Item
1. Business
Corporate
Information
We
were originally incorporated in the State of Delaware in April 2003 as PharmacoFore, Inc. and, in January 2012, we changed our name from
PharmacoFore, Inc. to Signature Therapeutics Inc. (“Signature”). On December 28, 2015, Signature, Signature Acquisition
Corp., a wholly-owned subsidiary of Signature (“SAQ”), and Ensysce Biosciences, Inc. (“EB”) entered
into an Agreement and Plan of Merger (“EB-ST Agreement”). Pursuant to the EB-ST Agreement, SAQ merged with and into
EB with EB surviving the merger as a wholly-owned subsidiary of Signature. As part of the transaction, Signature changed its name to
“Ensysce Biosciences, Inc.” (“Former Ensysce”) and changed EB’s name to EBI Operating Inc. On January
31, 2021, LACQ, Former Ensysce, and Merger Sub entered into the Merger Agreement. On June 30, 2021, pursuant to the Merger Agreement,
Merger Sub merged with and into Former Ensysce, with Former Ensysce surviving the transaction as a wholly-owned subsidiary of LACQ. As
part of the transaction, LACQ changed its name to “Ensysce Biosciences, Inc.” and Former Ensysce changed its name to EBI
OpCo, Inc. (the “Merger”).
The
mailing address of our principal executive office is 7946 Ivanhoe Avenue, Suite 201, La Jolla, California 92037. Our corporate telephone
number is (858) 263-4196. Our website address is www.ensysce.com. Information contained on our website, or connected thereto, does not
constitute part of, and is not incorporated by reference into, this Annual Report on Form 10-K.
Channels
for Disclosure of Information
Investors,
the media, and others should note that we announce material information to the public through filings with the SEC, the investor relations
page on our website, blog posts on our website, press releases, public conference calls, webcasts, and our twitter feed (@EnsysceBio).
The
information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media,
and others to follow the channels listed above and to review the information disclosed through such channels.
Any
updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on
our website.
Business
Overview
We
are a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing the fear of
and the potential for misuse, abuse, and overdose. We have also incorporated a 79.2%-owned subsidiary, Covistat, a clinical stage pharmaceutical
company that is developing a compound utilized in our overdose protection program for the treatment of COVID-19 and cystic fibrosis.
Certain of our affiliates own the remaining portions of Covistat. See “Certain Relationships and Related Person Transactions”
for additional information.
We
are currently developing product candidates designed to improve the safety and performance of prescription drugs. Our primary focus has
been on opioid pain products and opioid use disorder products. Prescription opioid abuse and addiction present major burdens to society,
resulting in significant costs, illnesses, and deaths, many of which we believe could be prevented through the use of our proprietary
technologies. We believe the intertwined issues of (1) the widespread abuse of prescription opioids and (2) the resultant reluctance
of many prescribers to write prescriptions for opioid analgesics, have resulted in the persistent under-treatment of patients with moderate-to-severe
pain. Our platforms utilize a novel molecular delivery technology designed to deter prescription opioid abuse at the molecular level.
Our
current development pipeline includes two new drug platforms - an abuse-resistant opioid prodrug technology – the Trypsin
Activated Abuse Protection, or the TAAP platform, and an over-dose protection opioid prodrug technology - the Multi-Pill Abuse Resistant,
or the MPAR™ platform. The TAAP platform is designed to seek to improve the care of patients with moderate to severe acute or chronic
pain while reducing the human and economic costs associated with prescription opioid drug abuse. Our development pipeline of TAAP prodrugs
is summarized in the table below. The MPAR™ platform when combined with our TAAP prodrugs is designed not only to seek to prevent
abuse of prescription drugs but also to reduce overdose occurrences. Each prodrug is intended to be able to be combined with our MPAR™
technology for overdose protection. Additionally, nafamostat di-mesylate (“nafamostat”), which is an ingredient in
our overdose protection combination products, is also being developed for the intended purpose of treating infection and pulmonary lung
diseases.
The
technology under the TAAP platform when applied to opioid drugs is designed to release clinically effective opioid drugs only when exposed
to specific physiological conditions (i.e., when the drug is ingested and exposed to the digestive enzyme trypsin). Our lead product
candidate, PF614, is a TAAP oxycodone prodrug that is a biologically inactive compound which can be metabolized in the body to produce
a drug with demonstrable features aimed at resisting both oral and non-oral modes of prescription drug abuse. This approach differs from
current formulation-based strategies such as OxyContin OP which uses Intac® Technology (crush-resistant polymers) and Extampza®ER
which uses DETERx™ (insoluble fatty acid salts in polymers), in a number of ways.
First,
the TAAP technology seeks to remove the ability of a user to abuse PF614 intravenously or intra-nasally. This is based on preclinical
studies that show PF614 does not readily convert into oxycodone in the blood stream and trypsin is not present in the nasal passage.
Accordingly, PF614 would not convert to oxycodone in the nose. Furthermore, the chemically modified and abuse-resistance TAAP opioid
drug is unaffected by simple physical manipulations designed to extract abusable amounts of opioid, such as through kitchen chemistry.
Our
portfolio of TAAP product candidates is based on a differentiated understanding of chemical reactivity and metabolism, as well as the
key pillars of our unique approach which focuses on: (1) enzyme mediated metabolic activation localized in the gastrointestinal tract;
(2) rearrangement chemistry to achieve ideal pharmacokinetic release of active drug products; and (3) robust packages of preclinical
data that set forth the metabolic and chemical activation profile for each of our clinical candidates. This approach led to the filing
of an Investigational New Drug application, or IND (116794), and a Phase 1 clinical trial for PF614, which was completed in February
2018. In addition, the clinical data from the Phase 1 trial demonstrated that oxycodone is released from PF614 as chemically designed,
and that it was absorbed following oral administration of the TAAP PF614, given blood levels that matched the same release profile as
the extended release oxycodone product, OxyContin OP.
The
MPAR™ technology is a combination of TAAP prodrug and trypsin inhibitor nafamostat. It is designed to provide overdose protection
to all TAAP prodrugs. MPAR™ applied to TAAP opioids enables the release of active opioid following ingestion of multiple doses,
whether inadvertent or intentional. Nafamostat is a small molecule, highly potent protease inhibitor (trypsin inhibitor) with a steep
dose response curve. MPAR™ at prescribed doses is designed to release of the active pharmaceutical ingredient. However, if the
TAAP prodrug nafamostat combination (MPAR™) is taken in larger quantities than intended, the excess nafamostat is present to inhibit
trypsin, thereby preventing metabolic activation of TAAP and averting a drug overdose. We believe the potential benefits to society of
an opioid that resists both oral and parenteral abuse are considerable.
Our
pipeline, developed over the course of 15 years of research and investment, includes three clinical-stage product candidates. While our
principal focus and lead product candidates are geared towards combating abuse and overdose of opioid drugs, we have, over the years
of research and development, discovered and recognized qualities and unique features of certain product candidates that may be useful
in addressing other treatments. For example, we discovered the ability of nafamostat in inhibiting the action of enzymes associated with
the COVID-19 infection, and, as such, have devoted efforts to develop an oral and inhalation drug product of nafamostat, for use against
coronaviral infections and other pulmonary diseases such as cystic fibrosis.
PF614
PF614
is our lead TAAP prodrug candidate under development for the treatment of acute or chronic pain. PF614 is a delayed release TAAP prodrug
designed to release oxycodone under certain specific physiological circumstances when taken orally. PF164 was evaluated for safety and
pharmacokinetic release of oxycodone in a Phase 1 single ascending dose clinical trial in 64 healthy subjects. The trial showed that
PF614 was well tolerated with no serious adverse events. The study also showed pharmacokinetics had a maximum blood concentration of
oxycodone at 4 to 6 hours after swallowing PF614, demonstrating its delayed release profile. A second Phase 1b study was initiated in
2021 to evaluate PF614 delivered to healthy subjects twice daily for 4.5 days. This study evaluated both safety and PK, with a second
part to evaluate the bioequivalence of PF614 versus OxyContin. Final data from this trial will be available in the second quarter of
2022.We believe PF614 has the potential to provide a safer alternative to the abuse deterrent formulated opioid products that are currently
commercially available.
PF614-MPAR™
PF614-MPAR™,
a combination product of PF614 and nafamostat has been designed to limit abuse potential by providing resistance to use through injection
or inhalation and to provide overdose protection against excessive oral ingestion. Our IND application (150966) for PF614-MPAR™
received FDA allowance and we initiated a Phase 1 clinical trial to evaluate safety and PK in healthy subjects in December 2021. Data
from this trial will be available in the second half of 2022.
Nafamostat
Nafamostat
is an enzyme inhibitor (protease inhibitor) used in our combination overdose protection technology, MPAR™. Due to its ability to
inhibit the action of enzymes associated with the COVID-19 infection, we are also developing an oral and inhalation drug product for
use against coronaviral infections and other pulmonary diseases such as cystic fibrosis. An IND was submitted (149877) for the evaluation
of oral nafamostat in coronaviral infections. A Phase 1 trial to evaluate safety and PK was completed in 2021.
Next
Steps
We
intend to undertake additional clinical studies in 2022. Two human abuse liability studies of PF614 will be initiated in the second and
third quarter of 2022 to understand the tendency for drug abusers to like the effects achieved from taking PF614 either orally or nasally
as compared to that of a comparator product such as crushed OxyContin. We are also exploring pain indications to evaluate PF614 for efficacy
and safety which we are seeking to initiate by end of 2022. We are also planning to evaluate nafamostat in COVID-19 subjects when delivered
as an oral drug product. The ability to undertake these studies will depend on additional financing. We have funded our operations to
date primarily with proceeds from the sale of equity and borrowings under convertible promissory notes and federal grants. See “Convertible
Promissory Notes” and “Government Grants” for additional information.
Our
Strategy
We
seek to become a leading specialty pharmaceutical company focused on addressing the safe use of pharmaceuticals by developing a broad
portfolio of TAAP and MPAR™ products with enhanced safety features and benefits. Specifically, we intend to:
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Capitalize
on our management team’s collective experience and expertise in the development and approval process of innovative drug delivery
technologies that address medication safety. We have received fast track designation for PF614, our lead drug candidate, from
the FDA. However, fast track designation does not guaranty a faster development or regulatory review or approval process and does
not assure FDA approval. We are currently devoting our efforts to develop PF614 for the severe pain market with acute and chronic
pain indications, while bringing other TAAP and MPAR™ products through regulatory approval with the expertise of team members
who have launched a number of products in the central nervous system, or CNS, space. |
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Leverage
our proprietary technologies to develop a full line of pharmaceutical products. Medication abuse and misuse is not limited to
single drugs but often pervades entire drug categories. We have initiated programs to apply our TAAP and MPAR™ technology to
other categories of prescription drugs such as amphetamine and methadone. |
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Commercialize
our products through focus on the United States market to commercialize our lead products while licensing our technology internationally
and through patent life extension. We intend to bring PF614 and PF614-MPAR™ through regulatory approval to commercialization
in the United States. We expect to seek licensing partners in jurisdictions outside the United States for our product candidates.
We also expect to seek partners who wish to license our TAAP and MPAR™ technologies for patent life extension of their portfolio
products, or to improve delivery or pharmacokinetic properties of certain of their drug candidates. |
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Maintain
an efficient internal cost structure. Our internal cost structure has been designed to enable us to focus on our lead drug products,
PF614, PF614-MPAR™, and nafamostat oral and inhalation drug products clinically through to commercialization. We outsource
many high-cost elements of development such as clinical trials. Outsourcing these functions minimizes our fixed overhead without
reliance or dependence on individual third parties, and capital investment and thereby reduce our business risk in our view. |
Our
Strengths
We
seek to achieve our strategic goals through the utilization of our key competitive strengths, including:
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Our
worldwide patent portfolio has extensive coverage in major markets and coverage in select secondary markets. These patents provide
protection to the underlying molecules of both our immediate and extended-release drug candidates. We expect our patent portfolio
will continue to expand and deepen as new products are developed and new markets are identified. Our lead product candidates
are new chemical entities and not simply re-formulations. Our TAAP prodrugs have a unique technology that has been demonstrated in
our Phase 1 clinical trials for PF614. |
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Pedigree
of our leadership team in all stages of discovery, development, marketing, and business development. Our team has successfully
developed and launched many successful products with multi-billion dollar selling market leaders in the CNS area. |
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Fast
track designation. Our lead clinical candidate, PF614, has received fast track designation from the FDA. |
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Received
Federal grants from Federal agencies including NIDA, NIH. We have received two large Federal government grants to support our
MPAR™ overdose protection program and our opioid use disorder program from NIH/NIDA. |
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Clinical
proof of concept. We have conducted a Phase 1 trial with TAAP prodrug PF614. The trial demonstrated that, after oral administration
of the TAAP prodrug, the corresponding opioid was measured in the subjects’ blood. |
Market
Opportunity
Drug
Abuse and Drug Overdose
Opioid
pain medications are essential for improving the care and outcomes of a majority of Americans who live with chronic pain. A recent NIH
study reported that 25.3 million adults suffered from pain every day for the preceding three months and almost 40 million adults experience
severe levels of pain, which is linked to worse health status. Prescription opioids drugs, such as morphine, hydromorphone, hydrocodone,
and oxycodone, have a long history of use for the management of patient pain. Prescriptions for opioid medications in 2020 totaled 153
million, with $4.2 billion in market size in the United States, where 80% of world’s opioids are consumed.
The
CDC recently provided recommendations for clinicians who provide pain care, defining acute pain (duration less than 1 month), subacute
pain (duration of 1–3 months), or chronic pain (duration of 3 months or more), not including sickle cell disease related pain management,
cancer pain treatment, palliative care, and end-of life care. These guidelines provide the market indications, acute and chronic,
that Ensysce will explore for its TAAP and MPAR™ opioid products including PF614.
Opioids
are offered in a variety of dosages including immediate-release tablets (or capsules), extended-release tablets (or capsules), patches,
and other dose forms. Oxycodone is one of the most effective pain killers available today. This drug helps the patient to overcome pain
and focus on his or her work. Opioids have an increased risk of dependence and, when used improperly, a common side effect of high doses
of opioids like oxycodone can be euphoria, or a “high.” As a result of these side effects, opioids have become amongst the
most misused or abused prescription drugs in the United States. Opioid abuse was declared a public-health emergency in 2017 when more
than 130 people died each day from opioid-related overdoses. Currently, that number has risen to over 200 deaths per day.
The
large increase in overall overdose deaths is now driven by use of synthetic opioids, in particular fentanyl, as prescription opioids
have become harder to obtain. From 2017 to 2018 the prescription opioid-involved death rates decreased by 13.5% showing that attention
to the problem had beneficial effect. However, 1.6 million people reported having opioid use disorder (“Opioid Use Disorder”)
in 2019. Based on information from the CDC, the most common drugs involved in prescription opioid overdose deaths include Methadone,
Oxycodone (such as OxyContin®), and Hydrocodone (such as Vicodin®). The CDC indicates that improving opioid prescribing, treatment
of opioid use disorder, and prevention of opioid use disorder would help to improve the opioid crisis. Misuse or abuse of opioids is
often done in one of the following manners:
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Oral
Excessive Tablet Abuse. Generally recognized as the most prevalent route of administration by abusers, an abuser orally ingests
more tablets (or capsules) than is recommended for pain relief. |
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Nasal
snorting. Crushed tablets are inhaled for absorption of the drug through the nasal tissues. |
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Injection.
The opioid is physically or chemically removed from the dosage and injected into the vein using a syringe. |
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Oral
Manipulated Tablet Abuse. Extended-release tablets or patches are crushed, chewed, or otherwise physically or chemically manipulated
to defeat an extended-release mechanism and provide an immediate-release of the opioid for oral ingestion. |
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Poly-pharmacy.
Opioids are sometimes used in conjunction with alcohol, methamphetamine, or other drugs to accentuate the euphoria. |
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Overdose.
Users may accidentally introduce excessive quantities of drugs in their systems or combine drugs that may heighten the chance of
adverse effects of drugs. Some patients may over-ingest drugs accidentally or with the express intent of suicide. |
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Chronic
or prolonged use. Chronic or prolonged use of opioids resulting in dependence is another form of misuse or abuse. |
Amphetamines
like Adderall are manufactured in pill form and are intended for oral ingestion. Fifty-three percent of Adderall prescriptions are prescribed
to the 10.5 million adults that are diagnosed with attention deficit hyperactivity disorder, or ADHD. ADHD is the most common neurodevelopment
disorder in children. Five million adults misuse stimulant medication annually, by using alternative consumption methods to achieve a
more intense high faster; snorting or injecting are most-common methods of abuse. Both of these methods involve crushing pills.
We
believe that having prescription drug products available that have a reduced potential for abuse by crushing and injecting, snorting,
and chewing could provide an even greater reduction of prescription opioid related deaths in the abuse of opioids or amphetamines.
Nafamostat
Nafamostat’s
market opportunity is multifaceted. The oral form could be used alone or in combination with other antiviral drugs that target separate
processes needed for virus product, such as RNA replication or viral protein processing. An inhaled form of nafamostat could be applied
to patients that have a more severe stage of the disease.
Our
lead clinical program is an oral drug product of nafamostat for use against COVID-19 and other coronaviral infections. The dosing and
positioning of oral nafamostat will be similar to antiviral drug oseltamivir phosphate, Tamiflu®. Tamiflu® is a seasonal influenza
treatment that is taken in oral form within two days of influenza symptoms starting and applying a two-dosage daily schedule. During
the H5N1 outbreaks and the H1N1 and other coronavirus outbreaks, Tamiflu® had annual U.S. sales above $1 billion and has had cumulative
sales of $15.9 billion since its launch in 1999.
The
World Health Organization estimates influenza epidemics result in approximately three to five million cases of severe illness and 250,000
to 500,000 deaths each year. Nafamostat will be well positioned to generate revenue from several changing market conditions:
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As
new virus strains of influenza and coronavirus create new outbreaks, there is a window of opportunity to grow or boost sales before
production of the appropriate vaccine is increased. |
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Applying
our antiviral in situations of waning immunity to vaccines, particularly in the elderly, and in immunocompromised patients; seasonal
influenza vaccines are approximately 45% effective since the 2010 influenza season. |
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Universal
influenza and coronavirus vaccines remain several years from market launch, making nafamostat a potential first line of defense against
infections. |
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There
are only four antiviral treatments for early symptoms of influenza for hospitalized patients that have severe, complicated, or progressive
illness, or who are at high risk for complications. |
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The
reality of unexpected and rapidly spreading influenza or coronavirus outbreaks causes healthcare systems to stockpile and replenish
first response antivirals. |
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Utilizing
a drug repurposing model and the Hatch Waxman Act, we believe that we will be able to receive eight to ten years of market exclusivity
in North America, European Union, and Japan. See “—Intellectual Property” for further detail. |
Our
Technology Platform Solution
TAAP
Prescription Drugs
The
technology under the TAAP platform utilizes a novel technology designed to deter prescription drug abuse at the molecular level. The
molecular delivery system is designed to release clinically effective drugs only when exposed to specific physiological conditions (i.e.,
when the drug is ingested and exposed to the digestive enzyme trypsin). We believe that our TAAP prodrugs delivery system demonstrates
several features aimed at resisting both oral and non-oral modes of abuse. This platform’s approach differs from current formulation-based
strategies (abuse deterrent formulations, or ADFs) in a number of ways including that it is designed to be unaffected by simple physical
manipulations (e.g. crushing and extraction and/or chewing of the dose form provided to patients). We believe the potential benefits
to society of applying TAAP to opioids and amphetamines providing medication that resists both oral and parenteral abuse are considerable.
MPAR™
Prescription Drugs
MPARTM
combination therapy, involves co-formulating TAAP prodrugs with a trypsin inhibitor, nafamostat, which, when administered at prescribed
dose levels, are intended to have no effect on the conversion of the prodrug to the active ingredient thus allowing normal drug plasma
exposure levels. However, if the drug were taken in greater than prescribed quantities, the trypsin inhibitor would also be present at
higher levels, inhibiting the first step in the activation process, preventing the conversion of the prodrug to the active ingredient
thus limiting the potential to an overdose from the medication.
Our
Development Programs
We
are currently developing product candidates designed to improve the safety and performance of prescription drugs. Our primary focus has
been on opioid pain products and opioid use disorder products. Our development pipeline of TAAP prodrugs is summarized in the table below.
Each prodrug is intended to be able to be combined with our MPAR™ technology for overdose protection. Additionally, nafamostat,
which is an ingredient in our overdose protection combination products, is also being developed for infection and pulmonary lung diseases.
Besides our clinical candidates, we have a product portfolio of other TAAP and MPARTM opioids that could potentially be
developed to build on this pipeline.
Clinical
agents
PF614
PF614
is a chemically modified, delayed onset oxycodone-derivative which releases clinically effective oxycodone only when exposed trypsin
in the gut (i.e., when the drug is ingested). This approach differs from formulation-based strategies which are currently commercially
available, in several ways. Foremost, the abuse-resistance provided by PF614 is designed to be unaffected by simple physical manipulations
(e.g., extraction, chewing, and/or crushing). It also limits the bioavailability of active medication following co-ingestion of multiple
doses.
Following
ingestion, the release of oxycodone from PF614 proceeds via a two-step process comprised of (1) trypsin activation in the small intestine
and (2) a subsequent intramolecular cyclization release reaction. This reaction releases oxycodone with concomitant formation of a cyclic
urea metabolite. The time-course of oxycodone release from PF614 is a function of the kinetics of (i) the trypsin hydrolysis and (ii)
the cyclization-release reaction. In the Phase 1 study of PF614, the time to maximal blood concentration of oxycodone (Tmax)
was five to six hours for the release of oxycodone and this time cannot be modified by crushing, chewing, or physically manipulating
the drug product. Oxycodone safety, metabolism, and pharmacokinetics have been well studied.
PF614-101
Phase 1 Clinical Trial
PF614
(IND 116796) has been evaluated in a Phase 1 clinical study for safety and pharmacokinetics of oxycodone release in 64 healthy subjects
in seven different closing cohorts from November 2016 to January 2018. This study was conducted for us by PRA Health Sciences –
Early Development Services Lenexa, Kansas, principal investigator, Daniel Dickerson, M.D., Ph.D. to evaluate the safety and pharmacokinetics
of PF614, as well as the pharmacokinetics of oxycodone at doses sufficient to characterize the extent to which plasma oxycodone is produced
and maintained following oral ingestion of PF614 and was compared to the oxycodone released from extended release oxycodone from OxyContin
OP. Subjects were randomized to receive a single dose of PF614 (dose of 15, 25, 50, 100, and 200 mg with 6 subjects per dosing group)
or OxyContin OP (dose of 10, 20, 50, and 80 mg with 2 subjects per dosing group). New subjects were recruited for each cohort. Cohort
1 compared subjects receiving PF614 and OxyContin OP with and without naltrexone blockade. Naltrexone is an opioid blocker to prevent
opioids from attaching to the opioid receptors, preventing the effect of the opioid medication such as pain relief, feeling of euphoria
or respiratory depression. The single ascending dose study also compared the release of oxycodone from PF614 under both fasted and fed
conditions at the highest does of PF614 evaluated, 200 mg. The pharmacokinetics of the prodrug fragments was also evaluated. In addition,
this study instructed as to the “conversion efficiency” of the PF614 prodrug to oxycodone, with respect to OxyContin.
Pharmacokinetic
Analyses
The
shape of the plasma concentration versus time curve of oxycodone was similar following administration of OxyContin OP (oxycodone extended
release) and PF614. The efficiency of conversion for PF614 to oxycodone was determined to be approximately 86%. A PF614 dose of 50 mg
yields oxycodone exposure comparable to a 20.01 mg dose of OxyContin, indicating a potency ratio of 0.40. This data has allowed us to
match doses of PF614 to those of commercially available OxyContin OP.
Safety
A
total of 64 subjects were included in this study, of which 23 (35.9%) experienced 47 treatment-emergent adverse events, or TEAEs. The
majority of TEAEs were either gastrointestinal disorders or nervous system disorders with no deaths, serious adverse events, or severe
TEAEs. Additionally, there were no discontinuations due to study drug-related adverse events. Over half of TEAEs were study drug related,
but they were mostly mild in severity. The three TEAEs that were moderate in severity were nephrolithiasis, or kidney stones, nausea,
and vomiting, with the nausea and vomiting being study drug related. Comparing safety data across cohorts, the data indicated that dose,
naltrexone, and fed/fasted state had no clinically relevant effect on the safety profile of PF614. PF614 was generally well tolerated
at doses up to 200 mg in healthy subjects.
Next
Steps
We
initiated additional clinical studies with PF614 in the fourth quarter of 2021. A multi ascending dose study with a bioequivalence arm,
PF614-102 concluded enrollment, with data anticipated in the second quarter of 2022. In 2022, two human abuse liability studies will
be initiated to understand the tendency for drug abusers to like the effects achieved from taking PF614 either orally or nasally as compared
to that of a comparator product such as crushed OxyContin.
PF614-MPAR™
Our
IND application (IND 150966) received FDA allowance and a Phase 1 study was initiated in December 2021 with first patients dosed. The
study to evaluate PF614-MPAR™ is entitled “A Single Dose, 2 Part Study to Evaluate the Pharmacokinetics of Oxycodone, PF614,
PFR06082, and nafamostat, when PF614 Solution is Co-Administered with nafamostat, as an Immediate Release Solution and/or Extended Release
(ER) Capsule Formulations in Healthy Subjects”.
PF614-MPAR™-101
Phase 1 Clinical Trial
The
primary objectives of the Phase 1 study are to assess the pharmacokinetics of oxycodone, when PF614 solution is administered alone and
with nafamostat as an immediate release solution and/or extended-release capsule prototypes. The study is designed to aid in the selection
of the optimal nafamostat formulation and dose to combine with PF614 in order to provide oxycodone when a prescribed dose is taken yet
attenuate the maximum plasma concentration (Cmax) and the area under the concentration time curve (AUC) of oxycodone when
more than the prescribed PF614-MPAR™ dose is taken. Extended-release prototype capsule formulations will be selected from a two-dimensional
design space describing formulation variables for release rate and dose.
NAFAMOSTAT
NAF-101
Phase 1 Clinical Trial
We
believe nafamostat has the potential to be effective in the treatment of patients with COVID-19 as it is an inhibitor of transmembrane
protease Serine 2 (TMPRSS2) the protease responsible for cleaving the spike protein of SARS-CoV-2. While patients with COVID-19 typically
present with fever and a respiratory illness, some patients also report gastrointestinal symptoms, such as diarrhea, vomiting, and abdominal
pain. Studies have identified a recent strain of COVID-19 virus, SARS-CoV-2 RNA, in stool specimens of infected patients, and its viral
receptor angiotensin converting enzyme 2 was found to be highly expressed in gastrointestinal epithelial cells. These suggest that SARS-CoV-2
can actively infect and replicate in the gastrointestinal tract, and oral nafamostat which acts locally in the gut may be able to reduce
the ability of the virus to replicate. The purpose of our study was to evaluate the safety of oral nafamostat in healthy volunteers.
This was a three-part single ascending dose study (Part 1) examining safety and pharmacokinetics of single doses of 50, 100, and 200
mg nafamostat administered sequentially on three separate days to a single cohort of eight subjects. The multiple ascending dose study
(Part 2) administered 100 mg nafamostat twice daily to four healthy subjects and evaluated safety and pharmacokinetic for five days.
A second cohort of four subjects received 200 mg nafamostat twice daily for five days and evaluated safety and pharmacokinetic. A final
group of six healthy subjects received 200 mg nafamostat the multiple fixed dose study (Part 3) to evaluate the safety and tolerability
of oral nafamostat solution administered three times daily.
Pharmacokinetic
Analyses
Nafamostat
was shown to have limited bioavailability at any dose level evaluated up to 200 mg.
Safety
There
were no drug-related adverse events reported for nafamostat delivered at 200 mg three times daily, therefore additional dose levels are
currently being examined for safety. We concluded that 200 mg can be delivered three times daily which may provide local effects in the
gastrointestinal tract.
Next
Steps
We
are also planning to evaluate nafamostat in a Phase 2 clinical trial in COVID-19 subjects when delivered as an oral drug product.
Competition
Our
industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. We expect
to face competition from a number of sources, including pharmaceutical and biotechnology companies, generic drug companies, drug delivery
companies, and academic and research institutions. Many of these existing and potential competitors have significantly greater financial
resources, more people and other resources than we do.
The
key competitive factors that are expected to affect the development and commercial success of our product candidates include their respective
degree to limit human abuse potential, bioavailability, enhance therapeutic efficacy, and convenience of dosing and distribution. In
addition, other factors include their respective safety, cost and tolerability profiles are likely to be important factors. Our lead
product candidate, PF614, may also face competition from commercially available generic and branded immediate and extended-release opioid
drugs other than oxycodone, including, but not limited to, fentanyl, hydromorphone, and oxymorphone, as well as opioids that may be currently
in clinical development.
Obtaining
an abuse-deterrent label through the FDA involves a lengthy and complicated process. We believe abuse-deterrent opioids represent a therapeutic
option to maximize pain relief in patients for whom opioid analgesia is indicated, while reducing the risks of abuse and diversion. Before
approval, the FDA evaluates the results from in vitro manipulation and extraction, pharmacokinetics, and clinical human abuse potential
studies to determine whether the accumulated evidence is sufficient to warrant claims of abuse deterrence. Post-marketing studies may
also be required to determine whether the marketing of a product with abuse-deterrent properties results in meaningful reductions in
abuse, misuse, and related adverse clinical outcomes, including addiction, overdose, and death in the post-approval setting.
There
are only four commercially available (in the United States) opioid drugs for chronic pain relief that have an abuse-deterrent label.
These drugs are MorphaBond™ ER, marketed by Daiichi Sankyo, OxyContin® ER and Hysingla® ER, both of which are marketed
by Purdue Pharma, LP, and Collegium Pharmaceutical, Inc.’s XTampza®ER. Hysingla® ER is a once-a-day hydrocodone extended-release
product. Xtampza® ER is a twice daily, extended-release opioid formulation that contains microspheres that combine oxycodone with
inactive ingredients to increase the difficulty of tampering. Xtampza®ER has abuse-deterrent properties in the FDA approved product
label, and post-marketing data has shown Xtampza®ER abuse, misuse, and diversion and tampering are low relative to other prescription
opioid analgesics.
Purdue
Pharma LP is expected to have tighter marketing and management controls than it has exhibited in the past which may impact its overall
market share. While Oxycontin OP is an abuse-deterrent formula that has impacted the ability to snort or inject, the drug has been documented
to be abused through other means.
Several
other companies including, but not limited to, Pfizer Inc., Daiichi Sankyo, Teva Pharmaceutical, Inc., Egalet Ltd., KemPharm Inc., Elysium
Therapeutics Inc., and Acura Pharmaceutical, have either extended-release or abuse-deterrent products in various stages of development.
Other companies offer products indicated for chronic, severe, long-term pain with various delivery technologies, but these products do
not have abuse-deterrent claims on their labels.
We
do not believe there are other companies developing products that have an overdose mechanism to compete with our MPAR™ technology.
Intellectual
Property
Our
commercial success depends in part on our ability to obtain and maintain proprietary protection for product candidates and any of our
future product candidates, novel discoveries, product development technologies, and know-how; to operate without infringing on the proprietary
rights of others; and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position
by, among other methods, filing or in-licensing United States and foreign patents and patent applications related to our proprietary
technology, inventions, and improvements that are important to the development and implementation of our business. We also rely on trademarks,
trade secrets, know-how, continuing technological innovation, and potential in-licensing opportunities to develop and maintain our proprietary
position.
Patents
and Patent Applications
We
own numerous patents and applications in the United States and significant commercial markets, such as Europe, China, and Japan, relating
to our product candidates currently in development, as well as other product candidates that may be developed in the future. These patents,
and patents that may issue from pending patent applications, are projected to expire between 2028 and 2041, subject to any patent term
adjustment or extension that might be available in a particular jurisdiction. A table of the key patent families and their projected
expiry dates is presented below.
|
|
Jurisdiction
of Filings |
|
Earliest
Projected Expiry Date |
TAAP
and MPAR™ Patents and Applications for Opioids |
|
|
|
|
Compositions
Comprising Enzyme-Cleavable Ketone-Modified Opioid Prodrugs and Optional Inhibitors Thereof |
|
U.S.,
Australia, Brazil, Canada, China, Europe*, Hong Kong, Israel, India, Japan, Mexico, Russia |
|
2030 |
Compositions
Comprising Enzyme-Cleavable Opioid Prodrugs and Inhibitors Thereof |
|
U.S.
|
|
2030 |
Compositions
Comprising Enzyme-Cleavable Oxycodone Prodrugs |
|
U.S.,
Australia, Brazil, Canada, China, Europe*, Hong Kong, Israel, India, Japan, Russia |
|
2032 |
Enzyme-Cleavable
Methadone Prodrugs and Methods of Use Thereof |
|
U.S. |
|
2042 |
Compositions
Comprising Enzyme-Cleavable Prodrugs and Controlled Release Nafamostat and Methods of Use Thereof |
|
U.S. |
|
2042 |
Active
Agent Prodrugs with Heterocyclic Linkers |
|
U.S.,
Australia, Brazil, Canada, China, Europe*, Hong Kong, Israel, India, Japan, Russia |
|
2032 |
Nafamostat
Patents and Applications |
|
|
|
|
Methods
of Treating coronavirus infections and COVID-19 |
|
Patent
Cooperation Treaty member countries |
|
2041 |
Oral
formulations of Nafamostat |
|
U.S.
|
|
2042 |
Methods
of Treating Respiratory Diseases with mucostasis |
|
Germany,
France, Italy, United Kingdom |
|
2028 |
TAAP
and MPAR™ Patents and Applications for Amphetamines |
|
|
|
|
Compositions
Comprising Enzyme-Cleavable Amphetamine Prodrugs and Inhibitors Thereof |
|
U.S.,
Europe* |
|
2031 |
Compositions
Comprising Enzyme-Cleavable Amphetamine Prodrugs and Inhibitors Thereof |
|
U.S.,
Europe* |
|
2040 |
*“Europe”
refers to patent applications filed in, and patents issued by, the European Patent Office (“EPO”), which can
provide the basis for rights in multiple countries that are members of the European Patent Convention.
While
we seek broad coverage under our existing patent applications, there is always a risk that an alteration to the products or processes
may provide sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire, and extension
of term may not be available. We also cannot provide any assurance that any patents will be issued from our pending or any future applications
or that any potentially issued patents will adequately protect our product candidates.
The
enforceable term of an individual patent varies depending on the date of filing of the patent application, the date of patent issuance,
and the statutory term of patents in the countries in which they are obtained. Generally, in the United States, patents are granted a
term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended
to recapture a period due to delay by the United States Patent and Trademark Office (“USPTO”) in issuing the patent
as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component,
the restoration period cannot be longer than five years, the total patent term including the restoration period must not exceed fourteen
years following FDA approval, and the scope of patent coverage is limited to the scope of the FDA approved product. The duration of foreign
patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non-provisional
filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends
upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability
of legal remedies in a particular country, and the validity and enforceability of the patent.
Our
commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the
issuance of any third-party patent would require us to alter our development or commercial strategies for our products or processes,
or to obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary
rights that we may require to develop or commercialize our future products may have an adverse impact on us. If third parties prepare
and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference
or derivation proceedings in the USPTO to determine priority of invention. For more information, please see “Risk Factors—Risks
Related to Our Intellectual Property.”
TAAP
and MPAR™ Patents and Applications for Opioids
Following
our merger with Signature, we became the owner of patent families that include several granted U.S. patents, as well as granted patents
and pending patent applications in numerous foreign jurisdictions, including Australia, Brazil, Canada, China, the EPO, India, Japan,
and Russia, relating to chemically modified opioids, such as oxycodone, methadone, and hydromorphone, covalently linked using specific
linkers to a gastrointestinal enzyme-cleavable moiety and pharmaceutical compositions containing these modified opioids, pharmaceutical
compositions containing these modified opioids and a gastrointestinal enzyme inhibitor, and methods of using the same to treat pain.
Three of these patent families are variously directed to ketone containing opioids and cover PF614 and PF614-MPAR™ and certain
methadone TAAP product candidates that are still in the discovery phase. These three families contain issued patents in the United States
and certain foreign jurisdictions, including Australia, Brazil, Canada, China, the EPO, India, Japan, and Russia and expire between 2030
and 2032, subject to any applicable patent term extension that might be available in a jurisdiction. We also own a patent family with
pending applications filed in the U.S., Taiwan and under the Patent Cooperation Treaty, which applications include coverage for oral
formulations of PF614-MPAR™, which if pursued and issued would expire in 2042, subject to any potential patent term adjustment
or extension that may be available in a jurisdiction. We also own one patent family that includes granted patents in the United States,
as well as granted patents and pending patent applications in numerous foreign jurisdictions, including Australia, Brazil, Canada, China,
the EPO, India, Japan, and Russia, relating to chemically modified ketone-containing agents, such as oxycodone, methadone, and hydromorphone,
covalently linked using specific linkers to a gastrointestinal enzyme-cleavable moiety, pharmaceutical compositions containing these
modified ketone-containing agents, pharmaceutical compositions containing these modified ketone-containing agents and a gastrointestinal
enzyme inhibitor, and methods of using the same to treat pain, would cover certain methadone TAAP product candidates that are still in
discovery phase and have an earliest expiration date in 2030. While we own these patent families, we have not updated records in the
various patent offices to reflect our ownership of these patent families. Failure to update such ownership may result in an innocent
purchaser potentially acquiring rights in such patents that are adverse to our interests. Furthermore, as noted above, we have not obtained
assignments for certain patent applications relating to abuse-resistant amphetamines.
We
believe that one patent covering PF614 will be eligible for up to five years of patent term extension in the United States and intend
to pursue such extension. In addition to patent exclusivity until at least 2032, under the provisions of the Hatch-Waxman Act, upon any
approval in the United States, we believe that PF614 will be eligible for five-year New Chemical Entity, or NCE, regulatory exclusivity,
during which time no 505(b)(2) New Drug Application, or NDA, or Abbreviated New Drug Application, or ANDA, can be approved that contains
the same active moiety as the chemical entity in the PF614 NDA. In addition, if an ANDA or 505(b)(2) applicant were to file its application
referencing the NDA for PF614 before expiration of our formulation patent and the applicant asserted that the patent is invalid or would
not be infringed, it may be subject to additional waiting periods prior to the FDA’s approval (including a statutory thirty-month
stay, starting at the end of the five-year NCE regulatory exclusivity period, if we sue for infringement, or a shorter period if the
patent expires of there are certain settlements or judicial decisions in the patent litigation) and may ultimately be required to wait
until the natural expiration of our compositions patents if the patents are found to be valid and infringed by the challenging applicant.
For more information please see “—Patents and Patent Applications.”
Nafamostat
Patents Applications
We
own one pending Patent Cooperation Treaty, or PCT, application directed to the use of orally administered nafamostat for the treatment
of infections caused by coronaviruses, including COVID-19, and a pending PCT, U.S. and Taiwan application directed to oral formulations
of nafamostat. We intend to pursue these applications in the United States and other significant commercial markets and any patents that
may be issued would expire in 2041 and 2042, respectively, subject to any applicable patent term adjustment or extension in a particular
jurisdiction. Additionally, we acquired one European patent from Mucokinetica that is directed to the use of certain compounds, including
nafamostat, for the manufacture of a medicament for the treatment of respiratory diseases with mucostasis or poor mucus clearance. This
patent was validated in Germany, France, Italy, and the United Kingdom and expires in 2028, subject to any applicable patent term extension
that might be available in Europe Union or United Kingdom. While we own this patent family, we have not updated the records in the various
patent offices to reflect our ownership of this patent family. Failure to update such ownership may result in an innocent purchaser potentially
acquiring rights in such patents that are adverse to our interests. Currently, we do not have any issued patent or pending application
directed to methods of treating infections caused by coronaviruses, including COVID-19, with inhaled nafamostat. In addition to patent
exclusivity, under the provisions of the Hatch-Waxman Act, upon any approval in the United States, we believe that nafamostat will be
eligible for five-year NCE regulatory exclusivity, during which time no 505(b)(2) NDA or ANDA can be approved that contains the same
active moiety as the chemical entity in the nafamostat NDA. In addition, if an ANDA or 505(b)(2) applicant were to file its application
referencing the NDA for nafamostat before expiration of our use patent and the applicant asserted that the patent is invalid or would
not be infringed, it may be subject to additional waiting periods prior to the FDA’s approval (including a statutory thirty-month
stay, starting at the end of the five-year NCE regulatory exclusivity period, if we sue for infringement, or a shorter period if the
patent expires of there are certain settlements or judicial decisions in the patent litigation) and may ultimately be required to wait
until the natural expiration of our compositions patents if the patents are found to be valid and infringed by the challenging applicant.
For more information, please see “—Patent and Patent Applications.”
TAAP
and MPAR™ Patents and Applications for Amphetamines
Following
the merger with Signature, we became the owner of one patent family that includes issued patents in the United States and numerous European
foreign jurisdictions (through the EPO), and a pending application in the United States, relating to chemically modified amphetamines
covalently linked to a gastrointestinal enzyme-cleavable moiety, pharmaceutical compositions containing the modified amphetamines, pharmaceutical
compositions containing the modified amphetamines and a gastrointestinal enzyme inhibitor and methods of using the same to treat a subject.
While we own this patent family, we have not updated the records in the various patent offices to reflect our ownership of this patent
family. Failure to update such ownership may result in an innocent purchaser potentially acquiring rights in such patents that are adverse
to our interests. In addition, we own one patent family with pending applications in the United States and the EPO directed to pharmaceutical
compositions containing chemically modified amphetamines covalently linked to a gastrointestinal enzyme-cleavable moiety and a trypsin
inhibitor and methods of using the same to treat a subject. We have not obtained assignments from all of the inventors of this patent
family to date, which could negatively impact our ability to pursue or enforce this application. If issued, these patent applications
would expire between 2031 and 2040, subject to any applicable patent term adjustment or extension that might be available in a jurisdiction.
Trademarks
and Trade Secrets
We
intend to pursue trademark registrations in the United States and other significant commercial markets for our product candidates as
they progress through clinical development.
Furthermore,
we rely upon trade secrets, know-how, continuing technological innovation, and potential in-licensing opportunities to develop and maintain
our competitive position. We seek to protect our proprietary information, in part, using confidentiality and invention assignment agreements
with our commercial partners, collaborators, employees, and consultants. These agreements are designed to protect our proprietary information
and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship
with an employee or a third party. These agreements may be breached, and we may not have adequate remedies for any breach. In addition,
our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial partners,
collaborators, employees, and consultants use intellectual property owned by others in their work for us, disputes may arise as to the
rights in related or resulting know-how and inventions.
Manufacturing
and Supply
Our
drug substance and drug products are manufactured by contract manufacturing organizations. We do not currently own or operate manufacturing
facilities for the production of clinical or commercial quantities of our product candidates. Any manufacturing problem or the loss of
a contract manufacturer could be disruptive to our operations and result in lost sales. See “Risk Factors” for more
information. Although we intend to rely on third-party contract manufacturers to produce our product candidates, we have personnel with
experience managing the third-party contract manufacturers who are expected to produce our product candidates and other product candidates
or products that we may develop in the future.
Our
lead product candidate, PF614, is small molecule opioid prodrug. As such, it is a controlled substance, regulated by the Drug Enforcement
Administration (“DEA”) and state-controlled substance authorities. Our third-party manufacturers will be required
to be registered with DEA and will be responsible for obtaining adequate quota to manufacture and otherwise handle controlled substances.
We
currently engage third parties to provide clinical supplies of PF614 and nafamostat. We also currently engage a third-party manufacturer
to provide drug product manufacture of PF614, PF614-MPAR™, and nafamostat. We currently have sufficient supplies of PF614 and nafamostat
on hand for our current clinical trial needs. Any reliance on suppliers may involve several risks, including a potential inability to
obtain critical materials and reduced control over production costs, delivery schedules, reliability, and quality. See “Risk
Factors” for more information.
Recro
Manufacturing Agreement
Pursuant
to the Recro Agreement, we engaged Recro to manufacture PF614 and other clinical trial materials under cGMP conditions and provide stability
studies with respect to our PF614 clinical trials. Pursuant to the agreement, Recro will create placebo capsules, PF614 powder-filled
capsules and provide us with master batch records and a GMP manufacturing report upon completion of manufacturing and analytical activities.
Under the Recro Agreement, Recro also generated stability data according to ICH program for two formulations to provide stability data
for shelf-life assessment with respect to our Phase II clinical trial. We have agreed to pay Recro $173,000 and pass-through costs, estimated
at $14,000 at the time of the agreement, for the manufacturing and services provided under the Recro Agreement. The term of the Recro
Agreement began on September 19, 2019 and continues until the completion of the manufacturing and services described in therein. However,
we paused the Recro Agreement in early 2020 in connection with the timing of our PF614 clinical studies and resumed in the first quarter
of 2021. We expect to enter into additional related agreements with Recro. In the event that Recro is unable to perform the services
promised under the Recro Agreement, we may be subject to unforeseen costs and delays with respect to our clinical trials and be unable
to replace the Recro Agreement on terms as favorable to us. See “Risk Factors—We expect to be completely dependent on
third parties to manufacture our product candidates, and our commercialization of our product candidates could be halted, delayed or
made less profitable if those third parties fail to maintain a compliance status acceptable to the FDA or comparable foreign regulatory
authorities, fail to provide to us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels
or prices” for more information.
Government
Grants
We received funding under federal
grant award programs funded by governmental agencies, such as the NIH and NIDA. Specifically, for fiscal year 2021, we received funding
revenue of approximately $3.5 million in federal grants, approximately $2.6 million from the NIH related to
the Phase 1 clinical trial for PF614 MPAR™ and approximately $0.9 million from NIDA under our five-year award to undertake
the preclinical development of our opioid use disorder- MPARTM technology. We may apply for additional grant funding from
these or similar governmental agencies in the future. See “Risks Related to Our Business, Financial Condition and Capital Requirements”
for additional information.
Convertible
Promissory Notes
On September 24, 2021, we entered
into a Securities Purchase Agreement (the “SPA”) for an aggregate financing of $15.0 million with institutional investors.
A first closing under the SPA occurred on September 24, 2021, and a second closing under the SPA occurred on November 5, 2021. At the
first closing, we issued to the investors (i) senior secured convertible promissory notes in the aggregate principal amount of $5.3 million
for an aggregate purchase price of $5.0 million and (ii) warrants to purchase 361,158 shares of the Company’s common stock
in the aggregate at an exercise price of $7.63 per share. At the second closing, the Company issued to the institutional investors
referenced above, (i) senior secured convertible promissory notes in the aggregate principal amount of $10.6 million for an aggregate
purchase price of $10 million and (ii) warrants to purchase 722,317 shares of the Company’s common stock in the aggregate
at an exercise price of $7.63 per share.
GEM
Facility
Pursuant
to the GEM Agreement, we are entitled to draw down up to $60.0 million of gross proceeds from GEM Global in exchange for shares of our
common stock, subject to meeting the terms and conditions of the GEM Agreement. This share subscription facility is available for a period
of 36 months from the closing date of the Merger. A draw down is subject to limitations on the amount that is drawn under the facility
and must comply with certain conditions precedent including the listing of our shares on a principal market (which includes Nasdaq),
having the necessary number of shares that are issuable pursuant to the draw down registered under an effective registration statement,
and other notice and timing requirements. Upon our valid exercise of a draw down, pursuant to delivery of a notice and in accordance
with other conditions, GEM Global is required to pay, in cash, a per-share amount equal to 90% of the average closing bid price of the
shares of our common stock recorded by Nasdaq during the 30 consecutive trading days commencing on the first trading day that is designated
on the draw down notice. In no event may our draw down requests exceed 400% (“Draw Down Limit”) of the average daily
trading volume for the 30 trading days immediately preceding the date we deliver the draw down notice. The SPA limits our ability to
execute certain debt and equity financings, including our existing $60.0 million share subscription facility, while the 2021 Notes remain
outstanding. See, “Liquidity and Capital Resources” for a detailed description of the GEM Facility.
Government
Regulation
In
the United States, pharmaceutical products are subject to extensive regulation by the FDA, and those pharmaceutical products that are
controlled substance are also subject to extensive regulation by the DEA. The FDC Act, the CSA, and other federal, state, and local statutes
and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling,
promotion and marketing, distribution, prescribing, dispensing, post-approval monitoring and reporting, sampling, and import and export
of pharmaceutical products. Pharmaceutical products used for the prevention, treatment, or cure of a disease or condition of a human
being are subject to regulation under the FDC Act. Failure to comply with applicable U.S. requirements may subject a company to a variety
of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending NDAs, revocation of licensing authority,
warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, civil penalties, and criminal prosecution.
The
FDA Drug Approval Process
FDA
approval is required before any new drug can be marketed. A new drug is one not generally recognized, by experts qualified by scientific
training and experience, as safe and effective for its intended use. The process of drug development is complex and lengthy. The activities
undertaken before a new pharmaceutical product may be marketed in the United States generally include, but are not limited to, preclinical
studies; submission to the FDA of an IND, which must become active before human clinical trials may commence; adequate and well-controlled
human clinical trials to establish the safety and efficacy of the product; submission to the FDA of an NDA; filing of the NDA by FDA;
satisfactory completion of an FDA pre-approval inspection of the clinical trial sites and manufacturing facility or facilities at which
both the active ingredients and finished drug product are produced to assess compliance with, among other things, patient informed consent
requirements, the clinical trial protocols, current Good Clinical Practices, or GCP, and GMPs; and FDA review and approval of the NDA
prior to any commercial sale and distribution of the product in the United States.
Preclinical
studies include laboratory evaluation of product chemistry and formulation, and in some cases, animal studies and other studies to preliminarily
assess the potential safety and efficacy of the product candidate. The results of preclinical studies together with manufacturing information,
analytical data, and detailed information including protocols for proposed human clinical trials are then submitted to the FDA as a part
of an IND. An IND must become effective, and approval must be obtained from an Institutional Review Board (“IRB”)
prior to the commencement of human clinical trials. The IND becomes effective 30 days following its receipt by the FDA unless the FDA
objects to, or otherwise raises concerns or questions and imposes a clinical hold. We, the FDA, or the IRB may suspend or terminate a
clinical trial at any time after it has commenced due to safety or efficacy concerns or for commercial reasons. In the event the FDA
imposes a clinical hold, the IND sponsor must address any outstanding FDA concerns or questions to the satisfaction of the FDA before
clinical trials can proceed or resume.
Human
clinical trials are typically conducted in three sequential phases that may sometimes overlap or be combined:
In
Phase 1, the initial introduction of the drug into patients, the product is tested to assess safety, dosage tolerance, metabolism, pharmacokinetics,
pharmacological actions, side effects associated with drug exposure, and to obtain early evidence of a treatment effect if possible.
Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication,
determine optimal dose and regimen, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness
and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain additional information about clinical
effects and confirm efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to
permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of
the product. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the safety and efficacy
of the drug. In rare instances, a single Phase 3 trial may be sufficient when either (1) the trial is a large, multicenter trial demonstrating
internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity,
or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or
ethically impossible or (2) the single trial is supported by other confirmatory evidence.
In
addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease
is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access
to such investigational drug.
After
completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before
marketing and distribution of the product may begin in the United States. The NDA must include the results of all preclinical, clinical,
and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost
of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user
fee, currently exceeding $3.1 million. Under an approved NDA, the applicant is also subject to an annual program fee, currently approximately
$370,000. These fees typically increase annually. Under limited circumstances, an applicant may be exempt from or seek a waiver of the
application fee requirement.
The
FDA has 60 days from its receipt of an NDA to determine whether the application will be filed based on the FDA’s determination
that it is adequately organized and sufficiently complete to permit substantive review. Once the submission is filed, the FDA begins
an in-depth review. The FDA has agreed to certain performance goals to complete the review of NDAs. For a standard review, the goal for
review of a new molecular entity (“NME”) is ten months from the date the FDA files the NDA, while the goal for review
of a non-NME is ten months from the date of receipt of the NDA. For an NDA that has received a priority review designation from the FDA,
the goal for review of an NME is six months from the date the FDA files the NDA, while the goal for review of a non-NME is six months
from the date of receipt of the NDA. An NDA can receive a priority review designation when the FDA determines the drug has the potential
to treat a serious or life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared
to available therapies. The review process for both standard and priority reviews may be extended by the FDA for three or more additional
months to consider certain late-submitted information, or information intended to clarify information already provided in the NDA submission.
The
FDA may also refer applications for novel drug products, as well as drug products that present difficult questions of safety or efficacy,
to be reviewed by an advisory committee—typically a panel that includes clinicians, statisticians, and other experts—for
review, evaluation, and a recommendation as to whether the NDA should be approved. The FDA is not bound by the recommendation of an advisory
committee, but generally follows these recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical
sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug product is manufactured.
The FDA will not approve the product unless compliance with cGMP is satisfactory, and the NDA contains data that provide substantial
evidence that the drug is safe and effective in the claimed indication.
After
the FDA evaluates the NDA and completes any clinical and manufacturing site inspections, it issues either an approval letter or a complete
response letter. A complete response letter generally outlines the deficiencies in the NDA submission and may require substantial additional
testing, or information, in order for the FDA to reconsider the application for approval. If, or when, those deficiencies have been addressed
to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing
such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing
and distribution of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA
may require a risk evaluation and mitigation strategy (“REMS”) to help ensure that the benefits of the drug outweigh
the potential risks to patients. A REMS can include medication guides, communication plans for healthcare professionals, and elements
to assure a products safe use (“ETASU”). An ETASU REMS can include, but is not limited to, special training or certification
for prescribing or dispensing the product, dispensing the product only under certain circumstances, special monitoring, and the use of
patient-specific registries. The requirement for a REMS can materially affect the potential market and profitability of the product.
Moreover, the FDA may require substantial post-approval testing and surveillance to monitor the product’s safety or efficacy.
Once
granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following
initial marketing. Changes to some of the conditions established in an approved NDA, including changes in indications, product labeling,
manufacturing processes, or facilities, require submission and FDA approval of a new NDA, or supplement to an approved NDA, before the
change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application,
and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing original NDAs.
Section
505(b)(2) NDAs
An
alternative to the NDA pathway described above is an NDA submitted under Section 505(b)(2) of the FDC Act, which enables the applicant
to rely, in part, on the FDA’s prior findings in approving a similar product or published literature in support of its application.
Section 505(b)(2) NDAs often provide an alternate path to FDA approval for modified formulations, new routes of administration, or new
uses of previously approved products. Section 505(b)(2) permits the submission of an NDA where at least some of the information required
for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference.
If the Section 505(b)(2) applicant can establish that reliance on the FDA’s prior findings of safety or effectiveness is scientifically
appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require
companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the
new product candidate for all, or some, of the indications for which the referenced product has been approved, as well as for any new
indication sought by the Section 505(b)(2) applicant.
Fast
Track Designation and Priority Review
FDA
is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening
disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for
the condition. Fast track designation may be granted for products that are intended to treat a serious or life-threatening disease or
condition for which there is no effective treatment and preclinical or clinical data demonstrate the potential to address unmet medical
needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied.
Any product submitted to FDA for marketing, including under a fast-track program, may be eligible for other types of FDA programs intended
to expedite development and review, such as priority review.
Priority
review may be granted for products that are intended to treat a serious or life-threatening condition and, if approved, would provide
a significant improvement in safety and effectiveness compared to available therapies. FDA will attempt to direct additional resources
to the evaluation of an application designated for priority review in an effort to facilitate the review.
Disclosure
of Clinical Trial Information
Sponsors
of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information
on the website www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, trial sites and
investigators, and other aspects of a clinical trial are then made public as part of the registration. Sponsors are also obligated to
disclose the results of their clinical trials after completion. Disclosure of the results of clinical trials can be delayed in certain
circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information
to gain knowledge regarding the progress of clinical development programs as well as clinical trial design.
The
Hatch-Waxman Amendments
Under
the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, a portion of a product’s
U.S. patent term that was lost during clinical development and regulatory review by the FDA may be restored. The Hatch-Waxman Amendments
also provide a process for listing patents pertaining to approved products in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations (commonly known as the “Orange Book”) and for a competitor seeking approval of an application
that references a product with listed patents to make certifications pertaining to such patents. In addition, the Hatch-Waxman Amendments
provide for a statutory protection, known as non-patent exclusivity, against the FDA’s acceptance or approval of certain competitor
applications.
Patent
Term Extension
Patent
Term Extension (“PTE”) in the United States can compensate for lost patent grant time during product development and
the regulatory review process for a patent that covers a new product or its use. This PTE period is generally one-half the time between
the effective date of an IND (falling after issuance of the patent) and the submission date of an NDA, plus the time between the submission
date of an NDA and the approval of that application, provided the sponsor acted with diligence. PTEs that can be obtained are for up
to five years beyond the expiration of the patent or fourteen years from the date of product approval, whichever is earlier. Only one
patent applicable to an approved drug may be extended and the extension must be applied for prior to expiration of the patent. The USPTO,
in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
The
term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries
in which we file, the patent term is 20 years from the earliest date of filing a nonprovisional patent application related to the patent.
A U.S. patent also may be accorded patent term adjustment, or PTA, under certain circumstances to compensate for delays in obtaining
the patent from the USPTO. In some instances, such a PTA may result in a U.S. patent term extending beyond 20 years from the earliest
date of filing a non-provisional patent application related to the U.S. patent. In addition, in the United States, the term of a U.S.
patent that covers an FDA-approved drug may also be eligible for a patent term extension, or PTE, which permits patent term restoration
as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a PTE of up to five years
beyond the expiration of the patent. The length of the PTE is related to the length of time the drug is under regulatory review. PTE
cannot extend the remaining term of a patent beyond a total of fourteen years from the date of product approval and only one patent applicable
to an approved drug may be extended. Similar provisions are available in Europe and certain other jurisdictions to extend the term of
a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for PTEs on patents
covering products eligible for PTE. We plan to seek PTEs for any of our issued patents in any jurisdiction where these are available;
however, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment
of whether such extensions should be granted, and if granted, the length of such extensions.
We
also believe that (1) PF614 and nafamostat will be eligible for a five-year NCE regulatory exclusivity, and (2) PF614-MPAR™ will
be eligible for a three-year clinical investigation, or CI, regulatory exclusivity, under the Hatch-Waxman Act, during which time no
ANDA can be approved.
Under
the Hatch-Waxman Act, patents covering the product such as patents claiming the approved composition of matter, approved methods of use,
approved formulations, and approved dosing and administration shall be listed in the Orange Book, which identifies drug products approved
by FDA under the FDC Act. Applicable regulatory exclusivities, such as the five-year NCE exclusivity and the three-year CI exclusivity,
are also listed in the Orange Book. If an ANDA or 505(b)(2) applicant were to file its application before expiration of all patents listed
in the Orange Book, it must certify whether it will either honor or challenge all the patents listed in the Orange Book. If an Orange
Book listed patent is challenged and we sue the ANDA or 505(b)(2) applicant for infringement, a statutory 30-month stay of approval,
started at the end of the NCE exclusivity period, will be put in place that will prohibit the FDA from finally approving the ANDA or
505(b)(2) application until the 30-months have expired or after a court has held in favor of the ANDA or 505(b)(2) applicant. The 30-month
stay begins at the end of the five-year NCE exclusivity period. If the Orange Book listed patent(s) is ultimately held valid and infringed,
the ANDA or 505(b)(2) applicant will not be finally approved until the Orange Book listed patent(s) expires. If a pediatric study is
requested by the FDA in a Pediatric Written Request, or PWR, and we complete the pediatric study according to the terms of the PWR, all
unexpired Orange Book listed exclusivities (patent or regulatory) will be extended by six months.
Similar
provisions are available in Europe, Japan, and certain other jurisdictions to extend the exclusivity of a patent that covers an approved
drug. In Europe, we believe PF614 and nafamostat will be eligible for 10 years of regulatory exclusivity from European Marketing Application,
or EMA, approval. In Japan, we believe PF614 will be eligible for eight years of regulatory exclusivity from a Japanese new drug application,
or J-NDA, approval.
Orange
Book Listing
In
seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims covering the applicant’s
product or method of using the product. Upon approval of a drug, each of the patents identified in the application for the drug are then
published in the FDA’s Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in
support of approval of an ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths
and dosage form as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence
testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness
of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and
can often be substituted by pharmacists under prescriptions written for the original listed drug.
The
ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.
Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired;
(iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv)
the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a Section VIII
statement certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use
rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will
not be approved until all the listed patents claiming the referenced product have expired.
A
certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid,
is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must
also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been filed with and accepted by the
FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification.
The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the
FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the
infringement case that is favorable to the ANDA applicant.
An
applicant submitting an NDA under Section 505(b)(2) of the FDC Act, which permits the filing of an NDA where at least some of the information
required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right
of reference, is required to certify to the FDA regarding any patents listed in the Orange Book for the approved product it references
to the same extent that an ANDA applicant would.
Market
Exclusivity
Market
exclusivity provisions under the FDC Act also can delay the submission or the approval of certain applications. The FDC Act provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for
a new chemical entity (“NCE”). A drug is entitled to NCE exclusivity if it contains a drug substance with no active
moiety of which has been previously approved by the FDA. During the exclusivity period, the FDA may not accept for review an ANDA or
a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right
of reference to all the data required for approval. However, an application may be submitted after four years if it contains a Paragraph
IV certification. For a drug that has been previously approved by the FDA, the FDC Act also provides three years of marketing exclusivity
for an NDA, 505(b)(2) NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that
were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for
new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the new conditions of use and does
not prohibit the FDA from approving ANDAs for drugs for the original conditions of use, such as the originally approved indication. Five-year
and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would
be required to conduct or obtain a right of reference to all of the non-clinical studies and adequate and well-controlled clinical trials
necessary to demonstrate safety and effectiveness.
Post-Marketing
Requirements
Following
approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the FDA. This regulation
includes, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse
experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and
distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer
advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling
(known as “off-label use”), limitations on industry-sponsored scientific and educational activities and requirements for
promotional activities involving the internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers
may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of the site of
manufacture are often subject to the approval of the FDA and other regulators, who may or may not grant approval or may include in a
lengthy review process.
Prescription
drug advertising is subject to federal, state, and foreign regulations. In the United States, the FDA regulates prescription drug promotion,
including direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their
first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing
Act (“PDMA”), a part of the FDC Act. In addition, Title II of the Federal Drug Quality and Security Act of 2013, known
as the Drug Supply Chain Security Act or the DSCSA, has imposed new “track and trace” requirements on the distribution of
prescription drug products by manufacturers, distributors, and other entities in the drug supply chain. These requirements are being
phased in over a ten-year period. Unless the products were packaged prior to November 27, 2018, the DSCSA requires product identifiers
(i.e., serialization) on prescription drug products in order to establish an electronic interoperable prescription product system to
identify and trace certain prescription drugs distributed in the United States. The DSCSA replaced the prior drug “pedigree”
requirements under the PDMA and preempts existing state drug pedigree laws and regulations. The DSCSA also establishes requirements for
the licensing of wholesale distributors and third-party logistic providers. These licensing requirements preempt states from imposing
licensing requirements that are inconsistent with, less stringent than, directly related to, or otherwise encompassed by standards established
by FDA pursuant to the DSCSA. Until FDA promulgates regulations to address the DSCSA’s new national licensing standard, current
state licensing requirements typically remain in effect.
In
the United States, once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The
FDA regulations require that products be manufactured in specific facilities and in accordance with cGMP. cGMP regulations require among
other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation
to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution
of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to
expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose
certain organizational, procedural, and documentation requirements with respect to manufacturing and quality assurance activities. NDA
holders using contract manufacturers, laboratories, or packagers are responsible for the selection and monitoring of qualified firms,
and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to
inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in
enforcement actions that interrupt the operation of any such product or may result in restrictions on a product, manufacturer, or holder
of an approved NDA, including, among other things, recall or withdrawal of the product from the market.
The
CSA and DEA Regulation
Our
products are regulated as “controlled substances” as defined under the CSA and regulations promulgated by DEA. The law and
regulations establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, and other requirements
administered by DEA.
Controlled
substances are classified into five schedules: Schedule I, II, III, IV, or V, depending on the abuse potential. Schedule I substances
by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be
listed as Schedule II, III, IV, or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances
the lowest relative risk of abuse among such substances.
PF614
will be classified as a Schedule II controlled substance under the CSA and regulations because it contains oxycodone which is already
regulated as a Schedule II controlled substance. Consequently, the manufacturing, shipping, storing, selling, prescribing, and dispensing
of our products is subject to a high degree of regulation. Schedule II drugs are subject to the strictest requirements for registration,
security, recordkeeping, and reporting. Facilities must maintain complete and accurate inventories and records of all controlled substances
received, manufactured, stored, and distributed. These facilities must comply with strict security requirements to prevent diversion
of drugs in their possession. Also, distribution and dispensing of these drugs are highly regulated. For example, all Schedule II drug
prescriptions must be signed by a physician, presented to a pharmacist and, generally limited to a 30-day supply, and may not be refilled,
that is, a new prescription is required.
Annual
registration is required for any facility that manufactures, distributes, imports, or exports any controlled substance. Also, practitioners
and pharmacies are required to register every three years. The registration is specific to the particular location, activity, and controlled
substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which
schedules of controlled substances the facility is authorized to handle. Our contract manufacturers must be registered with DEA.
In
addition, the CSA establishes an annual quota system that limits the manufacturing of API and dosage forms in the United States of Schedule
I and II controlled substances. First, the DEA establishes an annual aggregate quota for how much active opioid ingredients, such as
oxycodone and tapentadol, may be produced in total in the United States based on the DEA’s estimate of the quantity needed to meet
legitimate scientific and medicinal needs. The limited aggregate amount of opioids that the DEA allows to be produced in the United States
each year is allocated among individual companies, which must submit applications annually to the DEA for individual production quotas.
Also, dosage form manufacturers must also request a procurement quota to acquire opioid API to manufacture dosage forms for distribution.
We and our contract manufacturers must receive an annual quota from the DEA in order to produce or procure any Schedule I or Schedule
II substance, including oxycodone base for use in manufacturing PF614. The DEA may adjust aggregate production quotas and individual
production and procurement quotas from time to time during the year. DEA has substantial discretion in whether or not to make such adjustments.
Our contract manufacturers must apply for and obtain the necessary quotas on an annual basis.
In
November 2017, the DEA reduced the amount of almost every Schedule II opiate and opioid medication that may be manufactured in the United
States in calendar year 2018 by 20%. In October 2018, the SUPPORT Act was enacted, which included amendments to the CSA to require that
appropriate quota reductions be made after estimating potential for diversion. DEA announced that the estimate is based on rates of overdose
deaths and abuse, the overall public health impact related to specific controlled substances and may include other factors as appropriate.
For 2019, the DEA proposed decreased manufacturing quotas for the six most frequently misused opioids, including oxycodone, by an average
of 10% as compared to the 2018 quotas. In October 2019, consistent with the SUPPORT Act, DEA proposed additional regulations to amend
the manner in which the agency grants quotas to manufacturers. The proposed regulations will establish use-specific quotas, including
commercial sales, product development, transfer, replacement, and packaging. To decrease the risk of diversion and increase accountability,
inventory allowances will be reduced, and procurement quota certifications will be required. The DEA proposed further decreasing manufacturing
quotas in 2020 for five of the six opioids (fentanyl, hydrocodone, hydromorphone, oxycodone, and oxymorphone), by an average of 28%.
For 2021, the DEA decreased the aggregate quota for oxycodone by about 13% and for hydrocodone by about 10% from the final established
2020 quotas. Because PF614 is regulated as a Schedule II controlled substance, it is subject to the DEA’s aggregate, individual
production, and procurement quota scheme.
Ordering
and distribution of any Schedule I or II controlled substance are also subject to special ordering requirements under either the electronic
Controlled Substance Ordering System (“CSOS”) or use of DEA Form 222s. Information regarding specific transactions
are reported to DEA, and cumulative reports of such transactions are required monthly/quarterly.
The
DEA also requires drug manufacturers to design and implement a system that identifies and reports suspicious orders of controlled substances.
Such orders include those of unusual size, those that deviate substantially from a normal pattern, and those of unusual frequency. Manufacturers
must refuse to complete any sale and report to DEA any orders for which it is unable to resolve any potential “red flags.”
A compliant suspicious order monitoring system includes well-defined due diligence, “know your customer” process as well
as systems to identify and monitor ordering and sales of controlled substances.
To
enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure
to maintain compliance with applicable requirements, especially security and recordkeeping and as manifested in loss or diversion or
inability to account for all controlled substances, can result in administrative, civil, or criminal enforcement action that could have
a material adverse effect on our business, results of operations, and financial condition. The DEA may seek civil penalties, refuse to
renew necessary registrations, or initiate administrative proceedings to revoke those registrations. The DEA may also reduce or deny
quota to manufacturing facilities based on non-compliance with these requirements. In certain circumstances, violations could result
in criminal proceedings.
Individual
states also independently regulate controlled substances.
Legislative
and Regulatory Initiatives for Opioids
In
response to widespread prescription opioid abuse, the United States government and a number of state legislatures have enacted legislation
and regulations intended to fight the opioid epidemic. The number and scope of legislative and regulatory actions, particularly in the
last three years, emphasize the severity of the opioid epidemic and its impact on our society. The FDA has stated that addressing prescription
drug abuse is a priority and has reaffirmed that the development of abuse-deterrent opioids is a key part of that strategy.
Recent
actions to address the opioid abuse epidemic include:
|
● |
FDA
guidance: In April 2015, the FDA adopted final guidance regarding studies and clinical trials that should be conducted to demonstrate
that a given formulation has abuse-deterrent properties, how those studies and clinical trials will be evaluated, and what product
labeling claims may be approved based on the results of those studies and clinical trials. The guidance describes four categories
of abuse-deterrence studies and clinical trials: Categories 1, 2, and 3 consist of pre-marketing studies and clinical trials designed
to evaluate a product candidate’s potentially abuse-deterrent properties under controlled conditions, while Category 4, post-marketing
clinical trials and studies, assesses the real-world impact of abuse-deterrent formulations. The final guidance also provides examples
of product label claims that may be made based on the results of the corresponding studies and clinical trials. |
|
|
|
|
● |
FDA
Opioids Action Plan: In February 2016, the FDA released an action plan to address the opioid abuse epidemic and reassess the FDA’s
approach to opioid medications. The FDA’s plan is part of a broader initiative led by the U.S. Department of Health and Human
Services (“HHS”), to address opioid-related overdose, death, and dependence. |
|
|
|
|
● |
CDC
Prescribing Guidelines: In March 2016, the CDC released a new Guideline for Prescribing Opioids for Chronic Pain intended to assist
primary care providers treating adults for chronic pain in outpatient settings. The guideline provides recommendations to improve
communications between doctors and patients about the risks and benefits of opioid therapy for chronic pain, improve the safety and
effectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. |
|
|
|
|
● |
Enhanced
Warnings and Safety Labeling: In March 2016, the FDA announced required enhanced warnings for immediate-release opioid pain medications
related to risks of misuse, abuse, addiction, overdose, and death. Subsequently, there have been several class-wide labeling changes,
including the addition of boxed warnings relating to serious risks of using certain opioids medications along with benzodiazepines
and other central nervous system depressants, including alcohol (Decembers 2016); and additional information relating to the new
class-wide REMS (Septembers 2018). |
|
|
|
|
● |
Enactment
of the Comprehensive Addiction and Recovery Act (“CARA”): In 2016, the CARA was enacted to address the national
epidemics of prescription opioid abuse and heroin use. Consistent with the initiatives of HHS, this legislation sought to, among
other things, expand the availability of naloxone for law enforcement and other first responders; form an interagency task force
to develop best practices for pain management with opioid medications; and provide resources to improve state monitoring of controlled
substances, including opioids. In 2018, CARA 2.0 was introduced as follow-up legislation to limit initial prescriptions for opioids
to 3 days, while exempting initial prescriptions for chronic care, cancer care, hospice or end of life care, and palliative care. |
|
|
|
|
● |
Enactment
of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (“SUPPORT
Act”): In November 2018, the SUPPORT Act was enacted as a comprehensive legislative response to the continuing opioid epidemic.
It includes a number of measures directed towards regulation and improvement of treatment for substance use-disorder and increased
coverage by CMS of medically assisted treatment options. In addition, the SUPPORT Act requires HHS to report to Congress on existing
barriers to access to abuse-deterrent opioid formulations by Medicare Part C and D beneficiaries. It also includes a number of requirements
directed at reducing the potential for oversupply of opioids to reduce the potential for misuse and diversion. |
Human
Capital Resources
As
of December 31, 2021, we had six full-time employees and six consultants. Of these, five have a Ph.D. and two have an M.B.A. From
time to time, we also retain independent contractors to support our organization. None of our employees are represented by a labor union
or covered by collective bargaining agreements, and we believe our relationship with our employees is good. We intend to add additional
full-time employees along with additional clinical support staff in 2022, and to expand our commercial sales force beginning 2023.
In
July 2021 Ensysce appointed David J. Kovacs to a new position of VP Public Policy and David Tanzer to a new position of VP Strategic
Development. Mr. Kovacs has extensive experience shaping policy and setting strategy for disruptive companies in pharmaceutical and technology
sectors. He has served in various roles for public companies, including Vinco Ventures (NASDAQ: BBIG) and AudioEye, Inc. (NASDAQ: AEYE).
Previously, Mr. Kovacs held senior roles in private equity and investment banking, including at Blackstone Group, Citigroup, and the
Hinduja Group. Mr. Tanzer is an accomplished business executive specializing in helping companies with innovative intellectual property
and technology maximize their potential. He has 25 years of diverse experience in the healthcare and media sectors, including as CEO
or President of eight companies, service on nine company boards, and working at private equity firms, including Lee Equity Partners and
Elevation Partners. Mr. Tanzer previously was President of PDR Network, publisher of the Physicians’ Desk Reference, the authoritative
source of drug safety information for prescribers.
Dr.
Linda Pestano joined Ensysce in October 2021, as Chief Development Officer. Dr. Pestano has worked throughout her career to guide
the development of novel therapeutics to improve patient outcomes and quality of life. Dr. Pestano received her PhD from Tuffs University
and undertook a Post-Doctoral Fellowship with Dana Farber Cancer Institute at the Harvard Medical School in Boston. She has been instrumental
in guiding new therapies, including small molecules, nucleic acids, and biologicals through development into clinical trials. Dr. Pestano’s
expertise spans lead development, pre-clinical and translational studies, and interacting with multiple regulatory agencies. Dr. Pestano
joins Ensysce with 20 years of experience developing vaccines, drugs and novel biologics for a diverse range of indications.
Identification
of Our Executive Officers
The
Company’s Executive Officers and their age and position are below.
Name |
|
Age* |
|
Officer
Since |
|
Position |
|
|
|
|
|
|
|
Dr.
Lynn Kirkpatrick, Ph.D |
|
65 |
|
2009 |
|
President,
Chief Executive Officer and Class III Director |
Geoffrey
Birkett |
|
59 |
|
2018 |
|
Chief
Commercial Officer |
David
Humphrey, CPA |
|
53 |
|
2021 |
|
Chief
Financial Officer, Secretary and Treasurer |
Dr.
Jeffrey Millard, Ph.D. |
|
46 |
|
2019 |
|
Chief
Operating Officer |
Dr.
Linda Pestano, Ph.D. |
|
53 |
|
2021 |
|
Chief
Development Officer |
Dr.
William Schmidt, Ph.D. |
|
70 |
|
2016 |
|
Chief
Medical Officer |
Richard
Wright, MBA |
|
49 |
|
2016 |
|
Chief
Business Officer |
*Ages
presented as of December 31, 2021
Dr.
Lynn Kirkpatrick, Ph.D. has served as our Chief Executive Officer since January 2009. Dr. Kirkpatrick has spent over 30 years
in drug discovery and development, has initiated the clinical development of four novel drug candidates and now strives to bring highly
novel and safe pain therapies to commercialization. She received a Doctor of Philosophy (“Ph.D.”) degree in Medicinal
and Biomedicinal Chemistry at the University of Saskatchewan, completed a Post-Doctoral Fellowship at the Yale University School of Medicine,
and became a tenured full professor in the Department of Chemistry at the University of Regina. She co-founded ProlX Pharmaceuticals,
Corp. (“ProlX”) an oncology discovery company, becoming Chief Executive Officer and successfully bringing three small
molecules from discovery into clinical development, two of these her own discoveries from academia. ProlX was acquired by Biomira Inc.,
and Dr. Kirkpatrick became the Chief Scientific Officer of the merged company to focus on the development of oncology products and vaccines.
In 2009, she co-founded PHusis Therapeutics, developing targeted small molecule precision medicines for oncology. At the same time, she
became our Chief Executive Officer. Dr. Kirkpatrick has published extensively in the area of targeted drug discovery, abuse deterrent
pain products and holds numerous patents for novel drugs and modalities. We believe Dr. Kirkpatrick is qualified to serve on our Board
because of her extensive executive experience in our industry and her service as our Chief Executive Officer.
Geoffrey
Birkett has served as our Chief Commercial Officer since October 2018. He has over 30 years of experience in the Pharmaceutical
and Biotechnology area. He started his career as a biochemist at the Royal Victoria Infirmary in Newcastle-upon-Tyne, England. He then
moved into the pharmaceutical industry, where he focused on pain/addiction and neuroscience throughout his career. He has developed and
launched several groundbreaking therapies, including Nicorette (POM) and (OTC), Lexapro and several other psychiatry agents with Lundbeck.
Mr. Birkett assisted on the launch of Prozac and Humatrope (human growth hormone) with Eli Lilly. He assisted in moving Seroquel from
Phase 2 to global market leader with multi-billion dollar sales and he also participated in the launch of Zomig for migraines, which
became a European market leader. He worked for most of his pharmaceutical career at AstraZeneca plc in both the United Kingdom and the
United States, where he held many roles including overseeing the global oncology division. When the AstraZeneca merger took place, Mr.
Birkett ran the merger process outside the United States across all markets, and ran a corporate change program to streamline research
and development involving 67,000 staff. Since leaving AstraZeneca, Mr. Birkett has held multiple roles in biotech companies as senior
officer or as a consultant. He is co-founder of a novel drug delivery company and has consulted for IPSOS, a large global research and
consulting firm. He also served as president for North America/Canada of INDIVIOR, a large company producing addiction treatment drugs.
Mr. Birkett joined us in 2018 and is focused on building a world class commercial team. Mr. Birkett attended Henley Business College
in London and INSEAD Business School in France where he studied general management and a global leadership.
David
Humphrey, CPA has served as our Chief Financial Officer since February 2021. Prior to joining the Company, Mr. Humphrey was most
recently Chief Financial Officer of Senomyx, Inc. (“Senomyx”), a publicly held biotechnology company focused on taste science.
In his previous employment, he guided public company financial reporting, including Forms 10-K, 10-Q, 8-K, S-3, S-8, proxy statements
and SOX internal controls compliance, and acted as primary liaison with the audit committee and external auditors. Mr. Humphrey advised
Senomyx’s board of directors, as part of core executive management team, in a $75 million acquisition by Firmenich SA, a private
Swiss multinational flavor and fragrance company. Previously, he held finance and accounting leadership positions and consulted at numerous
life sciences companies, including ActivX Biosciences, Aurora Biosciences and Gensia. Mr. Humphrey started his career as an accountant
at Price Waterhouse. He holds a Bachelor of Science with Honors in Accountancy from the University of Illinois at Urbana-Champaign and
is a Certified Public Accountant in California.
Dr.
Jeffrey Millard, Ph.D. has
served as our Chief Operating Officer since January 2019. Dr. Millard has both academic and industrial experience in chemistry and pharmaceutical
sciences covering all aspects of chemistry, manufacturing, and controls, or CMC. He has been involved in both start-up biotech as well
as small and mid-sized public biopharmaceutical companies. Dr. Millard has been directly responsible for research and development activities
and writing of more than seven IND submissions and Investigational Medicinal Product Dossiers, or IMPDs. He has directed the CMC efforts
from discovery and in-licensing through commercial launch activities. His experience covers the application programming interface, or
API, lifecycle (from synthetic route scouting, process chemistry, analytical chemistry development and validation, cGMP production and
release of API, to QbD and process validation), and drug product development through manufacture. Dr. Millard received a Bachelor of
Arts from Rice University and a Ph.D. in Pharmaceutical Sciences from the University of Arizona.
Dr.
Linda Pestano, Ph.D. see “Human
Capital Resources” for Dr. Pestano’s biographical information.
Dr.
William K. Schmidt, Ph.D., has served as our Chief Medical Officer since January 2016. He is also the Head of NorthStar Consulting,
the Parliamentarian and a former president of the Eastern Pain Association, the largest regional affiliate of the American Pain Society.
He has over 25 years of pharmaceutical industry experience with a special emphasis on the discovery and development of novel analgesic
and narcotic antagonist drugs. He was previously Vice President of Clinical Development for CrystalGenomics (Seoul, South Korea) and
its United States subsidiary, CG Pharmaceuticals (Emeryville, CA); Senior Vice President of Development at Limerick BioPharma; Vice President,
Clinical Research, for Renovis, Inc.; and Vice President, Scientific Affairs and acting Vice President, Clinical Research and Development,
at Adolor Corporation. At Adolor Corporation, Dr. Schmidt was a key member of the team leading to the clinical development, NDA filing,
and FDA approval of Entereg® (alvimopan), a peripherally acting opioid antagonist. Currently Dr. Schmidt serves as an expert on pain
medicine pharmaceutical development with pharmaceutical and biotech companies throughout North America, Europe, Asia, Latin America,
and Australia. Dr. Schmidt received a Bachelor of Arts degree from the University of California Berkeley and his Ph.D. University of
California-San Francisco.
Richard
Wright MSE, MBA has served as our Chief Business Officer since January 2016. Mr. Wright is the Chief Executive Officer of Magnostics,
Ltd, a superparamagnetic nano-material company based in Dublin, Ireland. Previously, he served as Venture Partner at Ren Capital Partners
(“Ren Capital”), a healthcare fund of funds based in Beijing. Prior to Ren Capital, he was a strategic advisor to
Bangkok Dusit Medical Service, the largest healthcare conglomerate in Southeast Asia, assisting in drug commercialization efforts. Mr.
Wright was Managing Director at Newstock Capital, an intellectual property investment advisory firm based in Stockholm, Sweden. While
at Newstock, he worked with venture capital and corporate funds on divestitures, mergers and acquisitions, patent transactions, licensing
and infringement. Previously Mr. Wright was fund manager for General Electric / Technology Ventures where he managed an intellectual
property healthcare fund. He was the Co-Founder and Chief Executive Officer of TherimuneX, a company that has been developing endogenous
lipopeptides for their immune regulating properties. Mr. Wright was principal of Guardian Technology Partners, a chemical and life sciences
intellectual property advisory firm that was sold to investment bank Boenning and Scattergood. Mr. Wright started his career on the business
development team of Endo Pharmaceuticals, plc. Mr. Wright has over 24 years of experience spanning start-up, fast growth pharmaceutical
companies combined with intellectual property and healthcare investment acumen from varied international markets. Mr. Wright holds a
Master of Science in Engineering, Management of Technology with a focus of biotechnology from University of Pennsylvania’s School
of Engineering and Applied Sciences and Wharton School of Business, and a Master of Business Administration from London School of Economics
TRIUM program.
Item
1A. Risk Factors
Risks
Related to Our Business, Financial Condition and Capital Requirements
We
are a clinical-stage pharmaceutical company with a limited operating history. We have incurred significant financial losses since our
inception and anticipate that we will continue to incur significant financial losses for the foreseeable future.
We
are a clinical-stage pharmaceutical company with a limited operating history. We have not yet demonstrated an ability to generate revenues,
obtain regulatory approvals, engage in clinical development beyond Phase 1 trials, manufacture any product on a commercial scale or arrange
for a third party to do so on our behalf or enter into licensing arrangements to commercialize a product, or conduct sales and marketing
activities necessary for successful product commercialization.
We
have no products approved for commercial sale and we have not generated any revenue from product sales to date, nor do we expect to generate
any significant revenue from product sales for the next few years. We will continue to incur significant research and development and
other expenses related to our product development, preclinical and clinical activities and ongoing operations. As a result, we are not
profitable and have incurred losses in each period since our inception. Net losses and negative cash flows have had, and will continue
to have, an adverse effect on our stockholders’ equity and working capital. Our net loss was $29.1 million for the year ended December
31, 2021. As of December 31, 2021, we had an accumulated deficit of $85.8 million. We expect to continue to incur significant losses
for the foreseeable future as we continue our research and development of, and seek regulatory approvals for, our product candidates.
If
we continue to suffer losses as we have since inception, investors may not receive any return on their investment and may lose their
entire investment.
In
addition, as a public company, we incur significant additional legal, accounting and other expenses that we did not incur as a private
company as we:
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meet
the requirements and demands of being a public company; |
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expand
our operational, financial and management systems and increases personnel to support our operations; |
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hire
additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations; |
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advance
our clinical-stage product candidate PF614 through clinical development; |
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advance
our preclinical stage product candidates into clinical development; |
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seek
regulatory approvals for any product candidates that successfully complete clinical trials; |
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undertake
any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which
we may receive regulatory approval in regions where we choose to commercialize our products on our own or jointly with third parties; |
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maintain,
expand and protect our intellectual property portfolio; and |
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make
milestone, royalty or other payments due under any future in-license or collaboration agreements. |
Pharmaceutical
product development entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail
to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, secure market access and reimbursement and
become commercially viable. Therefore, any investment in us would be highly speculative. Our prospects are subject to the costs, uncertainties,
delays and difficulties frequently encountered by companies in clinical development, especially clinical-stage pharmaceutical companies
such as ours. Any predictions you make about our future success or viability may not be as accurate as they would otherwise be if we
had a longer operating history or a history of successfully developing and commercializing pharmaceutical products. We will likely encounter
unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives.
Additionally,
our expenses could increase beyond our expectations if we are required by the United States Food and Drug Administration, or FDA, or
other regulatory authorities to perform clinical trials in addition to those that we currently expect to conduct, or if there are any
delays in establishing appropriate manufacturing arrangements for or in completing our clinical trials or the development of any of our
product candidates.
Our
ability to generate revenue from any of our potential products is subject to our ability to obtain regulatory approval and fulfill numerous
other requirements and we may never be successful in generating revenues or becoming profitable.
Our
ability to become and remain profitable depends on our ability to generate revenue or execute other business development arrangements.
We do not expect to generate significant revenue, if any, unless and until we are able to obtain regulatory approval for, and successfully
commercialize the product candidates we are developing or may develop. Successful commercialization, to the extent it occurs, will require
achievement of many key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory approval for
these product candidates, manufacturing, marketing and selling, or entering into other agreements to commercialize, those products for
which we may obtain regulatory approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from
private insurance or government payors. Because of the uncertainties and risks associated with these activities, we cannot accurately
and precisely predict the timing and amount, if any, of revenues, the extent of any further losses or when we might achieve profitability.
We may never succeed in these activities and, even if we do, we may never generate revenues that are sufficient enough for us to achieve
profitability. 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 may depress the market price of our common stock and could impair our ability to raise capital,
expand our business, diversify our product offerings or continue our operations.
We
require substantial additional funding. If we are unable raise capital when needed, we could be forced to delay, reduce or terminate
our product discovery and development programs or commercialization efforts.
We
are a clinical stage pharmaceutical company that will need to raise additional capital to continue to operate as a going concern. Our
quarterly operating results are likely to show continued losses in the future. Our operations have consumed substantial amounts of cash
since inception. We expect to continue to spend substantial amounts to continue the clinical and preclinical development of our product
candidates, including our planned Phase 2 program for nafamostat and planned clinical trials for PF614 and PF614-MPAR™. We will
need to raise additional capital to complete our currently planned clinical trials and any future clinical trials. Other unanticipated
costs may arise in the course of our development efforts. If we are able to obtain marketing approval for product candidates that we
develop, we would require significant additional amounts of funding in order to launch and commercialize such product candidates. We
cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product
candidate we develop and we may require substantial additional funding to complete the development and commercialization of our product
candidates.
Our
future need for additional funding depends on many factors, including:
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the
scope, progress, results and costs of researching and developing our current product candidates, as well as other additional product
candidates we may develop and pursue in the future, including the costs related to preclinical and clinical development of the product; |
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the
timing of, and the costs involved in, obtaining marketing approvals for our product candidates and any other additional product candidates
we may develop and pursue in the future; |
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the
number of future product candidates that we may pursue and their development requirements; |
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subject
to receipt of regulatory approval, the costs of commercialization activities for our product candidates, to the extent such costs
are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing,
distribution and manufacturing capabilities; |
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subject
to receipt of regulatory approval, the amount of revenue, if any, received from commercial sales of our product candidates or any
other additional product candidates we may develop and pursue in the future; |
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the
extent to which we in-license or acquire rights to other products, product candidates or technologies; |
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our
ability to establish collaboration arrangements for the development of our product candidates on favorable terms, if at all; |
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our
headcount growth and associated costs as we expand our research and development and establishes a commercial infrastructure; |
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the
costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including
enforcing and defending intellectual property related claims; and |
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the
costs of operating as a public company. |
A
change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly
change the costs and timing associated with the development of that product candidate, and many of these factors are outside of our control.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain
process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory and marketing
approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly,
we will need to continue to rely on additional financing to achieve our business objectives. We cannot be certain that additional funding
will be available on acceptable terms, or at all. Please see the risk factors under “Risks Related to the Ownership of Common
Stock and Financial Reporting.”
We
believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements
through the third quarter of 2022, while continuing to advance our main product candidates, such as PF614 and PF614 MPAR™, through
clinical development. Our estimate may prove to be wrong, and we could use our available capital resources, if any, sooner than we currently
expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster
than we currently anticipate, and we may need to seek additional funds sooner than planned. To the extent this occurs, it could impose
significant dilution on our stockholders.
We
may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds
for our current or future operating plans. Attempting to secure additional financing may divert our management from our day-to-day activities,
which may adversely affect our ability to develop our product candidates. Our failure to raise capital as and when needed or on acceptable
terms would have a negative impact on our financial condition and our ability to pursue our business strategy, and we may have to delay,
reduce the scope of, suspend or eliminate one or more of our platforms, programs, planned clinical trials or future commercialization
efforts.
We
may incur additional dilution upon repayment of the 2021 Notes with common stock.
Under
the terms of the SPA, we are permitted to repay principal and interest on the 2021 Notes by issuing additional shares of common stock.
In addition, the conversion price of the 2021 Notes, and the exercise price of the warrants issued therewith, are subject to downward
revision in the event we make certain issuances of our common stock at prices below the conversion price. We have registered shares of
common stock under a Registration Statement on Form S-1 in the event either of these events occur. In such case, stockholders will have
dilution in amounts exceeding the straight conversion of the 2021 Notes or, with respect to the warrants issued therewith, we
will receive a reduced level of proceeds from the exercise of the warrants.
The
price of our common stock on the Nasdaq and Public Warrants on the OTC Pink Open Market may be volatile.
The
price of our common stock on the Nasdaq and our Public Warrants on the OTC Pink Open Market may fluctuate due to a variety of factors,
including:
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changes
in the industries in which we and our customers operate; |
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variations
in our operating performance and the performance of our competitors in general; |
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material
and adverse impact of the COVID-19 pandemic on the markets and the broader global economy; |
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actual
or anticipated fluctuations in our quarterly or annual operating results; |
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publication
of research reports by securities analysts about us, our competitors or our industry; |
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the
public’s reaction to our press releases, other public announcements and filings with the SEC; |
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our
failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to
the market; |
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additions
and departures of key personnel; |
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changes
in laws and regulations affecting our business; |
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commencement
of, or involvement in, litigation involving us; |
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news
about, among other things, the results of our clinical trials or other developments, or the use or abuse of opioids, |
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changes
in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
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sales,
or anticipated sales, of large blocks of our common stock; |
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the
volume of shares of our common stock available for public sale; and |
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general
economic and political conditions such as recessions, interest rates, fuel prices, foreign currency fluctuations, international tariffs,
social, political and economic risks and acts of war or terrorism. |
These
and other factors, many of which are beyond our control, may cause the market price and demand for our shares of common stock to fluctuate
substantially. Low trading volume could increase the volatility of our share price in response to news in the market, could prevent investors
from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the
past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation
against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs
defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly
harm our profitability and reputation.
The
proceeds under the GEM Agreement may be less than anticipated. The issuances of common stock pursuant to the GEM Agreement would result
in dilution of existing stockholders and could have a negative impact on the market price of our common stock. Additionally, the negative
covenants under the GEM Agreement are onerous and any breach by us thereunder may entitle GEM Global and GYBL to indemnification payments,
reimbursements of legal and other expenses and other compensation thereby diverting our time and resources.
We
are entitled to draw down up to $60.0 million of gross proceeds from GEM Global in exchange for shares of our common stock at a price
equal to 90% of the average closing bid price of the shares of our common stock on Nasdaq for a 30-day period, subject to meeting the
terms and conditions of the GEM Agreement. This share subscription facility is available for a period of 36 months from the closing date
of the Merger. Please see the section entitled “Business” for additional information. The limitations on the amount
and frequency of the draws that we can make under the GEM facility, which include the requirement that (i) there be an effective registration
statement and (ii) size restrictions relating to our trading volume, may affect the ability to draw under the GEM Agreement and result
in proceeds that are less than anticipated. In addition, while the 2021 Notes are outstanding, any draws under the GEM facility would
require approval from the convertible note holders.
The
occurrence of the Merger triggered (i) payment of a commitment fee of $1.2 million to GEM Global payable in either our common stock or
cash and (ii) the issuance of a warrant granting GYBL the right to purchase 1,106,108 shares of our common stock, at a strike price per
share of $10.01, the closing bid price for such common shares on the closing date of the Merger. The number of shares underlying the
warrant as well as the strike price is subject to adjustments for recapitalizations, reorganizations, change of control, stock split,
stock dividend, reverse stock splits and certain issuances of additional shares of our common stock.
The
issuances of shares at discount under the GEM Agreement and the anti-dilution protection granted to GEM Global in connection with issuances
of additional shares of our common stock, would result in dilution of existing stockholders and have a negative impact on the market
price of our common stock and our ability to obtain equity financing. An adjustment in the price of the GEM Warrant to $4.50 occurred
in connection with our offering of the 2021 Notes. In addition, terms of the 2021 Notes currently limit our ability to draw on
the GEM facility while the 2021 Notes remain outstanding.
In
addition, the negative covenants under the GEM Agreement are onerous and any breach thereof may trigger indemnification, reimbursement
of losses and other liability for us thereby diverting our time and resources.
Raising
additional capital could cause dilution to our stockholders, adversely affect the market price of our common stock, restrict our operations
or require us to relinquish rights to our technologies or product candidates.
Until
such time, if ever, as we can generate substantial revenues, we will be required to obtain further funding through public or private
equity offerings, debt financings, collaborations and licensing arrangements or other sources, which may dilute our stockholders or restrict
our operating activities. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that
we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the
terms may include liquidation or other preferences that adversely affect your rights as a stockholder.
In
addition, we may sell securities in the public or private equity markets if and when conditions are favorable, or at prices per share
below the current market price of our common stock, even if we do not have an immediate need for additional capital at that time. Sales
of substantial amounts of shares of our common stock, or the perception that such sales could occur, could adversely affect the prevailing
market price of our shares and our ability to raise capital. We may issue additional shares of common stock in future financing transactions
or as incentive compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities
would be dilutive to the equity interests represented by our then-outstanding shares of common stock. Moreover, sales of substantial
amounts of shares in the public market, or the perception that such sales could occur, may adversely affect the prevailing market price
of our common stock and make it more difficult for us to raise additional capital.
Debt
financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, making acquisitions, engaging in acquisition, merger or collaboration transactions,
selling or licensing our assets, making capital expenditures, redeeming our stock, making certain investments, declaring dividends or
encumbering our assets to secure future indebtedness. Such restrictions could adversely impact our ability to conduct our operations
and execute our business plan.
If
we raise additional funds through upfront payments or milestone payments pursuant to strategic collaborations, strategic alliances or
marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or
intellectual property, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable
to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit,
reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates
that we would otherwise prefer to develop and market ourselves.
Our
business is highly dependent on the success of our product candidates. If we are unable to successfully complete clinical development,
obtain regulatory approval for or commercialize one or more of our product candidates, or if we experience delays in doing so, our business
will be materially harmed.
Our
future success and ability to generate significant revenue from our product candidates, which we do not expect will occur for several
years, is dependent on our ability to successfully develop, obtain regulatory approval for and commercialize one or more of our product
candidates. A Phase 1b study of PF614 was initiated in 2021, and Part A of the study completed enrollment in December 2021. A Phase 1
trial was also initiated for PF614-MPAR™ in December 2021. All of our other product candidates are in earlier stages of development
and will require substantial additional investment for manufacturing, preclinical testing, clinical development, regulatory review and
approval in one or more jurisdictions. If any of our product candidates encounter safety or efficacy problems, development delays or
regulatory issues or other problems, our development plans and business would be materially harmed.
We
may not have the financial resources to continue development of our product candidates. Even if clinical trials are completed, we may
experience other issues that may delay or prevent regulatory approval of, or our ability to commercialize, our product candidates, including:
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inability
to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and
effective; |
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insufficiency
of our financial and other resources to complete the necessary clinical trials and preclinical studies; |
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negative
or inconclusive results from our clinical trials, preclinical studies or the clinical trials of others for product candidates that
are similar to ours, leading to a decision or requirement to conduct additional clinical trials or preclinical studies or abandon
a program; |
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product-related
adverse events experienced by subjects in our clinical trials, including unexpected toxicity results, or by individuals using drugs
or therapeutic biologics similar to our product candidates; |
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delays
in submitting an Investigational New Drug application, or IND, or comparable foreign applications or delays or failure in obtaining
the necessary approvals from regulators to commence a clinical trial or a suspension or termination, or hold, of a clinical trial
once commenced; |
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conditions
imposed by the FDA, the European Medicines Agency, or EMA, or comparable foreign regulatory authorities regarding the scope or design
of our clinical trials; |
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poor
effectiveness of our product candidates during clinical trials; |
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better
than expected performance of control arms, such as placebo groups, which could lead to negative or inconclusive results from our
clinical trials; |
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delays
in enrolling subjects in clinical trials; |
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high
drop-out rates of subjects from clinical trials; |
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inadequate
supply or quality of product candidates or other materials necessary for the conduct of our clinical trials; |
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greater
than anticipated clinical trial or manufacturing costs; |
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unfavorable
FDA, EMA or comparable regulatory authority inspection and review of a clinical trial site; |
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failure
of our third-party contractors or investigators to comply with regulatory requirements or the clinical trial protocol or otherwise
meet their contractual obligations in a timely manner, or at all; |
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unfavorable
FDA, EMA or comparable regulatory authority inspection and review of manufacturing facilities or inability of those facilities to
maintain a compliance status acceptable to the FDA, EMA or comparable regulatory authorities; |
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delays
and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around
clinical testing generally or with respect to our therapies in particular; or |
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varying
interpretations of data by the FDA, EMA and comparable foreign regulatory authorities. |
Our
product candidates will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies,
clinical trials and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to the risks
of failure that are inherent in pharmaceutical product development, including the possibility that such product candidate will not be
shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure stockholders that any
such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the
marketplace or be more effective than other commercially available alternatives.
We
depend heavily on the success of our lead product candidate PF614, which is currently in clinical trials. Our clinical trials of PF614
may not be successful. If we are unable to commercialize PF614 or experience significant delays in doing so, our business will be materially
harmed.
We
have invested a significant portion of our efforts and financial resources in the research and development of our lead product candidate,
PF614 and we expect to continue to do so. Our ability to generate revenues from the sale of abuse-deterrent opioid products, which may
not occur at a significant level for several years, will depend heavily on the successful development, regulatory approval and eventual
commercialization of PF614.
We
cannot commercialize product candidates in the United States without first obtaining regulatory approval for the product from the FDA;
similarly, we cannot commercialize product candidates outside of the United States without obtaining regulatory approval from similar
regulatory authorities outside of the United States. Even if PF614 or another product candidate were to successfully obtain approval
from the FDA and non-U.S. regulatory authorities, any approval might contain significant limitations related to use restrictions for
specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management
requirements. If we are unable to obtain regulatory approval for PF614 in one or more jurisdictions, or any approval contains significant
limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development, marketing and/or
commercialization of PF614 or any other product candidate that we may discover, in-license, develop or acquire in the future. Furthermore,
even if we obtain regulatory approval for P614, we will still need to develop a commercial organization, or collaborate with third parties
for the commercialization of PF614, establish commercially viable pricing and obtain approval for adequate reimbursement from third-party
and government payors. If we or our commercialization collaborators are unable to successfully commercialize PF614, we may not be able
to generate sufficient revenues to continue our business.
Due
to the significant resources required for the development of our product pipeline, and depending on our ability to access capital, we
must prioritize the development of certain product candidates over others. Moreover, we may fail to expend our limited resources on product
candidates or indications that may have been more profitable or for which there is a greater likelihood of success.
We
currently have three clinical-stage product candidates as well as certain other product candidates that are at various stages of preclinical
development. We seek to maintain a process of prioritization and resource allocation to maintain an optimal balance between aggressively
pursuing our more advanced clinical-stage product candidates, such as nafamostat, PF614 and PF614-MPAR™, and ensuring the development
of additional potential product candidates.
Due
to the significant resources required for the development of our product candidates, we must focus on specific diseases and disease pathways
and decide which product candidates to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the
allocation of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic
areas may not lead to the development of any viable commercial products and may divert resources away from better opportunities. If we
make incorrect determinations regarding the viability or market potential of any of our product candidates or misinterpret trends in
the pharmaceutical industry, in particular for opioid abuse and drug overdose, our business, financial condition, and results of operations
could be materially adversely affected. As a result, we may (i) fail to capitalize on viable commercial products or profitable market
opportunities, (ii) be required to forego or delay pursuit of opportunities with other product candidates or other diseases and disease
pathways that may later prove to have greater commercial potential than those we choose to pursue, or (iii) relinquish valuable rights
to such product candidates through collaboration, licensing, or other royalty arrangements in cases in which it would have been advantageous
for us to invest additional resources to retain sole development and commercialization rights.
Our
PF614 and PF614-MPAR™ product candidates may not be successful in limiting or impeding abuse, overdose or misuse or providing additional
safety upon commercialization.
We
are committing a substantial majority of our resources to the development of products utilizing our TAAP and MPARTM. There
can be no assurance that our products will perform as tested and limit or impede the actual abuse, overdose or misuse of such products
or provide other benefits in commercial settings. Moreover, there can be no assurance that if our products are approved by the FDA, the
post-approval epidemiological studies required by the FDA as a condition of any such approvals of the products will show a reduction
in the consequences of abuse and misuse by patients for whom the applicable product is prescribed. The failure of our products to limit
or impede actual abuse, overdose or misuse or provide other safety benefits in practice will have a material adverse impact on market
acceptance for such products and on our financial condition and results of operations.
If
we fail to discover, develop and commercialize other product candidates, we may be unable to grow our business and our ability to achieve
our strategic objectives would be impaired. In addition, we may also seek to commercialize certain treatments that may not be proprietary
to us.
Although
the development and commercialization of our current product candidates are our initial focus, as part of our long-term growth strategy,
we plan to develop other product candidates. We may also seek to commercialize treatments that may not be proprietary to us. We intend
to evaluate internal opportunities from our existing product candidates or other potential product candidates. While our technology platforms
have potential applicability to other uses, we have not conducted any clinical trials on these other uses, and we may not be successful
in developing product candidates for other uses.
In
addition, we intend to devote capital and resources for basic research to discover and identify additional product candidates. These
research programs require technical, financial and human resources, whether or not any product candidates are ultimately identified.
Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for
clinical development for many reasons, including the following:
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the
research methodology used may not be successful in identifying potential product candidates; |
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competitors
may develop alternatives that render our product candidates obsolete; |
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product
candidates that we develop may nevertheless be covered by third parties’ patents or other exclusive rights; |
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a
product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely
to be effective or otherwise does not meet applicable regulatory criteria; |
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a
product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and |
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a
product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors. |
In
the future, we may also seek to in-license or acquire product candidates or the underlying technology. The process of proposing, negotiating
and implementing a license or acquisition is lengthy and complex. Other companies, including many with substantially greater financial,
marketing and sales resources, may compete with us for the license or acquisition of product candidates. We have limited resources to
identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our
current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed,
or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates
on terms that we find acceptable, or at all.
In
addition, future acquisitions may entail numerous operational and financial risks, including:
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exposure
to unknown liabilities; |
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disruption
of our business and diversion of our management’s time and attention to develop acquired products or technologies; |
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incurrence
of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions; |
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higher
than expected acquisition and integration costs; |
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difficulty
in combining the operations and personnel of any acquired businesses with our operations and personnel; |
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increased
amortization expenses; |
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impairment
of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and |
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inability
to motivate key employees of any acquired businesses. |
If
we are unsuccessful in identifying and developing additional product candidates, either through internal development or licensing or
acquisition from third parties, our potential for growth and achieving our strategic objectives may be impaired.
If
we do not achieve our projected development and commercialization goals within the timeframes we expect, the development and commercialization
of our product candidates may be delayed, and our business and results of operations may be harmed.
For
planning purposes, we seek to estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product
development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies
and clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce
the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical
programs, receipt of marketing approval or a commercial launch of a product. The potential achievement of many of these milestones may
be outside of our control. Each of these milestones is based on a variety of assumptions which, if not realized as expected, may cause
the timing of such potential achievement of the respective milestones to vary considerably from our estimates, including:
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our
available capital resources or capital constraints we experience; |
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the
rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling
conflicts with participating clinicians and collaborators; |
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our
ability to identify and enroll patients who meet clinical trial eligibility criteria; |
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our
receipt of approvals by the FDA and other regulatory authorities and the timing thereof; |
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clinical
outcomes; |
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other
actions, decisions or rules issued by regulators; |
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our
ability to access sufficient, reliable and affordable supplies of materials used in the manufacture of our product candidates; |
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the
efforts of our collaborators with respect to the commercialization of our product candidates; and |
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the
securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities. |
If
we fail to achieve any announced milestones in the timeframes we expect, the development and commercialization of our product candidates
may be delayed, and our business and results of operations may be harmed, and it could negatively impact our share price performance.
Please see “Business” for more information.
Competitive
products may reduce or eliminate commercial opportunity for our product candidates, if approved. If our competitors develop technologies
or product candidates more rapidly than we do, or their technologies or product candidates are more effective or safer than any such
technologies or product candidate of ours, our ability to develop and successfully commercialize our own technologies or product candidates
may be adversely affected.
The
clinical and commercial landscapes for the solution of opioid abuse and drug overdose are highly competitive and subject to rapid and
significant technological change. We face competition with respect to our indications for our product candidates and will face competition
with respect to any other 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 drugs or are pursuing the development of product candidates for the treatment of the indications
that we are pursuing. These companies include, but are not limited to, Purdue Pharma, LP, and Collegium Pharmaceutical, Inc. Potential
competitors include not only pharmaceutical companies but also 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.
We
believe that a significant number of product candidates are currently under development for the same indications that we are currently
pursuing, and some or all may become commercially available in the future for the treatment of conditions for which we are trying or
may try to develop product candidates. Our potential competitors include large pharmaceutical and biotechnology companies, specialty
pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. See the section entitled
“Business — Competition” for examples of the competition that our product candidates face.
Our
competitors may have significantly greater financial resources, established presence in the market, expertise in research and development,
manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement and marketing approved products than
us. Accordingly, our competitors may be more successful than we may be in obtaining regulatory approval for therapies and achieving widespread
market acceptance. Our competitors’ products may be more effective, or more effectively marketed and sold, than any product candidate
we may commercialize and may render our therapies obsolete or non-competitive before we can recover development and commercialization
expenses. If any of our product candidates, including PF614, is approved, these product candidates could compete with a range of therapeutic
treatments that are in development. In addition, our competitors may succeed in developing, acquiring or licensing technologies and products
that are more effective or less costly than PF614, our other product candidates or any other product candidates that we may develop,
which could render our product candidates obsolete and noncompetitive.
If
we obtain approval for any of our product candidates, we may face competition based on many different factors, including the efficacy,
safety and tolerability of our products, the ease with which our products can be administered, the timing and scope of regulatory approvals
for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent
position. Existing and future competing products could present superior treatment alternatives, including being more effective, safer,
less expensive or marketed and sold more effectively than any products we may develop.
Competitive
products may make any products we develop obsolete or noncompetitive before we are able to recover the expense of developing and commercializing
our product candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our
ability to execute our business plan.
In
addition, our competitors may obtain patent protection, regulatory exclusivities or FDA approval and commercialize products more rapidly
than we do, if we are successful at all, which may impact future approvals or sales of any of our product candidates that receive regulatory
approval. If the FDA approves the commercial sale of PF614 or any other product candidate, we will also be competing with respect to
marketing capabilities and manufacturing efficiency. We expect any such competition among products will be based on product efficacy
and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capabilities, product price, reimbursement
coverage by government and private third-party payors, regulatory exclusivities and patent position. Our profitability and financial
position will suffer if our product candidates receive regulatory approval but cannot compete effectively in the marketplace.
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 and management personnel and establishing clinical trial sites, as well as in acquiring technologies complementary to, or
necessary for, our programs.
Our
business could be harmed if we lose the services of our key personnel or if we are unable to hire additional highly qualified employees.
Our
business depends upon our ability to attract and retain highly qualified personnel, including managerial, sales and technical personnel.
We compete for key personnel with other companies, healthcare institutions, academic institutions, government entities and other organizations.
We do not have written employment agreements with our Chief Executive Officer. Our ability to maintain and expand our business may be
impaired if we are unable to retain our current key personnel or hire or retain other qualified personnel in the future.
We
currently only have six full-time employees and six consultants and we expect to add additional employees. Our future success also depends
on our ability to identify, attract, hire or engage, retain and motivate other well-qualified managerial, technical, clinical and regulatory
personnel.
Competition
for such individuals, particularly in the United States, is intense, and we may not be able to hire sufficient personnel to support our
efforts. There can be no assurance that such professionals will be available in the market, or that we will be able to retain existing
professionals or to meet or to continue to meet their compensation requirements. Furthermore, our cost base with respect to such compensation,
which may include equity compensation, may increase significantly, which could have a material adverse effect on our financial results,
including the potential for additional dilution to our stockholders. Failure to establish and maintain an effective management team and
work force could adversely affect our ability to operate, grow and manage our business.
Our
employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors
may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could
have an adverse effect on our results of operations.
We
are exposed to the risk that we and our contract research organizations’ (“CROs”) employees and contractors,
including principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in fraudulent
or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized
activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the
reporting of true, complete and accurate information to such regulatory bodies; manufacturing standards; federal and state healthcare
fraud and abuse and health regulatory laws and other similar foreign fraudulent misconduct laws; or laws that require the true, complete
and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation
of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
It is not always possible to identify and deter third-party misconduct, and the precautions we take to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against
us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business
and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines,
possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits
and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our
results of operations
Some
of our programs are partially supported by government grant awards, which may not be available to us in the future.
We
have received funding under grant award programs funded by governmental agencies, such as the NIH and NIDA. To fund a portion of our
future research and development programs, we may apply for additional grant funding from these or similar governmental agencies in the
future. However, funding by these, and other, governmental agencies may be significantly reduced or eliminated in the future for a number
of reasons. For example, some programs are subject to a yearly appropriations process in Congress. In addition, we may not receive full
funding under current or future grants because of budgeting constraints of the agency administering the program or unsatisfactory progress
on the study being funded. Also, the continued spread of COVID-19 could affect governmental priorities in the future or prospective funding
for our product candidates. Therefore, we cannot provide any assurance that we will receive any future grant funding from any government
agencies, or, that if received, we will receive the full amount of the particular grant award. Any such reductions could delay the development
of our product candidates and the introduction of new products.
We
expect to expand our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We
expect to experience growth in the number of our employees and the scope of our operations. To manage these growth activities, we must
continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and
train additional qualified personnel. Our management may need to devote a significant amount of their attention to managing these growth
activities. Due to our limited financial resources and the limited experience of our management team in managing a company with such
anticipated growth, we may not be able to effectively manage the expansion of our operations, retain key employees, or identify, recruit
and train additional qualified personnel. Our inability to manage the expansion of our operations effectively may result in weaknesses
in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity
among remaining employees. Our expected growth could also require significant capital expenditures and may divert financial resources
from other projects, such as the development of additional product candidates. If we are unable to effectively manage our expected growth,
our expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our
business strategy, including the successful commercialization of our product candidates.
Risks
Related to Our Dependence on Third-Party Providers
We
currently rely on, and expect to rely on in the future, third parties to conduct our clinical trials, and those third parties may not
perform satisfactorily, including failing to meet deadlines for completing such trials, failing to satisfy legal or regulatory requirements
or terminating the relationship.
We
currently rely on, and expect to rely on in the future, third-party CROs to conduct research and development activities and our clinical
trials for our product candidates. Agreements with these CROs might terminate for a variety of reasons, including for their failure to
perform. Entry into alternative arrangements, if necessary, could significantly delay our product development activities.
Our
reliance on these CROs for research and development activities and clinical trials will reduce our control over these activities but
will not relieve us of any 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 in the applicable IND. Moreover, the FDA requires compliance
with standards, commonly referred to as good clinical practices, or 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.
If
these CROs do not successfully carry out their contractual duties, meet expected deadlines or conduct the clinical trials in accordance
with regulatory requirements or our stated protocols, it could adversely affect the development of our product candidates and it could
result in us not being able to obtain, or being delayed in obtaining, marketing approvals for our product candidates and it could adversely
affect our efforts to successfully commercialize our product candidates.
We
expect to be completely dependent on third parties to manufacture our product candidates, and our commercialization of our product candidates
could be halted, delayed or made less profitable if those third parties fail to maintain a compliance status acceptable to the FDA or
comparable foreign regulatory authorities, fail to provide to us with sufficient quantities of our product candidates or fail to do so
at acceptable quality levels or prices.
We
do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture the ingredients in our product candidates
for use in our clinical trials or for commercial product, if any. We have entered into a Manufacturing Agreement (the “Recro
Agreement”) with Recro Gainesville LLC (“Recro”) for the production of PF614 capsules and other materials
and services with respect to our clinical studies. In addition, we do not have the capability to encapsulate any of our product candidates
as a finished product for commercial distribution. As a result, we expect to be obligated to rely on contract manufacturers, like Recro,
if and when any of our product candidates are approved for commercialization. In the event that Recro is unable to perform its obligations
under the Recro Agreement, we may be unable to replace the Recro Agreement on terms as favorable to us. We have not entered into an agreement
with any contract manufacturers for commercial supply and may not be able to engage a contract manufacturer for commercial supply of
any of our product candidates on favorable terms to us, or at all.
The
processes used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or comparable foreign
regulatory authorities and the facilities at which the product candidates are manufactured must maintain a compliance status acceptable
to the FDA and foreign regulatory authorities. FDA and foreign regulatory authorities will conduct inspections after we submit a new
drug application, or NDA, to the FDA or its equivalent to other relevant regulatory authorities. We will not control the manufacturing
process of, and will be completely dependent on, its contract manufacturing partners for compliance with cGMPs for manufacture of both
active drug substances and finished products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control
and record keeping relating to our product candidates. If our contract manufacturers, including Recro, do not successfully manufacture
material that conforms to our specifications and the strict regulatory requirements of the FDA or others, our product candidates may
not be approved. If these facilities do not maintain a compliance status acceptable to the FDA, Drug Enforcement Agency, or DEA, or comparable
regulatory authorities, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop,
obtain regulatory approval for or market our product candidates, if approved.
Our
contract manufacturers, including Recro, will be subject to ongoing periodic unannounced inspections by the FDA, DEA and corresponding
state and foreign agencies for compliance with cGMPs, security, recordkeeping and similar regulatory requirements. Although we will not
have control over our contract manufacturers’ compliance with these regulations and standards, we are nonetheless responsible for
assuring such compliance. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions
being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our product candidates,
delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect our business and results of operations. Failure by our contract manufacturers to comply with or maintain any of these
standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our product candidates.
If,
for any reason, these third parties, including Recro, are unable or unwilling to perform, we may not be able to terminate our agreements
with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and
we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers
or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes
for our ingredients or finished products or should cease doing business with us, we could experience significant interruptions in the
supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Our inability to coordinate
the efforts of our third-party manufacturing partners, or the lack of capacity available at our third-party manufacturing partners, could
impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that
we would need to satisfy in order to qualify a new bulk or finished product manufacturer, if we face these or other difficulties with
our current manufacturing partners, we could experience significant interruptions in the supply of any of our product candidates if we
decide to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an effort to deal with
the difficulties.
Any
manufacturing problem or the loss of a contract manufacturer, including Recro, could be disruptive to our operations and delay development
of our investigational products. Additionally, we rely on third parties to supply the raw materials needed to manufacture our potential
products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced
control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a future contract manufacturer
caused by problems at suppliers could delay shipment of any of our investigational products and, if approved, product candidates.
We
cannot guarantee that our future manufacturing and supply partners will be able to reduce the costs of commercial scale manufacturing
of any of our product candidates over time. If the commercial-scale manufacturing costs of any of our product candidates are higher than
expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement
process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities,
and the improvements may be subject to approval by such regulatory authorities.
We
cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot
guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize
output, we may not be able to reduce our costs over time.
If
we are unable to develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners,
we will not be successful in commercializing our product candidates.
We
currently have no marketing, sales or distribution capabilities. We intend to establish a sales and marketing organization, either on
our own or in collaboration with third parties, with technical expertise and supporting distribution capabilities to commercialize PF614
or one or more of our other product candidates that may receive regulatory approval in key territories. These efforts will require substantial
additional resources, some or all of which may be incurred in advance of any approval of the product candidate. Any failure or delay
in the development of our or third parties’ internal sales, marketing and distribution capabilities would adversely impact the
commercialization of PF614, our other product candidates and other future product candidates.
Factors
that may inhibit our efforts to commercialize our product candidates on our own include:
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our
inability to recruit and retain effective sales and marketing personnel; |
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the
inability of sales personnel to obtain access to or persuade physicians to prescribe any future 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; and |
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With
respect to our existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces
and established distribution systems to serve as an alternative to our own sales force and distribution systems. Our future product revenue
may be lower than if we directly marketed or sold our product candidates, if approved. In addition, any revenue we receive will depend
in whole or in part upon the efforts of these third parties, which may not be successful and are generally not within our control. If
we are not successful in commercializing any approved products, our future product revenue will suffer and we may incur significant additional
losses.
If
we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will
not be successful in commercializing our product candidates.
Risks
Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
The
regulatory 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.
We
are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining regulatory approval
from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. The time required to obtain approval by the
FDA and comparable foreign authorities is inherently unpredictable, but typically takes many years following the commencement of clinical
trials and depends upon numerous factors, including substantial discretion of the regulatory authorities. In addition, approval policies,
regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. To date, we have not submitted an NDA to the FDA or similar drug approval submissions
to comparable foreign regulatory authorities for our most advanced product candidate, PF614, or any other product candidate. We must
complete additional preclinical studies and clinical trials to demonstrate the safety and efficacy of our product candidates in humans
before we will be able to obtain these approvals.
Clinical
testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We
cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development
of our initial and potential additional product candidates is susceptible to the risk of failure inherent at any stage of development,
including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events
that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements, and
determination by the FDA or any comparable foreign regulatory authority that a product candidate may not continue development or is not
approvable. It is possible that even if any of our product candidates has a beneficial effect, that effect will not be detected during
clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or
analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect
of such product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials, we may fail to
detect toxicity of, or intolerability caused by, such product candidate, or mistakenly believe that our product candidates are toxic
or not well tolerated when that is not in fact the case. Serious adverse events, or SAEs, or other adverse effects, as well as tolerability
issues, could hinder or prevent market acceptance of the product candidate at issue.
Our
current and future 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 as to 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 our 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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we
may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; |
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the
FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from clinical trials or preclinical
studies; |
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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 to the FDA
or other submission or to obtain regulatory approval in the United States, the European Union or elsewhere; |
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the
FDA or comparable foreign regulatory authorities may find deficiencies with the manufacturing processes of third-party manufacturers
with which we contract for clinical and commercial supplies; 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 clinical trial results may result in us failing to obtain regulatory approval
to market any product candidate we develop, which would substantially harm our business, results of operations and prospects. The FDA
and other comparable foreign authorities have substantial discretion in the approval process and determining when or whether regulatory
approval will be granted for any product candidate that we develop. Even if we believe the data collected from future clinical trials
of our product candidates are promising, such data may not be sufficient to support approval by the FDA or any other regulatory authority.
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 labeling that does not include the 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.
The
FDA may recommend scheduling with respect to any of our current or future product candidates. In such event, prior to a product launch,
the DEA will need to determine the controlled substance schedule of the product, taking into account the recommendation of the FDA. The
timing of the scheduling process is uncertain and may delay our ability to market any product candidate that we successfully developed
and approved.
The
FDA has the authority to grant an Emergency Use Authorization (“EUA”) to allow unapproved medical products to be used
in an emergency to diagnose, treat, or prevent serious or life-threatening diseases or conditions when, based on the totality of scientific
evidence, there is evidence of effectiveness of the medical product, and there are no adequate, approved, and available alternatives.
Based on the outcomes of our clinical testing for nafamostat, Ensysce expects to apply for an EUA for use against coronaviral infections,
which would permit us to commercialize nafamostat prior to FDA approval of an NDA. However, commercialization under an EUA is permitted
only during the period of time that FDA determines that the statutory criteria for EUA are met, meaning that we would be required to
obtain NDA approval to continue marketing the product. Furthermore, the FDA may revoke an EUA based on a determination that the product
no longer satisfies the criteria for issuance of an EUA—for example, if there is no longer evidence of effectiveness of the product
or there are other adequate, approved alternatives. Accordingly, we cannot predict how long, if at all, an EUA for nafamostat or any
other product candidates may remain in place. Any termination or revocation of an EUA (if any) for nafamostat or any other product candidates
could adversely impact our business in a variety of ways, including if nafamostat is not yet approved by the FDA and if we and our manufacturing
partners have invested in the supply chain to provide nafamostat under an EUA.
If
our clinical trials fail to replicate positive results from earlier preclinical studies or clinical trials conducted by us or third parties,
we may be unable to successfully develop, obtain regulatory approval for, or commercialize our product candidates.
The
results observed from preclinical studies or early-stage clinical trials of our product candidates may not necessarily be predictive
of the results of later-stage clinical trials that we conduct. Similarly, positive results from such preclinical studies or early-stage
clinical trials may not be replicated in our subsequent preclinical studies or clinical trials. For example, preclinical studies showed
that PF614 does not readily convert into oxycodone in the blood stream and the Phase 1 trial we have conducted with TAAP prodrug (a medication
or compound that, after administration, is metabolized (i.e., converted within the body) into a pharmacologically active drug, or “prodrug”)
PF614, demonstrated that, after oral administration of the TAAP prodrug, the corresponding opioid was measured in the subjects’
blood. Furthermore, our product candidates may not be able to demonstrate similar activity or adverse event profiles as other product
candidates that we believe may have similar profiles.
There
can be no assurance that any of our clinical trials will ultimately be successful or support further clinical development of any of our
product candidates. There is a high failure rate for drugs proceeding through clinical trials. Many companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage
development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things,
preclinical findings made while clinical trials were underway or safety or efficacy observations made in preclinical studies and clinical
trials, including previously unreported adverse events.
Moreover,
preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product
candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA, EMA or comparable foreign
regulatory authority approval.
The
FDA, EMA or comparable foreign regulatory authorities may disagree with our regulatory plan for our product candidates.
We
have submitted IND applications for PF614 and nafamostat and completed a Phase 1 trial for each product candidate. We have applied for
and received fast track designation for PF614. However, fast track designation does not guaranty a faster development or regulatory review
or approval process and does not assure FDA approval. We have received feedback from the FDA on requirements to achieve abuse deterrent
labeling claims for PF614. We have submitted an IND for PF614-MPAR™ and have received feedback on required pre-clinical, manufacturing
and clinical studies that will be required for an NDA.
Our
clinical trial results may not support approval of our product candidates. The general approach for FDA approval of a new drug is dispositive
data from two or more well-controlled Phase 3 clinical trials of the product candidate in the relevant patient population. Phase 3 clinical
trials typically involve a large number of patients, have significant costs, and take years to complete. In addition, there is no assurance
that the endpoints and trial designs that we intend to use for our planned clinical trials, including those that we have developed based
on feedback from regulatory agencies or those that have been used for the approval of similar drugs, will be acceptable for future approvals.
For example, while we have designed our Phase 2 clinical trials of nafamostat for coronaviral infections after receiving input and feedback
from the FDA, there can be no assurance that the design of our planned clinical trials will be satisfactory to the FDA, the FDA will
not require us to modify our trials, these trials will enable us to conduct the required Phase 3 studies or other testing or that completing
these trials will result in regulatory approval.
Interim
topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
From
time to time, we may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials that we
may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues
and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may
result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary
data should be viewed with caution until the final data is available. Adverse differences between preliminary or interim data and final
data could significantly harm our reputation and business prospects.
Even
if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and
uncertain and may prevent us from obtaining approvals for the commercialization of our product candidates.
Any
product candidate we develop and the activities associated with such development and commercialization, including our 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 authorities in the United States and by comparable authorities in other countries.
Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction.
We have not received approval to market any product candidates from regulatory authorities in any jurisdiction and it is possible that
none of the product candidates we are developing or may seek to develop in the future will ever obtain regulatory approval. Ensysce has
no experience in submitting and supporting the applications necessary to gain marketing approvals and we expect to rely on third-party
CROs or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical
and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product
candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing
process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any product candidates we develop 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 us from obtaining marketing approval or prevent or limit commercial use.
The
process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical
trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type,
complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes
in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may
cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion
in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and requires
additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical
testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval that we may ultimately obtain
could be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. For
example, during the product approval process, the FDA will determine whether a REMS plan is necessary to assure the safe use of the product.
All opioid analgesic products currently on the market in the United States are subject to a REMS. A REMS may be required to include various
elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the risks, limitations
on who may prescribe or dispense the drug or other measures that the FDA deems necessary to assure the safe use of the drug. In addition,
the REMS plan must include a timetable to assess the strategy at eighteen months, three years and seven years after approval. We may
be required to develop a REMS for the product, or participate in a REMS with other manufacturers, or to develop a similar strategy as
required by a regulatory authority.
Even
if approved, our contract manufacturers will need to obtain quota from DEA to manufacture sufficient quantities and maintain inventories
of product to be commercially distributed.
If
we experience delays in obtaining manufacturing approval or if we fail to obtain manufacturing approval of any product candidates we
may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially
impaired.
Any
product candidate for which we obtain marketing approval will be subject to ongoing enforcement of post-marketing requirements by regulatory
agencies, and we could be subject to substantial penalties, including withdrawal of our product from the market, if we fail to comply
with all regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.
Any
product candidate for which we obtain marketing approval, as well as the manufacturing processes, post-approval clinical data, labeling,
advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other
regulatory authorities. These requirements include, but are not limited to, restrictions governing promotion of an approved product,
submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating
to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding
drug distribution and the distribution of samples to physicians and recordkeeping.
The
FDA also may impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy
of a product, including the adoption and implementation of risk evaluation and mitigation strategies. The FDA and other federal and state
agencies, including the Department of Justice, closely regulate compliance with all requirements governing drug products, including requirements
pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of products
in accordance with cGMP requirements. For example, the FDA and other agencies actively enforce the laws and regulations prohibiting the
promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
Violations of such requirements may lead to investigations alleging violations of the Federal Food, Drug, and Cosmetic Act and other
statutes, including the False Claims Act and other federal and state healthcare fraud and abuse laws as well as state consumer protection
laws. Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems
with our products, manufacturers or manufacturing processes, may yield various results, including:
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litigation
involving patients using our products; |
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restrictions
on such products, manufacturers or manufacturing processes; |
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restrictions
on the labeling or marketing of a product; |
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restrictions
on distribution or use; |
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requirements
to conduct post-marketing studies or clinical trials; |
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warning
or untitled letters; |
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withdrawal
or recall of the product from the market; |
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refusal
to approve pending applications or supplements to approved applications that Ensysce submits; |
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fines,
restitution or disgorgement of profits or revenues; |
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suspension
or withdrawal of marketing approvals; |
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damage
to relationships with any potential collaborators; |
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unfavorable
press coverage and damage to our reputation; |
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refusal
to permit the import or export of our products; |
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product
seizure; or |
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injunctions
or the imposition of civil or criminal penalties. |
Non-compliance
by us or any future collaborator with regulatory requirements, including safety monitoring or pharmacovigilance, and with requirements
related to the development of our products can also result in significant financial penalties.
Our
employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors
may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could
have an adverse effect on our results of operations.
We
are exposed to the risk that our employees and contractors, including principal investigators, consultants, commercial collaborators,
service providers and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional,
reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar
regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies;
manufacturing standards; federal and state healthcare fraud and abuse and health regulatory laws and other similar foreign fraudulent
misconduct laws; or laws that require the true, complete and accurate reporting of financial information or data. Activities subject
to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could
result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter third-party misconduct,
and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses
or in protecting Ensysce from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with
such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting
our rights, those actions could have a significant impact on our business and financial results, including the imposition of significant
civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and
other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of our operations, any
of which could adversely affect our ability to operate our business and our results of operations.
We
may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the preclinical and clinical studies
necessary for development and commercialization of our product candidates.
To
obtain the requisite regulatory approvals to commercialize any of our product candidates, we must demonstrate through extensive preclinical
studies and clinical trials that our product candidates are safe and effective in humans. We may experience delays in completing our
clinical trials or preclinical studies and initiating or completing additional clinical trials or preclinical studies, including as a
result of regulators not allowing or delay in allowing clinical trials to proceed under an IND, or not approving or delaying approval
for any clinical trial grant or similar approval that we need to initiate a clinical trial. We may also experience numerous unforeseen
events during our clinical trials that could delay or prevent our ability to receive marketing approval or commercialize the product
candidates we develop, including:
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regulators,
or institutional review boards, or IRBs, or other reviewing bodies may not authorize us or our investigators to commence a clinical
trial, or to conduct or continue a clinical trial at a prospective or specific trial site; |
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we
may not reach 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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we
may experience challenges or delays in recruiting principal investigators or study sites to lead our clinical trials; |
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the
number of subjects or patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment
in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any
given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical
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our
third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail
to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; |
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we
may have to amend clinical trial protocols submitted to regulatory authorities or conduct additional studies to reflect changes in
regulatory requirements or guidance, which we may be required to resubmit to an IRB and regulatory authorities for re-examination; |
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regulators
or other reviewing bodies may find deficiencies with or subsequently find fault with the manufacturing processes or facilities of
third-party manufacturers with which we enter into agreement for clinical and commercial supplies, or the supply or quality of any
product candidate or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate
or not available at an acceptable cost, or we may experience interruptions in supply; and |
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the
potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in
a manner rendering our clinical data insufficient for approval. |
Regulators
or IRBs of the institutions in which clinical trials are being conducted may suspend, limit or terminate a clinical trial, or data monitoring
committees may recommend that we suspend or terminate a clinical trial, 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, 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. Negative or inconclusive results from our clinical trials or preclinical studies could mandate
repeated or additional clinical trials and, to the extent we choose to conduct clinical trials in other indications, could result in
changes to or delays in clinical trials of our product candidates in such other indications. We do not know whether any clinical trials
that we conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our product candidates for the
indications that we are pursuing. If later-stage clinical trials do not produce favorable results, our ability to obtain regulatory approval
for our product candidates will be adversely impacted.
Our
failure to successfully initiate and complete clinical trials and to demonstrate the efficacy and safety necessary to obtain regulatory
approval to market our product candidates would significantly harm its business. The development costs of our product candidates will
also increase if we experience delays in testing or regulatory approvals and we may be required to obtain additional funds to complete
clinical trials. We cannot assure stockholders that our clinical trials will begin as planned or be completed on schedule, if at all,
or that we will not need to restructure or otherwise modify our trials after they have begun. Significant clinical trial delays could
also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors
to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm
our business and results of operations. In addition, many of the factors that cause, or lead to, delays of clinical trials may ultimately
lead to the denial of regulatory approval of our product candidates.
If
we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
The
timely completion of clinical trials in accordance with our protocols depends on, among other things, our ability to enroll a sufficient
number of patients who remain in the study until its conclusion.
We
may experience difficulties in patient enrollment in our clinical trials for a variety of factors, including:
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the
effects of COVID-19 on our ability to recruit and retain patients, including as a result of potential heightened exposure to COVID-19,
prioritization of hospital resources toward the pandemic and unwillingness by patients to enroll or comply with clinical trial protocols
if quarantines or travel restrictions impede patient movement or interrupt healthcare services; |
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patient eligibility criteria defined in the protocol; |
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the
size of the patient population required for analysis of the trial’s primary endpoints; |
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the
proximity of patients to study sites; |
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the
design of the trial; |
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our
ability to recruit clinical trial investigators with the appropriate competencies and experience; |
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competing
clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate
being studied in relation to other available therapies, including any new drugs that may be approved for the indications that we
are investigating; |
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ability to obtain and maintain patient consents; and |
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risk that patients enrolled in clinical trials will drop out of the trials before completion. |
In
addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic areas as
our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who
might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number
of qualified clinical investigators is limited, we may conduct some of our clinical trials at the same clinical trial sites that some
of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site.
Furthermore, if significant adverse events or other side effects are observed in any of our clinical trials, we may have difficulty recruiting
patients to our trials and patients may drop out of our trials.
Our
inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us to
abandon one or more clinical trials or our development efforts altogether. Delays in patient enrollment may result in increased costs,
negatively affect the timing or outcome of the planned clinical trials, delay the product candidate development and approval process
and jeopardize our ability to seek and obtain the regulatory approval required to commence product sales and generate revenue, which
could cause our value to decline and limit our ability to obtain additional financing if needed.
Fast
track designation by the FDA for PF614 may not lead to a faster development or regulatory review or approval process and does not assure
FDA approval.
We
have obtained fast track designation for PF614 that will enable us to facilitate the development and expedite the review of PF614. Fast
track designation does not ensure that PF614 will receive marketing approval or that approval will be granted within any particular timeframe.
As a result, we may not experience a faster development process, review or approval compared to conventional FDA procedures. In addition,
the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development
program. Fast track designation does not guarantee that an NDA will obtain priority review designation. If any of these events occur,
it could require us to conduct more extensive clinical trials and go through more extensive FDA review, which could substantially increase
expenses and delay the time for commercializing our products.
If
the FDA does not conclude that certain of our product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval
pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those
product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and
risks than anticipated, and in either case may not be successful.
We
may seek FDA approval through the Section 505(b)(2) regulatory pathway for our product candidate PF614. Section 505(b)(2) of the Federal
Food, Drug and Cosmetic Act, or FDC Act, permits the submission of an NDA where at least some of the information required for approval
comes from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference.
Section 505(b)(2), if applicable to us under the FDC Act, would allow an NDA we submit to FDA to rely in part on data in the public domain
or on the FDA’s prior conclusions regarding the safety and effectiveness of an approved product, or listed drug, which could expedite
the development program for our product candidates by potentially decreasing the amount of data that we would need to generate in order
to obtain FDA approval. If the FDA does not agree that the 505(b)(2) regulatory pathway is appropriate or scientifically justified for
PF614, we may need to conduct additional preclinical and clinical trials, provide additional data and information, and meet additional
standards for regulatory approval. For example, the FDA may not agree that we have provided a scientific bridge, through, for example,
comparative bioavailability data, to demonstrate that reliance on the prior findings of safety or efficacy for a listed drug is justified.
If this were to occur, the time and financial resources required to obtain FDA approval for this product candidate, and complications
and risks associated with this product candidate, would likely substantially increase. We could need to obtain additional funding, which
could result in significant dilution to the ownership interests of our then existing stockholders to the extent we issue equity securities
or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at
all. Moreover, the inability to pursue the Section 505(b)(2) regulatory pathway would likely result in new competitive products reaching
the market more quickly than our product candidates, which would likely materially adversely impact of our competitive position and prospects.
Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure our stockholders that our product candidates
will receive the requisite approvals for commercialization.
In
addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain brand-name
pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation
of Section 505(b)(2) is successfully challenged, the FDA may change its 505(b)(2) policies and practices, which could delay or even prevent
the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive,
and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved
drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval
of our NDAs for up to 30 months or longer depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved
product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending
competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. Even if
the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.
In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead
to accelerated product development or earlier approval.
Moreover,
even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses
for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing
and surveillance to monitor the safety or efficacy of the products.
If
we submit a 505(b)(2) application that references a third-party product, we may be subject to a patent infringement suit and the approval
of our product may be delayed.
If
we submit a 505(b)(2) application that relies in whole or in FDA’s findings for a listed drug, we will be required to certify to
the FDA that either: (1) there is no patent information listed in the FDA’s publication Approved Drug Products with Therapeutic
Equivalence Evaluations, which we refer to as the Orange Book, with respect to the listed drug; (2) the patents listed in the Orange
Book have expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent
expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of our product. A certification
that our new drug will not infringe the Orange Book-listed patents for the applicable listed drug, or that such patents are invalid,
is called a paragraph IV certification. If we submit a paragraph IV certification to the FDA, a notice of the paragraph IV certification
must also be sent to the NDA holder once our 505(b)(2) application is filed by the FDA. The third party may then initiate a lawsuit to
defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of receipt of the notice automatically
prevents the FDA from approving our 505(b)(2) application until the earliest of 30 months or the date on which the patent expires, the
lawsuit is settled, or the court reaches a decision in the infringement lawsuit in our favor. If the third party does not file a patent
infringement lawsuit within the required 45-day period, our 505(b)(2) application will not be subject to the 30-month stay of FDA approval.
Changes
in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As
product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization,
it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way
in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any
of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other
future clinical trials conducted with the materials manufactured using altered processes. Such changes may also require additional testing,
FDA notification or FDA approval. This could delay or prevent completion of clinical trials, require conducting bridging clinical trials
or repeating one or more clinical trials, increase clinical trial costs, delay or prevent approval of our product candidates and jeopardize
our ability to commence sales and generate revenue.
Our
product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if obtained.
Undesirable
side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials
and could result in restrictive warnings or contraindication or the delay or denial of regulatory approval by the FDA or comparable foreign
regulatory authorities. In our planned and future clinical trials of our product candidates, we may observe a less favorable safety and
tolerability profile than was observed in earlier-stage testing of these candidates.
Undesirable
side effects have been observed in our product candidates to date. For example, in clinical trials of PF614, opioid side effects were
observed. Many compounds that initially showed promise in clinical or earlier-stage testing are later found to cause undesirable or unexpected
side effects that prevented further development of the compound. Results of future clinical trials of our product candidates could reveal
a high and unacceptable severity and prevalence of side effects or unexpected characteristics, despite a favorable tolerability profile
observed in earlier-stage testing. If unacceptable side effects arise in the development of our product candidates, we, the FDA or comparable
foreign regulatory authorities, the IRBs, or independent ethics committees at the institutions in which its trials are conducted, could
suspend, limit or terminate our clinical trials, or the independent safety monitoring committee could recommend that we suspend, limit
or terminate our trials, or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval
of our product candidates for any or all targeted indications. Treatment-emergent side effects that are deemed to be drug-related could
delay recruitment of clinical trial subjects or may cause subjects that enroll in our clinical trials to discontinue participation in
our clinical trials. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We
may need to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon
any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of
our product candidates could result in harm to patients that are administered our product candidates. Any of these occurrences may adversely
affect our business, financial condition and prospects significantly.
Moreover,
clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical
trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is
greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects.
Product
liability lawsuits against us or any of our future collaborators could divert our resources and attention, cause us to incur substantial
liabilities and limit commercialization of our product candidates.
We
are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing,
marketing and use of pharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the
use of our product candidates by us and any collaborators in clinical trials, and the sale of these product candidates, if approved,
in the future, may expose us to liability claims. We face an inherent risk of product liability lawsuits related to the use of our product
candidates in patients and will face an even greater risk if product candidates are approved by regulatory authorities and introduced
commercially. Product liability claims may be brought against us by participants enrolled in our clinical trials, patients, health care
providers, pharmaceutical companies, our collaborators or others using, administering or selling any of our future approved products.
If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities or be required to limit commercialization
of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
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Although
the clinical trial process is designed to identify and assess potential side effects, clinical development does not always fully characterize
the safety and efficacy profile of a new medicine, and it is always possible that a drug, even after regulatory approval, may exhibit
unforeseen side effects. If our product candidates were to cause adverse side effects during clinical trials or after approval, we may
be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse
effects and patients who should not use our product candidates. If any of our product candidates are approved for commercial sale, we
will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be adversely affected if
we are subject to negative publicity associated with illness or other adverse effects resulting from patients’ use or misuse of
our products or any similar products distributed by other companies.
Although
we maintain product liability insurance coverage consistent with industry norms, including clinical trial liability, this insurance may
not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved
in our favor, could be substantial. We will need to increase our insurance coverage if we commercialize any product that receives regulatory
approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to maintain sufficient insurance coverage
at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development
and commercial production and sale of our product candidates, which could harm our business, financial condition, results of operations
and prospects.
Oxycodone
is a Schedule II controlled substance under the federal CSA, and any failure to comply with the CSA or its state equivalents would have
a negative impact on our business.
Oxycodone,
the ingredient in PF614, is classified as a Schedule II controlled substance under the Controlled Substances Act, or CSA and regulations
promulgated by the DEA. The law and regulations classify substances as Schedule I, II, III, IV or V controlled substances, with Schedule
I controlled substances considered to present the highest risk of substance abuse and Schedule V controlled substances the lowest risk.
Scheduled controlled substances are subject to DEA regulations relating to supply, procurement, manufacturing, storage, shipment, sale,
use, distribution and physician prescription procedures. For example, Schedule II controlled substances are subject to various restrictions,
including, but not limited to, mandatory written prescriptions and the prohibition of refills. In addition to federal scheduling, oxycodone
is subject to state-controlled substance laws and regulations, and in some cases, with additional requirements than those imposed by
federal law and regulations. Though state-controlled substances laws often mirror federal law, because the states are separate jurisdictions,
they may schedule products separately.
Entities
must register annually with the DEA to manufacture, distribute, dispense, import, export and conduct research using controlled substances.
In addition, the DEA requires entities handling controlled substances to maintain complete and accurate records and file reports, including
reports related to thefts or losses of any controlled substances, and to obtain authorization to destroy any controlled substances. Registered
entities also must follow specific labeling and packaging requirements. Facilities must maintain appropriate security measures to control
against diversion of controlled substances. Security requirements vary by controlled substance schedule with the most stringent requirements
applying to Schedule I and Schedule II controlled substances. Required security measures include background checks on employees and physical
control of inventory through measures such as vaults and inventory reconciliations.
Our
contract manufacturing organizations, or CMOs, who manufacture and distribute PF614 are required to be registered with DEA and relevant
state authorities and comply with all security, recordkeeping and reporting requirements. Manufacturers and distributors are subject
to routine inspections and audits by the DEA related to compliance with security, recordkeeping and reporting requirements. Failure to
maintain the required registrations or to comply and follow these requirements can lead to significant civil and/or criminal penalties
and possibly even lead to a revocation of a DEA registration to manufacture or distribute such products.
Manufacturing
of oxycodone is subject to annual quotas that limit the amount of API and dosage forms that can be produced in any given year; the failure
of our CMOs to obtain the necessary manufacturing and/or procurement quota would have a negative impact on our business.
The
CSA and DEA regulations establish an annual aggregate production quota for Schedule I and II controlled substances, including oxycodone
and other narcotic drugs. In addition, each manufacturer of active pharmaceutical ingredient, or API or dosage forms must obtain an individual
manufacturing or production quota that limits the amount of product that a company can produce and/or distribute in a given year. The
DEA allocates manufacturing quota issued to companies so as to not exceed the aggregate quota established for a given year. Moreover,
companies must demonstrate the need for procurement quota based on expected demand and sales of the controlled substance the DEA requires
the submission of substantial evidence of expected legitimate medical and scientific need for the drug product before assigning its aggregate
production quotas, or manufacturing and procurement quotas to manufacturers. The DEA has decreased the aggregate quota for certain narcotic
drugs, including oxycodone over the last five years. Also, in October 2018, Congress passed the SUPPORT Act which requires the DEA to
consider potential diversion in establishing quotas for narcotic drugs which could lead to continued decreases in quota available to
API manufacturers and dosage form manufacturers of these substances.
In
future years, we may need greater amounts of controlled substances that are subject to the DEA’s quota system to sustain our development
program. We may also need significantly greater amounts to implement our commercialization plans if the FDA approves our proposed formulations.
If any of our manufacturers of API or dosage forms are unable to obtain the necessary annual quota to meet the research and development
or commercial demand for PF614, our business would be negatively impacted. Any delay or refusal by the DEA in establishing a quota, a
reduction in quota, or a failure to increase quota over time could delay or stop the clinical development or commercial sale of some
of our products or product candidates. This could have a material adverse effect on our business, results of operations, financial condition
and prospects.
Risks
Related to our Intellectual Property
If
we are unable to obtain and maintain patent protection for our products candidates, or if the scope of the patent protection obtained
is not sufficiently broad, our competitors could develop and commercialize product candidates that are similar or identical to our product
candidates, and our ability to successfully commercialize our product candidates may be adversely affected.
Our
commercial success will depend, in part, on our ability to obtain and maintain patent protection in the United States and other countries
with significant commercial markets with respect to our product candidates. We seek to protect our proprietary position by filing patent
applications in the United States and abroad related to our product candidates that are important to our business, as appropriate. We
cannot be certain that patents will be issued or granted with respect to applications that are currently pending or that we may apply
for in the future with respect to one or more of our product candidates, or that issued or granted patents will not later be found to
be invalid and/or unenforceable.
The
patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our
research and development output before it is too late to obtain patent protection. Although we may enter into non-disclosure and confidentiality
agreements with parties who have access to patentable aspects of our research and development output, such as our employees, distribution
partners, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before
a patent application is filed, thereby jeopardizing our ability to seek patent protection.
The
patent position of pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent
years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent
rights are highly uncertain. Our pending and future patent applications may not result in patents being issued, and even if issued, the
patents may not meaningfully protect our product candidates, effectively prevent competitors and third parties from commercializing competitive
products or otherwise provide us with any competitive advantage. Even if the patent applications that we own or licenses issue as patents,
they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise
provide us with any competitive advantage. For product candidates for which we do not hold or do not obtain composition of matter patents,
competitors who obtain the requisite regulatory approval can offer products with the same composition as our product candidate so long
as the competitors do not infringe any method patents that we may hold. Method patents protect the product when used or sold for the
specified method. However, this type of patent protection can be more difficult to enforce and does not limit a competitor from making
and marketing a product that is identical to our product candidate that is either labeled or marketed for an indication that is outside
of the patented method, or for which there is a substantial use in commerce outside the patented method. Our competitors or other third
parties may be able to circumvent our patents by developing similar or alternative products in a non-infringing manner.
Changes
in either the patent laws, implementing regulations or interpretation of the patent laws in the United States and other countries may
also diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our
rights to the same extent as the laws of the United States, and many companies have encountered significant difficulties in protecting
and defending such rights in foreign jurisdictions.
We
cannot be certain that our patents and patent rights will be effective in protecting our product candidates and technologies. Failure
to protect such assets may have a material adverse effect on our business, operations, financial condition and prospects.
We
may face litigation from third parties claiming that our products or business infringe, misappropriate, or otherwise violate their intellectual
property rights, or seeking to challenge the validity of our patents.
Our
future success is also dependent in part on the strength of our intellectual property, trade secrets and know-how, which have been developed
from years of research and development, and on our ability, and the ability of our future collaborators, to develop, manufacture, market
and sell our product candidates, if approved, and use our proprietary technologies without alleged or actual infringement, misappropriation
or other violation of the patents and other intellectual property rights of third parties.
We
may be exposed to, or be threatened with, adversarial proceedings or additional future litigation by third parties regarding intellectual
property rights with respect to our current and any future product candidates and technology, including interference or derivation proceedings,
post grant review and inter partes review before the United States Patent and Trademark Office, or USPTO, or similar adversarial proceedings
or litigation in other jurisdictions seeking to challenge the validity of our intellectual property rights, claiming that we have misappropriated
the trade secrets of others, or claiming that our technologies, products or activities infringe the intellectual property rights of others.
There
have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical
industries, including patent infringement lawsuits, interferences, oppositions, post grant review, inter partes review and reexamination
proceedings before the USPTO, and corresponding foreign patent offices. 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 be subject to claims
of infringement of the intellectual property rights of third parties.
We
are aware of patents owned by third parties, including potential competitors, that are directed to compositions comprising a chemically
modified opioid, such as oxycodone, which decreases the potential of the opioid to be abused or cause overdose and related methods of
use. Third parties, including potential competitors, may assert infringement claims against us based on existing patents or patents that
may be granted in the future including, perhaps, the aforementioned patents, regardless of their merit. There is a risk that third parties
may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us.
Even
if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable
and infringed, and 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 are finally determined to be invalid or unenforceable.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our compositions, formulations,
or methods of treatment, prevention or use, the holders of any such patents may be able to block our ability to develop and commercialize
the applicable product candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable.
In either case, such a license may not be available on commercially reasonable terms, or at all. Even if we were able to obtain a license,
it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. Some claimants may have substantially
greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and
for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements
by enforcing patent rights may target us.
Furthermore,
even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or to enable the 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 such
an event, we would be unable to further practice our technologies or develop and commercialize any of our product candidates at issue,
which could harm our business and financial condition significantly.
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, if approved. Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion of management and employee time and resources from our business.
Third parties making such claims may have the ability to dedicate substantially greater resources to these legal actions than us or our
licensors or collaborators can. In the event of a successful claim of infringement, misappropriation or other violation against us, we
may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign
our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary
expenditure.
Patent
litigation and other proceedings may also absorb significant management time. The cost to us of any patent litigation or other proceeding,
even if resolved in our favor, could be substantial. During the course of any patent or other intellectual property litigation or other
proceeding, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings or developments
and if securities analysts or investors regard these announcements as negative, the perceived value of our product candidates or intellectual
property could be diminished. Accordingly, the market price of our common stock may decline. Uncertainties resulting from the initiation
and continuation of patent litigation or other proceedings could have a material adverse effect on our business, ability to compete in
the marketplace, financial condition, results of operations and growth prospects.
We
may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming
and unsuccessful.
Competitors
may infringe, misappropriate or otherwise violate our patents, trademarks, copyrights or other intellectual property, or those of our
licensors. To counter infringement, misappropriation, unauthorized use or other violations, we may be required to file legal claims,
which can be expensive and time consuming and divert the time and attention of our management and scientific personnel.
There
can be no assurances that we will be successful with respect to any litigation matters which may arise in the ordinary course of our
business. Such a failure may have a material impact on our business, results of operations and financial condition in the future.
We
may not be able to prevent, alone or with any future licensors, infringement, misappropriation or other violations of our intellectual
property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Any claims we
assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents.
In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable,
in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk
that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do
not have the right to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention.
An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties
or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive
products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition.
Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable,
or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we
could ultimately be forced to cease use of such trademarks.
In
any infringement, misappropriation or other intellectual property litigation, any award of monetary damages we receive may not be commercially
valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance
that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years
before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the
attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
The
expiration or loss of patent protection may adversely affect our future revenues and operating earnings.
We
rely on patent, trademark, trade secret and other intellectual property protection in the discovery, development, manufacturing and sale
of our product candidates. In particular, patent protection is important in the development and eventual commercialization of our product
candidates. Patents covering our product candidates normally provide market exclusivity, which is important in order to improve the probability
that our product candidates are able to become profitable.
Certain
of our patents relating to PF614 and the use of nafamostat for treating respiratory diseases will expire in less than ten years. While
we are seeking additional patent coverage which may protect the technology underlying these patents, there can be no assurances that
such additional patent protection will be granted, or if granted, that these patents will not be infringed upon or otherwise held enforceable.
Even if we are successful in obtaining a patent, patents have a limited lifespan. In the United States, the normal statutory term of
a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection
it affords, is limited. Without patent protection of our product candidates, we may be open to competition from generic versions of such
methods and compositions.
If
we do not obtain protection under the Hatch-Waxman Amendments by extending the patent term, our business may be harmed.
Our
commercial success will largely depend on our ability to obtain and maintain patent and other intellectual property in the United States
and other countries with respect to our product candidates. Given the amount of time required for the development, testing and regulatory
review of new product candidates, patents protecting our product candidates might expire before or shortly after such candidates begin
to be commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we
are prosecuting patents.
Depending
upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of our United States patents
may be eligible for limited patent term extension, or PTE, under the Drug Price Competition and Patent Term Restoration Act of 1984,
referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years beyond the
normal expiration of the patent as compensation for patent term lost during development and the FDA regulatory review process, which
is limited to the approved indication (and potentially additional indications approved during the period of extension) covered by the
patent. This extension is limited to only one patent that covers the approved product, the approved use of the product, or a method of
manufacturing the product. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent
regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to
grant extensions to our patents, or may grant more limited extensions than we request. We may not be granted an extension because of,
for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. Moreover, the applicable time-period or the scope of patent protection afforded could be less than
we request. Even if we are able to obtain an extension, the patent term may still expire before or shortly after we receive FDA marketing
approval. If we are unable to extend the expiration date of our existing patents or obtain new patents with longer expiry dates, our
competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical
data to obtain approval of competing products following our patent expiration and launch their product earlier than might otherwise be
the case.
We
may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.
Filing,
prosecuting and defending patents covering our product candidates in all countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws
in the United States. Further, licensing partners may not prosecute patents in certain jurisdictions in which we may obtain commercial
rights, thereby precluding the possibility of later obtaining patent protection in these countries. Consequently, we may not be able
to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products
made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop our own products and may also export infringing products to territories where
we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product
candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
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, trade secrets
and other intellectual property protection, particularly those relating to biotechnology products, 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, whether or not successful, could result in substantial costs and divert our efforts
and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits
that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant
markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market
our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which
may have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected significant foreign
markets.
Additionally,
the requirements for patentability may differ in certain countries, particularly developing countries. For example, unlike other countries,
China has a heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug.
In India, unlike the United States, there is no link between regulatory approval of a drug and our patent status. Furthermore, generic
or biosimilar drug manufacturers or other competitors may challenge the scope, validity or enforceability of us or our licensors’
patents, requiring us or our licensees or any future licensors to engage in complex, lengthy and costly litigation or other proceedings.
In addition, certain countries in Europe and developing countries, including China and India, have compulsory licensing laws under which
a patent owner may be compelled to grant licenses to third parties. In certain jurisdictions, such as in the Russian Federation, our
patents may not be honored since patent holders in the United States may be deemed “unfriendly countries”. In those countries
and jurisdictions, we and our licensees or any future licensors may have limited remedies if patents are infringed or if we or our licensees
or any future licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents.
This could limit our potential revenue opportunities. Accordingly, we and our licensees’ or any future licensors’ efforts
to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we own or license.
We
may be subject to claims that we or our employees, consultants, contractors or advisors have infringed, misappropriated or otherwise
violated the intellectual property of a third party, or claiming ownership of what we regard as our own intellectual property.
Many
of the contributors to our intellectual property, including patents and applications, were previously employed at universities or other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees
do not use the intellectual property and other proprietary information, know-how or trade secrets of others in their work for us, we
may be subject to claims that we or these employees have used or disclosed such intellectual property or other proprietary information.
Litigation may be necessary to defend against these claims.
In
addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with
each party who in fact develops intellectual property that we regard as our own. For example, we have not obtained assignments for certain
patent applications relating to abuse-resistant amphetamines. To the extent that we fail to obtain such assignments, such assignments
do not contain a self-executing assignment of intellectual property rights or such assignments are breached, we may be forced to bring
claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual
property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. Such intellectual property rights could be awarded to a third party, and we could be required to obtain
a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable
terms or at all. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs
and be a distraction to our management and scientific personnel.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them
or that our trade secrets will be misappropriated or disclosed and if we are unable to protect the confidentiality of our trade secrets,
the value of our technology could be materially adversely affected and our business would be harmed.
In
addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology
and other proprietary information, in seeking to develop and maintain a competitive position. Because we expect to rely on third parties
to manufacture our product candidates and we expect to collaborate with third parties on the development of our product candidates, we
must, at times, share trade secrets with them. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality
agreements with parties who have access to them, such as our employees, consultants, independent contractors, advisors, corporate collaborators,
outside scientific collaborators, contract manufacturers, suppliers and other third parties. We also enter into confidentiality and invention
or patent assignment agreements with employees and certain consultants. We also seek to preserve the integrity and confidentiality of
our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information
technology systems. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to
protect our proprietary technologies will be effective.
Since
our inception, we have sought to contract with manufacturers to supply commercial quantities of pharmaceutical formulations and products.
As a result, we have disclosed, under confidentiality agreements, various aspects of our technology with potential manufacturers and
suppliers. We believe that these disclosures, while necessary for our business, may have resulted and may result in the attempt by potential
manufacturers and suppliers to improperly assert ownership claims to our technology in an attempt to gain an advantage in negotiating
manufacturing and supplier rights.
We
cannot guarantee that our trade secrets and other proprietary and confidential information will not be disclosed or that competitors
will not otherwise gain access to our trade secrets. Any party with whom we have executed such an agreement may breach that agreement
and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and
the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing or unwilling to
protect trade secrets. Further, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor,
we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that
technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor,
our business and competitive position could be harmed.
Trade
secrets and know-how can be difficult to protect as trade secrets and know-how will over time be disseminated within the industry through
independent development, the publication of journal articles, and the movement of personnel skilled in the art from company to company
or academic to industry scientific positions. If we fail to prevent material disclosure of the know-how, trade secrets and other intellectual
property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market,
which could materially adversely affect our business, results of operations and financial condition. Even if we are able to adequately
protect our trade secrets and proprietary information, our trade secrets could otherwise become known or could be independently discovered
by our competitors. For example, we are aware that certain of our former employees founded Elysium Therapeutics, which appears to be
developing orally administered abuse deterrent opioids. Additionally, competitors could purchase our products and attempt to replicate
some or all of the competitive advantages we derive from our development efforts, design around our protected technology or develop their
own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained
or independently developed by a competitor, in the absence of patent protection, we would have no right to prevent them, or those to
whom they communicate, from using that technology or information to compete with us.
We
may not be able to prevent misappropriation of our intellectual property, trade secrets or confidential information, particularly in
countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount
of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information
could be compromised by disclosure during this type of litigation.
We
may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an ownership interest in the patents and intellectual
property that we own or that we may own or license in the future. While it is our policy to require our employees and contractors who
may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may
be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own;
our licensors may face similar obstacles. In addition, we have not updated the records in the patent offices to reflect our ownership
of our patent filings obtained as a result of the merger with Signature, including patent filings relating to PF614 and other technologies.
Failure to update such ownership may result in an innocent purchaser potentially acquiring rights in such patents that are adverse to
our interests. Furthermore, as noted above, we have not obtained assignments for certain patent applications relating to abuse-resistant
amphetamines. We could be subject to ownership disputes arising, for example, from conflicting obligations of consultants or others who
are involved in developing our product candidates. Litigation may be necessary to defend against any claims challenging inventorship
or ownership. If we fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property
rights, such as exclusive ownership of, or right to use, intellectual property, which could adversely impact our business, results of
operations and financial condition.
We
may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent,
which might adversely affect our ability to develop and market our product candidates.
To
the extent undertaken, we cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents,
the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified
each and every third-party patent and pending application in the United States and abroad that is or may be relevant to or necessary
for the commercialization of our product candidates in any jurisdiction. Patent applications in the United States and elsewhere are not
published until approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being
commonly referred to as the priority date. In addition, certain United States patent applications can remain confidential until patents
issue. Therefore, patent applications covering our products could have been filed by others without our knowledge. Additionally, pending
patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product
candidates or the use of our product candidates.
The
scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution
history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively
impact our ability to market our product candidates. We may incorrectly determine that our product candidates are not covered by a third-party
patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination
of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, and our failure to identify
and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates.
If
we fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. We cannot guarantee that we will
be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced
to pay damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be
infringing. We might, if possible, also be forced to redesign product candidates or services so that we no longer infringe the third-party
intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial
and management resources that we would otherwise be able to devote to our business.
Our
intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow
the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.
Certain
provisions in our intellectual property agreements may be susceptible to multiple interpretations. Disputes may arise between us and
any of these counterparties regarding intellectual property rights that are subject to such agreements, including, but not limited to:
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the
scope of rights granted under the agreement and other interpretation-related issues; |
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whether
and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
agreement; |
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our
right to sublicense patent and other rights to third parties; |
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our
diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence obligations; |
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the
ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and
our partners; |
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our
right to transfer or assign our license; and |
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the
effects of termination. |
The
resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual
property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material
adverse effect on our business, financial condition, results of operations and prospects.
If
we fail to comply with our obligations under any agreements, we may be required to pay damages and could lose intellectual property rights
that are necessary or useful for developing and protecting our product candidates.
We
have acquired all intellectual property rights from Signature and Mucokinetica, with the exception of our pending application directed
to the use of orally administered nafamostat to treat coronaviruses. Any future collaboration agreements or license agreements we enter
into are likely to impose various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent
prosecution and enforcement or other obligations on us. If we breach any such material obligations, or use the intellectual property
licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license,
which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology, or having
to negotiate new or reinstated licenses on less favorable terms, or enable a competitor to gain access to the licensed technology.
Intellectual
property rights do not necessarily address all potential threats to our business.
Once
granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or
derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which
time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period
of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed
or granted claims altogether. In addition, the degree of future protection afforded by our intellectual property rights is uncertain
because even granted intellectual property rights have limitations, and may not adequately protect our business. The following examples
are illustrative:
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others
may be able to make formulations that are similar to our product candidates or other formulations but that are not covered by the
claims of our patent rights; |
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the
patents of third parties may have an adverse effect on our business; |
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we
or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued
patent or pending patent application that we own; |
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we
or any future 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 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 may own or that we exclusively license in the future may not provide us with any competitive advantage, 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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third
parties performing manufacturing or testing for us using our product candidates or technologies could use the intellectual property
of others without obtaining a proper license; |
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we
may not develop additional proprietary technologies that are patentable; and |
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the
patents of others may have an adverse effect on our business. |
Should
any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and
prospects.
The
validity, scope and enforceability of any patents listed in the Orange Book that cover our product candidates can be challenged by third
parties.
If
one of our product candidates is approved by the FDA, one or more third parties may challenge the current patents, or patents that may
issue in the future, within our portfolio which could result in the invalidation of, or render unenforceable, some or all of the relevant
patent claims or a finding of non-infringement. For example, if a third party submits an application under Section 505(b)(2) or an abbreviated
new drug application, or ANDA, for a generic drug containing any of our product candidates, and relies in whole or in part on studies
conducted by or for us, the third party will be required to certify to the FDA that either: (1) there is no patent information listed
in the Orange Book with respect to our NDA for the applicable approved drug candidate; (2) the patents listed in the Orange Book have
expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration;
or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third party’s generic drug.
A certification that the new drug will not infringe the Orange Book-listed patents for the applicable approved drug candidate, or that
such patents are invalid, is called a paragraph IV certification. If the third party submits a paragraph IV certification to the FDA,
a notice of the paragraph IV certification must also be sent to us once the third party’s ANDA is accepted for filing by the FDA.
We may then initiate a lawsuit to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45
days of receipt of the notice automatically prevents the FDA from approving the third party’s ANDA until the earliest of 30 months
or the date on which the patent expires, the lawsuit is settled, or the court reaches a decision in the infringement lawsuit in favor
of the third party. If we do not file a patent infringement lawsuit within the required 45-day period, the third party’s ANDA will
not be subject to the 30-month stay of FDA approval.
Moreover,
a third party may challenge the current patents, or patents that may be issued in the future, within our portfolio which could result
in the invalidation of some or all of the patents that might otherwise be eligible for listing in the Orange Book for one of our products.
If a third party successfully challenges all of the patents that might otherwise be eligible for listing in the Orange Book for one of
our products, we will not be entitled to the 30-month stay of FDA approval upon the filing of an ANDA for a generic drug containing any
of our product candidates, and relies in whole or in part on studies conducted by or for us. Litigation or other proceedings to enforce
or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s
attention from our core business, and may result in unfavorable results that could limit our ability to prevent third parties from competing
with our product candidates.
If
we do not obtain protection under the Hatch-Waxman Amendments by obtaining data exclusivity, our business may be harmed.
Our
commercial success will largely depend on our ability to obtain and market exclusivity in the United States and other countries with
respect to our product candidates. Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates,
certain of our product candidates may be eligible for marketing exclusivity.
The
FDC Act provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval
of an NDA or Section 505(b)(2) NDA for a new chemical entity, or NCE. A drug is an NCE if the FDA has not previously approved any other
new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. If market
exclusivity is granted for an NCE, during the exclusivity period, the FDA may not accept for review or approve an abbreviated new drug
application, or ANDA, or a Section 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does
not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four
years if it contains a certification of patent invalidity or non-infringement to one of the patents listed in the FDA’s publication
Approved Drug Products with Therapeutic Equivalence Evaluations, which we refer to as the Orange Book, with the FDA by the innovator
NDA holder.
The
FDC Act also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations,
other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval
of the application, for example new indications, dosages, dosage forms or strengths of an existing drug. This three-year exclusivity
covers only the conditions associated with the new clinical investigations and prohibits the FDA from approving an ANDA, or a Section
505(b)(2) NDA submitted by another company with overlapping conditions associated with the new clinical investigations for the three-year
period. Three-year exclusivity does not prohibit the FDA from approving ANDAs for drugs containing the original conditions of use. Five-year
and three-year exclusivity will not delay the submission or approval of an NDA for the same drug. However, an applicant submitting an
NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical
trials necessary to demonstrate safety and effectiveness.
If
we are unable to obtain such marketing exclusivity for our product candidates, our competitors may be able to take advantage of our investment
in development and clinical trials by referencing our approval to obtain approval of competing products and launch their product earlier
than might otherwise be the case.
Cyber-attacks
or other failures in our telecommunications or information technology systems, or those of our collaborators, CROs, third-party logistics
providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption
of our business operations.
We,
our collaborators, CROs, third-party logistics providers, distributors and other contractors and consultants utilize information technology,
or IT, systems and networks to process, transmit and store electronic information in connection with our business activities. As use
of digital technologies has increased, cyber incidents, including third parties gaining access to employee accounts using stolen or inferred
credentials, computer malware, viruses, spamming, phishing attacks or other means, and deliberate attacks and attempts to gain unauthorized
access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of
us, our collaborators’, CROs’, third-party logistics providers’, distributors’ and other contractors’ and
consultants’ systems and networks, and the confidentiality, availability and integrity of our data. There can be no assurance that
we will be successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no assurance that
our collaborators, CROs, third-party logistics providers, distributors and other contractors and consultants will be successful in protecting
our clinical and other data that is stored on their systems. Like other companies, we have on occasion experienced, and will continue
to experience, threats to our data and systems, including malicious codes and viruses, phishing, business email compromise attacks or
other cyber-attacks. Any cyber-attack, data breach or destruction or loss of data could result in a violation of applicable United States
and international privacy, data protection and other laws and subject us to litigation and governmental investigations and proceedings
by federal, state and local regulatory entities in the United States and by international regulatory entities, resulting in exposure
to material civil and/or criminal liability. Further, our general liability insurance and corporate risk program may not cover all potential
claims to which we are exposed and may not be adequate to indemnify us for all liability that may be imposed, which could have a material
adverse effect on our business and prospects. For example, the loss of clinical trial data from completed or ongoing clinical trials
for any of our product candidates could result in delays in our development and regulatory approval efforts and significantly increase
our costs to recover or reproduce the data. In addition, we may suffer reputational harm or face litigation or adverse regulatory action
as a result of cyber-attacks or other data security breaches and may incur significant additional expense to implement further data protection
measures.
Risks
Related to the Ownership of Common Stock and Financial Reporting
Raising
additional capital could cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies
or product candidates.
We
expect our expenses to increase in connection with our planned operations. Unless and until we can generate a substantial amount of revenue
from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings,
collaborations, licensing arrangements or other sources, or any combination of the foregoing. In addition, we may seek additional capital
due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future
operating plans. For example, the subsequent conversion of the 2021 Notes sold on September 24, 2021 and November 5, 2021 into common
stock would result in dilution to stockholders.
To
the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, our
stockholders’ ownership interest may be diluted. In addition, debt financing, if available, may result in fixed payment obligations
and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional
debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to
conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and
may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s
ability to oversee the development of our product candidates. Further, we may incur additional dilution from repayment of the 2021 Notes
in common stock or resetting the conversion price of the 2021 Notes if we issue equity at a price below the conversion price of the 2021
Notes. Also, we will receive reduced proceeds if the exercise price of the warrants granted in connection with the 2021 Notes is reduced.
If
we raise additional capital through collaborations or marketing, distribution or licensing arrangements with third parties, we may have
to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not
be favorable to us. If we are unable to raise additional capital when needed, we may be required to grant to third parties rights to
develop and market our product candidates that we would otherwise prefer to develop and market ourselves.
In
addition, any issuances of common stock pursuant to the GEM Agreement would result in dilution of the ownership interest of our stockholders.
Any such issuances may also have a negative impact on the market price of our common stock because of the discount at issuance. See “—We
require substantial additional funding. If we are unable raise capital when needed, we could be forced to delay, reduce or terminate
our product discovery and development programs or commercialization efforts” for description of risks related to additional
funding.
Our
internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of Sarbanes-Oxley Act,
and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act could impair our ability to produce timely and accurate financial statements or comply with applicable regulations and have a material
adverse effect on our business.
We
previously operated as a private company. In connection with the preparation of our consolidated financial statements for the years ended
December 31, 2021 and 2020, we concluded that there were material weaknesses in our internal controls over financial reporting. A material
weakness is a significant deficiency, or a combination of significant deficiencies, in internal controls over financial reporting such
that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected
on a timely basis. The material weaknesses identified are insufficient internal controls because of inadequate technical accounting expertise
and inappropriate level of supervision and review due to the limited number of accounting personnel. While we have taken steps to remediate
the material weaknesses in our internal controls over financial reporting, including hiring a Chief Financial Officer in February 2021,
we may not be successful in remediating such weaknesses.
Following
the Merger, our management has significant requirements for enhanced financial reporting and internal controls as a public company. The
process of designing and implementing effective internal controls is a continuous effort that will require us to anticipate and react
to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal
controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate
internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis or
result in material misstatements in our consolidated financial statements, which could harm our operating results. In addition, we are
required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness
of our internal controls over financial reporting. This assessment needs to include disclosure of any material weaknesses identified
by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management
to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation.
Testing and maintaining internal controls may divert management’s attention from other matters that are important to our business.
Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting
on an annual basis. However, while we remain an emerging growth company, we will not be required to include an attestation report on
internal control over financial reporting issued by our independent registered public accounting firm. If we are not able to complete
an initial assessment of our internal controls and otherwise implement the requirements of Section 404 of the Sarbanes-Oxley Act in a
timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the adequacy
of our internal controls over financial reporting.
Matters
impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us
to adverse regulatory consequences, including sanctions by the Securities and Exchange Commission, or SEC, or violations of applicable
stock exchange listing rules, which may result in a breach of the covenants under existing or future financing arrangements. There also
could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial
statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting
firm continue to report a material weakness in our internal controls over financial reporting. This could materially adversely affect
us and lead to a decline in the market price of our common stock.
Risks
Related to Our Securities and to Being a Public Company
We
are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of
certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,”
this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public
companies.
We
are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging
growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may
deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status
earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of the end of any second quarter
of a fiscal year, in which case we would no longer be an emerging growth company as of the last day of such fiscal year. We cannot predict
whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities
less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise
would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a registration statement under the Securities Act declared effective
or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended
transition period, which means that when a standard is issued or revised and it has different application dates for public or private
companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of our financial statements with another public company that is not an emerging growth company or
is an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
Additionally,
we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take
advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held
by non-affiliates is greater than or equal to $250 million as of the end of that fiscal year’s second fiscal quarter, and (ii)
our annual revenues are greater than or equal to $100 million during the last completed fiscal year and the market value of our common
stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter. To the extent we take
advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies
difficult or impossible.
The
amount of our future losses is uncertain and our quarterly and annual operating results may fluctuate significantly or fall below the
expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
Our
quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside
of our control and may be difficult to predict, including the following:
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the
timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change
in the competitive landscape of our industry, |
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our
ability to successfully recruit and retain subjects for clinical trials, and any delays caused by difficulties in such efforts, including
as a result of COVID-19; |
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the
risk/benefit profile, cost and reimbursement policies with respect to our product candidates, if approved, and existing and potential
future therapeutics that compete with our product candidates; |
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our
ability to obtain marketing approval for our product candidates and the timing and scope of any such approvals we may receive; |
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the
timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may
change from time to time; |
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the
cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements
with manufacturers; |
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our
ability to attract, hire and retain qualified personnel; |
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expenditures
that we will or may incur to develop additional product candidates; |
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the
level of demand for our product candidates should they receive approval, which may vary significantly; |
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the
changing and volatile U.S. and global economic environments; and |
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future
accounting pronouncements or changes in our accounting policies. |
The
cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results.
As a result, comparing our operating results on a period-to-period basis may not be meaningful. This variability and unpredictability
could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our operating
results or revenue fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the
forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially.
Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide, if any.
If
the Nasdaq delists our common stock and/or our Public Warrants do not continue to trade on the OTC Pink Open Market, this could limit
investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
If
Nasdaq delists our common stock and/or our Public Warrants do not continue to trade on the OTC Pink Open Market, as applicable, from
trading on their exchanges for failure to meet the listing standards, our stockholders could face significant material adverse consequences
including:
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limited availability of market quotations for our securities; |
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reduced
liquidity for our securities; |
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a
determination that our common stock is a “penny stock” which will require brokers trading in such securities to adhere
to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
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a
limited amount of news and analyst coverage; and |
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a
decreased ability to issue additional securities or obtain additional financing in the future, including our inability to obtain
financing under the GEM Agreement. |
Warrants
for shares of our common stock, if exercised, will increase the number of shares eligible for future resale in the public market and
result in dilution to our stockholders.
There
are Public Warrants currently exercisable for an aggregate of approximately 10,000,000 shares of our common stock at an exercise price
of $11.50 per share. In addition, there are private warrants exercisable for an aggregate of 11,090,873 shares of our common stock at
a weighted-average exercise price of $10.36 per share. To the extent such warrants are exercised, additional shares of our common stock
will be issued, which will result in dilution to the holders of shares of our common stock and increase the number of shares of common
stock eligible for resale in the public market. Sales of substantial numbers of such shares of common stock in the public market or the
fact that such warrants may be exercised could adversely affect the market price of our common stock.
Substantial
blocks of our total outstanding shares may be sold into the market. If there are substantial sales of shares of our common stock, the
price of our common stock could decline.
The
price of our common stock could decline if there are substantial sales of shares of our common stock by our directors, executive officers,
or significant stockholders, if there is a large number of shares of our common stock available for sale, or if there is the perception
that these sales could occur. Immediately after the Merger, a significant portion of our shares of common stock or warrants exercisable
for our shares of common stock were held by persons who had been affiliated with LACQ prior to the Merger but did not remain so with
respect to us after the Merger. In addition, we have registered shares of common stock that we may issue under our 2021 Omnibus Incentive
Plan. Shares held by our directors, executive officers and other affiliates are subject to restrictions on resale under the Securities
Act and may be subject to various vesting agreements.
Certain
of our initial stockholders have agreed, subject to certain exceptions, not to transfer, pledge, assign, sell or otherwise dispose of
any of our common stock held by them immediately after the Merger until the earlier to occur of (a) one year after the Merger and (b)
the date on which we complete a liquidation, merger, share exchange or other similar transaction after closing that results in all of
our stockholders having the right to exchange their common shares for cash, securities or other property. However, if the closing price
of our common shares equals or exceeds $12.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations
and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Merger, the shares of those
initial stockholders will be released from the lock-up.
The
market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common
stock in the public market or the perception in the market that the holders of a large number of such shares intend to sell their shares.
Our
issuance of additional capital stock in connection with financings, acquisitions, investments, our 2021 Omnibus Incentive Plan and to
repay interest or principal on the 2021 Notes or otherwise will dilute all other stockholders.
We
expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity
awards to employees, directors, and consultants under our 2021 Omnibus Incentive Plan. We may use our common stock to make repayment
of some or all of the principal and interest on the 2021 Notes. We may also raise capital through equity financings in the future. As
part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity
securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience
significant dilution of their ownership interests and the per share value of our common stock to decline.
Trading
on the OTC Pink Open Market is volatile and sporadic, which could depress the market price of the Public Warrants and make it difficult
for the Public Warrant holders to resell their Public Warrants.
The
Public Warrants are quoted on the OTC Pink Open Market. Trading in securities quoted on the OTC Pink Open Market is often thin and characterized
by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects.
This volatility could depress the market price of the Public Warrants for reasons unrelated to operating performance. Moreover, the OTC
Pink Open Market is not a stock exchange, and trading of securities on the OTC Pink Open Market is often more sporadic than the trading
of securities listed on Nasdaq. These factors may result in investors having difficulty reselling any Public Warrants.
While
LACQ determined that the Public Warrants should be classified as equity and its private warrants will be treated as equity on
a pro forma basis, due to the uncertainty with respect to classification of warrants issued by SPACs as equity or indebtedness, there
can be no assurance that future guidance might not require us to change this position and restate our financial statements and have other
adverse consequences.
While
LACQ’s financial statements were restated to classify its private warrants as liabilities, we have determined that it is appropriate
to continue to classify the Public Warrants as equity. We reviewed the terms of the warrant agreement related to the
Public Warrants and concluded that they do not include any provision requiring the Public Warrants to be classified as liabilities.
In this respect, it should be noted that the warrant agreement included a provision that in the event of a tender or exchange offer made
to and accepted by holders of more than 50% of the outstanding shares of a single class of common shares, all holders of the warrants
could be entitled to receive cash for their warrants (the “tender offer provision”). This tender offer provision was
similar to one of the examples referred to in the SEC Statement as a basis for concluding that warrants issued by a SPAC should be classified
as liabilities and not equity. LACQ concluded that, while the SEC Statement did not expressly refer to a multi-class structure (such
as a structure where a SPAC had two classes of common stock), the SEC Statement with respect to a tender offer provision in a warrant
agreement applied to a multi-class structure (such as a Class A and Class B structure) and not a single class structure like the Public
Warrants. Certain other SPACs, including those with single class structures, have taken different approaches in their public filings
with the SEC and have classified similar warrants as liabilities.
LACQ
classified its private warrants as liabilities because they provided for potential changes to the settlement amounts dependent upon the
characteristics of the holder of the warrant (i.e., certain rights differ if the warrants are held by the original holder and its permitted
transferees or by a subsequent transferee). LACQ entered into agreements with the holders of its private warrants under which each holder
exchanged its private warrants for warrants on the same terms as the private warrants, except that they are non-transferable except
to certain permitted transferees. LACQ believed that as a result of the exchange, the private warrants would be appropriately classified
as equity and not liabilities subsequent to the date of such agreements.
The
accounting treatment of warrants issued in SPAC transactions is subject to substantial uncertainty and there can be no
assurance that future guidance might not require us to change LACQ’s position and restate our financial statements or treat private
warrants as liabilities, which could have a material adverse effect on us.
Our
common stock could be delisted from Nasdaq and may become subject to “penny stock” rules, which could damage our reputation
and the ability of investors to sell their shares.
There
can be no assurance that our common stock will maintain our listing on Nasdaq which could have a material adverse effect on us. Upon
any delisting, our common stock could become subject to the regulations of the SEC relating to the market for penny stocks. Penny stocks
are securities with a price of less than $5.00 per share unless (i) the securities are traded on a “recognized” national
exchange or (ii) the issuer has Net Tangible Assets less than $2,000,000 (if the issuer has been in continuous operation for at least
three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000
for the last three years.
The
procedures applicable to penny stocks requires a broker-dealer to (i) obtain from the investor information concerning his financial situation,
investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks
are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating
the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer
made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor’s financial situation, investment experience and investment objectives. The regulations applicable
to penny stocks may severely affect the market liquidity for our common stock and could limit the ability of stockholders to sell their
common stock in the secondary market.
Our
directors and executive officers own a significant percentage of our common stock and will be able to exert significant control over
matters subject to stockholder approval.
As
of December 31, 2021, our executive officers and directors beneficially owned approximately 52.0% of our common stock. These stockholders,
acting together, may be able to control matters requiring stockholder approval. For example, they may be able to control elections of
directors, changes to equity incentive plans, amendments of our organizational documents or approval of any merger, sale of assets or
other major corporate transactions. This concentration of ownership control may delay, discourage or prevent a change of control, including
unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders,
entrench our management and board of directors or delay or prevent a merger, consolidation, takeover or other business combination involving
us that other stockholders may desire. The interests of this group of stockholders may not always coincide with your interests or the
interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders,
including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.