The risks and uncertainties discussed
below supplement
the risks and uncertainties previously
disclosed in Part I, Item 1A. of our Annual Report on Form 10-K for
the fiscal year ended September 30, 2018 and in Part II
Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2019.
Risks Related to Our Business
We have incurred significant losses since our inception and expect
to continue to incur losses and may never generate profits from
operations or maintain profitability.
Since
inception, we have incurred significant operating losses. As of
June 30, 2019, we have an accumulated deficit of $5.78 million. To
date, we have financed operations primarily through issuances of
preferred shares, loans that were converted into common shares and
government grants. We have devoted substantially all of our efforts
to research and development, including clinical trials, and have
not completed the development of any of our drug candidates. We
expect to continue to incur significant expenses and increasing
operating losses for the foreseeable future as we continue the
development of, and seek marketing approvals for our product
candidates, prepare for and begin the commercialization of any
approved products, and add infrastructure and personnel to support
our product development efforts and operations as a public company
in the United States. The net losses we incur may fluctuate
significantly from quarter to quarter and year to
year.
Our
ability to generate profits from operations and thereafter to
remain profitable depends heavily on, among other
things:
●
the scope, number,
progress, duration, cost, results and timing of clinical trials and
nonclinical studies of our current or future product
candidates;
●
our ability to
raise sufficient funds to support the development and potential
commercialization of our product candidates;
●
the outcomes and
timing of regulatory reviews, approvals or other
actions;
●
our ability to
obtain marketing approval for our product candidates;
●
our ability to
establish and maintain licensing, collaboration or similar
arrangements on favorable terms and whether and to what extent we
retain development or commercialization responsibilities under any
new licensing, collaboration or similar arrangement;
●
the success of any
other business, product or technology that we acquire or in which
we invest;
●
Our ability to
maintain, expand and defend the scope of our intellectual property
portfolio;
●
Our ability to
manufacture any approved products on commercially reasonable
terms;
●
Our ability to
establish a sales and marketing organization or suitable
third-party alternatives for any approved product; and
●
the number and
characteristics of product candidates and programs that we
pursue.
We must generate significant revenue to achieve and maintain
profitability.
We must
generate significant revenue to achieve and maintain profitability.
Based on our current plans, we do not expect to generate
significant revenue unless and until we or a current or potential
future licensee obtains marketing approval for, and commercializes,
one or more of our product candidates, which may require several
years. Neither Edesa nor a licensee may ever succeed in obtaining
marketing approval for, or commercializing our product candidates
and, even if marketing approval is obtained, we may never generate
revenues that are significant enough to generate profits from
operations. Even if we do generate profits from operations, we may
not be able to sustain or increase profitability on a quarterly or
annual basis. Our failure to generate profits from operations and
remain profitable would decrease the value of the company and could
impair our ability to raise capital, expand our business, maintain
our research and development efforts, diversify our product
offerings or continue our operations. A decline in the value of the
company could also cause you to lose all or part of your
investment.
Our limited operating history may
make it difficult for you to evaluate the success of our business
to date and to assess our future viability.
Edesa
Biotech Research, Inc., formerly known as Edesa Biotech Inc., was
formed on July 9, 2015. To date, our operations have been limited
to organization and staffing, developing and securing our
technology, entering into licensing arrangements, raising capital
and undertaking preclinical studies and clinical trials of our
product candidates. Our business is subject to all of the risks
inherent in the establishment of a new business enterprise. Our
likelihood of success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently
encountered in connection with development and expansion of a new
business enterprise. Consequently, any predictions made about our
future success or viability may not be as accurate as they could be
if we had a longer operating history.
We have
not yet demonstrated our ability to successfully complete
development of any product candidate, obtain marketing approval,
manufacture a commercial scale product, or arrange for a
third-party to do so on our behalf, or conduct sales and marketing
activities necessary for successful product commercialization.
Assuming we obtain marketing approval for any of our product
candidates, we will need to transition from a company with a
research and development focus to a company capable of supporting
commercial activities. We may encounter unforeseen expenses,
difficulties, complications and delays and may not be successful in
such a transition.
We will need substantial additional funding to finance our
operations through regulatory approval of one or more of our
product candidates. If the combined company is unable to raise
capital when needed, it could be forced to delay, reduce or
eliminate our product development programs or commercialization
efforts.
We
expect our research and development expenses to increase
substantially in the future, particularly as we advance EB01 beyond
Phase 2 clinical development for the treatment of ACD. We expect
that our research and development expenses will increase even
further if we advance any other current or future product
candidates into further clinical trials. In addition, if we obtain
marketing approval for any of our product candidates that are not
then subject to licensing, collaboration or similar arrangements
with third parties, we expect to incur significant
commercialization expenses related to product sales, marketing,
distribution and manufacturing. Furthermore, we expect to incur
significant costs associated with operating as a public company in
the United States. If we are unable to raise capital when needed,
or on attractive terms, we could be forced to delay, reduce or
eliminate research and development programs or future
commercialization efforts.
Raising additional capital may cause dilution to our investors,
restrict our operations or require us to relinquish rights to our
technologies or product candidates
Until
such time, if ever, as we can generate substantial product
revenues, we expect to finance our cash needs through a combination
of equity offerings, licensing, collaboration or similar
arrangements, grants and debt financings. We do not have any
committed external source of funds. To the extent that the we raise
additional capital through the sale of equity or convertible debt
securities, your ownership interest will be diluted, and the terms
of these securities may include liquidation or other preferences
that adversely affect your rights as a holder of our common stock.
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 or other
distributions.
If we
raise additional funds through licensing, collaboration or similar
arrangements, we may have to relinquish valuable rights to our
technologies, future revenue streams, research and development
programs or product candidates or to grant licenses on terms that
may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings or other arrangements when
needed, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant
rights to develop and market product candidates that we would
otherwise prefer to develop and market ourselves.
We depend heavily on the success of our lead product candidate,
EB01, which we are developing for the treatment of chronic ACD. If
we are unable to obtain regulatory approval or commercialize EB01,
or experience significant delays in doing so, our business will be
materially harmed.
EB01 is
in Phase 2B clinical development. Our ability to generate product
revenues, which may not occur for multiple years, if at all, will
depend heavily on the successful development and commercialization
of EB01 as a treatment for chronic ACD. The success of our product
candidates, including EB01, will depend on a number of factors,
including the following:
●
Our ability to
obtain additional capital from potential future licensing,
collaboration or similar arrangements or from any future offering
of our debt or equity securities;
●
our ability to
identify and enter into potential future licenses or other
collaboration arrangements with third parties and the terms of the
arrangements;
●
successful
completion of clinical development;
●
the ability to
provide acceptable evidence demonstrating a product
candidates’ safety and efficacy;
●
receipt of
marketing approvals from applicable regulatory authorities and
similar foreign regulatory authorities;
●
the availability of
raw materials to produce our product candidates;
●
obtaining and
maintaining commercial manufacturing arrangements with third-party
manufacturers or establishing commercial-scale manufacturing
capabilities;
●
obtaining and
maintaining patent and trade secret protection and regulatory
exclusivity;
●
establishing sales,
marketing and distribution capabilities;
●
generating
commercial sales of the product candidate, if and when approved,
whether alone or in collaboration with others;
●
acceptance of the
product candidate, if and when approved, by patients, the medical
community and third-party payors;
●
effectively
competing with other therapies; and
●
maintaining an
acceptable safety profile of the product candidate following
approval.
If we
do not achieve one or more of these factors in a timely manner or
at all, we could experience significant delays or an inability to
successfully commercialize EB01 or any of our other product
candidates, which would materially harm our business. Many of these
factors are beyond our control. Accordingly, we may never be able
to generate revenues through the license or sale of any of our
product candidates.
If clinical trials of our product candidates fail to demonstrate
safety and efficacy to the satisfaction of the FDA, Health Canada
(HC) or the European Medicines Agency (EMA), or do not otherwise
produce favorable results, we may incur additional costs or
experience delays in completing, or ultimately be unable to
complete, the development and commercialization of EB01 or any
other Edesa product candidate.
In
connection with obtaining marketing approval from regulatory
authorities for the sale of any product candidate, we must complete
preclinical development and then conduct extensive clinical trials
to demonstrate the safety and efficacy of our product candidates in
humans. Clinical trials are expensive, difficult to design and
implement, can take many years to complete and are uncertain as to
outcome. A failure of one or more clinical trials can occur at any
stage of testing. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later
clinical trials. In particular, the small number of subjects and
patients in early clinical trials of our product candidates may
make the results of these clinical trials less predictive of the
outcome of later clinical trials. The design of a clinical trial
can determine whether our results will support approval of a
product, and flaws in the design of a clinical trial may not become
apparent until the clinical trial is well advanced or completed.
There is no assurance that we will be able to design and execute a
clinical trial to support marketing approval. Moreover, preclinical
and clinical data are often susceptible to varying interpretations
and analyses, and many companies that have believed their product
candidates performed satisfactorily in preclinical studies and
clinical trials have nonetheless failed to obtain marketing
approval of their products.
Positive
results in pre-clinical studies of a product candidate may not be
predictive of similar results in humans during clinical trials, and
promising results from early clinical trials of a product candidate
may not be replicated in later clinical trials. Interim results of
a clinical trial do not necessarily predict final results. A number
of companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late-stage clinical trials
even after achieving promising results in early-stage development.
Accordingly, the results from completed pre-clinical studies and
clinical trials for our product candidates may not be predictive of
the results we may obtain in later stage trials or studies.
Pre-clinical studies or clinical trials may produce negative or
inconclusive results, and we may decide, or regulators may require
us, to conduct additional pre-clinical studies or clinical trials,
or to discontinue clinical trials altogether. Ultimately, we may be
unable to complete the development and commercialization of EB01 or
any other Edesa product candidate.
If clinical trials for our product candidates are prolonged or
delayed, we may be unable to commercialize our product candidates
on a timely basis, which would require us to incur additional costs
and delay our receipt of any revenue from potential product
sales.
We
cannot predict whether we will encounter problems with any of our
ongoing or planned clinical trials that will cause us or any
regulatory authority to delay or suspend those clinical trials. A
number of events, including any of the following, could delay the
completion of our ongoing and planned clinical trials and
negatively impact our ability to obtain regulatory approval for,
and to market and sell, a particular product
candidate:
●
conditions imposed
by the FDA or any foreign regulatory authority regarding the scope
or design of our clinical trials;
●
delays in
obtaining, or the inability to obtain, required approvals from
institutional review boards, or IRBs, or other reviewing entities
at clinical sites selected for participation in our clinical
trials;
●
insufficient supply
or deficient quality of product candidates supply or materials to
produce our product candidates or other materials necessary to
conduct our clinical trials;
●
delays in obtaining
regulatory agreement for the conduct of the clinical
trials;
●
lower than
anticipated enrollment and retention rate of subjects in clinical
trials for a variety of reasons, including size of patient
population, nature of trial protocol, the availability of approved
effective treatments for the relevant disease and competition from
other clinical trial programs for similar indications;
●
serious and
unexpected drug-related side effects experienced by patients in
clinical trials;
●
failure of
third-party contractors to meet their contractual obligations in a
timely manner;
●
pre-clinical or
clinical trials may produce negative or inconclusive results, which
may require us or any potential future collaborators to conduct
additional pre-clinical or clinical testing or to abandon projects
that we expect to be promising;
●
even if
pre-clinical or clinical trial results are positive, the FDA or
foreign regulatory authorities could nonetheless require
unanticipated additional clinical trials;
●
regulators or
institutional review boards may suspend or terminate clinical
research for various reasons, including noncompliance with
regulatory requirements;
●
product candidates
may not have the desired effects; and
●
the lack of
adequate funding to continue clinical trials.
Additionally,
changes in standard of care or regulatory requirements and guidance
may occur and we may need to amend clinical trial protocols to
reflect these changes. Such amendments may require us to resubmit
our clinical trial protocols to IRBs for re-examination, which may
impact the cost, timing or successful completion of a clinical
trial. Such changes may also require us to reassess the viability
of the program in question.
We do
not know whether our clinical trials will begin as planned, will
need to be restructured or will be completed on schedule, if at
all. Delays in clinical trials will result in increased development
costs for our product candidates. In addition, if we experience
delays in completion of, or if we terminate, any of our clinical
trials, the commercial prospects for our product candidates may be
affected and our ability to generate product revenues will be
delayed. Furthermore, many of the factors that cause, or lead to, a
delay in the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of a product
candidate.
The clinical trial designs, endpoints and outcomes that will be
required to obtain marketing approval of a drug to treat chronic
ACD or any other indication are uncertain. We may never receive
marketing approval for EB01 as a treatment for chronic
ACD.
To our
knowledge, there are currently no FDA-approved treatment options
specifically indicated for chronic ACD. Accordingly, there is not a
well-established development path that, with positive outcomes in
clinical trials, would be reasonably assured of receiving marketing
approval for chronic ACD. In particular, if our Phase 2B clinical
trial of EB01 in individuals with chronic ACD is successful, we
plan to use the trial to support pivotal clinical trials designed
to establish the efficacy of EB01 to support, together with
additional long-term safety data, an application for regulatory
approval as a treatment for chronic ACD. The FDA or any regulatory
authority outside of the United States may determine that the
designs or endpoints of any potentially pivotal trial that we
conduct, or that the outcome shown on any particular endpoint in
any potentially pivotal trial that we conduct, are not sufficient
to establish a clinically meaningful benefit for EB01 in the
treatment of chronic ACD or otherwise to support approval, even if
the primary endpoint or endpoints of the trial is or are met with
statistical significance. If this occurs, our business could be
materially harmed. Moreover, if the FDA requires us to conduct
additional clinical trials beyond the ones that we currently
contemplate in order to support regulatory approval in the United
States of EB01 for the treatment of chronic ACD, our finances and
results from operations will be adversely impacted.
Likewise,
if we conduct any future clinical trials designed to support
marketing approval of EB02 as a treatment for hemorrhoids or
clinical trials designed to support marketing approval of any other
of our product candidates, the FDA or any regulatory authority
outside of the United States may determine that the designs or
endpoints of the trial, or that the outcomes shown on any
particular endpoint in the trial, are not sufficient to establish a
clinically meaningful benefit or otherwise to support approval,
even if the primary endpoint of the trial is met with statistical
significance.
Our Phase 2B clinical trial of EB01 in individuals with chronic ACD
will not be sufficient to be considered a pivotal trial to support
an application for marketing approval of EB01. Even if our Phase 2B
study meets our primary endpoints, it is not certain that
additional pivotal Phase 3 studies, together with additional
long-term safety data will have positive outcomes and or will be
sufficient to enable EB01 to gain regulatory approval as a
treatment for chronic ACD.
If our
Phase 2B clinical trial of EB01 in individuals with chronic ACD
meets our primary endpoints, we plan to request an end of Phase 2
meeting with the FDA and regulatory authorities outside the United
States to seek guidance on the requirements for a new drug
application. We cannot predict the requirements for each of these
regulatory agencies and the requirements set forth by the agencies
could delay and/or negatively impact our ability to obtain
regulatory approval for, and to market and sell a particular
product candidate. We expect to be required by the FDA to conduct
two Phase 3 pivotal clinicaltrials in patients with chronic ACD to
establish the efficacy of EB01 to support, together with additional
long-term safety data, an application for regulatory approval of
EB01 as a treatment for chronic ACD. The likelihood that the FDA or
any regulatory authority outside the United States will concur with
our plan is uncertain. The FDA or any other regulatory authority
may instead determine that additional clinical and/or non-clinical
trials are required to establish the efficacy of EB01 as a
treatment for chronic ACD, even if the outcome of our Phase 2B
study in individuals is favorable. The risk that the FDA or any
other regulatory authority will determine that additional clinical
and/or non-clinical trials are required to establish the efficacy
of EB01 as a treatment for chronic ACD may be even higher if we
select a primary endpoint for our planned pivotal Phase 3 trials in
chronic ACD for which there is only limited data generated in our
Phase 2 studies. In addition, we intend to enroll in our study
individuals with chronic ACD caused by any of a number of different
conditions (allergens). This may also increase the risk of the FDA
or another regulatory authority determining that additional
clinical and/or non-clinical trials are required to establish the
efficacy of EB01 as a treatment for chronic ACD. If the FDA or a
regulatory authority outside of the United States makes the
determination that additional clinical and/or non-clinical trials
are required, it would result in a more expensive and potentially
longer development program for EB01 than we currently contemplate,
which could delay our ability to generate product revenues with
EB01, interfere with our ability to enter into any potential
licensing or collaboration arrangements with respect to this
program, cause the value of the company to decline, and limit our
ability to obtain additional financing.
If we experience new or additional delays or difficulties in the
enrollment of patients in our clinical trial of EB01 or any other
product candidate, our application and or receipt of marketing
approvals could be delayed or prevented.
Recruiting
patients with moderate to severe chronic ACD may be challenging as
there have not been recent clinical studies conducted with this
patient population. If we are unable to locate and enroll a
sufficient number of eligible patients to participate in clinical
trials of our product candidates including, in particular, our
ongoing trial of EB01 and our planned pivotal trials of EB01 as a
treatment for ACD, we may not be able to initiate or complete the
clinical trials.
Enrollment
delays in our ongoing or planned clinical trials may result in
increased development costs for our product candidates, which would
cause the value of the company to decline and limit our ability to
obtain additional financing. Our inability to enroll a sufficient
number of patients in our ongoing or planned clinical trials of
EB01, or any other Edesa product candidate, would result in
significant delays or may require us to abandon one or more
clinical trials altogether.
If the commercial opportunity in chronic ACD is smaller than we
anticipate, or if we elect to develop EB01 to treat only a specific
subpopulation of patients with chronic ACD, our future revenue from
EB01 will be adversely affected and our business will
suffer.
It is
critical to our ability to grow and become profitable that we
successfully identify patients with chronic ACD. Our projections of
the number of people who have chronic ACD as well as the subset who
have the potential to benefit from treatment with EB01, are based
on a variety of sources, including third-party estimates and
analyses in the scientific literature, and may prove to be
incorrect. Further, new information may emerge that changes our
estimate of the prevalence of these diseases or the number of
patient candidates for EB01. The effort to identify patients with
chronic ACD or our other potential target indications is at an
early stage, and we cannot accurately predict the number of
patients for whom treatment might be possible. Additionally, the
potentially addressable patient population for EB01 may be limited
or may not be amenable to treatment with EB01, and new patients may
become increasingly difficult to identify or access. If the
commercial opportunity in chronic ACD is smaller than we
anticipate, or if we elect to develop EB01 to treat only a specific
subpopulation of patients with chronic ACD, our future financial
performance may be adversely impacted.
While we have chosen to test our product candidates in specific
clinical indications based in part on our understanding of their
mechanisms of action, our understanding may be incorrect or
incomplete and, therefore, our product candidates may not be
effective against the diseases tested in our clinical
trials.
Our
rationale for selecting the particular therapeutic indications for
each of our product candidates is based in part on our
understanding of the mechanism of action of these product
candidates. However, our understanding of the product
candidate’s mechanism of action may be incomplete or
incorrect, or the mechanism may not be clinically relevant to the
diseases treated. In such cases, our product candidates may prove
to be ineffective in the clinical trials for treating those
diseases, and adverse clinical trial results would likely
negatively impact our business and results from
operations.
A successful sPLA2 drug has not been
developed to date and we can provide no assurances that we will be
successful or that there will be no adverse side
effects.
Our
unique lead product candidates are first-in-class, novel,
non-steroidal, synthetic anti-inflammatory products that address
the need to target sPLA2 in a broad-ranged
manner while avoiding any interference with the homeostatic
cPLA2
family. To date no drug companies have successfully commercialized
an sPLA2 inhibitor and as
a result the efficacy and long-term side effects are not known.
There is no guarantee that we will successfully develop and/or
commercialize an sPLA2 inhibitor and/or that the product candidate
will have no adverse side effects.
If serious or unacceptable side effects are identified during the
development of EB01 or any of our other product candidates, we may
need to abandon or limit our development of that product
candidate.
All of
our product candidates are in clinical or preclinical development
and their risk of failure is high. It is impossible to predict when
or if any of our product candidates will prove effective or safe in
humans or will receive marketing approval. If our product
candidates are associated with undesirable side effects or have
other unexpected, unacceptable characteristics, we may need to
abandon their development or limit development to certain uses or
subpopulations in which the undesirable side effects or other
characteristics are less prevalent, less severe or more acceptable
from a risk-benefit perspective. Many investigational products that
initially showed promise in clinical or earlier stage testing have
later been found to cause side effects or other safety issues that
prevented further development. If any of these events occur, our
business may be adversely impacted.
Even if EB01 or any future product candidate receives marketing
approval, it may fail to achieve the degree of market acceptance by
physicians, patients, third-party payors and others in the medical
community necessary for commercial success.
If EB01
or any future product candidate receives marketing approval, the
approved product may nonetheless fail to gain sufficient market
acceptance by physicians, patients, third-party payors and others
in the medical community. If an approved product does not achieve
an adequate level of acceptance, we may not generate significant
product revenues or any profits from operations.
Our
ability to negotiate, secure and maintain third-party coverage and
reimbursement for our product candidates may be affected by
political, economic and regulatory developments in the United
States, Canada, the European Union and other jurisdictions.
Governments continue to impose cost containment measures, and
third-party payors are increasingly challenging prices charged for
medicines and examining their cost effectiveness, in addition to
their safety and efficacy. These and other similar developments
could significantly limit the degree of market acceptance of EB01
or any of our other future product candidates that receive
marketing approval.
If we are unable to establish
sales and marketing capabilities or enter into agreements with
third parties to market and sell EB01 or any of our other current
or future product candidates, we may not be successful in
commercializing the applicable product candidate if it receives
marketing approval.
We do
not have a sales or marketing infrastructure and have no experience
as a company in the sale or marketing of pharmaceutical products.
To achieve commercial success for any approved product, we must
either develop a sales and marketing organization or outsource
these functions to third parties. There are risks involved with
establishing our own sales and marketing capabilities and entering
into arrangements with third parties to perform these services. For
example, recruiting and training a sales force is expensive and
time consuming and could delay any product launch. If the
commercial launch of a product candidate for which we recruit a
sales force and establishes marketing capabilities is delayed or
does not occur for any reason, we would have prematurely or
unnecessarily incurred these commercialization expenses. This may
be costly, and our investment would be lost if it cannot retain or
reposition our sales and marketing personnel. If we enter into
arrangements with third parties to perform sales and marketing
services, our product revenues or the profitability of these
product revenues to us could be lower than if we were to market and
sell any products that we develop ourselves. In addition, we may
not be successful in entering into arrangements with third parties
to sell and market our product candidates or may be unable to do so
on terms that are acceptable to us. We likely will have little
control over such third parties, and any of them may fail to devote
the necessary resources and attention to sell and market our
products effectively. If we do not establish sales and marketing
capabilities successfully, either on our own or in collaboration
with third parties, we will not be successful in commercializing
our product candidates.
We face substantial competition, which may result in others
discovering, developing or commercializing products to treat our
target indications or markets before or more successfully than we
do.
The
development and commercialization of new drug products is highly
competitive. We face competition with respect to our current
product candidates and any products we may seek to develop or
commercialize in the future from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies
worldwide.
Competitors
may also include academic institutions, government agencies and
other public and private research organizations that conduct
research, seek patent protection and establish collaborative
arrangements for research, development, manufacturing and
commercialization. Many of our competitors have significantly
greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting
clinical trials, obtaining approvals from regulatory authorities
and marketing approved products than we do. Mergers and
acquisitions in the pharmaceutical and biotechnology industries may
result in even more resources being concentrated among a smaller
number of our competitors. Smaller and other early-stage companies
may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining
qualified scientific and management personnel, establishing
clinical trial sites and patient registration for clinical trials,
as well as in acquiring technologies that may be complementary to
or necessary for our programs.
Our
commercial opportunities could be reduced or eliminated if our
competitors develop and commercialize products that are more
effective, safer, have fewer or less severe side effects, are
approved for broader indications or patient populations, or are
more convenient or less expensive than any products that we develop
and commercializes. Our competitors may also obtain marketing
approval for their products more rapidly than we may obtain
approval for our products, which could result in our competitors
establishing a strong market position before we are able to enter
the market.
If
approved, our product candidates will compete for a share of the
existing market with numerous other products being used to treat
ACD.
Even if we are able to commercialize EB01 or any other product
candidate that we develop, the product may become subject to
unfavorable pricing regulations, third-party reimbursement
practices or healthcare reform initiatives, which would harm our
business.
The
regulations that govern marketing approvals, pricing, coverage and
reimbursement for new drug products vary widely from country to
country. Current and future legislation may significantly change
the approval requirements in ways that could involve additional
costs and cause delays in obtaining approvals. Some countries
require approval of the sale price of a drug before it can be
marketed. In many countries, the pricing review period begins after
marketing or product licensing approval is granted and, in some
markets, prescription pharmaceutical pricing remains subject to
continuing governmental control even after initial approval is
granted. As a result, we might obtain marketing approval for a
product in a particular country, but then be subject to price
regulations that delay our commercial launch of the product,
possibly for lengthy time periods, and negatively impact the
revenues we are able to generate from the sale of the product in
that country. Adverse pricing limitations may hinder our ability to
recoup our investment in one or more product candidates, even if
our product candidates obtain marketing approval.
Our
ability to commercialize EB01 or any other product candidate
successfully also will depend in part on the extent to which
coverage and adequate reimbursement for these products and related
treatments will be available from government health
administrationauthorities, private health insurers and other
organizations. Government authorities and other third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels. Our inability to promptly obtain
coverage and adequate reimbursement rates from both
government-funded and private payors for any approved products that
we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize
products and our overall financial condition.
Governments outside the United States tend to impose strict price
controls, which may adversely affect our revenues, if
any.
In some
countries, particularly Canada and the member states of the
European Union, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take considerable
time after the receipt of marketing approval for a product. In
addition, there can be considerable pressure by governments and
other stakeholders on prices and reimbursement levels, including as
part of cost containment measures. Political, economic and
regulatory developments may further complicate pricing
negotiations, and pricing negotiations may continue after
reimbursement has been obtained. Reference pricing used by Canada
and various E.U. member states and parallel distribution, or
arbitrage between low-priced and high-priced member states, can
further reduce prices. In some countries, we may be required to
conduct a clinical trial or other studies that compare the
cost-effectiveness of our product candidate to other available
therapies in order to obtain or maintain reimbursement or pricing
approval. Publication of discounts by third-party payors or
authorities may lead to further pressure on prices or reimbursement
levels within the country of publication and other countries. If
reimbursement of our products is unavailable or limited in scope or
amount, or if pricing is set at unsatisfactory levels, our business
could be adversely affected.
Product liability lawsuits against us could cause it to incur
substantial liabilities and to limit commercialization of any
products that we may develop.
We face
an inherent risk of product liability exposure related to the
testing of our product candidates in human clinical trials and will
face an even greater risk if we commercially sells any products
that we may develop. If we cannot successfully defend ourselves
against claims that our product candidates or products caused
injuries, we will incur substantial liabilities. Regardless of
merit or eventual outcome, liability claims may result
in:
●
reduced resources
of our management to pursue our business strategy;
●
decreased demand
for any product candidates or products that we may
develop;
●
injury to our
reputation and significant negative media attention;
●
withdrawal of
clinical trial participants;
●
significant costs
to defend the related litigation;
●
substantial
monetary awards to clinical trial participants or
patients;
●
increased insurance
costs; and
●
the inability to
commercialize any products that we may develop.
We have
separate liability insurance policies that cover each of our
ongoing clinical trials, which provide coverage in varying amounts.
The amount of insurance that we currently hold may not be adequate
to cover all liabilities that it may incur. We will need to
increase our insurance coverage when and if we begin conducting
more expansive clinical development of our product candidates.
Insurance coverage is increasingly expensive. We may not be able to
maintain insurance coverage at a reasonable cost or in an amount
adequate to satisfy any liability that may arise.
We may expend our limited resources to pursue a particular product
candidate and fail to capitalize on product candidates that may be
more profitable or for which there is a greater likelihood of
success.
Because
we have limited financial and managerial resources, we focus on
specific product candidates. As a result, we may forego or delay
pursuit of opportunities with other product candidates that later
could prove to have greater commercial potential. Our resource
allocation decisions may cause us to fail to capitalize on viable
commercial products or profitable market opportunities. If we do
not accurately evaluate the commercial potential or target market
for a particular product candidate, our business may be negatively
impacted.
We will be dependent on third parties for the synthesis,
formulation, and manufacturing, including optimization, technology
transfers and scaling up of clinical scale quantities of all of our
product candidates.
We have
no direct experience in synthesizing, formulating and manufacturing
any of our product candidates, and currently lack the resources or
capability to synthesize, formulate and manufacture any of our
product candidates on a clinical or commercial scale. As a result,
we will be dependent on third parties for the synthesis,
formulation, and manufacturing, including optimization, technology
transfers and scaling up of clinical scale quantities of all our
product candidates. We believe that this strategy will enable us to
direct operational and financial resources to the development of
our product candidates rather than diverting resources to
establishing manufacturing infrastructure.
Reliance
on third-party manufacturers entails risks, to which we would not
be subject if we manufactured product candidates or products
itself, including:
●
reliance on the
third party for regulatory compliance and quality
assurance;
●
the possible breach
of the manufacturing agreement by the third party because of
factors beyond our control;
●
the possible
termination or non-renewal of the agreement by the third party,
based on their own business priorities, at a time that is costly or
inconvenient for us; and
●
drug product
supplies not meeting the requisite requirements for clinical trial
use.
If we
are not able to obtain adequate supplies of our product candidates,
it will be more difficult for us to develop our product candidates
and compete effectively. Our product candidates and any products
that we and/or our potential future collaborators may develop may
compete with other product candidates and products for access to
manufacturing facilities.
Use of third parties to manufacture our product candidates may
increase the risk that we will not have sufficient quantities of
our product candidates or products or such quantities at an
acceptable cost, which could delay, prevent or impair our
development or commercialization efforts.
We do
not own or operate manufacturing facilities for the production of
clinical or commercial supplies of our product candidates. We have
limited personnel with experience in drug manufacturing and lack
the resources and the capabilities to manufacture any of our
product candidates on a clinical or commercial scale. We currently
rely on third parties for supply of the active pharmaceutical
ingredients, or API, in our product candidates. Our strategy is to
outsource all manufacturing of our product candidates and products
to third parties.
We do
not currently have any agreements with third-party manufacturers
for the long-term clinical or commercial supply of any of our
product candidates. We currently engage a single third-party
manufacturer to provide API for EB01. We also currently engage a
single third-party vendor to manufacture the final drug product
formulation of EB01 that is being used in our clinical trials. We
may in the future be unable to scale-up and/or conclude agreements
for commercial supply with commercial third-party manufacturers on
acceptable terms, or at all.
Even if
we are able to establish and maintain arrangements with third-party
manufacturers, they may encounter difficulties in achieving volume
production, laboratory testing, quality control or quality
assurance or suffer shortages of qualified personnel, any of which
could result in our inability to manufacture sufficient quantities
to meet clinical timelines for a particular product candidate, to
obtain marketing approval for the product candidate or to
commercialize the product candidate. In addition, third-party
manufacturers may not be able to comply with current good
manufacturing practice, or GMP, regulations or similar regulatory
requirements outside the United States. Ourfailure, or the failure
of our third-party manufacturers, to comply with applicable
regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, delays, suspension
or withdrawal of approvals, license revocation, seizures or recalls
of product candidates or products, operating restrictions and
criminal prosecutions, any of which could significantly and
adversely affect supplies of our product candidates.
Our
product candidates and any products that we may develop may compete
with other product candidates and products for access to
manufacturing facilities. There are a limited number of
manufacturers that operate under cGMP regulations and that might be
capable of manufacturing for us.
If the
third parties that we contract to manufacture product for our
non-clinical tests and clinical trials cease to continue to do so
for any reason, we likely would experience delays in advancing
these clinical trials while we identify and qualify replacement
suppliers and we may be unable to obtain replacement supplies on
terms that are favorable to it. In addition, if we are not able to
obtain adequate supplies of our product candidates or the drug
substances used to manufacture them, it will be more difficult for
us to develop our product candidates and compete
effectively.
Our
current and anticipated future dependence upon others for the
manufacture of our product candidates may adversely affect our
future profit margins and our ability to develop product candidates
and commercialize any products that receive marketing approval on a
timely and competitive basis.
We depend on third-party suppliers for key raw materials used in
our manufacturing processes, and the loss of these third-party
suppliers or their inability to supply us with adequate raw
materials could harm our business.
We rely
on third-party suppliers for the raw materials required for the
production of our product candidates. Our dependence on these
third-party suppliers and the challenges we may face in obtaining
adequate supplies of raw materials involve several risks, including
limited control over pricing, availability, quality, and delivery
schedules. We cannot be certain that our current suppliers will
continue to provide us with the quantities of these raw materials
that we require to satisfy our anticipated specifications and
quality requirements. Any supply interruption in limited or sole
sourced raw materials could materially harm our ability to
manufacture our products until a new source of supply, if any, can
be identified and qualified. Although we believe there are several
other suppliers of these raw materials, we may be unable to find a
sufficient alternative supply channel in a reasonable time or on
commercially reasonable terms.Any performance failure on the part
of our suppliers could delay the development and commercialization
of our product candidates, including limiting supplies necessary
for clinical trials and regulatory approvals, or interrupt
production of the existing products that are already marketed,
which would have a material adverse effect on our
business.
We rely on Yissum for the successful development and
commercialization of EB01 to treat ACD.
In
2016, we entered into an exclusive license agreement with Yissum
Research Development Company of the Hebrew University of Jerusalem
to obtain exclusive rights to certain know-how, patents and data
relating to a pharmaceutical product. We are using the exclusive
rights to develop the product for therapeutic, prophylactic and
diagnostic uses in topical dermal applications and anorectal
applications, including for the development of EB01 to treat ACD.
Concurrently, we also entered into a consulting agreement with an
individual associated with Yissum for the development of the
product. If we default or fail to perform any of the terms,
covenants, provisions or our obligations under the License
Agreement, Yissum has the option to terminate the License
Agreement, subject to advance notice to cure such default. Any
termination of this license agreement would have a materially
adverse impact on our business and results from
operations.
We rely on third parties to conduct our clinical trials and those
third parties may not perform satisfactorily, including failing to
meet deadlines for the completion of such clinical
trials.
We do
not independently conduct clinical trials for our product
candidates. We rely on third parties, such as contract research
organizations, clinical data management organizations, medical
institutions, drug distributers, clinical investigators and
government agencies, to perform this function. Any of these third
parties may terminate their engagements with us at any time. If we
need to enter into alternative arrangements, it would delay our
product development activities. If these third parties do not
successfully carry out their contractual duties, meet expected
deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we will not be
able to obtain, or may be delayed in obtaining, marketing approvals
for our product candidates and will not be able to, or may be
delayed in our efforts to, successfully commercialize our product
candidates. Our product development costs will increase if we
experience delays in testing or obtaining marketing
approvals.
Our
reliance on these third parties for clinical development activities
reduces our control over these activities but does not relieve us
of our responsibilities. For example, we remain responsible for
ensuring that each of our clinical trials is conducted in
accordance with the general investigational plan and protocols for
the clinical trial. Moreover, the FDA and foreign regulatory
authorities require us to comply with standards, commonly referred
to as Good Clinical Practice, or GCP, for conducting, recording and
reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the rights,
integrity of data and confidentiality of clinical trial
participants are protected.
We may depend on additional collaborations, licenses or similar
arrangements with third parties for the development and
commercialization of some of our product candidates. If those
collaborations are not successful, we may not be able to capitalize
on the market potential of these product candidates.
We may
in the future enter into other licensing, collaboration or similar
arrangements for the development and commercialization of our
product candidates for any or all indications and for any or all
territories.
Our
likely counterparties for any licensing, collaboration or similar
arrangement include large and mid-size pharmaceutical companies,
regional and national pharmaceutical companies and biotechnology
companies. However, if we do enter into any such arrangements with
any third parties in the future, we will likely have limited
control over the amount and timing of resources that our
collaborators dedicate to the development or commercialization of
the applicable product candidate. Our ability to generate revenues
from these arrangements will depend on our collaborators’
abilities and efforts to successfully perform the functions
assigned to them in these arrangements.
Any
licensing, collaboration or similar arrangement involving our
product candidates would pose numerous risks to us, including the
following:
●
collaborators have
significant discretion in determining the efforts and resources
that they will apply to these collaborations and may not perform
their obligations as expected;
●
collaborators may
deemphasize or not pursue development and commercialization of our
product candidates or may elect not to continue or renew
development or commercialization programs based on clinical trial
results, changes in the collaborators’ strategic focus,
including as a result of a sale or disposition of a business unit
or development function, or available funding, or external factors
such as an acquisition that diverts resources or creates competing
priorities;
●
collaborators may
delay clinical trials, provide insufficient funding for a clinical
trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical
testing;
●
collaborators may
independently develop, or develop with third parties, products that
compete directly or indirectly with our products or product
candidates if the collaborators believe that competitive products
are more likely to be successfully developed or can be
commercialized under terms that are more economically attractive
than our products;
●
a collaborator with
marketing and distribution rights to multiple products may not
commit sufficient resources to the marketing and distribution of
our product relative to other products;
●
collaborators may
not properly maintain or defend our intellectual property rights or
may use our proprietary information in such a way as to invite
litigation that could jeopardize or invalidate our intellectual
property or proprietary information or expose us to potential
litigation;
●
collaborators may
infringe the intellectual property rights of third parties, which
may expose us to litigation and potential liability;
●
disputes may arise
between the collaborator and us as to the ownership of intellectual
property arising during the collaboration;
●
We may grant
exclusive rights to our collaborators, which would prevent us from
collaborating with others;
●
disputes may arise
between the collaborators and us that result in the delay or
termination of the research, development or commercialization of
our products or product candidates or that result in costly
litigation or arbitration that diverts management attention and
resources; and
●
collaborations may
be terminated and, if terminated, may result in a need to identify
and enter into a new licensing, collaboration or similar
arrangement or obtain additional capital to pursue further
development or commercialization of the applicable product
candidates.
Collaboration
agreements may not lead to development or commercialization of
product candidates in the most efficient manner or at all. If a
collaborator of ours were to be involved in a business combination,
the continued pursuit and emphasis on our product development or
commercialization program could be delayed, diminished or
terminated.
If we are not able to establish additional collaborations, we may
have to alter our development and commercialization
plans.
Our
product development programs and the potential commercialization of
our product candidates will require substantial additional cash to
fund expenses. For some of our product candidates, we may decide to
collaborate with pharmaceutical and biotechnology companies for the
development and potential commercialization of those product
candidates.
We face
significant competition in seeking appropriate collaborators.
Whether we reach a definitive agreement for a collaboration will
depend, among other things, upon our assessment of the
collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of clinical trials, the
likelihood of approval by regulatory authorities, the potential
market for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge, and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such a collaboration could
be more attractive than the one with us for our product candidate.
We may also be restricted under future license agreements from
entering into agreements on certain terms with potential
collaborators. Collaborations are complex and time-consuming to
negotiate and document. In addition, there have been a significant
number of recent business combinations among large pharmaceutical
companies that have resulted in a reduced number of potential
future collaborators.
We may
not be able to negotiate collaborations on a timely basis, on
acceptable terms, or at all. If we are unable to do so, we may have
to curtail the development of a product candidate, reduce or delay
our development program or one or more of our other development
programs, delay our potential commercialization or reduce the scope
of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our
own expense. If we elect to increase our expenditures to fund
development or commercialization activities on our own, we would
likely need to obtain additional capital, which may not be
available to us on acceptable terms, or at all. If we do not have
sufficient funds, it may not be able to further develop our product
candidates or bring them to market and generate product
revenue.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our
licensed technology and products, or if the scope of the patent
protection is not sufficiently broad, our competitors could develop
and commercialize technology and products similar or identical to
ours, and our ability to successfully commercialize our licensed
technology and products may be adversely affected.
Our
success will partially depend on our ability to obtain and maintain
patent protection in the United States and other countries with
respect to our proprietary technology and products. We intend to
protect our proprietary position by filing patent applications in
the United States, in Europe and in certain additional
jurisdictions related to our novel technologies and product
candidates that are important to our business. This process is
expensive and time-consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we
will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent
protection. Moreover, if we license technology or product
candidates from third parties in the future, these license
agreements may not permit us to control the preparation, filing and
prosecution of patent applications, or to maintain or enforce the
patents, covering the licensed technology or product candidates.
These agreements could also give our licensors the right to enforce
the licensed patents without our involvement, or to decide not to
enforce the patents at all. Therefore, in these circumstances,
these patents and applications may not be prosecuted or enforced in
a manner consistent with the best interests of our
business.
The
patent position of biotechnology and pharmaceutical companies
generally is highly uncertain, involves complex legal and factual
questions and has in recent years been the subject of much
litigation. As a result, the issuance, scope, validity,
enforceability and commercial value of any patents issued to us
will likely be highly uncertain. Patent applications that we file
may not result in patents being issued which protect our technology
or products, in whole or in part, or which effectively prevent
others from commercializing competitive technologies and products.
Changes in either the patent laws or interpretation of the patent
laws in the United States and other countries may also diminish the
value of patents issued to us, narrow the scope of our patent
protection or make enforcement more difficult or
uncertain.
We may become involved in lawsuits or other enforcement proceedings
to protect or enforce our patents or other intellectual property,
which could be expensive, time consuming and potentially
unsuccessful.
Competitors
may infringe our patents, trademarks, copyrights or other
intellectual property. To counter infringement or unauthorized use,
we may be required to file claims, which can be expensive and time
consuming to prosecute. Any claims we assert againstperceived
infringers could provoke these parties to assert counterclaims
against us alleging that we infringe their intellectual property or
that our patent and other intellectual property rights are invalid
or unenforceable, including for antitrust reasons. As a result, in
a patent infringement proceeding, a court or administrative body
may decide that a patent of ours is invalid or unenforceable, in
whole or in part, or may construe the patent’s claims
narrowly and so refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover
the competitor technology in question. Even if we are successful in
a patent infringement action, the unsuccessful party may
subsequently raise antitrust issues and bring a follow-on action
thereon. Antitrust issues may also provide a bar to settlement or
constrain the permissible settlement terms.
Third parties may initiate legal proceedings alleging that we are
infringing their intellectual property rights, the outcome of which
would be uncertain and could have a material adverse effect on the
success of our business.
Our
commercial success depends upon our ability and the ability of our
collaborators to develop, manufacture, market and sell our product
candidates and use our proprietary technologies without infringing
the intellectual property and other proprietary rights of third
parties. There is considerable intellectual property litigation in
the biotechnology and pharmaceutical industries, and we may become
party to, or threatened with, future adversarial proceedings or
litigation regarding intellectual property rights with respect to
our products and technology, including interference, derivation,
inter partes review, reexamination, reissue or post-grant review
proceedings before the USPTO. The risks of being involved in such
litigation and office proceedings may also increase as our product
candidates approach commercialization, and as our business gains
greater visibility operating as a publicly traded company in the
United States. Third parties may assert infringement claims against
us based on existing or future intellectual property rights and to
restrict our freedom to operate. Third parties may also seek
injunctive relief against us, whereby they would attempt to prevent
us from practicing our technologies altogether pending outcome of
any litigation against us. We may not be aware of all such
intellectual property rights potentially relating to our product
candidates prior to their assertion against us. For example, we
have not conducted an in-depth freedom-to-operate search or
analysis for EB01 or any of our other product candidates. Any
freedom-to-operate search or analysis previously conducted may not
have uncovered all relevant patents and pending patent
applications, and there may be pending or future patent
applications that, if issued, would block us from commercializing
EB01 or any of our other product candidates. Thus, we do not know
with certainty whether EB01, or any other product candidate or our
commercialization thereof, does not and will not infringe any third
party’s intellectual property.
If we
are found to infringe a third party’s intellectual property
rights, to avoid or settle litigation, we could be required to
obtain a license to enable us to continue developing and marketing
our products and technology. However, we may not be able to obtain
any required license on commercially reasonable terms, or at all.
Even if we were able to obtain a license, it could be nonexclusive,
thereby giving our competitors access to the same technologies as
are licensed to us, and could require us to make substantial
payments. Absent a license, we could be forced, including by court
order, to cease commercializing the infringing technology or
product. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees if we
are found to have willfully infringed a patent or other
intellectual property right. A finding of infringement could
prevent us from commercializing our product candidates or force us
to cease some of our business operations, which could materially
harm our business.
We may be subject to claims by third parties asserting that the
company or our employees have misappropriated their intellectual
property, or claiming ownership of what we regard as our own
intellectual property.
Many of
our employees were previously employed at universities or other
biotechnology or pharmaceutical companies. Although we try to
ensure that our employees do not use the proprietary or otherwise
confidential information or know-how of others in their work for
us, we may be subject to claims that the company or these employees
have without authorization used or disclosed intellectual property,
including trade secrets or other proprietary or confidential
information, of any such employee’s former employer.
Litigation may be necessary to defend against these
claims.
In
addition, while we typically requires our employees and contractors
who may be involved in the development of intellectual property to
execute agreements assigning such intellectual property to us and
agree to cooperate and assist us with securing and defending our
intellectual property, we may be unsuccessful in executing such an
agreement with each party who in fact develops intellectual
property that we regard as our own. These assignment agreements may
not be self-executing or may be breached, and we may be forced to
bring claims against third parties, or defend claims they may bring
against us, to determine the ownership of what we regard as our
intellectual property.
If we
fail in prosecuting or defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property
rights or personnel. Even if we are successful in prosecuting or
defending against such claims, litigation could result in
substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend
substantial resources and could distract our personnel from their
normal responsibilities.
Even if
resolved in our favor, litigation or other legal proceedings
relating to intellectual property claims may cause us to incur
significant expenses and likely would distract our technical and
management personnel from their normal responsibilities. In
addition, there could be public announcements of the results of
hearings, motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be
negative, it could have a substantial adverse effect on the price
of our common stock. Such litigation or proceedings could
substantially increase our operating losses and reduce the
resources available for development, sales, marketing or
distribution activities. We may not have sufficient financial or
other resources to adequately conduct such litigation or
proceedings. Some of our competitors may be able to sustain the
costs of such litigation or proceedings more effectively than we
can because of their greater financial resources. Accordingly,
costs and lost management time, as well as uncertainties resulting
from the initiation and continuation of patent litigation or other
proceedings, could have a material adverse effect on our ability to
compete in the marketplace.
If we are unable to protect the confidentiality of our trade
secrets, our business and competitive position would be
harmed.
We
partially rely on trade secrets and know-how, including unpatented
know-how, technology and other proprietary and confidential
information, to maintain our competitive position. We seek to
protect these trade secrets, in part, by entering into
nondisclosure and confidentiality agreements with parties who have
access to them, such as our employees, corporate collaborators,
outside scientific collaborators, contract manufacturers,
consultants, advisors and other third parties. However, we cannot
guarantee that we have executed these agreements with each party
that may have or have had access to our trade secrets or that the
agreements we have executed will provide adequate protection. Any
party with whom we have executed such an agreement may breach that
agreement and disclose our proprietary or confidential information,
including our trade secrets, and we may not be able to obtain
adequate remedies for such breaches. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret is difficult,
expensive and time-consuming, and the outcome is unpredictable. In
addition, some courts inside and outside the United States are less
willing or unwilling to protect trade secrets. If any of our trade
secrets were to be lawfully obtained or independently developed by
a competitor, we would have no right to prevent them, or those to
whom they communicate it, from using that technology or information
to compete with us. If any of our trade secrets, particularly
unpatented know-how, were to be obtained or independently developed
by a competitor, our competitive position would be
harmed.
Even if we complete the necessary clinical trials, the marketing
approval process is expensive, time consuming and uncertain and may
prevent us from obtaining approvals for the commercialization of
some or all of our product candidates. If we are not able to
obtain, or if there are delays in obtaining, required marketing
approvals, we will not be able to commercialize our product
candidates, and our ability to generate revenue will be materially
impaired.
Our
product candidates and the activities associated with our
development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA and by comparable
authorities in other countries. Failure to obtain marketing
approval for a product candidate will prevent us from
commercializing the product candidate. We have not received
approval to market EB01 or any other Edesa product candidate from
regulatory authorities in any jurisdiction.
We have
only limited experience in filing and supporting the applications
necessary to obtain marketing approvals for product candidates and
expects to rely on third-party contract research organizations to
assist us in this process. Securing marketing approval requires the
submission of extensive preclinical and clinical data and
supporting information to regulatory authorities for each
therapeutic indication to establish the product candidate’s
safety and effectiveness. Securing marketing approval also requires
the submission of information about the product manufacturing
process to, and inspection of manufacturing facilities by, the
regulatory authorities. Regulatory authorities may determine that
EB01, or any of our other product candidates is not effective, is
only moderately effective or has undesirable or unintended side
effects, toxicities, safety profiles or other characteristics that
preclude us from obtaining marketing approval or that prevent or
limit commercial use.
The
process of obtaining marketing approvals is expensive, may take
many years, if approval is obtained at all, and can vary
substantially based upon a variety of factors, including the type,
complexity and novelty of the product candidates involved. Changes
in marketing approval policies during the development period,
changes in or the enactment of additional statutes or regulations,
or changes in regulatory review for each submitted product
application, may cause delays in the approval or rejection of an
application. Regulatory authorities have substantial discretion in
the approval process and may refuse to accept any application or
may decide that our data are insufficient for approval and require
additional preclinical studies, clinical trials or other trials. In
addition, varying interpretations of the data obtained from
preclinical and clinical testing could delay, limit or prevent
marketing approval of a product candidate. Any marketing approval
we ultimately obtain may be limited or subject to restrictions or
post-approval commitments that render the approved product not
commercially viable. If we experience delays in obtaining approval
or if we fail to obtain approval of our product candidates, the
commercial prospects for our product candidates may be harmed and
our ability to generate revenues will be materially
impaired.
Even if we obtain marketing approval for our product candidates,
the terms of approvals and ongoing regulation of our products may
limit how we manufacture and market our products and compliance
with such requirements may involve substantial resources, which
could materially impair our ability to generate
revenue.
Even if
marketing approval of a product candidate is granted, an approved
product and our manufacturer and marketer are subject to ongoing
review and extensive regulation, including the possible requirement
to implement a risk evaluation and mitigation strategy or to
conduct costly post-marketing studies or clinical trials and
surveillance to monitor the safety or efficacy of the product. We
must also comply with requirements concerning advertising and
promotion for any of our product candidates for which we obtain
marketing approval. Promotional communications with respect to
prescription drugs are subject to a variety of legal and regulatory
restrictions and must be consistent with the information in the
product’s approved labeling. Thus, we will not be able to
promote any products we develop for indications or uses for which
they are not approved. In addition, manufacturers of approved
products and those manufacturers’ facilities are required to
ensure that quality control and manufacturing procedures conform to
cGMP, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of
records and documentation and reporting requirements. We and our
contract manufacturers could be subject to periodic unannounced
inspections by the FDA to monitor and ensure compliance with
cGMP.
Accordingly,
assuming we receive marketing approval for one or more of our
product candidates, we and our contract manufacturers will continue
to expend time, money and effort in all areas of regulatory
compliance, including manufacturing, production, product
surveillance and quality control. If we are not able to comply with
post-approval regulatory requirements, we could have the marketing
approvals for our products withdrawn by regulatory authorities and
our ability to market any future products could be limited, which
could adversely affect our ability to achieve or sustain
profitability. Thus, the cost of compliance with post-approval
regulations may have a negative effect on our operating results and
financial condition.
Our relationships with customers, healthcare providers and
professionals and third-party payors will be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil
penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in
the recommendation and prescription of any product candidate,
including EB01, for which we may obtain marketing approval. Our
future arrangements with customers, healthcare providers and
professionals, and third-party payors may expose us to broadly
applicable federal anti-kickback, federal and state fraud and abuse
and other healthcare laws and regulations that may constrain the
business or financial arrangements and relationships through which
we market, sell and distribute any product candidate for which we
obtain marketing approval.
Efforts
to ensure that our business arrangements with third parties will
comply with applicable healthcare laws and regulations will 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 and
regulations. 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, damages, fines, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructuring of our operations. Violation of
certain of these laws could also result in exclusion, suspension
and debarment from government funded healthcare programs.
Exclusion, suspension or debarment would significantly impact our
ability to commercialize, sell or distribute any product candidate
for which we obtain regulatory approval. If any of the physicians
or other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including
exclusions from government funded healthcare programs.
We are subject to anti-corruption laws, as well as export control
laws, customs laws, sanctions laws and other laws governing our
operations. If we fail to comply with these laws, it could be
subject to civil or criminal penalties, other remedial measures and
legal expenses, which could adversely affect our business, results
of operations and financial condition.
Our
operations are subject to anti-corruption laws, including the U.S.
Foreign Corrupt Practices Act, or the FCPA, and other
anti-corruption laws that apply in countries where we do business
and may do business in the future. The FCPA and these other laws
generally prohibit us, our officers, and our employees and
intermediaries from bribing, being bribed or making other
prohibited payments to government officials or other persons to
obtain or retain business or gain some other business advantage. We
may in the future operate in jurisdictions that pose a high risk of
potential FCPA violations, and we may participate in collaborations
and relationships with third parties whose actions could
potentially subject us to liability under the FCPA or local
anti-corruption laws. In addition, we cannot predict the nature,
scope or effect of future regulatory requirements to which our
international operations might be subject or the manner in which
existing laws might be administered or interpreted.
We are
also subject to other laws and regulations governing our
international operations, including regulations administered by the
government of the United States and authorities in the European
Union, including applicable export control regulations, economic
sanctions on countries and persons, customs requirements and
currency exchange regulations, collectively referred to as the
Trade Control laws.
There
is no assurance that we will be completely effective in ensuring
our compliance with all applicable anti-corruption laws, including
the FCPA or other legal requirements, including Trade Control laws.
If we are not in compliance with the FCPA and other anti-corruption
laws or Trade Control laws, it may be subject to criminal and civil
penalties, disgorgement and other sanctions and remedial measures,
and legal expenses, which could have an adverse impact on our
business, financial condition, results of operations and liquidity.
Likewise, any investigation of any potential violations of the
FCPA, other anti-corruption laws or Trade Control laws by U.S. or
other authorities could also have an adverse impact on our
reputation, our business, results of operations and financial
condition.
We rely significantly on information technology and any failure,
inadequacy, interruption or security lapse of that technology,
including any cyber security incidents, could harm our ability to
operate our business effectively.
Despite
the implementation of security measures, our internal computer
systems and those of third parties with which we contract are
vulnerable to damage from cyber-attacks, computer viruses,
unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. System failures,
accidents or security breaches could cause interruptions in our
operations, and could result in a material disruption of ours
clinical and commercialization activities and business operations,
in addition to possibly requiring substantial expenditures of
resources to remedy. The loss of clinical trial data could result
in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent
that any disruption or security breach were to result in a loss of,
or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur
liability and our product research, development and
commercialization efforts could be delayed.
Our future success depends on our
ability to retain our chief executive officer and other key
executives and to attract, retain and motivate qualified
personnel.
We are
highly dependent on Dr. Pardeep Nijhawan, our Chief Executive
Officer and Secretary, and Michael Brooks, our President, and
other principal members of our management and scientific teams.
Although we have employment agreements with each of our executive
officers, these agreements do not prevent our executives from
terminating their employment with the company at any time. The
unplanned loss of the services of any of these persons could
materially impact the achievement of our research, development and
commercialization objectives.
Recruiting
and retaining qualified personnel, including in the United States
and Canada, will also be critical to our success. We may not be
able to attract and retain these personnel on acceptable terms
given the competition among numerous biotechnology and
pharmaceutical companies for similar personnel. In addition, we
rely on consultants and advisors, including scientific and clinical
advisors, to assist us in formulating our research and development
and commercialization strategy. Our consultants and advisors may be
employed by employers other than us and may have commitments under
consulting or advisory contracts with other entities that may limit
their availability to us.
We expect to expand our capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt
our operations.
We
expect to experience growth in the number of our employees and the
scope of our operations, particularly in the areas of drug
development, regulatory affairs, finance and administration and,
potentially, sales and marketing. To manage our anticipated future
growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and
continue to recruit and train additional qualified personnel. We
may not be able to effectively manage the expansion of our
operations or recruit and train additional qualified personnel. The
physical expansion of our operations may lead to significant costs
and may divert our management and business development resources.
Any inability to manage growth could delay the execution of our
business plans or disrupt our operations.
We are exposed to risks related to currency exchange
rates.
We
conduct a significant portion of our operations outside of the
United States. Because our financial statements are presented in
U.S. dollars, changes in currency exchange rates have had and could
have in the future a significant effect on our operating results
when our operating results are translated into U.S.
dollars.
Our employees, principal investigators, consultants and commercial
partners may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements
and insider trading, which could cause significant liability for us
and harm our reputation.
We are
exposed to the risk of fraud or other misconduct by our employees,
principal investigators, consultants and collaborators, including
intentional failures to comply with FDA or Office of Inspector
General regulations or similar regulations of comparable non-U.S.
regulatory authorities, provide accurate information to the FDA or
comparable non-U.S. regulatory authorities, comply with
manufacturing standards we have established, comply with federal
and state healthcare fraud and abuse laws and regulations and
similar laws and regulations established and enforced by comparable
non-U.S. regulatory authorities, report financial information or
data accurately or disclose unauthorized activities to us.
Misconduct by these parties could 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
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, standards or regulations. If
any such actions are instituted against us, and we are not
successful in defending itself or asserting our rights, those
actions could have a significant impact on our business and results
of operations, including the imposition of significant fines or
other sanctions.
The ownership of our common shares is highly concentrated, which
may prevent you and other shareholders from influencing significant
corporate decisions and may result in conflicts of interest that
could cause our common shares price to decline.
The
ownership of our common shares is highly concentrated among
insiders and affiliates. Accordingly, these shareholders will have
substantial influence over the outcome of corporate actions
requiring shareholder approval, including the election of
directors, any merger, consolidation or sale of all or
substantially all of the company’s assets or any other
significant corporate transaction. These shareholders may also
delay or prevent a change of control of the company, even if such a
change of control would benefit the other shareholders of the
company. The significant concentration of share ownership may
adversely affect the trading price of our common shares due to
investors’ perception that conflicts of interest may exist or
arise.
We qualify as a foreign private issuer, and as a result,
shareholders may receive less information and be afforded less
protection under the U.S. federal securities laws.
We
qualify as a foreign private issuer within the
meaning of rules promulgated under the Securities and Exchange Act
of 1934, as amended, (the Exchange Act) because a majority of our
common shares are held by non U.S. persons. As a foreign private
issuer, we may be exempt from certain Exchange Act rules and
requirements that apply to U.S. public companies, including: (i)
the requirement to file with the SEC quarterly reports on Form 10-Q
and current reports on Form 8-K; (ii) rules regulating the
solicitation of proxies in connection with shareholder meetings;
(iii) Regulation FD prohibiting selective disclosures of material
information; and (iv) rules requiring insiders to disclose stock
ownership and trading activities and establishing liability for
profits realized from “short-swing” trading
transactions (i.e., a purchase and sale, or sale and purchase, of
the issuer’s equity securities within less than six
months). If in the future we elect to be treated as a foreign
private issuer, shareholders will receive less information about
the company and trading in our shares by our affiliates, and will
be afforded less protection under the U.S. federal securities laws
than would be afforded to shareholders of a domestic U.S.
company.
Risks Related to the Owning Our Securities
The price of our common shares may continue to be
volatile.
Market
prices for securities of early-stage pharmaceutical, biotechnology
and other life sciences companies have historically been
particularly volatile, and the market price of our common shares
has been subject to significant fluctuations. This volatility can
be exacerbated by low trading volume. Some of the factors that may
cause the market price of our shares to fluctuate
include:
●
sales or potential
sales of substantial amounts of our common shares;
●
announcements about
us or our competitors, including funding announcements, corporate
or business updates, updates on manufacturing of our products,
clinical trial results, regulatory approvals or new product
introductions;
●
developments
concerning our product manufacturers;
●
litigation and
other developments relating to our licensed patents or other
proprietary rights or those of our competitors;
●
governmental
regulation and legislation;
●
change in
securities analysts’ estimates of our performance, or failure
to meet analysts’ expectations;
●
the terms and
timing of any future collaborative, licensing or other arrangements
that we may establish;
●
Our ability to
raise additional capital to carry through with our development
plans and current and future operations;
●
the timing of
achievement of, or failure to achieve, our manufacturing,
pre-clinical, clinical, regulatory and other milestones, such as
the commencement of clinical development, the completion of a
clinical trial or the receipt of regulatory approval;
●
actions taken by
regulatory agencies with respect to our product
candidates;
●
uncontemplated
problems in the supply of the raw materials used to produce our
product candidates;
●
introductions or
announcements of technological innovations or new products
candidates by us, our potential future collaborators, or our
competitors, and the timing of these introductions or
announcements;
●
market conditions
for equity investments in general, or the biotechnology or
pharmaceutical industries in particular;
●
we may have limited
or very low trading volume that may increase the volatility of the
market price of our common shares;
●
actual or
anticipated fluctuations in our results of operations;
●
hedging or
arbitrage trading activity that may develop regarding our common
shares;
●
regional or
worldwide recession;
●
sales of large
blocks of our common shares;
●
sales of our common
shares by our executive officers, directors and significant
shareholders;
●
managerial costs
and expenses;
●
changes in
accounting principles; and
●
the loss of any of
our key scientific or management personnel.
Moreover,
the stock markets in general have experienced substantial
volatility that has often been unrelated to the operating
performance of individual companies. These broad market
fluctuations may also adversely affect the trading price of our
common shares. In the past, following periods of volatility in the
market price of a company’s securities, shareholders have
often instituted class action securities litigation. Such
litigation, if instituted, could result in substantial costs and
diversion of management attention and resources, which could
significantly harm our profitability and reputation.
If we fail to meet all applicable Nasdaq Capital Market
requirements and Nasdaq determines to delist our common shares, the
delisting could adversely affect the market liquidity of our common
shares and the market price of our common shares could
decrease.
Our
common shares are listed on The Nasdaq Capital Market. To maintain
our listing, we must meet minimum financial, operating and other
requirements, including requirements for a minimum amount of
capital, a minimum price per share, and active operations. If we
are unable to comply with Nasdaq’s listing standards, Nasdaq
may determine to delist our common shares from The Nasdaq Capital
Market. If our common shares are delisted for any reason, it could
reduce the value of our common shares and their liquidity.
Delisting could also adversely affect our ability to obtain
financing for the continuation of our operations, or to use our
common shares in acquisitions. Delisting may also result in the
loss of confidence by suppliers, investors and
employees.
Raising additional funds by issuing securities may cause dilution
to existing shareholders.
Additional
financing may not be available to us when we need it, or such
financing may not be available on favorable terms. To the extent
that we raise additional capital by issuing equity securities, our
existing shareholders’ ownership will be diluted and the
terms of any new equity securities may have preferences over our
common shares.
Failure to maintain effective internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act
of 2002 could have a material adverse effect on our share
price.
Section
404 of the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC require an annual management assessment of
the effectiveness of our internal control over financial reporting.
If we fail to maintain the adequacy of our internal control over
financial reporting, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC. If we cannot in the future favorably assess
the effectiveness of our internal control over financial reporting,
investor confidence in the reliability of our financial reports may
be adversely affected, which could have a material adverse effect
on our share price.