Item
1A. Risk Factors
You should consider carefully the following
information about the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q
and in our other public filings, in evaluating our business. If any of the following risks actually occurs, our business, financial
condition, results of operations, and future growth prospects would likely be materially and adversely affected. In these circumstances,
the market price of our common stock would likely decline.
Risks
Related to Our Financial Condition
We
have a very limited operating history and have never generated any revenues.
We
are an early-stage biopharmaceutical company with a very limited operating history that may make it difficult to evaluate the
success of our business to date and to assess our future viability. Our operations, with respect to the entity that operationally
survived the Merger, have been limited to organizing and staffing the company, business planning, raising capital, developing
our pipeline assets (TARA-002 and IV Choline Chloride), identifying product candidates, and other research and development. We
have not yet demonstrated an ability to successfully complete any clinical trials and have never completed the development of
any product candidate, nor have we ever generated any revenue from product sales or otherwise. Consequently, we have no meaningful
operations upon which to evaluate our business, and predictions about our future success or viability may not be as accurate as
they could be if we had a longer operating history or a history of successfully developing and commercializing biopharmaceutical
products.
We
expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
Investment
in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and
significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have never generated
any revenues, and cannot estimate with precision the extent of our future losses. We expect to incur increasing levels of operating
losses for the foreseeable future as we execute on the plan to continue research and development activities, including the ongoing
and planned clinical development of our product candidates, potentially acquire new products and/or product candidates, seek regulatory
approvals of and potentially commercialize any approved product candidates, hire additional personnel, protect our intellectual
property, and incur the additional costs of operating as a public company. We expect to continue to incur significant and increasing
operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse
effect on our financial position and working capital.
To
become and remain profitable, we must develop or acquire and eventually commercialize a product with significant market potential.
This will require the Company to be successful in a range of challenging activities, including completing preclinical studies
and clinical trials, obtaining marketing approval, manufacturing, marketing and selling any product candidate for which we obtain
marketing approval, and satisfying post-marketing requirements, if any. We may never succeed in these activities and, even if
we succeed in obtaining approval for and commercializing one or more products, we may never generate revenues that are significant
enough to achieve profitability. In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications,
delays and other known and unknown challenges. Furthermore, because of the numerous risks and uncertainties associated with biopharmaceutical
product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be
able to achieve profitability. If we achieve profitability, we may not be able to sustain or increase profitability on a quarterly
or annual basis and may continue to incur substantial research and development and other expenditures to develop and market additional
product candidates. Our failure to become and remain profitable would decrease the value of the company and could impair our ability
to raise capital, maintain our research and development efforts, expand the business or continue operations. A decline in the
value of the Company could also cause you to lose all or part of your investment.
The
COVID-19 coronavirus could adversely impact our business, including our clinical development plans.
In
December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization
(the “WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its
assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases
and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. As COVID-19 continues to spread in
the United States and around the world, we may experience disruptions that could severely impact our business, including:
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interruption
of key manufacturing, research and clinical development activities, due to limitations on work and travel imposed or recommended
by federal or state governments, employers and others;
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delays
or difficulties in clinical trial site operations, including difficulties in recruiting clinical site investigators and clinical
site staff and difficulties in enrolling patients;
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interruption
of key business activities, due to illness and/or quarantine of key individuals and delays associated with recruiting, hiring
and training new temporary or permanent replacements for such key individuals, both internally and at our third party service
providers; and
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delays
in research and clinical trial sites receiving the supplies and materials needed to conduct preclinical studies and clinical
trials, due to work stoppages, travel and shipping interruptions or restrictions or other reasons;
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difficulties
in raising additional capital needed to pursue the development of our programs due to the slowing of our economy and near
term and/or long term negative effects of the pandemic on the financial, banking and capital markets;
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changes
in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in
which research, including clinical development, is conducted, which may result in unexpected costs; and
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delays
in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations
in employee resources, travel restrictions or forced furlough of government employees.
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The
global outbreak of COVID- continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our business will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other
countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries
to contain and treat the virus. The duration and extent of the impact from the COVID-19 pandemic depends on future developments
that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness
of containment actions and the impact of these and other factors on our operations, employees, partners and vendors. If we are
not able to respond to and manage the impact of such events effectively, our business will be harmed.
In
addition, while the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict,
it has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the future
negatively affect our liquidity. A recession or market correction resulting from the spread of COVID-19 could materially affect
our business and the value of our common stock.
To
the extent the COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening
many of the other risks and uncertainties described elsewhere in this “Risk Factors’’ section.
We
will need to raise additional financing in the future to fund our operations, which may not be available to us on favorable terms
or at all.
We
will require substantial additional funds to conduct the costly and time-consuming clinical efficacy trials necessary to pursue
regulatory approval of each potential product candidate and to continue the development of TARA-002 and IV Choline Chloride in
new indications or uses. Our future capital requirements will depend upon a number of factors, including: the number and timing
of future product candidates in the pipeline; progress with and results from preclinical testing and clinical trials; the ability
to manufacture sufficient drug supplies to complete preclinical and clinical trials; the costs involved in preparing, filing,
acquiring, prosecuting, maintaining and enforcing patent and other intellectual property claims; and the time and costs involved
in obtaining regulatory approvals and favorable reimbursement or formulary acceptance. Raising additional capital may be costly
or difficult to obtain and could significantly dilute stockholders’ ownership interests or inhibit our ability to achieve
our business objectives. As a result of economic conditions, general global economic uncertainty, political change, and other
factors, including uncertainty associated with the COVID-19 pandemic, we do not know whether additional capital will be available
when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. Specifically, the COVID-19
pandemic has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the
future negatively affect our liquidity.
If
we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or
other preferences that adversely affect the rights of our common stockholders. Further, to the extent that we raise additional
capital through the sale of common stock or securities convertible or exchangeable into common stock, the ownership interests
of our common stock holders will be diluted. In addition, any debt financing may subject us to fixed payment obligations and covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or
declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish certain valuable intellectual property or other
rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may
not be favorable to us. Even if we were to obtain sufficient funding, there can be no assurance that it will be available on terms
acceptable to us or our stockholders.
Clinical
drug development is very expensive, time-consuming and uncertain.
Clinical
development for our product candidates is very expensive, time-consuming, difficult to design and implement, and the outcomes
are inherently uncertain. Most product candidates that commence clinical trials are never approved by regulatory authorities for
commercialization and of those that are approved many do not cover their costs of development. In addition, the Company, any partner
with which we may in the future collaborate, the FDA, an institutional review board (IRB), or other regulatory authorities, including
state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate
our clinical trials at any time.
Risks
Related to Drug/Biologics Development
Our
business depends on the successful clinical development, regulatory approval and commercialization of TARA-002 and IV Choline
Chloride.
The
success of our business, including our ability to finance our self and generate revenue in the future, primarily depends on the
successful development, regulatory approval and commercialization of TARA-002 and IV Choline Chloride. The clinical and commercial
success of TARA-002 and IV Choline Chloride depends on a number of factors, including the following:
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timely
and successful completion of required clinical trials not yet initiated, which may be significantly slower or costlier than
we currently anticipate and/or produce results that do not achieve the endpoints of the trials;
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whether
we are required by the FDA or similar foreign regulatory agencies to conduct additional studies beyond those planned to support
the approval and commercialization of TARA-002 and IV Choline Chloride;
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achieving
and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain compliance with their
contractual obligations and with all regulatory requirements applicable to TARA-002 and IV Choline Chloride;
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ability
of third parties with whom we contract to manufacture adequate clinical trial and commercial supplies of TARA-002 and IV Choline
Chloride, to remain in good standing with regulatory agencies and to develop, validate and maintain commercially viable manufacturing
processes that are compliant with current good manufacturing practices (“cGMP”);
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a
continued acceptable safety profile during clinical development and following approval of TARA-002 and IV Choline Chloride;
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ability
to obtain favorable labeling for TARA-002 and IV Choline Chloride through regulators that allows for successful commercialization,
given the drugs may be marketed only to the extent approved by these regulatory authorities (unlike with most other industries);
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ability
to successfully commercialize TARA-002 and IV Choline Chloride in the United States and internationally, if approved for marketing,
sale and distribution in such countries and territories, whether alone or in collaboration others;
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acceptance
by physicians, insurers and payors, and patients of the quality, benefits, safety and efficacy of TARA-002 and IV Choline
Chloride, if either is approved, including relative to alternative and competing treatments;
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existence
of a regulatory environment conducive to the success of TARA-002 and IV Choline Chloride;
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ability
to price TARA-002 and IV Choline Chloride to recover our development costs and generate a satisfactory profit margin; and
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our
ability and our partners’ ability to establish and enforce intellectual property rights in and to TARA-002 and IV Choline
Chloride.
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If
we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience
significant delays or an inability to obtain regulatory approvals or commercialize TARA-002 and IV Choline Chloride. Even if regulatory
approvals are obtained, we may never be able to successfully commercialize TARA-002 and IV Choline Chloride. Accordingly, we cannot
assure you that we will be able to generate sufficient revenue through the sale of TARA-002 and IV Choline Chloride to continue
our business.
The
COVID-19 pandemic is impacting our business and the business of the third-parties with which we contract for key services related
to our clinical development plans. If the crisis persists, it is likely to have a significant delay in our development timelines
and result in additional and unexpected costs. Presently, we anticipate that the stress of COVID-19 on healthcare systems around
the globe will negatively impact our ability to conduct clinical trials in the near term due primarily to the lack of resources
at clinical trial sites and the resulting inability to enroll patients in these trials. In addition, it is possible that the stress
of the COVID-19 pandemic on regulatory agencies may make it more difficult to collaborate with, and receive guidance from, such
agencies, which could delay our development timelines and negatively impact our business.
We
have never made an IND, BLA or NDA submission or conducted a clinical trial and may be unable to successfully do so for TARA-002
or IV Choline Chloride.
The
conduct of a clinical trials is a long, expensive, complicated and highly regulated process. Although our employees have made
regulatory submissions and conducted successful clinical trials in the past across many therapeutic areas while employed at other
companies, we, as a company, have not submitted an investigational new drug application (IND), conducted any clinical trials,
or submitted a BLA or new drug application (NDA), and as a result may require more time and incur greater costs than we anticipate.
Failure to commence or complete, or delays in, our planned regulatory submissions or clinical trials would prevent us from, or
delay us, in obtaining regulatory approval of and commercializing TARA-002 and IV Choline Chloride, which would adversely impact
our financial performance, as well as subjecting us to significant contract liabilities.
TARA-002
is an immunopotentiator, the first indication for which we plan to pursue is the treatment of lymphatic malformations, an indication
for which there are no FDA-approved therapies. This makes it difficult to predict the timing and costs of clinical development
for TARA-002, as well as the regulatory approval path.
To
date, there are no FDA-approved therapies for the treatment of lymphatic malformations and the standard of care is surgery. The
regulatory approval process for novel product candidates such as TARA-002 can be more expensive and take longer than for other,
better known or extensively studied therapeutic approaches. In addition, the clinical trials conducted on TARA-002 in the United
States to date, included a control arm in which treatment was initially delayed. It is unclear whether this trial design could
support FDA approval or whether a placebo-control or other randomization will be required by the FDA. Delay or failure to obtain,
or unexpected costs in obtaining, the regulatory approval necessary to bring TARA-002 to market could decrease our ability to
generate sufficient revenue to maintain our business.
The
regulatory path to approval of TARA-002 in LMs is dependent on FDA acceptance of prior clinical data from OK-432.
The proposed regulatory strategy for the
TARA-002 program is a combination of demonstrating comparability to a product that is not FDA approved and relying upon existing
data. By demonstrating that TARA-002 is, in fact, OK-432, we believe that the large volume of data published on OK-432 including
the data generated by the University of Iowa led study will then apply to TARA-002. This strategy will rely on some components
of a biosimilar pathway, with a significant difference being that the same genetically distinct strain and proprietary manufacturing
processes will be used to produce TARA-002 as OK-432. If comparability is demonstrated and accepted by regulatory authorities,
we will attempt to rely on existing OK-432 safety and efficacy data to submit the BLA. There is no example to date of a biologic
product that was approved utilizing this regulatory approach that we are aware of.
Our
product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or result in post-approval regulatory action.
Unforeseen
side effects from TARA-002 or IV Choline Chloride could arise either during clinical development or, if approved, after it has
been marketed. Undesirable side effects could cause us, any partners with which we may collaborate, or regulatory authorities
to interrupt, extend, modify, delay or halt clinical trials and could result in a more restrictive or narrower label or the delay
or denial of regulatory approval by the FDA or comparable foreign authorities.
Results
of clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials could
be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development
of or deny approval of a product candidate for any or all targeted indications. The drug-related side effects could affect patient
recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences
may harm our business, financial condition, operating results and prospects.
Additionally,
if we or others identify undesirable side effects, or other previously unknown problems, caused by a product after obtaining U.S.
or foreign regulatory approval, a number of potentially negative consequences could result, which could prevent us or our potential
partners from achieving or maintaining market acceptance of the product and could substantially increase the costs of commercializing
such product.
A fast track designation by the FDA may not actually lead
to a faster development or regulatory review or approval process for IV Choline Chloride for the treatment of IFALD.
The FDA has granted fast track designation
to IV Choline Chloride for the treatment of IFALD. If a drug is intended for the treatment of a serious or life-threatening condition
and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for fast
track designation. Even though we have received fast track designation for IV Choline Chloride for the treatment of IFALD, we may
not experience a faster development process, review or approval. The FDA may withdraw fast track designation if it believes that
the designation is no longer supported by data from our clinical development program.
Although the FDA has granted Rare Pediatric Disease Designation
for TARA-002 for the treatment of LMs, a BLA for TARA-002, if approved, may not meet the eligibility criteria for a priority
review voucher.
Rare Pediatric Disease Designation has
been granted for TARA-002 for the treatment of LMs. In 2012, Congress authorized the FDA to award priority review vouchers to sponsors
of certain rare pediatric disease product applications. This provision is designed to encourage development of new drug and biological
products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor who receives
an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to
receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease
drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may
be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted
the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the voucher was
awarded is not marketed in the U.S. within one year following the date of approval.
For the purposes of this program, a “rare
pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations
primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents;
and (b) rare disease or conditions within the meaning of the Orphan Drug Act. Congress has only authorized the Rare Pediatric
Disease Priority Review Voucher program until September 30, 2020. However, if a drug candidate receives Rare Pediatric Disease
Designation before October 1, 2020, it is eligible to receive a voucher if it is approved before October 1, 2022.
However, TARA-002 for the treatment of
LMs may not be approved by that date, or at all, and, therefore, we may not be in a position to obtain a priority review voucher
prior to expiration of the program, unless Congress further reauthorizes the program. Additionally, designation of a drug for a
rare pediatric disease does not guarantee that a BLA will meet the eligibility criteria for a rare pediatric disease
priority review voucher at the time the application is approved. Finally, a Rare Pediatric Disease Designation does not lead
to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval.
We may or may not realize any benefit from receiving a voucher.
Even
if a product candidate obtains regulatory approval, it may fail to achieve the broad degree of physician and patient adoption
and use necessary for commercial success.
The
commercial success of both TARA-002 and IV Choline Chloride, if approved, will depend significantly on the broad adoption and
use of them by physicians and patients for approved indications, and neither may be commercially successful even though the product
is shown to be safe and effective. The degree and rate of physician and patient adoption of a product, if approved, will depend
on a number of factors, including but not limited to:
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patient
demand for approved products that treat the indication for which a product is approved;
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the
effectiveness of the product compared to other available therapies;
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the
availability of coverage and adequate reimbursement from managed care plans and other healthcare payors;
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the
cost of treatment in relation to alternative treatments and willingness to pay on the part of patients;
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in
the case of TARA-002, overcoming physician or patient biases toward surgery for the treatment of lymphatic malformations;
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insurers’
willingness to see the applicable indication as a disease worth treating;
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patient
satisfaction with the results, administration and overall treatment experience;
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limitations
or contraindications, warnings, precautions or approved indications for use different than those sought by us that are contained
in the final FDA-approved labeling for the applicable product;
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any
FDA requirement to undertake a risk evaluation and mitigation strategy;
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the
effectiveness of our sales, marketing, pricing, reimbursement and access, government affairs, and distribution efforts;
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adverse
publicity about a product or favorable publicity about competitive products;
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new
government regulations and programs, including price controls and/or limits or prohibitions on ways to commercialize drugs,
such as increased scrutiny on direct-to-consumer advertising of pharmaceuticals; and
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potential
product liability claims or other product-related litigation.
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If
either TARA-002 or IV Choline Chloride is approved for use but fails to achieve the broad degree of physician and patient adoption
necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent
or limit our ability to generate revenue and continue our business.
Any
adverse developments that occur in patients undergoing treatment with OK-432 / Picibanil or in patients participating in clinical
trials conducted by third parties may affect our ability to obtain regulatory approval or commercialize TARA-002.
Chugai Pharmaceutical Co., Ltd., over which
we have no control, has the rights to commercialize TARA-002 and it is currently marketed in Japan and Taiwan, under the name Picibanil,
for various indications. In addition, clinical trials using Picibanil are currently ongoing in various countries around the world.
If serious adverse events occur with patients using Picibanil or during any clinical trials of Picibanil conducted by third parties,
the FDA may delay, limit or deny approval of TARA-002 or require us to conduct additional clinical trials as a condition to marketing
approval, which would increase our costs. If we receive FDA approval for TARA-002 and a new and serious safety issue is identified
in connection with use of Picibanil or in clinical trials of Picibanil conducted by third parties, the FDA may withdraw their approval
of the product or otherwise restrict our ability to market and sell TARA-002. In addition, treating physicians may be less willing
to administer TARA-002 due to concerns over such adverse events, which would limit our ability to commercialize TARA-002.
We
may in the future conduct clinical trials for our product candidates outside the United States, and the FDA and applicable foreign
regulatory authorities may not accept data from such trials.
We
may in the future choose to conduct one or more of our clinical trials outside of the United States. Although the FDA or applicable
foreign regulatory authority may accept data from clinical trials conducted outside the United States or the applicable jurisdiction,
acceptance of such study data by the FDA or applicable foreign regulatory authority may be subject to certain conditions or exclusion.
Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA
will not approve the application on the basis of foreign data alone unless such data are applicable to the U.S. population and
U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered
valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA
is able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar
requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where
the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from
trials conducted outside of the United States or the applicable home country. If the FDA or applicable foreign regulatory authority
does not accept such data, it would likely result in the need for additional trials, which would be costly and time-consuming
and delay aspects of our business plan.
We
may choose not to continue developing or commercializing any of our product candidates at any time during development or after
approval, which would reduce or eliminate the potential return on investment for those product candidates.
At any time, we may decide to discontinue
the development of any of our product candidates for a variety of reasons, including the appearance of new technologies that make
our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements.
For example, we are reviewing the research and preclinical and clinical data of vonapanitase and have not yet determined whether
to pursue further development of this product candidate in the future.
If we terminate a program in which we
have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity
to have allocated those resources to potentially more productive uses.
Our
or our third party’s clinical trials may fail to demonstrate the safety and efficacy of our product candidates, or serious
adverse or unacceptable side effects may be identified during their development, which could prevent or delay marketing approval
and commercialization, increase our costs or necessitate the abandonment or limitation of the development of the product candidate.
Before
obtaining marketing approvals for the commercial sale of any product candidate, we must demonstrate through lengthy, complex and
expensive preclinical testing and clinical trials that such product candidate is both safe and effective for use in the applicable
indication, and failures can occur at any stage of testing. Clinical trials often fail to demonstrate safety and are associated
with side effects or have characteristics that are unexpected. Based on the safety profile seen in clinical testing, we may need
to abandon development or limit development to more narrow uses in which the side effects or other characteristics are less prevalent,
less severe or more tolerable from a risk-benefit perspective. The FDA or an IRB may also require that we suspend, discontinue,
or limit clinical trials based on safety information. Such findings could further result in regulatory authorities failing to
provide marketing authorization for the product candidate. Many pharmaceutical candidates that initially showed promise in early
stage testing and which were efficacious have later been found to cause side effects that prevented further development of the
drug candidate and, in extreme cases, the side effects were not seen until after the drug was marketed, causing regulators to
remove the drug from the market post-approval.
Our regulatory strategy for TARA-002 requires
first that we can demonstrate that TARA-002 is the same biologic substance as OK-432, which is currently manufactured in Japan
and marketed in Japan and Taiwan by Chugai. In order to demonstrate comparability, we plan to conduct studies using batches of
OK-432 from Japan and batches of TARA-002 manufactured in the United States by our contract manufacturer. If we can demonstrate
comparability, through our engagement with the FDA, we will seek the FDA’s agreement to use OK-432’s safety and efficacy
data from clinical trials previously conducted by third parties for our BLA filing. There can be no assurances that our contract
manufacturer will be able to produce a sufficiently comparable product or that the FDA will find such substances comparable or
permit us to use any of the data from prior clinical trials as part of the BLA filing for TARA-002. Further, due to the COVID-19
pandemic and the associated government-imposed stay-at-home orders, a third-party lab with which we have contracted for some of
the initial comparability testing had to stop studies prior to its completion. When the stay-at-home orders are lifted, we anticipate
that this third-party will be able to initiate new testing but we cannot predict when that will occur or how long of a delay the
stoppage will cause for our development timelines for TARA-002.
Other
Risks Related to Our Business
Our
product candidates, if approved, will face significant competition and their failure to compete effectively may prevent them from
achieving significant market penetration.
The
pharmaceutical industry is characterized by rapidly advancing technologies, intense competition, less effective patent terms,
and a strong emphasis on developing newer, fast-to-market proprietary therapeutics. Numerous companies are engaged in the development,
patenting, manufacturing and marketing of healthcare products competitive with those that we are developing, including TARA-002
and IV Choline Chloride. We will face competition from a number of sources, such as pharmaceutical companies, generic drug companies,
biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities,
sales forces, manufacturing capabilities, research and development capabilities, regulatory expertise, clinical trial expertise,
intellectual property portfolios, more international reach, experience in obtaining patents and regulatory approvals for product
candidates and other resources than we have. Some of the companies that offer competing products also have a broad range of other
product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit
our market penetration efforts.
With respect to our lead product candidate,
TARA-002, for the treatment of LMs, the active ingredient in TARA-002 is a genetically distinct strain of Streptococcus pyogenes
(group A, type 3) Su strain. TARA-002 is produced through a proprietary manufacturing process. We anticipate that, if approved
by the FDA, TARA-002 will be protected by 12 years of biologic exclusivity. In addition, TARA-002 is likely to have seven years
of concurrent Orphan Drug Designation exclusivity if deemed comparable to OK-432 by the FDA or based on the prevalence of the disease.
There are no approved pharmacotherapies currently available for the treatment of LMs and the current standard of care is a high-risk
surgical procedure. There are a handful of drug development companies and academic researchers exploring oral formulations of various
agents including macrolides, phosphodiesterase inhibitors, and calcineurin/ mTOR inhibitors. These are in early development and
earlier experiments in LMs utilizing other compounds utilizing these mechanisms have not produced conclusive evidence of safety
or efficacy.
There
are no treatments currently available for IFALD. With respect to IV Choline Chloride for the treatment of IFALD, IV Choline Chloride
is the only sterile injectable form of choline chloride that can be combined with parenteral nutrition. Further, if approved,
IV Choline Chloride will be protected by Orphan Drug Designation exclusivity for seven years.
TARA-002
and any future product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The
Patient Protection and Affordable Care Act, or Affordable Care Act, signed into law on March 23, 2010, includes a subtitle called
the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological
products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application
for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first
licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from
the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still
market a competing version of the reference product if the FDA approves a full BLA for the competing 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 their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact,
implementation and meaning are subject to uncertainty. While it is uncertain when such processes are intended to implement BPCIA
may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for
our biological products.
We
believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period
of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or
that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the
opportunity for biosimilar competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA
exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved,
will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
We
expect to rely on third-party CROs and other third parties to conduct and oversee our clinical trials. If these third parties
do not meet our requirements or otherwise conduct the trials as required, we may not be able to satisfy our contractual obligations
or obtain regulatory approval for, or commercialize, our product candidates.
We
expect to rely on third-party contract research organizations (CROs) to conduct and oversee our TARA-002 and IV Choline Chloride
clinical trials and other aspects of product development. We also expect to rely on various medical institutions, clinical investigators
and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements,
including the FDA’s regulations and good clinical practice (GCP) requirements, which are an international standard meant
to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors,
and state regulations governing the handling, storage, security and recordkeeping for drug and biologic products. These CROs and
other third parties will play a significant role in the conduct of these trials and the subsequent collection and analysis of
data from the clinical trials. We will rely heavily on these parties for the execution of our clinical trials and preclinical
studies and will control only certain aspects of their activities. We and our CROs and other third-party contractors will be required
to comply with GCP and good laboratory practice (GLP) requirements, which are regulations and guidelines enforced by the FDA and
comparable foreign regulatory authorities. Regulatory authorities enforce these GCP and GLP requirements through periodic inspections
of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable
GCP and GLP requirements, or reveal noncompliance from an audit or inspection, the clinical data generated in our clinical trials
may be deemed unreliable and the FDA or other regulatory authorities may require us to perform additional clinical trials before
approving our or our partners’ marketing applications. We cannot assure that upon inspection by a given regulatory authority,
such regulatory authority will determine that any of our clinical or preclinical trials comply with applicable GCP and GLP requirements.
In addition, our clinical trials generally must be conducted with product produced under cGMP regulations. Our failure to comply
with these regulations and policies may require us to repeat clinical trials, which would delay the regulatory approval process.
If
any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be
able to enter into arrangements with alternative CROs or clinical trial sites or do so on commercially reasonable terms. In addition,
if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled
in our clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In
addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time
and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site
may be questioned by the FDA.
We
currently have no marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities
on our own or through third parties, we will be unable to successfully commercialize our product candidates, if approved, or generate
product revenue.
We
currently have no marketing capabilities and no sales organization. To commercialize our product candidates, if approved, in the
United States, Canada, the European Union, Latin America and other jurisdictions we seek to enter, we must build our marketing,
sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these
services, and we may not be successful in doing so. Although our employees have experience in the marketing, sale and distribution
of pharmaceutical products, and business development activities involving external alliances, from prior employment at other companies,
we, as a company, have no prior experience in the marketing, sale and distribution of pharmaceutical products, and there are significant
risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified
individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage
a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing,
distribution and pricing/reimbursement/access capabilities would impact adversely the commercialization of these products.
We
have only received the exclusive rights to the materials required to commercialize TARA-002 in territories other than Japan and
Taiwan until June 17, 2030, or an earlier date if Chugai terminates the agreement with us for any number of reasons, including
for convenience after June 30, 2021, following which such rights become nonexclusive.
Pursuant
to an agreement with Chugai Pharmaceutical Co., Ltd. dated June 17, 2019, as amended on July 14, 2020 (effective June 30,
2020), Chugai agreed to provide us with exclusive access to the starting material necessary to manufacture TARA-002 as well
as technical support necessary for us to develop and commercialize TARA-002 anywhere in the world other than Japan and
Taiwan. However, this agreement does not prevent Chugai from providing such materials and support to any third party for
medical, compassionate use and/or non-commercial research purposes and this agreement is not exclusive following June 17,
2030 or following any termination of the agreement by either party, which includes a termination by Chugai for convenience,
which it has the right to do upon 90 days’ notice after June 30, 2021. Once our rights to the materials and technology
necessary to manufacture, develop and commercialize TARA-002 are not exclusive, third parties, including those with greater
expertise and greater resources, could obtain such materials and technology and develop a competing therapy, which would
adversely affect our ability to generate revenue and achieve or maintain profitability.
We
currently have no products approved for sale, and we may never obtain regulatory approval to commercialize any of our product
candidates.
The
research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage,
approval, sale, marketing, distribution, import, export and reporting of safety and other post-market information related to our
biopharmaceutical products are subject to extensive regulation by the FDA and other regulatory authorities in the United States
and in foreign countries, and such regulations differ from country to country and frequently are revised.
Even
after we achieve U.S. regulatory approval for a product candidate, if any, we will be subject to continued regulatory review and
compliance obligations. For example, with respect to our product candidates, the FDA may impose significant restrictions on the
approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate’s approval
may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials, to
monitor the safety and efficacy of the product. We also will be subject to ongoing FDA obligations and continued regulatory review
with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, pharmacovigilance and adverse
event reporting, storage, advertising, promotion and recordkeeping for our product candidates.
These requirements include submissions
of safety and other post-marketing information and reports, registration, continued compliance with cGMP requirements and with
the FDA’s GCP requirements and GLP requirements, which are regulations and guidelines enforced by the FDA for all of our
product candidates in clinical and preclinical development, and for any clinical trials that it conducts post-approval, as well
as continued compliance with the FDA’s laws governing commercialization of the approved product, including but not limited
to the FDA’s Office of Prescription Drug Promotion (OPDP) regulation of promotional activities, fraud and abuse, product
sampling, scientific speaker engagements and activities, formulary interactions as well as interactions with healthcare practitioners.
To the extent that a product candidate is approved for sale in other countries, we may be subject to similar or more onerous (i.e.,
prohibition on direct-to-consumer advertising that does not exist in the United States.) restrictions and requirements imposed
by laws and government regulators in those countries.
In
addition, manufacturers of drug and biologic products and their facilities are subject to continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously
unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the manufacturing,
processing, distribution or storage facility where, or processes by which, the product is made, a regulatory agency may impose
restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians
or the public, withdrawal of the product from the market, or suspension of manufacturing.
If
we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory
requirements, a regulatory agency may:
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impose
restrictions on the sale, marketing or manufacturing of the product, amend, suspend or withdraw product approvals or revoke
necessary licenses;
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mandate
modifications to promotional and other product-specific materials or require us to provide corrective information to healthcare
practitioners or in our advertising;
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require
us or our partners to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection
costs, required due dates for specific actions, penalties for noncompliance and, in extreme cases, require an independent
compliance monitor to oversee our activities;
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issue
warning letters, bring enforcement actions, initiate surprise inspections, issue show cause notices or untitled letters describing
alleged violations, which may be publicly available;
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commence
criminal investigations and prosecutions;
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impose
injunctions, suspensions or revocations of necessary approvals or other licenses;
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impose
other civil or criminal penalties;
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suspend
any ongoing clinical trials;
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place
restrictions on the kind of promotional activities that can be done;
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delay
or refuse to approve pending applications or supplements to approved applications filed by us or our potential partners;
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refuse
to permit drugs or precursor chemicals to be imported or exported to or from the United States;
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suspend
or impose restrictions on operations, including costly new manufacturing requirements; or
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seize
or detain products or require us or our partners to initiate a product recall.
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The
regulations, policies or guidance of the FDA and other applicable government agencies may change, and new or additional statutes
or government regulations may be enacted, including at the state and local levels, which can differ by geography and could prevent
or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict
the likelihood, nature or extent of adverse government regulations that may arise from future legislation or administrative action,
either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted
to commercialize our product candidates, which would adversely affect our ability to generate revenue and achieve or maintain
profitability.
We
may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our
insurance coverage for those claims is inadequate.
We
face an inherent risk of product liability or similar causes of action as a result of the clinical testing of our product candidates
and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial
sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority
and notwithstanding that we comply with applicable laws on promotional activity. Our products and product candidates are designed
to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our
product candidates could result in injury to a patient or potentially even death. We cannot offer any assurance that we will not
face product liability suits in the future, nor can we assure you that our insurance coverage will be sufficient to cover our
liability under any such cases.
In
addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product
liability claims may be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise
coming into contact with our product candidates, among others, and under some circumstances even government agencies. If we cannot
successfully defend our self against product liability or similar claims, we will incur substantial liabilities, reputational
harm and possibly injunctions and punitive actions. In addition, regardless of merit or eventual outcome, product liability claims
may result in:
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withdrawal
or delay of recruitment or decreased enrollment rates of clinical trial participants;
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termination
or increased government regulation of clinical trial sites or entire trial programs;
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the
inability to commercialize our product candidates;
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decreased
demand for our product candidates;
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impairment
of our business reputation;
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product
recall or withdrawal from the market or labeling, marketing or promotional restrictions;
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substantial
costs of any related litigation or similar disputes;
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distraction
of management’s attention and other resources from our primary business;
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significant
delay in product launch;
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substantial
monetary awards to patients or other claimants against us that may not be covered by insurance;
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withdrawal
of reimbursement or formulary inclusion; or
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We
intend to obtain product liability insurance coverage for our clinical trials. Large judgments have been awarded in class action
or individual lawsuits based on drugs that had unanticipated side effects. Our insurance coverage may not be sufficient to cover
all of our product liability-related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover,
insurance coverage is becoming increasingly expensive, restrictive and narrow, and, in the future, we may not be able to maintain
adequate insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due
to product liability or other similar legal actions. We will need to increase our product liability coverage if any of our product
candidates receive regulatory approval, which will be costly, and we may be unable to obtain this increased product liability
insurance on commercially reasonable terms or at all and for all geographies in which we wish to launch. A successful product
liability claim or series of claims brought against us, if judgments exceed our insurance coverage, could decrease our cash and
harm our business, financial condition, operating results and future prospects.
Our
employees, independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners
with whom we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards
and requirements.
We are exposed to the risk that our employees,
independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with
which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional,
reckless, gross or negligent misconduct or unauthorized activity that violates: laws or regulations, including those laws requiring
the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards;
federal, state and foreign healthcare fraud and abuse laws and data privacy; anticorruption laws, anti-kickback and Medicare/Medicaid
rules, or laws that require the true, complete and accurate reporting of financial information or data, books and records. If any
such or similar actions are instituted against us and we are not successful in defending our self or asserting our rights, those
actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative
and punitive penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, debarments, contractual damages, imprisonment, reputational harm, diminished profits and future earnings,
injunctions, and curtailment or cessation of our operations, any of which could adversely affect our ability to operate our business
and our operating results.
We
may be subject to risks related to off-label use of our product candidates.
The
FDA strictly regulates the advertising and promotion of drug products, and drug products may only be marketed or promoted for
their FDA approved uses, consistent with the product’s approved labeling. Advertising and promotion of any product candidate
that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Office of Inspector
General of the Department of Health and Human Services, state attorneys general, members of Congress and the public. Violations,
including promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations,
and civil, criminal and/or administrative sanctions by the FDA. Additionally, advertising and promotion of any product candidate
that obtains approval outside of the United States will be heavily scrutinized by relevant foreign regulatory authorities.
Even
if we obtain regulatory approval for our product candidates, the FDA or comparable foreign regulatory authorities may require
labeling changes or impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements
for potentially costly post-approval studies or post-market surveillance.
In the United States, engaging in impermissible
promotion of our product candidates for off-label uses can also subject us to false claims litigation under federal and state statutes,
which can lead to significant civil, criminal and/or administrative penalties and fines and agreements, such as a corporate integrity
agreement, that materially restrict the manner in which we promote or distribute our product candidates. If we do not lawfully
promote our products once they have received regulatory approval, we may become subject to such litigation and, if we are not successful
in defending against such actions, those actions could have a material adverse effect on our business, financial condition and
operating results and even result in having an independent compliance monitor assigned to audit our ongoing operations for a lengthy
period of time.
If
we or any partners with which we may collaborate are unable to achieve and maintain coverage and adequate levels of reimbursement
for TARA-002 or IV Choline Chloride following regulatory approval, their commercial success may be hindered severely.
If
TARA-002 and IV Choline Chloride only becomes available by prescription, successful sales by us or by any partners with which
we may collaborate depend on the availability of coverage and adequate reimbursement from third-party payors. Patients who are
prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse most or part of the
costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare
programs, such as Medicare and Medicaid in the United States, and private third-party payors is often critical to new product
acceptance. Coverage decisions may depend on clinical and economic standards that disfavor new drug products when more established
or lower-cost therapeutic alternatives are already available or subsequently become available, or may be affected by the budgets
and demands on the various entities responsible for providing health insurance to patients who will use TARA-002 and IV Choline
Chloride. Even if we obtain coverage for our products, the resulting reimbursement payment rates might not be adequate or may
require co-payments that patients find unacceptably high. Patients are unlikely to use a product unless coverage is provided,
and reimbursement is adequate to cover a significant portion of the cost.
In
addition, the market for our products will depend significantly on access to third-party payors’ drug formularies or lists
of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such
formularies often leads to downward pricing pressures on pharmaceutical companies and there may be time limitations on when a
new drug may even apply for formulary inclusion. Also, third-party payors may refuse to include products in their formularies
or otherwise restrict patient access to such products when a less costly generic equivalent or other treatment alternative is
available in the discretion of the formulary.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling
healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare practices, no
uniform or consistent policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage
and reimbursement for drug products can differ significantly from payor to payor as well as state to state. Consequently, the
coverage determination process is often a time-consuming and costly process that must be played out across many jurisdictions
and different entities and which will require us to provide scientific, clinical and health economics support for the use of our
products compared to current alternatives and do so to each payor separately, with no assurance that coverage and adequate reimbursement
will be obtained and in what time frame.
Further,
we believe that future coverage and reimbursement likely will be subject to increased restrictions both in the United States and
in international markets. Third-party coverage and reimbursement for our products may not be available or adequate in either the
United States or international markets, which could harm our business, financial condition, operating results and prospects.
Healthcare
reform measures could hinder or prevent the commercial success of our product candidates.
The current presidential administration
and certain members of the majority of the U.S. Congress have sought to repeal all or part of the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “Affordable Care Act”), and
implement a replacement program. For example, the so-called “individual mandate” was repealed as part of tax reform
legislation adopted in December 2017, such that the shared responsibility payment for individuals who fail to maintain minimum
essential coverage under section 5000A of the Code was eliminated beginning in 2019. In addition, litigation may result in the
repeal or replacement of prevent some or all of the Affordable Care Act legislation from taking effect. For example, on December
14, 2018, the U.S. District Court for the Northern District of Texas held that the individual mandate is a critical and inseverable
feature of the Affordable Care Act, and therefore, because it was repealed as part of the tax reform legislation, the remaining
provisions of the Affordable Care Act are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit
upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court
to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court
granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected
to occur in the fall. It is unclear how such litigation and other efforts to repeal and replace the Affordable Care Act will impact
the Affordable care Act and our business.
Additionally, there has been increasing
legislative and enforcement interest in the United States with respect to drug pricing practices. For example, the Trump administration
previously released a “Blueprint,” or plan, to lower drug prices and reduce out of pocket costs of drugs that contained
proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize
manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers,
and the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative
proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient
access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for
drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket
pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical
price increases. Further, on June 24 , 2020, President Trump signed four (4) executive orders designed to lower drug
costs, including measures to increase drug importation from abroad; finalize the rulemaking process on modifying the
anti-kickback law safe harbor on discounts for plans, pharmacies and pharmaceutical benefit managers; require the Medicare
program to purchase certain drug products at the same price available in other countries; and require federally qualified
health centers to pass discounts on the cost of insulin and epipens to patients. While these and other measures may require additional
authorization to become effective, we expect that additional state and 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,
which could result in reduced demand for our product candidates if approved or additional pricing pressures.
There
are also calls to place additional restrictions on or to ban all direct-to-consumer advertising of pharmaceuticals, which would
limit our ability to market our product candidates. The United States is in a minority of jurisdictions that allow this kind of
advertising and its removal could limit the potential reach of a marketing campaign.
We
may also be subject to stricter healthcare laws, regulation and enforcement, and our failure to comply with those laws could adversely
affect our business, operations and financial condition.
Certain federal and state healthcare laws
and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject
to regulation by both the federal government and the states in which we or our partners conduct business. The healthcare laws and
regulations that may affect our ability to operate include but are not limited to: the federal Anti-Kickback Statute; federal civil
and criminal false claims laws and civil monetary penalty laws; the federal Health Insurance Portability and Accountability Act
of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act; the Prescription Drug Marketing
Act (for sampling of drug product among other things); the federal physician sunshine requirements under the Affordable Care Act;
the Foreign Corrupt Practices Act as it applies to activities outside of the United States; the new federal Right-to-Try legislation;
and state law equivalents of many of the above federal laws.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform
legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the
intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no
longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided
that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with
these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against
it, could cause us to incur significant legal expenses and divert management’s attention from the operation of our business
and result in reputational damage. If our operations are found to be in violation of any of the laws described above or any other
governmental laws or regulations that apply to us, we may be subject to significant penalties, including administrative, civil
and criminal penalties, damages, including punitive damages, fines, disgorgement, the exclusion from participation in federal
and state healthcare programs, imprisonment or the curtailment or restructuring of our operations, and injunctions, any of which
could adversely affect our ability to operate our business and financial results.
We
intend to in-license and acquire product candidates and may engage in other strategic transactions, which could impact our liquidity,
increase our expenses and present significant distractions to our management.
Our
strategy is to in-license and acquire product candidates and we may engage in other strategic transactions. Additional potential
transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships,
joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur
non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges
or disrupt our management or business, which could adversely affect our operations and financial results. Accordingly, there can
be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction
that we do complete could harm our business, financial condition, operating results and prospects. We have no current plan, commitment
or obligation to enter into any transaction described above, and we are not engaged in discussions related to additional partnerships.
Our
failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair
our ability to grow our business.
We
intend to in-license, acquire, develop and market additional products and product candidates. Because our internal research and
development capabilities are limited, we may be dependent on pharmaceutical companies, academic or government scientists and other
researchers to sell or license products or technology to us. The success of this strategy depends partly on our ability to identify
and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their
current owners, and finance these arrangements.
The
process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy
and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete
with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and
execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current
infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed,
or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product
candidates on terms that we find acceptable or at all.
Further,
any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical
or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to
risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be
shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that
any approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.
We
expect to rely on collaborations with third parties for the successful development and commercialization of our product candidates.
We
expect to rely upon the efforts of third parties for the successful development and commercialization of our current and future
product candidates. The clinical and commercial success of our product candidates may depend upon maintaining successful relationships
with third-party partners which are subject to a number of significant risks, including the following:
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our
partners’ ability to execute their responsibilities in a timely, cost-efficient and compliant manner;
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reduced
control over delivery and manufacturing schedules;
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price
increases and product reliability;
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manufacturing
deviations from internal or regulatory specifications;
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the
failure of partners to perform their obligations for technical, market or other reasons;
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misappropriation
of our current or future product candidates; and
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other
risks in potentially meeting our current and future product commercialization schedule or satisfying the requirements of our
end-users.
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We
cannot assure you that we will be able to establish or maintain third-party relationships in order to successfully develop and
commercialize our product candidates.
We
rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates,
which may include sole-source suppliers and manufacturers; we intend to rely on third parties for commercial supply, manufacturing
and distribution if any of our product candidates receive regulatory approval; and we expect to rely on third parties for supply,
manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.
We
do not currently have, nor does we plan to acquire, the infrastructure or capability to supply, store, manufacture or distribute
preclinical, clinical or commercial quantities of drug substances or products. Additionally, we have not entered into a long-term
commercial supply agreement to provide us with such drug substances or products. As a result, our ability to develop our product
candidates is dependent, and our ability to supply our products commercially will depend, in part, on our ability to obtain the
APIs and other substances and materials used in our product candidates successfully from third parties and to have finished products
manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical
testing and commercialization. If we fail to develop and maintain supply and other technical relationships with these third parties,
we may be unable to continue to develop or commercialize our products and product candidates.
We
do not have direct control over whether our contract suppliers and manufacturers will maintain current pricing terms, be willing
to continue supplying us with API and finished products or maintain adequate capacity and capabilities to serve our needs, including
quality control, quality assurance and qualified personnel. We are dependent on our contract suppliers and manufacturers for day-to-day
compliance with applicable laws and cGMPs for production of both APIs and finished products. If the safety or quality of any product
or product candidate or component is compromised due to a failure to adhere to applicable laws or for other reasons, we may not
be able to commercialize or obtain regulatory approval for the affected product or product candidate successfully, and we may
be held liable for injuries sustained as a result.
In
order to conduct larger or late-stage clinical trials for our product candidates and supply sufficient commercial quantities of
the resulting drug product and its components, if that product candidate is approved for sale, our contract manufacturers and
suppliers will need to produce our drug substances and product candidates in larger quantities, more cost-effectively and, in
certain cases, at higher yields than they currently achieve. If our third-party contractors are unable to scale up the manufacture
of any of our product candidates successfully in sufficient quality and quantity and at commercially reasonable prices, or are
shut down or put on clinical hold by government regulators, and we are unable to find one or more replacement suppliers or manufacturers
capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and we are unable to
transfer the processes successfully on a timely basis, the development of that product candidate and regulatory approval or commercial
launch for any resulting products may be delayed, or there may be a shortage in supply, either of which could significantly harm
our business, financial condition, operating results and prospects.
We
expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future. Our supply and manufacturing
agreements, if any, do not guarantee that a contract supplier or manufacturer will provide services adequate for our needs. Additionally,
any damage to or destruction of our third-party manufacturer’s or suppliers’ facilities or equipment, even by force
majeure, may significantly impair our ability to have our products and product candidates manufactured on a timely basis. Our
reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with access
to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information. In addition,
the manufacturing facilities of certain of our suppliers may be located outside of the United States. This may give rise to difficulties
in importing our products or product candidates or their components into the United States or other countries.
In
addition, we cannot be certain that any prolonged, intensified or worsened effect from the COVID-19 pandemic would not impact
our supply chain.
The
manufacture of biologics is complex and our third-party manufacturers may encounter difficulties in production. If our CMO encounters
such difficulties, the ability to provide supply of TARA-002 for clinical trials, our ability to obtain marketing approval, or
our ability to obtain commercial supply of TARA-002, if approved, could be delayed or stopped.
We
have no experience in biologic manufacturing and do not own or operate, and we do not expect to own or operate, facilities for
product manufacturing, storage and distribution, or testing. We are completely dependent on CMOs to fulfill our clinical and commercial
supply of TARA-002. The process of manufacturing biologics is complex, highly regulated and subject to multiple risks. Manufacturing
biologics is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of
equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling
the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product
defects and other supply disruptions and higher costs. If microbial, viral or other contaminations are discovered at the facilities
of our manufacturer, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination,
which could delay clinical trials, result in higher costs of drug product and adversely harm our business. Moreover, if the FDA
determines that our manufacturer is not in compliance with FDA laws and regulations, including those governing cGMPs, the FDA
may deny BLA approval until the deficiencies are corrected or we replace the manufacturer in our BLA with a manufacturer that
is in compliance.
In
addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others,
cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot
consistency and timely availability of raw materials. Even if we obtain regulatory approval for TARA-002 or any future product
candidates, there is no assurance that our manufacturers will be able to manufacture the approved product to specifications acceptable
to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential
launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities for
clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on our
business, financial condition, results of operations and growth prospects. Scaling up a biologic manufacturing process is a difficult
and uncertain task, and any CMO we contracts may not have the necessary capabilities to complete the implementation and development
process of further scaling up production, transferring production to other sites, or managing its production capacity to timely
meet product demand.
We
expect our stock price to be highly volatile.
The
market price of our shares could be subject to significant fluctuations. Market prices for securities of biotechnology and other
life sciences companies historically have been particularly volatile subject even to large daily price swings. Some of the factors
that may cause the market price of our shares to fluctuate include, but are not limited to:
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our
ability to obtain timely regulatory approvals for TARA-002, IV Choline Chloride or future product candidates, and
delays or failures to obtain such approvals;
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failure
of TARA-002 or IV Choline Chloride, if approved, to achieve commercial success;
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issues
in manufacturing TARA-002, IV Choline Chloride or future product candidates;
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the
results of current and any future clinical trials of TARA-002 or IV Choline Chloride;
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failure
of other of our product candidates, if approved, to achieve commercial success;
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the
entry into, or termination of, or breach by partners of key agreements, including key commercial partner agreements;
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the
initiation of, material developments in, or conclusion of any litigation to enforce or defend any intellectual property rights
or defend against the intellectual property rights of others;
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announcements
of any dilutive equity financings;
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announcements
by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts,
commercial relationships or capital commitments;
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failure
to elicit meaningful stock analyst coverage and downgrades of the company’s stock by analysts; and
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the
loss of key employees.
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Moreover,
the stock markets in general have experienced substantial volatility in our industry that has often been unrelated to the operating
performance of individual companies or a certain industry segment. These broad market fluctuations may also adversely affect the
trading price of our shares.
In
the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted
class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs
and diversion of management attention and resources, which could significantly harm our profitability and reputation. In addition,
such securities litigation often has ensued after a reverse merger or other merger and acquisition activity. Such litigation if
brought could impact negatively our business.
We
incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
We
incur significant legal, accounting and other expenses that ArTara Subsidiary Inc. did not incur as a private company, including
costs associated with public company reporting and other SEC requirements. We will also incur costs associated with corporate
governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and
Nasdaq.
These
rules and regulations are expected to increase our legal and financial compliance costs and to make some activities more time-consuming
and costly. Our executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations
as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it expensive
for us to operate our business.
We
are able to take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which
could result in our common stock being less attractive to investors.
We
have a public float of less than $250 million and therefore qualify as a smaller reporting company under the rules of the SEC.
As a smaller reporting company, we are able to take advantage of reduced disclosure requirements, such as simplified executive
compensation disclosures and reduced financial statement disclosure requirements in our SEC filings. Decreased disclosures in
our SEC filings due to our status as a smaller reporting company may make it harder for our investors to analyze our results of
operations and financial prospects. We cannot predict if investors will find our common stock less attractive due to our reliance
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 the reporting exemptions applicable to
a smaller reporting company until we are no longer a smaller reporting company, which status would end once we have a public float
greater than $250 million. In that event, we could still be a smaller reporting company if our annual revenues were below $100
million and we have a public float of less than $700 million.
We
do not anticipate paying any dividends in the foreseeable future.
The
current expectation is that we will retain our future earnings to fund the development and growth of the Company’s business.
As a result, capital appreciation, if any, of your shares of the Company will be your sole source of gain, if any, for the foreseeable
future.
If
we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize
our product candidates or otherwise implement our business plan.
Our
ability to compete in the highly competitive pharmaceuticals industry depends on our ability to attract and retain highly qualified
managerial, scientific, medical, legal, sales and marketing and other personnel. We are highly dependent on our management and
scientific personnel. The loss of the services of any of these individuals could impede, delay or prevent the successful development
of our product pipeline, completion of our planned clinical trials, commercialization of our product candidates or in-licensing
or acquisition of new assets and could impact negatively our ability to implement successfully our business plan. If we lose the
services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our
business could be harmed as a result. We might not be able to attract or retain qualified management and other key personnel in
the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses.
Our
ability to use our net operating loss carry-forwards to offset future taxable income may be subject to certain limitations.
As
of December 31, 2019, for U.S. federal and state income tax reporting purposes, Private ArTara had approximately $11.4 million
of unused net operating losses (“NOLs”) available for carry forward to future years. The 2019 and 2018 federal and
New York City NOLs may be carried forward indefinitely, but utilization will be subject to an annual deduction limitation of 80%
of taxable income. These 2019 and 2018 losses will not be allowed to be carried back. The 2019 state NOLs may be carried forward
through the year 2039 and may be applied against future taxable income. The 2017 federal and New York City NOLs will begin
to expire during the year ended December 31, 2037.
Furthermore,
as of December 31, 2019, for U.S. federal and state income tax reporting purposes, Proteon had approximately $41.7 million of
unused NOLs available to carry forward to future years. The pre-2018 federal net operating loss carryforwards expire at various
dates through 2037. Federal net operating loss carryforwards generated in 2018 and forward will have an unlimited carryforward
period as part of the Tax Cuts and Jobs Act. The indefinite lived net operating loss carryforwards as of December 31, 2019 are
approximately $30.6 million. As of December 31, 2019, Proteon had state net operating loss carryforwards of approximately $37.2
million to offset future state taxable income, which will expire at various dates through 2039. As of December 31, 2019, Proteon
has tax credit carryforwards of approximately $3.6 million to offset future federal and state income taxes, which will expire
at various dates through 2039.
Because
United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, we may be
unable to take full advantage of our NOLs for federal income tax purposes when we do generate taxable income. Further, net operating
loss carryforwards of both Private ArTara and Proteon entities will be limited since there was a more than 50% ownership change
for each entity.
We
may be adversely affected by natural disasters, pandemics and other catastrophic events and by man-made problems such as terrorism
that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect
us from a serious disaster.
Our
corporate office is located in New York, New York. If a disaster, power outage, computer hacking, or other event occurred that
prevented us from using all or a significant portion of an office, that damaged critical infrastructure, such as enterprise financial
systems, IT systems, manufacturing resource planning or enterprise quality systems, or that otherwise disrupted operations, it
may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. As an example,
New York City has been significantly impacted by the COVID-19 pandemic and, due to safety considerations for our employees and
government restrictions, including stay-at-home orders, we do not know when we will be able to use our office facilities located
there. Our contract manufacturer’s and suppliers’ facilities are located in multiple locations where there are similar
stay-at-home orders in place for the current crisis and where other natural disasters or similar events, such as tornadoes, fires,
explosions or large-scale accidents or power outages, or IT threats, pandemic, acts of terrorism and other geo-political unrest,
could severely disrupt our operations and have a material adverse effect on our business, financial condition, operating results
and prospects. As an example, due to the COVID-19 pandemic and the associated government-imposed stay-at-home orders, the third-party
contract manufacturer with which we have contracted for the initial comparability study had to stop the study prior to its completion.
We do not know when they will be able to return to work or initiate a new study. All of the aforementioned risks may be further
increased if we do not implement a disaster recovery plan or our partners’ or manufacturers’ disaster recovery plans
prove to be inadequate. To the extent that any of the above should result in delays in the regulatory approval, manufacture, distribution
or commercialization of TARA-002 or IV Choline Chloride, our business, financial condition, operating results and prospects would
suffer.
Our
business and operations would suffer in the event of system failures, cyber-attacks or a deficiency in our cyber-security.
Despite
the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors
and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including
by computer hackers, foreign governments, and cyber-terrorists, has generally increased as the number, intensity and sophistication
of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions
in our operations, it could result in a material disruption of our development programs and our business operations. In the first
quarter of 2020, our email server was compromised in a cyber-attack. We quickly isolated the incident and have, since, implemented
additional risk prevention measures. In addition, since the Company sponsors clinical trials, any breach that compromises patient
data and identities causing a breach of privacy could generate significant reputational damage and legal liabilities and costs
to recover and repair, including affecting trust in the company to recruit for future clinical trials. For example, the loss of
clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a
loss of, or damage to, our data or applications or inappropriate disclosure of confidential or proprietary information, we could
incur liability and the further development and commercialization of our products and product candidates could be delayed.
Anti-takeover
provisions in our charter documents and under Delaware law could make an acquisition of the Company more difficult and may prevent
attempts by our stockholders to replace or remove management.
Provisions
in our certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. In addition, because
we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning
in excess of 15% of the outstanding voting stock from merging or combining with the Company. These provisions may frustrate or
prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders
to replace members of the board of directors, which is responsible for appointing the members of management.
The
certificate of incorporation of the Company provides that the Court of Chancery of the State of Delaware is the exclusive forum
for substantially all disputes between the Company and our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
The
certificate of incorporation of the Company provides that the Court of Chancery of the State of Delaware is the sole and exclusive
forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by any
of our directors, officers or other employees to the Company or our stockholders, any action asserting a claim against us arising
pursuant to any provisions of the DGCL, our certificate of incorporation or our 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. If a court were to find the choice
of forum provision contained in the certificate of incorporation to be inapplicable or unenforceable in an action, Awe may incur
additional costs associated with resolving such action in other jurisdictions.
Certain
stockholders have the ability to control or significantly influence certain matters submitted to our stockholders for approval.
Certain
stockholders have consent rights over certain significant matters of our business. These include decisions to effect a merger
or other similar transaction, changes to the principal business of the Company, and the sale or other transfer of TARA-002 or
other assets with an aggregate value of more than $2,500,000. As a result, these stockholders, have significant influence over
certain matters that require approval by our stockholders.
If
equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business
or our market, our stock price and trading volume could decline.
The
trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and
our business. Equity research analysts may elect not to provide research coverage of our common stock, and such lack of research
coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage,
we will not have any control over the analysts or the content and opinions included in their reports. The price of our common
stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research.
If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common
stock could decrease, which in turn could cause our stock price or trading volume to decline.
If
we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis
could be impaired.
We
are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal
control over financial reporting. We must perform system and process evaluation and testing of our internal control over financial
reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Report
on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, ArTara Subsidiary
was not required to test its internal controls within a specified period. This will require that we incur substantial professional
fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. We may
experience difficulty in meeting these reporting requirements in a timely manner.
We
may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material
misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors
and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues
and instances of fraud will be detected.
If
we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we are unable to maintain proper
and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen,
the market price of our common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or
other regulatory authorities.
Risks
Related to Intellectual Property Rights
We
may not be able to obtain, maintain or enforce global patent rights or other intellectual property rights that cover our product
candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
Our
success with respect to our product candidates will depend, in part, on our ability to obtain and maintain patent protection in
both the United States and other countries, to preserve our trade secrets and to prevent third parties from infringing on our
proprietary rights. Our ability to protect our product candidates from unauthorized or infringing use by third parties depends
in substantial part on our ability to obtain and maintain valid and enforceable patents around the world.
The
patent application process, also known as patent prosecution, is expensive and time-consuming, and we and our current or future
licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable
cost or in a timely manner in all the countries that are desirable. It is also possible that we or our current licensors, or any
future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization
activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications
may not be prosecuted and enforced in a manner consistent with the best interests of our business. Moreover, our competitors independently
may develop equivalent knowledge, methods and know-how or discover workarounds to our patents that would not constitute infringement.
Any of these outcomes could impair our ability to enforce the exclusivity of our patents effectively, which may have an adverse
impact on our business, financial condition and operating results.
Due
to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions,
our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions especially across
countries. Accordingly, rights under any existing patents or any patents we might obtain or license may not cover our product
candidates or may not provide us with sufficient protection for our product candidates to afford a sustainable commercial advantage
against competitive products or processes, including those from branded, generic and over-the-counter pharmaceutical companies.
In addition, we cannot guarantee that any patents or other intellectual property rights will issue from any pending or future
patent or other similar applications owned by or licensed to us. Even if patents or other intellectual property rights have issued
or will issue, we cannot guarantee that the claims of these patents and other rights are or will be held valid or enforceable
by the courts, through injunction or otherwise, or will provide us with any significant protection against competitive products
or otherwise be commercially valuable to us in every country of commercial significance that we may target.
Competitors
in the field of immunology and oncology therapeutics have created a substantial amount of prior art, including scientific publications,
posters, presentations, patents and patent applications and other public disclosures including on the Internet. Our ability to
obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art
allow our technology to be patentable over the prior art. We do not have outstanding issued patents covering all of the recent
developments in our technology and are unsure of the patent protection that we will be successful in obtaining, if any. Even if
the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of such
issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or
held unenforceable. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our product
candidates is challenged, it could dissuade companies from collaborating with us to develop or threaten our ability to commercialize
or finance our product candidates.
The
laws of some foreign jurisdictions do not provide intellectual property rights to the same extent or duration as in the United
States, and many companies have encountered significant difficulties in acquiring, maintaining, protecting, defending and especially
enforcing such rights in foreign jurisdictions. If we encounter such difficulties in protecting, or are otherwise precluded from
effectively protecting, our intellectual property in foreign jurisdictions, our business prospects could be substantially harmed,
especially internationally.
Proprietary
trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade
secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual property protection
agreements with officers, directors, employees, and certain consultants and advisors, there can be no assurance that binding agreements
will not be breached or enforced by courts, that we would have adequate remedies for any breach, including injunctive and other
equitable relief, or that our trade secrets and unpatented know-how will not otherwise become known, inadvertently disclosed by
us or our agents and representatives, or be independently discovered by our competitors. If trade secrets are independently discovered,
we would not be able to prevent their use and if we and our agents or representatives inadvertently disclose trade secrets and/or
unpatented know-how, we may not be allowed to retrieve this and maintain the exclusivity we previously enjoyed.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on our product candidates does not guarantee exclusivity. The requirements for patentability
differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as laws in the United States, especially when it comes to granting use and other
kinds of patents and what kind of enforcement rights will be allowed, especially injunctive relief in a civil infringement proceeding.
Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States
and even in launching an identical version of our product notwithstanding we have a valid patent in that country. Competitors
may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, or produce
copy products, and, further, may export otherwise infringing products to territories where we have patent protection but enforcement
on infringing activities is inadequate or where we have no patents. These products may compete with our products, and our patents
or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and
other intellectual property protection, particularly those relating to pharmaceuticals, and the judicial and government systems
are often corrupt, which could make it difficult for us to stop the infringement of our patents or marketing of competing products
in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result
in substantial costs and divert our efforts and attention from other aspects of our business, could put our global patents at
risk of being invalidated or interpreted narrowly and our global patent applications at risk of not issuing, and could provoke
third parties to assert claims against us. We may not prevail in any lawsuits that we initiate or infringement actions brought
against us, and the damages or other remedies awarded, if any, may not be commercially meaningful when we are the plaintiff. When
we are the defendant we may be required to post large bonds to stay in the market while we defend ourselves from an infringement
action.
In
addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner
may be compelled to grant licenses to third parties, especially if the patent owner does not enforce or use its patents over a
protracted period of time. In some cases, the courts will force compulsory licenses on the patent holder even when finding the
patent holder’s patents are valid if the court believes it is in the best interests of the country to have widespread access
to an essential product covered by the patent. In these situations, the royalty the court requires to be paid by the license holder
receiving the compulsory license is not calculated at fair market value and can be inconsequential, thereby disaffecting the patent
holder’s business. In these countries, we may have limited remedies if our patents are infringed or if we are compelled
to grant a license to our patents to a third party, which could also materially diminish the value of those patents. This would
limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world
may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license, especially
in comparison to what we enjoy from enforcing our intellectual property rights in the Unites States. Finally, our ability to protect
and enforce our intellectual property rights may be adversely affected by unforeseen changes in both U.S. and foreign intellectual
property laws, or changes to the policies in various government agencies in these countries, including but not limited to the
patent office issuing patents and the health agency issuing pharmaceutical product approvals For example, in Brazil, pharmaceutical
patents require initial approval of the Brazilian health agency (ANVISA). Finally, many countries have large backlogs in patent
prosecution, and in some countries in Latin America it can take years, even decades, just to get a pharmaceutical patent application
reviewed notwithstanding the merits of the application.
Obtaining
and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic
maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages
over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent
lapse can, in many cases, be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial
or complete loss of patent rights in the relevant jurisdiction just for failure to know about and/or timely pay a prosecution
fee. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond
to official actions within prescribed time limits, non-payment of fees in prescribed time periods, and failure to properly legalize
and submit formal documents in the format and style the country requires. If we or our licensors fail to maintain the patents
and patent applications covering our product candidates for any reason, our competitors might be able to enter the market, which
would have an adverse effect on our business.
If
we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are
important to our business. Additionally, these agreements may be subject to disagreement over contract interpretation, which could
narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations
to our licensors.
We
have entered into in-license arrangements with respect to certain of our product candidates. These license agreements impose various
diligence, milestone, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the respective
licensors may have the right to terminate the license, in which event we may not be able to develop or market the affected product
candidate. The loss of such rights could materially adversely affect our business, financial condition, operating results and
prospects.
If
we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and
could prevent or delay us from developing or commercializing our product candidates.
Our
commercial success depends on our ability to develop, manufacture, market and sell our product candidates and use our proprietary
technologies without infringing the proprietary rights of third parties. We cannot assure that marketing and selling such candidates
and using such technologies will not infringe existing or future patents. Numerous U.S.- and foreign-issued patents and pending
patent applications owned by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical
industries expand and more patents are issued, the risk increases that others may assert that our product candidates, technologies
or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including
us, which patents and other intellectual property rights cover various drugs, biologics, drug delivery systems or their methods
of use, and which of these patents may be valid and enforceable. Thus, because of the large number of patents issued and patent
applications filed in our fields across many countries, there may be a risk that third parties may allege they have patent rights
encompassing our product candidates, technologies or methods.
In
addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our product candidates
or proprietary technologies notwithstanding patents we may possess. Because some patent applications in the United States may
be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions
are typically not published until 18 months after filing and because publications in the scientific literature often lag behind
actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our own and
in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file, patent applications
covering our product candidates or technology similar to our technology. Any such patent application may have priority over our
own and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering
such technologies, which may mean paying significant licensing fees or the like. If another party has filed a U.S. patent application
on inventions similar to those owned or in-licensed to us, or, in the case of in-licensed technology, the licensor may have to
participate, in the United States, in an interference proceeding to determine priority of invention.
We
may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights
alleging that our product candidates or proprietary technologies infringe such third parties’ intellectual property rights,
including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act or other countries’ laws similar to
the Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug, and this type of litigation
can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel,
even if we do not infringe such patents or the patents asserted against us is ultimately established as invalid. There is a risk
that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered
by the patents. In addition, there is a risk that a court will order us to pay the other party significant damages for having
violated the other party’s patents.
Because
we rely on certain third-party licensors and partners and will continue to do so in the future, if one of our licensors or partners
is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results
and prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed
to indemnify certain third-party licensors and partners against claims of infringement caused by our proprietary technologies,
and we have entered or may enter into cost-sharing agreements with some our licensors and partners that could require us to pay
some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by
our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater responsibility
for infringement damages than would be assumed just on the basis of our technology.
The
occurrence of any of the foregoing could adversely affect our business, financial condition or operating results.
We
may be subject to claims that our officers, directors, employees, consultants or independent contractors have wrongfully used
or disclosed to us alleged trade secrets of their former employers or their former or current customers.
As
is common in the biotechnology and pharmaceutical industries, certain of our employees were formerly employed by other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants
to assist us in the development of our products and product candidates, many of whom were previously employed at, or may have
previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. We may be subject to claims that these employees and consultants or the Company has
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their
former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise,
litigation may be necessary to defend against any such claims. Even if we are successful in defending against any such claims,
any such litigation could be protracted, expensive, a distraction to our management team, not viewed favorably by investors and
other third parties, and may potentially result in an unfavorable outcome.