The
following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known
to us or that we presently deem less significant may also impair our business operations. If any of the following risks occur,
our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
Risks
Related to Our Business
We
are a clinical stage biopharmaceutical company with a limited operating history.
We
are a clinical-stage biopharmaceutical company newly-formed in October 2016 and have a limited operating history. We do not lease
or own any corporate office or laboratory space and our employees all work remotely. We outsource our information technology,
payroll and certain other functions.
We
have acquired or in-licensed four clinical stage assets and a late stage preclinical enteroviral vaccine platform as described
herein, which will be our product candidates unless we in-license or acquire additional development assets. Marketing approval
of our product candidates will require extensive clinical testing data to support safety and efficacy requirements, as well as
pharmaceutical development, manufacturing and preclinical data, all of which are needed for regulatory approval. The likelihood
of success of our business plan must be considered in light of the challenges, substantial expenses, difficulties, complications
and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive
environment in which we operate. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial
degree of risk, and is a capital-intensive business.
Accordingly,
you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies
in the early stages of development, especially clinical-stage biopharmaceutical companies such as ours. Potential investors should
carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, you should
consider that we cannot assure you that we will be able to:
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successfully
implement or execute our current business plan, or that our business plan is sound;
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successfully
start and complete clinical trials and obtain regulatory approval for the marketing of our product candidates;
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successfully
contract for the manufacture of our clinical drug products and establish a commercial drug supply;
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secure
market exclusivity and/or adequate intellectual property protection for our product candidates;
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attract
and retain an experienced management and advisory team; and
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raise
sufficient funds in the capital markets to effectuate our business plan, including clinical development, regulatory approval
and commercialization for our product candidates.
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If
we cannot successfully execute any one of the foregoing, our business may not succeed, and your investment will be adversely affected.
We
expect to incur substantial expenses and may never become profitable or be able to sustain profitability.
We
expect to incur substantial expenses without corresponding revenues unless and until we are able to obtain regulatory approval
and successfully commercialize our product candidates. We expect to incur significant expense to complete our clinical programs
for our product candidates in the United States and elsewhere. We may never be able to obtain regulatory approval for the marketing
of our product candidates in any indication in the United States or internationally. Even if we are able to commercialize our
product candidates, there can be no assurance that we will generate significant revenues or ever achieve profitability.
We
expect to have significant research and development expenses as we advance clinical trials for our product candidates. As a result,
we expect to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain when or
if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain
profitability in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and
adversely affect our business and our ability to raise capital.
The
proceeds from our initial public offering will only fund our operations for a limited time and we will need to raise additional
capital to support our development and commercialization efforts.
We
expect our operating costs to be substantial as we incur costs related to the clinical trials for our product candidates and that
we will operate at a loss for the foreseeable future. As of September 30, 2018, we had $64.3 million in cash and cash equivalents.
We believe our current cash and cash equivalents will be sufficient to fund projected operating requirements into the first
half of 2020. We will need substantial additional capital to fund the clinical development program for our product candidates,
as well as in-licensing additional development assets.
We
do not have any prospective financing arrangements or credit facilities as a source of future funds, and there can be no assurance
that we will be able to raise sufficient additional capital on acceptable terms, or at all. We may seek additional capital through
a combination of private equity offerings, public equity offerings, debt financings and strategic collaborations. If we raise
additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could
be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing
stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, could increase our expenses and require that our assets secure such
debt. Moreover, any debt we incur must be repaid regardless of our operating results. If we choose to pursue additional indications
and/or geographies for our product candidates, in-license additional development assets, or otherwise expand more rapidly than
we presently anticipate, we may also need to raise additional capital sooner than expected.
If
we do not raise additional capital when required or on acceptable terms, we may need to significantly delay, scale back or discontinue
the development or commercialization of one or more of our product candidates or cease operations altogether, relinquish or license
on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize
Our
forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking
statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the
factors discussed elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong,
and we could utilize our available capital resources sooner than we currently expect.
We
may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.
Our
operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of
our control. These factors include:
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the
success of our development strategy;
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the
time, resources, and expense required to develop and conduct clinical trials and seek regulatory approvals for our product
candidates;
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the
cost of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation
costs and the results of such litigation;
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the
cost of manufacturing and maintaining sufficient inventories of our products to meet anticipated demand;
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any
product liability or other lawsuits related to our product candidates and the costs associated with defending them or the
results of such lawsuits;
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the
cost of growing our ongoing development operations and establishing commercialization operations;
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the
cost to attract and retain personnel with the skills required for effective operations; and
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the
costs associated with being a public company.
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Risks
Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
We
depend entirely on the success of our product candidates, one of which did not meet its primary endpoint in a prior phase 3 clinical
trial and three of which have not yet demonstrated efficacy for their target indication or any other indications in Phase 2 clinical
trials. If we are unable to generate revenues from our product candidates, our ability to create stockholder value will be limited.
Our
product candidates are either in various stages of clinical development or late stages of preclinical development. We do not generate
revenues from any approved drug products and have no other product candidates in development. We will be conducting human clinical
trials of our product candidates for T1D, our two product candidates for inflammatory bowel diseases (IBD), our product candidate
for lupus and our product candidate for celiac disease.
Our
clinical trials in Crohn’s Disease (CD) and UC are being conducted entirely in Europe, and Clinical Trial Applications (CTA)
(foreign equivalent of an IND) have been submitted in all intended countries. The CD study is being conducted in seven European
countries, all of which have provided regulatory authority approval. The UC study is being conducted in three European countries,
all of which have provided regulatory authority approval. Both product assets have active Investigational New Drug Applications
(IND) with the FDA for indications other than CD and UC in the United States. We do not have any clinical trial sites in the United
States and have had no interactions with the FDA, and for that reason have not submitted INDs to the FDA for any of the IBD, CD
or UC indications. However, Janssen Pharmaceuticals studied two of our investigational products under INDs in other indications,
and Provention Bio owns an inactive IND for PRV-300 in asthma, which was transferred as part of the license agreement with Janssen.
We
will be submitting amendments to the INDs for PRV-031 and PRV-3279 and other regulatory authorities for the clinical developments
in T1D and B-cell directed immune diseases, respectively. We will be submitting an IND or CTA to the FDA, European Medicines Authority
(EMA), or other international regulatory authorities seeking approval to initiate Phase 1 clinical trials in humans in the United
States, European Union or other countries for a coxsackie virus B (CVB) vaccine for the prevention of acute CVB infection, which
has been linked to the development of T1D and T1D-associated celiac disease. We intend to conduct toxicology studies for PRV-015,
as needed, and commence human clinical trials of our other product candidates for T1D, celiac disease and lupus and will be
required to submit our clinical trial protocols and receive approvals from the regulatory authorities before we can commence any
clinical trials. Nonclinical study results for our product candidates, including toxicology studies, may not support the filing
of an IND or foreign equivalent for the product candidate.
Moreover,
we may not be successful in obtaining acceptance from the regulatory authorities to start our clinical trials. If we do not obtain
such acceptance, the time in which we expect to commence clinical programs for any product candidate will be extended and such
extension will increase our expenses and increase our need for additional capital. Moreover, there is no guarantee that our clinical
trials will be successful or that we will continue clinical development in support of an approval from the regulatory authorities
for any indication. We note that most drug candidates never reach the clinical development stage and even those that do commence
clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval.
Therefore, our business currently depends entirely on the successful development, regulatory approval and commercialization of
our product candidates, which may never occur.
We
may encounter substantial delays in completing our clinical studies which in turn will require additional costs, or we may fail
to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities.
It
is impossible to predict if or when any of our product candidates, will prove safe or effective in humans or
will
receive regulatory approval. Before obtaining marketing approval from regulatory authorities
for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the
product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that
any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies
can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
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delays
in reaching, or failing to reach, a consensus with regulatory agencies on study design;
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delays
in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective CROs and clinical
study 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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delays
in obtaining required Institutional Review Board (IRB) or Ethics Committee (EC) approval at each clinical study site;
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delays
in recruiting a sufficient number of suitable patients to participate in our clinical studies;
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imposition
of a clinical hold by regulatory agencies, after an inspection of our clinical study operations or study sites;
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failure
by our contract research organizations, or CROs, other third parties or us to adhere to clinical study, regulatory or legal
requirements;
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failure
to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory guidelines in other
countries;
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delays
in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical
sites;
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delays
in having patients complete participation in a study or return for post-treatment follow-up;
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clinical
study sites or patients dropping out of a study;
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delay
or failure to address any patient safety concerns that arise during the course of a trial;
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unanticipated
costs or increases in costs of clinical trials of our product candidates;
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occurrence
of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or
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changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols.
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We
could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the institutions in which
such trials are being conducted, by an independent Safety Review Board, or SRB, for such trial or by the FDA, EMA, or other regulatory
authorities. Such authorities
may
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, EMA, or other regulatory authorities resulting
in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from
using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial.
Any
inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability
to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing
or formulation changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates
to earlier versions.
Clinical
study 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, which could impair our ability to successfully commercialize
our product candidates.
In addition, any delays
in completing our clinical trials will increase our costs, slow down
our
product
candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of
these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
The
outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim
results of a clinical trial do not necessarily predict final results. Further, preclinical and clinical data are often susceptible
to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily
in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval.
If
the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our other
product candidates, we may:
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be
delayed in obtaining marketing approval for our product candidates, if approved at all;
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obtain
approval for indications or patient populations that are not as broad as intended or desired;
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obtain
approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be
required to change the way the product is administered;
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be
required to perform additional clinical studies to support approval or be subject to additional post-marketing testing requirements;
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have
regulatory authorities withdraw their approval of a product or impose restrictions on its distribution in the form of a modified
risk evaluation and mitigation strategy;
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be
sued; or
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experience
damage to our reputation.
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Additionally,
our product candidates could potentially cause other adverse events that have not yet been predicted. The inclusion of ill patients
in our clinical studies may result in deaths or other adverse medical events due to other therapies or medications that such patients
may be using. As described above, any of these events could prevent us from achieving or maintaining market acceptance of our
product candidates and impair our ability to commercialize our products.
If
we are not able to obtain any required regulatory approvals for our product candidates, we will not be able to commercialize our
product candidates and our ability to generate revenue will be limited.
We
must successfully complete clinical trials for our product candidates before we can apply for marketing approval. Even if we complete
our clinical trials, it does not assure marketing approval. Our clinical trials may be unsuccessful, which would materially harm
our business. Even if our initial clinical trials are successful, we are required to conduct additional clinical trials to establish
our product candidates’ safety and efficacy, before a marketing application (New Drug Application, or NDA or Biologics License
Application, or BLA, or their foreign equivalents) can be filed with the FDA, EMA, or comparable foreign regulatory authorities
for marketing approval of our product candidates.
Clinical
testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success
in early phases of pre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interim
results of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur
at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that
could delay or prevent our ability to receive regulatory approval or commercialize our product candidates. The research, testing,
manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and
distribution of drug products are subject to extensive regulation by the FDA, EMA, and other regulatory authorities in the United
States, European Union, and other countries, where regulations differ from country to country. We are not permitted to market
our product candidates as prescription pharmaceutical products in the United States until we receive approval of an NDA or a BLA
from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United States, the
FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical
development to ensure its quality before an NDA or a BLA is approved. Regulatory authorities in other jurisdictions impose similar
requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA or a BLA
to the FDA or other regulatory authorities and even fewer are eventually approved for commercialization. We have not submitted
an NDA or a BLA to the FDA or comparable applications to other regulatory authorities. If our development efforts for our product
candidates, including regulatory approval, are not successful for their planned indications, or if adequate demand for our product
candidates is not generated, our business will be materially adversely affected.
Our
success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to
a number of risks, including the following:
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the
results of nonclinical or toxicology studies may not support the filing of an IND or foreign equivalent for our CVB vaccine
product candidate;
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the
FDA, EMA, or comparable foreign regulatory authorities or IRBs or ECs may disagree with the design or implementation of our
clinical trials;
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we
may not be able to provide acceptable evidence of our product candidates’ safety and efficacy;
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the
results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required
by the FDA, EMA, or other regulatory agencies for marketing approval;
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the
dosing of our product candidates in a particular clinical trial may not be at an optimal level;
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patients
in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates;
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the
data collected from clinical trials may not be sufficient to support the submission of an NDA, BLA or other marketing application
or to obtain regulatory approval in the United States or elsewhere;
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the
requirement for additional studies, including a second phase 3 study for the PRV-031 program in T1D;
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the
FDA, EMA, or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party
manufacturers with which we contract for clinical and commercial supplies;
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the
approval policies or regulations of the FDA, EMA, or comparable foreign regulatory authorities may significantly change in
a manner rendering our clinical data insufficient for approval;
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the
FDA, EMA, or comparable foreign regulatory authorities may disagree on the design or implementation of our clinical trials,
including the methodology used in our studies, our chosen endpoints, our statistical analysis, or our proposed product indication;
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our
failure to demonstrate to the satisfaction of the FDA, EMA, or comparable regulatory authorities that a product candidate
is safe and effective for its proposed indication;
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we
may fail to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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immunogenicity
might affect a product candidate efficacy and/or safety;
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the
FDA, EMA, or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies
or clinical trials;
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data
collected from clinical trials of our product candidates may be insufficient to support the submission and filing of a marketing
application or to obtain marketing approval. For example, the FDA may require additional studies to show that our product
candidates are safe or effective;
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we
may fail to obtain approval of the manufacturing processes or facilities of third-party manufacturers with whom we contract
for clinical and commercial supplies;
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there
may be changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for approval;
or
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the
FDA, EMA or comparable foreign regulatory authority may require more information, including additional nonclinical or clinical
data to support approval, which may delay or prevent approval and our commercialization plans, or we may decide to abandon
the development program.
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Failure
to obtain regulatory approval for our product candidates for the foregoing, or any other reasons, will prevent us from commercializing
our product candidates, and our ability to generate revenue will be materially impaired. We cannot guarantee that regulators will
agree with our assessment of the results of the clinical trials we intend to conduct in the future or that such trials will be
successful. The FDA, EMA and other regulators 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 require additional clinical trials, or pre-clinical or
other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit
or prevent regulatory approval of our product candidates.
We
are a clinical stage company and we have not submitted an NDA, a BLA, or received regulatory approval to market our product candidates
in any jurisdiction. We have only limited experience in filing the applications necessary to gain regulatory approvals and expect
to rely on consultants and third party CROs with expertise in this area to assist us in this process. Securing regulatory approvals
to market a product requires the submission of pre-clinical, clinical, and/or pharmacokinetic data, information about product
manufacturing processes and inspection of facilities and supporting information to the appropriate regulatory authorities for
each therapeutic indication to establish a product candidate’s safety and efficacy for each indication. Our product candidates
may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude us from obtaining
regulatory approval or prevent or limit commercial use with respect to one or all intended indications.
The
process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially
based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which
regulatory approval is sought and the substantial discretion of the regulatory authorities. Changes in regulatory approval policies
during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review
for a submitted product application may cause delays in the approval or rejection of an application. Regulatory approval obtained
in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in
which we may seek approval, but the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval
in a different jurisdiction. Failure to obtain regulatory marketing approval for our product candidates in any indication will
prevent us from commercializing the product candidate, and our ability to generate revenue will be materially impaired.
Even
if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory
review, which may result in significant additional expense. Additionally, our product candidates could be subject to labeling
and other restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory
requirements or if we experience unanticipated problems with our product candidates.
Even
if we obtain regulatory approval for any of our product candidates for an indication, the FDA, EMA, or foreign equivalent may
still impose significant restrictions on their indicated uses or marketing or the conditions of approval, or impose ongoing requirements
for potentially costly and time-consuming post-approval studies, including Phase 4 clinical trials, post-market surveillance to
monitor safety and efficacy and a REMS. In particular, we intend to initially seek regulatory approval for our CVB vaccine product
candidate for the prevention of acute CVB infection. The results of longitudinal studies demonstrating the connection between
CVB and T1D and T1D-associated celiac disease will be necessary to expand the indicated use of this vaccine to T1D. These studies
must be completed and submitted to the FDA or EMA prior to receiving approval in the United States or European Union to market
the CVB vaccine to prevent T1D. Such studies will be costly and time consuming and may not demonstrate to the FDA’s satisfaction
the connection between the CVB virus and the onset of T1D.
Our
product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage,
distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market
information. These requirements include registration with the FDA, as well as continued compliance with current Good Clinical
Practices regulations, or cGCPs, for any clinical trials that we conduct post-approval. In addition, manufacturers of drug products
and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for
compliance with current cGMP, requirements relating to quality control, quality assurance and corresponding maintenance of records
and documents.
With
respect to sales and marketing activities by us or any future licensor, advertising and promotional materials must comply with
FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in
other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of
the U.S. Prescription Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes,
depending on the nature of the change. We may also be subject, directly or indirectly through our customers and licensors, to
various fraud and abuse laws, including, without limitation, the U.S. Anti-Kickback Statute, U.S. False Claims Act, and similar
state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we
participate in the U.S. Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs,
or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations.
All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws.
Similar requirements exist in many of these areas in other countries.
In
addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion
would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims
that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the
FDA as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates, physicians
may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If
we are found to have promoted such off-label uses, we may become subject to significant liability and government fines. 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 sanctions. The federal government has levied large
civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in
off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which
specified promotional conduct is changed or curtailed.
If
we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity
or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable
regulatory requirements, we may be subject to the following administrative or judicial sanctions:
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restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
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issuance
of warning letters or untitled letters;
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clinical
holds;
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injunctions
or the imposition of civil or criminal penalties or monetary fines;
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suspension
or withdrawal of regulatory approval;
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suspension
of any ongoing clinical trials;
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refusal
to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product
license approvals;
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suspension
or imposition of restrictions on operations, including costly new manufacturing requirements; or
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product
seizure or detention or refusal to permit the import or export of product.
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The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate
revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase
our product liability exposure.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in
obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain
or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction
may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval
of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing
and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements
and administrative review periods different from those in the United States, including additional preclinical studies or clinical
trials, as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions.
In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved
for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
Obtaining
foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties
and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the
regulatory requirements in international markets and/ or to receive applicable marketing approvals, our target market will be
reduced and our ability to realize the full market potential of our product candidates will be harmed.
Current
and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product
candidates and affect the prices we may obtain.
In
the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or
regulate post-approval activities and affect our ability to profitably sell our product candidates. Legislative and regulatory
proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,
increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval,
as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In
the United States, the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products.
The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based
on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies
where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the
expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs.
These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive
for our product candidates and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries,
private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any
reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
or, collectively, the Health Care Reform Law, is a sweeping law intended to broaden access to health insurance, reduce or constrain
the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare
and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
The Health Care Reform Law revised the definition of “average manufacturer price” for reporting purposes, which could
increase the amount of Medicaid drug rebates to states. Further, the law imposed a significant annual fee on companies that manufacture
or import branded prescription drug products.
The
Health Care Reform Law remains subject to legislative efforts to repeal, modify or delay the implementation of the law. However,
if the Health Care Reform Law is repealed or modified, or if implementation of certain aspects of the Health Care Reform Law are
delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects, operating results
or financial condition. We are unable to predict the full impact of any repeal, modification or delay in the implementation of
the Health Care Reform Law on us at this time. Due to the substantial regulatory changes that will need to be implemented by CMS
and others, and the numerous processes required to implement these reforms, we cannot predict which healthcare initiatives will
be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation
or regulation will have on our business.
In
addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted.
We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected
value of certain development projects and reduce or eliminate our profitability.
If
we fail to successfully commercialize any of our product candidates, we may need to acquire additional product candidates and
our business will be adversely affected.
We
have never developed and obtained approval for any product candidates or commercialized any product candidates. We have limited
product candidates and do not have any other compounds in pre-clinical testing, lead optimization or lead identification stages
beyond our product candidates. We cannot be certain that any of our product candidates will prove to be sufficiently effective
and safe to meet applicable regulatory standards for any indication. If we fail to successfully commercialize any of our product
candidates for their targeted indications, whether as stand-alone therapies or in combination with other therapeutic agents, and
if we are unable to acquire additional product candidates in the future, our business will be adversely affected.
Even
if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product
and the revenue that we generate from its sales, if any, may be limited.
If
approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the
medical community, including physicians, patients and health care payors. The degree of market acceptance for any of our product
candidates will depend on a number of factors, including:
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demonstration
of clinical safety and efficacy;
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relative
convenience, dosing burden and ease of administration;
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the
prevalence and severity of any adverse effects;
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the
willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;
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efficacy
of our product candidates compared to competing products;
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the
introduction of any new products that may in the future become available targeting indications for which our product candidates
may be approved;
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new
procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show
utility;
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pricing
and cost-effectiveness;
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the
inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines;
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the
effectiveness of our own or any future collaborators’ sales and marketing strategies;
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limitations
or warnings contained in approved labeling from regulatory authorities;
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our
ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including
Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals
from government bodies regulating the pricing and usage of therapeutics; and
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the
willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing
approvals.
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If
any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors,
and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to
educate the medical community and third-party payors on the benefits of our product candidates may require significant resources
and may never be successful.
In
addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize
our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and
give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially
viable. For example, regulatory authorities may approve any of our product candidates for fewer or more limited indications than
we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve any of our
product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization
for that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require
risk management plans or a Risk Evaluation and Mitigation Strategy, REMS, to assure the safe use of the drug. If the FDA concludes
a REMS is needed, the sponsor of the NDA or BLA must submit a proposed REMS; the FDA will not approve the NDA or BLA without an
approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe
use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA may also require a
REMS for an approved product when new safety information emerges. Any of these limitations on approval or marketing could restrict
the commercial promotion, distribution, prescription or dispensing of our product candidates. Moreover, product approvals may
be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product.
Any of the foregoing scenarios could materially harm the commercial success of our product candidates.
We
currently have no sales and marketing organization. If we are unable to establish satisfactory sales and marketing capabilities
or secure a sales and marketing partner, we may not successfully commercialize any of our product candidates.
At
present, we have no sales or marketing personnel. In order to commercialize products that are approved for commercial sales, we
must either develop our own sales and marketing infrastructure or collaborate with third parties that have such commercial infrastructure.
If we are not successful entering into appropriate collaboration arrangements, or recruiting sales and marketing personnel or
in building a sales and marketing infrastructure, we will have difficulty successfully commercializing our product candidates,
which would adversely affect our business, operating results and financial condition.
We
may not be able to enter into collaboration agreements on terms acceptable to us or at all. In addition, even if we enter into
such relationships, we may have limited or no control over the sales, marketing and distribution activities of these third parties.
Our future revenues may depend heavily on the success of the efforts of these third parties. If we elect to establish a sales
and marketing infrastructure we may not realize a positive return on this investment. In addition, we will have to compete with
established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing
personnel. Factors that may inhibit our efforts to commercialize our product candidates without strategic partners or licensees
include:
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our
inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the
inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any of our product
candidates;
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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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unforeseen
costs and expenses associated with creating an independent sales and marketing organization.
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Janssen
has the right to assume control over the distribution activities of our CSF-1R inhibitor product candidate.
Pursuant
to the license agreement covering our CSF-1R inhibitor product candidate, Janssen reserves the right to assume control over all
distribution activities with respect to this product, including pricing and marketing decisions, for a one-time fee, and has the
option of buying back the rights to this product for a one-time fee and royalty payments. There can be no assurance that Janssen’s
strategic direction will be in line with ours should it exercise its right to assume control of distribution activities, or that
their decisions will have a positive impact on our results of operations. Moreover, we may not realize the full economic benefit
of this agreement in the event Janssen exercises its option to buy back the rights to the CSF-1R inhibitor product candidate.
Amgen
has
the right to assume control over the activities of our anti-IL-15 mAb product candidate.
Pursuant
to the Amgen Agreement covering our anti-IL-15 mAb product candidate, Amgen reserves the right to assume control over all activities
with respect to this product, including pricing and marketing decisions, for a one-time fee, and has the option of buying back
the rights to this product for a one-time fee and royalty payments. There can be no assurance that Amgen’s strategic direction
will be in line with ours should it exercise its right to assume control of activities, or that their decisions will have a positive
impact on our results of operations. Moreover, we may not realize the full economic benefit of this agreement in the event Amgen
exercises its option to buy back the rights to the anti-IL-15 mAb product candidate.
We
face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete
effectively.
The
biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change.
We have existing competitors and will have potential new competitors in a number of jurisdictions, many of which have or will
have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than
we have. Established competitors may invest heavily to quickly discover and develop novel compounds that could make any of our
product candidates obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling
advantages in efficacy, cost, convenience, tolerability and safety to be commercially successful. Other competitive factors, including
generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others
could emerge as competitors to our product candidates. If we are not able to compete effectively against our current and future
competitors, our business will not grow and our financial condition and operations will suffer.
Our
potential competitors both in the United States and throughout the world include companies developing and/or marketing drugs and
therapeutic solutions for immune-mediated diseases, including oncological, autoimmune and inflammatory diseases, as well as companies
working in our specific fields, including T1D, enteroviral and emerging viral diseases, lupus, and inflammatory bowel diseases,
such as Crohn’s disease and UC.
Our
product candidates may face competition sooner than expected.
We
intend to seek data exclusivity or market exclusivity for our anti-TLR3 human monoclonal antibody and CVB vaccine product candidates
provided under the Federal Food, Drug and Cosmetic Act, or FDCA, and similar laws in other countries. We believe that these product
candidates will qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act of 2009, or
BPCIA, which was enacted as part of the Health Care Reform Law. Under the BPCIA, an application for a biosimilar product or BLA
cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified
as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and
interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and
approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its
similarity to an existing brand product. The law is complex and is subject to interpretation and implementation by the FDA. While
it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect
on the future commercial prospects for our biological product candidates. There is also a risk that Congress could repeal or amend
the BPCIA to shorten this exclusivity period, potentially creating the opportunity for biosimilar competition sooner than anticipated
after the expiration of our patent protection. Moreover, the extent to which a biosimilar, once approved, will be substituted
for any reference product in a way that is similar to traditional generic substitution for non-biological products is not yet
clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Our
product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be eligible
for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within
the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity 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. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application,
or 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 certification of patent invalidity or non-infringement. The FDCA 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 conditions
associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original
active agent.
Even
if, as we expect, our product candidates are considered to be reference products eligible for 12 years of exclusivity under the
BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full
BLA or full NDA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled
clinical trials to demonstrate the safety, purity and potency of the products. Moreover, an amendment or repeal of the BPCIA could
result in a shorter exclusivity period for our product candidates, which would have a material adverse effect on our business.
Our
future growth depends, in part, on our ability to penetrate international markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our
future profitability will depend, in part, on our ability to commercialize our product candidates in international markets for
which we intend to rely on collaborations with third parties. If we commercialize any of our product candidates in international
markets, we would be subject to additional risks and uncertainties, including:
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our
customers’ ability to obtain reimbursement for our product candidates in international markets;
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our
inability to directly control commercial activities because we are relying on third parties;
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the
burden of complying with complex and changing international regulatory, tax, accounting and legal requirements;
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different
medical practices and customs in foreign countries affecting acceptance in the marketplace;
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import
or export licensing requirements;
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longer
accounts receivable collection times;
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longer
lead times for shipping;
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language
barriers for technical training;
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reduced
protection of intellectual property rights in some foreign countries;
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foreign
currency exchange rate fluctuations; and
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the
interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
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International
sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic
instability, trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.
If
we market any of our product candidates in a manner that violates healthcare fraud and abuse laws, or if we violate government
price reporting laws, we may be subject to civil or criminal penalties.
The
FDA enforces laws and regulations which require that the promotion of pharmaceutical products be consistent with the approved
prescribing information. While physicians may prescribe an approved product for a so-called “off label” use, it is
unlawful for a pharmaceutical company to promote its products in a manner that is inconsistent with its approved label and any
company which engages in such conduct can subject that company to significant liability. Similarly, industry codes in the EU and
other foreign jurisdictions prohibit companies from engaging in off-label promotion and regulatory agencies in various countries
enforce violations of the code with civil penalties. While we intend to ensure that our promotional materials are consistent with
our label, regulatory agencies may disagree with our assessment and may issue untitled letters, warning letters or may institute
other civil or criminal enforcement proceedings. In addition to FDA restrictions on marketing of pharmaceutical products, several
other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing
practices in the pharmaceutical industry. These laws include the U.S. Anti-Kickback Statute, U.S. False Claims Act and similar
state laws. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business
activities could be subject to challenge under one or more of these laws.
The
U.S. Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration
to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item
or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
broadly to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary
managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our
practices may not, in all cases, meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, recent
health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends
the intent requirement of the U.S. Anti-Kickback Statute and criminal health care fraud statutes; a person or entity no longer
needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides
that the government may assert that a claim including items or services resulting from a violation of the U.S. Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal false claims laws prohibit any person
from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making,
or causing to be made, a false statement to get a false claim paid.
Over
the past few years, several pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety
of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and
grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then
used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare
or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to
reduce liability for Medicaid rebates. Most states also have statutes or regulations similar to the U.S. Anti-Kickback Statute
and the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several
states, apply regardless of the payor. Sanctions under these federal and state laws may include substantial civil monetary penalties,
exclusion of a manufacturer’s products from reimbursement under government programs, substantial criminal fines and imprisonment.
We
will 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 obtain manufacturing approval from
the FDA or comparable foreign regulatory authorities, fail to provide 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 bulk drug substance or the
active pharmaceutical ingredient, or API, in our product candidates for use in our clinical trials or for commercial products,
if any. As a result, we will be obligated to rely on contract manufacturers, if and when any of our product candidates are approved
for commercialization. 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 acceptable terms to us, or
at all.
The
facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA, EMA or comparable
foreign regulatory authorities pursuant to inspections that will be conducted after we submit an NDA or BLA to the FDA or their
equivalents to other relevant regulatory authorities. We will not control the manufacturing process of, and will be completely
dependent on, our contract manufacturers for compliance with cGMPs for manufacture of both active drug substances and finished
drug 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 do not successfully manufacture material that conforms to our specifications
and the strict regulatory requirements of the FDA, EMA or other regulatory authorities, they will not be able to secure and/or
maintain regulatory approval for their manufacturing facilities. If the FDA, EMA or a comparable foreign regulatory authority
does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future,
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 will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign
agencies for compliance with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturers’
compliance with these regulations and standards. 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. In addition, we will not have control over the ability of
our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. 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 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 API 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. Were we
to encounter manufacturing issues, our ability to produce a sufficient supply of any of our product candidates might be negatively
affected. Our inability to coordinate the efforts of our third party manufacturers, or the lack of capacity available at our third
party manufacturers, 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 manufacturers, we could experience significant interruptions in the supply of any
of our product candidates if we decided 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 could be disruptive to our operations and result in lost sales. 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 product candidates, increase our cost of goods sold and result in lost sales.
We
cannot guarantee that our future manufacturers and suppliers 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.
Changes
in product candidate manufacturing or formulation may result in additional costs or delay.
As
product candidates are developed through preclinical studies to late-stage clinical trials towards 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. During the course of a development program, sponsors may also change the
contract manufacturers used to produce the product candidates. 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 clinical
trials. Such changes may also require additional testing, notification or approval by the FDA, EMA or other regulatory authorities.
This could delay completion of clinical trials; require the conduct of bridging clinical trials or studies, or the repetition
of one or more clinical trials; increase clinical trial costs; delay approval of our product candidates, and jeopardize our ability
to commence product sales and generate revenue.
We
expect to rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize
any of our product candidates and our business would be substantially harmed.
We
will rely on third-party CROs and vendors to conduct and manage our clinical programs including contracting with clinical sites
to perform our clinical studies. We plan to rely heavily on these parties for execution of clinical studies for our product candidates
and will control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our
studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance
on CROs and clinical sites will not relieve us of our regulatory responsibilities. We and our CROs will be required to comply
with cGCPs, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European
Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign
equivalents enforce these cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites.
If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon inspection, the FDA or other regulatory authorities will determine
that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with products produced under
cGMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs or clinical sites to
comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and
could also subject us to enforcement action up to and including civil and criminal penalties.
Although
we intend to design the clinical trials for our product candidates in consultation with CROs, we expect that the CROs will manage
all of the clinical trials conducted at contracted clinical sites. As a result, many important aspects of our drug development
programs would be outside of our direct control. In addition, the CROs and clinical sites may not perform all of their obligations
under arrangements with us or in compliance with regulatory requirements. If the CROs or clinical sites do not perform clinical
trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development
and commercialization of any of our product candidates for the subject indication may be delayed or our development program materially
and irreversibly harmed. We cannot control the amount and timing of resources these CROs and clinical sites will devote to our
program or any of our product candidates. If we are unable to rely on clinical data collected by our CROs, we could be required
to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization
and require significantly greater expenditures.
If
any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements
with alternative CROs or clinical sites. If CROs do not successfully carry out their contractual duties or obligations or meet
expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised
due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials
may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize
our product candidates. As a result, our financial results and the commercial prospects for any of our product candidates would
be harmed, our costs could increase and our ability to generate revenue could be delayed.
Any
termination or suspension of, or delays in the commencement or completion of, any necessary studies of any of our product candidates
for any indications could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect
our commercial prospects.
The
commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to:
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the
FDA, EMA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study
on hold;
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subjects
failing to enroll or remain in our trials at the rate we expect;
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a
facility manufacturing any of our product candidates being ordered by the FDA, EMA or other government or regulatory authorities
to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross-contaminations
of product candidates in the manufacturing process;
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any
changes to our manufacturing process that may be necessary or desired;
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subjects
choosing an alternative treatment for the indications for which we are developing our product candidates, or participating
in competing clinical studies;
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subjects
experiencing severe or unexpected drug-related adverse effects;
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reports
from clinical testing on similar technologies and products raising safety and/or efficacy concerns;
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third-party
clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical
trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, cGMP requirements, or
other third parties not performing data collection and analysis in a timely or accurate manner;
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inspections
of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that
require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a
clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications;
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third-party
contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities
for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able
to use some or any of the data produced by such contractors in support of our marketing applications;
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one
or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of
additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective CROs
and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different
CROs and trial sites;
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deviations
of the clinical sites from trial protocols or dropping out of a trial;
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adding
new clinical trial sites;
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the
inability of our CRO to execute any clinical trials for any reason; and
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government
or regulatory delays or “clinical holds” requiring suspension or termination of a trial.
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Product
development costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform
more or larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur and we may
need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA,
comparable foreign regulatory authorities, and IRBs for reexamination, which may impact the costs, timing or successful completion
of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, or other
reviewing entities, or any of our clinical study sites suspend or terminate any of our clinical studies of any of our product
candidates, its commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any
delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize
our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition
and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay
in the commencement or completion of, clinical studies may also ultimately lead to the denial of regulatory approval of our product
candidates. In addition, if one or more clinical studies are delayed, our competitors may be able to bring products to market
before we do, and the commercial viability of any of our product candidates could be significantly reduced.
Clinical
drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials
may not be predictive of future trial results.
Clinical
testing of drug product candidates is expensive and can take many years to complete, and its outcome is inherently uncertain.
Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials
may not be predictive of the results of later-stage clinical trials. We cannot assure you that the FDA, EMA or comparable foreign
regulatory authorities will view the results as we do or that any future trials of any of our product candidates will achieve
positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits
despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding
promising results in earlier trials. Any future clinical trial results for our product candidates may not be successful.
In
addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our product candidates.
For example, such trials could result in increased variability due to varying site characteristics, such as local standards of
care, differences in evaluation period and surgical technique, and due to varying patient characteristics including demographic
factors and health status.
Even
though we may obtain or apply for orphan drug designation for a product candidate, we may not be able to obtain orphan drug marketing
exclusivity.
The
treatment of recent-onset T1D is an orphan indication, and PRV-031 has been designated as an orphan drug in this indication by
the FDA. Some of the subsets of lupus erythematosus are orphan indications (e.g., lupus nephritis). One of the potential life-cycle
opportunities for PRV-300 is the interception and treatment of emerging viral diseases, and the use of PRV-300 in some of these
diseases (
e.g.
, pandemic or avian flu) may qualify for orphan designation based on epidemiology and other factors.
However,
there is no guarantee that the FDA, EMA or its foreign equivalents will grant any future application for orphan drug designation
for PRV-300 or any of our other product candidates, which would make us ineligible for the additional exclusivity and other benefits
of orphan drug designation.
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which
is generally a disease or condition that affects fewer than 200,000 individuals in the United States or for which there is no
reasonable expectation that the cost of developing and making a drug available in the Unites States for this type of disease or
condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or a
BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review
and approval process. In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant
funding of up to $400,000 per year for four years to defray costs of clinical trial expenses, tax credits for clinical research
expenses and potential exemption from the FDA application user fee.
If
a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications
to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s
orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval
of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient
quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If
a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not
be entitled to orphan drug exclusivity. There can be no assurance that we will receive orphan drug designation for any of our
product candidates in the indications for which we think they might qualify, if we elect to seek such applications.
Although
we may pursue expedited regulatory approval pathways for a product candidate, it may not qualify for expedited development or,
if it does qualify for expedited development, it may not actually lead to a faster development or regulatory review or approval
process.
Although
we believe there may be an opportunity to accelerate the development of certain of our product candidates through one or more
of the FDA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we cannot
be assured that any of our product candidates will qualify for such programs.
For
example, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in combination with
one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the
drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although
breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not
change the standards for approval. If we apply for breakthrough therapy designation or any other expedited program for our product
candidates, the FDA may determine that our proposed target indication or other aspects of our clinical development plans do not
qualify for such expedited program. Even if we are successful in obtaining a breakthrough therapy designation or access to any
other expedited program, we may not experience faster development timelines or achieve faster review or approval compared to conventional
FDA procedures. Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer
supported by data from our clinical development program. Additionally, qualification for any expedited review procedure does not
ensure that we will ultimately obtain regulatory approval for such product candidate.
Third-party
coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our
ability to successfully market our product candidates will depend in part on the level of reimbursement that government health
administration authorities, private health coverage insurers and other organizations provide for the cost of our products and
related treatments. Countries in which any of our product candidates are sold through reimbursement schemes under national health
insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of
initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and private
medical care plans can exert significant indirect pressure on prices. We may not be able to sell our product candidates profitably
if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party
payors attempt to contain health care costs in ways that are likely to impact our development of products including:
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failing
to approve or challenging the prices charged for health care products;
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introducing
reimportation schemes from lower priced jurisdictions;
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limiting
both coverage and the amount of reimbursement for new therapeutic products;
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denying
or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational
by third-party payors; and
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refusing
to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.
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Risks
Relating to Our Intellectual Property Rights
We
depend on rights to certain pharmaceutical compounds that are licensed to us. We do not control these pharmaceutical compounds
and any loss of our rights to them could prevent us from selling our products.
We
are dependent on licenses from third parties for all but one of our pharmaceutical compounds. We do not own the patents that underlie
these licenses. Our rights to use the pharmaceutical compounds we license are subject to the continuation of and compliance with
the terms of those licenses. Thus, the patents and patent applications applicable to our product candidates were not written by
us or our attorneys, and we did not have control over the drafting and prosecution. The former patent owners and our licensors
might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if
we had been the owners of the patents and applications and had control over the drafting. Moreover, under certain of our licenses,
patent prosecution activities remain under the control of the licensor. We cannot be certain that drafting of the licensed patents
and patent applications, or patent prosecution, by the licensors have been or will be conducted in compliance with applicable
laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
Our
rights to develop and commercialize the product candidates we license are subject to the validity of the owner’s intellectual
property rights. Enforcement of our licensed patents or defense or any claims asserting the invalidity of these patents is often
subject to the control or cooperation of our licensors. Legal action could be initiated against the owners of the intellectual
property that we license and an adverse outcome in such legal action could harm our business because it might prevent such companies
or institutions from continuing to license intellectual property that we may need to operate our business. In addition, such licensors
may resolve such litigation in a way that benefits them but adversely affects our ability to develop and commercialize our product
candidates.
In
addition, our rights to practice the inventions claimed in the licensed patents and patent applications are subject to our licensors
abiding by the terms of those licenses and not terminating them. Our licenses may be terminated by the licensor if we are in material
breach of certain terms or conditions of the license agreement or in certain other circumstances. Certain of our licenses contained
in our agreements with Janssen and Vactech contain provisions that allow the licensor to terminate the license if (i) we breach
any payment obligation or other material provision under the agreement and fail to cure the breach within a fixed time following
written notice of termination, (ii) we or any of our affiliates, licensees or sublicensees directly or indirectly challenge the
validity, enforceability, or extension of any of the licensed patents, (iii) we declare bankruptcy or dissolve, (iv) we fail to
maintain a licensed product in active development or fail to use commercially reasonable efforts to develop or commercialize a
licensed product. Our rights under the licenses are subject to our continued compliance with the terms of the license, including
the payment of royalties due under the license. Termination of these licenses could prevent us from marketing some or all of our
products. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and
related royalty obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of
such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not
paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might
attempt to revoke the license. If such an attempt were successful, we might be barred from producing and selling some or all of
our products.
It
is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.
Our
commercial success will depend, in part, on obtaining and maintaining patent protection for our technologies, products and processes,
successfully defending these patents against third-party challenges and successfully enforcing these patents against third party
competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and
factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations
of patent laws may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that
may be allowable or enforceable in our patents. We currently own 8 issued patents, license 311 issued patents, and license 146
pending patents for our product candidates that may never be approved by United States or foreign patent offices. The existing
patent and patent applications relating to our product candidates and related technologies may be challenged, invalidated or circumvented
by third parties and might not protect us against competitors with similar products or technologies.
The
degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may
not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage
at all. For example, others have filed, and in the future are likely to file, patent applications covering products and technologies
that are similar, identical or competitive to any of our product candidates, or important to our business. We cannot be certain
that any patent application owned by a third party will not have priority over patent applications filed by us, or that we will
not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices.
In
the future we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection
is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees,
academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately
protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors
have rights to publish data and information in which we may have rights. If we cannot maintain the confidentiality of our proprietary
technology and other confidential information, our ability to receive patent protection and our ability to protect valuable information
owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets
is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade
secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If
we fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third
parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our
ability to generate revenues and attain profitability.
We
may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee
that any trademark applications filed by us or our licensors will be approved. Third parties may also oppose such trademark applications,
or otherwise challenge our use of the trademarks. In the event that the trademarks we use are successfully challenged, we could
be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to
advertising and marketing new brands. Further, we cannot provide assurance that competitors will not infringe the trademarks we
use, or that we will have adequate resources to enforce these trademarks.
Our
product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent
our development and commercialization efforts.
Our
success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been
characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third party patent
rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences
in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally,
because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents
that may be infringed by commercialization of any of our product candidates or any future product candidate. There may be certain
issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop
or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available
to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming
and may:
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result
in costly litigation;
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divert
the time and attention of our technical personnel and management;
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prevent
us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court
of law;
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require
us to cease or modify our use of the technology and/or develop non-infringing technology; or
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require
us to enter into royalty or licensing agreements.
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Third
parties may hold proprietary rights that could prevent any of our product candidates from being marketed. Any patent-related legal
action against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our
processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or
market any of our product candidates or any future product candidates. We cannot predict whether we would prevail in any such
actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at
all. In addition, we cannot be sure that we could redesign our product candidates or any future product candidates or processes
to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the
failure to obtain necessary licenses, could prevent us from developing and commercializing any of our product candidates or a
future product candidate, which could harm our business, financial condition and operating results.
A
number of companies, including several major pharmaceutical companies, have conducted, or are conducting, research in immune-mediated
diseases within the therapeutic fields in which we intend to operate, which has resulted, or may result, in the filing of many
patent applications related to this research. If we were to challenge the validity of these or any issued United States patent
in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This
means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s
claims. If we were to challenge the validity of these or any issued United States patent in an administrative trial before the
Patent Trial and Appeal Board in the United States Patent and Trademark Office, we would have to prove that the claims are unpatentable
by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement,
validity or enforceability.
We
may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully
used or disclosed alleged confidential information or trade secrets of their former employers.
As
is commonplace in our industry, we will employ individuals who were previously employed at other pharmaceutical companies, including
our competitors or potential competitors. Although no claims against us are currently pending, we may be subject in the future
to claims that our employees or prospective employees are subject to a continuing obligation to their former employers (such as
non-competition or non-solicitation obligations) or claims that our employees or we have inadvertently or otherwise used or disclosed
trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these
claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction
to management.
General
Company-Related Risks
We
will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As
our development and commercialization plans and strategies continue to develop, we intend to expand the size of our employee and
consultant/contractor base. Future growth would impose significant added responsibilities on members of management, including
the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to
divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time
to managing these growth activities. Our future financial performance and our ability to commercialize our product candidates
and any other future product candidates and our ability to compete effectively will depend, in part, on our ability to effectively
manage our future growth.
Future
capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.
If
we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced
and these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences
and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities
would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions
on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements,
we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are
not favorable to us.
If
we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our
business strategy. In addition, the loss of the services of our co-founders would adversely impact our business prospects.
Our
management team has expertise in many different aspects of drug development and commercialization. However, our ability to compete
in the highly competitive pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified
managerial, scientific and medical personnel. We will need to hire additional personnel as we further develop our product candidates.
Competition for skilled personnel in our market is intense and competition for experienced scientists may limit our ability to
hire and retain highly qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of our
management, scientific and medical teams may terminate their employment with us on short notice. We have entered into employment
agreements with certain of our executive officers. However, these employment arrangements will provide for at-will employment,
which means that any of our employees could leave our employment at any time, with or without notice. Moreover, there can be no
assurance that anyone we expect to employ in a key management position will be available to join our team when we expect them
to, if at all. The loss of the services of any of our executive officers or other key employees, or our inability to hire targeted
executives, could potentially harm our business, operating results or financial condition. In particular, we believe that the
loss of the services of our co-founders would have a material adverse effect on our business. Our success also depends on our
ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level,
and senior scientific and medical personnel.
Other
pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk
profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances
for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer.
If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize
product candidates would be limited.
If
product liability lawsuits are brought against us, we may incur substantial liabilities
and may be required to limit commercialization of our product candidates.
We
face a potential risk of product liability as a result of the clinical testing of our product candidates and will face an even
greater risk if we commercialize any of our product candidates or any other future product. For example, we may be sued if any
product we develop, including any of our product candidates, or any materials that we use in our products allegedly causes injury
or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims
may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product,
negligence, strict liability and a breach of warranties. In the US, claims could also be asserted under state consumer protection
acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be
required to limit commercialization of our product candidates. Even successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased
demand for any of our product candidates or any future products that we may develop;
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injury
to our reputation;
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withdrawal
of clinical trial participants;
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costs
to defend the related litigation;
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a
diversion of management’s time and our resources;
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substantial
monetary awards to trial participants or patients;
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product
recalls, withdrawals or labeling, marketing or promotional restrictions;
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the
inability to commercialize some or all of our product candidates; and
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a
decline in the value of our stock.
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Our
inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of products we develop. We intend to obtain product liability
insurance covering our clinical trials. Although we will maintain such insurance, any claim that may be brought against us could
result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in
excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to
a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a
settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain,
sufficient capital to pay such amounts.
We
may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
We
may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe
will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not
be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products
resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing
our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the
transaction.
We
are a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could
result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal
exposure.
We
are a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could
result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal
exposure.
Cyber-attacks
are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks
could include wrongful conduct by hostile foreign governments, industrial espionage, deployment of harmful malware, denial-of-service,
and other means to threaten data confidentiality, integrity and availability. A successful cyber-attack could cause serious negative
consequences for our company, including the disruption of operations, the misappropriation of confidential business information
and trade secrets, and the disclosure of corporate strategic plans. To date, we have not experienced threats to our data and information
technology systems. However, although we devote resources to protect our information technology systems, we realize that cyber-attacks
are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business,
legal or reputational harm to us, or would have a material adverse effect on our operating results and financial condition.
Risks
Related to our Common Stock
The
price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for stockholders.
The
market price of our common stock could be highly volatile and could be subject to wide fluctuations in response to various factors,
some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this
Quarterly Report on Form 10-Q and others such as:
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our
commercialization, marketing and manufacturing prospects;
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our
intentions and our ability to establish collaborations and/or partnerships;
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the
timing or likelihood of regulatory filings and approvals;
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our
development, commercialization, marketing and manufacturing capabilities;
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our
expectations regarding the potential market size and the size of the patient populations for our product candidates;
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the
implementation of our business model and strategic plans for our business and technology;
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the
scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates,
along with any product enhancements;
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estimates
of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional
capital;
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our
financial performance; and
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developments
and projections relating to our competitors and our industry, including competing therapies and procedures.
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addition, the stock markets in general, and the markets for biopharmaceutical and biotechnology stocks in particular, have experienced
extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may
adversely affect the market price or liquidity of our common stock. 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 issuer. If any of our stockholders
were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management
would be diverted from the operation of our business.
An
active, liquid and orderly market for our common stock may not develop, which could result in substantial losses for stockholders.
Prior
to our IPO, there was no public market for shares of our common stock, and an active public market for our shares may not develop
or be sustained subsequent to the IPO. The lack of an active market may impair your ability to sell your shares at the time you
wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital
by selling shares and may impair our ability to acquire other businesses, applications, or technologies using our shares as consideration.
If
securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading
opinion regarding our stock, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. We do not have and may never obtain research coverage by securities and industry analysts. If no or
few securities or industry analysts commence coverage of us, the market price for our stock would be negatively impacted. In the
event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating
results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease
coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could
cause our stock price or trading volume to decline.
Our
failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock.
If
we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum
closing bid price requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative
effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do
so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements
would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock,
prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s
listing requirements.
We
are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable
to emerging growth companies, our common stock may be less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we intend to 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, 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. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an
emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a)
following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07
billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that
is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than
$1.0 billion in non-convertible debt during the prior three-year period.
Our
status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when
we need it.
Because
of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may be less
attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable
to compare our business with other companies in our industry if they believe that our reporting is not as transparent as other
companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results
of operations may be materially and adversely affected.
If
we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our
stock price may decline.
We
may from time to time issue additional shares of common stock at a discount from the current market price of our common stock.
As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at
such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future,
including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible
into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.
Our
principal stockholders and management own a significant percentage of our stock and will be able to exert significant control
over matters subject to stockholder approval.
Following
our IPO, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially
owned approximately 36% of our voting stock. Therefore, these stockholders will have the ability to influence us through this
ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these
stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger,
sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers
for our common stock that you may feel are in your best interest as one of our stockholders.
Sales
of a substantial number of shares of our common stock in the public market could cause our stock price to decline.
If
our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market
after the lock-up and other legal restrictions on resale discussed in our prospectus lapse, the market price of our common stock
could decline. As of September 30, 2018, we had outstanding shares totaling 37,351,562 shares of common stock. Of these shares,
approximately 15,969,563 shares of our common stock became freely tradable, without restriction, in the public market immediately
following the IPO in July 2018.
The
lock-up agreements pertaining to the IPO will expire 180 days or 12 months from July 3, 2018, the effective date of our registration
statement. After the lock-up agreements expire, up to an additional 11,381,999 shares of common stock will be eligible for sale
in the public market within 180 days, and 14,588,384 shares of common stock (including 4,588,384 warrants convertible into common
stock) will be eligible for sale in the public market within 12 months, all of which shares are held by directors, executive officers
and other affiliates and will be subject to Rule 144 under the Securities Act. MDB may, however, in its sole discretion, permit
our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration
of the lock-up agreements, subject to certain requirements.
In
addition, as of September 30, 2018, 8,457,808 shares of common stock that are either subject to outstanding options, reserved
for future issuance under our equity incentive plans or subject to outstanding warrants will become eligible for sale in the public
market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701
under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in
the public market, the market price of our common stock could decline.
The
holders of approximately 11,381,999 shares of our common stock, or approximately 30% of our total outstanding common stock, as
of September 30, 2018, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject
to vesting schedules and to the lock-up agreements described above. Registration of these shares under the Securities Act would
result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates.
Any sales of securities by these stockholders could have a material adverse effect on the market price of our common stock.
We
are incurring significant increased costs as a result of becoming a public company that reports to the Securities and Exchange
Commission (SEC) and our management is required to devote substantial time to meet compliance obligations.
As
a newly public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company.
We are subject to reporting requirements of the Exchange Act and the Sarbanes-Oxley Act, as well as rules subsequently implemented
by the SEC and Nasdaq that impose significant requirements on public companies, including requiring the establishment and maintenance
of effective disclosure and financial controls and changes in corporate governance practices. In addition, on July 21, 2010, the
Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance
and executive compensation-related provisions in the Dodd-Frank Act that are expected to increase our legal and financial compliance
costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems
and resources. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.
In addition, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our
board of directors, our board committees or as executive officers.
Provisions
in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead
to entrenchment of management.
Our
amended and restated certificate of incorporation and bylaws contains provisions that could delay or prevent changes in control
or changes in our management without the consent of our board of directors. These provisions include the following:
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no
cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the
exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors
or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board
of directors;
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the
ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other
terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly
dilute the ownership of a hostile acquirer;
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the
ability of our board of directors to alter our bylaws without obtaining stockholder approval;
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the
required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal
our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal
of directors;
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the
requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief
executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration
of a proposal or to take action, including the removal of directors; and
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advance
notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose
matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting
a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of
us.
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addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.
We
are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section
203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless
the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.
For a description of our capital stock, see the section titled “Description of Capital Stock.”
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against
us and may reduce the amount of money available to us.
Our
amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, in each
case to the fullest extent permitted by Delaware law.
In
addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws became effective immediately prior to
the completion of the IPO and our indemnification agreements that we have entered into with our directors and officers provide
that:
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we
will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at
our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such
person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best
interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s
conduct was unlawful;
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we
may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable
law;
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we
are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except
that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is
not entitled to indemnification;
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we
will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against
us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce
a right to indemnification;
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the
rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
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we
may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees
and agents.
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Our
certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially
all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors, officers or employees.
Our
certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative
action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against
us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret,
apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against
us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to
bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees,
which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were
to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an
action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect
our business and financial condition.
We
do not intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will
depend on appreciation in the price of our common stock.
We
do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to invest our future earnings,
if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future.
Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation
in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price
at which our holders have purchased it.