Investing in our securities includes a high degree of risk. You
should consider carefully the specific factors discussed below,
together with all of the other information contained in this Annual
Report. If any of the following risks actually occurs, our
business, financial condition, results of operations and future
prospects would likely be materially and adversely affected. This
could cause the market price of our securities to decline and could
cause you to lose all or part of your investment.
Risks
Related to Our Financial Condition and Capital
Requirements
We have a limited operating history, have incurred losses, and can
give no assurance of profitability.
We are
a commercial-stage healthcare company with a limited operating
history. Prior to implementing our commercial strategy in the
fourth calendar quarter of 2015, we did not have a focus on
profitability. As a result, we have not generated substantial
revenue to date and are not profitable and have incurred losses in
each year since our inception. Our net loss for the years ended
June 30, 2019 and 2018 was $27.1 million and $10.2 million,
respectively. We have not demonstrated the ability to be a
profit-generating enterprise to date. Even though we expect to have
revenue growth in the next several fiscal years, it is uncertain
that the revenue growth will be significant enough to offset our
expenses and generate a profit in the future. Our ability to
generate significant revenue is uncertain, and we may never achieve
profitability. We have a very limited operating history on which
investors can evaluate our potential for future success. Potential
investors should evaluate us in light of the expenses, delays,
uncertainties, and complications typically encountered by
early-stage healthcare businesses, many of which will be beyond our
control. These risks include the following:
●
uncertain market
acceptance of our products and product candidates;
●
lack of sufficient
capital;
●
U.S. regulatory
approval of our products and product candidates;
●
foreign regulatory
approval of our products and product candidates;
●
unanticipated
problems, delays, and expense relating to product development and
implementation;
●
lack of sufficient
intellectual property;
●
the ability to
attract and retain qualified employees;
As a
result of our limited operating history, and the increasingly
competitive nature of the markets in which we compete, our
historical financial data, is of limited value in anticipating
future operating expenses. Our planned expense levels will be based
in part on our expectations concerning future operations, which is
difficult to forecast accurately based on our limited operating
history and the recentness of the acquisition of our products
Natesto, Tuzistra XR, ZolpiMist, and MiOXSYS. We may be unable to
adjust spending in a timely manner to compensate for any unexpected
budgetary shortfall.
We have
not received any substantial revenues from the commercialization of
our current products to date and might not receive significant
revenues from the commercialization of our current products or our
product candidates in the near term. Even though Natesto, Tuzistra
XR and ZolpiMist are each an approved drug that we are marketing,
we only acquired Natesto in April 2016, ZolpiMist in June 2018, and
Tuzistra XR in November 2018. In addition, we only launched our
MiOXSYS device in early fiscal 2017. As a result, we have limited
experience on which to base the revenue we could expect to receive
from sales of these products. To obtain revenues from our products
and product candidates, we must succeed, either alone or with
others, in a range of challenging activities, including expanding
markets for our existing products and completing clinical trials of
our product candidates, obtaining positive results from those
clinical trials, achieving marketing approval for those product
candidates, manufacturing, marketing and selling our existing
products and those products for which we, or our collaborators, may
obtain marketing approval, satisfying any post-marketing
requirements and obtaining reimbursement for our products from
private insurance or government payors. We, and our collaborators,
if any, may never succeed in these activities and, even if we do,
or one of our collaborators does, we may never generate revenues
that are sufficient enough for us to achieve
profitability.
We may need to raise additional funding, which may not be available
on acceptable terms, or at all. Failure to obtain necessary capital
when needed may force us to delay, limit or terminate our product
expansion and development efforts or other operations.
We are
expending resources to expand the market for Natesto, Tuzistra XR,
ZolpiMist and MiOXSYS, none of which might be as successful as we
anticipate or at all and all of which might take longer and be more
expensive to market than we anticipate. We also are currently
advancing our MiOXSYS device through clinical development.
Developing product candidates is expensive, lengthy and risky, and
we expect to incur research and development expenses in connection
with our ongoing clinical development activities with the MiOXSYS
System. As of June 30, 2019, our cash, cash equivalents and
restricted cash totaling $11.3 million, available to fund our
operations offset by an aggregate $3.4 million in accounts payable
and other and accrued liabilities. In November 2016, we conducted a
public offering of our common stock and warrants from which we
received gross proceeds of approximately $8.6 million. We closed on
a private placement of common stock, Series A preferred stock and
warrants in August 2017 from which we received gross proceeds of
approximately $11.8 million. We also closed on an underwritten
public offering of our common stock, warrants, and Series B
preferred stock in March 2018 from which we received gross proceeds
of approximately $12.9 million. Our operating plan may change as a
result of many factors currently unknown to us, and we may need to
seek additional funds sooner than planned, through public or
private equity or debt financings, government or other third-party
funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements or a
combination of these approaches. In any event, we will require
additional capital to continue the expansion of marketing efforts
for Natesto, Tuzistra XR, ZolpiMist,
and to obtain regulatory approval for, and to commercialize, our
current product candidate, the MiOXSYS System. Raising funds in the
current economic environment, as well our lack of operating
history, may present additional challenges. Even if we believe we
have sufficient funds for our current or future operating plans, we
may seek additional capital if market conditions are favorable or
if we have specific strategic considerations.
Any
additional fundraising efforts may divert our management from their
day-to-day activities, which may adversely affect our ability to
expand any existing product or develop and commercialize our
product candidates. In addition, we cannot guarantee that future
financing will be available in sufficient amounts or on terms
acceptable to us, if at all. Moreover, the terms of any financing
may adversely affect the holdings or the rights of our stockholders
and the issuance of additional securities, whether equity or debt,
by us, or the possibility of such issuance, may cause the market
price of our shares to decline. The sale of additional equity or
convertible securities would dilute all of our stockholders. The
incurrence of indebtedness would result in increased fixed payment
obligations and we may be required to agree to certain restrictive
covenants, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that
could adversely impact our ability to conduct our business. We
could also be required to seek funds through arrangements with
collaborative partners or otherwise at an earlier stage than
otherwise would be desirable and we may be required to relinquish
rights to some of our technologies or product candidates or
otherwise agree to terms unfavorable to us, any of which may have a
material adverse effect on our business, operating results and
prospects.
If we
are unable to obtain funding on a timely basis, we may be unable to
expand the market for Natesto, Tuzistra XR, ZolpiMist,
or MiOXSYS and/or be required to significantly curtail, delay or
discontinue one or more of our research or development programs for
the MiOXSYS system, or any future product candidate or expand our
operations generally or otherwise capitalize on our business
opportunities, as desired, which could materially affect our
business, financial condition and results of
operations.
If we do not obtain the capital necessary to fund our operations,
we will be unable to successfully expand the commercialization of
Natesto, Tuzistra XR and ZolpiMist and to develop, obtain
regulatory approval of, and commercialize, our current product
candidate, the MiOXSYS System.
The
expansion of marketing and commercialization activities for our
existing products and the development of pharmaceutical products,
medical diagnostics and medical devices is capital-intensive. We
anticipate we may require additional financing to continue to fund
our operations. Our future capital requirements will depend on, and
could increase significantly as a result of, many factors
including:
●
the costs, progress
and timing of our efforts to expand the marketing of Natesto,
Tuzistra XR and ZolpiMist;
●
progress in, and
the costs of, our pre-clinical studies and clinical trials and
other research and development programs;
●
the costs of
securing manufacturing arrangements for commercial
production;
●
the scope,
prioritization and number of our research and development
programs;
●
the achievement of
milestones or occurrence of other developments that trigger
payments under any collaboration agreements we obtain;
●
the costs of
establishing, expanding or contracting for sales and marketing
capabilities for any existing products and if we obtain regulatory
clearances to market our current product candidate, the MiOXSYS
system;
●
the extent to which
we are obligated to reimburse, or entitled to reimbursement of,
clinical trial costs under future collaboration agreements, if any;
and
●
the costs involved
in filing, prosecuting, enforcing and defending patent claims and
other intellectual property rights.
If
funds are not available, we may be required to delay, reduce the
scope of, or eliminate one or more of our commercialization efforts
or our technologies, research or development programs.
We will incur increased costs associated with, and our management
will need to devote substantial time and effort to, compliance with
public company reporting and other requirements.
As a
public company, we incur significant legal, accounting and other
expenses. In addition, the rules and regulations of the SEC and any
national securities exchange to which we may be subject in the
future impose numerous requirements on public companies, including
requirements relating to our corporate governance practices, with
which we will need to comply. Further, we will continue to be
required to, among other things, file annual, quarterly and current
reports with respect to our business and operating results. Based
on currently available information and assumptions, we estimate
that we will incur up to approximately $500,000 in expenses on an
annual basis as a direct result of the requirements of being a
publicly traded company. Our management and other personnel will
need to devote substantial time to gaining expertise regarding
operations as a public company and compliance with applicable laws
and regulations, and our efforts and initiatives to comply with
those requirements could be expensive.
If we fail to establish and maintain proper internal controls, our
ability to produce accurate financial statements or comply with
applicable regulations could be impaired.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Pursuant to Section 404
of the Sarbanes-Oxley Act, our management conducted an assessment
of the effectiveness of our internal controls over financial
reporting for the year ended June 30, 2019 and concluded that such
control was effective.
However, if in the
future we were to conclude that our internal control over financial
reporting were not effective, we cannot be certain as to the timing
of completion of our evaluation, testing and remediation actions or
their effect on our operations because there is presently no
precedent available by which to measure compliance adequacy. As a
consequence, we may not be able to complete any necessary
remediation process in time to meet our deadline for compliance
with Section 404 of the Sarbanes-Oxley Act. Also, there can be no
assurance that we will not identify one or more material weaknesses
in our internal controls in connection with evaluating our
compliance with Section 404 of the Sarbanes-Oxley Act. The presence
of material weaknesses could result in financial statement errors
which, in turn, could require us to restate our operating
results.
If we
are unable to conclude that we have effective internal control over
financial reporting or if our independent auditors are unwilling or
unable to provide us, when required, with an attestation report on
the effectiveness of internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act, investors may
lose confidence in our operating results, our stock price could
decline and we may be subject to litigation or regulatory
enforcement actions. In addition, if we are unable to meet the
requirements of Section 404 of the Sarbanes-Oxley Act, we may not
be able to maintain listing on the NASDAQ Capital
Market.
Risks Related to Product Development, Regulatory Approval and
Commercialization
Natesto, Tuzistra XR,
ZolpiMist, and MiOXSYS may prove to be difficult to
effectively commercialize as planned.
Various
commercial, regulatory, and manufacturing factors may impact our
ability to maintain or grow revenues from sales of Natesto,
MiOXSYS. Specifically, we may encounter difficulty by virtue
of:
●
our inability to
adequately market and increase sales of any of these
products;
●
our inability to
secure continuing prescribing of any of these products by current
or previous users of the product;
●
our inability to
effectively transfer and scale manufacturing as needed to maintain
an adequate commercial supply of these products;
●
reimbursement and
medical policy changes that may adversely affect the pricing,
profitability or commercial appeal of Natesto, Tuzistra XR,
ZolpiMist or MiOXSYS; and
●
our inability to
effectively identify and align with commercial partners outside the
U.S., or the inability of those selected partners to gain the
required regulatory, reimbursement, and other approvals needed to
enable commercial success of MiOXSYS.
We have limited experience selling our current products as they
were acquired from other companies or were recently approved for
sale. As a result, we may be unable to successfully commercialize
our products and product candidates.
Despite
our management’s extensive experience in launching and
managing commercial-stage healthcare companies, we have limited
marketing, sales and distribution experience with our current
products. Our ability to achieve profitability depends on
attracting and retaining customers for our current products, and
building brand loyalty for Natesto, Tuzistra XR, ZolpiMist,
and MiOXSYS. To successfully perform sales, marketing, distribution
and customer support functions, we will face a number of risks,
including:
●
our ability to
attract and retain skilled support team, marketing staff and sales
force necessary to increase the market for our approved products
and to maintain market acceptance for our product
candidates;
●
the ability of our
sales and marketing team to identify and penetrate the potential
customer base;
●
and the difficulty
of establishing brand recognition and loyalty for our
products.
In
addition, we may seek to enlist one or more third parties to assist
with sales, distribution and customer support globally or in
certain regions of the world. If we do seek to enter into these
arrangements, we may not be successful in attracting desirable
sales and distribution partners, or we may not be able to enter
into these arrangements on favorable terms, or at all. If our sales
and marketing efforts, or those of any third-party sales and
distribution partners, are not successful, our currently approved
products may not achieve increased market acceptance and our
product candidates may not gain market acceptance, which would
materially impact our business and operations.
We cannot be certain that we will be able to obtain regulatory
approval for, or successfully commercialize, any of our current or
future product candidates.
We may
not be able to develop our current or any future product
candidates. Our product candidates will require substantial
additional clinical development, testing, and regulatory approval
before we are permitted to commence commercialization. The clinical
trials of our product candidates are, and the manufacturing and
marketing of our product candidates will be, subject to extensive
and rigorous review and regulation by numerous government
authorities in the U.S. and in other countries where we intend to
test and, if approved, market any product candidate. Before
obtaining regulatory approvals for the commercial sale of any
product candidate, we must demonstrate through pre-clinical testing
and clinical trials that the product candidate is safe and
effective for use in each target indication. This process can take
many years and may include post-marketing studies and surveillance,
which will require the expenditure of substantial resources. Of the
large number of drugs in development in the U.S., only a small
percentage successfully completes the FDA regulatory approval
process and is commercialized. Accordingly, even if we are able to
obtain the requisite financing to continue to fund our development
and clinical programs, we cannot assure you that any of our product
candidates will be successfully developed or
commercialized.
We are
not permitted to market a product in the U.S. until we receive
approval of a New Drug Application, or an NDA, for that product
from the FDA, or in any foreign countries until we receive the
requisite approval from such countries. Obtaining approval of an
NDA is a complex, lengthy, expensive and uncertain process, and the
FDA may delay, limit or deny approval of any product candidate for
many reasons, including, among others:
●
we may not be able
to demonstrate that a product candidate is safe and effective to
the satisfaction of the FDA;
●
the results of our
clinical trials may not meet the level of statistical or clinical
significance required by the FDA for marketing
approval;
●
the FDA may
disagree with the number, design, size, conduct or implementation
of our clinical trials;
●
the FDA may require
that we conduct additional clinical trials;
●
the FDA may not
approve the formulation, labeling or specifications of any product
candidate;
●
the clinical
research organizations, or CROs, that we retain to conduct our
clinical trials may take actions outside of our control that
materially adversely impact our clinical trials;
●
the FDA may find
the data from pre-clinical studies and clinical trials insufficient
to demonstrate that a product candidate’s clinical and other
benefits outweigh its safety risks, such as the risk of drug abuse
by patients or the public in general;
●
the FDA may
disagree with our interpretation of data from our pre-clinical
studies and clinical trials;
●
the FDA may not
accept data generated at our clinical trial sites;
●
if an NDA, if and
when submitted, is reviewed by an advisory committee, the FDA may
have difficulties scheduling an advisory committee meeting in a
timely manner or the advisory committee may recommend against
approval of our application or may recommend that the FDA require,
as a condition of approval, additional pre-clinical studies or
clinical trials, limitations on approved labeling or distribution
and use restrictions;
●
the FDA may require
development of a Risk Evaluation and Mitigation Strategy, or REMS,
as a condition of approval or post-approval;
●
the FDA may not
approve the manufacturing processes or facilities of third-party
manufacturers with which we contract; or
●
the FDA may change
its approval policies or adopt new regulations.
These
same risks apply to applicable foreign regulatory agencies from
which we may seek approval for any of our product
candidates.
Any of
these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully market any product candidate. Moreover, because a
substantial portion of our business is or may be dependent upon our
product candidates, any such setback in our pursuit of initial or
additional regulatory approval would have a material adverse effect
on our business and prospects.
If we fail to successfully acquire new products, we may lose market
position.
Acquiring new
products is an important factor in our planned sales growth,
including products that already have been developed and found
market acceptance. If we fail to identify existing or emerging
consumer markets and trends and to acquire new products, we will
not develop a strong revenue source to help pay for our development
activities as well as possible acquisitions. This failure would
delay implementation of our business plan, which could have a
negative adverse effect on our business and prospects.
If we do not secure collaborations with strategic partners to test,
commercialize and manufacture product candidates, we may not be
able to successfully develop products and generate meaningful
revenues.
We may
enter into collaborations with third parties to conduct clinical
testing, as well as to commercialize and manufacture our products
and product candidates. If we are able to identify and reach an
agreement with one or more collaborators, our ability to generate
revenues from these arrangements will depend on our
collaborators’ abilities to successfully perform the
functions assigned to them in these arrangements. Collaboration
agreements typically call for milestone payments that depend on
successful demonstration of efficacy and safety, obtaining
regulatory approvals, and clinical trial results. Collaboration
revenues are not guaranteed, even when efficacy and safety are
demonstrated. Further, the economic environment at any given time
may result in potential collaborators electing to reduce their
external spending, which may prevent us from developing our product
candidates.
Even if
we succeed in securing collaborators, the collaborators may fail to
develop or effectively commercialize our products or product
candidates. Collaborations involving our product candidates pose a
number of risks, including the following:
●
collaborators may
not have sufficient resources or may decide not to devote the
necessary resources due to internal constraints such as budget
limitations, lack of human resources, or a change in strategic
focus;
●
collaborators may
believe our intellectual property is not valid or is unenforceable
or the product candidate infringes on the intellectual property
rights of others;
●
collaborators may
dispute their responsibility to conduct development and
commercialization activities pursuant to the applicable
collaboration, including the payment of related costs or the
division of any revenues;
●
collaborators may
decide to pursue a competitive product developed outside of the
collaboration arrangement;
●
collaborators may
not be able to obtain, or believe they cannot obtain, the necessary
regulatory approvals;
●
collaborators may
delay the development or commercialization of our product
candidates in favor of developing or commercializing their own or
another party’s product candidate; or
●
collaborators may
decide to terminate or not to renew the collaboration for these or
other reasons.
As a
result, collaboration agreements may not lead to development or
commercialization of our product candidates in the most efficient
manner or at all. For example, our former collaborator that
licensed our former product candidate, Zertane conducted clinical
trials which we believe demonstrated efficacy in treating PE, but
the collaborator undertook a merger that we believe altered its
strategic focus and thereafter terminated the collaboration
agreement. The Merger also created a potential conflict with a
principal customer of the acquired company, which sells a product
to treat premature ejaculation in certain European
markets.
Collaboration
agreements are generally terminable without cause on short notice.
Once a collaboration agreement is signed, it may not lead to
commercialization of a product candidate. We also face competition
in seeking out collaborators. If we are unable to secure
collaborations that achieve the collaborator’s objectives and
meet our expectations, we may be unable to advance our products or
product candidates and may not generate meaningful
revenues.
We or our strategic partners may choose not to continue an existing
product or choose not to develop a product candidate at any time
during development, which would reduce or eliminate our potential
return on investment for that product.
At any
time and for any reason, we or our strategic partners may decide to
discontinue the development or commercialization of a product or
product candidate. If we terminate a program in which we have
invested significant resources, we will reduce the return, or not
receive any return, on our investment and we will have missed the
opportunity to have allocated those resources to potentially more
productive uses. If one of our strategic partners terminates a
program, we will not receive any future milestone payments or
royalties relating to that program under our agreement with that
party. As an example, we sold Primsol in March 2017, and abandoned
Fiera and ProstaScint in June 2018.
Our pre-commercial product candidates are expected to undergo
clinical trials that are time-consuming and expensive, the outcomes
of which are unpredictable, and for which there is a high risk of
failure. If clinical trials of our product candidates fail to
satisfactorily demonstrate safety and efficacy to the FDA and other
regulators, we or our collaborators may incur additional costs or
experience delays in completing, or ultimately be unable to
complete, the development and commercialization of these product
candidates.
Pre-clinical
testing and clinical trials are long, expensive and unpredictable
processes that can be subject to extensive delays. We cannot
guarantee that any clinical studies will be conducted as planned or
completed on schedule, if at all. It may take several years to
complete the pre-clinical testing and clinical development
necessary to commercialize a drug, and delays or failure can occur
at any stage. Interim results of clinical trials do not necessarily
predict final results, and success in pre-clinical testing and
early clinical trials does not ensure that later clinical trials
will be successful. A number of companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in
advanced clinical trials even after promising results in earlier
trials and we cannot be certain that we will not face similar
setbacks. The design of a clinical trial can determine whether its
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. An unfavorable outcome in one or more
trials would be a major set-back for that product candidate and for
us. Due to our limited financial resources, an unfavorable outcome
in one or more trials may require us to delay, reduce the scope of,
or eliminate one or more product development programs, which could
have a material adverse effect on our business, prospects and
financial condition and on the value of our common
stock.
In
connection with clinical testing and trials, we face a number of
risks, including:
●
a product candidate
is ineffective, inferior to existing approved medicines,
unacceptably toxic, or has unacceptable side effects;
●
patients may die or
suffer other adverse effects for reasons that may or may not be
related to the product candidate being tested;
●
the results may not
confirm the positive results of earlier testing or trials;
and
●
the results may not
meet the level of statistical significance required by the FDA or
other regulatory agencies to establish the safety and efficacy of
the product candidate.
If we
do not successfully complete pre-clinical and clinical development,
we will be unable to market and sell products derived from our
product candidates and generate revenues. Even if we do
successfully complete clinical trials, those results are not
necessarily predictive of results of additional trials that may be
needed before an NDA may be submitted to the FDA. Although there
are a large number of drugs in development in the U.S. and other
countries, only a small percentage result in the submission of an
NDA to the FDA, even fewer are approved for commercialization, and
only a small number achieve widespread physician and consumer
acceptance following regulatory approval. If our clinical trials
are substantially delayed or fail to prove the safety and
effectiveness of our product candidates in development, we may not
receive regulatory approval of any of these product candidates and
our business, prospects and financial condition will be materially
harmed.
Delays, suspensions and terminations in any clinical trial we
undertake could result in increased costs to us and delay or
prevent our ability to generate revenues.
Human
clinical trials are very expensive, time-consuming, and difficult
to design, implement and complete. Should we undertake the
development of a pharmaceutical product candidate, we would expect
the necessary clinical trials to take up to 24 months to complete,
but the completion of trials for any product candidates may be
delayed for a variety of reasons, including delays in:
●
demonstrating
sufficient safety and efficacy to obtain regulatory approval to
commence a clinical trial;
●
reaching agreement
on acceptable terms with prospective CROs and clinical trial
sites;
●
validating test
methods to support quality testing of the drug substance and drug
product;
●
obtaining
sufficient quantities of the drug substance or device
parts;
●
manufacturing
sufficient quantities of a product candidate;
●
obtaining approval
of an IND from the FDA;
●
obtaining
institutional review board approval to conduct a clinical trial at
a prospective clinical trial site;
●
determining dosing
and clinical design and making related adjustments;
and
●
patient enrollment,
which is a function of many factors, including the size of the
patient population, the nature of the protocol, the proximity of
patients to clinical trial sites, the availability of effective
treatments for the relevant disease and the eligibility criteria
for the clinical trial.
The
commencement and completion of clinical trials for our product
candidates may be delayed, suspended or terminated due to a number
of factors, including:
●
lack of
effectiveness of product candidates during clinical
trials;
●
adverse events,
safety issues or side effects relating to the product candidates or
their formulation or design;
●
inability to raise
additional capital in sufficient amounts to continue clinical
trials or development programs, which are very
expensive;
●
the need to
sequence clinical trials as opposed to conducting them
concomitantly in order to conserve resources;
●
our inability to
enter into collaborations relating to the development and
commercialization of our product candidates;
●
failure by us or
our collaborators to conduct clinical trials in accordance with
regulatory requirements;
●
our inability or
the inability of our collaborators to manufacture or obtain from
third parties materials sufficient for use in pre-clinical studies
and clinical trials;
●
governmental or
regulatory delays and changes in regulatory requirements, policy
and guidelines, including mandated changes in the scope or design
of clinical trials or requests for supplemental information with
respect to clinical trial results;
●
failure of our
collaborators to advance our product candidates through clinical
development;
●
delays in patient
enrollment, variability in the number and types of patients
available for clinical trials, and lower-than anticipated retention
rates for patients in clinical trials;
●
difficulty in
patient monitoring and data collection due to failure of patients
to maintain contact after treatment;
●
a regional
disturbance where we or our collaborative partners are enrolling
patients in our clinical trials, such as a pandemic, terrorist
activities or war, or a natural disaster; and
●
varying
interpretations of our data, and regulatory commitments and
requirements by the FDA and similar foreign regulatory
agencies.
Many of
these factors may also ultimately lead to denial of an NDA for a
product candidate. If we experience
delays, suspensions or terminations in a clinical trial, the
commercial prospects for the related product candidate will be
harmed, and our ability to generate product revenues will be
delayed.
In
addition, we may encounter delays or product candidate rejections
based on new governmental regulations, future legislative or
administrative actions, or changes in FDA policy or interpretation
during the period of product development. If we obtain required
regulatory approvals, such approvals may later be withdrawn. Delays
or failures in obtaining regulatory approvals may result
in:
●
varying
interpretations of data and commitments by the FDA and similar
foreign regulatory agencies; and
●
diminishment of any
competitive advantages that such product candidates may have or
attain.
Furthermore, if we
fail to comply with applicable FDA and other regulatory
requirements at any stage during this regulatory process, we may
encounter or be subject to:
●
diminishment of any
competitive advantages that such product candidates may have or
attain;
●
delays or
termination in clinical trials or commercialization;
●
refusal by the FDA
or similar foreign regulatory agencies to review pending
applications or supplements to approved applications;
●
product recalls or
seizures;
●
suspension of
manufacturing;
●
withdrawals of
previously approved marketing applications; and
●
fines, civil
penalties, and criminal prosecutions.
The medical device regulatory clearance or approval process is
expensive, time consuming and uncertain, and the failure to obtain
and maintain required clearances or approvals could prevent us from
broadly commercializing the MiOXSYS System for clinical
use.
The
MiOXSYS System is subject to 510k de novo clearance by the FDA
prior to its marketing for commercial use in the U.S., and to
regulatory approvals beyond CE marking required by certain foreign
governmental entities prior to its marketing outside the U.S. In
addition, any changes or modifications to a device that has
received regulatory clearance or approval that could significantly
affect its safety or effectiveness, or would constitute a major
change in its intended use, may require the submission of a new
application for 510k de novo clearance, pre-market approval, or
foreign regulatory approvals. The 510k de novo clearance and
pre-market approval processes, as well as the process of obtaining
foreign approvals, can be expensive, time consuming and uncertain.
It generally takes from four to twelve months from submission to
obtain 510k de novo clearance, and from one to three years from
submission to obtain pre-market approval; however, it may take
longer, and 510k de novo clearance or pre-market approval may never
be obtained. We have limited experience in filing FDA applications
for 510k de novo clearance and pre-market approval. In addition, we
are required to continue to comply with applicable FDA and other
regulatory requirements even after obtaining clearance or approval.
There can be no assurance that we will obtain or maintain any
required clearance or approval on a timely basis, or at all. Any
failure to obtain or any material delay in obtaining FDA clearance
or any failure to maintain compliance with FDA regulatory
requirements could harm our business, financial condition and
results of operations.
The approval process for pharmaceutical and medical device products
outside the U.S. varies among countries and may limit our ability
to develop, manufacture and sell our products internationally.
Failure to obtain marketing approval in international jurisdictions
would prevent our product candidates from being marketed
abroad.
In
order to market and sell our products in the European Union and
many other jurisdictions, we, and our collaborators, must obtain
separate marketing approvals and comply with numerous and varying
regulatory requirements. The approval procedure varies among
countries and may involve additional testing. We may conduct
clinical trials for, and seek regulatory approval to market, our
product candidates in countries other than the U.S. Depending on
the results of clinical trials and the process for obtaining
regulatory approvals in other countries, we may decide to first
seek regulatory approvals of a product candidate in countries other
than the U.S., or we may simultaneously seek regulatory approvals
in the U.S. and other countries. If we or our collaborators seek
marketing approval for a product candidate outside the U.S., we
will be subject to the regulatory requirements of health
authorities in each country in which we seek approval. With respect
to marketing authorizations in Europe, we will be required to
submit a European Marketing Authorisation Application, or MAA, to
the European Medicines Agency, or EMA, which conducts a validation
and scientific approval process in evaluating a product for safety
and efficacy. The approval procedure varies among regions and
countries and may involve additional testing, and the time required
to obtain approval may differ from that required to obtain FDA
approval.
Obtaining
regulatory approvals from health authorities in countries outside
the U.S. is likely to subject us to all of the risks associated
with obtaining FDA approval described above. In addition, marketing
approval by the FDA does not ensure approval by the health
authorities of any other country, and approval by foreign health
authorities does not ensure marketing approval by the
FDA.
Even if we, or our collaborators, obtain marketing approvals for
our product candidates, the terms of approvals and ongoing
regulation of our products may limit how we or they market our
products, which could materially impair our ability to generate
revenue.
Even if
we receive regulatory approval for a product candidate, this
approval may carry conditions that limit the market for the product
or put the product at a competitive disadvantage relative to
alternative therapies. For instance, a regulatory approval may
limit the indicated uses for which we can market a product or the
patient population that may utilize the product, or may be required
to carry a warning in its labeling and on its packaging. Products
with black box warnings are subject to more restrictive advertising
regulations than products without such warnings. These restrictions
could make it more difficult to market any product candidate
effectively. Accordingly, assuming we, or our collaborators,
receive marketing approval for one or more of our product
candidates, we, and our collaborators expect to continue to expend
time, money and effort in all areas of regulatory
compliance.
Any of our products and product candidates for which we, or our
collaborators, obtain marketing approval in the future could be
subject to post-marketing restrictions or withdrawal from the
market and we, and our collaborators, may be subject to substantial
penalties if we, or they, fail to comply with regulatory
requirements or if we, or they, experience unanticipated problems
with our products following approval.
Any of
our approved products and product candidates for which we, or our
collaborators, obtain marketing approval, as well as the
manufacturing processes, post approval studies and measures,
labeling, advertising and promotional activities for such products,
among other things, are or will be subject to continual
requirements of and review by the FDA and other regulatory
authorities. These requirements include submissions of safety and
other post-marketing information and reports, registration and
listing requirements, requirements relating to manufacturing,
quality control, quality assurance and corresponding maintenance of
records and documents, requirements regarding the distribution of
samples to physicians and recordkeeping. Even if marketing approval
of a product candidate is granted, the approval may be subject to
limitations on the indicated uses for which the product may be
marketed or to the conditions of approval, including the FDA
requirement to implement a REMS to ensure that the benefits of a
drug outweigh its risks.
The FDA
may also impose requirements for costly post-marketing studies or
clinical trials and surveillance to monitor the safety or efficacy
of a product. The FDA and other agencies, including the Department
of Justice, closely regulate and monitor the post-approval
marketing and promotion of products to ensure that they are
manufactured, marketed and distributed only for the approved
indications and in accordance with the provisions of the approved
labeling. The FDA imposes stringent restrictions on
manufacturers’ communications regarding off-label use and if
we, or our collaborators, do not market any of our product
candidates for which we, or they, receive marketing approval for
only their approved indications, we, or they, may be subject to
warnings or enforcement action for off-label marketing. Violation
of the FDCA and other statutes, including the False Claims Act,
relating to the promotion and advertising of prescription drugs may
lead to investigations or allegations of violations of federal and
state health care fraud and abuse laws and state consumer
protection laws.
If we do not achieve our projected development and
commercialization goals in the timeframes we announce and expect,
the commercialization of our product candidates may be delayed, and
our business will be harmed.
We
sometimes estimate for planning purposes the timing of the
accomplishment of various scientific, clinical, regulatory and
other product development objectives. These milestones may include
our expectations regarding the commencement or completion of
scientific studies and clinical trials, the submission of
regulatory filings, or commercialization objectives. From time to
time, we may publicly announce the expected timing of some of these
milestones, such as the initiation or completion of an ongoing
clinical trial, the initiation of other clinical programs, receipt
of marketing approval, or a commercial launch of a product. The
achievement of many of these milestones may be outside of our
control. All of such milestones are based on a variety of
assumptions which may cause the timing of achievement of the
milestones to vary considerably from our estimates,
including:
●
our available
capital resources or capital constraints we
experience;
●
the rate of
progress, costs and results of our clinical trials and research and
development activities, including the extent of scheduling
conflicts with participating clinicians and collaborators, and our
ability to identify and enroll patients who meet clinical trial
eligibility criteria;
●
our receipt of
approvals from the FDA and other regulatory agencies and the timing
thereof;
●
other actions,
decisions or rules issued by regulators;
●
our ability to
access sufficient, reliable and affordable supplies of compounds
used in the manufacture of our product candidates;
●
the efforts of our
collaborators with respect to the commercialization of our
products; and
●
the securing of,
costs related to, and timing issues associated with, product
manufacturing as well as sales and marketing
activities.
If we
fail to achieve announced milestones in the timeframes we announce
and expect, the commercialization of our product candidates may be
delayed and our business, prospects and results of operations may
be harmed.
We rely on third parties to conduct our clinical trials and perform
data collection and analysis, which may result in costs and delays
that prevent us from successfully commercializing product
candidates.
We
rely, and will rely in the future, on medical institutions,
clinical investigators, contract research organizations, contract
laboratories, and collaborators to perform data collection and
analysis and others to carry out our clinical trials. Our
development activities or clinical trials conducted in reliance on
third parties may be delayed, suspended, or terminated
if:
●
the third parties
do not successfully carry out their contractual duties or fail to
meet regulatory obligations or expected deadlines;
●
we replace a third
party; or
●
the quality or
accuracy of the data obtained by third parties is compromised due
to their failure to adhere to clinical protocols, regulatory
requirements, or for other reasons.
Third
party performance failures may increase our development costs,
delay our ability to obtain regulatory approval, and delay or
prevent the commercialization of our product candidates. While we
believe that there are numerous alternative sources to provide
these services, in the event that we seek such alternative sources,
we may not be able to enter into replacement arrangements without
incurring delays or additional costs.
Even if collaborators with which we contract in the future
successfully complete clinical trials of our product candidates,
those product candidates may not be commercialized successfully for
other reasons.
Even if
we contract with collaborators that successfully complete clinical
trials for one or more of our product candidates, those candidates
may not be commercialized for other reasons,
including:
●
failure to receive
regulatory clearances required to market them as
drugs;
●
being subject to
proprietary rights held by others;
●
being difficult or
expensive to manufacture on a commercial scale;
●
having adverse side
effects that make their use less desirable; or
●
failing to compete
effectively with products or treatments commercialized by
competitors.
Any third-party manufacturers we engage are subject to various
governmental regulations, and we may incur significant expenses to
comply with, and experience delays in, our product
commercialization as a result of these regulations.
The
manufacturing processes and facilities of third-party manufacturers
we have engaged for our current approved products are, and any
future third-party manufacturer will be, required to comply with
the federal Quality System Regulation, or QSR, which covers
procedures and documentation of the design, testing, production,
control, quality assurance, labeling, packaging, sterilization,
storage and shipping of devices. The FDA enforces the QSR through
periodic unannounced inspections of manufacturing facilities. Any
inspection by the FDA could lead to additional compliance requests
that could cause delays in our product commercialization. Failure
to comply with applicable FDA requirements, or later discovery of
previously unknown problems with the manufacturing processes and
facilities of third-party manufacturers we engage, including the
failure to take satisfactory corrective actions in response to an
adverse QSR inspection, can result in, among other
things:
●
administrative or
judicially imposed sanctions;
●
injunctions or the
imposition of civil penalties;
●
recall or seizure
of the product in question;
●
total or partial
suspension of production or distribution;
●
the FDA’s
refusal to grant pending future clearance or pre-market
approval;
●
withdrawal or
suspension of marketing clearances or approvals;
●
refusal to permit
the export of the product in question; and
Any of
these actions, in combination or alone, could prevent us from
marketing, distributing or selling our products, and would likely
harm our business.
In
addition, a product defect or regulatory violation could lead to a
government-mandated or voluntary recall by us. We believe the FDA
would request that we initiate a voluntary recall if a product was
defective or presented a risk of injury or gross deception.
Regulatory agencies in other countries have similar authority to
recall drugs or devices because of material deficiencies or defects
in design or manufacture that could endanger health. Any recall
would divert our management attention and financial resources,
expose us to product liability or other claims, and harm our
reputation with customers.
We face substantial competition from companies with considerably
more resources and experience than we have, which may result in
others discovering, developing, receiving approval for, or
commercializing products before or more successfully than
us.
We
compete with companies that design, manufacture and market
already-existing and new urology and sexual wellbeing products. We
anticipate that we will face increased competition in the future as
new companies enter the market with new technologies and/or our
competitors improve their current products. One or more of our
competitors may offer technology superior to ours and render our
technology obsolete or uneconomical. Most of our current
competitors, as well as many of our potential competitors, have
greater name recognition, more substantial intellectual property
portfolios, longer operating histories, significantly greater
resources to invest in new technologies, more substantial
experience in product marketing and new product development,
greater regulatory expertise, more extensive manufacturing
capabilities and the distribution channels to deliver products to
customers. If we are not able to compete successfully, we may not
generate sufficient revenue to become profitable. Our ability to
compete successfully will depend largely on our ability
to:
●
expand the market
for our approved products, especially Natesto, MiOXSYS and
Fiera;
●
successfully
commercialize our product candidates alone or with commercial
partners;
●
discover and
develop product candidates that are superior to other products in
the market;
●
obtain required
regulatory approvals;
●
attract and retain
qualified personnel; and
●
obtain patent
and/or other proprietary protection for our product
candidates.
Established
pharmaceutical companies devote significant financial resources to
discovering, developing or licensing novel compounds that could
make our products and product candidates obsolete. Our competitors
may obtain patent protection, receive FDA approval, and
commercialize medicines before us. Other companies are or may
become engaged in the discovery of compounds that may compete with
the product candidates we are developing.
Natesto
competes in a large, growing market. The U.S. prescription
testosterone market is comprised primarily of topically applied
treatments in the form of gels, solutions, and patches.
Testopel® and Aveed®, injectable products typically
implanted directly under the skin by a physician, are also
FDA-approved. AndroGel is the market-leading TRT and is marketed by
AbbVie.
For
ZolpiMist, we compete with companies that design, manufacture and
market treatments for insomnia, some of which have a large market
share.
For the
MiOXSYS System, we compete with companies that design, manufacture
and market already existing and new in-vitro diagnostics and
diagnostic imaging systems and radio-imaging agents for cancer
detection.
We
anticipate that we will face increased competition in the future as
new companies enter the market with new technologies and our
competitors improve their current products. One or more of our
competitors may offer technology superior to ours and render our
technology obsolete or uneconomical. Most of our current
competitors, as well as many of our potential competitors, have
greater name recognition, more substantial intellectual property
portfolios, longer operating histories, significantly greater
resources to invest in new technologies, more substantial
experience in new product development, greater regulatory
expertise, more extensive manufacturing capabilities and the
distribution channels to deliver products to customers. If we are
not able to compete successfully, we may not generate sufficient
revenue to become profitable.
Any new
product we develop or commercialize that competes with a
currently-approved product must demonstrate compelling advantages
in efficacy, convenience, tolerability and/or safety in order to
address price competition and be commercially successful. If we are
not able to compete effectively against our current and future
competitors, our business will not grow and our financial condition
and operations will suffer.
Government restrictions on pricing and reimbursement, as well as
other healthcare payor cost-containment initiatives, may negatively
impact our ability to generate revenues.
The
continuing efforts of the government, insurance companies, managed
care organizations and other payors of health care costs to contain
or reduce costs of health care may adversely affect one or more of
the following:
●
our or our
collaborators’ ability to set a price we believe is fair for
our approved products;
●
our ability to
generate revenue from our approved products and achieve
profitability; and
●
the availability of
capital.
The
2010 enactments of the Patient Protection and Affordable Care Act,
or PPACA, and the Health Care and Education Reconciliation Act, or
the Health Care Reconciliation Act, significantly impacted the
provision of, and payment for, health care in the U.S. Various
provisions of these laws are designed to expand Medicaid
eligibility, subsidize insurance premiums, provide incentives for
businesses to provide health care benefits, prohibit denials of
coverage due to pre-existing conditions, establish health insurance
exchanges, and provide additional support for medical research.
Amendments to the PPACA and/or the Health Care Reconciliation Act,
as well as new legislative proposals to reform healthcare and
government insurance programs, along with the trend toward managed
healthcare in the U.S., could influence the purchase of medicines
and medical devices and reduce demand and prices for our products
and product candidates, if approved. This could harm our or our
collaborators’ ability to market any approved products and
generate revenues. As we expect to receive significant revenues
from reimbursement of our Natesto and ProstaScint products by
commercial third-party payors and government payors, cost
containment measures that health care payors and providers are
instituting and the effect of further health care reform could
significantly reduce potential revenues from the sale of any of our
products and product candidates approved in the future, and could
cause an increase in our compliance, manufacturing, or other
operating expenses. In addition, in certain foreign markets, the
pricing of prescription drugs and devices is subject to government
control and reimbursement may in some cases be unavailable. We
believe that pricing pressures at the federal and state level, as
well as internationally, will continue and may increase, which may
make it difficult for us to sell any approved product at a price
acceptable to us or any of our future collaborators.
In
addition, in some foreign countries, the proposed pricing for a
drug or medical device must be approved before it may be lawfully
marketed. The requirements governing pricing vary widely from
country to country. For example, the European Union provides
options for its member states to restrict the range of medicinal
products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for
human use. A member state may approve a specific price for the
medicinal product or it may instead adopt a system of direct or
indirect controls on the profitability of the company placing the
medicinal product on the market. A member state may require that
physicians prescribe the generic version of a drug instead of our
approved branded product. There can be no assurance that any
country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and
pricing arrangements for any of our products or product candidates.
Historically, pharmaceutical products launched in the European
Union do not follow price structures of the U.S. and generally tend
to have significantly lower prices.
Our financial results will depend on the acceptance among
hospitals, third-party payors and the medical community of our
products and product candidates.
Our
future success depends on the acceptance by our target customers,
third-party payors and the medical community that our products and
product candidates are reliable, safe and cost-effective. Many
factors may affect the market acceptance and commercial success of
our products and product candidates, including:
●
our ability to
convince our potential customers of the advantages and economic
value our products and product candidates over existing
technologies and products;
●
the relative
convenience and ease of our products and product candidates over
existing technologies and products;
●
the introduction of
new technologies and competing products that may make our products
and product candidates less attractive for our target
customers;
●
our success in
training medical personnel on the proper use of our products and
product candidates;
●
the willingness of
third-party payors to reimburse our target customers that adopt our
products and product candidates;
●
the acceptance in
the medical community of our products and product
candidates;
●
the extent and
success of our marketing and sales efforts; and
●
general economic
conditions.
If third-party payors do not reimburse our customers for the
products we sell or if reimbursement levels are set too low for us
to sell one or more of our products at a profit, our ability to
sell those products and our results of operations will be
harmed.
While
Natesto, Tuzistra XR and ZolpiMist are already FDA-approved and
generating revenues in the U.S., they may not receive, or continue
to receive, physician or hospital acceptance, or they may not
maintain adequate reimbursement from third party payors.
Additionally, even if one of our product candidates is approved and
reaches the market, the product may not achieve physician or
hospital acceptance, or it may not obtain adequate reimbursement
from third party payors. In the future, we might possibly sell
other product candidates to target customers substantially all of
whom receive reimbursement for the health care services they
provide to their patients from third-party payors, such as
Medicare, Medicaid, other domestic and foreign government programs,
private insurance plans and managed care programs. Reimbursement
decisions by particular third-party payors depend upon a number of
factors, including each third-party payor’s determination
that use of a product is:
●
a covered benefit
under its health plan;
●
appropriate and
medically necessary for the specific indication;
●
neither
experimental nor investigational.
Third-party payors
may deny reimbursement for covered products if they determine that
a medical product was not used in accordance with cost-effective
diagnosis methods, as determined by the third-party payor, or was
used for an unapproved indication. Third-party payors also may
refuse to reimburse for procedures and devices deemed to be
experimental.
Obtaining coverage
and reimbursement approval for a product from each government or
third-party payor is a time consuming and costly process that could
require us to provide supporting scientific, clinical and
cost-effectiveness data for the use of our potential product to
each government or third-party payor. We may not be able to provide
data sufficient to gain acceptance with respect to coverage and
reimbursement. In addition, eligibility for coverage does not imply
that any product will be covered and reimbursed in all cases or
reimbursed at a rate that allows our potential customers to make a
profit or even cover their costs.
Third-party payors
are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for medical
products and services. Levels of reimbursement may decrease in the
future, and future legislation, regulation or reimbursement
policies of third-party payors may adversely affect the demand for
and reimbursement available for any product or product candidate,
which in turn, could negatively impact pricing. If our customers
are not adequately reimbursed for our products, they may reduce or
discontinue purchases of our products, which would result in a
significant shortfall in achieving revenue expectations and
negatively impact our business, prospects and financial
condition.
Manufacturing risks and inefficiencies may adversely affect our
ability to produce our products.
We
expect to engage third parties to manufacture components of the
MiOXSYS and RedoxSYS systems. We have an agreement for supplies of
Natesto with Acerus, from whom we license Natesto. We have an
agreement with a third-party manufacturer for our ZolpiMist product
as well. We have an agreement for supplies of Tuzistra XR with
Tris, from whom we license Tuzistra XR. For any future product, we
expect to use third-party manufacturers because we do not have our
own manufacturing capabilities. In determining the required
quantities of any product and the manufacturing schedule, we must
make significant judgments and estimates based on inventory levels,
current market trends and other related factors. Because of the
inherent nature of estimates and our limited experience in
marketing our current products, there could be significant
differences between our estimates and the actual amounts of product
we require. If we do not effectively maintain our supply agreements
for Natesto and Fiera, we will face difficulty finding replacement
suppliers, which could harm sales of those products. If we do not
secure collaborations with manufacturing and development partners
to enable production to scale of the MiOXSYS System, we may not be
successful in selling or in commercializing the MiOXSYS System in
the event we receive regulatory approval of the MiOXSYS System. If
we fail in similar endeavors for future products, we may not be
successful in establishing or continuing the commercialization of
our products and product candidates.
Reliance on
third-party manufacturers entails risks to which we would not be
subject if we manufactured these components ourselves,
including:
●
reliance on third
parties for regulatory compliance and quality
assurance;
●
possible breaches
of manufacturing agreements by the third parties because of factors
beyond our control;
●
possible regulatory
violations or manufacturing problems experienced by our suppliers;
and
●
possible
termination or non-renewal of agreements by third parties, based on
their own business priorities, at times that are costly or
inconvenient for us.
Further, if we are
unable to secure the needed financing to fund our internal
operations, we may not have adequate resources required to
effectively and rapidly transition our third party manufacturing.
We may not be able to meet the demand for our products if one or
more of any third-party manufacturers is unable to supply us with
the necessary components that meet our specifications. It may be
difficult to find alternate suppliers for any of our products or
product candidates in a timely manner and on terms acceptable to
us.
Our future growth depends, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our
future profitability will depend, in part, on our ability to
commercialize our products and product candidates in foreign
markets for which we intend to primarily rely on collaboration with
third parties. If we commercialize our products or product
candidates in foreign markets, we would be subject to additional
risks and uncertainties, including:
●
our inability to
directly control commercial activities because we are relying on
third parties;
●
the burden of
complying with complex and changing foreign regulatory, tax,
accounting and legal requirements;
●
different medical
practices and customs in foreign countries affecting acceptance in
the marketplace;
●
import or export
licensing requirements;
●
longer accounts
receivable collection times;
●
longer lead times
for shipping;
●
language barriers
for technical training;
●
reduced protection
of intellectual property rights in some foreign countries, and
related prevalence of generic alternatives to our
products;
●
foreign currency
exchange rate fluctuations;
●
our
customers’ ability to obtain reimbursement for our products
in foreign markets; and
●
the interpretation
of contractual provisions governed by foreign laws in the event of
a contract dispute.
Foreign
sales of our products or product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are subject to various regulations pertaining to the marketing
of our approved products.
We are
subject to various federal and state laws pertaining to healthcare
fraud and abuse, including prohibitions on the offer of payment or
acceptance of kickbacks or other remuneration for the purchase of
our products, including inducements to potential patients to
request our products and services. Additionally, any product
promotion educational activities, support of continuing medical
education programs, and other interactions with health-care
professionals must be conducted in a manner consistent with the FDA
regulations and the Anti-Kickback Statute. The Anti-Kickback
Statute prohibits persons or entities from knowingly and willfully
soliciting, receiving, offering or providing remuneration, directly
or indirectly, to induce either the referral of an individual, or
the furnishing, recommending, or arranging for a good or service,
for which payment may be made under a federal healthcare program
such as the Medicare and Medicaid programs. Violations of the
Anti-Kickback Statute can also carry potential federal False Claims
Act liability. Additionally, many states have adopted laws similar
to the Anti-Kickback Statute. Some of these state prohibitions
apply to referral of patients for healthcare items or services
reimbursed by any third party payer, not only the Medicare and
Medicaid programs, and do not contain identical safe harbors. These
and any new regulations or requirements may be difficult and
expensive for us to comply with, may adversely impact the marketing
of our existing products or delay introduction of our product
candidates, which may have a material adverse effect on our
business, operating results and financial condition.
Our products and product candidates may cause undesirable side
effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable side
effects caused by our product candidates could cause us or
regulatory authorities to interrupt, delay or halt clinical trials
and could result in a more restrictive label or the delay or denial
of regulatory approval by the FDA or other regulatory
authorities.
Further, if a
product candidate receives marketing approval and we or others
identify undesirable side effects caused by the product after the
approval, or if drug abuse is determined to be a significant
problem with an approved product, a number of potentially
significant negative consequences could result,
including:
●
regulatory
authorities may withdraw or limit their approval of the
product;
●
regulatory
authorities may require the addition of labeling statements, such
as a “Black Box warning” or a
contraindication;
●
we may be required
to change the way the product is distributed or administered,
conduct additional clinical trials or change the labeling of the
product;
●
we may decide to
remove the product from the marketplace;
●
we could be sued
and held liable for injury caused to individuals exposed to or
taking the product; and
●
our reputation may
suffer.
Any of
these events could prevent us from achieving or maintaining market
acceptance of the affected product candidate and could
substantially increase the costs of commercializing an affected
product or product candidates and significantly impact our ability
to successfully commercialize or maintain sales of our product or
product candidates and generate revenues.
Natesto, Tuzistra XR, and ZolpiMist contain, and future other
product candidates may contain, controlled substances, the
manufacture, use, sale, importation, exportation, prescribing and
distribution of which are subject to regulation by the
DEA.
Natesto, Tuzistra
XR and ZolpiMist, which are approved by the FDA, are regulated by
the DEA as Schedule III controlled substances. Before any
commercialization of any product candidate that contains a
controlled substance, the DEA will need to determine the controlled
substance schedule, taking into account the recommendation of the
FDA. This may be a lengthy process that could delay our marketing
of a product candidate and could potentially diminish any
regulatory exclusivity periods for which we may be eligible.
Natesto, Tuzistra XR and ZolpiMist are, and our other product
candidates may, if approved, be regulated as “controlled
substances” as defined in the Controlled Substances Act of
1970, or CSA, and the implementing regulations of the DEA, which
establish registration, security, recordkeeping, reporting,
storage, distribution, importation, exportation, inventory, quota
and other requirements administered by the DEA. These requirements
are applicable to us, to our third-party manufacturers and to
distributors, prescribers and dispensers of our product candidates.
The DEA regulates the handling of controlled substances through a
closed chain of distribution. This control extends to the equipment
and raw materials used in their manufacture and packaging, in order
to prevent loss and diversion into illicit channels of commerce. A
number of states and foreign countries also independently regulate
these drugs as controlled substances.
The DEA
regulates controlled substances as Schedule I, II, III, IV or V
substances. Schedule I substances by definition have no established
medicinal use, and may not be marketed or sold in the U.S. A
pharmaceutical product may be listed as Schedule II, III, IV or V,
with Schedule II substances considered to present the highest risk
of abuse and Schedule V substances the lowest relative risk of
abuse among such substances.
Natesto
is regulated by the DEA as a Schedule III controlled substance, and
ZolpiMist as a Schedule IV controlled substance. Consequently, the
manufacturing, shipping, storing, selling and using of the products
are subject to a high degree of regulation. Also, distribution,
prescribing and dispensing of these drugs are highly
regulated.
Annual
registration is required for any facility that manufactures,
distributes, dispenses, imports or exports any controlled
substance. The registration is specific to the particular location,
activity and controlled substance schedule.
Because
of their restrictive nature, these laws and regulations could limit
commercialization of our product candidates containing controlled
substances. Failure to comply with these laws and regulations could
also result in withdrawal of our DEA registrations, disruption in
manufacturing and distribution activities, consent decrees,
criminal and civil penalties and state actions, among other
consequences.
If testosterone replacement therapies are found, or are perceived,
to create health risks, our ability to sell Natesto could be
materially adversely affected and our business could be
harmed.
Recent
publications have suggested potential health risks associated with
testosterone replacement therapy, such as increased cardiovascular
disease risk, including increased risk of heart attack or stroke,
fluid retention, sleep apnea, breast tenderness or enlargement,
increased red blood cells, development of clinical prostate
disease, including prostate cancer, and the suppression of sperm
production. Prompted by these events, the FDA held a T-class
Advisory Committee meeting on September 17, 2014 to discuss this
topic further. The FDA has also asked health care professionals and
patients to report side effects involving prescription testosterone
products to the agency.
At the
T-class Advisory Committee meeting held on September 17, 2014, the
Advisory Committee discussed (i) the identification of the
appropriate patient population for whom testosterone replacement
therapy should be indicated and (ii) the potential risk of major
adverse cardiovascular events, defined as non-fatal stroke,
non-fatal myocardial infarction and cardiovascular death associated
with testosterone replacement therapy.
At the
meeting, the Advisory Committee voted that the FDA should require
sponsors of testosterone products to conduct a post marketing study
(e.g. observational study or controlled clinical trial) to further
assess the potential cardiovascular risk.
It is
possible that the FDA’s evaluation of this topic and further
studies on the effects of testosterone replacement therapies could
demonstrate the risk of major adverse cardiovascular events or
other health risks or could impose requirements that impact the
marketing and sale of Natesto, including:
●
mandate that
certain warnings or precautions be included in our product
labeling;
●
require that our
product carry a “black box warning”; and
●
limit use of
Natesto to certain populations, such as men without specified
conditions.
Demonstrated
testosterone replacement therapy safety risks, as well as negative
publicity about the risks of hormone replacement therapy, including
testosterone replacement, could hurt sales of and impair our
ability to successfully relaunch Natesto, which could have a
materially adverse impact on our business.
FDA action regarding testosterone replacement therapies could add
to the cost of producing and marketing Natesto.
The FDA
is requiring post-marketing safety studies for all testosterone
replacement therapies approved in the U.S. to assess long-term
cardiovascular events related to testosterone use. Depending on the
total cost and structure of the FDA’s proposed safety studies
there may be a substantial cost associated with conducting these
studies. Pursuant to our license agreement with Acerus
Pharmaceuticals, Acerus is obligated to reimburse us for the entire
cost of any studies required for Natesto by the FDA. However, in
the event that Acerus is not able to reimburse us for the cost of
any required safety studies, we may be forced to incur this cost,
which could have a material adverse impact on our business and
results of operations.
There is a risk we may unable to sell and distribute certain of our
products if we cannot comply with the serialization requirements of
the Drug Quality and Security Act within the necessary time
frames.
Title
II of the Drug Quality and Security Act of 2013 provided increased
FDA oversight over the ability to track and monitor the sale and
distribution of prescription drugs. Over time, the level within the
supply chain for which prescription drugs are to be tracked gets
farther and farther down the chain. Currently, we are required to
provide product identification information, or serialization, at
the manufacturing batch, or lot level. However, going forward the
law requires such tracking to done farther down the distribution
chain including, (i) wholsaler authentification and verification in
November 2019, (ii) pharmacy authentification and verification in
the Fall of 2020, and at the unit level throughout the entire
supply chain near the end of 2023. There is no guarantee that we
will be able to satisfy each ever-stringent product identification
requirements. Failing to do so could result in a delay or inability
to sell our products within the United States of
America.
Our approved products may not be accepted by physicians, patients,
or the medical community in general.
Even if
the medical community accepts a product as safe and efficacious for
its indicated use, physicians may choose to restrict the use of the
product if we or any collaborator is unable to demonstrate that,
based on experience, clinical data, side-effect profiles and other
factors, our product is preferable to any existing medicines or
treatments. We cannot predict the degree of market acceptance of
any of our approved products, which will depend on a number of
factors, including, but not limited to:
●
the efficacy and
safety of the product;
●
the approved
labeling for the product and any required warnings;
●
the advantages and
disadvantages of the product compared to alternative
treatments;
●
our and any
collaborator’s ability to educate the medical community about
the safety and effectiveness of the product;
●
the reimbursement
policies of government and third-party payors pertaining to the
product; and
●
the market price of
our product relative to competing treatments.
We may use hazardous chemicals and biological materials in our
business. Any claims relating to improper handling, storage or
disposal of these materials could be time consuming and
costly.
Our
research and development processes may involve the controlled use
of hazardous materials, including chemicals and biological
materials. We cannot eliminate the risk of accidental contamination
or discharge and any resultant injury from these materials. We may
be sued for any injury or contamination that results from our use
or the use by third parties of these materials, and our liability
may exceed any insurance coverage and our total assets. Federal,
state and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these hazardous materials and
specified waste products, as well as the discharge of pollutants
into the environment and human health and safety matters.
Compliance with environmental laws and regulations may be expensive
and may impair our research and development efforts. If we fail to
comply with these requirements, we could incur substantial costs,
including civil or criminal fines and penalties, clean-up costs or
capital expenditures for control equipment or operational changes
necessary to achieve and maintain compliance. In addition, we
cannot predict the impact on our business of new or amended
environmental laws or regulations or any changes in the way
existing and future laws and regulations are interpreted and
enforced.
Intellectual Property Risks Related to Our Business
We are dependent on our relationships and license agreements, and
we rely on the patent rights granted to us pursuant to the license
agreements.
A
number of our patent rights are derived from our license agreements
with third parties. Pursuant to these license agreements, we have
licensed rights to various patents and patent applications within
and outside of the United States. We may lose our rights to these
patents and patent applications if we breach our obligations under
such license agreements, including, without limitation, our
financial obligations to the licensors. If we violate or fail to
perform any term or covenant of the license agreements, the
licensors may terminate the license agreements upon satisfaction of
applicable notice requirements and expiration of any applicable
cure periods. Additionally, any termination of license agreements,
whether by us or the licensors will not relieve us of our
obligation to pay any license fees owing at the time of such
termination. If we fail to retain our rights under these license
agreements, we will not be able to commercialize certain products
subject to patent or patent application, and our business, results
of operations, financial condition and prospects would be
materially adversely affected.
The
commercial success of our products depends, in large part, on our
ability to use patents licensed to us by third parties in order to
exclude others from competing with our products. The patent
position of emerging pharmaceutical companies like us can be highly
uncertain and involve complex legal and technical issues. Until our
licensed patents are interpreted by a court, either because we have
sought to enforce them against a competitor or because a competitor
has preemptively challenged them, we will not know the breadth of
protection that they will afford us. Our patents may not contain
claims sufficiently broad to prevent others from practicing our
technologies or marketing competing products. Third parties may
intentionally attempt to design around our patents or design around
our patents so as to compete with us without infringing our
patents. Moreover, the issuance of a patent is not conclusive as to
its validity or enforceability, and so our patents may be
invalidated or rendered unenforceable if challenged by
others.
We may renegotiate any of our existing license agreements or other
material contracts on terms that might not be received by the
market as favorable.
From
time to time we may renegotiate the terms of our existing licensing
agreements. There can be no guarantee that the terms of the
renegotiated license agreement or other material contract will be
viewed favorably by the market as evidenced by our stock price
although the renegotiated terms might be advantageous to our
business.
Our ability to compete may decline if we do not adequately protect
our proprietary rights or if we are barred by the patent rights of
others.
Our
commercial success depends on obtaining and maintaining proprietary
rights to our products and product candidates as well as
successfully defending these rights against third-party challenges.
We will only be able to protect our products and product candidates
from unauthorized use by third parties to the extent that valid and
enforceable patents, or effectively protected trade secrets, cover
them. Our ability to obtain patent protection for our products and
product candidates is uncertain due to a number of factors,
including that:
●
we may not have
been the first to make the inventions covered by pending patent
applications or issued patents;
●
we may not have
been the first to file patent applications for our products and
product candidates;
●
others may
independently develop identical, similar or alternative products,
compositions or devices and uses thereof;
●
our disclosures in
patent applications may not be sufficient to meet the statutory
requirements for patentability;
●
any or all of our
pending patent applications may not result in issued
patents;
●
we may not seek or
obtain patent protection in countries that may eventually provide
us a significant business opportunity;
●
any patents issued
to us may not provide a basis for commercially viable products, may
not provide any competitive advantages, or may be successfully
challenged by third parties;
●
our compositions,
devices and methods may not be patentable;
●
others may design
around our patent claims to produce competitive products which fall
outside of the scope of our patents; or
●
others may identify
prior art or other bases which could invalidate our
patents.
Even if
we have or obtain patents covering our products and product
candidates, we may still be barred from making, using and selling
them because of the patent rights of others. Others may have filed,
and in the future may file, patent applications covering products
that are similar or identical to ours. There are many issued U.S.
and foreign patents relating to chemical compounds, therapeutic
products, diagnostic devices, personal care products and devices
and some of these relate to our products and product candidates.
These could materially affect our ability to sell our products and
develop our product candidates. Because patent applications can
take many years to issue, there may be currently pending
applications unknown to us that may later result in issued patents
that our products and product candidates may infringe. These patent
applications may have priority over patent applications filed by
us.
Obtaining and
maintaining a patent portfolio entails significant expense and
resources. Part of the expense includes periodic maintenance fees,
renewal fees, annuity fees, various other governmental fees on
patents and/or applications due in several stages over the lifetime
of patents and/or applications, as well as the cost associated with
complying with numerous procedural provisions during the patent
application process. We may or may not choose to pursue or maintain
protection for particular inventions. In addition, there are
situations in which failure to make certain payments or
noncompliance with certain requirements in the patent process can
result in abandonment or lapse of a patent or patent application,
resulting in partial or complete loss of patent rights in the
relevant jurisdiction. If we choose to forgo patent protection or
allow a patent application or patent to lapse purposefully or
inadvertently, our competitive position could suffer.
Legal
actions to enforce our patent rights can be expensive and may
involve the diversion of significant management time. In addition,
these legal actions could be unsuccessful and could also result in
the invalidation of our patents or a finding that they are
unenforceable. We may or may not choose to pursue litigation or
other actions against those that have infringed on our patents, or
used them without authorization, due to the associated expense and
time commitment of monitoring these activities. If we fail to
protect or to enforce our intellectual property rights
successfully, our competitive position could suffer, which could
harm our business, prospects, financial condition and results of
operations.
Pharmaceutical and medical device patents and patent applications
involve highly complex legal and factual questions, which, if
determined adversely to us, could negatively impact our patent
position.
The
patent positions of pharmaceutical and medical device companies can
be highly uncertain and involve complex legal and factual
questions. The interpretation and breadth of claims allowed in some
patents covering pharmaceutical compositions may be uncertain and
difficult to determine and are often affected materially by the
facts and circumstances that pertain to the patented compositions
and the related patent claims. The standards of the U.S. Patent and
Trademark Office, or USPTO, are sometimes uncertain and could
change in the future. Consequently, the issuance and scope of
patents cannot be predicted with certainty. Patents, if issued, may
be challenged, invalidated or circumvented. U.S. patents and patent
applications may also be subject to interference proceedings, and
U.S. patents may be subject to re-examination proceedings,
post-grant review and/or inter partes review in the USPTO. Foreign
patents may be subject to opposition or comparable proceedings in
the corresponding foreign patent office, which could result in
either loss of the patent or denial of the patent application or
loss or reduction in the scope of one or more of the claims of the
patent or patent application. In addition, such interference,
re-examination, post-grant review, inter partes review and
opposition proceedings may be costly. Accordingly, rights under any
issued patents may not provide us with sufficient protection
against competitive products or processes.
In
addition, changes in or different interpretations of patent laws in
the U.S. and foreign countries may permit others to use our
discoveries or to develop and commercialize our technology and
products and product candidates without providing any compensation
to us or may limit the number of patents or claims we can obtain.
The laws of some countries do not protect intellectual property
rights to the same extent as U.S. laws and those countries may lack
adequate rules and procedures for defending our intellectual
property rights.
If we
fail to obtain and maintain patent protection and trade secret
protection of our products and product candidates, we could lose
our competitive advantage and competition we face would increase,
reducing any potential revenues and adversely affecting our ability
to attain or maintain profitability.
Developments in patent law could have a negative impact on our
business.
From
time to time, the U.S. Supreme Court, other federal courts, the
U.S. Congress or the USPTO may change the standards of
patentability and any such changes could have a negative impact on
our business.
In
addition, the Leahy-Smith America Invents Act, or the America
Invents Act, which was signed into law in 2011, includes a number
of significant changes to U.S. patent law. These changes include a
transition from a “first-to-invent” system to a
“first-to-file” system, changes the way issued patents
are challenged, and changes the way patent applications are
disputed during the examination process. These changes may favor
larger and more established companies that have greater resources
to devote to patent application filing and prosecution. The USPTO
has developed regulations and procedures to govern the full
implementation of the America Invents Act, and many of the
substantive changes to patent law associated with the America
Invents Act, and, in particular, the first-to-file provisions,
became effective on March 16, 2013. Substantive changes to patent
law associated with the America Invents Act may affect our ability
to obtain patents, and if obtained, to enforce or defend them.
Accordingly, it is not clear what, if any, impact the America
Invents Act will ultimately have on the cost of prosecuting our
patent applications, our ability to obtain patents based on our
discoveries and our ability to enforce or defend any patents that
may issue from our patent applications, all of which could have a
material adverse effect on our business.
If we are unable to protect the confidentiality of our trade
secrets, our business and competitive position would be
harmed.
In
addition to patent protection, because we operate in the highly
technical field of discovery and development of therapies and
medical devices, we rely in part on trade secret protection in
order to protect our proprietary technology and processes. However,
trade secrets are difficult to protect. We expect to enter into
confidentiality and intellectual property assignment agreements
with our employees, consultants, outside scientific and commercial
collaborators, sponsored researchers, and other advisors. These
agreements generally require that the other party keep confidential
and not disclose to third parties all confidential information
developed by the party or made known to the party by us during the
course of the party’s relationship with us. These agreements
also generally provide that inventions conceived by the party in
the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us.
In
addition to contractual measures, we try to protect the
confidential nature of our proprietary information using physical
and technological security measures. Such measures may not, for
example, in the case of misappropriation of a trade secret by an
employee or third party with authorized access, provide adequate
protection for our proprietary information. Our security measures
may not prevent an employee or consultant from misappropriating our
trade secrets and providing them to a competitor, and recourse we
take against such misconduct may not provide an adequate remedy to
protect our interests fully. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret can be
difficult, expensive, and time-consuming, and the outcome is
unpredictable. In addition, courts outside the U.S. may be less
willing to protect trade secrets. Trade secrets may be
independently developed by others in a manner that could prevent
legal recourse by us. If any of our confidential or proprietary
information, such as our trade secrets, were to be disclosed or
misappropriated, or if any such information was independently
developed by a competitor, our competitive position could be
harmed.
We may not be able to enforce our intellectual property rights
throughout the world.
The
laws of some foreign countries do not protect intellectual property
rights to the same extent as the laws of the U.S. Many companies
have encountered significant problems in protecting and defending
intellectual property rights in certain foreign jurisdictions. The
legal systems of some countries, particularly developing countries,
do not favor the enforcement of patents and other intellectual
property protection, especially those relating to pharmaceuticals
and medical devices. This could make it difficult for us to stop
the infringement of some of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In
addition, many countries limit the enforceability of patents
against third parties, including government agencies or government
contractors. In these countries, patents may provide limited or no
benefit. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to
seek patent protection in certain countries, and we will not have
the benefit of patent protection in such countries.
Proceedings to
enforce our patent rights in foreign jurisdictions could result in
substantial costs and divert our efforts and attention from other
aspects of our business. Accordingly, our efforts to protect our
intellectual property rights in such countries may be inadequate.
In addition, changes in the law and legal decisions by courts in
the U.S. and foreign countries may affect our ability to obtain
adequate protection for our technology and the enforcement of
intellectual property.
Third parties may assert ownership or commercial rights to
inventions we develop.
Third
parties may in the future make claims challenging the inventorship
or ownership of our intellectual property. We have or expect to
have written agreements with collaborators that provide for the
ownership of intellectual property arising from our collaborations.
These agreements provide that we must negotiate certain commercial
rights with collaborators with respect to joint inventions or
inventions made by our collaborators that arise from the results of
the collaboration. In some instances, there may not be adequate
written provisions to address clearly the resolution of
intellectual property rights that may arise from a collaboration.
If we cannot successfully negotiate sufficient ownership and
commercial rights to the inventions that result from our use of a
third-party collaborator’s materials where required, or if
disputes otherwise arise with respect to the intellectual property
developed with the use of a collaborator’s samples, we may be
limited in our ability to capitalize on the market potential of
these inventions. In addition, we may face claims by third parties
that our agreements with employees, contractors, or consultants
obligating them to assign intellectual property to us are
ineffective, or in conflict with prior or competing contractual
obligations of assignment, which could result in ownership disputes
regarding intellectual property we have developed or will develop
and interfere with our ability to capture the commercial value of
such inventions. Litigation may be necessary to resolve an
ownership dispute, and if we are not successful, we may be
precluded from using certain intellectual property, or may lose our
exclusive rights in that intellectual property. Either outcome
could have an adverse impact on our business.
Third parties may assert that our employees or consultants have
wrongfully used or disclosed confidential information or
misappropriated trade secrets.
We
might employ individuals who were previously employed at
universities or other biopharmaceutical or medical device
companies, including our competitors or potential competitors.
Although we try to ensure that our employees and consultants do not
use the proprietary information or know-how of others in their work
for us, we may be subject to claims that we or our employees,
consultants or independent contractors have inadvertently or
otherwise used or disclosed intellectual property, including trade
secrets or other proprietary information, of a former employer or
other third parties. Litigation may be necessary to defend against
these claims. If we fail in 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
defending against such claims, litigation could result in
substantial costs and be a distraction to management and other
employees.
A dispute concerning the infringement or misappropriation of our
proprietary rights or the proprietary rights of others could be
time consuming and costly, and an unfavorable outcome could harm
our business.
There
is significant litigation in the pharmaceutical and medical device
industries regarding patent and other intellectual property rights.
While we are not currently subject to any pending intellectual
property litigation, and are not aware of any such threatened
litigation, we may be exposed to future litigation by third parties
based on claims that our products or product candidates infringe
the intellectual property rights of others. If our development and
commercialization activities are found to infringe any such
patents, we may have to pay significant damages or seek licenses to
such patents. A patentee could prevent us from using the patented
drugs, compositions or devices. We may need to resort to litigation
to enforce a patent issued to us, to protect our trade secrets, or
to determine the scope and validity of third-party proprietary
rights. From time to time, we may hire scientific personnel or
consultants formerly employed by other companies involved in one or
more areas similar to the activities conducted by us. Either we or
these individuals may be subject to allegations of trade secret
misappropriation or other similar claims as a result of prior
affiliations. If we become involved in litigation, it could consume
a substantial portion of our managerial and financial resources,
regardless of whether we win or lose. We may not be able to afford
the costs of litigation. Any adverse ruling or perception of an
adverse ruling in defending ourselves against these claims could
have a material adverse impact on our cash position and stock
price. Any legal action against us or our collaborators could lead
to:
●
payment of damages,
potentially treble damages, if we are found to have willfully
infringed a party’s patent rights;
●
injunctive or other
equitable relief that may effectively block our ability to further
develop, commercialize, and sell products; or
●
we or our
collaborators having to enter into license arrangements that may
not be available on commercially acceptable terms, if at all, all
of which could have a material adverse impact on our cash position
and business, prospects and financial condition. As a result, we
could be prevented from commercializing our products and product
candidates.
Risks Related to Our Organization, Structure and
Operation
Armistice Capital, LLC and Armistice Capital Master Fund Ltd.
(collectively, “Armistice”) own a significant
percentage of our stock and Steven Boyd, the managing member of
Armistice Capital, LLC and director of Armistice Master Fund is a
member of our board of directors. As a result, Armistice could be
able to exert significant control over us.
Since
2017, Armistice has invested approximately $14.6 million
in our company through
the purchase of our common stock, preferred stock and warrants in a
series of our financings. Many of the securities Armistice holds
limits their ability to beneficially own in excess of 4.99% or
9.99% of our common stock. However, the Series E Preferred Stock
Armistice holds permits Armistice to convert the Series E Preferred
Stock into shares of common stock so long as their ownership
percentage in us does not exceed 40%. On April 15, 2019, Steven
Boyd was appointed to our board of directors. The significant
ownership interest Armistice has, the significant investment that
they have made in our company, and Steven Boyd’s position on
our board of directors could give Armistice the ability to
influence us through their ownership positions, even if they are
prohibited from converting or exercising their preferred stock or
warrants to acquire more than 40% of our common stock at any time.
Further, this significant ownership potential may prevent or
discourage unsolicited acquisition proposals or offers for our
common stock that you may feel are in your best interest as one of
our stockholders.
We intend to acquire, through mergers, asset purchases or
in-licensing, businesses or products, or form strategic alliances,
in the future, and we may not realize the intended benefits of such
acquisitions or alliances.
We
intend to acquire, through mergers, asset purchases or
in-licensing, additional businesses or products, form strategic
alliances and/or create joint ventures with third parties that we
believe will complement or augment our existing business. If we
acquire businesses or assets with promising markets or
technologies, we may not be able to realize the benefit of
acquiring such businesses or assets if we are unable to
successfully integrate them with our existing operations and
company culture. We may encounter numerous difficulties in
developing, manufacturing and marketing any new products resulting
from a strategic alliance or acquisition that delay or prevent us
from realizing their expected benefits or enhancing our business.
We cannot assure you that, following any such acquisition or
alliance, we will achieve the expected synergies to justify the
transaction. These risks apply to our acquisition of Natesto in
April 2016, ZolpiMist in June 2018, and Tuzistra XR in November
2018. As an example, we acquired Primsol in October 2015, but sold
it in March 2017. Depending on the success or lack thereof of any
of our existing or future acquired products and product candidates,
we might seek to out-license, sell or otherwise dispose of any of
those products or product candidates, which could adversely impact
our operations if the dispositions triggers a loss, accounting
charge or other negative impact.
In fiscal 2019, the great majority of our gross revenue and gross
accounts receivable were due to three significant customers, the
loss of which could materially and adversely affect our results of
operations.
In fiscal 2019, four customers contributed greater
than 10% of the Company's gross revenue during the year
ended June 30, 2019 and 2018, respectively. As of June 30,
2019, four customers accounted for 87% of gross revenue.
The loss of one or more of the
Company's significant partners or collaborators could have a
material adverse effect on its business, operating results or
financial condition.
We are also subject to credit risk from our
accounts receivable related to our product sales. As of June 30,
2019, four customers accounted for 88% of gross accounts
receivable. As of June 30, 2018, four customers accounted for 93%
of gross accounts receivable.
We will need to develop and expand our company, and we may
encounter difficulties in managing this development and expansion,
which could disrupt our operations.
As of
June 30, 2019, we had 61 full-time employees, and in connection
with being a public company, we expect to continue to increase our
number of employees and the scope of our operations. To manage our
anticipated development and expansion, 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. Also, our management may need to
divert a disproportionate amount of its attention away from its
day-to-day activities and devote a substantial amount of time to
managing these development activities. Due to our limited
resources, we may not be able to effectively manage the expansion
of our operations or recruit and train additional qualified
personnel. This may result in weaknesses in our infrastructure,
give rise to operational mistakes, loss of business opportunities,
loss of employees and reduced productivity among remaining
employees. The physical expansion of our operations may lead to
significant costs and may divert financial resources from other
projects, such as the planned expanded commercialization of our
approved products and the development of our product candidates. If
our management is unable to effectively manage our expected
development and expansion, our expenses may increase more than
expected, our ability to generate or increase our revenue could be
reduced and we may not be able to implement our business strategy.
Our future financial performance and our ability to expand the
market for our approved products and develop our product
candidates, if approved, and compete effectively will depend, in
part, on our ability to effectively manage the future development
and expansion of our company.
We depend on key personnel and attracting qualified management
personnel and our business could be harmed if we lose personnel and
cannot attract new personnel.
Our
success depends to a significant degree upon the technical and
management skills of our directors, officers and key personnel. Any
of our directors could resign from our board at any time and for
any reason. Although our executive officers Joshua Disbrow, Jarrett
Disbrow and David Green have employment agreements, the existence
of an employment agreement does not guarantee the retention of the
executive officer for any period of time, and each agreement
obligates us to pay the officer lump sum severance of two years of
salary if we terminate him without cause, as defined in the
agreement, which could hurt our liquidity. The loss of the services
of any of these individuals would likely have a material adverse
effect on us. Our success also will depend upon our ability to
attract and retain additional qualified management, marketing,
technical, and sales executives and personnel. We do not maintain
key person life insurance for any of our officers or key personnel.
The loss of any of our directors or key executives, or the failure
to attract, integrate, motivate, and retain additional key
personnel could have a material adverse effect on our
business.
We
compete for such personnel, including directors, against numerous
companies, including larger, more established companies with
significantly greater financial resources than we possess. There
can be no assurance that we will be successful in attracting or
retaining such personnel, and the failure to do so could have a
material adverse effect on our business, prospects, financial
condition, and results of operations.
Product liability and other lawsuits could divert our resources,
result in substantial liabilities and reduce the commercial
potential of our product candidates.
The
risk that we may be sued on product liability claims is inherent in
the development and commercialization of pharmaceutical, medical
device and personal care products and devices. Side effects of, or
manufacturing defects in, products that we develop and
commercialized could result in the deterioration of a
patient’s condition, injury or even death. Once a product is
approved for sale and commercialized, the likelihood of product
liability lawsuits increases. Claims may be brought by individuals
seeking relief for themselves or by individuals or groups seeking
to represent a class. These lawsuits may divert our management from
pursuing our business strategy and may be costly to defend. In
addition, if we are held liable in any of these lawsuits, we may
incur substantial liabilities and may be forced to limit or forgo
further commercialization of the affected products.
We may
be subject to legal or administrative proceedings and litigation
other than product liability lawsuits which may be costly to defend
and could materially harm our business, financial condition and
operations.
Although we
maintain general liability, clinical trial liability and product
liability insurance, this insurance may not fully cover potential
liabilities. In addition, inability to obtain or maintain
sufficient insurance coverage at an acceptable cost or to otherwise
protect against potential product or other legal or administrative
liability claims could prevent or inhibit the commercial production
and sale of any of our products and product candidates that receive
regulatory approval, which could adversely affect our business.
Product liability claims could also harm our reputation, which may
adversely affect our collaborators’ ability to commercialize
our products successfully.
Our internal computer
systems, or those of our third-party contractors or consultants,
may fail or suffer security breaches, which could result in a
material disruption of our product development
programs.
Despite
the implementation of security measures, our internal computer
systems and those of our third-party contractors and consultants
are vulnerable to damage from computer viruses, unauthorized
access, natural disasters, terrorism, war and telecommunication and
electrical failures. While we do not believe that we have
experienced any such system failure, accident, or security breach
to date, if such an event were to occur and cause interruptions in
our operations, it could result in a loss of clinical trial data
for our product candidates which 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 results in a loss of or damage to our data or
applications or other data or applications relating to our
technology or product candidates, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities
and the further development of our product candidates could be
delayed.
Our ability to use our net operating loss carryforwards and certain
other tax attributes may be limited.
As of
June 30, 2019, we had federal net operating loss carryforwards of
approximately $73.8 million. The available net operating losses, if
not utilized to offset taxable income in future periods, will begin
to expire in 2025 and will, except for certain indefinite-lived net
operating loss carryforwards, will completely expire in 2038. Under
the Internal Revenue Code of 1986, as amended (the
“Code”) and the regulations promulgated thereunder,
including, without limitation, the consolidated income tax return
regulations, various corporate changes could limit our ability to
use our net operating loss carryforwards and other tax attributes
to offset our income. Because Ampio’s equity ownership
interest in our company fell to below 80% in January 2016, we were
deconsolidated from Ampio’s consolidated federal income tax
group. As a result, certain of our net operating loss carryforwards
may not be available to us and we may not be able to use them to
offset our U.S. federal taxable income. As a consequence of the
deconsolidation, it is possible that certain other tax attributes
and benefits resulting from U.S. federal income tax consolidation
may no longer be available to us. Our company and Ampio do not have
a tax sharing agreement that could mitigate the loss of net
operating losses and other tax attributes resulting from the
deconsolidation or our incurrence of liability for the taxes of
other members of the consolidated group by reason of the joint and
several liability of group members. In addition to the
deconsolidation risk, an “ownership change” (generally
a 50% change in equity ownership over a three-year period) under
Section 382 of the Code could limit our ability to offset,
post-change, our U.S. federal taxable income. Section 382 of the
Code imposes an annual limitation on the amount of post-ownership
change taxable income a corporation may offset with pre-ownership
change net operating loss carryforwards and certain recognized
built-in losses. We believe that the August 2017 financing created
over a 50% change in our equity ownership so our current tax loss
carryforward will be limited in the future. Either the
deconsolidation or the ownership change scenario could result in
increased future tax liability to us.
Risks Related to Securities Markets and Investment in our
Securities
Our failure to meet the continued listing requirements of the
NASDAQ Capital Market could result in a delisting of our common
stock.
If we
fail to satisfy the continued listing requirements of the NASDAQ
Capital Market, such as the corporate governance requirements or
the minimum closing bid price requirement, the exchange may take
steps to delist our common stock. Such a delisting would likely
have a negative effect on the price of our common stock and would
impair your ability to sell or purchase our common stock when you
wish to do so. In the event of a delisting, we anticipate that we
would take actions to restore our compliance with applicable
exchange requirements, such as stabilize our market price, improve
the liquidity of our common stock, prevent our common stock from
dropping below such exchange’s minimum bid price requirement,
or prevent future non-compliance with such exchange’s listing
requirements.
On
April 9, 2018, we received a letter from NASDAQ indicating that the
Company has failed to comply with the minimum bid price requirement
of NASDAQ Listing Rule 5550(a)(2). NASDAQ Listing Rule 5550(a)(2)
requires that companies listed on the Nasdaq Capital Market
maintain a minimum closing bid price of at least $1.00 per share.
However, on August 10, 2018, we effected a 1-for-20 reverse stock
split, which has brought us back into compliance with NASDAQ
Listing Rule 5550(a)(2).
Future sales and issuances of our equity securities or rights to
purchase our equity securities, including pursuant to equity
incentive plans, would result in additional dilution of the
percentage ownership of our stockholders and could cause our stock
price to fall.
To the
extent we raise additional capital by issuing equity securities,
our stockholders may experience substantial dilution. We may, as we
have in the past, sell common stock, convertible securities or
other equity securities in one or more transactions at prices and
in a manner we determine from time to time. If we sell common
stock, convertible securities or other equity securities in more
than one transaction, investors may be further diluted by
subsequent sales. Such sales may also result in material dilution
to our existing stockholders, and new investors could gain rights
superior to existing stockholders.
Pursuant to our
2015 Stock Plan, our Board of Directors is currently authorized to
award up to a total of 3.0 million shares of common stock or
options to purchase shares of common stock to our officers,
directors, employees and non-employee consultants. As of June 30,
2019, options to purchase 1,607 shares of common stock issued under
our 2015 Stock Plan at a weighted average exercise price of $325.73
per share were outstanding. In addition, at June 30, 2019, there
were outstanding warrants to purchase an aggregate of 16,459,663
shares of our common stock at a weighted average exercise price of
$4.16. Stockholders will experience dilution in the event that
additional shares of common stock are issued under our 2015 Stock
Plan, or options issued under our 2015 Stock Plan are exercised, or
any warrants are exercised for shares of our common
stock.
Our share price is volatile and may be influenced by numerous
factors, some of which are beyond our control.
The
trading price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to various
factors, some of which are beyond our control. In addition to the
factors discussed in this “Risk Factors” section and
elsewhere in this prospectus, these factors include:
●
the products or
product candidates we acquire for commercialization;
●
the products and
product candidates we seek to pursue, and our ability to obtain
rights to develop, commercialize and market those product
candidates;
●
our decision to
initiate a clinical trial, not to initiate a clinical trial or to
terminate an existing clinical trial;
●
actual or
anticipated adverse results or delays in our clinical
trials;
●
our failure to
expand the market for our currently approved products or
commercialize our product candidates, if approved;
●
unanticipated
serious safety concerns related to the use of any of our product
candidates;
●
overall performance
of the equity markets and other factors that may be unrelated to
our operating performance or the operating performance of our
competitors, including changes in market valuations of similar
companies;
●
conditions or
trends in the healthcare, biotechnology and pharmaceutical
industries;
●
introduction of new
products offered by us or our competitors;
●
announcements of
significant acquisitions, strategic partnerships, joint ventures or
capital commitments by us or our competitors;
●
our ability to
maintain an adequate rate of growth and manage such
growth;
●
issuances of debt
or equity securities;
●
sales of our common
stock by us or our stockholders in the future, or the perception
that such sales could occur;
●
trading volume of
our common stock;
●
ineffectiveness of
our internal control over financial reporting or disclosure
controls and procedures;
●
general political
and economic conditions;
●
effects of natural
or man-made catastrophic events;
●
other events or
factors, many of which are beyond our control;
●
adverse regulatory
decisions;
●
additions or
departures of key scientific or management personnel;
●
changes in laws or
regulations applicable to our product candidates, including without
limitation clinical trial requirements for approvals;
●
disputes or other
developments relating to patents and other proprietary rights and
our ability to obtain patent protection for our product
candidates;
●
our dependence on
third parties, including CROs and scientific and medical
advisors;
●
our ability to
uplist our common stock to a national securities
exchange;
●
failure to meet or
exceed any financial guidance or expectations regarding development
milestones that we may provide to the public;
●
actual or
anticipated variations in quarterly operating results;
and
●
failure to meet or
exceed the estimates and projections of the investment
community.
In
addition, the stock market in general, and the stocks of small-cap
healthcare, biotechnology and pharmaceutical companies in
particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors
may negatively affect the market price of our common stock,
regardless of our actual operating performance. The realization of
any of the above risks or any of a broad range of other risks,
including those described in these “Risk Factors,”
could have a dramatic and material adverse impact on the market
price of our common stock.
If securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business, our
stock price and any trading volume could decline.
Any
trading market for our common stock that may develop will depend in
part on the research and reports that securities or industry
analysts publish about us or our business. Securities and industry
analysts do not currently, and may never, publish research on us or
our business. If no securities or industry analysts commence
coverage of our company, the trading price for our stock could be
negatively affected. If securities or industry analysts initiate
coverage, and one or more of those analysts downgrade our stock or
publish inaccurate or unfavorable research about our business, our
stock price would likely decline. If one or more of these analysts
cease coverage of our company or fail to publish reports on us
regularly, demand for our stock could decrease, which might cause
our stock price and any trading volume to decline.
We effected a reverse stock split at a ratio of 1-for-20 on August
10, 2018, which may not achieve one or more of our
objectives.
We have
effected four reverse stock splits since June 8, 2015, each of
which has impacted the trading liquidity of the shares of our
common stock. There can be no assurance that the market price per
share of our common stock after a reverse stock split will remain
unchanged or increase in proportion to the reduction in the number
of shares of our common stock outstanding before the reverse stock
split. The market price of our shares may fluctuate and potentially
decline after a reverse stock split. Accordingly, the total market
capitalization of our common stock after a reverse stock split may
be lower than the total market capitalization before the reverse
stock split. Moreover, the market price of our common stock
following a reverse stock split may not exceed or remain higher
than the market price prior to the reverse stock
split.
Additionally, there
can be no assurance that a reverse stock split will result in a
per-share market price that will attract institutional investors or
investment funds or that such share price will satisfy investing
guidelines of institutional investors or investment funds. As a
result, the trading liquidity of our common stock may not
necessarily improve. Further, if a reverse stock split is effected
and the market price of our common stock declines, the percentage
decline may be greater than would occur in the absence of a reverse
stock split.
Future sales and issuances of our common stock or rights to
purchase common stock, including pursuant to our equity incentive
plan or otherwise, could result in dilution of the percentage
ownership of our stockholders and could cause our stock price to
fall.
We
could need significant additional capital in the future to continue
our planned operations. To raise capital, we may sell common stock,
convertible securities or other equity securities in one or more
transactions at prices and in a manner we determine from time to
time. If we sell common stock, convertible securities or other
equity securities in more than one transaction, investors in a
prior transaction may be materially diluted by subsequent sales.
Additionally, any such sales may result in material dilution to our
existing stockholders, and new investors could gain rights,
preferences and privileges senior to those of holders of our common
stock. Further, any future sales of our common stock by us or
resales of our common stock by our existing stockholders could
cause the market price of our common stock to decline. Any future
grants of options, warrants or other securities exercisable or
convertible into our common stock, or the exercise or conversion of
such shares, and any sales of such shares in the market, could have
an adverse effect on the market price of our common
stock.
Some provisions of our charter documents and applicable Delaware
law may discourage an acquisition of us by others, even if the
acquisition may be beneficial to some of our
stockholders.
Provisions in our
Certificate of Incorporation and Amended and Restated Bylaws, as
well as certain provisions of Delaware law, could make it more
difficult for a third-party to acquire us, even if doing so may
benefit some of our stockholders. These provisions
include:
●
the authorization
of 50.0 million shares of “blank check” preferred
stock, the rights, preferences and privileges of which may be
established and shares of which may be issued by our Board of
Directors at its discretion from time to time and without
stockholder approval;
●
limiting the
removal of directors by the stockholders;
●
allowing for the
creation of a staggered board of directors;
●
eliminating the
ability of stockholders to call a special meeting of stockholders;
and
●
establishing
advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon
at stockholder meetings.
These
provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making
it more difficult for stockholders to replace members of our board
of directors, which is responsible for appointing the members of
our management. In addition, we are subject to Section 203 of the
Delaware General Corporation Law, which generally prohibits a
Delaware corporation from engaging in any of a broad range of
business combinations with an interested stockholder for a period
of three years following the date on which the stockholder became
an interested stockholder, unless such transactions are approved by
the board of directors. This provision could have the effect of
discouraging, delaying or preventing someone from acquiring us or
merging with us, whether or not it is desired by or beneficial to
our stockholders.
Any
provision of our Certificate of Incorporation or Bylaws or of
Delaware law that is applicable to us that has the effect of
delaying or deterring a change in control could limit the
opportunity for our stockholders to receive a premium for their
shares of our common stock in the event that a potentially
beneficial acquisition is discouraged, and could also affect the
price that some investors are willing to pay for our common
stock.
The elimination of personal liability against our directors and
officers under Delaware law and the existence of indemnification
rights held by our directors, officers and employees may result in
substantial expenses.
Our
Certificate of Incorporation and our Bylaws eliminate the personal
liability of our directors and officers to us and our stockholders
for damages for breach of fiduciary duty as a director or officer
to the extent permissible under Delaware law. Further, our
Certificate of Incorporation and our Bylaws and individual
indemnification agreements we intend to enter with each of our
directors and executive officers provide that we are obligated to
indemnify each of our directors or officers to the fullest extent
authorized by the Delaware law and, subject to certain conditions,
advance the expenses incurred by any director or officer in
defending any action, suit or proceeding prior to its final
disposition. Those indemnification obligations could expose us to
substantial expenditures to cover the cost of settlement or damage
awards against our directors or officers, which we may be unable to
afford. Further, those provisions and resulting costs may
discourage us or our stockholders from bringing a lawsuit against
any of our current or former directors or officers for breaches of
their fiduciary duties, even if such actions might otherwise
benefit our stockholders.
We do not intend to pay cash dividends on our capital stock in the
foreseeable future.
We have
never declared or paid any dividends on our common stock and do not
anticipate paying any dividends in the foreseeable future. Any
future payment of cash dividends in the future would depend on our
financial condition, contractual restrictions, solvency tests
imposed by applicable corporate laws, results of operations,
anticipated cash requirements and other factors and will be at the
discretion of our Board of Directors. Our stockholders should not
expect that we will ever pay cash or other dividends on our
outstanding capital stock.