and
likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability
of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services
to contain or reduce costs of healthcare may adversely affect the demand for any drug products for which we may obtain regulatory
approval, as well as our ability to set satisfactory prices for our products, to generate revenues, and to achieve and maintain
profitability.
In addition, President
Trump has indicated that reducing the price of prescription drugs will be a priority of his administration. The implementation
of any price controls or caps on prescription drugs, whether at the federal level or state level, could adversely affect our business,
operating results and financial condition.
The effect of comprehensive U.S.
tax reform legislation on us, whether adverse or favorable, is uncertain at this time.
On December 22, 2017,
President Trump signed into law H.R. 1, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent
resolution on the budget for fiscal year 2018" (informally titled the "Tax Cuts and Jobs Act"). Among a number of
significant changes to the U.S. federal income tax rules, the Tax Cuts and Jobs Act (the "Act") reduces the marginal
U.S. corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, limits the deduction for net operating
losses and eliminates net operating loss carrybacks, modifies or repeals many business deductions and credits, shifts the United
States toward a more territorial tax system, and imposes new taxes to combat erosion of the U.S. federal income tax base. Our net
deferred tax assets and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized
in our tax expense in the year of enactment. We continue to examine the impact this tax reform legislation may have on our business.
However, the effect of the Tax Cuts and Jobs Act on us and our affiliates, whether adverse or favorable, is uncertain, and may
not become evident for some period of time.
Our future success depends on our
ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent
on the principal members of our management, scientific and clinical team. Although we have entered into employment letter agreements
with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person”
insurance for any of our executives or other employees.
Recruiting and retaining
qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss
of the services of our executive officers or other key employees could impede the achievement of our research, development and
commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing
executive officers and key employees may be difficult and may take an extended period of time because of the limited number of
individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval
of and commercialize products. We do not carry any “key man” insurance that would provide us with proceeds in the event
of the death or disability of any key members of senior management, our investment team, or senior marketing personnel. Competition
to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable
terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely
on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development
and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments
under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue
to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
A variety of risks associated with
operating internationally could materially adversely affect our business.
In addition to our
United States operations, we have operations in Israel through our wholly-owned subsidiary, Immune Pharmaceuticals Ltd. We face
risks associated with our operations in Israel, including possible unfavorable regulatory, pricing and reimbursement, legal, political,
tax and labor conditions, which could harm our business. We are also conducting and in the future plan to continue to conduct clinical
trials of product candidates in Israel. We are subject to numerous risks associated with international business activities in Israel
and elsewhere, including:
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compliance with differing or unexpected regulatory requirements for our products;
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compliance with Israeli laws with respect to our wholly owned subsidiary, Immune Ltd.;
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difficulties in staffing and managing foreign operations;
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foreign government taxes, regulations and permit requirements;
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United States and foreign government tariffs, trade restrictions, price and exchange controls and other regulatory requirements;
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economic weakness, including inflation, natural disasters, war, events of terrorism or political instability in particular foreign countries;
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fluctuations in currency exchange rates, which could result in increased operating expenses and reduced revenues;
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compliance with tax, employment, immigration and labor laws, regulations and restrictions for employees living or traveling abroad;
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changes in diplomatic and trade relationships; and
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challenges in enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States.
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These and other risks
associated with our international operations in Israel and elsewhere may materially adversely affect our business, financial condition
and results of operations.
Our business and operations would
suffer in the event of system failures.
Despite the implementation
of security measures, our internal computer systems and those of our current and future contractors and consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
While we are not aware of any such material system failure, accident or security breach to date, if such an event were to occur
and cause interruptions in our operations, it could result in a material disruption of our development programs and our business
operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties
to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could
also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss
of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur
liability and the further development and commercialization of our product candidates could be delayed.
Risks Related to Regulatory Development,
Approval and other Legal Compliance
If we are not able to obtain, or
if there are delays in obtaining, required regulatory approvals, we will not be able to develop and then commercialize our product
candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired.
Our product candidates
and the activities associated with their development, applications for regulatory approval, and commercialization, including their
design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution,
are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States, by the EMA in the European
Union and similar regulatory authorities outside the United States and the European Union. Failure to obtain approval of clinical
trial applications may delay or prevent us from developing our drugs in one or more jurisdictions. Similarly, failure to obtain
marketing approval for a product candidate (NDA, BLA, or MAA) will prevent us from commercializing that product candidate. While
our executives have experience with the IND, NDA, BLA, CTA and MAA processes, we expect to rely on third parties to assist us in
this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information
to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing
development and later marketing approval also requires the submission of information about the product manufacturing process to,
and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be
only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that
may preclude our obtaining marketing approval or prevent or limit commercial use. For example, new drugs frequently are indicated
only for patient populations that have not responded to an existing therapy or have relapsed. If any of our product candidates
with such an indication receives marketing approval, the accompanying label may limit the approved use of our drug in this way,
which could limit sales of the product.
The process of obtaining
marketing approvals, both in the United States and abroad, is expensive and uncertain and may ultimately fail or take many years
to achieve . If additional clinical trials are required for certain jurisdictions, these trials can vary substantially based upon
a variety of factors, including the type, complexity and novelty of the product candidates involved, and may ultimately be unsuccessful.
Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations,
or changes in regulatory review process for each submitted product application, may cause delays in the review and approval of
an application. Any new laws or regulations that have the effect of imposing additional costs or regulatory burden on pharmaceutical
manufacturers, or otherwise negatively affect the industry, could adversely affect our ability to successfully commercialize our
products and product candidates. In addition, President Trump has indicated that reducing the price of prescription drugs sold
in the United States will be a priority of his administration and has recently proposed plans to implement this priority. The implementation
of any price controls or caps on prescription drugs, whether at the federal, state level or via other relevant agencies, could
adversely affect our business, operating results and financial condition.
Regulatory authorities
have substantial discretion in the approval process and may reject a marketing application as deficient or may decide that our
data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations
of the data obtained from preclinical studies and clinical trials could delay, limit or prevent marketing approval of a product
candidate. Any marketing approval(s) we ultimately obtain may be limited or subject to restrictions or post-approval commitments
that render the approved product not commercially viable.
Although we have met
with the FDA regarding the development of bertilimumab, it is possible that the FDA may change its requirements or require us to
conduct additional preclinical studies and/or clinical trials that may delay the development and approval of this drug. Unfavorable
data from our clinical trials may restrict the potential development and commercialization of bertilimumab or lead to the termination
of its development.
Ceplene is approved
by the EMA and registered in over 30 countries in Europe and Israel. It also has Orphan Drug Designation in both the European Union
and United States for AML. The FDA however, refused to file the Ceplene NDA submission due to the lack of an Overall Survival primary
endpoint in the study and the lack of an IL-2 treatment alone control arm. Based on new biologic and clinical findings that have
been studied and analyzed since the last communication with the FDA, we are planning further formal discussions with the FDA regarding
a path forward for registration in the United States.
If we experience delays
in obtaining approval or if we fail to obtain approval of any of our product candidates, the commercial prospects for our product
candidates may be harmed and our ability to generate revenues will be materially impaired.
The results from completed preclinical
studies and early stage clinical trials may not be predictive of results in later stage trials and may not be predictive of the
likelihood of regulatory approval.
We and our partners
(as the case may be) discuss with, and obtain guidance from, regulatory authorities on clinical trial protocols. Over the course
of conducting clinical trials, circumstances may change, such as standards of safety, efficacy or medical practice, which could
affect regulatory authorities’ perception of the adequacy of any of our clinical trial designs or the data we develop from
our clinical trials. Clinical trial designs that were discussed with regulatory authorities prior to their commencement may subsequently
be considered insufficient for approval at the time of application for regulatory approval. Changes in circumstances could affect
our ability to conduct clinical trials as planned, including our ability to obtain current, timely and/or sufficient supplies of
the products being tested. Even with successful clinical safety and efficacy data, we may be required to conduct additional, expensive
trials to obtain regulatory approval. Any failure or significant delay in beginning new clinical trials or completing ongoing clinical
trials for our product candidates, or in receiving regulatory approval for the commercialization of our product candidates, may
severely harm our business and delay or prevent us from being able to generate revenue and our stock price will likely decline.
The results of our clinical trials
are uncertain, which could substantially delay or prevent us from bringing our product candidates to market.
Before we can obtain
regulatory approval for a product candidate, we must undertake extensive clinical testing in humans to demonstrate safety and efficacy
to the satisfaction of the FDA or other regulatory agencies. Clinical trials are very expensive and difficult to design and implement.
The clinical trial process is also time consuming. The commencement and completion of our clinical trials could be delayed or prevented
by several factors, including:
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delays in obtaining regulatory approvals to commence or continue a study;
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delays in reaching agreement on acceptable clinical trial parameters;
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slower than expected rates of patient recruitment and enrollment;
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inability to demonstrate effectiveness or statistically significant results in our clinical trials;
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unforeseen safety issues;
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uncertain dosing issues;
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inability to monitor patients adequately during or after treatment; and
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inability or unwillingness of medical investigators to follow our clinical protocols.
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We cannot assure you
that our planned clinical trials will begin or be completed on time or at all, or that they will not need to be restructured prior
to completion. Significant delays in clinical testing will impede our ability to commercialize our product candidates and generate
revenue from product sales and could materially increase our development costs. Completion of clinical trials may take several
years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product
candidate.
There is no guarantee that we will
maintain Fast Track designation for bertilimumab.
In September 2018,
bertilimumab received Fast Track Designation from the FDA for the treatment of BP. The FDA may rescind Fast Track designation at
any time if a product no longer meets the qualifying criteria. There is no guarantee that bertilimumab will continue to meet the
Fast Track qualifying criteria.
We rely on third parties over which
we have little or no control to conduct clinical trials for our product candidates and their failure to perform their obligations
in a timely or competent manner may delay development and commercialization of our product candidates.
The nature of clinical
trials and our business strategy requires us to rely on clinical research centers and other third parties to assist us with clinical
testing and certain research and development activities. As a result, our success is dependent upon the success of these third
parties in performing their responsibilities. We cannot directly control the adequacy and timeliness of the resources and expertise
applied to these activities by such third parties. If such contractors do not perform their activities in an adequate or timely
manner, the development and commercialization of our product candidates could be delayed. We may enter into agreements from time
to time with additional third parties for our other product candidates whereby these third parties undertake significant responsibility
for research, clinical trials or other aspects of obtaining FDA approval. As a result, we may face delays if these additional third
parties do not conduct clinical studies and trials, or prepare or file regulatory related documents, in a timely or competent fashion.
The conduct of the clinical studies by, and the regulatory strategies of, these additional third parties, over which we have limited
or no control, may delay or prevent regulatory approval of our product candidates, which would delay or limit our ability to generate
revenue from product sales.
We may not be able to successfully
conduct clinical trials due to various process-related factors which could negatively impact our business plans. The successful
start and completion of any of our clinical trials within time frames consistent with our business plans is dependent on regulatory
authorities and various factors, which include, but are not limited to, our ability to:
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recruit and retain employees, consultants or contractors with the required level of expertise;
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recruit and retain sufficient patients needed to conduct a clinical trial;
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enroll and retain participants, which is a function of many factors, including the size of the relevant population, the proximity of participants to clinical sites, activities of patient advocacy groups, the eligibility criteria for the trial, the existence of competing clinical trials, the availability of alternative or new treatments, side effects from the therapy, lack of efficacy, personal issues and ease of participation;
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timely and effectively contract with (under reasonable terms), manage and work with investigators, institutions, hospitals and the contract research organizations (“CROs”) involved in the clinical trial;
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negotiate contracts and other related documents with clinical trial parties and institutional review boards, such as informed consents, CRO agreements and site agreements, which can be subject to extensive negotiations that could cause significant delays in the clinical trial process, with terms possibly varying significantly among different trial sites and CROs and possibly subjecting us to various risks;
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ensure adherence to trial designs and protocols agreed upon and approved by regulatory authorities and applicable legal and regulatory guidelines;
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manage or resolve unforeseen adverse side effects during a clinical trial;
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conduct the clinical trials in a cost-effective manner, including managing foreign currency risk in clinical trials conducted in foreign jurisdictions and cost increases due to unforeseen or unexpected complications such as enrollment delays, or needing to outsource certain Company functions during the clinical trial; and
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execute clinical trial designs and protocols approved by regulatory authorities without deficiencies.
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If we are not able
to manage the clinical trial process successfully, our business plans could be delayed or be rendered unfeasible for us to execute
within our planned or required time frames, or at all.
If we receive regulatory approval,
our marketed products will also be subject to ongoing FDA and/or foreign regulatory agency obligations and continued regulatory
review, and if we fail to comply with these regulations, we could lose approvals to market any products, and our business would
be seriously harmed.
Following initial regulatory
approval of any of our product candidates, we will be subject to continuing regulatory review, including review of adverse experiences
and clinical results that are reported after our products become commercially available. This would include results from any post-marketing
tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our
product candidates will also be subject to periodic review and inspection by the FDA or foreign regulatory agencies. If a previously
unknown problem or problems with a product, manufacturing or laboratory facility used by us is discovered, the FDA or foreign regulatory
agency may impose restrictions on that product or on the manufacturing facility, including requiring us to withdraw the product
from the market. Any changes to an approved product, including the way it is manufactured or promoted, often require FDA approval
before the product, as modified, can be marketed. Our manufacturers and we will be subject to ongoing FDA requirements for submission
of safety and other post-market information. If we or our manufacturers fail to comply with applicable regulatory requirements,
a regulatory agency may:
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issue warning letters;
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impose civil or criminal penalties;
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suspend or withdraw regulatory approval;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications;
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impose restrictions on operations;
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close the facilities of manufacturers; or
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seize or detain products or require a product recall.
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In addition, the policies
of the FDA or other applicable regulatory agencies may change and additional government regulations may be enacted that could prevent
or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature, or extent of adverse government
regulation that may arise from future legislation or administrative action, either in the United States or abroad.
Any regulatory approval we receive
for our product candidates will be limited to those indications and conditions for which we are able to show clinical safety and
efficacy.
Any regulatory approval
that we may receive for our current or future product candidates will be limited to those diseases and indications for which such
product candidates are clinically demonstrated to be safe and effective. For example, in addition to the FDA approval required
for new formulations, any new indication to an approved product also requires FDA approval. If we are not able to obtain regulatory
approval for a broad range of indications for our product candidates, our ability to effectively market and sell our product candidates
may be greatly reduced and may harm our ability to generate revenue.
While physicians may
choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested
in clinical studies and approved by regulatory authorities, our regulatory approvals will be limited to those indications that
are specifically submitted to the regulatory agency for review. These “off-label” uses are common across medical specialties
and may constitute the best treatment for many patients in varied circumstances. Regulatory authorities in the United States generally
do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications
by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations
or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow
regulatory rules and guidelines relating to promotion and advertising may cause the regulatory agency to delay its approval or
refuse to approve a product, the suspension or withdrawal of an approved product from the market, recalls, fines, disgorgement
of money, operating restrictions, injunctions or criminal prosecutions and penalties, any of which could harm our business.
If we market any approved products
in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subject
to civil or criminal penalties.
The FDA enforces laws
and regulations that require that the promotion of pharmaceutical products be consistent with the approved prescribing information.
While physicians may prescribe an approved product for a so-called “off label” use, it is unlawful for a pharmaceutical
company to promote its products in a manner that is inconsistent with its approved label and any company which engages in such
conduct can subject that company to significant liability. Similarly, industry codes in the EU and other foreign jurisdictions
prohibit companies from engaging in off-label promotion and regulatory agencies in various countries enforce violations of the code
with civil penalties. While we intend to ensure that our promotional materials are consistent with our label, regulatory agencies
may disagree with our assessment and may issue untitled letters, warning letters or may institute other civil or criminal enforcement
proceedings. In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal
healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical
industry. These laws include the U.S. Anti-Kickback Statute, the U.S. False Claims Act and similar state laws. Because of the breadth
of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge
under one or more of these laws.
The U.S. Anti-Kickback
Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce,
or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service
reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted broadly
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers
on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our
practices may not, in all cases, meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, recent
health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends
the intent requirement of the U.S. Anti-Kickback Statute and criminal health care fraud statutes; a person or entity no longer
needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides
that the government may assert that a claim including items or services resulting from a violation of the U.S. Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal false claims laws prohibit any person
from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making,
or causing to be made, a false statement to get a false claim paid.
Over the past few years,
several pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged promotional
and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary
benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs
to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for
non-covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability
for Medicaid rebates. Most states also have statutes or regulations similar to the U.S. Anti-Kickback Statute and the U.S. False
Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply
regardless of the payor. Sanctions under these federal and state laws may include substantial civil monetary penalties, exclusion
of a manufacturer’s products from reimbursement under government programs, substantial criminal fines and imprisonment.
Our lead product candidate, bertilimumab,
is a biologic and may face biosimilar competition.
With the enactment
of the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) as part of the Health Care Reform Law, an abbreviated
pathway for the approval of biosimilar and interchangeable biological products was created in the United States The new abbreviated
regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation
of a biosimilar as “interchangeable.” The FDA defines an interchangeable biosimilar as a product that, in terms of
safety or diminished efficacy, presents no greater risk when switching between the biosimilar and its reference product than the
risk of using the reference product alone. Under the BPCIA, an application for a biosimilar product cannot be submitted to the
FDA until four years, or approved by the FDA until 12 years, after the original brand product identified as the reference product
was approved under a BLA.
We believe that if
bertilimumab or any of our other product candidates were to be approved as biological products under a BLA, such approved products
should qualify for the 12-year period of exclusivity. Moreover, the extent to which a biosimilar, once approved, will be substituted
for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products
is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Risks Related to Our Dependence on Third
Parties
Any collaborations that we enter
into could be important to our business. If we are unable to maintain any of these collaborations, or if these collaborations are
not successful, our business could be adversely affected.
We intend to enter
into collaborations with other biopharmaceutical companies to develop our product candidates and generate funding for our research
programs. Currently, we have no agreement with any commercial partner and we may never secure a commercial partner. These collaborations
may pose a number of risks, including:
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collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not perform their obligations as expected;
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collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;
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a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
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collaborations may be terminated for the convenience of the collaborator and, if terminated, we would potentially lose the right to pursue further development or commercialization of the applicable product candidates;
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collaborators may learn about our technology and use this knowledge to compete with us in the future;
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results of collaborators’ preclinical or clinical trials could produce results that harm or impair other products using our technology;
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there may be conflicts between different collaborators that could negatively affect those collaborations and potentially others; and
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the number and type of our collaborations could adversely affect our attractiveness to future collaborators or acquirers.
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If any collaborations
we enter into do not result in the successful development and commercialization of our products or if one of our collaborators
terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty payments
under the collaboration. If we do not receive the funding we expect under these agreements, our continued development of our product
candidates could be delayed and we may need additional resources to develop additional product candidates. All of the risks relating
to our product development, regulatory approval and commercialization also apply to the activities of our collaborators and there
can be no assurance that our collaborations will produce positive results or successful products on a timely basis or at all.
Additionally, subject
to its contractual obligations to us, if a collaborator of ours is involved in a business combination or otherwise changes its
business priorities, the collaborator might deemphasize or terminate the development or commercialization of any product candidate
licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new
collaborators and our perception in the business and financial communities and our stock price could be adversely affected.
We may in the future
determine to collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization
of therapeutic products. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive
agreement for collaboration 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.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may not
be able to access therapeutic payloads that would be suitable to development with our platform, have to curtail the development
of a product candidate, 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 fund and undertake development or commercialization activities
on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms
or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development
and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue
to develop our product platform and our business may be materially and adversely affected.
We rely, and expect to continue to
rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing
to meet deadlines for the completion of such trials.
Currently, we rely
on third-party CROs to conduct our ongoing clinical trials and do not plan to independently conduct clinical trials of our other
product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical
institutions and clinical investigators, to conduct and manage our clinical trials. These agreements might terminate for a variety
of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that would
delay our product development activities.
Our reliance on these
third parties for 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 regulatory standards,
commonly referred to as good clinical practices (“GCPs”), 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. Other countries’ regulatory agencies also have requirements for clinical trials with which
we must comply. 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 specified 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 product candidates and will not be able to, or may be delayed in our
efforts to, successfully commercialize our product candidates.
We expect to rely on
other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors
could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing
additional losses and depriving us of potential product revenue.
We contract with third parties for
the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so for the foreseeable
future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates
or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization
efforts.
We do not have any
manufacturing facilities that meet the FDA’s current cGMP requirements for the production of any product candidates used
in humans. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical
and clinical testing, as well as for the commercial manufacture if any of our product candidates once they receive marketing approval.
This reliance on third parties increases the risk that we may not have sufficient quantities of our product candidates on a timely
basis or at all or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development
or commercialization efforts.
We may be unable to
establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements
with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
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failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance;
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breach of the manufacturing agreement by the third party;
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failure to manufacture our product according to our specifications;
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failure to manufacture our product according to our schedule or at all;
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misappropriation of our proprietary information, including our trade secrets and know-how; and
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termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
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Third-party manufacturers
may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States Our failure, or the
failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us,
including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect supplies of our products.
Our product candidates
and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities.
There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for
us.
Any performance failure
on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently
have arrangements in place for redundant supply or a second source for required raw materials used in the manufacture of our product
candidates, including our lead product candidate bertilimumab. If our contract manufacturer cannot perform as agreed, we may be
required to replace such manufacturer and we may be unable to replace them on a timely basis or at all.
Our current and anticipated
future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit
margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
Risks Related to the Commercialization
of Our Product Candidates
Even if any of our product candidates
(other than Ceplene) receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients,
third-party payors and others in the medical community necessary for commercial success.
Other than Ceplene,
which has been approved for sale in the European Union, if any of our product candidates receives marketing approval, it may nonetheless
fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For
example, current cancer treatments like chemotherapy and radiation therapy are well established in the medical community, and physicians
may continue to rely on these treatments. In addition, many new drugs have been recently approved and many more are in the pipeline
for the same diseases for which we are developing our product candidates. If our product candidates do not achieve an adequate
level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance
of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
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efficacy, safety and other potential advantages compared to alternative treatments;
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ability to offer products for sale at competitive prices;
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convenience and ease of administration compared to alternative treatments;
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willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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strength of marketing and distribution support;
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availability of third-party coverage and adequate reimbursement for our product candidates;
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prevalence and severity of their side effects;
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any restrictions on the use of our products together with other medications;
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interactions of our products with other medicines patients are taking; and
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inability of certain types of patients to take the product.
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If we are unable to establish effective
sales, marketing and distribution capabilities or enter into agreements with third parties with such capabilities, we may not be
successful in commercializing our product candidates if and when they are approved.
We do not have a sales
or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve
commercial success for any product for which we obtain marketing approval, we will need to establish a sales and marketing organization
or make arrangements with third parties to perform sales and marketing functions.
In the future, we expect
to build a focused specialty sales and marketing infrastructure to market or co-promote some of our product candidates in the United
States and potentially elsewhere, if and when they are approved. There are risks involved with establishing our own sales, marketing
and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay
any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing
capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit
our efforts to commercialize our products on our own include:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or educate physicians on the benefits of our products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
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inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.
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Outside the United
States, we expect to rely on third parties to sell, market and distribute our product candidates. We may not be successful in entering
into arrangements with such third parties or may be unable to do so on terms that are favorable to us. In addition, our product
revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market,
sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any
of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish
sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will
not be successful in commercializing our product candidates.
We face substantial competition,
which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
The development and
commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates
and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from
major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of
large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products
for the treatment of the disease indications for which we are developing our product candidates. Some of these competitive products
and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely
different approaches. Potential competitors also include academic institutions, government agencies and other public and private
research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development,
manufacturing and commercialization.
Many of the companies
against which we are competing or against which we may compete in the future have significantly greater financial resources, established
presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology
industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller and other early
stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less
severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may
obtain FDA or other regulatory approval for their products more rapidly than we 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 payors seeking to encourage the use of generic products. Major competing
products to our lead drug, bertilimumab, such as Remicade and Humira are expected to become available on a generic basis over the
coming years. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium
over competitive generic products. Multiple other new drugs will be launched prior to bertilimumab in its various target indications
but may limit its potential market acceptance. NanomAbs are competing with other ligand nanoparticle conjugates developed by well-funded
companies such as BIND Therapeutics and Merrimack. They are also competing with other types of Bio-Conjugates including antibody
drug conjugates developed by Seattle Genetics and Immunogen. Insufficient funding or inability to secure timely corporate partnerships
will prevent us from successfully developing the commercial opportunity with NanomAbs.
Even if we are able to commercialize
any product candidates (other than Ceplene), the products may become subject to unfavorable pricing regulations, third-party reimbursement
practices or healthcare reform initiatives, which would harm our business.
The regulations that
govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current
and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause
delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries,
the pricing review period begins after marketing or product-licensing approval is granted. In some foreign markets, prescription
pharmaceutical pricing remains subject to continuing governmental control, including possible price reductions, even after initial
approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject
to price regulations that delay our commercial launch of the product, possibly for lengthy period of time, and negatively impact
the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability
to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize
any product candidates successfully also will depend in part on the extent to which coverage and reimbursement for these products
and related treatments will be available from government health administration authorities, private health insurers and other organizations.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which
medications they will pay for and establish reimbursement levels. A primary trend in the United States healthcare industry and
elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage
and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies
provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. Coverage and reimbursement
may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not
be sufficient to generate a profit. Reimbursement may affect the demand for, or the price of, any product candidate for which we
obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required
to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other
therapies. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be
able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant
delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug
is approved for by the FDA or similar regulatory authorities outside the United States Moreover, eligibility for reimbursement
does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture,
sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs
and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which
it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments
for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs
or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be
sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations
in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from both
government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize products and our overall financial condition.
Product liability lawsuits against
us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent
risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even
greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims
that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual
outcome, liability claims may result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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loss of revenue;
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reduced resources of our management to pursue our business strategy; and
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the inability to commercialize any products that we may develop.
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We currently hold $5.0
million in clinical trial liability insurance coverage in the aggregate and per incident, which may not be adequate to cover all
liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence
commercialization of our product candidates. Insurance coverage is increasingly expensive. 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.
Risks Related to Our Intellectual Property
Our ability to protect our intellectual
property rights will be critically important to the success of our business, and we may not be able to protect or enforce these
rights in the United States or abroad.
We own or hold licenses
to a number of issued United States patents and United States pending patent applications, as well as foreign patents and patent
applications. Our success depends in part on our ability to obtain patent protection both in the United States and in other countries
for our product candidates, as well as the methods for treating patients in the product indications using these product candidates.
Our ability to protect our product candidates from unauthorized or infringing use by third parties depends in substantial part
on our ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards relating to the patentability,
validity and enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our
ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Even if our product
candidates, as well as methods for treating patients for prescribed indications using these product candidates are covered by valid
and enforceable patents and have claims with sufficient scope, disclosure and support in the specification, the patents will provide
protection only for a limited amount of time. Accordingly, rights under any issued patents may not provide us with sufficient protection
for our product candidates or provide sufficient protection to afford us a commercial advantage against competitive products or
processes.
In addition, we cannot
guarantee that any patents issued from any pending or future patent applications owned by or licensed to us. Even if patents have
issued or will issue, we cannot guarantee that the claims of these patents are or will be valid or enforceable or will provide
us with any significant protection against competitive products or otherwise be commercially valuable to us. The laws of some foreign
jurisdictions do not protect intellectual property rights to the same extent as in the United States and many companies have encountered
significant difficulties in protecting and defending such rights in foreign jurisdictions. Furthermore, different countries have
different procedures for obtaining patents, and patents issued in different countries offer different degrees of protection against
use of the patented invention by others. If we encounter such difficulties in protecting or are otherwise precluded from effectively
protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed.
The patent positions
of biotechnology companies, including our patent position, involve complex legal and factual questions, and, therefore, validity
and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated, or circumvented.
Our patents can be challenged by our competitors who can argue that our patents are invalid, unenforceable, lack utility, or sufficient
written description or enablement, or that the claims of the issued patents should be limited or narrowly construed. Patents also
will not protect our product candidates if competitors devise ways of making or using these product candidates without legally
infringing our patents. The Federal Food, Drug, and Cosmetic Act and FDA regulations and policies create a regulatory environment
that encourages companies to challenge branded drug patents or to create non-infringing versions of a patented product in order
to facilitate the approval of abbreviated new drug applications for generic substitutes. These same types of incentives encourage
competitors to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor,
providing a less burdensome pathway to approval.
The degree of future
protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and
may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
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We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
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We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing on our intellectual property rights.
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It is possible that our pending patent applications will not lead to issued patents.
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Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
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Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.
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We may not develop additional proprietary technologies that are patentable.
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The patents of others may have an adverse effect on our business.
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Should any of these
events occur, they could significantly harm our business, results of operations and prospects.
We will be able to
protect our proprietary rights from unauthorized use by third parties only to the extent that our technologies, product candidates,
and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets and we have
the funds to enforce our rights, if necessary.
The expiration of our
owned or licensed patents before completing the research and development of our product candidates and receiving all required approvals
in order to sell and distribute the products on a commercial scale can adversely affect our business and results of operations.
In addition, the laws
of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States
If we fail to apply for intellectual property protection or if we cannot adequately protect our intellectual property rights in
these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive
position, as well as our business, financial condition and results of operations.
Filing, prosecuting
and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use
our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in
the United States These products may compete with our products in jurisdictions where we do not have any issued patents and our
patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Litigation regarding patents, patent
applications and other proprietary rights may be expensive and time consuming. If we are involved in such litigation, it could
cause delays in bringing product candidates to market and harm our ability to operate.
Our success will depend
in part on our ability to operate without infringing the proprietary rights of third parties. The pharmaceutical industry is characterized
by extensive litigation regarding patents and other intellectual property rights. Other parties may obtain patents in the future
and allege that the use of our technologies infringes these patent claims or that we are employing their proprietary technology
without authorization.
Litigation relating
to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated
by very large companies may cause us to be at a significant disadvantage in defending our intellectual property rights and in defending
against claims that our technology infringes or misappropriates third party intellectual property rights. However, we may seek
to use various post- grant administrative proceedings, including new procedures created under the America Invents Act, to invalidate
potentially overly-broad third-party rights. Even if we are able to defend our position, the cost of doing so may adversely affect
our ability to grow, generate revenue or become profitable. Although we have not yet experienced any patent litigation, we may
in the future be subject to such litigation and may not be able to protect our intellectual property at a reasonable cost, or at
all, if such litigation is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments
against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights,
which could have a significant adverse effect on our business.
In addition, third
parties may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications
or those of others could result in adverse decisions regarding the patentability of our inventions relating to our product candidates
and/or the enforceability, validity or scope of protection offered by our patents relating to our product candidates.
Even if we are successful
in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which
could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required
to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly
and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we
do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have
infringed patents declared invalid, we may:
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incur substantial monetary damages;
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encounter significant delays in bringing our product candidates to market; and/or
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be precluded from participating in the manufacture, use or sale of our product candidates or methods of treatment requiring licenses.
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Our commercial success
depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount
of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including
Patent Office administrative proceedings, such as inter-party reviews, and reexamination proceedings before the USPTO or oppositions
and revocations and other comparable proceedings in foreign jurisdictions. Numerous United States and foreign issued patents and
pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates.
As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates
may give rise to claims of infringement of the patent rights of others.
Despite safe harbor
provisions, third parties may assert that we are employing their proprietary technology without authorization. There may be third-party
patents, of which we are currently unaware, with claims to materials, formulations, methods of doing research or library screening,
methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications
can take many years to issue, there may be published patent applications, which may later result in issued patents that our product
candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes
upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process
of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders
of any such patents may be able to block our ability to commercialize such product candidate unless we obtain a license under the
applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly,
if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture
or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block
our ability to develop and commercialize the applicable product candidate unless we obtain a license, limit our use, or until such
patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available
to us on commercially reasonable terms or at all.
Parties making claims
against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize
one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation
expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement
against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement,
obtain one or more licenses from third parties, limit our use, pay royalties or redesign our infringing product candidates, which
may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available
at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may
need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may
fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable
to further develop and commercialize one or more of our product candidates, which could harm our business significantly.
Many companies have
encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual
property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects
of our business.
Third-party claims of intellectual
property infringement may prevent or delay our drug discovery and development efforts.
Confidentiality agreements
with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may
not adequately protect our intellectual property, which could limit our ability to compete. Because we operate in a highly technical
field of research and development of small molecule drugs, we rely in part on trade secret protection in order to protect our proprietary
trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others will
not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality agreements
with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors, to protect our trade
secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to
third parties all confidential information developed by the party or made known to the party by us during the course of the party’s
relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may
not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade
secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the
United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection
could adversely affect our competitive position.
We license patent rights from third-party
owners. Such licenses may be subject to early termination if we fail to comply with our obligations in our licenses with third
parties, which could result in the loss of rights or technology that are material to our business.
We are a party to licenses
that give us rights to third-party intellectual property that is necessary or useful for our business, and we may enter into additional
licenses in the future. Under these license agreements we are obligated to pay the licensor fees, which may include annual license
fees, milestone payments, royalties, a percentage of revenues associated with the licensed technology and a percentage of sublicensing
revenue. In addition, under certain of such agreements, we are required to diligently pursue the development of products using
the licensed technology. If we fail to comply with these obligations and fail to cure our breach within a specified period of time,
the licensor may have the right to terminate the applicable license, in which event we could lose valuable rights and technology
that are material to our business. If the licensor retains control of prosecution of the patents and patent applications licensed
to us, we may have limited or no control over the manner in which the licensor chooses to prosecute or maintain its patents and
patent applications and have limited or no right to continue to prosecute any patents or patent applications that the licensor
elects to abandon. The loss of any such rights provided under our license agreements could materially harm our financial condition
and operating results.
We may be unable to adequately prevent
disclosure of trade secrets and other proprietary information.
We rely on trade secrets
to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside
scientific collaborators, sponsored researchers, and other advisors to protect our trade secrets and other proprietary information.
These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the
event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets
and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our
proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
If we are unable to obtain licenses
needed for the development of our product candidates, or if we breach any of the agreements under which we license rights to patents
or other intellectual property from third parties, we could lose licensing rights that are important to our business.
If we are unable to
maintain and/or obtain licenses needed for the development of our product candidates in the future, we may have to develop alternatives
to avoid infringing on the patents of others, potentially causing increased costs and delays in drug development and introduction
or precluding the development, manufacture, or sale of planned products. Some of our licenses provide for limited periods of exclusivity
that require minimum license fees and payments and/or may be extended only with the consent of the licensor. We can provide no
assurance that we will be able to meet these minimum license fees in the future or that these third parties will grant extensions
on any or all such licenses. This same restriction may be contained in licenses obtained in the future.
Additionally, we can
provide no assurance that the patents underlying any licenses will be valid and enforceable. To the extent any products developed
by us are based on licensed technology, royalty payments on the licenses will reduce our gross profit from such product sales and
may render the sales of such products uneconomical. In addition, the loss of any current or future licenses or the exclusivity
rights provided therein could materially harm our business financial condition and our operations.
If any of our trade secrets, know-how
or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly
impaired and our business and competitive position would suffer.
Our success also depends
upon the skills, knowledge and experience of our scientific and technical personnel and our consultants and advisors, as well as
our licensors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to
obtain, we rely on trade secret protection and confidentiality agreements. Unlike some of our competitors, we maintain our proprietary
libraries for ourselves as we believe they have proven to be superior in obtaining strong binder product candidates. To this end,
we require all of our employees, consultants, advisors and contractors to enter into agreements, which prohibit the disclosure
of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business. These agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such
information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets,
know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.
From time to time we may need to
license patents, intellectual property and proprietary technologies from third parties, which may be difficult or expensive to
obtain.
We may need to obtain
licenses to patents and other proprietary rights held by third parties to successfully develop, manufacture and market our drug
products. As an example, it may be necessary to use a third party’s proprietary technology to reformulate one of our drug
products in order to improve upon the capabilities of the drug product. If we are unable to timely obtain these licenses on reasonable
terms, our ability to commercially exploit such drug products may be inhibited or prevented.
Risks related to our common stock
The price of our common stock is
volatile and fluctuates substantially, which could result in substantial losses for purchasers of our shareholders.
Our stock price is
often volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced
extreme volatility that often is unrelated to the operating performance of particular companies. The market price for our common
stock may be influenced by many factors, including:
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success of competitive products or technologies;
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results of clinical trials of our product candidates or those of our competitors;
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developments related to our existing or any future collaboration;
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regulatory or legal developments in the United States and other countries;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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recruitment or departure of key personnel;
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level of expenses related to any of our product candidates or clinical development programs; product candidates or products;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions; and
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other factors described in this “Risk Factors” section.
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A significant number of shares of
our common stock are issuable pursuant to outstanding shares of convertible preferred stock and warrants, and we expect to issue
additional shares of common stock in the future. Conversion, exercise or sales of these securities will dilute the interests of
other security holders and may depress the price of our common stock.
As of September 30,
2018, there were 44,964,491 shares of common stock outstanding, with up to 58,051,054 shares of common stock issuable upon conversion
of outstanding convertible preferred stock and accreted dividends; 17,641,180 shares of common stock issuable upon exercise of
outstanding warrants issued in connection with the convertible preferred stock; 10,382,865 shares potentially issuable upon conversion
of May 2018 convertible notes (assuming $0.375 price); 5,498,491 shares of common stock issuable upon exercise of other outstanding
warrants; and 479,663 shares of common stock issuable upon exercise of outstanding options. In addition, we may issue additional
common stock and warrants from time to time to finance our operations, to fund potential acquisitions or in connection with additional
stock options or other equity awards granted to our employees, officers, directors and consultants under our 2015 Plan. The issuance
of additional shares of common stock, convertible securities or warrants to purchase common stock, the perception that such issuances
may occur, or exercise of outstanding warrants, convertible securities or options will have a dilutive impact on other shareholders
and could have a material negative effect on the market price of our common stock.
We do not have sufficient shares of common stock authorized
to satisfy our obligations under certain of our outstanding securities and the failure to have sufficient shares of common stock
authorized for issuance could have a material adverse effect on our company.
We are currently authorized
to issue 225,000,000 shares of common stock under our Third Amended and Restated Certificate of Incorporation, as amended. As of
November 5, 2018, 49,313,329 shares of common stock were issued and outstanding, 657,146 were reserved for issuance under our existing
stock option and equity incentive compensation plans, and the remaining shares were reserved for issuance upon the conversion or
exercise of our outstanding convertible securities and warrants. However, as of November 5, 2018, we were required to have a total
of 521,644,702 shares of common stock reserved for issuance upon the conversion of the Series E Stock, the exercise of the Series
E Warrants, the conversion of outstanding Debentures and the exercise of October Debenture Warrants (all hereafter defined). Accordingly,
we do not currently have sufficient authorized shares of common stock available to meet our contractual obligations under
these instruments.
On October 23, 2017,
the Company consummated a public offering of 18,000 shares of Series E Convertible Preferred Stock (the “Series E Stock”)
and warrants to purchase 17,676,000 shares of Common Stock (the “Series E Warrants”). As of November 5, 2018, 3,489
shares of Series E Stock were outstanding and convertible into 69,651,017 shares of Common Stock.
On May 14, 2018, we
consummated a private placement of Convertible Debentures (the “May Debentures”). The May Debentures are convertible
into shares of common stock at a conversion price of $0.375 per share, subject to certain adjustments. As of the record date
we had outstanding $3.9 million under the May Debentures convertible into an aggregate of 10,382,865 shares.
On October 9, 2018,
we consummated a private placement of $5.5 million in principal amount of the Company’s Senior Secured Redeemable Convertible
Debentures (the “October Debentures” and, together with the May Debentures, the “Debentures”). The October
Debentures are convertible into shares of common stock at a conversion price of $0.075 per share, subject to certain adjustments,
at the option of the holder thereof or, in certain circumstances, at our option. As of November 5, 2018, 73,333,333 shares of common
stock are issuable upon the conversion of the outstanding October Debentures. We also issued warrants (the “October Debenture
Warrants”) to purchase up to 50 million shares of common stock. As of November 5, 2018, all of the October Debenture Warrants
are currently outstanding. Upon the increase of the our authorized common stock, under the terms of the October Debentures, we
are required to reserve for issuance 366,666,667 additional shares of common stock.
Our obligations under
the October Debentures are secured by a first priority security interests in all of our assets, other than Ceplene. If we are not
able to increase our authorized common stock, we will be in default of our obligations under the October Debentures. Upon an event
of default, among other things, the holders of the October Debentures could accelerate our obligation to repay the October Debentures,
the holders of the October Debentures could exercise their remedies under the October Debentures, including taking ownership of
the collateral. In addition, under the terms of the Series E Stock, the Series E Warrants and the October Debenture Warrants, if
a holder is unable to receive shares of common stock upon the conversion or exercise of such securities, as applicable, we would
be liable for certain damages under the terms of such securities. Accordingly, the failure to have sufficient shares of common
stock authorized for issuance would have a material adverse effect on our company.
In addition, if we
do not have sufficient available shares of common stock for issuance, we will not be able to fund our capital needs through the
issuance of common stock or securities convertible, exchangeable or otherwise giving the holder the right to acquire shares of
common stock. As a result, we may not be able to obtain funding necessary for our continued operations on acceptable terms, or
at all. In the event that we are not able to fund our ongoing need for capital, we would not be able to continue our development
work and would be required to liquidate our assets or seek bankruptcy protection.
If there is no active, liquid and orderly trading market
for our common stock, which may make it difficult to for you to sell shares of our common stock purchased in this offering.
Our common stock is
quoted on the OTC Markets Group Inc. OTCQB Venture Market. There is no assurance that an active, liquid and orderly trading market
will be sustained. As a result, your ability to sell shares of our common stock purchased in this offering may be limited. Investors
may be unable to resell shares of our common stock at or above the price for which they purchased them, at or near quoted bid prices,
or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future,
and may impair our ability to raise capital necessary to fund our operations.
Our common stock may be subject to the “penny stock”
rules of the SEC, and the trading market in our common stock is limited, which makes transactions cumbersome and may reduce the
value of an investment in the stock.
Rule 15g-9 under the
Securities Exchange Act of 1934, as amended, or the Exchange Act, establishes the definition of a “penny stock,” for
the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules
require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks in accordance with the provisions
of Rule 15g-9; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased, provided that any such purchase shall not be effected less than two business
days after the broker or dealer sends such written agreement to the investor.
In order to approve
a person’s account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information, investment
experience and investment objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and experience in financial matters to be reasonably expected
to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny
stock market, which: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) in highlight
form, confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has
to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, the commissions payable
to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information regarding the limited market in penny stocks. As a result,
it may be more difficult to execute trades of our common stock which may have an adverse effect on the liquidity of our common
stock.
If securities or industry analysts
do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, 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 publish about our business
or us. Currently, one analyst in the U.S covers our stock. Our stock price likely would decline if any of the analysts who cover
us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance,
or if our target pre-clinical or clinical studies and operating results fail to meet the expectations.
Provisions in our Certificate of
Incorporation, as amended (our “Certificate of Incorporation”) and amended and restated bylaws (our “Bylaws”)
and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and
may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our Certificate
of Incorporation and our Bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company
that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.
These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby
depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders
to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors.
Among other things, these provisions include those establishing:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board of Directors;
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our Board of Directors;
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the ability of our Board of Directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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the ability of our Board of Directors to alter our Bylaws without obtaining stockholder approval;
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the required approval of the holders of at least three-quarters (75%) of the shares entitled to vote at an election of directors to adopt, amend or repeal our Bylaws or repeal the provisions of our Certificate of Incorporation regarding the election and removal of directors;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of stockholders may be called only by the Chairman of the Board of Directors, the chief executive officer, the president or the Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
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advance notice procedures that stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
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Moreover, we are governed
by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in
excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the
transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner.
Capital appreciation, if any, will
be your sole source of gain because we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We have never declared
or paid cash dividends on our common stock. Currently, we intend to retain all of our future earnings, if any, to finance the growth
and development of our business. In addition, the terms of certain of our outstanding securities prohibit us from paying dividends
on our common stock. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable
future.
We may incur substantial costs in
connection with litigation and other disputes.
In the ordinary course
of business, we may, and in some cases have, become involved in lawsuits and other disputes such as securities claims, intellectual
property challenges, including interferences declared by the USPTO, and employee matters – among other potential claims.
Securities class action litigation often has been brought in the past against a company following a decline in the market price
of its securities, among other reasons. This and other risks are especially relevant for us because pharmaceutical companies have
experienced significant stock price volatility in recent years. It is possible that we may not prevail in claims made against us
in such disputes even after expending significant amounts of money and company resources in defending our positions in such lawsuits
and disputes. The outcome of such lawsuits and disputes is inherently uncertain and may have a negative impact on our business,
financial condition and results of operations.
Our management has identified internal
control deficiencies, which our management believes constitute material weaknesses. Any future material weaknesses or deficiencies
in our internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our
ability to obtain financing and other aspects of our business.
In connection with
the preparation of our audited financial statements as of and for the years ended December 31, 2017 and 2016, we concluded that
a material weakness existed in internal control over financial reporting. As of December 31, 2017, we carried out an assessment
of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework (2013), updated and reissued by the Committee of Sponsoring Organizations (2013) (“COSO Framework”).
Based on our evaluation
under the COSO Framework, our management concluded that our internal control over financial reporting was not effective as of December
31, 2017. In connection with the above assessment, management identified material weaknesses in the control environment relating
to lack of sufficient entity level controls, segregation of duties issues due to lack of sufficient accounting and finance personnel,
accounting for complex financial transactions and lack of a sufficient technology infrastructure to support the financial reporting
function.
A material weakness
is a significant deficiency, or combination of significant deficiencies, that results in there being more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis
by management or employees in the normal course of performing their assigned functions. Although we have attempted to address the
identified material weaknesses, management has concluded that our internal controls over financial reporting were not effective
at December 31, 2017. Therefore, we cannot be certain that, in the future, additional material weaknesses or significant deficiencies
will not exist or otherwise be discovered. If our efforts to address the weakness identified are not successful, or if other deficiencies
occur, these weaknesses or deficiencies could result in misstatements of our results of operations, restatements of our financial
statements, a decline in our stock price and investor confidence or other material effects on our business, reputation, financial
condition or liquidity.