RISK FACTORS

Risks Related to the Merger

The Exchange Ratio is adjustable based on Seneca’s net cash at closing and LBS’s Pre-Merger Financing, so the consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

The relative proportion of the combined company that the Seneca stockholders will own when the Merger closes will be based on the valuations of Seneca and LBS as negotiated by the parties and as specified in the Merger Agreement. Assuming a $22.5 million investment in the Pre-Merger Financing prior to the consummation of the Merger, the outstanding equity of Seneca, as calculated on an adjusted fully diluted treasury stock method basis and after giving effect to the Pre-Merger Financing, but including 50% of the shares subject to the Equity Warrants, is expected to be held as follows: equity holders of former LBS capital stock (prior to the Pre-Merger Financing) will hold approximately 25.2%; the investor in the Pre-Merger Financing will hold approximately 16.2%; pre-Merger Seneca equity holders will hold approximately 26.2%; and approximately 32.4% of the shares will be held in escrow to be distributed to the Investor in the Pre-Merger Financing, or to be distributed as a LBS Financing Milestone Payment (as defined below) to the Milestone Recipients. These estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the Merger Agreement. Prior to the consummation of the Merger, the Exchange Ratio at the closing of the Merger may be subject to either an upward or downward adjustment based on: (i) Seneca’s net cash, or (ii) the proceeds of the Pre-Merger Financing. For more information, see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 112 of this proxy statement/prospectus/information statement.

Failure to complete the Merger may result in Seneca or LBS paying a termination fee to the other party and could harm the common stock price of Seneca and future business and operations of each company.

If the Merger is not completed, each of Seneca and LBS is subject to the following risks:

In addition, if the Merger Agreement is terminated and Seneca’s Board or the LBS Board determines to seek another business combination, there can be no assurance that either Seneca or LBS will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger or any partner at all.

Each of Seneca and LBS are substantially dependent on their limited number of employees to facilitate the consummation of the Merger.

As of           , 2021, Seneca has only        full-time employees and LBS has only        full-time employees. Seneca’s ability to successfully complete the Merger depends in large part on Seneca’s ability to retain certain of its remaining personnel. Despite Seneca’s efforts to retain these employees, one or more may terminate their employment with Seneca on short notice. The loss of the services of any of these employees could potentially harm Seneca’s ability to consummate the Merger, to run Seneca’s day-to-day business operations, as well as to fulfill Seneca’s reporting obligations as a public company.

If the conditions to the closing of the Merger are not met, the Merger may not occur.

Even if the change of control and related share issuance are approved by the stockholders of Seneca, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 126 of this proxy statement/prospectus/information statement, such as LBS’s Pre-Merger Financing. Seneca and LBS cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and Seneca and LBS each may lose some or all the intended benefits of the Merger.

The pendency of the Merger could have an adverse effect on the trading price of Seneca’s common stock and Seneca’s business, financial condition and prospects.

While there have been no significant adverse effects to date, the pendency of the Merger could disrupt Seneca’s business in many ways, including:

Should they occur, any of these matters could adversely affect the trading price of Seneca’s Common Stock or harm Seneca’s business, financial condition and prospects.

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and/or other causes.

In general, either Seneca or LBS can refuse to complete the Merger if there is a material adverse change affecting the other party between the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on Seneca or LBS, including:

If adverse changes occur and Seneca and LBS still complete the Merger, the stock price of the combined company following the closing of the Merger may suffer. This in turn may reduce the value of the Merger to the stockholders of Seneca, LBS or both.

Some executive officers and directors of Seneca and LBS have interests in the Merger that are different from the respective stockholders of Seneca and LBS and that may influence them to support or approve the Merger without regard to the interests of the respective stockholders of Seneca and LBS.

Some officers and directors of Seneca and LBS are parties to arrangements that provide them with interests in the Merger that are different from the respective stockholders of Seneca and LBS, including, among others, service as an officer or director of the combined company following the closing of the Merger, severance benefits, the acceleration of equity award vesting, and continued indemnification.

Based on the terms of their respective agreements, current Seneca executive officers will be entitled to receive a total value of $3,418,084 (collectively, not individually) in connection with the consummation of the Merger, the associated termination of their employment from Seneca and the cancelation of their stock options. Additionally, Seneca’s senior vice president of research and development will be entitled to receive a total value of $865,488. In addition, in connection with the Merger, the executive officers of LBS entered into new employment agreements and are entitled to receive cash bonuses, certain executive officers are entitled to receive equity grants, and members of the LBS Board are entitled to receive cash bonuses, all as more fully detailed in the section entitled “Executive Compensation of LBS” of this proxy statement/prospectus/information statement.

For more information regarding the interests of the Seneca and LBS executive officers and directors in the Merger, see the sections entitled “The Merger—Interests of the Seneca Directors and Executive Officers in the Merger” and “The Merger—Interests of the LBS Directors and Executive Officers in the Merger” of this proxy statement/prospectus/information statement.

The market price of Seneca Common Stock following the Merger may decline as a result of the Merger.

The market price of Seneca Common Stock may decline as a result of the Merger for a number of reasons, including if:

LBS and Seneca securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the closing of the Merger as compared to their current ownership and voting interest in the respective companies.

After the completion of the Merger, the current securityholders of LBS and Seneca will own a smaller percentage of the combined company than their ownership in their respective companies prior to the Merger. Immediately after the Merger, it is currently estimated that the former LBS equity holders immediately before the Merger (including the investor in the Pre-Merger Financing) are expected to hold approximately 73.8% of the capital stock of Seneca outstanding immediately following the Merger and the equity holders of Seneca immediately before the Merger are expected to hold approximately 26.2% of the Seneca capital stock outstanding immediately following the Merger, in each case, as calculated on an adjusted fully diluted treasury stock method basis and after giving effect to the Pre-Merger Financing, but including 50% of the shares subject to the Equity Warrants. These estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the Merger Agreement.

During the pendency of the Merger, Seneca and LBS may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Seneca and LBS to make acquisitions, subject to specified exceptions relating to fiduciary duties, or complete other mergers, sales of assets (other than the sale of the Seneca Legacy Technology) or other business combinations that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into specified extraordinary transactions, such as a merger, sale of assets or other business combination, with any third party, subject to specified exceptions, even if any such transaction could be favorable to such party’s stockholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Seneca and LBS from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith, after consultation with its independent financial advisor, if any, and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected to result in, a superior competing proposal and that failure to take such action would result in a breach of the fiduciary duties of the board of directors. In addition, if Seneca or LBS terminate the Merger Agreement under specified circumstances, including terminating because of a decision of a board of directors to recommend a superior competing proposal, LBS may be required to pay Seneca a termination fee of $1.5 million and/or $250,000 in expense reimbursements or Seneca may be required to pay LBS a termination fee of $1.5 million, or up to $250,000 in expense reimbursements, as defined and described under “The Merger Agreement—Termination of the Merger Agreement and Termination Fee.” This termination fee may discourage third parties from submitting competing proposals to Seneca or LBS or their stockholders and may cause the respective boards of directors to be less inclined to recommend a competing proposal.

Seneca stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

The right of Seneca stockholders to receive any future payment for or derive any value from the CVRs will be contingent solely upon Seneca (or the combined organization’s) ability to monetize all or any part of the Seneca Legacy Technology through a Legacy Monetization within the time periods specified in the CVR Agreement and the consideration received. If a Legacy Monetization is not achieved within the time periods specified in the CVR Agreement, no payments will be made under the CVR Agreement, and the CVRs will expire valueless.

Following the Effective Time, LBS (as successor in interest to Seneca) will have sole authority over whether and how to pursue the continued development of the Seneca Legacy Technology (if at all), and LBS’s only obligations will be to carry out the obligations set forth in the CVR Agreement.

Furthermore, the CVRs will be unsecured obligations of the combined organization and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined organization.

The tax treatment of the CVRs is uncertain.

In the opinion of Reed Smith, Seneca’s legal counsel, the issuance of the CVRs to the persons who prior to completion of the merger were Seneca stockholders and under the terms expressed in the form of the CVR Agreement attached as Exhibit 2.06 to this proxy statement/prospectus/information statement is more likely than not to be treated as a distribution of property with respect to the Seneca Common Stock. However, there is no authority directly on point addressing the U.S. federal income tax treatment of contingent value rights with characteristics similar to the CVRs. Therefore, it is possible that the issuance of the CVRs may be treated as a distribution of equity with respect to Seneca Common Stock, as an “open transaction,” or as a “debt instrument” for U.S. federal income tax purposes, and such questions are inherently factual in nature. For more information regarding the U.S. federal income tax consequences of the CVRs, see the section titled “Agreements Related to the Merger–Contingent Value Rights Agreement–Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” beginning on page 147 of this proxy statement/prospectus/information statement.

Because the lack of a public market for LBS’s capital stock makes it difficult to evaluate the fairness of the Merger, the shareholders of LBS may receive consideration in the Merger that is less than the fair market value of LBS’s capital stock and/or Seneca may pay more than the fair market value of LBS’s capital stock.

The outstanding capital stock of LBS is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of LBS’s capital stock. Because the percentage of Seneca equity to be issued to LBS shareholders was determined based on negotiations between the parties, it is possible that the value of the Seneca Common Stock to be received by LBS shareholders will be less than the fair market value of LBS’s capital stock, or Seneca may pay more than the aggregate fair market value for LBS’s capital stock.

The combined organization will incur significant transaction costs as a result of the Merger, including investment banking, legal and accounting fees. In addition, the combined organization will incur significant operating expenses which cannot be accurately estimated at this time. Actual transaction costs may substantially exceed the Party’s estimates and may have an adverse effect on the combined organization’s financial condition and operating results.

Because the Merger will result in an ownership change under Section 382 of the Code for Seneca, Seneca’s pre-merger “NOL” carryforwards and certain other tax attributes will be subject to limitations. The NOL carryforwards and other tax attributes of LBS and of the combined organization may also be subject to limitations as a result of ownership changes.

As of December 31, 2019, Seneca had U.S. federal NOL carryforwards and state NOL carryforwards of $159.9 million and $166.5 million, respectively, and LBS had U.S. federal NOL carryforwards and state NOL carryforwards of approximately $33.3 million and $19.7 million, respectively. If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code (“Section 382”), the corporation’s NOL carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change for Seneca and, accordingly, Seneca’s NOL carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use after the Merger. Seneca’s NOL carryforwards may also be subject to limitation as a result of prior shifts in equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Seneca’s, LBS’s and the combined organization’s NOL carryforwards. Consequently, even if the combined organization achieves profitability, it may not be able to utilize a material portion of Seneca’s, LBS’s or the combined organization’s NOL carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations. For more information on limitations on NOL carryforwards and certain other tax attributes, see “Risk Factors—Risks related to the combined company—The combined company’s ability to use NOL carryforwards and certain other tax attributes may be limited” in this proxy statement/prospectus/information statement.

If the Merger does not qualify as a “reorganization” for U.S. federal income tax purposes, U.S. Holders of LBS Common Stock will be required to recognize gain or loss for U.S. federal income tax purposes upon the exchange of their LBS Common Stock for Seneca Common Stock in the Merger.

The U.S. federal income tax consequences of the Merger to U.S. Holders (as defined in the section titled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger”) will depend on whether the Merger qualifies as a “reorganization” for U.S. federal income tax purposes. If the Merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Code, a U.S. Holder of LBS Common Stock would recognize gain or loss for U.S. federal income tax purposes on each share of LBS Common Stock surrendered in the Merger for Seneca Common Stock. For a more complete discussion of the material U.S. federal income tax consequences of the Merger, please carefully review the information set forth in the section titled “The Merger —Material U.S. Federal Income Tax Consequences of the Merger” in this proxy statement/prospectus/information statement.

Certain stockholders could attempt to influence changes within the combined company which could adversely affect the combined company’s operations, financial condition and the value of Seneca Common Stock.

The combined company’s stockholders may from time-to-time seek to acquire a controlling stake in the combined company, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could disrupt the combined company’s operations and divert the attention of the combined company’s board of directors and senior management from the pursuit of the Merger. These actions could adversely affect the combined company’s operations, financial condition, ability to consummate the merger and the value of the combined company’s common stock.

Seneca and LBS may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention of Seneca and LBS’s management and harm the combined organization’s business, and insurance coverage may not be sufficient to cover all related costs and damages.

Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as a business combination transaction. Seneca and LBS may become involved in this type of litigation in connection with the Merger, and the combined organization may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of Seneca, LBS and the combined organization.

Risks Related to the Proposed Reverse Split

The proposed Reverse Split may not increase the combined organization’s stock price over the long-term.

The principal purpose of the proposed Reverse Split is to increase the per share price of Seneca Common Stock in order to meet the Nasdaq Initial Listing Requirements. There is no assurance however that the per-share market price of Seneca Common Stock will remain at such increased level for any meaningful period of time. While the reduction in the number of outstanding shares of Seneca Common Stock should proportionally increase the market price of Seneca Common Stock, it cannot be assured that the proposed Reverse Split will increase the market price of Seneca Common Stock by a multiple of the proposed Reverse Split ratio, or result in any permanent or sustained increase in the market price of Seneca Common Stock, which is dependent upon many factors, including the combined organization’s business and financial performance, general market conditions and prospects for future success. Therefore, while the stock price of the combined organization might meet the initial listing requirements for The Nasdaq Stock Market initially, it cannot be assured that it will continue to do so.

The proposed Reverse Split may decrease the liquidity of the combined organization’s common stock.

Although the Seneca Board believes that the anticipated increase in the market price of the combined organization’s common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the proposed Reverse Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Common Stock.

The proposed Reverse Split may lead to a decrease in the combined organization’s overall market capitalization.

Should the market price of the combined organization’s common stock decline after the proposed Reverse Split, the percentage decline may be lower, due to the smaller number of shares outstanding, than it would have been prior to the proposed Reverse Split. A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined organization’s overall market capitalization. If the per share market price does not increase in proportion to the proposed Reverse Split ratio, then the value of the combined organization, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Seneca Common Stock will remain the same after the proposed Reverse Split is effected, or that the proposed Reverse Split will not have an adverse effect on the stock price of Seneca Common Stock due to the reduced number of shares outstanding after the proposed Reverse Split.

Risks Related to Seneca’s Capital Requirements, Finances and Operations in the event the Merger is Not Completed

There is no assurance that the proposed Merger between Seneca and LBS will be completed in a timely manner or at all. If the Merger with LBS is not consummated, Seneca’s business could suffer materially and its stock price could decline.

The consummation of the Merger between Seneca and LBS is subject to a number of closing conditions, including approval by Seneca’s and LBS’s respective stockholders and other customary closing conditions. The parties are targeting a closing of the transaction in the first half of 2021, however, there can be no assurance that the Merger will be consummated within this desired timeframe, or at all.

If the Merger between Seneca and LBS is not consummated, Seneca and LBS may be subject to a number of material risks, and their respective business and Seneca’s stock price could be adversely affected, as follows:

If the Merger is not completed, Seneca may be unsuccessful in completing an alternative strategic transaction on terms that are as favorable as the terms of the proposed transaction with LBS, or at all, and Seneca may be unable to reestablish a viable operating business.

Seneca has generated limited revenue to date from royalties under a settlement agreement and has not generated revenue from any product sales. Its assets currently consist primarily of cash, cash equivalents and short-term investments, its intellectual property portfolio, a settlement agreement pursuant to which it has received royalties, its remaining assets and its listing on The Nasdaq Stock Market. While Seneca has entered into the Merger Agreement with LBS, the consummation of the Merger may be delayed or may not occur at all. If the Merger is not completed, the Seneca Board may elect to pursue an alternative strategic transaction which similar to the proposed Merger. Attempting to complete an alternative transaction will be costly and time consuming. If the Merger is not completed and the Seneca Board determines to pursue an alternative transaction, the terms of any such alternative transaction may not be as favorable to Seneca and its stockholders as the terms of the Merger with LBS. Seneca can make no assurances that such an alternative transaction would occur at all. Further, if the Merger is not completed, given the level of investment and time that would be required to redesign its products or pursue the development of products and services pursuant to its collaboration agreements, it is unlikely that Seneca would be able to obtain the funding required to recommence its product development activities on terms favorable to its stockholders, or at all.

If the Merger is not completed, Seneca’s Board may decide to pursue a dissolution and liquidation of Seneca. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance that the Merger will be completed. If the Merger is not completed, the Seneca Board may decide to pursue a dissolution and liquidation of Seneca. In such an event, the amount of cash available for distribution to Seneca’s stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Seneca continues to fund its operations. In addition, if Seneca’s Board were to approve and recommend, and its stockholders were to approve, a dissolution and liquidation of Seneca, Seneca would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders. As a result of this requirement, a portion of Seneca’s remaining cash assets may need to be reserved pending the resolution of such obligations. In addition, Seneca may be subject to litigation or other claims related to a dissolution and liquidation of Seneca. If a dissolution and liquidation were pursued, Seneca’s Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Seneca’s Common Stock could lose all or a significant portion of their investment in the event of Seneca’s liquidation, dissolution or winding up.

If Seneca were to continue to advance its research and development activities and pursue development of any of its pipeline products, it would require substantial additional funding. Raising additional capital would cause dilution to its existing stockholders, and may restrict its operations or require it to relinquish rights to its technologies or to a product candidate.

Seneca currently does not have any committed external source of funds and does not expect to generate any commercial revenue in the foreseeable future. Seneca believes that its existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund its projected operating requirements under its current operating plan. Seneca has based its estimates on assumptions that may prove to be wrong, and it may use its available capital resources sooner than it currently expects if its operating plans change. If the Merger is not completed and Seneca decides to pursue further research and development activities, it will require substantial additional funding to operate, and would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or collaboration arrangements.

To the extent that Seneca raises additional capital through the sale of equity or convertible debt, the ownership interests of its stockholders will be diluted. In addition, the terms of any equity or convertible debt Seneca agrees to issue may include liquidation or other preferences that adversely affect the rights of Seneca’s stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting Seneca’s ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct its business.

Additional funds may not be available when Seneca needs them on terms that are acceptable to Seneca, or at all. Furthermore, the novel coronavirus (“COVID-19”) pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, Seneca could experience an inability to access additional capital, when and if needed. If adequate funds are not available to Seneca on a timely basis, it may be required to curtail or cease its operations.

If the Merger is not completed, raising additional funding through debt or equity financing could be difficult or not successful at all, would be dilutive and may cause the market price of Seneca’s Common Stock to further decline.

If the Merger is not completed, raising additional funding through debt or equity financing could be difficult or unavailable altogether given the turbulent financial markets. To the extent that Seneca raises additional capital through the sale of equity or convertible debt securities, the issuance of those securities would result in substantial dilution for Seneca’s current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of its current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by Seneca, or the possibility of such issuance, may cause the market price of its common stock to decline further and existing stockholders may not agree with its financing plans or the terms of such financings.

Seneca and LBS have incurred and will continue to incur significant transaction costs in connection with the Merger.

Seneca has incurred and will continue to incur significant transaction costs in connection with the Merger. Seneca estimates that it will incur aggregate direct transaction costs of approximately $6.0 million associated with the Merger and approximately $1.0 million for its portion of shared transaction expenses, as well as additional costs associated with the commencement of the combined organization’s operation as a public company, which cannot be estimated accurately at this time.

LBS has incurred and will continue to incur significant transaction costs in connection with the Merger. LBS estimates that it will incur aggregate direct transaction costs of approximately $3.7 million associated with the Merger and approximately $0.1 million for its portion of shared transaction expenses, as well as additional costs associated with the commencement of the combined organization’s operation as a public company, which cannot be estimated accurately at this time.

Risks Related to Seneca

Seneca has a history of losses.

Since inception in 1996 through September 30, 2020, we have accumulated losses totaling approximately $234 million. As of September 30, 2020, we had a working capital surplus of approximately $14 million and stockholders’ equity of approximately $14 million. Our net losses for the two most recent fiscal years have been approximately $8.4 million and $4.9 million for 2019 and 2018, respectively.

To date, we have not generated any revenue from the commercial sale of our proposed products. No assurances can be given as to exactly when, if at all, we will be able to fully develop, commercialize, market, sell and/or derive any, let alone material, revenues from our proposed products.

Seneca will need to raise additional capital to continue operations.

Since our inception, we have funded our operations through the sale of our securities, credit facilities, the exercise of options and warrants, and to a lesser degree, from grants and research contracts and other revenue generating activities such as licensing. As of September 30, 2020, we had cash, cash equivalents and short-term investments on hand of approximately $13 million. We anticipate that based upon our cash position on September 30, 2020, we will be able to fund our operations for more than 12 months after this filing. We cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt, licensing agreements or grants. Our inability to license our intellectual property, obtain grants or secure additional financing will materially impact our ability to fund our current and planned operations.

We have spent and expect to continue spending substantial cash in the research, development, clinical and pre-clinical testing of our proposed products with the goal of ultimately obtaining FDA approval and equivalent international approvals to market such products. We will require additional capital to execute our acquisition and/or in-licensing strategy as well as out-licensing initiatives. We cannot assure you that financing will be available if needed. If additional financing is not available, we may not be able to fund our operations, take advantage of business opportunities. If we exhaust our cash reserves and are unable to secure additional financing, we may be unable to meet our obligations which could result in us initiating bankruptcy proceedings or delaying or eliminating some or all our research and product development programs.

Seneca is substantially dependent on its remaining employees to facilitate the consummation of the Merger.

As of September 30, 2020, Seneca had only 7 full-time employees. Such employees’ employment with Seneca will terminate upon the closing of the Merger. Seneca’s ability to successfully complete the Merger depends in large part on Seneca’s ability to retain certain of its remaining personnel. Despite Seneca’s efforts to retain these employees, one or more may terminate their employment with Seneca on short notice. The loss of the services of any of these employees could potentially harm Seneca’s ability to consummate the Merger, to run Seneca’s day-to-day business operations, as well as to fulfill Seneca’s reporting obligations as a public company.

Management transition creates uncertainties and could harm Seneca’s business.

Seneca has in the past, and may again in the future, experience significant changes in executive leadership. Changes to company strategy, which can often times occur with the appointment of new executives, can create uncertainty, may negatively impact Seneca’s ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, executive leadership transition periods are often difficult as the new executives gain detailed knowledge of Seneca’s operations, and friction can result from changes in strategy and management style. Management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until Seneca integrates new personnel, and unless they are able to succeed in their positions, Seneca may be unable to successfully manage and grow its business, and Seneca’s results of operations and financial condition could suffer as a result. In any event, changes in Seneca’s organization as a result of executive management transition may have a disruptive impact on Seneca’s ability to implement its strategy and could have a material adverse effect on Seneca’s business, financial condition and results of operations.

The pendency of the Merger could have an adverse effect on the trading price of Seneca’s Common Stock and Seneca’s business, financial condition and prospects.

While there have been no significant adverse effects to date, the pendency of the Merger could disrupt Seneca’s business in many ways, including:

Should they occur, any of these matters could adversely affect the trading price of Seneca’s Common Stock or harm Seneca’s business, financial condition and prospects.

Seneca may not be able to continue as a going concern if it does not obtain additional financing.

Seneca has incurred losses since inception and has not demonstrated an ability to generate revenues from the sales of Seneca’s proposed products.  Seneca’s ability to continue as a going concern is dependent on raising capital from the sale of its common stock and/or obtaining debt financing.  Seneca’s cash, cash equivalents and short-term investment balance at September 30, 2020 was approximately $12.8 million. On January 17, 2020, Seneca entered into an agreement with certain accredited investors from its July 30, 2019 underwritten offering. Pursuant to the agreement, Seneca agreed to reduce the exercise price of 5,555,554 common stock purchase warrants from $2.70 to $1.36 in consideration for the immediate exercise of the warrants for cash and issued the investors an aggregate of 5,555,554 replacement warrants having an exercise price of $1.23 per share. Of the replacement warrants, 2,777,777 have a term of two years and 2,777,777 have a term of five years. We received approximately $6.7 million in net proceeds. In May 2020, Seneca completed an offering 5,000,000 shares of Seneca’s Common Stock. The offering resulted in net proceeds of approximately $4.4 million, after deducting placement agent discounts and commissions and offering expenses. Also, in May 2020, Seneca received approximately $3.5 million from the exercise of 2,871,296 common stock purchase warrants.

Based on Seneca’s current expected level of operating expenditures, we expect to be able to fund our operations for more than 12 months from this filing. Seneca’s ability to remain a going concern is wholly dependent upon its ability to continue to obtain sufficient capital to fund its operations.

Despite Seneca’s ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to it when needed or that it may be able to secure funding from any other sources. In the event that Seneca is not able to secure funding, it may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.

Seneca’s auditors have expressed substantial doubt about its ability to continue as a going concern.

Seneca’s auditors’ report on our December 31, 2019 consolidated financial statements included an explanatory paragraph that expressed substantial doubt about its ability to continue as a going concern. Seneca’s current cash level raises substantial doubt about its ability to continue as a going concern for more than 12 months from this filing. If Seneca does not obtain additional capital by such time, it may no longer be able to continue as a going concern and may cease operation or seek bankruptcy protection.

If Seneca is unable to execute on its in-licensing and acquisition strategy, its business could be materially impacted.

During 2019, Seneca initiated an in-licensing and acquisition strategy to further expand its product pipeline. Seneca’s in-licensing strategy consists of evaluating pre-clinical and clinical stage opportunities in therapeutic areas that can benefit from our current product candidates or core expertise in drug development. Although Seneca believes this strategy could diversify some of the risks inherent in focusing on limited therapeutic areas and could increase its probability of commercial success, it is extremely costly and expensive. At present, Seneca is focusing a majority of its efforts and capital resources on such strategy and has greatly reduced its other development activities. If Seneca is not able to successfully execute this strategy, its business will be materially impacted.

Seneca may experience intense competition related to the acquisition and/or in-licensing of assets.

Seneca expects to encounter intense competition from other entities undertaking similar acquisition and/or in-licensing strategies. Many of these entities, including venture capital firms, partnerships and corporations, blind pool companies, large industrial and financial institutions, small business investment companies and wealthy individuals, are well-established and have extensive experience in identifying, licensing and/or acquiring therapeutic assets. Many of these competitors possess greater financial, technical, human and other resources than Seneca and there can be no assurance that Seneca will have the ability to compete successfully. Seneca’s financial resources will be limited in comparison to those of many of its competitors. This inherent competitive limitation may compel Seneca to select certain less attractive prospects. There can be no assurance that such prospects will permit Seneca to achieve its stated business objectives.

Seneca’s common stock does not currently meet the continued listing requirements for the Nasdaq Capital Market and accordingly is subject to delisting.

On March 30, 2020, Seneca received a written notice from the Nasdaq Stock Market LLC that it is not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of its common stock had been below $1.00 per share for 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Seneca had a period of 180 calendar days, or until September 28, 2020, to regain compliance with the minimum bid price requirement. On April 17, 2020, Seneca received a subsequent written notice that the Nasdaq Stock Market LLC filed an immediately effective rule changes with the SEC on April 16, 2020. Pursuant to the rule change, the Nasdaq tolled the compliance period through June 30, 2020. As a result, Seneca had until December 10, 2020 to regain compliance. To regain compliance, the closing bid price of its common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this period. On December 11, 2020, Seneca received written notification from Nasdaq that Seneca was granted a 180-day extension to regain compliance with Nasdaq’s minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2). Accordingly, Seneca has until June 9, 2021 to meet the bid price requirement.

If Seneca does not regain compliance within the respective allotted compliance period, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that Seneca’s common stock will be subject to delisting. Seneca will then be entitled to appeal the determination to a Nasdaq Listing Qualifications Panel and request a hearing. Seneca cannot be sure that it will comply with the requirements for continued listing of its shares on the Nasdaq Capital Market in the future or that it will comply with the other continued listing requirements. If Seneca’s shares lose their status on the Nasdaq Capital Market, Seneca believes that its shares would likely be eligible to be quoted on the inter-dealer electronic quotation and trading system operated by Pink OTC Markets Inc., commonly referred to as the Pink Sheets and now known as the OTCQB market. These markets are generally considered not to be as efficient as, and not as broad as, the Nasdaq Capital Market. If Seneca’s common stock is delisted, this would, among other things, substantially impair its ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for Seneca.

If Seneca’s common stock were delisted from NASDAQ, Seneca would be subject to the risks relating to penny stocks.

If Seneca’s common stock were to be delisted from trading on the Nasdaq Capital Market and the trading price of its common stock were below $5.00 per share on the date its common stock is delisted, trading in Seneca’s common stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These rules require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a “penny stock” and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally institutions. These additional requirements may discourage broker-dealers from effecting transactions in securities that are classified as penny stocks, which could severely limit the market price and liquidity of such securities and the ability of purchasers to sell such securities in the secondary market. A penny stock is defined generally as any non-exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions.

Seneca could become the subject to securities litigation.

Commencing in 2017, Seneca has seen a dramatic decrease in the price of its common stock. More recently, in July of 2019 Seneca effected a 1-for-20 reverse stock split and completed an underwritten public offering of its securities. Commencing from the time Seneca’s reverse stock split became effective, Seneca had seen an even more drastic decrease in the price of its common stock. Plaintiffs have often initiated securities class action litigation against a company following periods of significant decreases in the market price of the company’s securities. As a result, Seneca may become the target of litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources from Seneca’s operations and business.

Seneca will need to raise additional capital to continue operations.

Since Seneca’s inception, it has funded its operations through the sale of its securities, credit facilities, the exercise of options and warrants, and to a lesser degree, from grants and research contracts and other revenue generating activities such as licensing. As of September 30, 2020, Seneca had cash, cash equivalents and short-term investments on hand of approximately $13 million. Seneca anticipates that based upon its cash position on September 30, 2020, it will be able to fund our operations for more than 12 months after this filing. Seneca cannot assure you that it will be able to secure additional capital through financing transactions, including issuance of debt, licensing agreements or grants. Seneca’s inability to license its intellectual property, obtain grants or secure additional financing will materially impact its ability to fund its current and planned operations.

Seneca has spent and expects to continue spending substantial cash in the research, development, clinical and pre-clinical testing of its proposed products with the goal of ultimately obtaining FDA approval and equivalent international approvals to market such products. Seneca will require additional capital to execute our acquisition and/or in-licensing strategy as well as out-licensing initiatives. Seneca cannot assure you that financing will be available if needed. If additional financing is not available, Seneca may not be able to fund its operations, take advantage of business opportunities. If Seneca exhausts its cash reserves and are unable to secure additional financing, it may be unable to meet its obligations which could result in it initiating bankruptcy proceedings or delaying or eliminating some or all of its research and product development programs.

Risks Relating to Seneca’s Business

Seneca’s business is dependent on the successful development of product candidates that it has yet to acquire or license.

Seneca’s business is significantly dependent on the successful development of product candidates that it has yet to acquire or license. If Seneca is successful in-licensing or acquiring product candidates, the process to approve of such product candidates is time-consuming, involves substantial expenditures of resources, and depends upon a number of factors, including the availability of alternative treatments, and the risks and benefits demonstrated in its clinical trials. Seneca’s success will depend on its ability to achieve scientific and technological advances and to translate such advances into FDA-approvable, commercially competitive products on a timely basis. Failure can occur at any stage of the process. If Seneca is not successful in its in-licensing and acquisition strategy, it will have invested substantial amounts of time and money without developing revenue-producing products.

Any product candidates Seneca is able to license or acquire will likely not be commercially available for at least several years, if at all. Seneca’s development schedules for its current and future product candidates may be affected by a variety of factors, including difficulties in identifying and in-licensing or acquiring such future products candidates, technological difficulties, clinical trial delays or failures, regulatory hurdles, competitive products, intellectual property challenges and/or changes in governmental regulation, many of which will not be within Seneca’s control. In light of the long-term nature of these types of projects, the technology potentially involved, and the other factors there can be no assurance that Seneca will be able to successfully complete the development or marketing of any product candidates.

The technologies Seneca intends to out-license may not be able to be commercially developed.

Seneca has allocated most of its resources to the development of its stem cell and small molecule technologies. These are emerging technologies which may be deemed to have limited human application. If potential licensees or acquirors believe that these technologies have limited human applications, Seneca may not be able to out-license, on acceptable terms or at all, its technologies. Failure to out-license or sell Seneca’s stem cell or small molecule technologies may materially impact the value of its business.

Seneca is unable to predict when or if it will be able to earn significant revenues.

Given that Seneca has yet to in-license or acquire new technologies, it cannot predict when, or if ever, it will be able to realize revenues related to its products. Even if in-licensed or acquired, these products are not likely to be commercially available for at least several or more years, if ever. Accordingly, Seneca does not foresee generating any significant revenue during such time. As a result, Seneca will be primarily dependent on its ability to raise capital through the sale of its securities to fund its operations for the foreseeable future.

Seneca may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.

Seneca’s business may bring it into conflict with licensees, licensors, or others with whom it has contractual or other business relationships or with its competitors or others whose interests differ from Seneca’s. If Seneca are unable to resolve these conflicts on terms that are satisfactory to all parties, it may become involved in litigation brought by or against such parties. Any litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of Seneca’s business. The outcome of litigation is always uncertain, and in some cases, could include judgments against Seneca which could have a materially adverse effect on its business.

Seneca depends on a limited number of employees and consultants for its continued operations and future success.

Seneca is highly dependent on a limited number of employees and outside consultants.  Although Seneca has entered into employment and consulting agreements with these parties, these agreements can be terminated at any time.  The loss of any of its employees or consultants could adversely affect its opportunities and materially harm its future prospects.  In addition, Seneca anticipates growth and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing and marketing.  Seneca anticipates the need for additional management personnel as well as the development of additional expertise by existing management personnel. There is intense competition for qualified personnel in the areas of Seneca’s present and planned activities, and there can be no assurance that it will be able to attract and retain the qualified personnel necessary for the development its business.

Seneca entered into employment contracts with members of its senior management team that contain significant anti-termination provisions which could make future changes in management difficult or expensive.

Seneca has entered into employment agreements with members of its senior management team. These agreements may require the payment of severance in the event one of these employees ceases to be employed. These provisions make the replacement of these employees very costly and could cause difficulty in effecting any required changes in management or a change in control.

Business or economic disruptions or global health concerns could seriously harm Seneca’s development efforts and increase its costs and expenses.

Broad-based business or economic disruptions could adversely affect Seneca’s ongoing or planned research and development activities as well as the execution of its acquisition and/or in-licensing strategy. For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread around the world, including to the United States. To date, this outbreak has already resulted in extended shutdowns of many businesses around the world, including in the United States. At this time, the impact on Seneca has been employees who previously worked in our corporate office and who traveled are now limited to home office work and virtual meetings. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. Seneca cannot presently predict the scope, severity and longevity of any potential business shutdowns or disruptions, but if Seneca or any of the third parties with whom it engages or plans to engage, including the suppliers, clinical trial sites, regulators and other third parties with whom Seneca conducts business or plans to conduct business, were to experience shutdowns or other business disruptions, Seneca’s ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals and clinical sites in which Seneca may conduct any of its clinical trials, which could have a material adverse effect on its business and its results of operation and financial condition.

The increasing use of social media platforms presents new risks and challenges.

Social media is increasingly being used to communicate information about our products and the diseases that our therapies are designed to treat. Social media practices in our industry continue to evolve and regulations related to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients and others may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, we may fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend against political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate comments about us on any social networking website. If any of these events were to occur or Seneca otherwise fails to comply with applicable regulations, it could incur liability, face overly restrictive regulatory actions or incur other harm to its business.

Risks Relating to Seneca’s Intellectual Property

Seneca may not be able to withstand challenges to its intellectual property rights.

Seneca relies on its intellectual property, including issued and applied-for patents, as the foundation of its business. Seneca’s intellectual property rights may come under challenge. No assurances can be given that Seneca’s current and potential future patents will survive such challenges. These cases are complex, lengthy, expensive, and could potentially be adjudicated adversely to our interests, removing the protection afforded by an issued patent. The viability of Seneca’s business would suffer if such patent protection were limited or eliminated. Moreover, the costs associated with defending or settling intellectual property claims would likely have a material adverse effect on Seneca’s business and future prospects.

Seneca may not be able to adequately protect against the piracy of the intellectual property in foreign jurisdictions.

Seneca conducts research in countries outside of the U.S., including through its subsidiary in the People’s Republic of China. Several of Seneca’s competitors are located in these countries and may be able to access Seneca’s technology or test results. The laws protecting intellectual property in some of these countries may not adequately protect Seneca’s trade secrets and intellectual property. The misappropriation of our intellectual property may materially impact Seneca’s position in the market and any competitive advantages, if any, that it may have.

Seneca may infringe the intellectual property rights of others and may not be able to obtain necessary licenses to third-party patents and other rights.

A number of companies, universities and research institutions have filed patent applications or have received patents relating to technologies in Seneca’s field. Seneca cannot predict which, if any, of these applications will issue as patents or how many of these issued patents will be found valid and enforceable. There may also be existing issued patents on which we would infringe by the commercialization of Seneca’s product candidates. If so, Seneca may be prevented from commercializing these products unless the third party is willing to grant a license to Seneca. Seneca may be unable to obtain licenses to the relevant patents at a reasonable cost, if at all, and may also be unable to develop or obtain alternative non-infringing technology. If Seneca is unable to obtain such licenses or develop non-infringing technology at a reasonable cost, its business could be significantly harmed. Also, any infringement lawsuits commenced against Seneca may result in significant costs, divert its management’s attention and result in an award against it for substantial damages, or potentially prevent it from continuing certain operations.

Risks Related to Ownership of Seneca’s Common Stock

The market price for Seneca’s common shares is particularly volatile.

The market for Seneca’s common shares is characterized by significant price volatility when compared to seasoned issuers, and Seneca expects that its share price will continue to be more volatile than those of a seasoned issuer. The volatility in Seneca’s share price is attributable to a number of factors. Mainly however, Seneca is a speculative or “risky” investment due to its limited operating history, lack of significant revenues to date and the uncertainty of FDA approval. By way of example, in July of 2019, Seneca completed a firm commitment underwritten public offering of our securities. During the marketing of the offering and post-closing, the market price or Seneca’s common stock decreased substantially. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. Seneca may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

The following factors may add to the volatility in the price of Seneca’s common shares: actual or anticipated variations in our quarterly or annual operating results; the results of clinical trials for Seneca’s product candidates; FDA’s determination with respect to filings for new clinical studies, new drug applications and new indications; government regulations; announcements of significant acquisitions, strategic partnerships or joint ventures; our capital commitments; offerings of our securities and additions or departures of Seneca’s key personnel. Many of these factors are beyond Seneca’s control and may decrease the market price of Seneca’s common shares, regardless of its operating performance. Seneca cannot make any predictions or projections as to what the prevailing market price for its common shares will be at any time, including as to whether its common shares will sustain their current market prices, or as to what effect the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

Future sales of Seneca’s common stock could cause its stock price to fall.

In January 2020, Seneca completed an inducement offering pursuant to which it reduced the exercise price of outstanding warrants in exchange for the holder exercising such warrants for cash. As a result, Seneca issued 5,555,554 shares of common stock, or approximately 61% of our issued and outstanding common stock. Transactions, such as the inducement offering, that result in a large amount of newly issued shares that are readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of Seneca’s common stock. In addition, the lack of a robust trading market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of Seneca’s stock. If Seneca’s stockholders sell, or the market perceives that Seneca’s stockholders intend to sell for various reasons, substantial amounts of its common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of its common stock could fall. Sales of a substantial number of shares of Seneca’s common stock may make it more difficult for it to sell equity or equity-related securities in the future at a time and price that Seneca deems reasonable or appropriate. Seneca may become involved in securities class action litigation that could divert management’s attention and harm its business.

Sales of a substantial number of shares of Seneca Common Stock in the public market could cause Seneca’s stock price to fall.

If Seneca’s existing stockholders sell, or indicate an intention to sell, substantial amounts of Seneca Common Stock in the public market, the market price of Seneca Common Stock could decline. Seneca had 17,295,703 shares of common stock outstanding as of November 15, 2020. Seneca is unable to predict the effect that sales may have on the prevailing market price of Seneca Common Stock. Sales of Seneca’s Common Stock by current stockholders may make it more difficult for Seneca to sell equity or equity-related securities in the future at a time and price that Seneca deems reasonable or appropriate, and make it more difficult for other stockholders to sell shares of Seneca Common Stock. In addition, as of November 15, 2020, 7,125,080 shares of common stock that are either subject to outstanding options, reserved for future issuance under Seneca’s equity incentive plans or subject to outstanding warrants will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of Seneca Common Stock could decline.

Certain of Seneca’s outstanding common stock purchase warrants contain price protection provisions (anti-dilution protection) in the event that Seneca sells its securities at prices lower than the current exercise price of such warrants, which may have a negative impact on the trading price of its common stock or impair its ability to raise capital.

As of September 30, 2020, Seneca had 149,149 common stock purchase warrants outstanding that were issued in Seneca’s May 2016 registered offering, May 2016 private placement and August 2017 registered offering that all contain price protection provisions in the event that Seneca sells securities at a price per share below their respective exercise prices (collectively “Price Protection Warrants”). Pursuant to Seneca’s May 2020 common stock offering, the Price Protection Warrants all had their exercise prices adjusted to $0.90 per share. In the event that Seneca sells securities at a price per share lower than the current exercise price of the Price Protection Warrants, their exercise prices will be further reduced. For example, the securities issued in the Pre-Merger Financing will trigger such protection, and lower the exercise price of the Price Protection Warrants. Any future adjustments to the exercise prices of the Price Protection Warrants may have a negative impact on the trading price of Seneca’s common stock. Additionally, raising additional capital with new investors may be difficult as a result of the adjustment feature.

Certain of Seneca’s outstanding common stock purchase options contain provisions (anti-dilution protection) in the event that Seneca issues additional securities, which may have a negative impact on its capital structure and may result in significant dilution to its shareholders or impair its ability to raise capital.

As of September 30, 2020, Seneca had 1,686,486 outstanding common stock purchase options held by certain members of its senior management team. These options contain provisions which have resulted in the adjustment of the shares underlying such options in order that the holder maintains his proportionate ownership of Seneca. Any future adjustments to the number of shares may have a negative impact on Seneca’s capital structure and dilute its other shareholders. Additionally, raising additional capital with new investors may be difficult as a result of the adjustment feature. As of the date hereof, each of the option holders and Seneca have agreed, subject to entering into definitive agreements, to cancel their respective outstanding options in exchange for certain payments as more fully described in the section titled “The Merger—Severance and Equity Award Acceleration.”

Seneca’s anti-takeover provisions may delay or prevent a change of control, which could adversely affect the price of its common stock.

Seneca’s amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make it difficult to remove its board of directors and management and may discourage or delay “change of control” transactions, which could adversely affect the price of its common stock. These provisions include, among others:

If securities or industry analysts do not publish research reports, or publish unfavorable research about Seneca’s business, the price and trading volume of its common stock could decline.

The trading market for Seneca’s common stock will depend in part on the research and reports that securities or industry analysts publish about us and our business. Seneca currently has limited research coverage by securities and industry analysts. In the event an analyst downgrades Seneca’s securities, the price of our securities would likely decline. If analysts cease to cover Seneca or fail to publish regular reports on Seneca, interest in Seneca’s securities could decrease, which could cause the price of its common stock and other securities and their trading volume to decline.

Seneca’s board of directors has broad discretion to issue additional securities, which might dilute the net tangible book value per share of its common stock for existing stockholders.

Seneca is entitled under its certificate of incorporation to issue up to 300,000,000 shares of common stock and 7,000,000 “blank check” shares of preferred stock. Shares of Seneca’s blank check preferred stock provide its board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of September 30, 2020, Seneca has issued and outstanding 17,295,703 shares of common stock and it has 7,167,801 shares of common stock reserved for future grants under its equity compensation plans and for issuances upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of September 30, 2020, Seneca had 200,000 shares of preferred stock issued and outstanding which are convertible into 38,873 shares of common stock. Accordingly, as of September 30, 2020, Seneca is entitled to issue up to 275,536,496 additional shares of common stock and 6,800,000 additional shares of “blank check” preferred stock. Seneca’s board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by Seneca’s shareholders. Any preferred shares Seneca may issue will have such rights, preferences, privileges and restrictions as may be designated from time-to-time by Seneca’s board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions. It is likely that Seneca will be required to issue a large amount of additional securities to raise capital in order to further its development and marketing plans. It is also likely that Seneca will be required to issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our various stock plans. The issuance of additional securities may cause substantial dilution to Seneca’s shareholders.

Unstable market and economic conditions may have serious adverse consequences on Seneca’s business, financial condition and stock price.

From time to time, including recently as a result of the COVID-19 pandemic, global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. Seneca’s general business strategy may be adversely affected by any such economic downturn, volatile business environment and continued unpredictable and unstable market conditions. If the equity and credit markets deteriorate it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on Seneca’s growth strategy, financial performance and stock price and could require Seneca to delay or abandon clinical development plans. In addition, there is a risk that one or more of Seneca’s current service providers, manufacturers and other partners may not survive an economic down-turn, which could directly affect Seneca’s ability to attain Seneca’s operating goals on schedule and on budget.

CVR Holders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

The right of Seneca stockholders to receive any future payment for or derive any value from the CVRs will be contingent solely upon Seneca’s ability to monetize all or any part of the Seneca Legacy Technology through a Legacy Monetization within the time periods specified in the CVR Agreement and the consideration received being greater than the amounts permitted to be retained or deducted by Seneca under the CVR Agreement. In anticipation of the Merger, Seneca licensed certain patents and technologies, including a sublicense, its NSI- 189 assets for $100,000 up front for a three (3) year period, plus, upon the occurrence of certain events, the licensee has the right to purchase the NSI-189 assets for $5,000,000 at any time before the three (3) year period expires. In the event of such purchase, the net proceeds from such sale will be distributed pursuant to the Contingent Value Rights Agreement as described in the section of this proxy statement/prospectus/information statement titled “Agreements Related to the Merger–Contingent Value Rights Agreement.” If a Legacy Monetization is not achieved within the time periods specified in the CVR Agreement or the consideration received is not greater than the amounts permitted to be retained or deducted by Seneca, no payments will be made under the CVR Agreement, and the CVRs will expire valueless.

Following the Effective Time, except as set forth in the CVR Agreement, neither Seneca nor LBS will have any obligation to develop the Seneca Legacy Technology, or to expend any effort or resources to divest or otherwise monetize the Seneca Legacy Technology.

Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company.

Risks Related to LBS

Risks Related to LBS’s Development, Commercialization and Regulatory Approval of LBS’s Investigational Therapies

LBS’s business depends on the successful clinical development, regulatory approval and commercialization of LB1148.

The success of LBS’s business, including its ability to finance itself and generate revenue in the future, primarily depends on the successful development, regulatory approval and commercialization of LB1148. The clinical and commercial success of LB1148 depends on a number of factors, including the following:

If LBS does not achieve one or more of these factors, many of which are beyond its control, in a timely manner or at all, LBS could experience significant delays or an inability to obtain regulatory approvals or commercialize LB1148. Even if regulatory approvals are obtained, LBS may never be able to successfully commercialize LB1148. Accordingly, LBS cannot assure you that it will ever be able to generate sufficient revenue through the sale of LB1148, if approved, to continue its business.

Some of the initial indications in which LBS plans to pursue development of LB1148 are indications for which there are no FDA-approved therapies. This makes it difficult to predict the timing and costs of clinical development for LB1148 in these indications, as well as the regulatory approval path.

There are no FDA-approved therapies for decreasing the time to normal feedings and bowel movement (or preventing necrotizing enterocolitis) in infants after heart surgery. While Entereg is approved to accelerate the time to upper and lower gastrointestinal recovery following surgeries that include partial bowel resection with primary anastomosis, there is no guarantee that regulatory precedence regarding Entereg will apply to the approval of other therapies that may accelerate the time to gastrointestinal recovery following surgery. While there are multiple medical devices approved for the reduction or elimination of postoperative intra-abdominal adhesions, there are no drugs approved to reduce postoperative intra-abdominal adhesions. The regulatory approval process for novel product candidates such as LB1148 can be more expensive and take longer than for other, better known or extensively studied therapeutic approaches.

The development and commercialization strategy for LBS’s product candidate LB1148 depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of tranexamic acid. If LBS is not able to pursue this strategy, it may be delayed in receiving regulatory authority approval.

The Hatch-Waxman Act added Section 505(b)(2) to the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”). Section 505(b)(2) permits the submission of an NDA or BLA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) of the FDCA, for purposes of approving an NDA/BLA, to permit the applicant to rely, in part, upon published literature and/or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any deviation from the previously approved product and to justify that it is scientifically appropriate to rely on the applicable published literature or referenced product, referred to as bridging. The FDA may then approve the new product candidate for all or some of the indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant, if such approval is supported by study data. The labeling, however, may be required to include all or some of the limitations, contraindications, warnings or precautions or restrictions on use included in the reference product’s labeling, including a boxed warning, or may require additional limitations, contraindications, warnings or precautions or restrictions on use.

LBS currently plans to pursue marketing approval for LB1148, in the United States through a 505(b)(2) NDA and will be completing bridging analyses prior to NDA submissions. If the FDA disagrees with LBS’s conclusions regarding the appropriateness of its reliance on the FDA’s prior findings of safety and efficacy for tranexamic acid (“TXA”) or on published literature, or if LBS is not otherwise able to bridge to the listed drug or published literature to demonstrate that its reliance is scientifically appropriate, LBS could be required to conduct additional clinical trials or other studies to support its NDA, which could lead to unanticipated costs and delays or to the termination of the development program for LB1148. If LBS is unable to obtain approval for LB1148 through the 505(b)(2) NDA process, it may be required to pursue the more expensive and time consuming 505(b)(1) approval process, which consists of full reports of investigations of safety and effectiveness conducted by or for LBS.

Notwithstanding the approval of a number of products by the FDA under Section 505(b)(2), pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its policies and practices with respect to Section 505(b)(2) regulatory approvals, which could delay or even prevent the FDA from approving any NDA that LBS submits pursuant to the 505(b)(2) process. Even if LBS is allowed to pursue the 505(b)(2) regulatory pathway to FDA approval, it cannot assure you that its product candidates will receive the requisite approvals for commercialization.

LBS may find it difficult to enroll patients in its clinical trials, which could delay or prevent it from proceeding with clinical trials of its product candidates.

Identifying and qualifying subjects to participate in clinical trials of LBS’s product candidates is critical to its success. The timing of clinical trials depends on LBS’s ability to recruit subjects to participate, as well as the completion of required follow-up periods. Patients may be unwilling to participate in clinical trials because of negative publicity from adverse events related to the biotechnology or pharmaceutical fields, competitive clinical trials for similar patient populations, the existence of current treatments or for other reasons. The timeline for recruiting patients, conducting studies and obtaining regulatory approval of LBS’s product candidates may be delayed, which could result in increased costs, delays in advancing its product candidates, delays in testing the effectiveness of its product candidates or termination of the clinical trials altogether.

Patient enrollment and trial completion are affected by numerous additional factors, including the:

If LBS has difficulty enrolling a sufficient number of patients to conduct its clinical trials as planned, it may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on its business, financial condition, results of operations and prospects.

Clinical drug development is very expensive, time-consuming and uncertain.

Clinical development for LBS’s 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, LBS, any partner with which it 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 LBS’s clinical trials at any time.

The results of previous clinical trials may not be predictive of future results, and the results of LBS’s current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

The results from the prior preclinical studies and clinical trials for LB1148 discussed elsewhere in this prospectus may not necessarily be predictive of the results of future preclinical studies or clinical trials. Even if LBS is able to complete its planned clinical trials of its product candidates according to its current development timelines, the results from its prior clinical trials of its product candidates may not be replicated in these future trials. Many companies in the pharmaceutical and biotechnology industries (including those with greater resources and experience than LBS) have suffered significant setbacks in late-stage clinical trials after achieving positive results in early stage development, and LBS cannot be certain that it will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless have failed to obtain FDA approval. If LBS fails to produce positive results in its clinical trials of any of its product candidates, the development timelines and regulatory approvals and commercialization prospects for its product candidates and its business and financial prospects, would be adversely affected. If LBS fails to produce positive results in its clinical trials of any of its product candidates, the development timelines, regulatory approvals, and commercialization prospects for its product candidates, as well as LBS’s business and financial prospects, would be adversely affected. Further, LBS’s product candidates may not be approved even if they achieve their respective primary endpoints in Phase 3 registration trials. The FDA or non-U.S. regulatory authorities may disagree with LBS’s trial designs or its interpretation of data from preclinical studies and clinical trials. LBS has taken the position that LB1148 has a single active ingredient, TXA. LB1148 also contains polyethylene glycol 3350 (“PEG”). Across different countries and different circumstances, PEG may be regulated as an inactive ingredient, a medical device, or an active ingredient. There is uncertainty on how the FDA and other regulatory agencies will classify the PEG in LB1148. If the FDA determines that LB1148 is a combination product (of TXA and PEG) regulatory approval of this product candidate will require additional clinical trials for which there is not currently a feasible clinical trial design. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that has the potential to result in approval by the FDA or another regulatory authority. Furthermore, any of these regulatory authorities may also approve LBS’s product candidate for fewer or more limited indications than it requests or may grant approval contingent on the performance of costly post-marketing clinical trials.

If the clinical development of LB1148 is successful, LBS plans to eventually seek regulatory approvals of LB1148 initially in the United States, and may seek approvals in other geographies. Before obtaining regulatory approvals for the commercial sale of any product candidate for any target indication, LBS must demonstrate with substantial evidence gathered in preclinical studies and adequate and well-controlled clinical studies, and, with respect to approval in the United States, to the satisfaction of the FDA, that the product candidate is safe and effective for use for that target indication. LBS cannot assure you that the FDA or non-U.S. regulatory authorities would consider its planned clinical trials to be sufficient to serve as the basis for approval of its product candidates for any indication. The FDA and non-U.S. regulatory authorities retain broad discretion in evaluating the results of LBS’s clinical trials and in determining whether the results demonstrate that its product candidates are safe and effective. If LBS is required to conduct clinical trials of its product candidates in addition to those it has planned prior to approval, LBS will need substantial additional funds, and cannot assure you that the results of any such outcomes trial or other clinical trials will be sufficient for approval.

LBS’s 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 LB1148 could arise either during clinical development or, if approved, after it has been marketed. Undesirable side effects could cause LBS, any partners with which LBS 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 LBS’s business, financial condition, operating results and prospects.

Additionally, if LBS 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 LBS or its potential partners from achieving or maintaining market acceptance of the product and could substantially increase the costs of commercializing such product.

LBS may in the future conduct clinical trials for its product candidates outside the United States, and the FDA and applicable foreign regulatory authorities may not accept data from such trials.

LBS, as well as investigator sponsors, have conducted clinical trials, is conducting clinical trials, and may in the future choose to conduct one or more 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 LBS’s business plan.

LBS expects to rely on third-party CROs and other third parties to conduct and oversee its clinical trials. If these third parties do not meet LBS’s requirements or otherwise conduct the trials as required, LBS may not be able to satisfy its contractual obligations or obtain regulatory approval for, or commercialize, its product candidates.

LBS expects to rely on third-party contract research organizations (“CROs”) to conduct and oversee its LB1148 clinical trials and other aspects of product development. LBS also expects to rely on various medical institutions, clinical investigators and contract laboratories to conduct its trials in accordance with LBS’s 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. LBS will rely heavily on these parties for the execution of its clinical trials and preclinical studies and will control only certain aspects of their activities. LBS and its 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 LBS 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 LBS’s clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require LBS to perform additional clinical trials before approving LBS’s or LBS’s partners’ marketing applications. LBS cannot assure that upon inspection by a given regulatory authority, such regulatory authority will determine that any of LBS’s clinical or preclinical trials comply with applicable GCP and GLP requirements. In addition, LBS’s clinical trials generally must be conducted with product produced under cGMP regulations. LBS’s failure to comply with these regulations and policies may require it to repeat clinical trials, which would delay the regulatory approval process.

If any of LBS’s CROs or clinical trial sites terminate their involvement in one of its clinical trials for any reason, it 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 LBS’s relationship with clinical trial sites is terminated, it may experience the loss of follow-up information on patients enrolled in its ongoing clinical trials unless LBS is able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for LBS’s clinical trials may serve as scientific advisors or consultants to it 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.

Even if LBS receives marketing approval for LB1148, or any future product candidate, it may not be able to successfully commercialize its product candidates due to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for LBS to sell its product candidates profitably.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require LBS to provide supporting scientific, clinical and cost effectiveness data to the payor. There may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers costs, including research, development, intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting drug prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations.

Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

LBS cannot be sure that coverage and reimbursement will be available for any product that it commercializes and, if coverage and reimbursement are available, what the level of reimbursement will be. LBS’s inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that LBS develops could have a material adverse effect on its operating results, its ability to raise capital needed to commercialize products and its overall financial condition.

Reimbursement may impact the demand for, and the price of, any product for which LBS obtains marketing approval. Assuming LBS obtains coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use LBS’s products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

LBS’s expects to experience pricing pressures in connection with the sale of any of its product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new products. Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that LBS may receive for any approved product.

Outside of the United States, many countries require approval of the sale price of a product before it can be marketed and the pricing review period only begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing approval in some of these countries, LBS may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available therapies. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, LBS might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay its commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues, if any, LBS is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder LBS’s ability to recoup its investment in one or more product candidates, even if such product candidates obtain marketing approval.

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 LB1148, if approved, will depend significantly on the broad adoption and use of them by physicians and patients for approved indications, and it may not be commercially successful even though it 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:

If LB1148 is approved for use but fails to achieve the broad degree of physician and patient adoption necessary for commercial success, LBS’s operating results and financial condition will be adversely affected, which may delay, prevent or limit its ability to generate revenue and continue its business.

LBS’s 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 LBS is developing, including LB1148. LBS will face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies, medical device 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 LBS. 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 LBS’s target physicians, which could inhibit LBS’s market penetration efforts.

With respect to LBS’s lead product candidate, LB1148, for the indication of postoperative improvement of bowel function, LBS expects to face competition in the pharmacological therapy space from alvimopan, marketed as a branded product, ENTEREG, by Merck, as well as in generic form. There are no pharmacotherapies for decreasing the time to normal feedings and bowel movement (or preventing necrotizing enterocolitis) in infants after heart surgery or for the reduction or elimination of postoperative intra-abdominal adhesions. However, LBS will face general competition from other medical interventions, namely surgical procedures and adhesion barrier products. Adhesion barrier products approved for abdominal or pelvic surgery in the United States consist of SEPRAFILM, INTERCEED and ADEPT. In addition, several products are used off-label for adhesion prevention in the United States, including EVICEL, SURGIWRAP, COSEAL and PRECLUDE. Adhesion barrier products available outside the United States include HYALOBARRIER, SPRAYSHIELD, PREVADH, and INTERCOAT. Such products are used as adjunctive interventions, have variable efficacy, and are not easily used with laparoscopic procedures, which are becoming increasingly common.

Any adverse developments that occur during any clinical trials conducted by Newsoara may affect our ability to obtain regulatory approval or commercialize LB1148.

Newsoara Biopharma Co., Ltd. (“Newsoara”) has the rights to develop and commercialize LB1148 in China for return of bowel function, reduction of adhesions, and sepsis. If serious adverse events occur during any clinical trials Newsoara decides to conduct with respect to LB1148, the FDA and other regulatory authorities may delay, limit or deny approval of LB1148 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 LB1148 and a new and serious safety issue is identified in connection with clinical trials conducted by Newsoara, the FDA and other regulatory authorities may withdraw their approval of the product or otherwise restrict our ability to market and sell our product. In addition, treating physicians may be less willing to administer our product due to concerns over such adverse events, which would limit our ability to commercialize LB1148.

Risks Related to LBS’s Business

LBS has a very limited operating history and has never generated any revenues from product sales.

LBS is an early-stage biotechnology company with a very limited operating history that may make it difficult to evaluate the success of its business to date and to assess its future viability. LBS was initially formed in 2005 and its operations, to date, have been limited to business planning, raising capital, developing LBS’s pipeline assets and other research and development. LBS has not yet demonstrated an ability to successfully complete any clinical trials and has never completed the development of any product candidate, nor has it ever generated any revenue from product sales or otherwise. Consequently, LBS has no meaningful operations upon which to evaluate its business, and predictions about its future success or viability may not be as accurate as they could be if it had a longer operating history or a history of successfully developing and commercializing biopharmaceutical products.

LBS currently has no products approved for sale, and it may never obtain regulatory approval to commercialize any of its 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 its 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 LBS achieves U.S. regulatory approval for a product candidate, if any, LBS will be subject to continued regulatory review and compliance obligations. For example, with respect to LBS’s 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. LBS 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 LBS’s 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 LBS’s 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, LBS 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 LBS 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 LBS, including requesting that LBS initiate a product recall, or requiring notice to physicians or the public, withdrawal of the product from the market, or suspension of manufacturing.

If LBS, its product candidates or the manufacturing facilities for its product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

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 LBS’s product candidates or further restrict or regulate post-approval activities. LBS 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 LBS is not able to achieve and maintain regulatory compliance, it may not be permitted to commercialize its product candidates, which would adversely affect its ability to generate revenue and achieve or maintain profitability.

LBS currently has no marketing capabilities and no sales organization. If LBS is unable to establish sales and marketing capabilities on its own or through third parties, LBS will be unable to successfully commercialize its product candidates, if approved, or generate product revenue.

LBS currently has no marketing capabilities and no sales organization. To commercialize LBS’s product candidates, if approved, in the United States and other jurisdictions, LBS must build its marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and LBS may not be successful in doing so. Although LBS’s employees, consultants, contractors, and partners have experience in the marketing, sale and distribution of pharmaceutical products, and business development activities involving external alliances, from prior employment at other companies, LBS as a company has 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 its 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 LBS’s internal sales, marketing, distribution and pricing/reimbursement/access capabilities would impact adversely the commercialization of these products.

LBS may face product liability exposure, and if successful claims are brought against it, LBS may incur substantial liability if its insurance coverage for those claims is inadequate.

LBS faces an inherent risk of product liability or similar causes of action as a result of the clinical testing of its product candidates and will face an even greater risk if LBS commercializes 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 LBS complying with applicable laws on promotional activity. LBS’s products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with LBS’s product candidates could result in injury to a patient or potentially even death. LBS cannot offer any assurance that it will not face product liability suits in the future, nor can it assure that its insurance coverage will be sufficient to cover its liability under any such cases.

In addition, a liability claim may be brought against LBS even if its product candidates merely appear to have caused an injury. Product liability claims may be brought against LBS by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with its product candidates, among others, and under some circumstances even government agencies. If LBS cannot successfully defend itself against product liability or similar claims, it 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:

LBS intends to obtain product liability insurance coverage for its clinical trials. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. LBS’s insurance coverage may not be sufficient to cover all of its product liability-related expenses or losses and may not cover it for any expenses or losses it may suffer. Moreover, insurance coverage is becoming increasingly expensive, restrictive and narrow, and, in the future, LBS may not be able to maintain adequate insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect it against losses due to product liability or other similar legal actions. LBS will need to increase its product liability coverage if any of its product candidates receive regulatory approval, which will be costly, and it may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all and for all geographies in which LBS wishes to launch. A successful product liability claim or series of claims brought against LBS, if judgments exceed its insurance coverage, could decrease its cash and harm its business, financial condition, operating results and future prospects.

LBS’s employees, independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with whom LBS may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

LBS is exposed to the risk that its employees, independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with which LBS 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, antikickback 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 LBS and LBS is not successful in defending itself or asserting LBS’s rights, those actions could have a significant impact on LBS’s business, including the imposition of 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, reputational harm, diminished profits and future earnings, injunctions, and curtailment or cessation of LBS’s operations, any of which could adversely affect LBS’s ability to operate LBS’s business and LBS’s operating results.

LBS may be subject to risks related to off-label use of its 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 LBS’s 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 LBS obtains regulatory approval for its 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 LBS’s product candidates for off-label uses can also subject it to false claims litigation under federal and state statutes, which can lead to civil, criminal and/or administrative penalties and fines and agreements, such as a corporate integrity agreement, that materially restrict the manner in which LBS promotes or distributes its product candidates. If LBS does not lawfully promote its products once they have received regulatory approval, LBS may become subject to such litigation and, if it is not successful in defending against such actions, those actions could have a material adverse effect on its business, financial condition and operating results and even result in having an independent compliance monitor assigned to audit LBS’s ongoing operations for a lengthy period of time.

LBS’s or third party’s clinical trials may fail to demonstrate the safety and efficacy of its 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 LBS’s 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, LBS 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, LBS 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 LBS 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.

LBS may expend its limited resources to pursue a particular indication and fail to capitalize on indications that may be more profitable or for which there is a greater likelihood of success.

Because LBS has limited financial and managerial resources, it is currently focusing only on development programs that it identifies for specific indications for its product candidates. As a result, LBS may forego or delay pursuit of opportunities for other indications, or with other potential product candidates that later prove to have greater commercial potential. LBS’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities. LBS’s spending on current and future research and development programs for specific indications or future product candidates may not yield any commercially viable product. If LBS does not accurately evaluate the commercial potential or target market for its product candidates, it may not gain approval or achieve market acceptance of that candidate, and its business and financial results will be harmed.

LBS may choose not to continue developing or commercializing any of its product candidates, or may choose not to commercialize product candidates in approved indications, at any time during development or after approval, which would reduce or eliminate its potential return on investment for those product candidates.

At any time, LBS may decide to discontinue the development of any of its product candidates for a variety of reasons, including the appearance of new technologies that make its product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If LBS terminates a program in which it has invested significant resources, LBS will not receive any return on its investment and it will have missed the opportunity to have allocated those resources to potentially more productive uses.

Healthcare reform measures could hinder or prevent the commercial success of LBS’s 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 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. The impact of this ruling is stayed as it is appealed to the Fifth Circuit Court of Appeals. While the ruling will have no immediate effect, it is unclear how this decision, and subsequent appeals, if any, will impact the law. In 2019 and beyond, LBS may face additional uncertainties as a result of likely federal and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the Affordable Care Act. There is no assurance that the Affordable Care Act, as amended in the future, will not adversely affect LBS’s business and financial results.

Additionally, in October 2018, the U.S. President proposed to lower Medicare Part B drug prices, in addition to contemplating other measures to lower prescription drug prices. While this proposal has not yet been enacted, LBS expects 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 its product candidates if approved or additional pricing pressures.

There are also calls to ban all direct-to-consumer advertising of pharmaceuticals, which would limit LBS’s ability to market its 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.

LBS may also be subject to stricter healthcare laws, regulation and enforcement, and its failure to comply with those laws could adversely affect its 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 LBS’s business. LBS is subject to regulation by both the federal government and the states in which it or its partners conduct business. The healthcare laws and regulations that may affect LBS’s ability to operate include: 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 LBS’s 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 LBS for violation of these laws, even if LBS successfully defends against it, could cause LBS to incur significant legal expenses and divert its management’s attention from the operation of its business and result in reputational damage. If LBS’s operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to LBS, it may be subject to penalties, including administrative, civil and criminal penalties, damages, including punitive damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of its operations, and injunctions, any of which could adversely affect LBS’s ability to operate its business and its financial results.

LBS’s failure to successfully to in-license, acquire, develop and market additional product candidates or approved products would impair its ability to grow its business.

LBS intends to in-license, acquire, develop and market additional products and product candidates. Because LBS’s internal research and development capabilities are limited, it may be dependent on pharmaceutical companies, academic or government scientists and other researchers to sell or license products or technology to it. The success of this strategy depends partly on LBS’s 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 LBS for the license or acquisition of product candidates and approved products. LBS has limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into its current infrastructure. Moreover, LBS may devote resources to potential acquisitions or licensing opportunities that are never completed, or LBS may fail to realize the anticipated benefits of such efforts. LBS may not be able to acquire the rights to additional product candidates on terms that it finds acceptable or at all.

Further, any product candidate that LBS acquires 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, LBS cannot provide assurance that any approved products that it acquires will be manufactured or sold profitably or achieve market acceptance.

LBS may seek to avail itself of mechanisms to expedite the development or approval for product candidates it may pursue in the future, such as fast track or breakthrough designation, but such mechanisms may not actually lead to a faster development or regulatory review or approval process.

LB1148 has received Fast Track designation from the FDA for the treatment of postoperative GI dysfunction (which may present as feeding intolerance, ileus, necrotizing enterocolitis, etc.) associated with gut hypoperfusion injury in pediatric patients who underwent congenital heart disease repair surgery. In addition, LBS may seek fast track designation, breakthrough designation, orphan drug designation, rare pediatric disease designation, priority review, or accelerated approval for product candidates it may pursue in the future. For example, 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 FDA fast track designation. However, the FDA has broad discretion with regard to these mechanisms, and even if LBS believes a particular product candidate is eligible for any such mechanism, it cannot guarantee that the FDA would decide to grant it. Even if it does obtain fast track or priority review designation or pursue an accelerated approval pathway, LBS may not experience a faster development process, review, or approval compared to conventional FDA procedures. The FDA may withdraw a particular designation if it believes that the designation is no longer supported by data from LBS’s clinical development program.

LBS intends to seek breakthrough designation for LB1148 for the treatment of postoperative GI dysfunction associated with gut hypoperfusion injury in pediatric patients who underwent congenital heart disease repair surgery and for the treatment of postoperative GI dysfunction associated with major surgeries that risk disrupting the intestinal mucosal barrier. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if LBS believes a product candidate meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. LBS cannot be sure that its evaluation of a product candidate as qualifying for breakthrough therapy designation will meet the FDA’s requirements. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review, or approval compared to conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more product candidates qualifies as a breakthrough therapy, the FDA may later decide that the product candidate no longer meets the conditions for qualification or may decide that the time period for FDA review or approval will not be shortened.

Designation of a drug or biologic as a rare pediatric disease therapy and/or as an orphan drug therapy may also come with accelerated approval rights. In addition, drugs and biologics can also obtain pediatric and/or orphan drug market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms and orphan drug designation may add additional years of exclusivity. However, even if one or more product candidates qualifies for rare pediatric disease designation and/or orphan drug designation, the FDA may later decide that the product candidate no longer meets the conditions for this designation or may decide that the time period for FDA review or approval will not be accelerated.

Risks Related to LBS’s Dependence on Third Parties

LBS expects to rely on collaborations with third parties for the successful development and commercialization of its product candidates.

LBS expects to rely upon the efforts of third parties for the successful development and commercialization of LBS’s current and future product candidates. The clinical and commercial success of LBS’s product candidates may depend upon maintaining successful relationships with third-party partners which are subject to a number of significant risks, including the following:

LBS relies completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for its product candidates, which may include sole-source suppliers and manufacturers; LBS intends to rely on third parties for commercial supply, manufacturing and distribution if any of its product candidates receive regulatory approval; and LBS expects to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.

LBS does not currently have, nor does it plan to acquire, the infrastructure or capability to supply, store, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products. Additionally, LBS has not entered into a long-term commercial supply agreement to provide it with such drug substances or products. As a result, LBS’s ability to develop its product candidates is dependent, and LBS’s ability to supply its products commercially will depend, in part, on LBS’s ability to obtain the active pharmaceutical ingredients (“APIs”) and other substances and materials used in its 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 LBS fails to develop and maintain supply and other technical relationships with these third parties, it may be unable to continue to develop or commercialize its products and product candidates.

LBS does not have direct control over whether its contract suppliers and manufacturers will maintain current pricing terms, be willing to continue supplying LBS with APIs and finished products or maintain adequate capacity and capabilities to serve its needs, including quality control, quality assurance and qualified personnel. LBS is dependent on its 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, LBS may not be able to commercialize or obtain regulatory approval for the affected product or product candidate successfully, and LBS may be held liable for injuries sustained as a result.

In order to conduct larger or late-stage clinical trials for its product candidates and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, LBS’s contract manufacturers and suppliers will need to produce its drug substances and product candidates in larger quantities, more cost-effectively and, in certain cases, at higher yields than they currently achieve. If LBS’s third-party contractors are unable to scale up the manufacture of any of its 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 LBS is 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 LBS is 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 its business, financial condition, operating results and prospects.

LBS expects to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future. LBS’s supply and manufacturing agreements, if any, do not guarantee that a contract supplier or manufacturer will provide services adequate for its needs. Additionally, any damage to or destruction of LBS’s third-party manufacturer’s or suppliers’ facilities or equipment, even by force majeure, may significantly impair its ability to have its products and product candidates manufactured on a timely basis. LBS’s reliance on contract manufacturers and suppliers further exposes it to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate LBS’s trade secrets or other proprietary information. In addition, the manufacturing facilities of certain of LBS’s suppliers may be located outside of the United States. This may give rise to difficulties in importing LBS’s products or product candidates or their components into the United States or other countries.

Risks Related to LBS’s Financial Operations

LBS has expressed substantial doubt about its ability to continue as a going concern.

As explained in Note 1 to LBS’s audited financial statements included elsewhere in this proxy statement/prospectus/information statement, management has determined that there is substantial doubt about LBS’s ability to continue as a going concern due to uncertainties that LBS’s cash flows generated from its operations will be sufficient to meet its current operating costs and LBS’s future financial statements may include a similar qualification about its ability to continue as a going concern. LBS’s audited financial statements were prepared assuming that it will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.

If LBS is unable to meet its current operating costs, LBS would need to seek additional financing or modify its operational plans. If LBS seeks additional financing to fund its business activities in the future and there remains substantial doubt about its ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to LBS on commercially reasonable terms or at all.

LBS may be adversely affected by natural disasters and other catastrophic events and by man-made problems such as terrorism that could disrupt its business operations, and its business continuity and disaster recovery plans may not adequately protect it from a serious disaster.

LBS’s headquarters and main research facility are located in the greater San Diego area, which in the past has experienced severe earthquakes and fires. If these earthquakes, fires, other natural disasters, health pandemics or epidemics, terrorism and similar unforeseen events beyond its control, including for example the ongoing COVID-19 pandemic, prevented it from using all or a significant portion of its headquarters or research facility, it may be difficult or, in certain cases, impossible for LBS to continue its business for a substantial period of time. LBS does not have a disaster recovery or business continuity plan in place and may incur substantial expenses as a result of the absence or limited nature of our internal or third party service provider disaster recovery and business continuity plans, which, particularly when taken together with its lack of earthquake insurance, could have a material adverse effect on its business. Furthermore, integral parties in LBS’s supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect its supply chain, it could have a material adverse effect on LBS’s ability to conduct clinical trials, its development plans and its business.

LBS’s business and operations would suffer in the event of system failures, cyber-attacks or a deficiency in its cyber-security.

Despite the implementation of security measures, LBS’s internal computer systems and those of its 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. While LBS has not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in LBS’s operations, it could result in a material disruption of its development programs and its business operations. In addition, since LBS 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 LBS’s regulatory approval efforts and significantly increase its 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, LBS’s data or applications or inappropriate disclosure of confidential or proprietary information, LBS could incur liability and the further development and commercialization of its products and product candidates could be delayed.

Failure to remediate a material weakness in internal accounting controls could result in material misstatements in LBS’s financial statements.

LBS’s management has identified a material weakness in its internal control over financial reporting. The material weakness was due to a lack of controls in the financial closing and reporting process, including a lack of segregation of duties and the documentation and design of formalized processes and procedures surrounding the creation and posting of journal entries and account reconciliations. If not remediated, or if LBS identifies further material weaknesses in its internal controls, LBS’s failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in its financial statements and a failure to meet its reporting and financial obligations.

Risks Related to LBS’s Intellectual Property

LBS may not be able to obtain, maintain or enforce global patent rights or other intellectual property rights that cover its product candidates and technologies that are of sufficient breadth to prevent third parties from competing against LBS.

LBS’s success with respect to its product candidates will depend, in part, on its ability to obtain and maintain patent protection in both the United States and other countries, to preserve its trade secrets and to prevent third parties from infringing on its proprietary rights. LBS’s ability to protect its product candidates from unauthorized or infringing use by third parties depends in substantial part on its 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 LBS and its 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 LBS or its 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 LBS’s patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of its business. Moreover, LBS’s competitors independently may develop equivalent knowledge, methods and know-how or discover workarounds to LBS patents that would not constitute infringement. Any of these outcomes could impair LBS’s ability to enforce the exclusivity of its patents effectively, which may have an adverse impact on its business, financial condition and operating results.

Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, LBS’s 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 LBS might obtain or license may not cover its product candidates or may not provide LBS with sufficient protection for its 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, LBS 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 LBS. Even if patents or other intellectual property rights have issued or will issue, LBS 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 LBS with any significant protection against competitive products or otherwise be commercially valuable to LBS in every country of commercial significance that LBS may target.

LBS’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between its technology and the prior art allow its technology to be patentable over the prior art. LBS does not have outstanding issued patents covering all of the recent developments in its technology and is unsure of the patent protection that it 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 LBS owns or licenses, which may result in such patents being narrowed, invalidated or held unenforceable. If the breadth or strength of protection provided by the patents LBS holds or pursues with respect to its product candidates is challenged, it could dissuade companies from collaborating with LBS to develop or threaten its ability to commercialize or finance its 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 LBS encounters such difficulties in protecting or are otherwise precluded from effectively protecting its intellectual property in foreign jurisdictions, its business prospects could be substantially harmed, especially internationally.

Proprietary trade secrets and unpatented know-how are also very important to LBS’s business. Although LBS has taken steps to protect its 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 LBS would have adequate remedies for any breach, including injunctive and other equitable relief, or that its trade secrets and unpatented know-how will not otherwise become known, inadvertently disclosed by LBS or its agents and representatives, or be independently discovered by its competitors. If trade secrets are independently discovered, LBS would not be able to prevent their use and if LBS and its agents or representatives inadvertently disclose trade secrets and/or unpatented know-how, LBS may not be allowed to retrieve this and maintain the exclusivity it previously enjoyed.

LBS may not be able to protect its intellectual property rights throughout the world.

Filing, prosecuting and defending patents on LBS’s 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, LBS may not be able to prevent third parties from practicing its inventions in all countries outside the United States and even in launching an identical version of LBS’s product notwithstanding LBS has a valid patent in that country. Competitors may use LBS’s technologies in jurisdictions where it has not obtained patent protection to develop their own products, or produce copy products, and, further, may export otherwise infringing products to territories where LBS has patent protection but enforcement on infringing activities is inadequate or where LBS has no patents. These products may compete with LBS’s products, and LBS’s 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 LBS to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce its patent rights in foreign jurisdictions could result in substantial costs and divert its efforts and attention from other aspects of its business, could put its global patents at risk of being invalidated or interpreted narrowly and its global patent applications at risk of not issuing, and could provoke third parties to assert claims against it. LBS may not prevail in any lawsuits that LBS initiates or infringement actions brought against LBS, and the damages or other remedies awarded, if any, may not be commercially meaningful when LBS is the plaintiff. When LBS is the defendant it may be required to post large bonds to stay in the market while it defends itself 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 patentholder’s business. In these countries, LBS may have limited remedies if its patents are infringed or if LBS is compelled to grant a license to its patents to a third party, which could also materially diminish the value of those patents. This would limit its potential revenue opportunities. Accordingly, LBS’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that LBS owns or licenses, especially in comparison to what it enjoys from enforcing its intellectual property rights in the Unites States. Finally, the company’s ability to protect and enforce its 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. 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 LBS’s patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and its 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 LBS or its licensors fail to maintain the patents and patent applications covering its product candidates for any reason, the company’s competitors might be able to enter the market, which would have an adverse effect on LBS’s business.

If LBS fails to comply with its obligations under its intellectual property license agreements, it could lose license rights that are important to its business. Additionally, these agreements may be subject to disagreement over contract interpretation, which could narrow the scope of its rights to the relevant intellectual property or technology or increase its financial or other obligations to its licensors.

LBS has entered into in-license arrangements with respect to certain of its product candidates. These license agreements impose various diligence, milestone, royalty, insurance and other obligations on LBS. If LBS fails to comply with these obligations, the respective licensors may have the right to terminate the license, in which event LBS may not be able to develop or market the affected product candidate. The loss of such rights could materially adversely affect its business, financial condition, operating results and prospects. For more information about these license arrangements, see “Description of LBS’s Business—Collaborations and License Agreements.”

If LBS is sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay it from developing or commercializing its product candidates.

LBS’s commercial success depends on its ability to develop, manufacture, market and sell its product candidates and use its proprietary technologies without infringing the proprietary rights of third parties. LBS 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 its product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that its 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 LBS’s fields across many countries, there may be a risk that third parties may allege they have patent rights encompassing LBS’s 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 LBS’s product candidates or proprietary technologies notwithstanding patents LBS 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, LBS cannot be certain that others have not filed patent applications for technology covered by its own and in-licensed issued patents or its pending applications. LBS’s competitors may have filed, and may in the future file, patent applications covering LBS’s own product candidates or technology similar to LBS’s technology. Any such patent application may have priority over LBS’s own and in-licensed patent applications or patents, which could further require LBS 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, LBS 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.

LBS may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that its 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 its operating results and divert the attention of managerial and technical personnel, even if LBS does not infringe such patents or the patents asserted against LBS is ultimately established as invalid. There is a risk that a court would decide that LBS is infringing the third party’s patents and would order LBS to stop the activities covered by the patents. In addition, there is a risk that a court will order LBS to pay the other party significant damages for having violated the other party’s patents.

Because LBS relies on certain third-party licensors and partners and will continue to do so in the future, if one of its licensors or partners is sued for infringing a third party’s intellectual property rights, LBS’s business, financial condition, operating results and prospects could suffer in the same manner as if LBS were sued directly. In addition to facing litigation risks, LBS has agreed to indemnify certain third-party licensors and partners against claims of infringement caused by LBS’s proprietary technologies, and LBS has entered or may enter into cost-sharing agreements with some its licensors and partners that could require LBS to pay some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by its proprietary technologies. In certain instances, these cost-sharing agreements could also require LBS to assume greater responsibility for infringement damages than would be assumed just on the basis of its technology.

The occurrence of any of the foregoing could adversely affect LBS’s business, financial condition or operating results.

LBS may be subject to claims that its officers, directors, employees, consultants or independent contractors have wrongfully used or disclosed to LBS alleged trade secrets of their former employers or their former or current customers.

As is common in the biotechnology and pharmaceutical industries, certain of LBS’s employees were formerly employed by other biotechnology or pharmaceutical companies, including its competitors or potential competitors. Moreover, LBS engages the services of consultants to assist LBS in the development of LBS’s 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 its competitors or potential competitors. LBS may be subject to claims that these employees and consultants or LBS has inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Although LBS has 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 LBS is successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to its management team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome.

Risks Related to the Combined Company

In determining whether you should vote approve the proposals contained in this proxy statement/prospectus/information statement, you should carefully read the following risk factors in addition to the risks described above.

The combined company will need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all.

The combined company will require substantial additional funds to conduct the costly and time-consuming clinical efficacy trials necessary to pursue regulatory approval of LB1148 and any other product candidates. The combined company’s 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 the combined company’s ability to achieve its business objectives. If the combined company raises additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely the rights of its common stockholders. Further, to the extent that the combined company raises additional capital through the sale of common stock or securities convertible or exchangeable into common stock, its stockholder’s ownership interest in the combined company will be diluted. In addition, any debt financing may subject the combined company to fixed payment obligations and covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the combined company raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, the combined company may have to relinquish certain valuable intellectual property or other rights to its product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to it. Even if the combined company were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to the combined company or its stockholders.

Seneca and LBS stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the Merger and the Pre-Merger Financing.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, Seneca stockholders and LBS stockholders will have experienced substantial dilution of their ownership interests in their respective companies, including as a result of the Pre-Merger Financing, without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger and the Pre-Merger Financing.

Pursuant to the Pre-Merger Financing, the Converted Additional Shares may be released from escrow and issued to the Investor. In addition, the number of shares of Seneca Common Stock underlying the Bridge Warrants and Equity Warrants may be adjusted upward, as more fully described in the section entitled “Agreements Related to the Merger – Pre-Merger Financing” in this proxy statement/prospectus/information statement. If the adjustment provisions in the Bridge Warrants or Equity Warrants are triggered, a substantial number of additional shares of the combined company’s common stock may become issuable upon exercise of the Bridge Warrants or Equity Warrants, potentially increasing the impact of any subsequent exercise of the Bridge Warrants or Equity Warrants and resale of the shares issuable pursuant thereto.

The combined company will need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all.

The combined company 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 LB1148 in new indications or uses. The terms of the Pre-Merger Financing include restrictions on the combined company’s ability to raise capital through the issuance of equity securities in the near term. The combined company’s 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 the combined company’s ability to achieve its business objectives. If the combined company raises additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely the rights of its common stockholders. Further, to the extent that the combined company raises additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest in the combined company will be diluted. In addition, any debt financing may subject the combined company to fixed payment obligations and covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the combined company raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, the combined company may have to relinquish certain valuable intellectual property or other rights to its product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to it. Even if the combined company were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to the combined company or its stockholders.

The combined company’s business could be adversely affected by the effects of health pandemics or epidemics, including the recent COVID-19 pandemic, in regions where it or third parties on which it relies have significant manufacturing facilities, concentrations of clinical trial sites or other business operations. The COVID-19 pandemic could materially affect the combined company’s operations, including at its headquarters in California, which is currently subject to a county-wide stay-at-home order, and at clinical trial sites, as well as the business or operations of manufacturers, CROs or other third parties with whom the combined company conducts business.

The combined company’s business could be adversely affected by the effects of health pandemics or epidemics in regions where it has concentrations of clinical trial sites or other business operations, and could cause significant disruption in the operations of third-party manufacturers and CROs upon whom it relies. For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to most countries, including the United States and many other countries. LBS’s headquarters is located in San Diego County, California, and many of LBS’s raw materials for manufacture of LB1148 are produced in foreign countries. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States and numerous other countries. Further, the President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response. Similarly, the State of California declared a state of emergency related to the spread of COVID-19. Further, on March 19, 2020 the State of California declared a statewide stay at home order for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities) to mitigate the impact of the COVID-19 pandemic, and the order is currently adjusted on a county-by-county basis based on numerous pandemic measures. Due to the stay at home order, LBS has implemented work-from-home policies for all of its employees. The effects of the stay at home order and work-from-home policies may negatively impact productivity, disrupt business and delay clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on its ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in operations could negatively impact LBS’s business, operating results and financial condition.

Quarantines, stay at home and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases, may impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt LBS’s supply chain. In particular, some of LBS’s suppliers of certain materials used in the production of LBS’s drug products are located in countries outside the United States, where there have been government-imposed quarantines. While many of these materials may be obtained by more than one supplier, restrictions resulting from the COVID-19 pandemic may disrupt LBS’s supply chain or limit its ability to obtain sufficient materials for its product candidates.

In addition, LBS’s clinical trials may be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients may not be able or willing to comply with clinical trial protocols if quarantines interrupt healthcare services, particularly surgical services. Similarly, LBS’s ability to recruit and retain patients, principal investigators and site staff (who as healthcare providers may have heightened exposure to COVID-19) may be hindered, which would adversely affect clinical trial operations. In addition, the COVID-19 pandemic may cause interruption or delays in the operation of the FDA or other regulatory authorities which could negatively affect LBS’s planned clinical trials.

The spread of COVID-19, which has caused a broad impact globally, may materially affect LBS economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, it is currently resulting in significant disruption of global financial markets. This disruption, if sustained or recurrent, could make it more difficult for LBS to access capital, which could in the future negatively affect its liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect LBS’s business and the value of its common stock.

The global pandemic of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or a similar health pandemic or epidemic is highly uncertain and subject to change. LBS does not yet know the full extent of potential delays or impacts on its business, its clinical trials, healthcare systems or the global economy as a whole. These effects could have a material impact on LBS’s operations, and it will continue to monitor the COVID-19 situation closely. To the extent the COVID-19 pandemic adversely affects LBS’s operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

LBS and Seneca expect the stock price of the combined company to be highly volatile.

The market price of shares of the combined company following the Merger 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 shares of the combined company to fluctuate include, but are not limited to:

Moreover, the stock markets in general have experienced substantial volatility in the biotech 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 the combined company’s 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 the combined company’s profitability and reputation. In addition, such securities litigation often has ensued after a reverse merger or other merger and acquisition activity of the type engaged in here by LBS with Seneca. Such litigation if brought could impact negatively the combined company’s business.

The former Seneca stockholders may sell their shares of the combined company.

Pursuant to the Merger Agreement, the stockholders of Seneca are not required to agree to restrictions on selling their stock. As such, the former Seneca stockholders may sell their stock of the combined company after the Merger, which could lead to a decline in the market value of the combined company’s stock and could negatively impact future issuances of the combined company’s equity securities.

The combined company is expected to take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which could result in its common stock being less attractive to investors.

Following the Merger, the combined company is expected to have a public float of less than $250 million and therefore will qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company, the combined company will be able to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in its SEC filings. Decreased disclosures in the combined company’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze its results of operations and financial prospects. We cannot predict if investors will find the combined company’s common stock less attractive if it relies on these exemptions. If some investors find its common stock less attractive as a result, there may be a less active trading market for its common stock and its stock price may be more volatile. The combined company may take advantage of the reporting exemptions applicable to a smaller reporting company until it is no longer a smaller reporting company, which status would end once it has a public float greater than $250 million. In that event, the combined company could still be a smaller reporting company if its annual revenues were below $100 million and it has a public float of less than $700 million.

The combined company does not anticipate paying any dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings to fund the development and growth of the company’s business. As a result, capital appreciation, if any, of the shares of the combined company will be your sole source of gain, if any, for the foreseeable future.

If the combined company fails to attract and retain management and other key personnel, it may be unable to successfully develop or commercialize its product candidates or otherwise implement its business plan.

The biotech industry has experienced a high rate of turnover in recent years. The combined company’s ability to compete in the highly competitive biopharmaceuticals industry depends upon the ability to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory, manufacturing and management skills and experience. The combined company will conduct its operations in the greater San Diego area, a region that is home to many other biopharmaceutical companies as well as many academic and research institutions, resulting in fierce competition for qualified personnel. The combined company may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical companies. Many of the other biopharmaceutical companies against which the combined company will compete have greater financial and other resources, different risk profiles and a longer history in the industry. The combined company’s competitors may provide higher compensation, more diverse opportunities and/or better opportunities for career advancement. Any or all of these competing factors may limit the combined company’s ability to continue to attract and retain high quality personnel, which could negatively affect its ability to successfully develop and commercialize our product candidates and to grow the business and operations as currently contemplated.

The combined company’s ability to use NOL carryforwards and certain other tax attributes may be limited.

LBS has incurred substantial losses during its history and does not expect to become profitable in the near future, and it may never achieve profitability. Unused losses for the tax year ended December 31, 2017 and prior tax years will carry forward to offset future taxable income, if any, until such unused losses expire. Pursuant to U.S. federal tax legislation enacted in late 2017, informally referenced as the Tax Cuts and Jobs Act, as modified under the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, unused federal losses generated after December 31, 2017 will not expire and may be carried forward indefinitely but will be only deductible to the extent of 80% of current year taxable income in any given year. However, the CARES Act temporarily repealed the 80% taxable income limitation for tax years beginning before January 1, 2021; NOL carryforwards generated from 2018 or later and carried forward to taxable years beginning after December 31, 2020 will be subject to the 80% limitation. Also, under the CARES Act, NOLs arising in 2018, 2019 and 2020 can be carried back five years. Many states have similar laws. In addition, both current and future unused losses and other tax attributes may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in our equity ownership by certain stockholders over a three-year period. LBS has not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since its formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. As a result, if LBS earns net taxable income, its pre-2018 NOL carryforwards may expire prior to being used, its NOL carryforwards generated in 2018 and thereafter will be subject to a percentage limitation after 2020 and, if LBS undergoes an ownership change (or if it previously underwent such an ownership change), its ability to use all of the pre-change NOL carryforwards, and other pre-change tax attributes (such as research tax credits) to offset post-change income or taxes may be limited. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, even if LBS or the combined company attains profitability, it may be unable to use all or a material portion of its NOLs and other tax attributes, which could adversely affect future cash flows.

Changes in tax law could adversely affect LBS’s business.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by the Internal Revenue Service, the U.S. Treasury Department and other governmental bodies. Changes to tax laws (which changes may have retroactive application) could adversely affect LBS or holders of its common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on LBS’s business, cash flow, financial condition or results of operations.

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that LBS did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new implemented by the SEC and Nasdaq. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time consuming and costly. For example, the combined company’s management team will consist of the executive officers of LBS prior to the Merger, some of whom have not previously managed and operated a public company. These 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 also may make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

Anti-takeover provisions in the combined company’s charter documents and under Delaware law could make an acquisition of the combined company more difficult and may prevent attempts by the combined company stockholders to replace or remove the combined company management.

Provisions in the combined company’s certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. In addition, because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although Seneca and LBS believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined company’s board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined company’s 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.

Seneca and LBS do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings, if any, to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the common stock of the combined company will be its stockholders’ sole source of gain, if any, for the foreseeable future.

An active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the Merger, there had been no public market for LBS’s common stock. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for its common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.

Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.

If existing stockholders of Seneca and LBS sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after legal restrictions on resale discussed in this proxy statement/prospectus/information statement lapse, the trading price of the common stock of the combined company could decline. Neither Seneca nor LBS is able to predict the effect that sales may have on the prevailing market price of the combined company’s common stock.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, its stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of the Merger, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts, or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

The combined company will have broad discretion in the use of proceeds from the Pre-Merger Financing and may invest or spend the proceeds in ways with which its stockholders do not agree and in ways that may not increase the value of their investments.

The combined company will have broad discretion over the use of proceeds from the Pre-Merger Financing. Its stockholders may not agree with the combined company’s decisions, and its use of the proceeds may not yield any return on its stockholders’ investments. The combined company’s failure to apply the net proceeds of the Pre-Merger Financing effectively could compromise its ability to pursue its growth strategy and the combined company might not be able to yield a significant return, if any, on its investment of these net proceeds. The combined company’s stockholders will not have the opportunity to influence its decisions on how to use the net proceeds from the Pre-Merger Financing.

If the combined company fails to maintain proper and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.

The combined company will be 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 the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. The combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, LBS has never been required to test its internal controls within a specified period. This will require that the combined company incur substantial professional fees and internal costs to expand its accounting and finance functions and that it expends significant management efforts. The combined company may experience difficulty in meeting these reporting requirements in a timely manner.

The combined company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. The combined company’s 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 the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal controls, the combined company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.

The combined company is expected to take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which could result in its common stock being less attractive to investors.

Following the Merger, the combined company is expected to have a public float of less than $250 million and therefore will qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company, the combined company will be able to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in its SEC filings. Decreased disclosures in the combined company’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze its results of operations and financial prospects. Seneca and LBS cannot predict if investors will find the combined company’s common stock less attractive if it relies on these exemptions. If some investors find its common stock less attractive as a result, there may be a less active trading market for its common stock and its stock price may be more volatile. The combined company may take advantage of the reporting exemptions applicable to a smaller reporting company until it is no longer a smaller reporting company, which status would end once it has a public float greater than $250 million. In that event, the combined company could still be a smaller reporting company if its annual revenues were below $100 million and it has a public float of less than $700 million.