UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

Commission File Number: 001-33004

Acer Therapeutics Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   

One Gateway Center, Suite 351

300 Washington Street

32-0426967

(State or other jurisdiction of   

Newton, MA 02458

(I.R.S. Employer

Incorporation or organization)  

(Address of principal executive    

Identification No.)

 

offices and zip code)

 

(844) 902-6100

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes    No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No 

As of August 10, 2018, there were 10,052,988 shares of the issuer’s Common Stock outstanding.

 

 


ACER THERAPEUTICS INC.

For the three and six months ended June 30, 2018

INDEX

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

1

 

 

 

 

Condensed Consolidated Statements of Operations: For the three and six months ended June 30, 2018 and 2017

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows: For the six months ended June 30, 2018 and 2017

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements

4

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

 

 

 

Item 4.

Controls and Procedures

19

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

20

 

 

 

Item 1A.

Risk Factors

20

 

 

 

Item 6.

Exhibits

53

 

 

 

Signatures

54

 

 

 

 


 

PA RT I - FINANC IAL INFORMATION

Item 1.

Financial Statements.

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,343,773

 

 

$

15,644,355

 

Prepaid expenses

 

 

571,173

 

 

 

881,887

 

Total current assets

 

 

8,914,946

 

 

 

16,526,242

 

Property and equipment, net

 

 

67,075

 

 

 

62,984

 

Other assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

7,647,267

 

 

 

7,647,267

 

In-process research and development

 

 

118,600

 

 

 

118,600

 

Other non-current assets

 

 

40,528

 

 

 

13,648

 

Total assets

 

$

16,788,416

 

 

$

24,368,741

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

861,071

 

 

$

95,873

 

Accrued expenses

 

 

1,870,847

 

 

 

1,937,331

 

Total liabilities

 

 

2,731,918

 

 

 

2,033,204

 

Commitments

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; authorized 10,000,000 shares;

   none issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value at June 30, 2018 and $0.01 par value at

   December 31, 2017; authorized 150,000,000 shares; 7,497,433 shares   issued and outstanding at June 30, 2018 and December 31, 2017

 

 

750

 

 

 

74,974

 

Additional paid-in capital

 

 

48,426,494

 

 

 

47,812,215

 

Accumulated deficit

 

 

(34,370,746

)

 

 

(25,551,652

)

Total stockholders’ equity

 

 

14,056,498

 

 

 

22,335,537

 

Total liabilities, and stockholders’ equity

 

$

16,788,416

 

 

$

24,368,741

 

 

See notes to unaudited condensed consolidated financial statements.

1


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

2,688,159

 

 

$

1,857,856

 

 

$

4,762,130

 

 

$

4,891,395

 

General and administrative

 

 

2,227,947

 

 

 

1,156,494

 

 

 

4,144,977

 

 

 

1,490,023

 

Total operating expenses

 

 

4,916,106

 

 

 

3,014,350

 

 

 

8,907,107

 

 

 

6,381,418

 

Loss from operations

 

 

(4,916,106

)

 

 

(3,014,350

)

 

 

(8,907,107

)

 

 

(6,381,418

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

36,555

 

 

 

1,425

 

 

 

67,245

 

 

 

1,826

 

Interest expense

 

 

 

 

 

(109,722

)

 

 

 

 

 

(122,753

)

Foreign currency transaction gain

 

 

44,061

 

 

 

 

 

 

20,768

 

 

 

 

Total other income (expense), net

 

 

80,616

 

 

 

(108,297

)

 

 

88,013

 

 

 

(120,927

)

Net loss

 

$

(4,835,490

)

 

$

(3,122,647

)

 

$

(8,819,094

)

 

$

(6,502,345

)

Net loss per share - basic and diluted

 

$

(0.64

)

 

$

(1.29

)

 

$

(1.18

)

 

$

(2.65

)

Weighted average common shares outstanding - basic and diluted

 

 

7,497,433

 

 

 

2,423,370

 

 

 

7,497,433

 

 

 

2,450,000

 

 

See notes to unaudited condensed consolidated financial statements.

 

2


 

ACER THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(Unaudited)

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,819,094

)

 

$

(6,502,345

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Non-cash interest expense

 

 

 

 

 

122,753

 

Share-based compensation

 

 

578,802

 

 

 

30,619

 

Depreciation

 

 

11,041

 

 

 

1,810

 

Write-off of deferred financing costs

 

 

 

 

 

1,901

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

310,714

 

 

 

46,393

 

Accounts payable

 

 

765,198

 

 

 

642,054

 

Accrued expenses

 

 

(66,484

)

 

 

898,675

 

Other non-current assets

 

 

(26,880

)

 

 

 

Net cash used in operating activities

 

 

(7,246,703

)

 

 

(4,758,140

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(15,132

)

 

 

 

Net cash used in investing activities

 

 

(15,132

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Costs associated with the issuance of common stock

 

 

(38,747

)

 

 

 

Deferred financing costs

 

 

 

 

 

(67,675

)

Proceeds from convertible notes payable

 

 

 

 

 

5,500,000

 

Net cash (used in) provided by financing activities

 

 

(38,747

)

 

 

5,432,325

 

Net (decrease) increase in cash and cash equivalents

 

 

(7,300,582

)

 

 

674,185

 

Cash and cash equivalents, beginning of period

 

 

15,644,355

 

 

 

1,834,018

 

Cash and cash equivalents, end of period

 

$

8,343,773

 

 

$

2,508,203

 

Supplemental non-cash financing transactions:

 

 

 

 

 

 

 

 

Accretion of issuance costs on Series A Convertible Redeemable

   Preferred stock

 

$

-

 

 

$

7,420

 

Accretion of issuance costs on Series B Convertible Redeemable

   Preferred stock

 

$

-

 

 

$

18,254

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


 

ACER THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(Unaudited)

 

1.

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Business

Acer Therapeutics Inc., a Delaware corporation (the “Company”), formerly known as Opexa Therapeutics, Inc. (the “Registrant”), is a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need. The Company’s late-stage clinical pipeline includes two candidates for severe genetic disorders: EDSIVO™ (celiprolol) for vascular Ehlers-Danlos syndrome (“vEDS”), and ACER-001 (a fully taste-masked, immediate release formulation of sodium phenylbutyrate) for urea cycle disorders (“UCD”) and Maple Syrup Urine Disease (“MSUD”). There are no FDA-approved drugs for vEDS and MSUD and limited options for UCD, which collectively impact approximately 7,000 patients in the United States. The Company’s products have clinical proof-of-concept and mechanistic differentiation, and it intends to seek approval for them in the U.S. by using the regulatory pathway established under section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FFDCA, that allows an applicant to rely at least in part on third-party data for approval, which may expedite the preparation, submission, and approval of a marketing application.

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company has not generated any product revenue to date and may never generate any product revenue in the future.

Merger and Reverse Stock Split

On September 19, 2017, the Registrant completed its business combination with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among the Registrant, Opexa Merger Sub, Inc. (“Merger Sub”) and Private Acer (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Acer, with Private Acer surviving as a wholly-owned subsidiary of the Registrant (the “Merger”). This transaction was approved by the Registrant’s stockholders at a special meeting of its stockholders on September 19, 2017. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, the Registrant effected a 1-for-10.355527 reverse stock split of its then outstanding common stock (the “Reverse Split”) and immediately following the Merger, the Registrant changed its name to “Acer Therapeutics Inc.” pursuant to amendments to its certificate of formation filed with the Texas Secretary of State on September 19, 2017. All share numbers have been adjusted to reflect the Reverse Split.

Following the completion of the Merger, the business conducted by the Registrant became primarily the business conducted by Private Acer, which is a pharmaceutical company that acquires, develops and intends to commercialize therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need.

Delaware Reincorporation and Subsidiary Merger

On May 15, 2018, the Company changed its state of incorporation from the State of Texas to the State of Delaware (the “Reincorporation”) pursuant to a plan of conversion, dated May 15, 2018.  The Company filed the following instruments on May 15, 2018 to effect the Reincorporation:  (i) a certificate of conversion with the Texas Secretary of State; (ii) a certificate of conversion with the Delaware Secretary of State; and (iii) a certificate of incorporation with the Delaware Secretary of State.  Pursuant to the plan of conversion, the Company also adopted new bylaws, which became effective with the Reincorporation.  The Reincorporation was approved by the Company’s stockholders at its annual meeting on May 14, 2018.  Immediately following the Reincorporation, the Company eliminated its holding company structure by merging its wholly-owned subsidiary Private Acer with and into the Company (the “Subsidiary Merger”).  The Company was the surviving corporation in connection with the Subsidiary Merger.  As the Delaware certificate of incorporation used the placeholder name of “Acer Reincorporation, Inc.” due to “Acer Therapeutics Inc.” already being in existence in Delaware as Private Acer, in connection with the Subsidiary Merger the Company changed its name to “Acer Therapeutics Inc.” pursuant to a certificate of ownership and merger filed with the Delaware Secretary of State on May 15, 2018. As a result of the reincorporation, the par value of the Company’s common stock was reduced to $0.0001 from $0.01.

Basis of Presentation

4


 

Accounting principles generally accepted in the United States require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Acc ordingly, the Merger was accounted for as a reverse acquisition whereby Private Acer was treated as the acquirer for accounting and financial reporting purposes. Private Acer was incorporated on December 26, 2013, as part of a reorganization whereby Acer T herapeutics, LLC was converted into a corporation organized under the laws of the State of Delaware.

The accompanying consolidated financial statements are of (i) Private Acer up to September 18, 2017, (ii) the Registrant and its wholly-owned subsidiary Private Acer for the period beginning on September 19, 2017, and (iii) the Registrant for the period beginning on May 15, 2018.

All intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

Going Concern Uncertainty

The accompanying financial statements for the three and six months ended June 20, 2018, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses since inception and expects to continue to incur losses for the foreseeable future as it continues its development of, and seeks marketing approvals for, its product candidates.

The Company has historically relied on raising capital to finance its operations and may continue to rely on raising additional capital through public or private equity and/or debt financings in the future. There is no assurance, however, that the Company will be able to raise sufficient capital to fund its operations on terms that are acceptable, or that its operations will ever be profitable. Subsequent to quarter-end, on August 3, 2018, the Company completed a $46.0 million underwritten public offering, as described in Note 8 to these interim financial statements. As a result, the Company believes that its cash and cash equivalents currently on hand are sufficient to fund its anticipated operating and capital requirements into the first half of 2020.

2.

SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Significant Accounting Policies,” in its 2017 Annual Report on Form 10-K.

Share-Based Compensation

The Company records share-based payments at fair value. The measurement date for compensation expense related to employee awards is generally the date of the grant. The measurement date for compensation expense related to nonemployee awards is generally the date that the performance of the awards is completed and, until such time, the fair value of the awards is remeasured at the end of each reporting period. Accordingly, the ultimate expense is not fixed until such awards are vested. The fair value of awards, net of expected forfeitures, is recognized as an expense in the statement of operations over the requisite service period, which is generally the vesting period. The fair value of options is calculated using the Black-Scholes option pricing model. This option valuation model requires the use of assumptions including, among others, the volatility of stock price, the expected term of the option, and the risk-free interest rate.

The following assumptions were used to estimate the fair value of stock options granted during the six-month period ending June 30, 2018 using the Black-Scholes option pricing model. No options were granted during the three-month period ending June 30, 2017:

 

 

 

2018

 

Risk-free interest rate

 

2.35% - 2.98%

 

Expected life (years)

 

6.25

 

Volatility

 

60%

 

Dividend rate

 

0%

 

 

Use of Estimates

The Company’s accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements and reported amounts of

5


 

revenues and expenses during the reporting period. Estimates having relatively higher significance include the accounting fo r acquisitions, stock-based compensation, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.

Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing net loss in each period by the weighted average number of shares of common stock outstanding during such period. For the periods presented, common stock equivalents, consisting of options, convertible redeemable preferred stock and warrants, were not included in the calculation of the diluted loss per share because to do so would be anti-dilutive.

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which establishes new accounting and disclosure requirements for leases. FASB ASU No. 2016-02 requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account for certain short-term leases (with a term of one year or less) using a method similar to the current operating lease model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability and amortization of the right-of-use asset and for operating leases, a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. While the Company is in the early stages of its implementation process for FASB ASU No. 2016-02 and has not yet determined its impact on its consolidated financial position or results of operations, these leases would potentially be required to be presented on the balance sheet in accordance with the requirements of FASB ASU No. 2016-02, which is effective for annual reporting periods beginning after December 15, 2018, including interim periods therein, with early adoption permitted. FASB ASU No. 2016-02 must be applied using a modified retrospective approach, which requires the recognition and measurement of leases at the beginning of the earliest period presented, with certain practical expedients available.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) .  This ASU eliminates step 2 from the goodwill impairment test by comparing the fair value of a reporting unit with the carrying amount of the reporting unit.  If the carrying amount exceeds the fair value, an impairment charge for the excess is recorded. The amendments of this ASU are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements.

 

3.

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Computer hardware and software

 

$

27,908

 

 

$

16,555

 

Leasehold improvements

 

 

7,648

 

 

 

7,968

 

Furniture and fixtures

 

 

46,602

 

 

 

42,503

 

Subtotal property and equipment, gross

 

 

82,158

 

 

 

67,026

 

Less accumulated depreciation

 

 

(15,083

)

 

 

(4,042

)

Property and equipment, net

 

$

67,075

 

 

$

62,984

 

 

 

6


 

4.

ACCRUED EXPENSES

Accrued expenses consisted of the following at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Accrued license fees

 

$

795,000

 

 

$

817,578

 

Accrued pre-commercial costs

 

 

322,418

 

 

 

341,159

 

Accrued consulting

 

 

210,515

 

 

 

102,156

 

Accrued contract research

 

 

187,915

 

 

 

99,140

 

Accrued miscellaneous expenses

 

 

157,861

 

 

 

73,348

 

Accrued contract manufacturing

 

 

90,054

 

 

 

218,108

 

Accrued audit and tax

 

 

88,540

 

 

 

111,250

 

Accrued legal

 

 

18,544

 

 

 

174,592

 

 

 

$

1,870,847

 

 

$

1,937,331

 

 

 

5.

COMMITMENTS

Litigation

From time to time, the Company may become involved in litigation or proceedings relating to claims arising from the ordinary course of business.

On September 27, 2017, Piper Jaffray & Co. (“Piper”) filed a lawsuit against Private Acer, Piper Jaffray & Co. v. Acer Therapeutics Inc., Index No. 656055/2017, in the Supreme Court of the State of New York, County of New York. The complaint alleges that Private Acer breached its obligations to Piper pursuant to an August 30, 2016 engagement letter between the parties and an April 28, 2017 addendum thereto by failing to pay Piper (i) a fee of $1,097,207 in connection with the financing which closed on September 19, 2017 for aggregate consideration of approximately $15.7 million and (ii) $67,496 in reimbursement for expenses incurred by Piper pursuant to the engagement letter.  On November 10, 2017, Private Acer filed an answer and counterclaim in the lawsuit, denying Piper breach of contract allegation, asserting several defenses, and bringing several counterclaims, including claims for breach of contract and breach of the duty of good faith and fair dealing.  Piper filed a reply to the counterclaims denying the essential allegations, and discovery has commenced. The Company has not recorded a liability as of June 30, 2018, because a potential loss is not probable or reasonably estimable given the preliminary nature of the proceedings.

Newton Lease

The Company entered into a Lease Agreement effective March 6, 2018 (the “Newton Lease”) with Commonwealth Development LLC, as trustee of the Gateway Realty Trust (the “Newton Landlord”). Pursuant to the Newton Lease, the Company has leased certain premises consisting of 2,760 square feet of office space located at One Gateway Center, Suite 351, 300 Washington Street, Newton, Massachusetts (the “Newton Premises”) to serve as its corporate headquarters. The term of the Newton Lease commences on October 1, 2018 and expires on September 30, 2021. The Company currently occupies the Newton Premises as a subtenant pursuant to a Sublease, dated October 16, 2017, which expires on September 30, 2018.

The Newton Lease provides for base rent as follows:

 

Month of Term Under Newton Lease

Monthly Base Rent

1 to 12

$ 8,480

13 to 24

$ 8,710

25 to 36

$ 8,940

The Company’s total commitment for rent under the full term of the Newton Lease is $313,560. In addition, the Company is required to share in certain taxes and operating expenses of the Newton Premises. Upon execution of the Newton Lease, the Company made a security deposit of $17,880 to the Newton Landlord, which was in addition to the deposit of $13,648, for the existing sublease which will be returned to the Company in September 2018.

Bend Lease

The Company entered into a Triple Net Lease (the “Bend Lease”) effective April 1, 2018 with Eastern Western Corp. (the “Bend Landlord”). Pursuant to the Bend Lease, the Company has leased certain premises consisting of 2,288 square feet of office space located at 1000 NW Wall Street, Suite 220, Bend, Oregon (the “Bend Premises”) to serve as a satellite facility. The term of the Bend Lease commenced on April 1, 2018 and expires on March 31, 2021 (the “Bend Term”). The Company has an option to extend

7


 

the Bend Term for up to two additional periods of three years and a right of first refusal to lease an additional suite in the same building.

The Bend Lease provides for base rent as follows:

Month of Term Under Bend Lease

Monthly Base Rent

1 to 12

$ 4,004

13 to 24

$ 4,124

25 to 36

$ 4,248

 

The Company’s total remaining commitment at June 30, 2018 for rent under the Bend Lease is $136,500. In addition, the Company is required to share in certain taxes and operating expenses of the Bend Premises. Upon execution of the Bend Lease, the Company delivered a $2,500 security deposit to the Bend Landlord.

6.

STOCKHOLDERS’ EQUITY

2018 Stock Incentive Plan

The Company’s 2018 Stock Incentive Plan (the “2018 Plan”), adopted on May 14, 2018, provides for the grant of up to 500,000 shares of common stock as stock options, restricted stock, stock appreciation rights, restricted stock units, performance-based awards and cash-based awards that may be settled in cash, stock or other property to employees, executive officers, directors, and consultants.  

In addition to the 500,000 shares, the total number of shares reserved for issuance under the 2018 Plan also consists of the sum of the number of shares subject to outstanding awards under the Company’s 2010 Stock Incentive Plan, as amended and restated (the “2010 Plan”), and the 2013 Stock Incentive Plan, as amended (the “2013 Plan”), as of the effective date of the 2018 Plan that are subsequently forfeited or terminated for any reason prior to being exercised or settled, plus the number of shares subject to vesting restrictions under the 2010 Plan and the 2013 Plan on the effective date of the 2018 Plan that are subsequently forfeited, plus the number of shares reserved but not issued or subject to outstanding grants under the 2010 Plan and the 2013 Plan as of the effective date of the 2018 Plan, up to a maximum of 635,170 shares in aggregate. In addition, the number of shares that have been authorized for issuance under the 2018 Plan is automatically increased on the first day of each fiscal year beginning on January 1, 2019, and ending on (and including) January 1, 2028, in an amount equal to the lesser of (i) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (ii) another amount (including zero) determined by the Company’s Board. Any shares subject to awards granted under the 2018 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available for issuance under the 2018 Plan. Shares withheld to satisfy the grant, exercise price or tax withholding obligation related to an award will again become available for issuance under the 2018 Plan.  

The 2018 Plan is administered by the Company’s Board, which may in turn delegate authority to administer the plan to a committee such as the Compensation Committee, referred to herein as the 2018 Plan administrator. Subject to the terms of the 2018 Plan, the 2018 Plan administrator will determine recipients, the number of shares or amount of cash subject to awards to be granted, whether an option is to be an incentive stock options or non-incentive stock options and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the 2018 Plan administrator will also determine the exercise price of options granted under the 2018 Plan. The 2018 Plan expressly provides that, without the approval of the stockholders, the 2018 Plan administrator does not have the authority to reduce the exercise price of any outstanding stock options or stock appreciation rights under the 2018 Plan (except in connection with certain corporate transactions, such as stock splits, certain dividends, recapitalizations, reorganizations, mergers, spin-offs and the like), or cancel any outstanding underwater stock options or stock appreciation rights in exchange for cash or new stock awards under the 2018 Plan.

Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of 10 years. Stock options granted to executive officers and employees vest over a four-year period, with 25% vesting on the one-year anniversary of the grant date and the remaining 75% vesting quarterly over the remaining three years, assuming continued service, and with vesting acceleration in full immediately prior to a change in control.  At June 30, 2018, 457,072 shares of common stock remained available for the grant of future awards under the 2018 Plan.

2010 Stock Incentive Plan

The Company’s 2010 Plan provides for the grant of up to 470,170 shares of common stock as incentive or non-qualified stock options, stock appreciation rights, restricted stock units and/or restricted common stock to employees, officers, directors, consultants and advisers.    Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of 10 years.     At June 30, 2018, all shares available under the 2010 Plan were subject to outstanding equity awards, and the Company does not intend to make any new awards under the 2010 Plan. 

 

8


 

2013 Stock Incentive Plan

Private Acer’s 2013 Plan, as amended, which was assumed by the Company in connection with the Merger, provides for the issuance of up to 165,000 shares of common stock as incentive or non-qualified stock options and/or restricted common stock to employees, officers, directors, consultants and advisers. Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of 10 years. At June 30, 2018, all shares available under the 2013 Plan were subject to outstanding equity awards, and the Company does not intend to make any new awards under the 2013 Plan.

A summary of option activity under the 2018 Plan, 2010 Plan and 2013 Plan for the six months ended June 30, 2018, is as follows:

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

Aggregate

Intrinsic

Value

(in millions)

 

Options outstanding at December 31, 2017

 

 

463,600

 

 

$

11.23

 

 

9.5

 

 

 

 

Granted

 

 

202,500

 

 

$

18.47

 

 

 

 

 

 

 

Options outstanding at June 30, 2018

 

 

666,100

 

 

$

12.84

 

 

9.1

 

$

5.7

 

Options exercisable at June 30, 2018

 

 

169,447

 

 

$

4.22

 

 

8.0

 

$

2.9

 

 

At June 30, 2018, there was approximately $4.1 million of unrecognized compensation expense related to the share-based compensation arrangements granted under all plans and the average remaining vesting period is 3.4 years. The weighted average grant date fair value of options granted during the six months ended June 30, 2018 was $10.77. The amount of stock-based compensation expense recorded to research and development, and general and administrative is detailed in table below:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

182,919

 

 

$

8,592

 

 

$

335,654

 

 

$

18,385

 

General and administrative

 

 

143,508

 

 

 

6,151

 

 

 

243,148

 

 

 

12,234

 

 

 

$

326,427

 

 

$

14,743

 

 

$

578,802

 

 

$

30,619

 

 

Warrants

A summary of warrant activity for the six months ended June 30, 2018 is presented below:

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contract Term

(# years)

 

 

Intrinsic

Value

 

Outstanding and exercisable at December 31, 2017

 

 

317,630

 

 

$

123.61

 

 

0.54

 

 

 

 

Canceled/forfeited

 

 

(306,656

)

 

$

135.58

 

 

 

 

 

 

 

 

 

Outstanding and exercisable at June 30, 2018

 

 

10,974

 

 

$

124.27

 

 

 

0.28

 

 

 

 

On January 23, 2018, all outstanding and unexercised Series J warrants to purchase an aggregate of 2,942 shares of common stock expired. On January 29, 2018, all outstanding and unexercised Series K warrants to purchase an aggregate of 2,262 shares of common stock expired. On April 9, 2018, all outstanding and unexercised Series M warrants to purchase an aggregate of 301,452 shares of common stock expired.

 

7.

NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted net loss per share is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive.

9


 

As of June 30, 2018 an d 2017, the number of shares of common stock underlying potentially dilutive securities include:

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

Convertible redeemable preferred stock

 

 

 

 

 

1,608,654

 

Convertible promissory notes

 

 

 

 

 

188,593

 

Warrants

 

 

10,974

 

 

 

 

Options to purchase common stock

 

 

666,100

 

 

 

122,000

 

Total

 

 

677,074

 

 

 

1,919,247

 

 

8. SUBSEQUENT EVENTS

 

On August 3, 2018, the Company completed an underwritten public offering of 2,555,555 shares of common stock, including 333,333 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares to cover over-allotments, at a public offering price of $18.00 per share. The Company received aggregate net proceeds of approximately $42.5 million, after deducting underwriting discounts, commissions and offering-related expenses of approximately $3.5 million.

10


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition is as of June 30, 2018.  Our results of operations and cash flows should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and the audited consolidated financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2017.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this report, other than statements of historical fact, constitute “forward-looking statements.” The words “expects,” “believes,” “hopes,” “anticipates,” “estimates,” “may,” “could,” “intends,” “exploring,” “evaluating,” “progressing,” “proceeding” and similar expressions are intended to identify forward-looking statements.

These forward-looking statements do not constitute guarantees of future performance. Investors are cautioned that statements which are not strictly historical statements, including, without limitation, statements regarding current or future financial payments, costs, returns, royalties, performance and position, plans and objectives for future operations, plans and objectives for product development, plans and objectives for present and future clinical trials and results of such trials, plans and objectives for regulatory approval, litigation, intellectual property, product development, manufacturing plans and performance, management’s initiatives and strategies, and the development of our product candidates, including EDSIVO™ (celiprolol) and ACER-001, constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties include, but are not limited to, those risks discussed in “Risk Factors,” as well as, without limitation, risks associated with:

 

the strategies, prospects, plans, expectations and objectives of management for future operations, including the anticipated timing of filings;

 

the progress, scope or duration of the development of product candidates or programs;

 

the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication;

 

our ability to protect our intellectual property rights;

 

our anticipated operations, financial position, costs or expenses;

 

statements regarding future economic conditions or performance;

 

statements concerning proposed new products, services or developments;

 

the expected benefits of and potential value created by the September 19, 2017 merger with Acer Therapeutics Inc., a Delaware corporation (the “Merger”), for our stockholders; and

 

statements of belief and any statement of assumptions underlying any of the foregoing.

These forward-looking statements speak only as of the date made. We assume no obligation or undertaking to update any forward-looking statements to reflect any changes in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in the reports we file with the Securities and Exchange Commission, or SEC.

Overview

We are a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need. Our late-stage clinical pipeline includes two candidates for severe genetic disorders: EDSIVO™ (celiprolol) for vascular Ehlers-Danlos syndrome, or vEDS, and ACER-001 (a fully taste-masked, immediate release formulation of sodium phenylbutyrate) for urea cycle disorders, or UCD, and Maple Syrup Urine Disease, or MSUD. There are no FDA-approved drugs for vEDS and MSUD and limited options for UCD, which collectively impact approximately 7,000 patients in the United States. Our products have clinical proof-of-concept and mechanistic differentiation, and we intend to seek approval for them in the United States by using the regulatory pathway established under section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, that allows an applicant to rely at least in part on third-party data for approval, which may expedite the preparation, submission, and approval of a marketing application.

11


 

Merger and Re verse Stock Split

On September 19, 2017, Acer Therapeutics Inc., a Texas corporation, formerly known as Opexa Therapeutics, Inc. (the “Registrant”), completed its business combination with Acer Therapeutics Inc., a Delaware corporation (“Private Acer”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among the Registrant, Opexa Merger Sub, Inc. (“Merger Sub”) and Private Acer (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Acer, with Private Acer surviving as a wholly-owned subsidiary of the Registrant (the “Merger”). This transaction was approved by the Registrant’s stockholders at a special meeting of its stockholders on September 19, 2017. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, the Registrant effected a 1-for-10.355527 reverse stock split of its then outstanding common stock (the “Reverse Split”) and immediately following the Merger, the Registrant changed its name to “Acer Therapeutics Inc.” pursuant to amendments to its certificate of formation filed with the Texas Secretary of State on September 19, 2017. All share numbers in this report have been adjusted to reflect the Reverse Split.

Following the completion of the Merger, the business conducted by the Registrant became primarily the business conducted by Private Acer, which is a pharmaceutical company that acquires, develops and intends to commercialize therapies for patients with serious rare and ultra-rare diseases with critical unmet medical need.

For accounting and financial reporting purposes, Private Acer was considered to have acquired the Registrant in the Merger. Private Acer was incorporated on December 26, 2013, as part of a reorganization whereby Acer Therapeutics, LLC was converted into a corporation organized under the laws of the State of Delaware.

Delaware Reincorporation and Subsidiary Merger

  On May 15, 2018, we changed our state of incorporation from the State of Texas to the State of Delaware (the “Reincorporation”) pursuant to a plan of conversion, dated May 15, 2018.  We filed the following instruments on May 15, 2018 to effect the Reincorporation:  (i) a certificate of conversion with the Texas Secretary of State; (ii) a certificate of conversion with the Delaware Secretary of State; and (iii) a certificate of incorporation with the Delaware Secretary of State.  Pursuant to the plan of conversion, we also adopted new bylaws, which became effective with the Reincorporation.  The Reincorporation was approved by our stockholders at our annual meeting on May 14, 2018.  Immediately following the Reincorporation, we eliminated our holding company structure by merging our wholly-owned subsidiary Private Acer with and into the Company (the “Subsidiary Merger”).  The Company was the surviving corporation in connection with the Subsidiary Merger.  As the Delaware certificate of incorporation used the placeholder name of “Acer Reincorporation, Inc.” due to “Acer Therapeutics Inc.” already being in existence in Delaware as Private Acer, in connection with the Subsidiary Merger the Company changed its name to “Acer Therapeutics Inc.” pursuant to a certificate of ownership and merger filed with the Delaware Secretary of State on May 15, 2018. As a result of the reincorporation, the par value of our common stock was reduced to $0.0001 from $0.01.

Revenue

We have no products approved for commercial sale and have not generated any revenue from product sales.

In the future, we may generate revenue by entering into licensing arrangements or strategic alliances. To the extent we enter into any license arrangements or strategic alliances, we expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of achievement of pre-clinical, clinical, regulatory and commercialization milestones, if at all, the timing and amount of payments relating to such milestones, as well as the extent to which any products are approved and successfully commercialized.

If our product candidates are not developed in a timely manner, if regulatory approval is not obtained for them, or if such product candidates are not commercialized, our ability to generate future revenue, and our results of operations and financial position, would be adversely affected.

12


 

Research and Development Expenses

 

Research and development expenses consist of costs associated with the development of our product candidates. Our research and development expenses include:

 

 

employee-related expenses, including salaries, benefits, and stock-based compensation;

 

external research and development expenses incurred under arrangements with third parties, such as contract research organizations, contract manufacturing organizations, consultants, and our scientific advisors; and

 

license fees.

 

We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.

At any time, we are working on multiple programs, primarily within our therapeutic areas of focus. Our internal resources, employees, and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not generate meaningful information regarding the costs incurred for these early stage research and drug discovery programs on a specific project basis. However, we are currently spending the vast majority of our research and development resources on our two lead development programs.

Since Private Acer’s inception in December 2013, we have spent a total of approximately $20.8 million in research and development expenses through June 30, 2018. Of the approximately $20.8 million in research and development expenses, approximately $18.2 million is directly related to EDSIVO TM and approximately $2.5 million is directly related to ACER-001. Other research and development costs, such as travel costs, have not been identified as directly attributable to a specific research and development project.

We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing regulatory activities, initiate new preclinical and clinical trials, and build upon our pipeline. The process of conducting clinical trials and pre-clinical studies necessary to obtain regulatory approval, preparing to seek regulatory approval, and preparing for commercialization in the event of regulatory approval, is costly and time-consuming. We may never succeed in achieving marketing approval for any of our product candidates.

Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each product candidate, the timing and ability to obtain regulatory approval for our product candidates (if any), and ongoing assessments as to each product candidate’s commercial potential. We will need to raise additional capital and may seek to do so through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates and pursue regulatory approval.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, and stock-based compensation; as well as professional fees for legal, business consulting, auditing, and tax services. We expect that general and administrative expenses will increase in the future as we expand our operating activities. Additionally, as we prepare for the filing of our application with the FDA we expect to begin to incur significant expenses associated with preparing for the commercial launch, if approved by the FDA, of EDSIVO TM , or “pre-commercial” costs.

We expect to incur significant additional costs associated with being a publicly-traded company. These increases will likely include additional employees-related expenses, legal fees, costs associated with Sarbanes-Oxley compliance, accounting fees, and directors’ and officers’ liability insurance premiums.

 

Other income (expense), net

 

13


 

Other income (expense), net consists primarily of interest income and expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds for ca sh and cash equivalents. Interest expense has historically been comprised of interest and other related non-cash charges incurred under convertible notes payable with our investors. Additionally, we record as part of other income (expense), net, transactio nal gains and losses on foreign currency denominated assets and liabilities when they are revalued each period due to changes in underlying exchange rates.

 

Critical Accounting Polices and Estimates

 

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates. There have been no material changes to our critical accounting policies during the six months ended June 30, 2018. Please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2017 for a discussion of our critical accounting policies and significant judgments and estimates.

 

Business Combinations

 

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions may require management to make judgments and estimates as to fair value of consideration transferred. This judgment and determination may affect the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

 

Goodwill

 

Goodwill represents the excess of cost over fair value of net assets acquired in the Merger and in our prior acquisition of Anchor Therapeutics, Inc. (“Anchor”). We evaluate the recoverability of goodwill annually or more frequently, if events or changes in circumstances indicate that the carrying value of goodwill might be impaired. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. This step serves as the basis for determining whether it is necessary to perform the two-step goodwill impairment test. If we determine it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we will perform the two-step test. The two-step test first compares the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, no impairment exists, and the second step is not performed. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded as part of the second step of the test, to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value.

 

We review intangible assets annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment. If the carrying value of an asset exceeds its undiscounted cash flows, we write down the carrying value of the intangible asset to its fair value in the period identified.

 

In-process Research and Development

 

In-process research and development (“IPRD”) represents the value of the three G-protein-coupled receptor targets (the “Targets”) from the GPCR Target Pools of Anchor that we obtained the rights to in the March 20, 2015, acquisition of Anchor by Private Acer. IPRD was recorded at fair value in conjunction with the Anchor acquisition during 2015 and is an indefinite-lived intangible asset. As such, it is tested at least annually for impairment.

 

Stock-Based Compensation

 

We account for stock-based compensation expense related to stock options granted to employees and members of our board of directors under our 2018 Stock Incentive Plan, 2013 Stock Incentive Plan, as amended, and our 2010 Stock Incentive Plan, as amended and restated, by estimating the fair value of each stock option or award on the date of grant using the Black-Scholes model. We recognize stock-based compensation expense on a straight-line basis over the vesting term.

14


 

 

We account for stock options issued to non-employees by valuing the award using an option pricing model and re-measuring such awards to the current fair value until the awards are vested or a performance commitment has otherwise been reached.

 

Research and Development

 

Research and development costs are expensed as incurred and include compensation and related benefits, license fees and outside contracted research and manufacturing consultants. We often make nonrefundable advance payments for goods and services that will be used in future research and development activities. These payments are capitalized and recorded as an expense in the period that we receive the goods or when the services are performed.

 

Clinical Trial and Pre-Clinical Study Accruals

 

We make estimates of accrued expenses as of each balance sheet date in our consolidated financial statements based on certain facts and circumstances at that time. Our accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred for services provided by contract research organizations (“CRO”), manufacturing organizations, and for other trial-related activities. Payments under our agreements with external service providers depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, we obtain information from various sources and estimate the level of effort or expense allocated to each period. Adjustments to our research and development expenses may be necessary in future periods as our estimates change. As these activities are generally material to our overall financial statements, subsequent changes in estimates may result in a material change in our accruals.

 

Results of Operations

 

Comparison of the three months ended June 30, 2018 and 2017

 

The following table summarizes our results of operations for the three months ended June 30, 2018 and 2017:

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Research and development

 

$

2,688,159

 

 

$

1,857,856

 

 

$

830,303

 

 

 

45

%

General and administrative

 

 

2,227,947

 

 

 

1,156,494

 

 

 

1,071,453

 

 

 

93

%

Other income (expense), net

 

 

80,616

 

 

 

(108,297

)

 

 

188,913

 

 

 

(174

)%

Net loss

 

 

(4,835,490

)

 

 

(3,122,647

)

 

 

(1,712,843

)

 

 

55

%

 

Research and Development Expenses

Research and development expense was approximately $2.7 million during the three months ended June 30, 2018, as compared to approximately $1.9 million during the three months ended June 30, 2017. This increase of approximately $0.8 million was principally due to an increase in spending for regulatory consulting, employee costs, and contract research, partially offset by a decrease in manufacturing services, all relating to EDSIVO TM .  Research and development expense for the three months ended June 30, 2018, was comprised of approximately $2.4 million related to EDSIVO TM , and $0.3 million related to ACER-001. Research and development expense for the three months ended June 30, 2017, was comprised of approximately $1.6 million related to EDSIVO TM and approximately $0.1 million related to ACER-001.  Other research and development costs such as legal and travel costs have not been identified as directly attributable to a specific research and development project.

 

 

General and Administrative Expenses

 

General and administrative expense was approximately $2.2 million for the three months ended June 30, 2018 as compared to approximately $1.2 million for the three months ended June 30, 2017. This increase of approximately $1.0 million was primarily due to an increase in pre-commercial costs, and personnel costs, partially offset by lower legal and consulting related expenses.

 

Other Income (Expense), Net

 

Other income (expense), net of approximately $0.1 million during the three months ended June 30, 2018, was primarily attributable to interest income and foreign exchange transaction gains. Other expense, net of approximately $0.1 million during the three months ended June 30, 2017, was primarily attributable to interest expense on convertible promissory notes payable.

15


 

 

Comparison of the six months ended June 30, 2018 and 2017

 

The following table summarizes our results of operations for the six months ended June 30, 2018 and 2017:

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Research and development

 

$

4,762,130

 

 

$

4,891,395

 

 

$

(129,265

)

 

 

(3

)%

General and administrative

 

 

4,144,977

 

 

 

1,490,023

 

 

 

2,654,954

 

 

 

178

%

Other income (expense), net

 

 

88,013

 

 

 

(120,927

)

 

 

208,940

 

 

 

(173

)%

Net loss

 

 

(8,819,094

)

 

 

(6,502,345

)

 

 

(2,316,749

)

 

 

36

%

 

Research and Development Expenses

Research and development expense was approximately $4.8 million during the six months ended June 30, 2018, as compared to approximately $4.9 million during the six months ended June 30, 2017. This net decrease of approximately $0.1 million was principally due to a decrease in spending for contract research, data licenses and manufacturing services relating to EDSIVO TM , offset by increases in regulatory consulting and employee costs. Research and development expense for the six months ended June 30, 2018, was comprised of approximately $4.6 million related to EDSIVO TM , and approximately $0.2 million related to ACER-001. Research and development expense for the six months ended June 30, 2017, was comprised of approximately $4.3 million related to EDSIVO TM and approximately $0.2 million related to ACER-001.  Other research and development costs such as travel costs have not been identified as directly attributable to a specific research and development project.

 

 

General and Administrative Expenses

 

General and administrative expense was approximately $4.1 million for the six months ended June 30, 2018 as compared to approximately $1.5 million for the six months ended June 30, 2017. This increase of approximately $2.6 million was primarily due to an increase in pre-commercial costs, personnel costs, and legal expenses.

 

Other Income (Expense), Net

 

Other income, net of approximately $0.1 million during the six months ended June 30, 2018 was primarily attributable to interest income and foreign exchange transaction gains. Other expense, net of approximately $0.1 million during the six months ended June 30, 2017 was primarily attributable to interest expense on convertible promissory notes payable.

 

Liquidity and Capital Resources

 

We have never been profitable and have incurred operating losses in each year since inception. From inception to June 30, 2018, we have raised net cash proceeds of approximately $39.0 million, primarily from private placements of convertible preferred stock, common stock and debt financings. As of June 30, 2018, we had approximately $8.3 million in cash and cash equivalents. Our net loss was approximately $4.8 million and $8.8 million for the three and six months ended June 30, 2018, respectively. As of June 30, 2018, we had an accumulated deficit of approximately $34.4 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.  Subsequent to quarter end, on August 3, 2018, we completed an underwritten public offering of 2,555,555 shares of common stock, including 333,333 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares to cover over-allotments, at a public offering price of $18.00 per share. We received aggregate net proceeds of approximately $42.5 million, after deducting underwriting discounts, commissions and offering-related expenses of approximately $3.5 million.


16


 

 

The following table shows a summary of our cash flows for the six months ended June 30, 2018, and 2017:

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Net cash (used in) provided by:

 

 

 

 

 

 

 

 

Operating activities

 

$

(7,246,703

)

 

$

(4,758,140

)

Investing activities

 

 

(15,132

)

 

 

 

Financing activities

 

 

(38,747

)

 

 

5,432,325

 

Net (decrease) increase in cash and cash

   equivalents

 

$

(7,300,582

)

 

$

674,185

 

 

Operating Activities

 

Cash used in operating activities was approximately $7.2 million for the six months ended June 30, 2018, as compared to approximately $4.8 million for the six months ended June 30, 2017. The increase of approximately $2.4 million was principally the result of an increase in net loss due to increased operating expense as well as timing differences in accounts payable and accrued expenses.

 

Investing Activities

 

Net cash used in investing activities during the six months ended June 30, 2018, related to nominal purchases of computer equipment.

 

Financing Activities

 

Net cash used in financing activities during the six months ended June 30, 2018, consisted of approximately $39,000 of residual costs related to our offering of common stock in December 2017. Net cash provided by financing activities during the six months ended June 30, 2017, consisted of net proceeds from the issuance of convertible notes payable.

 

Future Capital Requirements

 

We have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture and clinical trials of, and seek regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates and thereafter successfully commercializing any such product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.

 

As of June 30, 2018, we had approximately $8.3 million in cash and cash equivalents, and we received approximately $42.5 million in aggregate net proceeds upon completing an underwritten public offering of common stock on August 3, 2018. Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our currently anticipated operating and capital requirements into the first half of 2020.

 

Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:

 

the number of programs we pursue;

 

the costs associated with filing, outcome, and timing of regulatory approvals;

 

the cost and timing of hiring new employees to support our continued growth;

 

the costs and timing of having clinical supplies of our product candidates manufactured;

 

the initiation and progress of pre-clinical studies and clinical trials for our product candidates;

 

the terms and timing of any strategic alliance, licensing and other arrangements that we may establish;

 

our ability to obtain adequate levels of financing to meet our operating plan; and

17


 

 

the costs involved in patent filing, p rosecution, and enforcement.

We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidates in or towards clinical development or potential regulatory approval. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development, regulatory and commercialization efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop and potentially commercialize (if approved) our product candidates.

 

We expect to incur significant expenses and increasing operating losses for at least the next two years as we initiate and continue the clinical development of, seek regulatory approval for, and potentially commercialize (if approved) our product candidates and add personnel necessary to operate as a public company with an advanced clinical pipeline of product candidates. In addition, operating as a publicly-traded company involves the hiring of additional financial and other personnel, upgrading financial information systems, and incurring costs associated with operating as a public company. We expect that our operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to the timing of clinical development programs, efforts to achieve regulatory approval and planning for potential commercialization (if approved) of our product candidates.

 

Until we can generate a sufficient amount of revenue to finance our cash requirements, which would require us to obtain regulatory approval for and successfully commercialize one or more of our product candidates, we expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowing and strategic alliances with partner companies. We do not maintain any external lines of credit or have any sources of debt or equity capital committed for funding, other than the legacy sales agreement entered into on March 25, 2016 between the Registrant and IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.). This agreement provides a facility for the offer and sale of shares of common stock from time to time depending upon market demand, in transactions deemed to be an “at-the-market” (“ATM”) offering.  We will need to keep current our shelf registration statement and the offering prospectus relating to the ATM facility, in addition to providing certain periodic deliverables under the sales agreement, in order to use such facility. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or pursuit of regulatory approval efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and, if applicable, market ourselves.

 

Contractual Commitments

 

License Agreements

 

In August 2016, Private Acer entered into an agreement with Assistance Publique—Hôpitaux de Paris, Hôpital Européen Georges Pompidou, or AP-HP, granting it the exclusive worldwide rights to access and use data from a multicenter, prospective, randomized, open trial related to the use of celiprolol for the treatment of vEDS. We intend to use this pivotal clinical data to support an NDA filing for EDSIVO TM for the treatment of vEDS. The agreement requires us to make certain upfront payments to AP-HP, reimburse certain of AP-HP’s costs, make payments upon achievement of defined milestones and pay royalties on net sales of celiprolol over the royalty term.

 

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In April 2014, we obtained exclusive rights to patents and certain other intellectual property relating to ACER-001 and preclinical and clinical data, through an exclusive license agreement with Baylor College of Medicine, or BCM. Under the terms of the agreement, as amended, we have worldwide exclusive rights to develop, manufacture, use, sell and import products incorporating the licensed intellectual property. The license agreement requires us to make upfront and annual payments to BCM, reimburse certain of BCM’s legal costs, make payments upon achievement of defined milestones, and pay royalties on net sales of any developed product over the royalty term.

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

 

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of June 30, 2018, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of June 30, 2018, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

19


 

PART II - OTHE R INFORMATION

Item 1.

Legal Proceedings.  

 

From time to time, the Company may become involved in litigation or proceedings relating to claims arising from the ordinary course of business.

 

See Note 5 to our unaudited condensed consolidated financial statements included in this report for a description of our litigation with Piper Jaffray & Co.

 

Item 1A.

Risk Factors.  

 

Investing in our securities involves a high degree of risk.  You should consider the following risk factors, as well as other information contained or incorporated by reference in this report, before deciding to invest in our securities.  The following factors affect our business, our intellectual property, the industry in which we operate and our securities.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known or which we consider immaterial as of the date hereof may also have an adverse effect on our business.  If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected, the market price of our securities could decline and you could lose all or part of your investment in our securities.

Risks Related to Our Business and Financial Condition

We have a limited operating history and have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future and may never achieve or maintain profitability. The absence of any commercial sales and our limited operating history make it difficult to assess our future viability.

We are a development-stage pharmaceutical company with a limited operating history. On September 19, 2017, we completed the reverse merger, or the Merger, with Acer Therapeutics Inc., a Delaware corporation, or Private Acer, in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2017, by and among Private Acer, ourselves and Opexa Merger Sub, Inc. Also on September 19, 2017, in connection with, and prior to the completion of, the Merger, we effected a 1-for-10.355527 reverse stock split of our common stock and changed our name to “Acer Therapeutics Inc.” On May 15, 2018, we changed our state of incorporation from the State of Texas to the State of Delaware pursuant to a plan of conversion.  We also eliminated our holding company structure by merging our wholly-owned subsidiary Private Acer with and into the parent company, with the parent company being the surviving entity.  

Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are focused principally on repurposing and/or reformulating existing drugs for rare and ultra-rare orphan diseases with significant unmet medical need. We are not profitable and Private Acer had incurred losses in each year since its inception in 2013. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience 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 specialty pharmaceutical industry. We have not generated any revenue to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the year ended December 31, 2017, was $14.2 million and our net loss for the six months ended June 30, 2018 was $8.8 million. As of June 30, 2018, we had an accumulated deficit of $34.4 million. We expect to continue to incur losses for the foreseeable future as we continue our development of, and seek marketing approvals for, our product candidates.

We have devoted substantially all of our financial resources to identify, acquire, and develop our product candidates, including providing general and administrative support for our operations. To date, we have financed our operations primarily through the sale of equity securities and convertible promissory notes. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect losses to increase as we conduct clinical trials and continue to develop our product candidates. We expect to invest significant funds into the research and development of our current product candidates to determine the potential to advance these product candidates to regulatory approval. We may also invest in acquiring or in-licensing additional product candidates to expand our pipeline.

If we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets. Even if we obtain adequate market share for our product candidates, because the potential markets in which our product candidates may ultimately receive regulatory approval could be very small, we may never become profitable despite obtaining such market share and acceptance of our products.

20


 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and our expenses will increase substantially if and as we:

 

continue the clinical development of our product candidates;

 

continue efforts to discover new product candidates;

 

undertake the manufacturing of our product candidates or increase volumes manufactured by third parties;

 

advance our programs into larger, more expensive clinical trials;

 

initiate additional pre-clinical, clinical, or other trials or studies for our product candidates;

 

seek regulatory and marketing approvals and reimbursement for our product candidates;

 

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval and market for ourselves;

 

seek to identify, assess, acquire and/or develop other product candidates;

 

make milestone, royalty or other payments under third-party license agreements;

 

seek to maintain, protect and expand our intellectual property portfolio;

 

seek to attract and retain skilled personnel; and

 

experience any delays or encounter issues with the development and potential for regulatory approval of our clinical candidates such as safety issues, clinical trial enrollment delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval.

Further, the net losses we incur will fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

We currently have no source of product sales revenue and may never be profitable.

We have not generated any revenues from commercial sales of any of our current product candidates, EDSIVO TM (for vascular Ehlers-Danlos syndrome, or vEDS) and ACER-001 (for urea cycle disorders, or UCD, and Maple Syrup Urine Disease, or MSUD). Our ability to generate product revenue depends upon our ability to successfully identify, develop and commercialize these product candidates or other product candidates that we may develop, in-license or acquire in the future. Our ability to generate future product revenue from our current or future product candidates also depends on a number of additional factors, including our ability to:

 

successfully complete research and clinical development of current and future product candidates;

 

establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of product candidates;

 

obtain regulatory approval from relevant regulatory authorities in jurisdictions where we intend to market our product candidates;

 

launch and commercialize future product candidates for which we obtain marketing approval, if any, and if launched independently, successfully establish a sales force and medical affairs, marketing and distribution infrastructure;

 

obtain coverage and adequate product reimbursement from third-party payors, including government payors;

 

achieve market acceptance for our approved products, if any;

 

establish, maintain and protect our intellectual property rights; and

 

attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with clinical product development, including that our product candidates may not successfully advance through development or achieve regulatory approval, we are unable to predict the timing or amount of any potential future product sales revenues. Our expenses also could increase beyond expectations if we decide to or are required by the United States Food and Drug Administration, or FDA, or comparable foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing these products.

21


 

We may require additional financing to obtain marketing approval and commercialize our product candidates, and a 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, other operations or commercialization efforts.

Since our inception, substantially all of our resources have been dedicated to the clinical development of our product candidates. As of June 30, 2018, we had an accumulated deficit of $34.4 million, cash and cash equivalents of $8.3 million and current liabilities aggregating $2.7 million. Subsequent to quarter-end, we received approximately $42.5 million in aggregate net proceeds upon completing an underwritten public offering of common stock on August 3, 2018. Based on available resources, we believe that our cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements into the first half of 2020.

We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved, and development of any other current or future product candidates we may choose to further develop. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining marketing approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current product candidates, if approved, or future product candidates, if any.

Our operating plan may change as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including:

 

the scope, progress, results, and costs of researching and developing our current product candidates, future product candidates and conducting preclinical and clinical trials;

 

the cost of seeking regulatory and marketing approvals and reimbursement for our product candidates;

 

the cost of commercialization activities if our current product candidates and future product candidates are approved for sale, including marketing, sales and distribution costs, and preparedness of our corporate infrastructure;

 

the cost of manufacturing current product candidates and future product candidates that we obtain approval for and successfully commercialize;

 

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

 

the number and characteristics of any additional product candidates we may develop or acquire;

 

any product liability or other lawsuits related to our products or commenced against us;

 

the expenses needed to attract and retain skilled personnel;

 

the costs associated with being a public company;

 

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property rights, including litigation costs and the outcome of such litigation; and

 

the timing, receipt and amount of sales of, or royalties on, any future approved products, if any.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:

 

delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for our current product candidates or future product candidates, if any;

 

delay, limit, reduce or terminate our research and development activities; or

 

delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our future product candidates.

22


 

We have incurred, and expect to continue to incur, increased costs and risks as a result of being a public company.

As a public company, we are required to comply with the Sarbanes-Oxley Act of 2002, or SOX, as well as rules and regulations implemented by the SEC and The Nasdaq Stock Market, or Nasdaq. Changes in the laws and regulations affecting public companies, including the provisions of SOX and rules adopted by the SEC and by Nasdaq, have resulted in, and will continue to result in, increased costs as we respond to their requirements. Given the risks inherent in the design and operation of internal controls over financial reporting, the effectiveness of our internal controls over financial reporting is uncertain. If our internal controls are not designed or operating effectively, we may not be able to conclude an evaluation of our internal control over financial reporting as required or we or our independent registered public accounting firm may determine that our internal control over financial reporting was not effective. We currently have a very limited workforce, and it may be difficult to adhere to appropriate internal controls over financial reporting or disclosure controls with such limited staffing. In addition, our independent registered public accounting firm may either disclaim an opinion as it relates to management’s assessment of the effectiveness of our internal controls or may issue an adverse opinion on the effectiveness of our internal controls over financial reporting, especially in light of the fact that we currently have a very limited workforce. Investors may lose confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and which could affect our ability to run our business effectively. New rules could also make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to our current coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and as executive officers. We cannot predict or estimate the total amount of the costs we may incur or the timing of such costs to comply with these rules and regulations.

Under the corporate governance standards of Nasdaq, a majority of our board of directors and each member of our Audit and Compensation Committees must be an independent director. If any vacancies on our Board or Audit or Compensation Committees occur that need to be filled by independent directors, we may encounter difficulty in attracting qualified persons to serve on our Board and, in particular, our Audit Committee. If we fail to attract and retain the required number of independent directors, we may be subject to SEC enforcement proceedings and delisting of our common stock from the Nasdaq Capital Market.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

We are subject to the reporting requirements of the Exchange Act, SOX and Nasdaq rules and regulations. SOX requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Report on Form 10-K filing for that year, as required by Section 404 of SOX. As a private company, Private Acer had never been required to test its internal controls within a specified period. This will require that we incur substantial internal costs to continue to expand our accounting and finance functions and that we expend significant management efforts. We may experience difficulty in meeting these reporting requirements in a timely manner.

Although we are committed to continuing to improve our internal control processes, and although we will continue to diligently and vigorously review our internal controls over financial reporting, we cannot be certain that, in the future, a material weakness or significant deficiency will not exist or otherwise be discovered. We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of SOX, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities.

Any acquisitions that we make could disrupt our business and harm our financial condition.

We expect to evaluate potential strategic acquisitions of complementary businesses, products or technologies worldwide. We may also consider joint ventures, licensing and other collaborative projects. We may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate acquisitions of any businesses, products or technologies. Furthermore, the integration of any acquisition and management of any collaborative project may divert our management’s time and resources from our core business and disrupt our operations. As a company, we have limited experience with acquiring other companies, or with acquiring products outside of the United States. Any cash acquisition we pursue would potentially

23


 

divert the cash we have on our balance sheet from our present clinical development programs. Any stock acquisitions would dilute our stockholders’ ownership.

Our auditors have expressed doubt in their audited financial report in respect of our 2017 fiscal year about our ability to continue as a going concern.

In their audited financial report in respect of our 2017 fiscal year, our independent registered public accounting firm included in its report an emphasis-of-a-matter indicating that the recurring losses from our operations raised a substantial doubt as to our ability to continue as a going concern. As of June 30, 2018, we had an accumulated deficit of $34.4 million, cash and cash equivalents of $8.3 million and current liabilities aggregating $2.7 million. Subsequent to quarter-end, we completed an underwritten public offering of 2,555,555 shares of common stock at a public offering price of $18.00 per share and received aggregate net proceeds of approximately $42.5 million, after deducting underwriting discounts, commissions and offering-related expenses of approximately $3.5 million. Based on available resources, we believe that our cash and cash equivalents currently on hand, including the proceeds from this offering, will be sufficient to fund our anticipated operating and capital requirements into the first half of 2020. We expect to continue to incur losses for the foreseeable future as we continue our development of and seek marketing approvals for, our product candidates. We have historically relied on raising capital to finance our operations and may continue to do so in the future. While mitigated by the recent financing, it is also possible that the opinion of our independent registered public accounting firm on our audited financial report in respect of future years may include a similar going concern qualification.

Funding from our ATM facility may be limited or unavailable.

We will need to keep current our shelf registration statement and an offering prospectus relating to the ATM facility with Brinson Patrick (now a division of IFS Securities, Inc.) in order to use the program to sell shares of our common stock, as well as provide certain periodic deliverables required by the sales agreement for the facility. The number of shares and price at which we may be able to sell shares under our ATM facility may be limited due to market conditions and other factors beyond our control.

 

Risks Related to the Clinical Development and Marketing Approval of Our Product Candidates

The marketing approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain marketing approval for our product candidates, our business will be substantially harmed.

None of our current product candidates have gained marketing approval in our target indications for sale in the United States or any other country, and we cannot guarantee that we will ever have marketable products. Our business is substantially dependent on our ability to complete the development of, obtain marketing approval for, and successfully commercialize our product candidates in a timely manner. We cannot commercialize our product candidates in the United States without first obtaining approval from the FDA to market each product candidate. Similarly, we cannot commercialize our product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Our product candidates could fail to receive marketing approval for many reasons, including the following:

 

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of any clinical trials we conduct or rely upon for regulatory approval;

 

the FDA or comparable foreign regulatory authorities may find the human subject protections for our clinical trials inadequate and place a clinical hold on an Investigational New Drug Application, or IND, at the time of its submission precluding commencement of any trials or a clinical hold on one or more clinical trials at any time during the conduct of our clinical trials;

 

the FDA could determine that we cannot rely on Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, for any or all of our product candidates;

 

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

24


 

 

the FDA could determine that we have identified the wrong reference listed drug or drugs or that approval of our 505(b)(2) application for any of our product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or drugs;

 

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an application to obtain marketing approval in the United States or elsewhere;

 

the FDA or comparable foreign regulatory authorities may find inadequate the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delay marketing approval.

Before obtaining marketing approval for the commercial sale of any drug product for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials and, to the satisfaction of the applicable regulatory authorities, that the product is safe and effective for its intended use and that the manufacturing facilities, processes, and controls are adequate to preserve the drug’s identity, strength, quality and purity. In the United States, it is necessary to submit and obtain approval of a New Drug Application, or NDA, from the FDA. An NDA must include extensive preclinical and clinical data and supporting information to establish the product safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing, and controls for the product. After the submission but before approval of the NDA, the manufacturing facilities used to manufacture a product candidate must be inspected by the FDA to ensure compliance with the applicable Current Good Manufacturing Practice, or cGMP, requirements. The FDA and the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory authorities, may also inspect our clinical trial sites and audit clinical study data to ensure that our studies are properly conducted in accordance with the IND regulations, human subject protection regulations, and current good clinical practice, or cGCP.

Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. Upon submission of an NDA, the FDA must make an initial determination that the application is sufficiently complete to accept the submission for filing. We cannot be certain that any submissions will be accepted for filing and reviewed by the FDA, or ultimately be approved. If the application is not accepted for review, the FDA may require that we conduct additional clinical studies or preclinical testing, or take other actions before it will reconsider our application. If the FDA requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the FDA may not consider any additional information to be complete or sufficient to support the filing or approval of the NDA.

Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates. Clinical trials conducted in one country may not be accepted or the results may not be found adequate by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. However, the failure to obtain regulatory approval in one jurisdiction could have a negative impact on our ability to obtain approval in a different jurisdiction. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time-consuming. Foreign regulatory approval may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain foreign regulatory approvals on a timely basis, if at all.

The process to develop, obtain marketing approval for, and commercialize product candidates is long, complex and costly, both inside and outside of the United States, and approval is never guaranteed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Even if our product candidates were to successfully obtain approval from regulatory authorities, any such approval might significantly limit the approved indications for use, including more limited patient populations, require that precautions, warnings or contraindications be included on the product labeling, including black box warnings, require expensive and time-consuming post-approval clinical studies, risk evaluation and mitigation strategies or surveillance as conditions of approval, or, through the product label, the approval may limit the claims that we may make, which may impede the successful commercialization of our product candidates. Following any approval for commercial sale of our product candidates, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, as well as new safety information, may require new studies and will be subject to additional FDA notification, or review and approval. Also, marketing approval for any of our product candidates may be withdrawn. If we are unable to obtain marketing approval for our product candidates in one or more jurisdictions, or any approval contains significant limitations, our ability to market to our full target market will be reduced and our ability to realize the full market potential of our product candidates will be impaired. Furthermore, we

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may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to cont inue or complete the development of any of our current or future product candidates.

If we are unable to submit an application for approval under Section 505(b)(2) of the FFDCA or if we are required to generate additional data related to safety or efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated development and commercialization timelines.

Our current strategy for seeking marketing authorization in the United States for our product candidates relies primarily on Section 505(b)(2) of the FFDCA, which permits use of a marketing application, referred to as a 505(b)(2) application, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use. The FDA interprets this to mean that an applicant may rely for approval on such data as that found in published literature or the FDA’s finding of safety or effectiveness, or both, of a previously approved drug product owned by a third party. There is no assurance that the FDA would find third-party data relied upon by us in a 505(b)(2) application sufficient or adequate to support approval, and the FDA may require us to generate additional data to support the safety and efficacy of our product candidates. Consequently, we may need to conduct substantial new research and development activities beyond those we currently plan to conduct. Such additional new research and development activities would be costly and time-consuming and there is no assurance that such data generated from such additional activities would be sufficient to obtain approval.

If the data to be relied upon in a 505(b)(2) application are related to drug products previously approved by the FDA and covered by patents that are listed in the FDA’s Orange Book, we would be required to submit with our 505(b)(2) application a Paragraph IV Certification in which we must certify that we do not infringe the listed patents or that such patents are invalid or unenforceable, and provide notice to the patent owner or the holder of the approved NDA. The patent owner or NDA holder would have 45 days from receipt of the notification of our Paragraph IV Certification to initiate a patent infringement action against us. If an infringement action is initiated, the approval of our NDA would be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may, therefore, be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents to our product candidates. Alternatively, we may elect to generate sufficient clinical data so that we would no longer need to rely on third-party data, which would be costly and time-consuming and there would be no assurance that such data generated from such additional activities would be sufficient to obtain approval.

We may not be able to obtain shortened review of our applications, and the FDA may not agree that our product candidates qualify for marketing approval. If we are required to generate additional data to support approval, we may be unable to meet anticipated or reasonable development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of our product candidates. If the FDA changes its interpretation of Section 505(b)(2) allowing reliance on data in a previously approved drug application owned by a third party, or there is a change in the law affecting Section 505(b)(2), this could delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and determining when or whether marketing approval will be obtained for our current product candidates. Even if we believe the data collected from clinical trials of our current product candidates are promising, such data may not be sufficient to support approval by the FDA or comparable foreign authorities. Our future clinical trial results may not be successful.

It is impossible to predict the extent to which the clinical trial process may be affected by legislative and regulatory developments. Due to these and other factors, our current product candidates or future product candidates could take a significantly longer time to gain marketing approval than expected or may never gain marketing approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our current product candidates.

Preclinical trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or guidelines, including current Good Laboratory Practice, or cGLP, an international standard meant to harmonize the conduct and quality of nonclinical studies and the archiving and reporting of findings. Preclinical studies including long-term toxicity studies and carcinogenicity studies in experimental animals may result in findings that may require further evaluation, which could affect the risk-benefit evaluation of clinical development, or which may even lead the regulatory agencies to delay, prohibit the initiation of or halt clinical trials or delay or deny marketing authorization applications. Failure to adhere to the applicable cGLP standards or misconduct during the course of preclinical trials may invalidate the data and require one or more studies to be repeated or additional testing to be conducted.

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Clinical trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or guidelines, including human subject protection requirements and GCP. Clinical trials are subject to further oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our current product candidates p roduced under cGMP and other requirements. Our clinical trials are conducted at multiple sites, including some sites in countries outside the United States and the European Union, which may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of foreign and non-EU clinical research organizations, as well as expose us to risks associated with clinical investigators who are unknown to the FDA or the European regulatory authori ties, and with different standards of diagnosis, screening and medical care.

The commencement and completion of clinical trials for our current product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited to:

 

the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;

 

the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials;

 

failure to reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

delays in patient enrollment and variability in the number and types of patients available for clinical trials;

 

the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;

 

lower than anticipated retention rates of patients and volunteers in clinical trials;

 

clinical sites deviating from trial protocol or dropping out of a trial;

 

adding new clinical trial sites;

 

negative or inconclusive results, which may require us to conduct additional preclinical or clinical trials or to abandon projects that we expect to be promising;

 

safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks;

 

regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

our third-party research and manufacturing contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

 

delays in establishing the appropriate dosage levels;

 

the quality or stability of our current product candidates falling below acceptable standards;

 

the inability to produce or obtain sufficient quantities of our current product candidates to complete clinical trials; and

 

exceeding budgeted costs due to difficulty in predicting accurately the costs associated with clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

There are significant requirements imposed on us and on clinical investigators who conduct clinical trials that we sponsor. Although we are responsible for selecting qualified clinical investigators, providing them with the information they need to conduct the clinical trial properly, ensuring proper monitoring of the clinical trial, and ensuring that the clinical trial is conducted in accordance with the general investigational plan and protocols contained in the IND, we cannot ensure the clinical investigators will maintain compliance with all regulatory requirements at all times. The pharmaceutical industry has experienced cases where clinical investigators have been found to incorrectly record data, omit data, or even falsify data. We cannot ensure that the clinical investigators in our trials will not make mistakes or otherwise compromise the integrity or validity of data, any of which would have a significant negative effect on our ability to obtain marketing approval, our business, and our financial condition.

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We could encounter delays if a clinical trial is suspended or terminat ed by us, by the IRBs of the institutions in which such trial is being conducted, by the data safety monitoring board, or DSMB, for such trial, or by the FDA or comparable foreign regulatory authorities. We or such authorities may impose a suspension or te rmination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulator y authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using the drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion or termination of any clinical trial of our current product candidates, the commercial prospects of our current product candidates will be harmed, and our ability to generate product revenues f rom our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow our development and approval process and jeopardize our ability to commence product sales and generate revenues. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our product candidates.

Any of these occurrences could materially adversely affect our business, financial condition, results of operations, and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our current product candidates. Significant clinical trial delays could also allow our competitors to bring products to market before we are able to do so, shorten any periods during which we have the exclusive right to commercialize our current product candidates and impair our ability to commercialize our current product candidates, which may harm our business, financial condition, results of operations, and prospects.

Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive marketing approval.

Clinical failure can occur at any stage of our clinical development. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of 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 trials. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical testing. Data obtained from tests are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent marketing approval. In addition, the design of a clinical trial can determine whether our results will support approval of a product or approval of a product for desired indications, and flaws or shortcomings in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have not yet conducted any clinical trials, we have limited experience in designing clinical trials and thus may be unable to design and execute a clinical trial to support marketing approval for our desired indications. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. If one of our product candidates is found to be unsafe or lack efficacy, we will not be able to obtain marketing approval for it and our business would be harmed. For example, if the results of our clinical trials of our product candidates do not achieve pre-specified endpoints or we are unable to provide primary or secondary endpoint measurements deemed acceptable by the FDA or comparable foreign regulators or if we are unable to demonstrate an acceptable level of safety relative to the efficacy associated with our proposed indications, the prospects for approval of our product candidates would be materially and adversely affected. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in Phase 2 and Phase 3 clinical trials, even after seeing promising results in earlier clinical trials.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including differences in trial protocols and design, the size and type of the patient population, adherence to the dosing regimen and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we may conduct will demonstrate consistent and/or adequate efficacy and safety to obtain marketing approval for our product candidates.

As an organization, we have not yet completed any clinical trial and may be unable to do so efficiently or at all for our current product candidates or any product candidate we develop.

We intend to conduct clinical trials of our product candidates. The conduct of clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have not completed a clinical trial before, and we have limited experience in preparing and submitting regulatory filings. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of our current product candidates or for any other product candidate we develop. We may require more time and incur greater costs than anticipated and may not succeed in obtaining marketing approval of the product candidates we develop. Failure to commence or complete, or delays in, our planned clinical trials would prevent us from or delay us in commercializing our current product candidates or any other product candidate we develop.

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Marketing approval may be substantially delayed or may not be obtained for one or all of our product candidates if regulatory authorities require additional or more time-consuming studies to assess the safety and efficacy of our product cand idates.

We may be unable to initiate or complete development of our product candidates on schedule, if at all. The completion of the studies for our product candidates will require us to obtain substantial additional funding beyond our current resources. In addition, regulatory authorities may require additional or more time-consuming studies to assess the safety or efficacy of our product candidates than we are currently planning. We may not be able to obtain adequate funding to complete the necessary steps for approval for any or all of our product candidates. Additional delays may result if the FDA, an FDA Advisory Committee (if one is convened to review our NDA) or other regulatory authority indicates that a product candidate should not be approved or there should be restrictions on approval, such as the requirement for a REMS, to ensure the safe use of the drug. Delays in marketing approval or rejections of applications for marketing approval in the United States or other markets may result from many factors, including:

 

the FDA’s or comparable foreign regulatory authorities’ disagreement with the design or implementation of our clinical trials;

 

regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials;

 

regulatory questions or disagreement by the FDA or comparable regulatory authorities regarding interpretations of data and results and the emergence of new information regarding our current or future product candidates or the field of research;

 

unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding safety or efficacy of our product candidates during clinical trials;

 

failure to meet the level of statistical significance required for approval;

 

inability to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

lack of adequate funding to commence or continue our clinical trials due to unforeseen costs or other business decisions;

 

regulatory authorities may find inadequate the manufacturing processes or facilities of the third-party manufacturers with which we contract for clinical and commercial supplies;

 

we may have insufficient funds to pay the significant user fees required by the FDA upon the filing of an NDA; and

 

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delay marketing approval.

The lengthy and unpredictable approval process, as well as the unpredictability of future clinical trial results, may result in our failure to obtain marketing approval to market our other product candidates, which would significantly harm our business, results of operations and prospects.

Our product candidates may cause undesirable adverse effects or have other properties that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if obtained.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or other comparable foreign authorities. If any of our current product candidates or any other product candidate we develop is associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon such candidate’s development or limit development to certain uses or subpopulations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early-stage or clinical testing have later been found to cause side effects that prevented further development of the compound. Results of our trials could reveal a high and unacceptable prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

If our product candidates receive marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

regulatory authorities may withdraw approvals of such product;

 

we may be required to recall a product or change the way such product is administered to patients;

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additional restrictions may be imposed on the marketin g of the particular product or the manufacturing process for the product or any component thereof;

 

regulatory authorities may require the addition of labeling statements, such as a precaution, “black box” warning or other warnings or a contraindication;

 

we or our collaborators may be required to implement a REMS or create a medication guide outlining the risks of such side effect for distribution to patients;

 

we or our collaborators could be sued and held liable for harm caused to patients;

 

the product may become less competitive; and

 

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, if approved, and could materially adversely affect our business, financial condition, results of operations and prospects.

Even if we receive marketing approval for our product candidates, such approved products will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions, and we may be subject to penalties and legal sanctions if we fail to comply with regulatory requirements or experience unanticipated problems with our approved products.

If the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP regulations and GCP for any clinical trials that we conduct post-approval. Any marketing approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor safety and efficacy.

Later discovery of previously unknown problems with an approved product, including adverse events of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, or evidence of acts that raise questions about the integrity of data supporting the product approval, may result in, among other things:

 

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

fines, warning letters, or holds on clinical trials;

 

refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;

 

product seizure or detention, or refusal to permit the import or export of products; and

 

injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval, manufacturing or commercialization of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or we are not able to maintain regulatory compliance, we may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Agencies such as the FDA and national competition regulators in European countries regulate the promotion and uses of drugs not consistent with approved product labeling requirements. If we are found to have improperly promoted our current product candidates for uses beyond those that are approved, we may become subject to significant liability.

Regulatory authorities such as the FDA and national competition agencies in Europe strictly regulate the promotional claims that may be made about prescription products, such as EDSIVO TM or ACER-001, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or comparable foreign regulatory authorities as reflected in the product’s approved labeling, known as “off-label” use, nor may it be promoted prior to obtaining marketing approval. If we receive marketing approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label if the physicians personally believe in their professional medical judgment it could be used in such manner. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.

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In addition, the FDA requires that promotional claims not be “false or misleading” as such te rms are defined in the FDA’s regulations. For example, the FDA requires substantial evidence, which generally consists of two adequate and well-controlled head-to-head clinical trials, for a company to make a claim that its product is superior to another p roduct in terms of safety or effectiveness. Generally, unless we perform clinical trials meeting that standard comparing our product candidates to competitive products and these claims are approved in our product labeling, we will not be able promote our c urrent product candidates as superior to other products. If we are found to have made such claims we may become subject to significant liability. In the United States, the federal government has levied large civil and criminal fines against companies for a lleged improper promotion and has enjoined several companies from engaging in improper promotion. The FDA has also requested that companies enter into consent decrees or corporate integrity agreements. The FDA could also seek permanent injunctions under wh ich specified promotional conduct is monitored, changed or curtailed.

Our current and future relationships with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to sanctions.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any drug candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we sell, market and distribute any drug candidates for which we obtain marketing approval. In addition, we may be subject to physician payment transparency laws and patient privacy and security regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following:

 

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid;

 

federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

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;

 

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

 

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

the federal Open Payments program, created under Section 6002 of the Patient Protection and Affordable Care Act, or the Affordable Care Act, and its implementing regulations, which imposed annual reporting requirements for manufacturers of drugs, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members, where failure to submit timely, accurately and completely the required information for all covered payments, transfers of value and ownership or investment interests may result in civil monetary penalties; and

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analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimburs ed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the fed eral 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 provid ers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating co mpliance efforts.

Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business. If any of the physicians or other healthcare providers or entities with whom we expect to do business, including our current and future collaborators, if any, are found not to be in compliance with applicable laws, those persons or entities may be subject to criminal, civil or administrative sanctions, including exclusion from participation in government healthcare programs, which could also affect our business.

The impact of recent healthcare reform legislation and other changes in the healthcare industry and healthcare spending on us is currently unknown, and may adversely affect our business model.

In the United States and some foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent or delay marketing approval of our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any drug candidates for which we obtain marketing approval.

Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws and judicial decisions, or new interpretations of existing laws or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, financial condition, results of operations and prospects. There is significant interest in promoting healthcare reform, as evidenced by the enactment in the United States of the Affordable Care Act. Among other things, the Affordable Care Act contains provisions that may reduce the profitability of drug products, including, for example, revising the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated, extending the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans, imposing mandatory discounts for certain Medicare Part D beneficiaries, and subjecting drug manufacturers to payment of an annual fee.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue or commercialize our drugs.

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation including the Affordable Care Act. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

 

the demand for any drug products for which we may obtain marketing approval;

 

our ability to set a price that we believe is fair for our products;

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our ability to obtain coverage and reimbursement approval for a product;

 

our ability to generate revenues and achieve or maintain profitability; and

 

the level of taxes that we are required to pay.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business, financial condition or results of operations.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of specified materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

Other Risks Related to Our Business

If we fail to attract and retain key management and scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

Our success as a specialty pharmaceutical company depends on our continued ability to attract, retain and motivate highly qualified management and scientific and clinical personnel. The loss of the services of any of our senior management could delay or prevent obtaining marketing approval or commercialization of our product candidates.

We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among specialty pharmaceutical businesses, and other pharmaceutical, biotechnology and other businesses. Our failure to attract, hire, integrate and retain qualified personnel could impair our ability to achieve our business objectives.

We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.

As of June 30, 2018, we had ten full-time employees and no part-time employees, in addition to a number of consultants or independent contractors working with us. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial, legal and other resources. Our management may need to divert a significant amount of our attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. As we advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with such third parties, as well as additional collaborators and suppliers.

We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

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We may not be able to win govern ment, academic institution or non-profit contracts or grants.

From time to time, we may apply for contracts or grants from government agencies, non-profit entities and academic institutions. Such contracts or grants can be highly attractive because they provide capital to fund the ongoing development of our product candidates without diluting our stockholders. However, there is often significant competition for these contracts or grants. Entities offering contracts or grants may have requirements to apply for or to otherwise be eligible for certain contracts or grants that our competitors may be able to satisfy that we cannot. In addition, such entities may make arbitrary decisions as to whether to offer contracts or make grants, to whom the contracts or grants may or will be awarded and the size of the contracts or grants to each awardee. Even if we are able to satisfy the award requirements, there is no guarantee that we will be a successful awardee. Therefore, we may not be able to win any contracts or grants in a timely manner, if at all.

If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced to pay substantial damage awards.

The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to product liability claims. We currently maintain product liability insurance coverage in amounts we consider to be reasonable for our stage of development. We intend to monitor the amount of coverage we maintain as the size and design of our clinical trials evolve, and if we are successful in obtaining approval to commercialize any of our product candidates, and adjust the amount of coverage we maintain accordingly. However, there is no assurance that such insurance coverage will fully protect us against some or all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought successfully against us.

Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.

Our employees, independent contractors, investigators, contract research organizations, consultants, collaborators and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees and other third parties may engage in fraudulent conduct or other illegal activity. Misconduct by employees and other third parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee and other third-party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

Our internal computer systems, or those of our development collaborators, third-party clinical research organizations or other contractors or consultants, may fail or suffer cybersecurity or other security breaches, which could result in a material disruption of our product development programs.

Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to cybersecurity breaches and damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we intend to rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our

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business. To the extent that any disruption or cybersecurity or other security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could b e delayed.

We are involved in litigation that may be expensive and time consuming, and if resolved adversely, could harm our business, financial condition, or results of operations.

As described in Note 5 to our unaudited condensed consolidated financial statements included in this report, Piper Jaffray & Co. has filed a lawsuit against Private Acer alleging breach of contract. Defending against this lawsuit may be costly and may significantly divert the time and attention of our management from our operations. There can be no assurance that a favorable outcome will be obtained. A negative outcome, whether by final judgment or an unfavorable settlement, could result in payment of significant monetary damages and could adversely affect our financial condition and results of operations.

Risks Related to Commercialization of Our Product Candidates

Our product candidate EDSIVO TM has not been approved for any indication in the United States, which may result in greater research and development expenses, regulatory issues that could delay or prevent approval, or discovery of unknown or unanticipated adverse effects.

EDSIVO TM is a repurposing of celiprolol for the treatment of vEDS. An NDA for this drug for the treatment of hypertension was submitted to the FDA in 1987, however, the NDA was withdrawn prior to review. Celiprolol has, however, been approved in Europe for the treatment of hypertension since 1984. Regulatory approval of EDSIVO TM may be more expensive and take longer than for other, more well-known or extensively studied pharmaceutical product candidates due to our and regulatory agencies’ lack of experience with celiprolol. The novelty of this product candidate may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. There is also an increased risk that we may discover previously unknown or unanticipated adverse effects during our clinical trials and beyond. Any such events could adversely impact our business prospects, financial condition and results of operations.

Even if we obtain the required regulatory approvals in the United States and other territories, the commercial success of our product candidates will depend on market awareness and acceptance of our product candidates.

Even if we obtain marketing approval for our current product candidates or any other product candidates that we may develop or acquire in the future, the products may not gain market acceptance among physicians, key opinion leaders, healthcare payors, patients and the medical community. Market acceptance of any approved products depends on a number of factors, including:

 

the timing of market introduction;

 

the efficacy and safety of the product, as demonstrated in clinical trials;

 

the clinical indications for which the product is approved and the label approved by regulatory authorities for use with the product, including any precautions, warnings or contraindications that may be required on the label;

 

acceptance by physicians, key opinion leaders and patients of the product as a safe and effective treatment;

 

the cost, safety and efficacy of treatment in relation to alternative treatments;

 

the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

 

the number and clinical profile of competing products;

 

the growth of drug markets in our various indications;

 

relative convenience and ease of administration;

 

marketing and distribution support;

 

the prevalence and severity of adverse side effects; and

 

the effectiveness of our sales and marketing efforts.

Market acceptance is critical to our ability to generate revenue. Any product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any approved products are not accepted by the market to the extent that we expect, we may not be able to generate revenue and our business would suffer.

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If the market opportunities for our product candidates are smaller than we believe they are, then our re venues may be adversely affected and our business may suffer.

The diseases that our current and future product candidates are being developed to address are rare. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, and our assumptions relating to pricing are based on estimates. Given the small number of patients who have the diseases that we are targeting, our eligible patient population and pricing estimates may differ significantly from the actual market addressable by our product candidates.

Currently, most reported estimates of the prevalence of vEDS, UCD and MSUD are based on studies of small subsets of the population of specific geographic areas, which are then extrapolated to estimate the prevalence of the diseases in the broader world population. It is difficult to precisely measure the incidence or prevalence of vEDS in any population. Studies estimate the prevalence of vEDS as ranging from approximately 1 in 90,000 to 1 in 250,000. In 2017, we commissioned a patient-finder study that phenotypically identified 4,169 vEDS patients in the United States from an analysis of a commercially available patient claims database, with data of over 180 million unique patient lives. Based on that information, we estimate the prevalence of phenotypically-defined vEDS in the United States could be greater than 1 in 45,000. Studies indicate that MSUD affects an estimated 1 in 185,000 infants worldwide. Approximately 3,000 patients suffer from MSUD worldwide, of whom approximately 800 are located in the United States. It is estimated that vEDS, UCD and MSUD collectively impact approximately 7,000 patients in the United States. As new studies are performed the estimated prevalence of these diseases may change. The number of patients may turn out to be lower than expected. There can be no assurance that the prevalence of vEDS, UCD or MSUD in the study populations accurately reflect the prevalence of these diseases in the broader world population. If our estimates of the prevalence of vEDS, UCD or MSUD or of the number of patients who may benefit from treatment with EDSIVO TM or ACER-001 prove to be incorrect, the market opportunities for our product candidates may be smaller than we believe they are, our prospects for generating revenue may be adversely affected and our business may suffer. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our business, financial condition, results of operations and prospects.

We currently have limited marketing and sales experience. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

We have never commercialized a product candidate, and we currently have no marketing and sales organization. To the extent our product candidates are approved for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates or generate product revenue.

We have never commercialized a product candidate, and we currently do not have marketing, sales or distribution capabilities for our product candidates. In order to commercialize any of our products that receive marketing approval, we would have to build marketing, sales, medical affairs, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the event of successful development of our product candidates, if we elect to build a targeted specialty sales force, such an effort would be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third parties that have their own sales forces and established distribution systems, in lieu of or to augment any sales force and distribution systems we may create. If we are unable to enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such collaborator does not devote sufficient resources to the commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfully commercialize our product candidates if we receive marketing approval. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

If we fail to enter into strategic relationships or collaborations, our business, financial condition, commercialization prospects and results of operations may be materially adversely affected.

Our product development programs and the potential commercialization of our current product candidates will require substantial additional cash to fund expenses. Therefore, in addition to financing the development of our product candidates through additional equity financings or through debt financings, we may decide to enter into collaborations with pharmaceutical or biopharmaceutical companies for the development and potential commercialization of our product candidates.

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We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. We may also be restricted under existing and future collaboration agreements from entering into agreements on cer