Item 1. Business.
Overview
9 Meters is a clinical-stage company pioneering novel treatments for people with rare digestive diseases, gastrointestinal (“GI”) conditions with unmet needs, and debilitating disorders in which the biology of the gut is a contributing factor. Our pipeline includes vurolenatide, a proprietary Phase 3 long-acting glucagon-like-peptide 1 (“GLP-1”) agonist for short bowel syndrome (“SBS”) and a robust pipeline of early-stage candidates for undisclosed rare diseases and/or unmet needs.
Our current product development pipeline is described in the table below:
Figure 1: Current product development pipeline
Corporate Strategy
Our goal is to become a leading biopharmaceutical company focused on rare or debilitating digestive diseases with the potential to transform current treatment paradigms for patients and address unmet medical needs. The critical components of our strategy are as follows:
•Advance the development of vurolenatide for the treatment of SBS. We announced positive results from our multi-center, double-blind, double-dummy, placebo-controlled randomized Phase 2 trial in SBS in the third quarter of 2022. Our Phase 3 study is a randomized, double-blind, placebo-controlled, multicenter study evaluating the efficacy, safety and tolerability of vurolenatide 50 mg administered subcutaneously every two weeks for 24 weeks in adults with SBS.
•Advance preclinical development of NM-136 to support an investigational new drug application (“IND”) in 2023 for the treatment of obesity disorders. NM-136 is a long-acting, highly specific, humanized anti-GIP monoclonal antibody. We plan to file an IND in the second half of 2023.
•Advance our early-stage drug product candidates for undisclosed rare and unmet needs. IND-enabling activities for NM-102, our proprietary tight-junction microbiome regulator, are ongoing. NM-003, our long-acting GLP-2 agonist, is currently undergoing a preclinical proof-of-concept study.
•Acquire targeted clinical compounds for rare or debilitating digestive diseases with unmet needs. We continually evaluate in-licensing opportunities and may acquire targeted clinical compounds for rare or debilitating digestive diseases.
•Pursue a capital-efficient commercialization strategy. For products with rare and/or orphan patient populations, our plan is to build an infrastructure to commercialize our drug products within the U.S. Drawing upon our expertise in both rare and digestive diseases, we aim to build a specialized yet efficient infrastructure that will support the entire commercialization continuum, including stakeholder education, treatment decision and initiation, and product access throughout the patient journey. In addition, we plan to seek partners to commercialize our drug products outside of the U.S. For large addressable markets, we plan to seek global partners with an established presence and history of successful commercialization.
•Leverage, protect and enhance our intellectual property portfolio and secure patents for additional indications. We intend to expand our intellectual property, grounded in securing composition of matter patents and method of use patents for new indications. We plan to develop new formulations for our current product candidates for other indications and improve performance of existing product candidates. We plan to enhance the intellectual property portfolio further through learnings from ongoing clinical trials and manufacturing processes.
•Outsource capital-intensive operations. We plan to continue to outsource capital-intensive operations, including most clinical development and all manufacturing operations of our product candidates, and to facilitate the rapid development of our pipeline by using high quality specialist vendors and consultants in a capital efficient manner.
Vurolenatide for the Treatment of Short Bowel Syndrome
Short Bowel Syndrome Background
SBS is a debilitating orphan disease of impaired nutrient and fluid absorption resulting from massive resection of the small intestine due to recurrent Crohn’s disease, vascular events, trauma, malignancy, and complications from abdominal surgery. Such resections hinder absorption of water, vitamins, protein, fat, calories and other nutrients from food, resulting in diarrhea, dehydration and malnutrition. In addition, some patients depend on Parenteral Support (“PS”), which is the intravenous delivery of nutrition and fluids through a central line catheter. PS support is costly, burdensome, and associated with a myriad of complications. (Jeppesen 2014). A review of literature found that the mortality rate of adult patients with SBS ranges from 15-47% depending on age and length of parenteral nutrition (Schalamon 2003). Furthermore, a study that we commissioned found that SBS patients have a diminished quality of life due to urgent and frequent bowel movements at all times of the day, chronic diarrhea, weakness, exhaustion from dehydration, poor sleep quality, and mental anguish due to the impact of symptoms on their ability to live a normal life.
Figure 2: Short bowel syndrome anatomy
Teduglutide is a treatment that is approved for patients with SBS. Marketed as Gattex® in the United States and Revestive® in Europe, it is approved for the treatment of SBS patients one year and older who are dependent on PS. Teduglutide is an analog of glucagon-like peptide-2 (“GLP-2”), a hormone secreted postprandially by L-cells in sections of the bowel that are frequently removed in patients with SBS. GLP-2 is involved in regulating normal nutrient and energy absorption in the intestine. While teduglutide has demonstrated clinical benefits, it requires daily injections and a multi-step reconstitution process. In addition, teduglutide’s patient population is constrained to patients who are on PS at least 3 times per week and excludes PS patients with GI malignancies. Furthermore, a review of teduglutide U.S. insurance claims across a 24-month period revealed a significant decline in persistency; 25% of patients discontinued therapy by month three, 38% discontinued by month six, 52% discontinued by month twelve and 66% by month twenty-four. (VectivBio Corporate Presentation).
Market Opportunity for SBS
The true incidence and prevalence of SBS are unknown because no reliable patient database exists. However, review of epidemiology from several sources indicates that there are an estimated up to 20,000 SBS patients in the U.S. with similar prevalence in Europe. Furthermore, we believe that there is a significant patient opportunity in the Asia-Pacific region, the Middle East, and Latin America (Jeppesen 2014, Global Data, Mirador Global, Charles River Associates, European Medicines Agency).
Despite the limitations of teduglutide, Takeda projects peak global sales to reach $700 to $800 million (Takeda Wave 1 Pipeline Report, December 2020). We believe that the SBS patient population utilizing teduglutide is a fraction of the total addressable SBS patient population since it is limited to patients who are on PS at least 3 times per week. Claims analysis and market research that we have conducted have shown that most patients do not remain on a steady level of PS throughout their SBS journey, and in fact, 50-65% of patients may not be on PS at all at any given point in time (Mirador Global, Bionest Strategies). Accordingly, we believe that there is additional addressable global market opportunity for alternative therapeutic options that offer potential for improved dosing and administration, a faster onset of action, and an improved safety and tolerability profile, regardless of the level of PS.
Figure 3: Target Product Profile
Vurolenatide is a long-acting GLP-1 receptor agonist that combines exenatide with a proprietary extended half-life technology for treatment of SBS. The long-acting linker technology is designed specifically to address the gastric effects in SBS patients by slowing digestive transit time. Vurolenatide uses proprietary XTEN® technology to extend the half-life of exenatide, potentially allowing for every other week dosing (“Q2W”), which could increase convenience for patients and caregivers.
Figure 4: Vurolenatide and XTEN technology
Phase 1b/2a Study of Vurolenatide
Vurolenatide has demonstrated efficacy and an extended half-life up to 30 days in a 70-patient clinical study and has received Orphan Drug Designation by the U.S. Food and Drug Administration, (the “FDA”). We completed our Phase 1b/2a study in adult patients suffering from SBS in December 2020, with the goal of demonstrating safety and tolerability.
On December 7, 2020, we announced positive topline results from our ongoing Phase 1b/2a clinical trial for vurolenatide in SBS. The study met its primary objective, as vurolenatide was shown to be safe and well tolerated. In addition, vurolenatide demonstrated a clinically relevant improvement in total stool output (“TSO”) volume within 48 hours of first dose.
The Phase 1b/2a clinical trial was an open-label, two-dose study evaluating the safety and tolerability of three escalating fixed doses of vurolenatide (50 mg, 100 mg, 150 mg) in nine adults with SBS for 56 days. The trial was conducted at Cedars-Sinai Medical Center. Patients in each of three cohorts received two subcutaneous doses two weeks apart with six weeks of subsequent follow-up. The study assessed the safety and tolerability of repeated doses on Days 1 and 15 at each dose level. Because reduced TSO volume and bowel movement frequency are correlated with improved intestinal absorption and potentially less need for intravenous supplementation for nutrition and hydration, these were key secondary objectives in the trial. The primary purpose of this open-label Phase 1b/2a study was to learn about the compound and its safety and potential efficacy to inform future development.
Vurolenatide was generally safe and well tolerated: 17 treatment-emergent adverse events (“TEAEs”) were observed in nine patients, 15 of which were mild, transient and self-limited without further intervention. The majority of TEAEs were GI-related (nausea and vomiting).
Importantly, eight of the nine patients experienced meaningful declines in TSO following each dose, relative to a baseline output. The rapid onset of clinical improvements in stool volumes, as observed in all nine patients having substantial reductions in stool output within 48 hours of the first dose, shows the potential for vurolenatide to address the primary problem of chronic malabsorptive diarrhea in SBS patients. Additionally, four of seven patients showed reductions in bowel movement frequency after one dose, and five of six evaluable patients showed reductions in bowel movement frequency after the second dose. Furthermore, of the five patients on PS in the study, two patients showed reduction in PS after each dose. Results of the short form health survey quality of life instrument show directional improvement in multiple elements of health status over the course of the study. The short form health survey, or SF-36, is a set of generic, coherent and easily administered quality-of-life measures. These measures rely upon patient self-reporting and are now widely utilized by managed care organizations and by Medicare for routine monitoring and assessment of care outcomes in adult patients.
Phase 2 Study of Vurolenatide
Following FDA communication in the first quarter of 2021, we initiated a Phase 2 study, VIBRANT (VurolenatIde for short Bowel syndrome Regardless of pArenteral support requiremeNT), of vurolenatide for the treatment of SBS in the second quarter of 2021 with adult patients using TSO as the primary efficacy outcome measure with PS as a secondary endpoint. This trial was a multi-center, double-blind, double-dummy, randomized, placebo-controlled trial.
On September 26, 2022, we announced the results from our Phase 2 study of vurolenatide in SBS. The trial included four parallel treatment arms: vurolenatide 50 mg Q2W, vurolenatide 50 mg every week, vurolenatide 100 mg Q2W, and placebo. The primary efficacy endpoint for the study was change from baseline in mean 24-hour TSO volume over the six-week post-randomization observation period.
The randomization block for the first 11 patients across the four arms resulted in three patients in each vurolenatide arm and two patients in the placebo arm. The mean 24-hour TSO decrease for the vurolenatide 50 mg Q2W treatment arm was 30% versus an increase of 32% in the placebo arm, for a relative reduction compared to placebo of 62%. This group showed a rapid (at one week) and sustained TSO reduction over the six-week post-randomization period. Importantly, TSO reduction from baseline was observed in 16 of the 18 weeks of the observation period in the 50 mg Q2W treatment group. These results, coupled with the most favorable adverse event and optimal pharmacokinetic profile, contributed to our decision to move this dose regimen forward into a pivotal clinical development program.
In patients treated with vurolenatide 50 mg every week, there was a mean TSO decrease of 8%, for a relative reduction compared to placebo of 40%. In patients treated with vurolenatide 100 mg Q2W, there was a mean TSO increase of 16%, for a relative reduction compared to placebo of 16%.
The study allowed the inclusion of SBS patients both requiring and not requiring PS. Five of the eleven patients in the study were receiving PS prior to entering the study and all five were randomly assigned to treatment with vurolenatide. Change from baseline in parenteral support volume, an important secondary endpoint, was also evaluated over the six-week observation period. There was a mean decrease of 17% in the parenteral support volume of these five patients by week two which was sustained throughout the six-week observation period. Of the five patients, two remained stable and three demonstrated a mean decrease in PS of 28%.
Among the 12 patients in the safety population, vurolenatide was generally well tolerated with mild to moderate and transient side effects, the most common of which were nausea and vomiting. One patient terminated early in the vurolenatide 100 mg Q2W arm due to nausea and vomiting. Importantly, there were no serious adverse events related to vurolenatide. Two serious adverse events were reported but deemed to be unrelated to study drug. Both were central catheter infections, which are common in patients with a central line.
Figure 5: Phase 2 summary of results
Phase 3 Study Design
Based upon the results of the VIBRANT trial, we selected a dose and confirmed the design for the Phase 3 trial. The Phase 3 study, called VIBRANT 2, is a randomized, double-blind, placebo-controlled, multicenter study evaluating the efficacy, safety, and tolerability of vurolenatide 50 mg administered subcutaneously every two weeks for 24 weeks in adults with SBS. This international clinical study is designed to enroll approximately 120 patients with SBS with up to 50 clinical investigative sites in North America and Europe. The study population will include both SBS patients who meet the current PS dependence definition (PS required three or more times per week) and SBS patients who do not meet this PS requirement (PS required fewer than three times per week). The study design incorporates input received from the FDA, which was updated in March 2023 based on clarifying comments from the FDA in regard to certain aspects of the design.
Patients with SBS suffer from severe malabsorption due to the lack of sufficient intestinal surface which results directly in severe and often debilitating fluid and nutritional losses in the form of chronic, recurrent diarrhea. This study will not only assess the degree to which vurolenatide can reduce weekly PS volume requirements, but it will also, for the first time in a large ambulatory study, assess the impact of vurolenatide on malabsorptive diarrhea as measured directly by TSO volume.
To maximize the potential for vurolenatide to provide clinical benefit to the entire SBS population regardless of PS requirement, VIBRANT 2 incorporates two primary efficacy endpoints: 1) absolute change from baseline in weekly PS volume which was the established primary efficacy outcome measure to support the approval of the GLP-2 agonist Gattex® (teduglutide) for treatment of SBS patients with a PS dependence; and 2) absolute change from baseline in mean TSO
volume, which assesses TSO volume over the entire treatment period and incorporates specific FDA recommendations around the inclusion of nutrition and hydration parameters to help establish the clinical relevance of this novel endpoint.
Reduction in PS and TSO are both important clinical signs indicative of patients’ ability to absorb nutrients and fluids. It is planned that success on either primary efficacy endpoint can be the basis for a potential future NDA submission for vurolenatide. In addition, an interim analysis is planned when 50% of patients reach week 24. All patients who complete our VIBRANT 2 Phase 3 double-blind treatment period will be eligible to enter an open-label extension study with the objective of assessing the long-term safety of vurolenatide for up to 12 months.
U.S. Institutional Review Board (“IRB”) approval has been secured and several key features have been incorporated that we believe will optimize the ability to enroll the study, including utilizing a clinical research organization (“CRO”) with specific experience executing late-stage clinical studies in SBS; securing up to 50 clinical study sites globally; and giving investigators the ability to enroll all SBS patients, regardless of PS status.
Figure 6: Phase 3 study design
Product Candidates Being Evaluated for Development
NM-136 Anti-GIP Humanized Monoclonal Antibody
NM-136 targets glucose-dependent insulinotropic polypeptide (“GIP”), a hormone found in the upper small intestine that is released into circulation after food is ingested, and when found in high concentrations, can contribute to obesity and obesity-related disorders. NM-136, an anti-GIP humanized monoclonal antibody, has been shown to prevent GIP from binding to its receptor, which in a preclinical obesity model showed a significant decrease in weight and abdominal fat by reducing nutrient absorption from the intestine as well as nutrient storage without affecting appetite. We are continuing the manufacturing and IND-enabling studies of NM-136 and intend to initiate a clinical proof-of-concept study for obesity later this year.
Obesity is a global epidemic among 650 million people worldwide, with more than 30% of the population in the U.S. affected and up to 30% of the population in Europe affected (Novo Nordisk Capital Markets Day, March 2022). Obesity is implicated in many diseases, including diabetes, cardiovascular disease, autoimmune disease, respiratory disease, depression, infertility, and cancer. The World Health Organization predicts that 30% of global deaths in 2030 will be initiated by a lifestyle disease (Safaei, M. Et al). According to Morgan Stanley, the global obesity market will reach $54 billion by 2030, with nearly one-quarter of obese patients under active management by that time. Key drivers of the emerging obesity market include an increased focus on obesity as the upstream cause of disease, the success of recently launched “diabesity”
treatments, increased patient and physician engagement regarding the disease, and increased payer engagement following guidelines updates and the potential passage of the Treat and Reduce Obesity Act, which will include coverage of Medicare screening and treatment of obesity by 2025.
The obesity market can be characterized by five main therapeutic approaches: i) GLP-1, GLP-1/GIP agonists; ii) GLP-1R/GCGR dual agonists, GLP-1R/GIP/GCGR tri-agonists; iii) long-acting amylin analogues, iv) oral GLP-1 approaches; and v) long-acting GIPR antibodies. Of note, in December 2022, Amgen released data from their Phase 1 trial of AMG-133, a long-acting GIPR agonist, in patients with obesity and without other medical conditions. Data from the double-blind, placebo-controlled trial with single and multiple ascending dose cohorts demonstrated weight loss of 14.5% at day 85 following three monthly subcutaneous doses of AMG-133 420 mg with durable weight loss observed for 150 days after the final dose. Based on these findings, Amgen has initiated a Phase 2 dose ranging study of AMG-133 in obese patients with or without diabetes, with expected completion in the fourth quarter of 2024.
NM-102 Tight Junction Microbiome Modulator
NM-102, a small molecule peptide, is being developed as a potential microbiome modulator and is undergoing an indication selection process. NM-102 is a long-acting, degradation-resistant peptide, believed to be gut-restricted, and presumed to prevent antigens from trafficking into systemic circulation. On November 10, 2021, we entered into a collaboration with Gustave Roussy to investigate how tumors in preclinical models may affect intestinal integrity and in turn compromise the fitness of the host’s immune system and its capacity to respond to immune checkpoint inhibitors (“ICIs”).
On November 14, 2022, we announced the preliminary findings of the investigation. Specifically, the work tested the hypothesis that the therapeutic effect of ICIs, such as antibodies to CTLA-4 and PD-1, might be enhanced by preventing bacterial antigens, toxins, and certain metabolites in the gut from interacting with the host immune system utilizing NM-102. These studies showed that NM-102 was effective both when alone and when combined with ICIs in a transgenic mouse model of spontaneous aggressive skin melanoma. Furthermore, the combination of NM-102 with ICIs improved survival compared to ICIs alone. More recent data continues to show NM-102 in combination with ICIs improves overall survival in select mouse tumor models.
Furthermore, on March 2, 2022, we announced a collaboration with NYU Langone Health investigating the pre-clinical use of NM-102 for an undisclosed autoimmune condition with a large unmet need. We are currently progressing NM-102 through IND-enabling studies.
NM-003 Long-Acting GLP-2
NM-003 is a proprietary long-acting GLP-2 receptor agonist with improved serum half-life compared with short-acting versions, which we intend to progress through a clinical and regulatory pathway in an undisclosed orphan and rare GI indication. On December 9, 2020, we announced that the FDA has granted orphan drug designation to NM-003, for prevention of acute graft versus host disease. NM-003, also called teduglutide, is designed as a long-acting injectable GLP-2 receptor agonist that utilizes proprietary XTEN® technology to extend circulating half-life. NM-003 is currently undergoing an indication selection process.
Larazotide (Partnered)
Larazotide is an 8-amino acid peptide formulated into an orally administered capsule. The larazotide drug product is an enteric coated drug product formulated as enteric coated multiparticulate beads filled into hard gelatin capsules for oral delivery. The enteric coating is designed to allow the bead particles to bypass the stomach and release larazotide upon entry into the small intestine (duodenum). A mixed bead formulation is used to allow partial release of larazotide upon entry into the duodenum and to release the remaining larazotide approximately 30 minutes later.
Larazotide for the Treatment of Multi-system Inflammatory Syndrome (“MIS-C”)
We entered a collaboration with the European Biomedical Research Institute of Salerno, Italy (“EBRIS”) to study larazotide for the treatment of MIS-C. MIS-C is a rare and serious complication of COVID-19 with symptoms that resemble those of Kawasaki disease, potentially including persistent fever, gastrointestinal symptoms, myocardial dysfunction, and cardiogenic shock with ventricular dysfunction in the setting of multisystem inflammation. MIS-C occurs when SARS-CoV-2 superantigens move through the tight junctions between the gut epithelial cells into the bloodstream, leading to the hyperinflammatory immune response. We believe that larazotide’s mechanism of action as a tight junction regulator may
prevent SARS-CoV-2 superantigens from entering the bloodstream. Following receipt of a Study May Proceed letter from the FDA under a filed Investigator IND, EBRIS initiated a Phase 2a study in MIS-C in the fourth quarter of 2021 to evaluate the use of larazotide in a group of children through a randomized placebo-controlled trial at MassGeneral Hospital for Children led by pediatric pulmonologist Lael Yonker, M.D.
Under the terms of the collaboration agreement, we will continue to supply larazotide for the ongoing clinical study. EBRIS will be responsible for the continued execution of the Phase 2a trial inclusive of all associated clinical costs.
Our Intellectual Property
We strive to protect the proprietary technology that we believe is important to our business, including our product candidates and our processes. We seek patent protection in the United States and internationally for our product candidates, their methods of use and processes of manufacture, and any other technology to which we have rights, as appropriate. Additionally, we have licensed the rights to intellectual property related to certain of our product candidates, including patents and patent applications that cover the products or their methods of use or processes of manufacture. The terms of the licenses are described below under the heading “Licensing Agreements.” We also rely on trade secrets that may be important to the development of our business.
In addition to patents and applications that we have licensed, we are the owner or co-owner of patent applications that have been filed relating to potential expansion of our product pipeline. We are the owner or co-owner of 2 issued or allowed U.S. patents and 2 issued or allowed foreign patents, as well as 32 pending patent applications covering formulations of larazotide and related compounds and methods of use for larazotide and related compounds (including NM-102). Some of these applications are co-owned with North Carolina State University, University of Maryland, Baltimore, or Oklahoma Medical Research Foundation. We are also the owner of a pending patent application covering methods of use of GLP-1 receptor agonists, including vurolenatide. The patents and patent applications that we own or co-own provide patent terms or anticipated patent terms ranging from 2038 to 2043.
Our success will in part depend on the ability to obtain and maintain patent and other proprietary rights in commercially important technology, inventions and know-how related to our business, the validity and enforceability of our patents, the continued confidentiality of our trade secrets, and our ability to operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may own or license in the future, nor can we be sure that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology and products. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.”
Licensing Agreements
License Agreement with Amunix
In connection with the Naia Acquisition, we entered into two amended and restated license agreements with Amunix Pharmaceuticals, Inc. (“Amunix”), a Sanofi company, pursuant to which we received an exclusive, worldwide, royalty-bearing license, with rights of sublicense, to lead molecules exenatide (a GLP-1 receptor agonist) and GLP-2 analog fused to an XTEN amino acids sequence and other intellectual property referenced therein (the “Amunix Licenses”). Also in connection with the Naia Acquisition, we entered into an amended and restated license agreement with Cedars-Sinai Medical Center (“Cedars”), pursuant to which we licensed the rights to GLP-1 receptor agonist for the treatment of SBS (the “Cedars License” and together with the Amunix Licenses, the “Naia Licenses”). Collectively, the Naia Licenses are intended to support our development of a therapy to treat SBS, which we refer to as vurolenatide.
Naia paid initial license fees and other development milestone payments due under the Naia Licenses prior to the Naia Acquisition, therefore, we did not pay any initial license fees upon the amendment and restatement of the original Naia Licenses. Pursuant to the terms of the Amunix Licenses, we agreed to expend in certain minimum financial amounts in direct support of development of the GLP-1 and GLP-2 products during specified development stages.
As consideration under the Amunix License for the GLP-1 receptor agonist rights, we agreed to pay Amunix certain royalty payments and (i) $70.4 million in milestone payments upon achievement of future development and sales milestones in the U.S. and major E.U. countries, (ii) $20.5 million in milestone payments upon achievement of future development and sales milestones in China and certain related territories, and (iii) $20.5 million in milestone payments upon achievement of future development and sales milestones in South Korea and certain other East Asian countries. As consideration under the Amunix License for GLP-2 rights, we agreed to pay Amunix certain royalty payments and $60.1 million in milestone payments upon achievement of future development and sales milestones in the U.S. and major EU countries.
As consideration under the Cedars License, we agreed to pay Cedars certain royalty payments and approximately $9.4 million in milestone payments upon achievement of future development and sales milestones.
The majority of the intellectual property licensed from Amunix is controlled and maintained by Amunix and relates to their proprietary XTEN fusion protein technology, including fusion protein compositions, methods of use, and methods of manufacturing.
License Agreement with MHS Care Innovation LLC
During July 2021, we entered into an amended and restated technology license agreement with MHS Care-Innovation LLC (“MHS”), pursuant to which we received an exclusive, worldwide license, with rights to sublicense, to certain patent and other intellectual property rights concerning a proprietary and highly specific humanized monoclonal antibody that targets glucose-dependent insulinotropic polypeptide (the “MHS License”). The MHS License does not require the payment of any future milestone payments or royalties to MHS, since it was originally entered into with Lobesity in exchange for the issuance of certain equity securities and a grant of certain related rights to Lobesity, all of which occurred prior to the execution of the MHS License. As consideration for the assets purchased in the Lobesity Acquisition (including but not limited to the MHS License), we are obligated to pay Lobesity (i) potential worldwide regulatory and clinical milestone payments totaling $45.5 million for a single indication (with the total amount payable, if multiple indications are developed, not to exceed $58.0 million), (ii) up to $50.0 million in global sales-related milestone payments, and (iii) subject to certain adjustments, a mid-single digit royalty on worldwide net sales.
License with Alba Therapeutics Corporation
In February 2016, we entered into a license agreement (the “Alba License”) with Alba Therapeutics Corporation (“Alba”) to obtain an exclusive worldwide license to certain intellectual property relating to larazotide and related compounds.
The license agreement gives us the rights to (i) patent families owned by the University of Maryland, Baltimore (UMB) and licensed to Alba, (ii) certain patent families owned by Alba, and (iii) two patent families that are jointly owned by Alba and UMB. In connection with the Alba License, we also entered into a sublicense agreement with Alba under which Alba sublicensed the UMB patents to us (the “Alba Sublicense”).
As consideration for the Alba License, we agreed to pay (i) a one-time, non-refundable fee of $0.4 million at the time of execution and (ii) set payments totaling up to $151.5 million upon the achievement of certain milestones in connection with the development of the product, which future milestones include the acceptance and approval of a New Drug Application, the first commercial sale, and the achievement of certain net sales targets. The last milestone payment is due upon the achievement of annual net sales of larazotide in excess of $1.5 billion. Upon the first commercial sale of larazotide, the license becomes perpetual and irrevocable. The term of the Alba Sublicense, for which we paid a one-time, non-refundable fee of $0.1 million, extends until the earlier of (i) the termination of the Alba License, (ii) the termination of the underlying license agreement, or (iii) an assignment of the underlying license agreement to us. The patents subject to the Alba sublicense have since expired. During 2019, we paid Alba a milestone payment of $0.3 million for the dosing of the first patient in our Phase 3 clinical trial.
License Agreement with EBRIS
On August 6, 2021, we announced a collaboration with EBRIS to study larazotide for the treatment of MIS-C. In connection with this collaboration, we paid a milestone fee of $0.5 million upon IND approval for MIS-C. EBRIS initiated a Phase 2a study in MIS-C during the fourth quarter of 2021. The ongoing Phase 2a study is a randomized, double-blind, placebo-controlled study.
On April 11, 2022, we entered into an exclusive license agreement (the “EBRIS License Agreement”) with EBRIS pursuant to which we granted an exclusive license to EBRIS to study our product incorporating larazotide as its sole active pharmaceutical ingredient (the “Product”) for the treatment of MIS-C and, potentially, multisystem inflammatory syndrome in adults (“MIS-A”). In turn, we will have an option to exclusively license from EBRIS any new intellectual property resulting from such development for purposes of developing, manufacturing, or commercializing products incorporating larazotide or any analog or derivative thereof for the treatment of MIS-C or MIS-A (the “Option”).
Pursuant to the EBRIS License Agreement, the Company issued to EBRIS shares of common stock valued at $0.5 million and we will pay an additional $0.5 million in cash in connection with final database lock of the ongoing Phase II clinical trial for the treatment of MIS-C. Any time prior to the date three months following the completion of the development program contemplated by the EBRIS License Agreement and delivery of the results thereof to us, we may exercise the Option for an upfront fee of $1 million. In addition, if we exercise the Option, the EBRIS License Agreement contemplates certain contingent payments payable by us to EBRIS, including development milestone payments, sales-related milestone payments, and subject to certain adjustments, a low-single digit royalty on net sales in the United States of products incorporating larazotide or any analog or derivative thereof that (i) are covered by any patent rights licensed from EBRIS pursuant to the exercise of the Option, or whose regulatory approval for MIS-C or MIS-A relied on data generated by EBRIS, and (ii) sold pursuant to prescriptions for use in treating MIS-C or MIS-A. Of note, each payment is payable, at the option of the Company, in cash or unregistered shares of the Company’s common stock.
Manufacturing and Supply
We contract with third parties for the manufacturing of all of our product candidates, and for pre-clinical and clinical studies and intend to continue to do so in the future. We do not own or operate any manufacturing facilities and we have no plans to build any owned clinical or commercial-scale manufacturing capabilities. We believe that the use of contract manufacturing organizations (“CMOs”) eliminates the need to directly invest in manufacturing facilities, equipment and additional staff. Although we rely on contract manufacturers, our personnel and consultants have extensive manufacturing experience overseeing CMOs.
As we further develop our molecules, we expect to consider secondary or back-up manufacturers for both active pharmaceutical ingredient and drug product manufacturing. To date, our third-party manufacturers have met the manufacturing requirements for our product candidates in a timely manner. We expect third-party manufacturers to be capable of providing sufficient quantities of our product candidates to meet anticipated full-scale commercial demand but we have not assessed these capabilities beyond the supply of clinical materials to date. We currently engage CMOs on a ‘‘fee for services’’ basis based on our current development plans. We plan to identify CMOs and enter into longer-term contracts or commitments as we move our product candidates into Phase 3 clinical trials.
We believe alternate sources of manufacturing will be available to satisfy our clinical and future commercial requirements; however, we cannot guarantee that identifying and establishing alternative relationships with such sources will be successful, cost effective, or completed on a timely basis without significant delay in the development or commercialization of our product candidates. All of the vendors we use are required to conduct their operations under current Good Manufacturing Practices (“cGMP”), a regulatory standard for the manufacture of pharmaceuticals.
Competition
The pharmaceutical industry is highly competitive and characterized by intense and rapidly changing competition to develop new technologies and proprietary products. Our potential competitors include both major and specialty pharmaceutical companies worldwide. Our success will be based in part on our ability to identify, develop, and manage a portfolio of safe and effective product candidates that address the unmet needs of patients.
The competitive landscape in SBS is currently limited, which we believe is due to the previous regulatory precedent set by the approved agent teduglutide. To our knowledge, there are two therapies (glepaglutide and apraglutide) currently in Phase 3 trials. To our knowledge, there is no single agent approach dedicated to studying SBS patients using a GLP-1 agonist approach other than vurolenatide. A summary of the drugs in development for SBS is below:
Government Regulations
The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs, such as those we are developing. Along with third-party contractors, we will be required to navigate the various preclinical, clinical, and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Government Regulation of Drugs
Before any of our drug product candidates may be marketed in the United States, they must be approved by the FDA. The process required by the FDA before drug product candidates may be marketed in the United States generally involves the following:
•completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices (“cGLP”) regulations;
•submission to the FDA of an IND, which must become effective before human clinical trials may begin and must be updated annually or when significant changes are made;
•approval by an independent IRB or ethics committee for each clinical site before a clinical trial can begin;
•performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed product candidate for its intended purpose;
•preparation of and submission to the FDA of an NDA after completion of all required clinical trials;
•a determination by the FDA within 60 days of its receipt of an NDA to file the application for review;
•satisfactory completion of an FDA Advisory Committee review, if required by the FDA;
•satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMP, and to assure that the facilities, methods, and controls are adequate to preserve the product’s continued safety, purity and potency, and of selected clinical investigational sites to assess compliance with current Good Clinical Practices (“cGCPs”); and
•FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States, which must be updated annually and when significant changes are made.
The testing and approval processes require substantial time, effort, and financial resources and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all, and we may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our product candidates. The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, or may require additional testing, information, and/or post-marketing testing and surveillance to monitor safety or efficacy of a product candidate.
If regulatory approval of a product candidate is granted, such approval may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (“REMS”) plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit further marketing of the product based on the results of these post-marketing studies. In addition, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our product candidates under development.
Expedited Development and Review Programs
A sponsor may seek approval of a product candidate under programs designed to accelerate the FDA’s review and approval of new drug candidates that meet certain criteria. Specifically, a new drug candidate is eligible for Fast Track designation if it is intended to treat a serious or life-threatening condition, fill an unmet medical need, and demonstrate a significant improvement in the safety or effectiveness in the treatment of that condition.
A drug that receives Fast Track designation is eligible for the following:
•more frequent meetings with FDA to discuss the drug’s development plan and ensure collection of appropriate data needed to support drug approval;
•more frequent written correspondence from FDA about the design of clinical trials;
•priority review to shorten the FDA review process for a new drug from ten months to six months; and,
•rolling review, which means 9 Meters can submit completed sections of its NDA for review by FDA, rather than waiting until every section of the application is completed before the entire application can be reviewed.
Under the accelerated approval program, the FDA may approve an NDA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative
treatments. Fast Track designation and priority review do not change the standards for approval but may expedite the development or approval process.
Orphan Drug Status
Vurolenatide has received orphan drug designation by the FDA. Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug candidate intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered by sales of the drug in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Although there may be some increased communication opportunities, orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a drug candidate that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug for the same indication for seven years, except in very limited circumstances, such as if the second applicant demonstrates the clinical superiority of its product or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
Orphan drug exclusivity could block the approval of our drug candidates for seven years if a competitor obtains approval of the same product, as defined by the FDA, or if our drug candidate is determined to be contained within the competitor’s product for the same indication or disease.
As in the United States, designation as an orphan drug for the treatment of a specific indication in the European Union must be made before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product.
Orphan drug exclusivity may be lost if the FDA or the European Medicines Agency (“EMA”) determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition or if the incidence and prevalence of patients who are eligible to receive the drug in these markets materially increase. The inability to obtain or failure to maintain adequate product exclusivity for our product candidates could have a material adverse effect on our business prospects, results of operations and financial condition.
Other Healthcare Laws and Compliance Requirements
Our sales, promotion, medical education, clinical research, and other activities following product approval will be subject to regulation by numerous regulatory and law enforcement authorities in the United States in addition to the FDA, including potentially the Federal Trade Commission, the Department of Justice, the Centers for Medicare and Medicaid Services (“CMS”), the U.S. Department of Health and Human Services (“DHHS”) Office of Inspector General (“OIG”), and other division of DHHS, and state and local governments. Our promotional and scientific/educational programs and interactions with healthcare professionals must comply with the federal Anti-Kickback Statute, the civil False Claims Act, the Physician Self-Referral law (the “Stark Law”), physician payment transparency laws, privacy laws, security laws, anti-bribery and anti-corruption laws, and other federal and state laws similar to the foregoing.
Our business and our relationships with customers, physicians, and third-party payors are and will continue to be subject, directly and indirectly, to federal and state healthcare fraud and abuse laws and regulations. These laws also apply to the physicians and third-party payors who will play a primary role in the recommendation and prescription of our product candidates, if they become commercially available products. These laws may constrain the business or financial arrangements and relationships through which we might market, sell and distribute our products and will impact, among other things, any
proposed sales, marketing and educational programs. There are also laws, regulations and requirements applicable to the award and performance of federal grants and contracts.
If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to them, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, disgorgement, the reimbursement of overpayments, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs, imprisonment, contractual damages, reputational harm, and diminished profits and earnings—any of which could adversely affect our ability to operate our business and our financial results.
Restrictions under applicable federal and state healthcare related laws and regulations include but are not limited to the following:
•the federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the purchase, lease or order, or arranging for or recommending purchase, lease or order, of any good or service for which payment may be made under a federal healthcare program;
•the civil federal False Claims Act, which imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent; knowingly making, using or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; conspiring to defraud the government by getting a false or fraudulent claim paid or approved by the government; or knowingly making, using or causing to be made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
•the criminal federal False Claims Act, which imposes criminal fines or imprisonment against individuals or entities who willfully make or present a claim to the government knowing such claim to be false, fictitious, or fraudulent;
•the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations (collectively, “HIPAA”), which imposes obligations on certain covered entity health care providers, health plans, and health care clearinghouses as well as their business associates that perform certain services involving individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, as well as directly applicable privacy and security standards and requirements; HIPAA also imposes criminal liability for, among other actions, knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, or knowingly and willfully making false statements relating to healthcare matters;
•the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;
•federal transparency laws, including the federal Physician Sunshine Act (“PSA”) created under Section 6002 of the Affordable Care Act and its implementing regulations. The PSA requires manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare and Medicaid Services (“CMS”), information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members; and
•analogous or similar state, federal, and foreign laws, regulations, and requirements—such as state anti-kickback and false claims laws—which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; laws, regulations, and requirements applicable to the award and performance of federal contracts and grants and state, federal and foreign laws that govern the privacy and security of health and other information in
certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations involve substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other laws, regulations, or other requirements that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, restitution exclusion from government funded healthcare programs, corporate integrity agreements, deferred prosecution agreements, debarment from government contracts and grants and refusal of future orders under existing contracts, contractual damages, the curtailment or restructuring of our operations and other consequences. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, that person or entity may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs. Moreover, availability of any federal grant funds which we may receive or for which we may apply is subject to federal appropriations law. Such grant funding may also be withdrawn or denied due to a violation of the above laws and/or for other reasons.
The Inflation Reduction Act of 2022, signed into law on August 16, 2022, contains several health care provisions, including Medicare drug price negotiation. The Drug Price Negotiation Program will require HHS to negotiate a price for a specific number of drugs each year (10 in 2026, 15 in 2027, 15 in 2028, 20 in 2029 and annually thereafter), with the negotiation process starting in 2023. Drugs will be selected by ranking total expenditures in Medicare B and D (although only D in 2026 and 2027). The drugs must be single-source and among the top 50 in expenditures for Parts B or D. Drugs are eligible if at least seven years (small molecule) or eleven years (biologic) have elapsed since approval. Orphan drugs that are designated for only one rare disease or condition are exempt, as are drugs with Part B/D spend of less than $200 million. As such, we do not believe that vurolenatide will be subject to price negotiation.
In addition to the foregoing health care laws, we are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to government officials or private-sector recipients for the purpose of obtaining or retaining business. We adopted an anti-corruption policy as a part of our Code of Business Conduct and Ethics in January 2021. The anti-corruption policy mandates compliance with the FCPA and similar anti-bribery laws applicable to our business throughout the world. However, we cannot assure you that such a policy, or the procedures implemented to enforce such a policy, will protect us from intentional, reckless or negligent acts committed by our employees, distributors, partners, collaborators, or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and could have a negative impact on our business, on the results of our operations, and on our reputation.
Coverage and Reimbursement
Sales of pharmaceutical products depend significantly on the extent to which coverage and adequate reimbursement are provided by third-party payers. Third-party payers include state and federal government health care programs, managed care providers, private health insurers, and other organizations. Although we currently believe that third-party payers will provide coverage and reimbursement for our product candidates, if approved, we cannot be certain of this. Third-party payers are increasingly challenging the price, examining the cost-effectiveness and reducing reimbursement for medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. The U.S. government, state legislatures, and foreign governments have continued implementing cost containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Adoption of price controls and cost containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. We may need to conduct expensive clinical studies to demonstrate the comparative cost-effectiveness of our product candidates. The product candidates that we develop may not be considered cost-effective and thus may not be covered or sufficiently reimbursed. It is time consuming and expensive for us to seek coverage and reimbursement from third-party payers, as each payer will make its own determination as to whether to cover a product and at what level of reimbursement. Thus, one payer’s decision to provide coverage and adequate reimbursement for a product does not assure that another payer will provide coverage or that the reimbursement levels will be adequate. Moreover, a payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement may not be available or sufficient to allow them to sell our product candidates on a competitive and profitable basis.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare delivery and payment systems in ways that could materially affect our ability to sell our products, if approved, profitably. Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality, and/or expanding access to healthcare services. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
By way of example, the 2010 Patient Protection and Affordable Care Act (the “Affordable Care Act”) was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, promote quality improvement and evidence-based care, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms.
Efforts to reform the healthcare sector are ongoing. Since its enactment, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the Affordable Care Act. For example, the Tax Cuts and Jobs Act of 2017 (“TCJA”) repealed the Affordable Care Act’s “individual mandate.” The repeal of this provision of the Affordable Care Act, which required most Americans to carry a minimal level of health insurance, became effective in 2019. It is unclear what impact the repeal of the individual mandate will have on the viability of the insurance marketplaces established under the Affordable Care Act or on the need for future reforms. The Trump administration also took executive actions to delay implementation of portions of the Affordable Care Act, including directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act’s “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. Further, the Bipartisan Budget Act of 2018, among other things, amended the Affordable Care Act to increase the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” These revisions became effective January 1, 2019.
The Biden administration has signaled that it plans to build on the Affordable Care Act and to expand the number of people who are presently eligible for subsidies under the law. On January 28, 2021, President Biden issued a new Executive Order directing federal agencies to reconsider rules and other policies that limit Americans’ access to health care and to consider actions that will protect and strengthen that access. Under this Executive Order, federal agencies are directed to re-examine: policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and waivers under Medicaid and the Affordable Care Act that may reduce coverage or undermine the programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and the Affordable Care Act; and policies that reduce affordability of coverage or financial assistance, including for dependents.
The prices of prescription drugs have been the subject of considerable discussion and debate in the United States and abroad. There have been several recent U.S. congressional inquiries into prescription drug pricing, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for products. Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, and attain and maintain profitability of our product candidates, if approved.
The Budget Control Act of 2011, for instance, created, among other things, measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction in funding to several government programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2029 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020—and also extended the
sequester by one year, through 2030. The American Taxpayer Relief Act of 2012 also reduced Medicare payments to certain providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws, and others, may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug formularies and other healthcare programs. These measures could reduce the ultimate demand for our product candidates, if approved, and/or may constrain the prices that we are able to charge for such products. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
We expect further reform to the Affordable Care Act, to the Medicare and Medicaid programs, and to the regulation of the healthcare sector generally. Some of these changes could have a material adverse effect on our business and operations. Ongoing and future healthcare reform measures may result, for instance, in more rigorous coverage criteria and in additional downward pressure on the price that we receive for our product candidates, if approved, and could harm our future revenues. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.
Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our product candidates to the extent we choose to develop or sell any product candidates outside of the United States. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement, and privacy, can vary greatly from country to country.
Environmental, Social and Governance
The management team and Board of Directors of 9 Meters are keenly aware of the importance of environmental, social and governance issues, and the company’s need to conduct business with high standards. Our mission as an organization is to be patient-centric and develop innovative treatments to liberate patients from rare and underserved diseases through our deep understanding of GI biology.
We collectively believe that pursuing an environmental, social and governance (“ESG”) agenda serves the interests of all of our stakeholders, which includes our stockholders. Our employees, partners, and investors expect us to honor our values and take action to promote a more equitable and sustainable world for future generations.
As we further build our organization behind our pipeline of innovative products to treat rare and unmet needs in digestive diseases, we intend to strive to understand the perspectives of the diverse clients and communities we will serve, and as such, we are intensifying our efforts to drive diversity and inclusion and a culture of belonging throughout our organization. We will strive to comply with all applicable environmental laws, regulations and policies concerning environmental protection in all our business activities and in the selection of partners we choose to work with. We are committed to strengthening our local community by contributing through volunteerism and will continue, as we have been doing, to provide donations to parties we believe will support our goal of improving patient health and well-being. We are also committed to good corporate governance. All of our employees, officers and directors must conduct themselves according to the language and spirit of our Code of Conduct, and our Board of Directors is dedicated to providing effective corporate oversight including through oversight committees such as the Nominating and Governance Committee and the Audit Committee. As our Company grows, we will continue to integrate policies and programs that further foster this effort.
Human Capital
We consider the intellectual capital of our employees to be an essential driver of our business. We currently have 10 full-time employees and also engage consultants to provide services to us, including clinical development, manufacturing support, regulatory support, business development, and general business operational support. We continually evaluate our business needs and strive to balance in-house and outsourced expertise and capacity. Currently, we outsource our drug product manufacturing to CMOs and will be using a CRO for our Phase 3 clinical trial of vurolenatide.
Diversity, Equity and Inclusion
At 9 Meters, we are committed to diversity, equity and inclusion across all aspects of our organization, including hiring, promotion and development practices. We are committed to creating and maintaining a workplace free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law. Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior.
We seek to build a diverse and inclusive workplace and have no tolerance for prejudice or racism. As of March 24, 2023, 35% of our employees self-reported as ethnically diverse individuals and 60% of our employees self-reported as female.
We are committed to ensuring our employees receive equal pay for equal work. We establish components and ranges of compensation based on market and benchmark data. We commission third-party independent consultants to objectively assess and measure our compensation and benefits relative to peer companies within our industry. Within this context, we strive to pay all employees equitably within a reasonable range, taking into consideration factors such as role, relevant experience, internal equity, job location, and individual, business unit, and company performance. In addition, we are committed to providing benefits designed to allow our diverse workforce to have reward opportunities that meet their varied needs so that they are inspired to perform their best on behalf of patients and stockholders each day. We regularly review our compensation practices and analyze the equity of compensation decisions, for individual employees and our workforce as a whole. If we identify employees with pay gaps, we receive and take action to attain fidelity between our stated philosophy and actions.
Strategic Evaluation and Cost Reduction Measures
We continue to evaluate potential financing, business development and strategic alternatives that might be available to us to maximize stockholder value, particularly given the Company’s current liquidity position. Potential strategic transactions may include equity or debt financings, mergers and acquisitions, licensing arrangements and partnerships, co-development agreements, a sale of our Company, a combination of these, or other strategic transactions. We currently have no commitments to engage in any specific strategic transactions and there can be no assurance that we will be able to complete additional financings, business development transactions or other strategic alternatives.
We have recently taken steps to reduce monthly operating expenses and conserve cash as we continue to explore strategic options. As described in Part II, Item 9B of this report, on March 23, 2023, our Board of Directors approved a reduction in force of 11 full-time employees (representing approximately 52% of our total workforce). We believe these changes will provide operating efficiencies for us to continue to support our product development programs as well as any potential partnerships, collaborations or other strategic relationships we may enter into. We will continue to look for additional opportunities to reduce costs.
Corporate Information
The Company was incorporated under the laws of North Carolina under the name “GI Therapeutics, Inc.” in 2012 and changed its name to “Innovate Biopharmaceuticals Inc.” when it converted to a Delaware corporation in 2014. In April 2020, the Company completed its merger with privately-held RDD Pharma, Ltd., an Israel corporation and changed its name from Innovate Biopharmaceuticals, Inc. to 9 Meters Biopharma, Inc. Our principal executive offices are located at 4509 Creedmoor Road, Suite 201, Raleigh, NC 27612 and our telephone number is (919) 275-1933. Our corporate website address is http://www.9meters.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act, will be made available free of charge on our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. The contents of our website are not incorporated into this Annual Report on Form 10-K and our reference to the URL for our website is intended to be an inactive textual reference only.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth information concerning our executive officers as of March 28, 2023:
| | | | | | | | |
Name | Age | Position |
John Temperato | 58 | President and Chief Executive Officer |
Bethany Sensenig | 47 | Chief Financial Officer |
John Temperato
Mr. Temperato joined our Board in April 2020 leading the creation of 9 Meters through a merger of three companies: Innovate Biopharmaceuticals, Inc., RDD Pharma Ltd., and Naia Rare Diseases, Inc. in May of 2020. Prior to the merger, Mr. Temperato served as the Chief Executive Officer of RDD from March 2019 until April 2020. Prior to joining RDD, Mr. Temperato held various leadership roles, including most notably U.S. President & Chief Operating Officer with Atlantic Healthcare, President & Chief Operating Officer/Chief Commercial Officer with Melinta Therapeutics, Inc., and Senior Vice President of Sales and Managed Markets with Salix Pharmaceuticals, Inc., a specialty pharmaceutical company specializing in gastrointestinal products. Notably, at Salix Pharmaceuticals, Mr. Temperato played a critical role in the successful commercialization and growth of their broad GI portfolio and executed over ten launches during his tenure at the company driving growth of company revenues from $119 million in 2004 to $2 billion in 2015. Across his career, Mr. Temperato has been instrumental in defining and executing capital efficient go-to-market strategies, business development strategy and overseeing the commercialization and life-cycle management for small molecules, devices, and biologics. Additionally, he has developed strategies for reimbursement and external healthcare policy. He holds a Bachelor of Science degree from the University of Bridgeport in Bridgeport, Connecticut.
Bethany Sensenig
Ms. Sensenig joined our Company as Chief Financial Officer in January 2022. Prior to joining the Company from March 2019 to January 2022, Ms. Sensenig was Chief Financial Officer and Head of U.S. Operations of Minovia Therapeutics, Ltd., a clinical-stage biotech company, where she played a leadership role building the company’s business and financing strategy. From April 2006 to March 2019, Ms. Sensenig held various roles at Biogen, Inc. a multinational biotechnology company, where she most recently held the position of Vice President of Finance and Commercial Operations. Earlier in her career, Ms. Sensenig held financial management and analyst roles at Merck & Co. Inc. and Nexus Technologies, Inc. Ms. Sensenig holds a Bachelor of Science in Accounting and Business Management from Montreat College, a Master of Business Administration from Western Carolina University and is a Certified Management Accountant.
DIRECTORS
Mark Sirgo, Pharm.D., Director and Chairman
Chief Executive Officer and a member of the Board of Directors of Corium Pharma Solutions, Inc.
Michael Constantino, Director
Retired Assurance Partner, Ernst & Young LLP
Lorin Johnson, Ph.D., Director
Founder and Chief Scientist of Glycyx PharmaVentures Ltd.
Michael Rice, Director
President and Co-Founder of LifeSci Advisors, LLC, Co-Founder of LifeSci Capital
John Temperato, Chief Executive Officer, President and Director
9 Meters Biopharma, Inc.
Samantha Ventimiglia, Director
Senior Vice President, U.S. Public Affairs, Vertex Pharmaceuticals, Inc.
Item 1A. Risk Factors.
Our business, financial condition and operating results may be affected by a number of factors, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from our past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock price. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the accompanying financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Risks Related to Our Capital Requirements and Financial Condition
We have a limited operating history and have incurred significant losses since inception and expect that we will continue to incur losses for the foreseeable future, which makes it difficult to assess our future viability.
We have not been profitable since we commenced operations and we may never achieve or sustain profitability. As a clinical-stage biopharmaceutical company, we have a limited operating history upon which to evaluate our business and prospects. In addition, we have limited history as an organization and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Drug development is a highly speculative undertaking and involves a substantial degree of risk. We have not yet obtained regulatory approvals for any of our product candidates, commercialized any of our product candidates, or generated any revenue from sales of products. We have devoted significant resources to research and development and other expenses related to our ongoing clinical trials and operations, in addition to acquiring product candidates.
Since inception, substantial resources have been dedicated to the acquisition and development of our product candidates. We will require significant additional capital to continue operations and to execute on our current business strategy to develop our current product development pipeline through regulatory approval and further develop future product candidates for eventually seeking regulatory approval. We cannot estimate with reasonable certainty the actual amounts necessary to successfully complete the development and commercialization of our product candidates and there is no certainty that we will be able to raise the necessary capital on acceptable terms or at all.
Our auditor has expressed substantial doubt about our ability to continue as a going concern.
The audit report on our financial statements for the years ended December 31, 2022 and 2021 included an explanatory paragraph related to recurring losses from operations and our dependence on additional financing to continue as a going concern. We have incurred net losses for the years ended December 31, 2022 and 2021 and had an accumulated deficit of $212.6 million as of December 31, 2022. In view of these matters, our ability to continue as a going concern is dependent upon our ability to raise additional debt or equity financing or enter into strategic partnerships. We intend to continue to finance our operations through debt or equity financings or strategic partnerships. The failure to obtain sufficient financing or strategic partnerships on a timely basis and on acceptable terms, if at all, could adversely affect our ability to achieve our business objectives and continue as a going concern.
We continue to evaluate financing, business development and strategic alternatives to provide the resources necessary to complete our product development and maximize stockholder value. However, any transactions that we pursue and complete ultimately might not deliver the anticipated benefits or enhance stockholder value.
In order to raise additional funds to support our operations, we plan to continue to seek additional funds through equity offerings, debt financings or other capital sources, which may impose restrictive covenants that adversely impact our business. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in additional restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to expand our operations or otherwise capitalize on our business opportunities due to such restrictions, our business, financial condition and results of operations could be materially adversely affected.
Additionally, we continue to evaluate strategic and business development transactions that might be available to us to maximize stockholder value, particularly given the Company’s current liquidity position. Potential strategic and business development transactions may include one or more license or co-development agreements, a merger, a combination of these,
or other transactions. We currently have no commitments to engage in any specific strategic transactions and there can be no assurance that our continuing evaluation will result in transactions or other alternatives. Any potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with us, obtaining stockholder approval and the availability of financing on reasonable terms. Further, any strategic or business development transaction that might be pursued and completed ultimately might not deliver the anticipated benefits or enhance stockholder value. There can be no guarantee that our continuing evaluation of alternative strategic and business development transactions will result in our Company entering into or completing potential transactions.
There can be no guarantee that our efforts to raise additional funds and our continuing evaluation of strategic and business development transactions will result in successfully completed transactions when necessary. If additional transactions are not completed that enable us to continue the development of our product candidates and sustain our business operations, our Board of Directors may decide that it is in the best interest of our stockholders and creditors to dissolve our Company and liquidate our assets. If a dissolution and liquidation were pursued, holders of our Common Stock could lose all or a significant portion of their investment.
We will require substantial additional financing for further development of our product candidates. Failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development efforts and other operations.
For the years ended December 31, 2022 and 2021, we incurred losses from operations of $43.8 million and $36.8 million, respectively, and net cash used in operating activities was $37.2 million and $29.5 million, respectively. At December 31, 2022, we had an accumulated deficit of $212.6 million and cash and cash equivalents of $29.7 million, including restricted cash of $17.0 million. We expect to continue to incur substantial operating losses for the next several years as we advance our product candidates through clinical development, U.S. and other regional regulatory approvals and commercialization. No revenue from operations will likely be available until, and unless, one of our product candidates is approved by the FDA or another regulatory agency and successfully marketed, or we enter into an arrangement that provides for licensing revenue or other partnering-related funding, outcomes which we may not achieve on a timely basis or on acceptable terms, or at all.
Our capital requirements for the foreseeable future will depend in large part on our expenditures on our development programs. Future expenditures on our development programs are subject to many uncertainties and could increase significantly as a result of many factors, including:
•the number, size, complexity, results and timing of our drug development programs;
•the number of patients who participate and the rate of enrollment for each of our clinical programs;
•the number and size of nonclinical and clinical studies necessary to demonstrate acceptable evidence of the safety and efficacy of our product candidates;
•the terms of any collaborative or other strategic arrangement that we may establish;
•changes in standards of care which could change the size and complexity of clinical studies;
•the ability to locate patients to participate in a study given the limited number of patients available for orphan or ultra-orphan indications;
•the number and location of sites and the rate of site initiation in each study;
•the duration of patient treatment and follow-up;
•the potential for additional safety monitoring or other post-marketing studies that may be requested by regulatory agencies;
•the time and cost to manufacture clinical trial material and commercial product, including process development and scale-up activities and to conduct stability studies, which can last several years;
•the degree of difficulty and cost involved in securing alternate manufacturers or suppliers of drug product, components or delivery devices, as necessary to meet FDA requirements and/or commercial demand;
•the costs, requirements, timing of, and the ability to, secure regulatory approvals;
•the extent to which we increase our workforce and the costs involved in recruiting, training and incentivizing and retaining qualified employees;
•the costs related to developing, acquiring and/or contracting for sales, marketing and distribution capabilities, supply chain management capabilities and regulatory compliance capabilities, if we obtain regulatory approval for a product candidate and commercialize it without a partner;
•the costs involved in evaluating competing technologies and market developments or the loss in sales in case of such competition;
•the future impact the COVID-19 pandemic could have on the expected timelines for each of our clinical programs; and
•the costs involved in establishing, enforcing or defending patent claims and other proprietary rights.
Additional capital may not be available when we need it, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timely basis, we will be required to delay, limit, reduce or terminate development activities, our establishment of sales and marketing, manufacturing or distribution capabilities, or other activities that may be necessary to commercialize our product candidates, conduct preclinical or clinical studies, or other development activities.
If we raise additional capital through strategic alliances or licensing arrangements or other collaborations with third parties, we may be required to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable. If we raise additional capital through equity or debt offerings in which the instruments can convert to equity, the ownership interest of our stockholders will be diluted and the terms of any new equity securities may have preferential rights over our common stock. Under the terms of our 2022 Convertible Note, and any future debt financing we might enter into, we are subject to covenants limiting and restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures, which could restrict our ability to develop and commercialize our product candidates or operate as a business.
Risks Related to Our Business Strategy and Operations
We are reliant on the success of our lead product candidate, vurolenatide, which we are developing for the treatment of SBS. If we are unable to commercialize vurolenatide, or experience significant delays in doing so, our business will be materially harmed.
Our ability to generate product revenues, which may not occur for several years, if ever, currently depends heavily on the successful development and commercialization of vurolenatide. The success of vurolenatide will depend on a number of factors, including the following:
•successful completion of clinical development;
•receipt of marketing approvals from applicable regulatory authorities;
•establishing commercial manufacturing arrangements with third-party manufacturers;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity;
•protecting our rights in our intellectual property portfolio;
•establishing sales, marketing and distribution capabilities;
•launching commercial sales of vurolenatide; if and when approved, whether alone or in collaboration with others;
•acceptance of vurolenatide, if and when approved, by patients, the medical community and third-party payors;
•effectively competing with other SBS therapies; and
•maintaining a continued acceptable safety profile of vurolenatide following approval.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize vurolenatide, which would materially harm our business.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome; results of earlier studies and trials may not be predictive of future trial results; and our clinical trials may fail to adequately demonstrate to the satisfaction of regulatory authorities the safety and efficacy of our product candidates.
Clinical testing is expensive and can take many years to complete. The outcome of this testing is inherently uncertain. A failure of one or more of our clinical trials can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not necessarily be predictive of the results of later-stage clinical trials. There is a high failure rate for drugs proceeding through clinical trials and product candidates in later stages of clinical trials may fail to show the required safety and efficacy despite having progressed through preclinical studies and initial clinical trials. Many companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier clinical trials, and we cannot be certain that we will not face similar setbacks. For example, in June 2022, following an interim analysis conducted by an independent statistician of our Phase 3 CeDLara study for patients with celiac disease, we determined that the additional number of patients needed to reach a significant clinical outcome between placebo and larazotide would be too large to support trial continuation and we decided to discontinue further development of larazotide for celiac disease. Further, even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.
Failure to develop and maintain adequate financial controls could cause us to have material weaknesses, which could adversely affect our operations and financial position.
We may discover material weaknesses that require remediation. In addition, an internal control system, no matter how well-designed, cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we might not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, or other regulatory authorities.
As disclosed in our Quarterly Report on Form 10-Q filed on November 8, 2022, our management identified a material weakness in internal control over financial reporting in connection with the review of our unaudited condensed consolidated financial statements for the three months ended September 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified was a result of certain control deficiencies related to the precision of our review over the initial valuation and subsequent remeasurement of the non-cash embedded derivative liability recognized as a part of the convertible debt financing in July 2022. We have implemented additional controls by enhancing the documentation of our review of the valuation provided by our third-party specialist, including corroborating inputs to the valuation and engaging a third-party accounting specialist to oversee the review of the valuation of our derivative liabilities. We are required to demonstrate the effectiveness of the new controls for a sufficient period of time; therefore, the material weakness remains as of December 31, 2022.
Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports filed with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures or internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers, and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not be effective, however, in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act in a timely manner, that our internal controls are perceived as inadequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline.
If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully develop and commercialize our product candidates.
We have historically operated with a limited number of employees. As of March 24, 2023, we had 21 full-time employees, including 12 employees engaged full-time in research and development. On March 28, 2023, we reduced our workforce by approximately 52%. Therefore, institutional knowledge is concentrated within a small number of employees. Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel to continue the development, regulatory approval and commercialization of our product candidates. We will need to hire or contract with additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing. Additionally, our future success is highly dependent upon the contributions of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of our product candidates.
We face intense competition from other companies and organizations for qualified personnel. Other companies and organizations with which we compete for personnel may have greater financial and other resources and different risk profiles than we do, and a history of successful development and commercialization of their product candidates. Replacing key employees and attracting sufficiently skilled new employees may be difficult and costly, and we may not have other personnel with the capacity to assume all the responsibilities of a key employee upon his or her departure or to take on the
duties necessary to continue growing our company and pursuing our business strategy. If we cannot attract and retain skilled personnel, as needed, we may not achieve our development and other goals.
In addition, the success of our business will depend on our ability to develop and maintain relationships with respected service providers and industry-leading consultants and advisers. If we cannot develop and maintain such relationships, as needed, the rate and success at which we can develop and commercialize product candidates may be limited. In addition, our outsourcing strategy, which has included engaging consultants to manage key functional areas, may subject us to scrutiny under labor laws and regulations, which may divert management time and attention and have an adverse effect on our business and financial condition.
Our reduction in force undertaken to extend our cash runway and focus more of our capital resources on our prioritized research and development programs might not achieve our intended outcome.
In March 2023, our board approved a reduction in force affecting approximately 52% of our workforce, in order to preserve cash and prioritize investment in our core clinical programs. The reduction in force may result in unintended consequences and costs, such as the loss of institutional knowledge and expertise, attrition beyond the intended number of employees, decreased morale among our remaining employees, and the risk that we may not achieve the anticipated benefits of the reduction in force. In addition, while positions have been eliminated, certain functions necessary to our operations, remain, and we might not successfully distribute the duties and obligations of our terminated employees among our remaining employees. The reduction in workforce could also make it difficult for us to pursue, or prevent us from pursuing, new opportunities and initiatives due to insufficient personnel, or require us to incur additional and unanticipated costs to hire new personnel to pursue such opportunities or initiatives. If we are unable to realize the anticipated benefits from the reduction in force, or if we experience significant adverse consequences from the reduction in force, our business, financial condition and results of operations may be materially adversely affected.
A breakdown or breach of our information technology systems or data security could subject us to liability, cybersecurity risks or interrupt the operation of our business.
Companies are subject to a wide variety of cybersecurity attacks on their information technology systems, which we use to maintain proprietary and confidential information. Our key business partners and third-party vendors face similar risks and any security breach of their systems could adversely affect our security posture. We are increasingly dependent upon information technology systems and data to operate our business. Our ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data, which includes use of cloud technologies. Breakdowns, cyberattacks, corruptions, invasion, destruction, breaches of our technology systems or those of our business partners, unauthorized access to our data or other means to affect the confidentiality, integrity and availability of our technology systems and data could subject us to liability, negatively impact our business operations or require replacement of technology. Our technology systems and those of our partners continue to increase in multitude and complexity, increasing our vulnerability to cybersecurity risks. Data privacy or security breaches also pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, vendors or other business partners, may be exposed to unauthorized persons or to the public. Cyberattacks are increasing in their frequency and sophistication, and are becoming increasingly difficult to detect when they impact vendors, third-party partners or other companies in our supply chain.
In addition, our increased use of cloud technologies heightens these and other operational risks, and any failure by cloud or other technology service providers to adequately safeguard their systems and prevent cyberattacks could disrupt our operations and result in misappropriation, corruption or loss of confidential or propriety information. While we continue to build and improve our systems and infrastructure, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems. The loss of critical or sensitive information could result in financial, legal, operational or reputational harm to us, or loss of our competitive advantage. Our liability insurance may or may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches.
The COVID-19 pandemic previously had an adverse impact on our business operations and clinical trials and could in the future, directly or indirectly, materially and adversely affect our business and operations.
The COVID-19 pandemic created significant delays for our clinical trials primarily due to multiple site closures because of infected staff and due to patients avoiding or being unable to travel to healthcare facilities and physicians’ offices unless due to a health emergency. The COVID-19 pandemic could in the future, directly or indirectly, adversely impact our ability
to recruit and retain patients, principal investigators, and site staff who, as healthcare providers, may have heightened exposure to COVID-19, which could negatively impact our trials, increase our operating expenses and have a material adverse effect on our financial results. We will continue to assess the potential impact of the COVID-19 pandemic on our business and operations, including our clinical operations and manufacturing activities.
We currently rely significantly on third parties to conduct our nonclinical testing and clinical studies and other aspects of our development programs. If those third parties do not satisfactorily perform their contractual obligations or meet anticipated deadlines, the development of our product candidates could be adversely affected.
We do not currently employ personnel or possess the facilities necessary to conduct many of the activities associated with our development programs. We engage consultants, advisors, CROs, CMOs and others to assist in the design and conduct of nonclinical and clinical studies of our product candidates, with interpretation of the results of those studies and with regulatory activities and expect to continue to outsource all or a significant amount of such activities. As a result, many important aspects of our development programs are and will continue to be outside our direct control and our third-party service providers may not perform their activities as required or expected, including the maintenance of cGLP or cGCP compliance, which are ultimately our responsibility to ensure. Further, such third parties may not be as committed to the success of our programs as our own employees and, therefore, may not devote the same time, thoughtfulness or creativity to completing projects or problem-solving as our own employees would. To the extent we are unable to successfully manage the performance of third-party service providers, our business may be adversely affected.
The CROs that we engage or may engage to execute our clinical studies play a significant role in the conduct of the studies, including the collection and analysis of study data, and we likely will depend on CROs and clinical investigators to conduct future clinical studies and to assist in analyzing data from completed studies and developing regulatory strategies for our product candidates. Individuals working at the CROs with which we contract, as well as investigators at the sites at which our studies are conducted, are not our employees, and we have limited control over the amount or timing of resources that they devote to their programs. If our CROs, study investigators, and/or third-party sponsors fail to devote sufficient time and resources to studies of our product candidates, if we and/or our CROs do not comply with all cGLP and cGCP regulatory and contractual requirements, or if their performance is substandard, it could adversely affect the development of our product candidates.
In addition, the third parties we engage may have relationships with other commercial entities, some of which may compete with us. Through intentional or unintentional means, our competitors may benefit from lessons learned on the project that could ultimately harm our competitive position. Moreover, if a CRO fails to properly, or at all, perform our activities during a clinical study, we may not be able to enter into arrangements with alternative CROs on acceptable terms or in a timely manner, or at all. Switching CROs may increase costs and divert management time and attention. In addition, there likely would be a transition period before a new CRO commences work. These challenges could result in delays in the commencement or completion of our clinical studies, which could materially impact our ability to meet our desired and/or announced development timelines and have a material adverse impact on our business and financial condition.
We do not have, and do not have plans to establish, manufacturing facilities. We completely rely on third parties for the manufacture and supply of our clinical trial drug supplies and, if approved, commercial product materials. The loss of any of these manufacturers or a manufacturer’s failure to provide us with an adequate supply of clinical trial or commercial product material in a timely manner and on commercially acceptable terms, or at all, could harm our business.
We outsource the manufacture of our product candidates and do not plan to establish our own manufacturing facilities. To manufacture our product candidates, we have contracted with several CMOs making us highly dependent on these CMOs. For clinical and commercial supplies, if approved, we have or plan to have clinical supply agreements with third party CMOs for drug substance and finished drug product. While we have existing clinical supply agreements with third party CMOs, we would need to negotiate agreements for commercial supply with several CMOs and we may not be able to reach agreement on acceptable terms. In addition, we rely on these third parties to conduct or assist us in key manufacturing development activities, including qualification of equipment, developing and validating methods, defining critical process parameters, releasing component materials and conducting stability testing, among other things. If these third parties are unable to perform their tasks successfully in a timely manner, whether for technical, financial or other reasons, we may be unable to secure clinical trial material, or commercial supply material if approved, which likely would delay the initiation, conduct or completion of our clinical studies or prevent us from having enough commercial supply material for sale, which would have a material and adverse effect on our business.
Currently, we do not have alternative CMOs to back up our primary vendors of clinical trial material or, if approved, commercial supply material. Identification of and discussions with other CMOs may be protracted and/or unsuccessful, or these new CMOs may be unsuccessful in producing the same results as the current primary CMOs producing the material. Therefore, if our primary CMOs become unable or unwilling to perform their required activities, we could experience protracted delays or interruptions in the supply of clinical trial material and, ultimately, product for commercial sale, which would materially and adversely affect our development programs, commercial activities, operating results and financial condition. In addition, the FDA or regulatory authorities outside of the United States may require us to have an alternate manufacturer of a drug product before approving any product candidate for marketing and sale in the United States or abroad and securing such alternate manufacturer, if possible, could result in considerable additional time and cost prior to approval.
Any new manufacturer or supplier of finished drug product or our component materials, including drug substance and delivery devices, would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing of such product or ingredients required by us. The FDA or foreign regulatory agency may require us to conduct additional clinical studies, collect stability data and provide additional information concerning any new supplier, or change in a validated manufacturing process, including scaling-up production, before we could distribute products from that manufacturer or supplier or use the revised process.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling-up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing and shortages of qualified personnel. Our product candidates have not been manufactured at the scale we believe will be necessary to maximize their commercial value, and accordingly, we may encounter difficulties in attempting to scale-up production and may not succeed in that effort on a timely basis or at all.
All manufacturers of our clinical trial material and, if approved, commercial product, including drug substance manufacturers, must comply with cGMP requirements enforced by the FDA through its facilities inspection program and applicable requirements of foreign regulatory authorities. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our clinical trial material may be unable to comply with these GMP requirements and with other FDA, state and foreign regulatory requirements. While we or our representatives generally monitor and audit our manufacturers’ systems, we do not have full control over their ongoing compliance with these regulations. And while the responsibility to maintain GMP compliance is shared between the third-party manufacturer and us, we bear ultimate responsibility for our supply chain and compliance with regulatory standards. Failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay or failure to obtain product approval, product seizure or recall, or withdrawal of product approval.
In addition, any delay or interruption in the supply of materials necessary or useful to manufacture our product candidates could delay the completion of our clinical studies, increase the costs associated with our development programs and, depending upon the period of delay, require us to commence new clinical studies at significant additional expense or terminate the studies completely. Delays or interruptions in the supply of commercial product could result in increased cost of goods sold and lost sales. In addition, if our products are manufactured entirely or partially outside the United States, we may experience interruptions in supply due to shipping or customs difficulties or regional instability. Furthermore, changes in currency exchange rates, shipping costs and import tariffs could adversely affect our cost of goods sold. Any of the above factors could cause us to delay or suspend anticipated or ongoing trials, regulatory submissions or commercialization of our product candidates, entail higher costs or result in us being unable to effectively commercialize our products. Our dependence upon third parties for the manufacture of our clinical trial materials and, if approved, commercial supply material may adversely affect our future costs and our ability to develop and commercialize our product candidates on a timely and competitive basis.
We currently have limited marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize our products, if approved, or generate product revenue.
To commercialize our products, if approved, in the United States and other jurisdictions in which we may seek approvals, we must build our marketing, sales, managerial and other non-technical capabilities or make arrangements with third parties to perform these services and we may not be successful in doing so. If our products receive regulatory approval, we expect to market such products in the United States through a focused, specialized sales force, which will be costly and
time consuming to implement on our own. Despite the experience of individual members of management, we have limited experience as a company in the marketing and sale of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. We hired a Chief Commercial Officer in January 2022, who will lead our efforts to commercialize our robust pipeline of product candidates. Outside of the United States, we may consider collaboration arrangements. If we are unable to implement our own sales and marketing capability, or are unable to contract with one or more third parties for such services on acceptable terms or at all, we may not be able to successfully commercialize our products in certain markets. Any failure or delay in the development of our internal or external sales, marketing and distribution capabilities would adversely impact the commercialization of our products. If we are not successful in commercializing our products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.
Our product candidates may cause undesirable side effects or adverse events, or have other properties that could delay or prevent their clinical development, regulatory approval or commercialization.
As with many pharmaceutical products, undesirable side effects or adverse events caused by our product candidates could interrupt, delay or halt clinical studies and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all indications, and in turn prevent us from commercializing our product candidates. If undesirable side effects occur, they could possibly prevent approval, which would have a material and adverse effect on our business.
If any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product, regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication or we may be required to change the way the product is administered, conduct additional clinical studies or change the labeling of the product. Depending on the severity of the side effects, regulatory authorities may withdraw approval of the product. Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant or any revenue from its sale.
In addition, in January 2021, we instituted an Expanded Access Program for larazotide. Information obtained from our Expanded Access Program may not reliably predict the efficacy of our product candidates in company-sponsored clinical trials and may lead to adverse events that could limit our ability to obtain regulatory approval with labeling that we consider desirable, or at all.
Risks Related to Drug Development and Commercialization
Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.
The success of our business is dependent on our ability to advance the clinical development of our lead product candidate, vurolenatide for the treatment of SBS, as well as NM-136 for rare obesity disorders. We are also developing NM-003 and NM-102 for the treatment of undisclosed rare debilitating digestive diseases with unmet needs and larazotide for the treatment of MIS-C through a collaboration with EBRIS.
Clinical studies are expensive, difficult to design and implement, may take many years to complete and outcomes are inherently uncertain. A drug product may fail to demonstrate positive results at any stage of testing despite having progressed satisfactorily through nonclinical testing and initial clinical studies. There is significant risk in clinical development where later stage clinical studies are designed and powered based on the analysis of data from earlier studies, with these earlier studies involving a smaller number of patients and the results of the earlier studies being driven primarily by a subset of responsive patients. Success in pre-clinical studies or completed clinical trials does not ensure that later studies or trials, including continuing pre-clinical studies and large-scale clinical trials, will be successful nor does it predict future results. Favorable results in early studies or trials may not be repeated in later studies or trials, and product candidates in later stage trials may fail to show acceptable safety and efficacy despite having progressed through earlier trials. There is typically a high rate of attrition from the failure of product candidates proceeding through clinical trials. We may be required to
demonstrate through large, long-term outcome trials that our product candidates are safe and effective for use in a broad population prior to obtaining regulatory approval.
In addition, the placebo rate in larger studies may be higher than expected and some participants in our clinical trials may respond positively to placebo treatment. These participants are commonly known as “placebo responders,” making it more difficult to demonstrate efficacy of the trial drug compared to placebo.
Further, clinical study data is frequently susceptible to varying interpretations. Medical professionals and/or regulatory authorities may analyze or weigh study data differently than the sponsor company, resulting in delay or failure to obtain marketing approval for a product candidate. Additionally, the possible lack of standardization across multiple investigative sites may induce variability in the results, which can interfere with the evaluation of treatment effects.
Because of the developmental nature of our product candidates, we are subject to risks associated with initiating, completing, and achieving positive outcomes from our current and future clinical trials. If any of our product candidates fail to demonstrate sufficient safety and efficacy in any clinical trial, we will experience potentially significant delays and cost increases in, or may decide to abandon development of, that product candidate. For example, in June 2022, we announced the discontinuation of our Phase 3 CeDLara study for patients with celiac disease following an interim analysis conducted by an independent statistician. If we abandon or are delayed, or experience increased costs, in our development efforts related to any of our other product candidates, we may not have sufficient resources to continue or complete development of that product candidate or any other product candidates. We may not be able to generate any revenues, continue our operations and clinical studies, or become profitable. Our reputation in the industry and in the investment community would likely be significantly damaged. Further, it might not be possible for us to raise funds in the public or private markets, and our stock price would likely decrease significantly.
Even if we successfully complete the necessary clinical trials for our product candidates, our success will be subject to the risks associated with obtaining regulatory approvals, product launch and commercialization. Many of these clinical, regulatory and commercial matters are beyond our control and are subject to the risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot provide any assurances that we will be able to advance our product candidates further through final clinical development or obtain regulatory approval of, commercialize, or generate significant revenue from them. If we cannot do so, or are significantly delayed in doing so, our business could be materially harmed.
Delays in commencement and completion of clinical studies are common and have many causes. Delays in clinical studies of our product candidates could increase overall development costs and jeopardize our ability to obtain regulatory approval and successfully commercialize any approved products.
Clinical studies may not commence on time or be completed on schedule, if at all. The commencement and completion of clinical studies can be delayed for a variety of reasons, including:
•inability to raise sufficient funding to initiate or to continue a clinical study;
•delays in recruiting and enrolling individuals to participate in a clinical study, which historically can be challenging in orphan diseases;
•delays in obtaining regulatory approval to commence a clinical study;
•delays in identifying and reaching agreement on acceptable terms with prospective CROs and clinical study sites and investigators, which agreements can be subject to extensive negotiation and may vary significantly among study sites;
•delays in obtaining regulatory approval in a prospective country;
•delays in obtaining ethics committee approval to conduct a clinical study at a prospective site;
•delays in reaching agreements on acceptable terms with prospective CMOs or other vendors for the production and supply of clinical trial material and, if necessary, drug administration devices, which agreements can be subject to extensive negotiation;
•delays in the production or delivery of sufficient quantities of clinical trial material from our CMOs and other vendors to initiate or continue a clinical study;
•delays due to product candidate recalls as a result of stability failure, excessive product complaints or other failures of the product candidate during its use or testing;
•invalidation of clinical data caused by premature unblinding or integrity issues;
•invalidation of clinical data caused by mixing up of the active drug and placebo through randomization or manufacturing errors;
•delays on the part of our CROs, CMOs and other third-party contractors in developing procedures and protocols or otherwise conducting activities in accordance with applicable policies and procedures and in accordance with agreed upon timelines;
•delays in identifying and hiring or engaging, as applicable, additional employees or consultants to assist in managing clinical study-related activities;
•delays caused by patients dropping out of a clinical study due to side effects, concurrent disorders, difficulties in adhering to the study protocol, unknown issues related to different patient profiles than in previous studies, or otherwise;
•delays in having patients complete participation in a clinical study, including returning for post-treatment follow-up, which was made more difficult during the COVID-19 pandemic;
•delays resulting from study sites dropping out of a trial, providing inadequate staff support for the study, problems with shipment of study supplies to clinical sites, or focusing our staff’s efforts on enrolling studies that compete for the same patient population;
•suspension of enrollment at a study site or the imposition of a clinical hold by the FDA or other regulatory authority following an inspection of clinical study operations at study sites or finding of a drug-related serious adverse event; and
•delays in quality control/quality assurance procedures necessary for study database lock and analysis of unblinded data.
If we experience delays in the completion of a clinical study, if another clinical study is terminated, or if failure to conduct a study in accordance with regulatory requirements or the study’s protocol leads to deficient safety and/or efficacy data, the regulatory approval and/or commercial prospects for our product candidates may be harmed and our ability to generate product revenue, if any, will be delayed. In addition, any delays in completing our clinical studies likely will increase our development costs. Further, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical studies may ultimately lead to the denial of regulatory approval of a product candidate.
We may experience difficulties in the enrollment of patients in our clinical trials, which may delay or prevent us from obtaining regulatory approval.
We may not be able to commence or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates.
Patient enrollment, a critical component to successful completion of a clinical study, is affected by many factors, including:
•the size of the target population;
•other ongoing studies competing for the same patient population;
•the eligibility criteria for the clinical trial;
•the design of the clinical study;
•the perceived risks and benefits of the product candidate under study;
•the efforts to facilitate timely enrollment in clinical trials;
•the proximity and availability of clinical trial sites for prospective patients;
•the frequency of or difficulty in administering our product candidates;
•the ability to monitor patients adequately during and after treatment;
•delays resulting from the COVID-19 pandemic.
Interim, “top-line,” and preliminary data from our clinical trials that we may announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim, top-line or preliminary data from our preclinical studies and clinical trials, based on a preliminary analysis of then-available data. The results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received all data when we publicly disclose such data. As a result, any interim, top-line or preliminary results that we report may differ from
future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim, top-line and preliminary data should be viewed with caution until the final data are available. In addition, preliminary or interim data from ongoing clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between any preliminary or interim data we disclose and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant by you or others with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the interim, top-line or preliminary data that we report differ from final results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, product candidates may be harmed, which could significantly harm our business, financial condition, results of operations and prospects.
There is significant uncertainty regarding the regulatory approval process for any investigational new drug, and substantial further testing and validation of our product candidates and related manufacturing processes may be required, and regulatory approval may be conditioned, delayed or denied, any of which could delay or prevent us from successfully marketing our product candidates and substantially harm our business.
Pharmaceutical products generally are subject to rigorous nonclinical testing and clinical studies and other approval procedures mandated by the FDA and foreign regulatory authorities. Various federal and foreign statutes and regulations also govern or materially influence the manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products. The process of obtaining these approvals and the subsequent compliance with appropriate U.S. and foreign statutes and regulations is time-consuming and requires the expenditure of substantial resources.
Significant uncertainty exists with respect to the regulatory approval process for any new drug candidate. Regardless of any guidance the FDA or foreign regulatory agencies may provide a drug’s sponsor during its development, the FDA or foreign regulatory agencies retain complete discretion in deciding whether to accept an NDA or the equivalent foreign regulatory approval submission for filing or, if accepted, approve an NDA. There are many components to an NDA or marketing authorization application submission in addition to clinical study data. Before accepting an NDA for review or before approving the NDA, the FDA or foreign regulatory agencies may request that we provide additional information that may require significant resources and time to generate and there is no guarantee that our product candidates will be approved for any indication for which we may apply. The FDA or foreign regulatory agencies may choose not to approve an NDA for a variety of reasons, including a decision related to the safety or efficacy data, manufacturing controls or systems, or for any other issues that the agency may identify related to the development of our product candidates. In addition, regulations may be changed prior to submission of an NDA that require higher hurdles than currently anticipated. Even if one or more Phase 3 clinical studies are successful in providing statistically significant evidence of the efficacy and safety of the investigational drug, the FDA or foreign regulatory agencies may not consider efficacy and safety data from the submitted studies adequate scientific support for a conclusion of effectiveness and/or safety and may require one or more additional Phase 3 or other studies prior to granting marketing approval. If this were to occur, the overall development cost for our product candidate would be substantially greater and our competitors may bring products to market before we do, which could impair our ability to generate revenues from the product candidates, or even seek approval, if blocked by a competitor’s Orphan Drug exclusivity, which would have a material adverse effect on our business, financial condition and results of operations.
Further, development of our product candidates and/or regulatory approval may be delayed for reasons beyond our control. For example, a U.S. federal government shut-down or budget sequestration, such as ones that occurred during 2013, 2018 and 2019, may result in significant reductions to the FDA’s budget, employees and operations, or lead to slower response times and longer review periods, potentially affecting our ability to progress development of our product candidates or obtain regulatory approval for our product candidates.
While significant communication with the FDA on the Phase 3 study design has occurred, even if the Phase 3 clinical study meets all of its statistical goals and protocol end points, the FDA may not view the results as robust and convincing and
may require additional clinical studies and/or other costly studies, which could require us to expend substantial additional resources and could significantly extend the timeline for clinical development prior to market approval. Additionally, we are required by the FDA to conduct a long-term safety study on vurolenatide. The results of this study will not be known until a short time prior to potential submission of an NDA for vurolenatide. If the safety study cannot be completed for technical or other reasons, or provides results that the FDA determines to be concerning, this may cause a delay or failure in obtaining approval for vurolenatide.
Even if we receive regulatory approval for a product candidate, we may face regulatory difficulties that could materially and adversely affect our business, financial condition and results of operations.
Even if initial regulatory approval is obtained, as a condition to the initial approval, the FDA or a foreign regulatory agency may impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies or marketing surveillance programs, any of which would limit the commercial potential of the product. Our product candidates also will be subject to ongoing FDA requirements related to the manufacturing processes, labeling, packaging, storage, distribution, advertising, promotion, record-keeping and submission of safety and other post-market information regarding the product. For instance, the FDA may require changes to approved drug labels, require post-approval clinical studies and impose distribution and use restrictions on certain drug products. In addition, approved products, manufacturers and manufacturers’ facilities are subject to continuing regulatory review and periodic inspections. If previously unknown problems with a product are discovered, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, the FDA may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If one of our CMOs or we fail to comply with applicable regulatory requirements, a regulatory agency may:
•issue warning letters or untitled letters;
•impose civil or criminal penalties;
•suspend or terminate any ongoing clinical studies;
•close the facilities of a CMO;
•refuse to approve pending applications or supplements to approved applications;
•suspend or withdraw regulatory approval;
•exclude our product from reimbursement under government healthcare programs, including Medicaid or Medicare;
•impose restrictions or affirmative obligations on our or our CMOs’ operations, including costly new manufacturing requirements; or
•seize or detain products or require a product recall.
If any of our product candidates for which we receive regulatory approval fails to achieve significant market acceptance among the medical community, patients or third-party payers, the revenue we generate from our sales will be limited and our business may not be profitable.
Our success will depend in substantial part on the extent to which our product candidates, if approved, are accepted by the medical community and patients and reimbursed by third-party payers, including government payers. We cannot predict whether physicians, patients, healthcare insurers or health maintenance organizations, or the medical community in general, will accept or utilize any of our products, if approved. If our product candidates are approved but do not achieve an adequate level of acceptance by these parties, we may not generate sufficient revenue to become or to remain profitable. In addition, our efforts to educate the medical community and third-party payers regarding the benefits of our products may require significant resources and may never be successful.
The degree of market acceptance with respect to each of our approved products, if any, will depend upon a number of factors, including:
•the safety and efficacy of our product as demonstrated in clinical studies;
•acceptance in the medical and patient communities of our product as a safe and effective treatment;
•the perceived advantages of our product over alternative treatments, including with respect to the incidence and severity of any adverse side effects and the cost of treatment;
•the indications for which our product is approved;
•claims or other information (including limitations or warnings) in our product’s approved labeling;
•reimbursement and coverage policies of government and other third-party payers;
•smaller than expected market size due to lack of disease awareness of a rare disease, or the patient population with a specific rare disease being smaller than anticipated;
•availability of alternative treatments;
•pricing and cost-effectiveness of our product relative to alternative treatments;
•inappropriate diagnostic efforts due to limited knowledge and/or resources among clinicians;
•the prevalence of off-label substitution of chemically equivalent products or alternative treatments; and
•the resources we devote to marketing our product and restrictions on promotional claims we can make with respect to the product.
Even if we receive regulatory approval to market one or more of our product candidates in the United States, we may never receive approval or commercialize our products outside of the United States, which would limit our ability to realize the full commercial potential of our product candidates.
In order to market products outside of the United States, we must establish and comply with the numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. The time required to obtain approval in other countries generally differs from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States, as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on product sales, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.
Conversely, even if our product candidates receive approval outside the United States in the future, we may still be unable to meet the FDA requirements necessary for approval in the United States.
We may expend our limited resources to pursue a particular product candidate or indication in lieu of other opportunities and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that we identify as most likely to succeed, in terms of their potential both to gain regulatory approval and to achieve commercialization. As a result, we may forego or delay pursuit of opportunities with other product candidates or in other indications with greater commercial potential. We currently intend to focus our limited financial and managerial resources on developing our lead program, vurolenatide, for the treatment of SBS. As a result, we may allocate fewer resources to the other product candidates in our pipeline, and we will be required to seek additional sources of financing to pursue further development of such other product candidates.
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product candidate.
We may choose not to continue developing any of our product candidates at any time during development and for any reason, which would reduce or eliminate our potential return on investment for those product candidates.
At any time, we may decide to discontinue the development of any of our product candidates for a variety of reasons, including inadequate financial resources, the appearance of new technologies that render our product candidates obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to allocate those resources to potentially more productive uses. As an example, we discontinued further development of larazotide in celiac disease following an interim analysis of our Phase 3 CeDLara trial.
Risks Related to Our Intellectual Property
Our success will depend in part on obtaining and maintaining effective patent and other intellectual property protection for our product candidates and proprietary technology.
We rely on patents and other intellectual property to maintain exclusivity for our product candidates. Our success will depend in part on our ability to:
•comply with the obligations of our existing and any future license agreements;
•obtain and maintain patents and other exclusivity with respect to our products;
•prevent third parties from infringing upon our proprietary rights;
•maintain proprietary know-how and trade secrets;
•operate without infringing upon the patents and proprietary rights of others; and
•obtain and maintain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur or if necessary to secure exclusive rights to them, both in the United States and in foreign countries.
The patent and intellectual property positions of biopharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have been and continue to be the subject of much litigation. There is no guarantee that we have or will develop or obtain the rights to products or processes that are patentable, that patents will issue from any pending applications or that claims issued will be sufficient to protect the technology we develop or have developed or that is used by us, our CMOs or our other service providers. In addition, any patents that are issued and/or licensed to us may be limited in scope or challenged, invalidated, infringed or circumvented, including by our competitors and any rights we have under issued and/or licensed patents may not provide competitive advantages to us. If competitors can develop and commercialize technology and products similar to ours, our ability to successfully commercialize our technology and products may be impaired.
Patent applications in the United States are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months. As a result, we cannot be certain that the inventors listed in any patent or patent application owned or licensed by us were the first to conceive of the inventions covered by such patents and patent applications (for U.S. patent applications filed before March 16, 2013), or that such inventors were the first to file patent applications for such inventions outside the United States on and after March 16, 2013, in the United States. In addition, changes in or different interpretations of patent laws in the United States and foreign countries may affect our patent rights and limit the patents we can obtain, which could permit others to use our discoveries or to develop and to commercialize our technology and products without any compensation to us.
We also rely on unpatented know-how and trade secrets and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, through confidentiality agreements with employees, consultants, collaborators and others. We also have invention or patent assignment agreements with our employees and certain consultants. The steps we have taken to protect our proprietary rights, however, may not be adequate to preclude misappropriation of or otherwise protect our proprietary information or prevent infringement of our intellectual property rights, and we may not have adequate remedies for any such misappropriation or infringement. In addition, it is possible that inventions relevant to our business could be developed by a person not bound by an invention assignment agreement with us or independently discovered by a competitor.
We also intend to rely on regulatory exclusivity for protection of any of our product candidates that may be approved for commercial sale. Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or to maintain the extent or duration of such protections that we expect for our product candidates, if approved, could affect our decision on whether to market the products in a particular country or countries or could otherwise have an adverse impact on our revenue or results of operations.
We may rely on trademarks, trade names and brand names to distinguish our product candidates, if approved, from the products of our competitors. However, our trademark applications may not be approved. Third parties may also oppose our trademark applications or otherwise challenge our use of the trademarks, in which case we may expend substantial resources to defend our proposed or approved trademarks and may enter into agreements with third parties that may limit our use of our trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which
could result in loss of brand recognition and could require us to devote significant resources to advertising and marketing these new brands. Further, our competitors may infringe our trademarks or we may not have adequate resources to enforce our trademarks.
If we fail to comply with our obligations under any license, collaboration or other agreements, we could lose intellectual property rights that are necessary for developing and commercializing our product candidates.
Vurolenatide, NM-136, NM-003, and larazotide are covered by several issued patents in the U.S., issued patents outside the U.S. and with patent applications pending in several jurisdictions. Intellectual property relating to the vurolenatide and NM-003 programs, specifically the lead molecules GLP-1 and GLP-2 along with a related XTEN sequence, are exclusively licensed from Amunix. Additionally, intellectual property for the rights to GLP-1 Agonist for the treatment of SBS, related to the vurolenatide program, is licensed from Cedars. Intellectual property for the rights to a proprietary and highly specific humanized monoclonal antibody that targets glucose-dependent insulinotropic polypeptide, related to the NM-136 program were acquired from Lobesity. Intellectual property relating to the larazotide program is exclusively licensed from Alba. Additionally, we have collaborated with EBRIS to study larazotide for the treatment of MIS-C. Our license agreements with Alba, Amunix, and Cedars and our asset purchase agreement with Lobesity impose, and any future licenses or collaboration agreements we enter into are likely to impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, patent prosecution and enforcement and other obligations on us. These type of agreements and related obligations are complex and subject to contractual disputes. If we breach any of these imposed obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages or the licensor may have the right to terminate the license, which could result in our loss of the intellectual property rights and us being unable to develop, manufacture and sell drugs that are covered by the licensed technology, which loss may materially harm our business.
Our success depends on our ability to prevent competitors from duplicating or developing and commercializing equivalent versions of our product candidates, and intellectual property protection may not be sufficient or effective to exclude this competition.
We have patent protection in the United States and other countries to cover the composition of matter, formulation and method of use for vurolenatide, NM-136, NM-003, and larazotide. However, these patents may not provide us with significant competitive advantages, because the validity, scope, term, or enforceability of the patents may be challenged and, if instituted, one or more of the challenges may be successful. Patents may be challenged in the United States under post-grant review proceedings, inter partes reexamination, ex parte reexamination, or challenged in district court. Any patents issued in foreign jurisdictions may be subjected to comparable proceedings lodged in various foreign patent offices or courts. These proceedings could result in either loss of the patent or loss or reduction in the scope of one or more of the claims of the patent. Even if a patent issues, and is held valid and enforceable, competitors may be able to design around our patent rights, such as by using pre-existing or newly developed technology, in which case competitors may not infringe our issued claims and may be able to market and sell products that compete directly with ours before and after our patents expire.
The patent prosecution process is expensive and time-consuming. We and any of our future licensors and licensees may not apply for or prosecute patents on certain aspects of our product candidates at a reasonable cost, in a timely fashion, or at all. We may not have the right to control the preparation, filing and prosecution of some patent applications related to our product candidates or technologies. As a result, these patents and patent applications may not be prosecuted and enforced in a manner consistent with our best interests. It is also possible that we or any of our future or present 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. Further, it is possible that defects of form in the preparation or filing of our patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, assignment, term or claim scope. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid or unenforceable. In addition, one or more parties may independently develop similar technologies or methods, duplicate our technologies or methods, or design around the patented aspects of our products, technologies or methods. Any of these circumstances could impair our ability to protect our products, if approved, in ways which may have an adverse impact on our business, financial condition and operating results.
Furthermore, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our owned and licensed patents may be challenged in the courts or patent offices in and outside of the United States. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to use our patents to stop others from using or
commercializing similar or identical products or technology, or to limit the duration of the patent protection of our technology and drugs. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar to or identical to ours.
Enforcement of intellectual property rights in certain countries outside the United States, including China in particular, has been limited or non-existent. Future enforcement of patents and proprietary rights in many other countries will likely be problematic or unpredictable. Moreover, the issuance of a patent in one country does not assure the issuance of a similar patent in another country. Claim interpretation and infringement laws vary by nation, so the extent of any patent protection is uncertain and may vary in different jurisdictions.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the United States Patent and Trademark Office (“USPTO”) and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which non-compliance can result in decreased patent term or in abandonment or lapse of the patent or patent application, leading to partial or complete loss of patent rights in the relevant jurisdiction.
Third parties may claim that our products, if approved, infringe on their proprietary rights and may challenge the approved use or uses of a product or our patent rights through litigation or administrative proceedings, and defending such actions may be costly and time consuming, divert management attention away from our business and result in an unfavorable outcome that could have an adverse effect on our business.
Our commercial success depends on our ability and the ability of our CMOs to develop, manufacture, receive approval for, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products. Because patent applications can take many years to publish and issue, there currently may be pending applications, unknown to us, that may later result in issued patents that our products, product candidates or technologies infringe, or that the process of manufacturing our product candidates, infringe, or that the use of our product candidates or technologies infringe.
We and our CMOs may be exposed to, or threatened with, litigation by third parties alleging that our products, product candidates and/or technologies infringe their patents and/or other intellectual property rights, or that one or more of the processes for manufacturing our product candidates or the use of our product candidates or technologies, infringe their patents and/or other intellectual property rights. If a third-party patent or other intellectual property right is found to cover our product candidates, technologies or uses, or any of the underlying manufacturing processes, we could be required to pay damages and could be unable to commercialize our product candidates or to use our technologies or methods unless we are able to obtain a license to the patent or intellectual property right. A license may not be available to us in a timely manner or on acceptable terms, or at all. In addition, during litigation, the third party alleging infringement could obtain a preliminary injunction or other equitable remedy that could prohibit us from making, using, selling or importing our products, technologies or methods.
There generally is a substantial amount of litigation involving patent and other intellectual property rights in the industries in which we operate and the cost of such litigation may be considerable. We can provide no assurance that our product candidates or technologies will not infringe patents or rights owned by others, licenses to which may not be available to us in a timely manner or on acceptable terms, or at all. If a third party claims that we or our CMOs or component material suppliers infringe its intellectual property rights, we may face a number of issues, including, but not limited to:
•infringement and other intellectual property claims which, with or without merit, may be expensive and time consuming to litigate and may divert management’s time and attention from our core business;
•substantial damages for infringement, including the potential for treble damages and attorneys’ fees, which we may have to pay if it is determined that the product and/or its use at issue infringes or violates the third party’s rights;
•a court prohibiting us from selling or licensing the product unless the third-party licenses its intellectual property rights to us, which it may not be required to do;
•if a license is available from the third party, we may have to pay substantial royalties, fees and/or grant cross-licenses to the third party; and
•redesigning our products or processes so they do not infringe, which may not be possible or may require substantial expense and time.
No assurance can be given that patents do not exist, have not been filed, or could not be filed or issued, which contain claims covering our product candidates or technology or those of our CMOs or component material suppliers or the use of our product candidates or technologies. Because of the large number of patents issued and patent applications filed in the industries in which we operate, there is a risk that third parties may allege they have patent rights encompassing our product candidates or technologies, or those of our CMOs, or uses of our product candidates or technologies.
In the future, it may be necessary for us to enforce our proprietary rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights, through litigation or other dispute proceedings, which may be costly and, to the extent we are unsuccessful, adversely affect our rights. In these proceedings, a court or administrative body could determine that our claims, including those related to enforcing patent rights, are not valid or that an alleged infringer has not infringed our rights. The uncertainty resulting from the mere institution and continuation of any patent or other proprietary rights-related litigation or interference proceeding could have a material and adverse effect on our business prospects, operating results and financial condition.
Risks Related to Our Industry
We are subject to uncertainty relating to healthcare reform measures and reimbursement policies that, if not favorable to our products, could hinder or prevent our products’ commercial success, if any of our product candidates are approved.
Our ability to successfully commercialize our products will depend in part on the extent to which governmental authorities, such as Medicare, private health insurers and other organizations establish what we believe to be appropriate coverage and reimbursement for our approved products. The unavailability or inadequacy of third-party payer coverage and reimbursement could negatively affect the market acceptance of our product candidates and the future revenues we may expect to receive from any approved products. The commercial success of our product candidates, if approved, will depend in part on the extent to which the costs of such products will be covered by third-party payers, such as government health programs, commercial insurance and other organizations. Third-party payers are increasingly challenging the prices and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payers do not consider our products to be cost-effective compared to other therapies, we may not obtain coverage for our products after approval as a benefit under the third-party payers’ plans or, even if we do, the level of coverage or payment may not be sufficient to allow us to sell our products on a profitable basis.
Significant uncertainty exists as to the reimbursement status for newly approved drug products, including coding, coverage and payment. There is no uniform policy requirement for coverage and reimbursement for drug products among third-party payers in the United States; therefore, coverage and reimbursement for drug products can differ significantly from payer to payer. The coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage and adequate payment will be applied consistently or obtained. The process for determining whether a payer will cover and how much it will reimburse a product may be separate from the process of seeking approval of the product or for setting the price of the product. Even if reimbursement is provided, market acceptance of our products may be adversely affected if the amount of payment for our products proves to be unprofitable for healthcare providers or less profitable than alternative treatments or if administrative burdens make our products less desirable to use. Third-party payer reimbursement to providers of our products, if approved, may be subject to a bundled payment that also includes the procedure of administering our products or third-party payers may require providers to perform additional patient testing to justify the use of our products. To the extent there is no separate payment for our products, there may be further uncertainty as to the adequacy of reimbursement amounts.
The containment of healthcare costs is a priority of federal, state and foreign governments and the prices of drug products have been a focus in this effort. The continuing efforts of government, private insurance companies and other
organizations to contain or reduce costs of healthcare may adversely affect our ability to set a price that we believe reflects the value of our products and the rate and scope of adoption of our products by healthcare providers. We expect that federal, state and local governments in the United States, as well as governments in other countries, will continue to consider legislation directed at lowering the total cost of healthcare. In addition, in certain foreign markets, the pricing of drug products is subject to government control and reimbursement may in some cases be unavailable or insufficient. It is uncertain whether and how future legislation, whether domestic or abroad, could affect prospects for our product candidates or what actions governmental or private payers for healthcare treatment and services may take in response to any such healthcare reform proposals or legislation. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, may prevent or limit our ability to generate revenue, attain profitability or commercialize our product candidates.
These potential courses of action are unpredictable and the potential impact of new legislation on our operations and financial position is uncertain, but may result in more rigorous coverage criteria, lower reimbursement and additional downward pressure on the price we may receive for an approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products, if approved.
Intense competition might render our gastroenterology products noncompetitive or obsolete.
Competition in the pharmaceutical industry in general and in our therapeutic sectors in particular is intense and characterized by extensive research efforts and rapid technological progress. Technological developments by competitors, regulatory approval for marketing competitive products, including potential generic or over-the-counter products, or superior marketing resources possessed by competitors could adversely affect the commercial potential of our gastroenterology product candidates and could have a material adverse effect on our future revenue and results of operations. We believe that there are numerous pharmaceutical and biotechnology companies, as well as academic research groups throughout the world, engaged in research and development efforts with respect to pharmaceutical products targeted at gastroenterological diseases and conditions addressed by our product pipeline. Developments by others might render our product pipeline obsolete or noncompetitive. Competitors might be able to complete the development and regulatory approval process sooner and, therefore, market their gastroenterology products earlier than we can.
Many of our current competitors have significant financial, marketing and personnel resources and development capabilities. For example, many large, well-capitalized companies already offer gastroenterology products and services in the United States and Europe that target the indications for SBS, including acid suppressive therapies such as H2 blockers or proton pump inhibitors; antidiarrheals such as loperamide; antibiotics to prevent small intestinal bacterial overgrowth; octreotide for patients with IV fluid requirements greater than 3 liters per day; clonidine; GLP-1 analogues including exenatide with or without GLP-2 analogues such as teduglutide (Gattex®); human growth hormone or somatropin analogues (Zorptive®); and bile acid binders such as cholestyramine or pancreatic enzymes to aid in digestion of nutrients.
We might not receive all of the anticipated market exclusivity benefits of orphan drug designations.
Vurolenatide, a long-acting injectable GLP-1 analogue being developed for SBS and NM-003, a long-acting glucagon-like receptor-2 agonist that utilizes our proprietary XTEN technology to extend circulating half-life for the prevention of acute graft versus host disease, have each received Orphan Drug Designation from the FDA. Orphan Drug Designation may provide market exclusivity in the U.S. for seven years if (i) vurolenatide receives market approval before a competitor using a similar mechanism for the same indication, (ii) we are able to produce sufficient supply to meet demand in the marketplace, and (iii) another product with the same active ingredient is not deemed clinically superior.
NM-003 and NM-102 are being evaluated for development in other rare and/or orphan indications via an ongoing probability of technical and regulatory success analysis.
Obtaining an Orphan Drug Designation from the FDA may not effectively protect our product candidates from competition because different drugs can be approved for the same condition, and orphan drug exclusivity does not prevent the FDA from approving the same or a different drug in another indication. Even after an orphan drug is approved, the FDA can subsequently approve a later application for the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer in a substantial portion of the target populations, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is
approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan‑drug-exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to manufacture sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
We face potential product liability exposures, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization. In the future, we anticipate that we will need to obtain additional or increased product liability insurance coverage and we are uncertain whether such increased or additional insurance coverage can be obtained on commercially reasonable terms, if at all.
Our business (in particular, the use of our product candidates in clinical studies and the sale of any products for which we obtain marketing approval) will expose us to product liability risks. Product liability claims may be brought against us by patients, healthcare providers, pharmaceutical companies or others selling or involved in the use of our product candidates. If we cannot successfully defend ourselves against any such claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•significant costs of related litigation;
•impairment of our business reputation;
•a “clinical hold,” suspension or termination of a clinical study or amendments to a study design;
•delays in enrolling patients to participate in our clinical studies;
•withdrawal of clinical study participants;
•substantial monetary awards to patients or other claimants;
•decreased demand for our products, if approved, and loss of revenue; and
•the inability to commercialize our product candidates and any approved products.
We maintain limited product liability insurance for our clinical studies and our insurance coverage may not reimburse us or may not be sufficient to reimburse us for all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.
We expect that we will expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates, but we may be unable to obtain product liability insurance on commercially acceptable terms or may not be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect us against potential losses. Large judgments have been awarded in class action lawsuits based on drug products that had unanticipated side effects. A successful product liability claim or series of claims brought against us, if judgments exceed our insurance coverage, could materially decrease our cash and adversely affect our business.
Risks Related to Our Common Stock
The market price of our common stock has been and will likely in the future be volatile.
The stock market in general and the market for pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. For example, as adjusted for the Reverse Stock Split, since our stock began trading under the symbol “INNT”, and later under “NMTR”, on February 1, 2018 through March 24, 2023, the price thereof has ranged from a low of $1.00 per share to a high of $1,010.00 per share. The market price of our common stock may be highly volatile and could continue to be subject to wide fluctuations in response to various factors. These factors have included or may include the following, some of which are beyond our control:
•announcements of regulatory approval or disapproval of, or delays in, clinical trials for our product candidates;
•commercialization of our product candidates;
•our liquidity position and ability to raise additional capital;
•introductions and announcements of new products by us, any commercialization partners or our competitors and the timing of these introductions and announcements;
•announcements by us or our competitors of significant acquisitions, licenses, strategic partnerships, joint ventures, capital commitments or other transactions;
•market conditions in the pharmaceutical and biopharmaceutical sectors and issuance of securities analysts’ reports or recommendations;
•general economic, industry and market conditions, including concerns over inflation, energy costs, geopolitical issues;
•regulatory or legal developments in the United States and foreign countries;
•results from changes to or delays in clinical trials of our product candidates;
•FDA or other U.S. or foreign regulatory actions affecting us or our industry;
•variations in our financial results or those of companies that are perceived to be similar to us;
•changes in the structure of healthcare payment systems;
•actual or anticipated quarterly variations in our results of operations or those of our competitors;
•changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;
•sales of substantial amounts of our stock by insiders and other stockholders, or the expectation that such sales might occur;
•additions or departures of key personnel;
•intellectual property, product liability or other litigation against us;
•expiration or termination of our potential relationships with strategic partners;
•catastrophic weather and/or global disease pandemics, such as the COVID-19 pandemic; and
•the other factors described in this “Risk Factors” section.
The stock market in general has experienced relatively large price and volume fluctuations, particularly in response to the COVID-19 pandemic. In particular, the market prices of securities of smaller biotechnology and medical device companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. In addition, price volatility may increase if the trading volume of our common stock remains limited or declines.
There are risks associated with our outstanding 2022 Convertible Note and any additional convertible notes issuable under the Purchase Agreement that could adversely affect our business and financial condition.
As of March 24, 2023, we had $4.95 million of outstanding indebtedness under the 2022 Convertible Note. Pursuant to the Purchase Argument, we can incur up to an aggregate of $70.0 million by issuing additional convertible notes, subject to certain limitations. The terms of any additional convertible notes issued under the Purchase Agreement will be substantially the same as those under the initial 2022 Convertible Note. The interest rate is variable and the per share conversion rate is subject to a weighted average anti-dilution adjustment in the event we issue, or are deemed to have issued, shares of our common stock, other than certain excepted issuances, at a price below the conversion price then in effect. We may pay interest and repay principal, at our discretion, in shares of our common stock.
The 2022 Convertible Note provides for standard and customary events of default, such as our failing to make timely payments and failing to timely comply with the reporting requirements of the Exchange Act. The 2022 Convertible Note also contains customary affirmative and negative covenants, including limitations on incurring additional indebtedness, the creation of additional liens on our assets, and entering into investments, as well as a minimum liquidity requirement. In addition, if we experience a Fundamental Change, as defined in the 2022 Convertible Note, which includes a merger in which we are not the surviving entity, a change in control, the sale of all or substantially all of our assets, or our common stock ceasing to be listed on Nasdaq or any other eligible exchange, then the holder of the 2022 Convertible Note, and any additional convertible notes issued under the Purchase Agreement, can require us to repay the outstanding indebtedness in cash.
Our ability to remain in compliance with the covenants under the 2022 Convertible Note depends on, among other things, our operating performance, competitive developments, financial market conditions, and stock exchange listing of our common stock, all of which are significantly affected by financial, business, economic, and other factors, many of which we are not able to control. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on the 2022 Convertible Note and any additional convertible notes issued under the Purchase Agreement or meet our other obligations under the Purchase Agreement. Our level of indebtedness under the Purchase Agreement could have other important consequences, including the following:
•We may need to use a substantial portion of our cash flow from operations to pay interest and principal on the 2022 Convertible Note and any additional convertible notes issued under the Purchase Agreement, which would reduce funds available to us for other purposes such as working capital, capital expenditures, potential acquisitions, and other general corporate purposes;
•We may be unable to refinance our indebtedness under the Purchase Agreement or to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes;
•We are exposed to fluctuations in interest rates because borrowings under the Purchase Agreement bear interest at a variable rate;
•We may be unable to comply with covenants in the 2022 Convertible Note, which could result in an event of default that, if not cured or waived, may result in acceleration of the 2022 Convertible Note and any additional convertible notes issued under the Purchase Agreement. An event of default would have an adverse effect on our business and prospects, could cause us to lose the rights to our intellectual property, and could force us into bankruptcy or liquidation;
•Our ability to pay interest and repay principal in shares of our common stock, if so elected by us, and conversion of the 2022 Convertible Note and any additional convertible notes issued under the Purchase Agreement could result in significant dilution of our common stock, which could result in significant dilution to our existing stockholders and cause the market price of our common stock to decline; and
•We may be more vulnerable to an economic downturn or recession and adverse developments in our business.
There can be no assurance that we will be able to manage any of these risks successfully.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans or our 2022 Convertible Note, could result in additional dilution of our stockholders and could cause our stock price to fall.
We expect that additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to our existing stockholders.
We are authorized to grant equity awards, including stock grants and stock options, to our employees, directors and consultants. As of December 31, 2022, there were 565,120 shares available for future issuance under the 2022 Stock Incentive Plan (the “2022 Plan”). In addition, as of December 31, 2022, we had 27,717,921 shares of common stock reserved for issuance upon conversion of the 2022 Convertible Note.
We expect to issue from time to time additional shares of our common stock and/or securities convertible into shares of our common stock to fund our operations and incentivize our employees and directors. In any such issuance, our stockholders would experience dilution and the market price of our common stock may decline.
If we fail to meet the requirements for continued listing on the Nasdaq Capital Market, our common stock could be delisted from trading, which would decrease the liquidity of our common stock and our ability to raise additional capital.
Our common stock is currently listed on the Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and other requirements, including Nasdaq Listing Rule 5550(a)(2), which requires a minimum bid price of our common stock to be at least $1.00 (the “Bid Price Rule”). For example, on February 8, 2022, the staff of Nasdaq Stock Market LLC (the “Staff”) notified us that for the prior 30 consecutive business days, we had not met the requirements of the Bid Price Rule and we had a period of 180 calendar days, or until August 8, 2022, to regain compliance with the Bid Price Rule. On August 9, 2022, we were notified that the Staff had granted our request for an extension through February 6, 2023. Following our Reverse Stock Split, on November 1, 2022, we received a letter from the Staff informing us that we had regained compliance with the Minimum Bid Price Requirement and the matter was closed. While we intend to engage in efforts to maintain compliance, and thus maintain our listing, there can be no assurance that we will continue to meet all applicable Nasdaq Capital Market requirements in the future.
If our common stock were removed from listing with The Nasdaq Capital Market, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange, which is the exception on which we currently rely. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were
delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market.
If our common stock is delisted and there is no longer an active trading market for our shares, it may, among other things:
•cause you difficulty in selling your shares without depressing the market price for the shares or selling your shares at all;
•substantially impair our ability to raise additional funds;
•result in a loss of institutional investor interest and fewer financing opportunities for us; and/or
•result in potential breaches of representations or covenants of agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements. Claims related to any such breaches, with or without merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations.
A delisting would also reduce the value of our equity compensation plans, which could negatively impact our ability to retain key employees.
Anti-takeover provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult, which could discourage takeover attempts and lead to management entrenchment, and the market price of our common stock may be lower as a result.
Certain provisions in our certificate of incorporation and bylaws may make it difficult for a third party to acquire, or attempt to acquire, control of the Company, even if a change in control was considered favorable by the stockholders. For example, our board of directors has the authority to issue up to 10,000,000 shares of preferred stock. The board can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.
Our organizational documents also contain other provisions that could have an anti-takeover effect, including provisions that:
•provide for a classified board of directors;
•provide that vacancies on the board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
•eliminate cumulative voting in the election of directors;
•prohibit director removal without cause and only allow removal with cause;
•allow amendment of certain provisions of our amended and restated certificate of incorporation and our bylaws only by the vote of the holders of at least two-thirds of all then-outstanding shares of our common stock;
•grant the board of directors the exclusive authority to increase or decrease the size of the board;
•permit stockholders to only take actions at a duly called annual or special meeting and not by written consent;
•prohibit stockholders from calling a special meeting of stockholders;
•require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings; and
•authorize the board of directors, by a majority vote, to amend the bylaws.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that certain investors are willing to pay for our stock.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for substantially all
disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our officers, directors, employees or agents.
Our bylaws provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Company to us or our stockholders, creditors or other constituents, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, our certificate of incorporation or our bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws or (v) any action asserting a claim governed by the internal affairs doctrine; in each case, subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein; provided that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. These choice of forum provisions do not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our choice of forum provisions will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. The choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees or agents, which may discourage lawsuits against us and our directors, officers and other employees or agents.
If a court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees.
We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the near future. The payment of dividends on our common stock will depend on our earnings and financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.
Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.
We have U.S. federal net operating loss carryforwards (“NOLs”), which expire in various years if not utilized. In addition, we have federal research and development credit carryforwards. The federal research and development credit carryforwards expire in various years if not utilized. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We have not performed a formal study to determine whether any of our NOLs are subject to these limitations. We have recorded deferred tax assets for our NOLs and research and development credits and have recorded a full valuation allowance against these deferred tax assets. In the event that it is determined that we have in the past experienced additional ownership changes, or if we experience one or more ownership changes as a result of future transactions in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain profitability. Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition and operating results in the event that we attain profitability.