Item 1. Business.
Merger of Monster
Digital, Inc. and Innovate Biopharmaceuticals Inc.
On
January 29, 2018, Monster Digital, Inc. (“Monster”) and privately held Innovate Biopharmaceuticals Inc. (“Private
Innovate”) completed a reverse recapitalization in accordance with the terms of the Agreement and Plan of Merger and Reorganization,
dated July 3, 2017, as amended (the “Merger Agreement”), by and among Monster, Monster Merger Sub, Inc. (“Merger
Sub”) and Private Innovate, which changed its name in connection with the transaction to IB Pharmaceuticals Inc. (“IB
Pharmaceuticals”). Pursuant to the Merger Agreement, Merger Sub merged with and into IB Pharmaceuticals with IB Pharmaceuticals
surviving as the wholly owned subsidiary of Monster (the “Merger”). Immediately following the Merger,
Monster changed its name to Innovate Biopharmaceuticals, Inc. (“Innovate”). In connection with the closing of the Merger,
Innovate’s common stock began trading on the Nasdaq Capital Market under the ticker symbol “INNT” on February
1, 2018.
Prior to the Merger, Monster was incorporated in Delaware in November 2010 under the name “Monster Digital,
Inc.”
Except
as otherwise noted or where the context otherwise requires, as used in this report, the words “we,” “us,”
“our,” the “Company” and “Innovate” refer to Innovate Biopharmaceuticals, Inc. as of
and following the closing of the Merger on January 29, 2018 and, where applicable, the business of Private Innovate prior to the
Merger. All references to “Monster” refer to Monster Digital, Inc. prior to the closing of the Merger.
Overview
Prior to the Merger, Monster’s primary business focus was
the design, development and marketing of premium products under the “Monster Digital” brand for use in high-performance
consumer electronics, mobile products and computing applications.
After the Merger,
we are a clinical-stage biopharmaceutical company developing novel medicines for autoimmune and inflammatory diseases with unmet
needs. Our pipeline includes drug candidates for celiac disease, nonalcoholic steatohepatitis (NASH), Crohn’s disease (CD)
and ulcerative colitis (UC). Our lead program, INN-202 (larazotide acetate or larazotide) is entering Phase 3 registration
trials, targeted for the second half of 2018, and has the potential to be the first-to-market therapeutic for celiac disease, an
unmet medical need, which affects an estimated 1% of the North American population or approximately 3 million individuals. Celiac
patients have no treatment alternative other than a strict lifelong adherence to a gluten-free diet, which is difficult to maintain
and can be deficient in key nutrients. Additionally, current FDA labeling standards allow up to 20 parts per million (ppm) of
gluten in “gluten-free” labelled foods, which are sufficient to cause celiac symptoms in many patients, including
abdominal pain, abdominal cramping, bloating, gas, headaches, ataxia, ‘‘brain fog’’ and fatigue. Long-term
ramifications of celiac disease include enteropathy associated T-cell lymphoma (EATL), osteoporosis and anemia.
Figure 1: Larazotide’s mechanism of action is applicable
to multiple diseases.
Larazotide is
an 8-amino acid peptide orally administered in a capsule which has been tested in more than 500 celiac patients with statistically
significant improvement in celiac symptoms. The FDA has granted larazotide Fast Track Designation for celiac disease. Larazotide’s
safety profile was similar to placebo primarily because larazotide is not systemically absorbed into the blood circulation. Additionally,
larazotide’s mechanism of action (MoA) as a tight junction regulator is a new approach to treating autoimmune diseases,
such as celiac disease. Pre-clinical studies have shown larazotide causes a reduction in permeability across the intestinal epithelial
barrier, making it the only drug candidate known to us which is in clinical trials with this MoA. Increased intestinal permeability
underlies several diseases in addition to celiac disease, including NASH, Crohn’s disease, ulcerative colitis and irritable
bowel syndrome (IBS), among others (Figure 1). We are engaging in multiple research collaborations to expand larazotide’s
clinical indications with a shorter time to proof-of-concept due to its favorable safety profile.
With the release
of the Phase 2b trial data in 342 celiac patients at the 2014 Digestive Disease Week (DDW) conference, larazotide became the first
and the only drug for the treatment of celiac disease (published data), which met its primary efficacy endpoint with statistical
significance. The Phase 2b data showed statistically significant (p=0.022) reduction in abdominal and non-GI (headache) symptoms
as measured by the CeD PRO. After a successful End-of-Phase 2 meeting with the FDA, which confirmed the regulatory path forward,
we expect to launch the Phase 3 registration program later this year with topline data expected by 2019.
Larazotide
is being investigated as an adjunct to a gluten-free diet for celiac patients who continue to experience symptoms despite
adhering to a gluten-free diet. Due to the difficulty of maintaining a gluten-free diet due to lack of easy access to and the
higher cost of gluten-free foods, contamination from gluten as well as social pressures, it is estimated that more than half
the celiac population experiences multiple, potentially debilitating, symptoms per month. A study from the UK indicates that
more than 70% of patients diagnosed with celiac disease consume gluten either intentionally or inadvertently (Hall et al.
2013).
Another indication
for which larazotide is currently being developed is NASH. NASH is an unmet need disease affecting approximately 5%-6% of the US adult population. There are currently several drugs in development; however, to our knowledge, none have larazotide’s
MoA. We are developing a proprietary formulation of larazotide, INN-217, for efficient delivery to the intestine. INN-217 has
the potential to reduce the transport of lipopolysaccharide (LPS), which is produced by gram negative bacteria in the gut, from
the intestinal lumen to the liver via the portal circulation. Several studies have shown the link between NASH and increased levels
of LPS, which translocates across an inflamed, “leaky” epithelial barrier to the liver thus directly damaging liver
cells via an inflammatory cascade. INN-217 can potentially decrease the flux of LPS across the leaky epithelial barrier, which
is known to play an important role in the pathogenesis of NASH. Since none of the NASH drugs in development currently target intestinal
permeability, INN-217 has the potential to affect NASH alone and work synergistically with late stage NASH drugs in development,
which are primarily focused on metabolic targets such as farnesoid X receptor (FXR) and acetyl-CoA carboxylase (ACC).
Figure 2: LPS (Lipopolysaccharide) is a toxin produced by
intestinal bacteria and can translocate via the leaky epithelial barrier to the liver and damage liver cells. Thus LPS has been
implicated in the pathogenesis of NASH.
INN-108, is
in development for the treatment of mild-to-moderate UC. INN-108 is expected to be delivered orally using an azo-bonded pro-drug
approach linking mesalamine or 5-ASA (5-amino salicylic acid) to 4-APAA (approved as Actarit in Japan in 1994 for the treatment
of rheumatoid arthritis). After having completed a successful Phase 1 trial with a favorable safety profile at currently approved
doses of mesalamine, INN-108 is expected to enter a proof-of-concept Phase 2 trial. The azo-bond protects INN-108 (Figure 2) from
the low pH in the stomach, allowing it to transit to the colon where the UC lesions are primarily located. In the colon, the azo
bond is broken enzymatically by azoreductases, leading to the separation of mesalamine and 4-APAA which has a synergistic anti-inflammatory
effect. Although the majority of patients present with mild-to-moderate UC, the focus of drug development has been in moderate-to-severe
UC with little innovation or drug development for mild-to-moderate UC. The mainstay of treatment for mild-to-moderate UC continues
to be various oral reformulations of mesalamine such as Shire’s Lialda (approved 2007) and Pentasa (approved 1993), Allergan’s
Asacol HD (approved 2008) and Valeant/Salix’s Apriso (approved 2008).
We also own the global rights to INN-329, a proprietary formulation
of secretin, a peptide hormone which is used to improve visualization in magnetic resonance cholangiopancreatography (MRCP) procedures.
Secretin is a 27-amino acid long hormone which rapidly stimulates release of pancreatic secretions, thus improving visualization
of the pancreatic ducts during imaging procedures.
Our Strategy
Our goal is to
become a leading biopharmaceutical company by developing novel therapeutics that have the potential to transform current treatment
paradigms for patients and to address unmet medical needs. We are currently pursuing the development of drugs for autoimmune and
inflammatory diseases that target established biological pathways. The critical components of our strategy are as follows:
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Advance INN-202 (larazotide) for celiac disease into Phase
3 clinical trials.
Our highest clinical priority is to initiate the Phase 3 trials for larazotide for the
treatment of celiac disease. We had a successful End-of-Phase 2 meeting with the FDA in 2017. With the guidance and agreement
reached with the FDA, we plan to initiate our Phase 3 trials during the second half of 2018.
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Accelerate development of INN-217 (larazotide) for NASH.
Increased intestinal
permeability leads to LPS translocation to the liver and is one of the key recognized pathogenic factors in NASH. Larazotide’s
mechanism of action to decrease intestinal permeability could thus have a therapeutic effect in NASH. We plan
to develop larazotide alone and in combination with select NASH therapies in clinical trials with the potential for synergistic
therapeutic benefit.
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Further the study INN-108 for Ulcerative colitis
. We are currently developing plans to initiate the proof of concept Phase 2 trials for INN-108 for the treatment of UC. We plan to initially develop INN-108 for mild-to-moderate UC in adults.
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Further the study of INN-289 (larazotide) for Crohn’s disease.
The
mechanism of action of larazotide to decrease intestinal permeability can have a therapeutic effect in inflammatory bowel
disease (IBD). In an IL-10 knockout animal model, larazotide showed promising data which can position it for a
proof-of-concept study using a proprietary formulation of larazotide, INN-289, alone and in combinations with select approved
immunological therapies.
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Seek partnerships to commercialize late stage pipeline drugs.
With large
addressable markets, such as celiac disease, we plan to seek out partners with established presences and histories of successful
commercialization.
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Leverage and protect our existing intellectual property portfolio and secure patents for additional indications.
We intend to continue to expand our intellectual property protection strategy, grounded in securing composition of matter patents and method of use patents for newer indications. We plan to develop newer formulations for the product candidates for other indications and improved performance of existing indications.
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In-license additional intellectual property and pipeline drugs to expand our presence in the treatment of autoimmune and inflammatory diseases
. In addition to broadening our current pipeline through indication expansion, we plan to explore expansion of our product pipeline through in-licensing, strategic partnerships and product acquisitions, as we did in 2016 by in-licensing of larazotide from Alba Therapeutics Corporation. We expect that future pipeline expansion decisions will be based on the unmet medical needs in autoimmune and inflammatory disease areas including, but not limited to, celiac disease and ulcerative colitis, the commercial opportunity, and the ability to rapidly develop and commercialize a product candidate.
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Leverage the expertise of our management team and network of scientific advisors and key opinion leaders
. We are led by a strong management team with deep experience in drug development, collaborations, operations, and corporate finance. Our team has been involved in a broad spectrum of R&D activities leading to successful outcomes, including FDA approvals and drug launches. We will continue to leverage the collective experience and talent of our management team, network of leading scientific experts, and key opinion leaders to strategize and implement our development and eventually our commercialization strategy.
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Out-license our non-core assets/indications and establish research collaborations
. From time to time, we review our internal research priorities and therapeutic focus areas and may decide to out-license non-core assets/indications that arise from current and future available data. We may seek research collaborations that leverage the capabilities of our core assets to monetize and expand upon the breadth of opportunities that may be accessible through our drug candidates.
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Outsource capital intensive operations
. We plan to continue to outsource capital intensive operations, including most clinical development and all manufacturing operations of our product candidates, to facilitate the rapid development of our pipeline by using high quality specialist vendors and consultants in a capital efficient manner.
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Our Drug Product Pipeline
Our current
pipeline is focused on clinical stage assets with large markets and unmet medical needs. We continue to leverage additional proof-of-concept
work for larazotide to expand into additional indications, including NASH, Crohn’s disease and ulcerative colitis. The following
table summarizes key information about our pipeline of drug product candidates to date (Table 1):
Table 1: Our key pipeline products are clinical stage and
address large markets with chronically dosed therapies.
INN-202 (Larazotide) for Celiac Disease
Larazotide is
being developed for the treatment of celiac disease and has successfully completed a Phase 2b trial showing statistically significant
reduction in abdominal and non-GI (headache) symptoms. We are planning to launch the Phase 3 trials in the second half of 2018.
Larazotide is
an orally administered, locally acting, non-systemic, synthetic 8-amino acid (Figure 3), tight junction regulator
being investigated as an adjunct to a gluten-free diet in celiac disease patients who still experience persistent GI symptoms despite
being on a gluten-free diet. Larazotide’s favorable safety profile and the lack of absorption into the blood circulation
are advantages for a chronically dosed lifetime medication.
The larazotide drug product is an enteric coated drug product formulated
as enteric coated multiparticulate beads filled into hard gelatin capsules for oral delivery. The enteric coating is designed to
allow the bead particles to bypass the stomach and release larazotide upon entry into the small intestine (duodenum). A mixed bead
formulation is used to allow partial release of larazotide upon entry into the duodenum and to release the remaining larazotide
approximately 30 minutes later. In clinical trials, larazotide has been dosed 15 minutes before meals allowing time for its effect
in the small bowel before exposure to gluten.
Figure 3: Larazotide acetate is an 8-amino acid peptide in an oral capsule using a proprietary formulation
Larazotide’s Mechanism
of Action
In research studies supportive of the mechanism of action, larazotide
has been shown to stimulate recovery of mucosal barrier function via the regulation of tight junctions both
in vitro
and
in vivo
, including in a celiac disease mouse model (Gopalakrishnan, 2012). In doing so, it is proposed that larazotide reduces
the symptoms associated with celiac disease.
In several autoimmune
diseases, this increased intestinal permeability or paracellular leakage allows increased exposure to a triggering antigen and
a consequent inflammatory response, the characteristics of which are determined by the particular disease and the genetic makeup
of the individual. A new paradigm for autoimmune diseases is that there are three contributing factors to the development of disease:
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1.
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A genetically susceptible immune system that allows the host to react abnormally to an environmental antigen;
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2.
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An environmental antigen that triggers the disease process; and
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3.
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The ability of the environmental antigen to interact with the immune system.
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Larazotide regulates
tight junction opening triggered by both gluten and inflammatory cytokines, thus reducing uptake of gluten. Larazotide also disrupts
the intestinal permeability-inflammation loop, and has been shown to reduce symptoms associated with celiac disease.
Larazotide’s Dose Response
Previously published
in vitro
work using Caco-2 cells has
shown a linear dose response for larazotide in reducing permeability of the epithelial barrier by tightening the tight junctions
(Gopalakrishnan, 2012). In several clinical trials, larazotide has exhibited clinical benefit by reducing celiac symptoms at lower
doses while inhibition of this activity occurs at the higher doses. To better understand this observation, Dr. Anthony Blikslager
from North Carolina State University evaluated the pharmacology of larazotide at the luminal surface of the small intestine in
an
ex vivo
porcine model. A section of the porcine intestine was ligated, placed in an Ussing chamber and changes in permeability
were measured by electrical resistance. Multiple experiments demonstrated that following an ischemic insult causing increased intestinal
permeability, full length larazotide is capable of restoring intestinal wall integrity to that of the non-ischemic control. Subsequently,
it was discovered that a specific aminopeptidase located within the brush borders of the intestinal epithelium cleaves larazotide
into two fragments which lack either one or both N-terminus glycine (G) residues (
GG
VLVQPG). Both cleaved fragments,
GVLVQPG and VLVQPG, do not decrease intestinal permeability. Moreover, when these two fragments are administered in combination
with the active full-length larazotide, they inhibit larazotide’s activity to restore intestinal wall integrity or reduce
permeability. These data demonstrate that higher doses of larazotide lead to local buildup of breakdown fragments, which then compete
with and block activity of larazotide after threshold concentration is reached. The
in vitro
experiments using Caco-2 monolayers
did not show the same pharmacology and dose response because they lack the brush border and therefore lack the aminopeptidase which
cleaves larazotide. These data also provide an explanation for the clinical observations of an optimal lower dose of larazotide,
which avoids the reservoir of competing inactive fragments generated at high doses of larazotide.
Figure 4: An aminopeptidase in the brush border cleaves larazotide
into two fragments, #1 and #2, which then act as inhibitors of larazotide
Figure 5: Illustrative effect of gluten ingestion,
breakdown to gliadin which can cross a “leaky” epithelial barrier in the small bowel thus activating the
intestinal-inflammatory loop and leading to symptoms and villous atrophy.
The Intestinal Barrier, Tight
Junctions, and Intestinal Permeability
The intestine is one of the largest interfaces between a person
and his or her environment, and an intact intestinal barrier is essential in maintaining overall health. An important function
of the intestinal barrier is to regulate the trafficking of macromolecules between the environment and the host. Together with
gut-associated lymphoid tissue and the neuroendocrine network, the intestinal epithelial barrier controls the equilibrium between
tolerance and immunity to non self-antigens. When the finely tuned trafficking of macromolecules is dysregulated, both intestinal
and extra-intestinal autoimmune disorders can occur in genetically susceptible individuals (Figure 5).
Transcellular fluxes (through the cell membrane) allow nutrients
and small molecules to enter the cell from the luminal side of the intestine and exit on the serosal side (internal milieu). Paracellular
fluxes (between cells) in contrast are limited by size and charge constraints imposed by the tight junctions between epithelial
cells. The paracellular pathway is the key regulator of intestinal permeability to larger more complex macromolecules that may
be immunogenically significant.
Intestinal epithelial cells adhere to each other through junction
complexes. The tight junction, also referred to as zonula occludens, represents the major barrier to diffusion within the paracellular
space between intestinal cells. Multiple proteins that make up the tight junction have been identified including occludin, claudin
family members, and junctional adhesion protein (JAM). These interact with cytosolic proteins (ZO-1, ZO-2, and ZO-3) that function
as adaptors between the tight junction proteins and actin and myosin contractile elements within the cell. Acting together, they
open and close the paracellular junctions between cells. It is now apparent that tight junctions are dynamic structures that are
involved in developmental, physiological, and pathological processes.
The role of tight junction dysfunction in the pathogenesis of autoimmune
diseases is under active investigation. Many autoimmune populations have increased intestinal permeability, and it is believed
that this may play a fundamental role in the development of autoimmunity. In susceptible populations, the opening of tight junctions
between intestinal epithelial cells may lead to exposure to oral antigens via paracellular transport and a consequent autoimmune
response. A wide range of gastrointestinal and systemic inflammatory diseases are associated with abnormal intestinal permeability
including celiac disease, type 1 diabetes, inflammatory bowel diseases (Crohn’s disease and UC), and ankylosing spondylitis.
Summary of Key Clinical Trials using Larazotide in Celiac Disease
Larazotide
has been administered to humans in seven clinical trials. These include three Phase 1 trials: (two trials in healthy subjects
and a Phase 1b proof of concept (POC) trial in subjects with celiac disease), two Phase 2 gluten challenge studies in
subjects with controlled celiac disease, and additionally two Phase 2 trials in subjects with active celiac disease (Table
2). After demonstrating a favorable safety profile in the Phase 1 studies, larazotide was tested to explore which endpoint
would be suitable for celiac disease. After looking at permeability changes in the gut, which turned out to be highly
variable in a large trial setting, and then mucosal healing, which likely requires a longer-term study, symptom reduction
showed the most consistent and reliable reduction both in a gluten challenge and a ‘‘real-life’’
trial. Importantly, after exposure in more than 800 subjects, the safety profile of larazotide remained similar to placebo
due to its lack of absorption into the bloodstream, which we believe is an important advantage for a chronically dosed drug.
The initial Investigational New Drug Application (IND) for the treatment of celiac disease was filed with the FDA by
Alba Therapeutics Corporation (Alba) on 12 August 2005 for the use of larazotide acetate (INN-202). The IND was transferred
from Alba to Innovate effective March 8, 2016. Over the course of the seven clinical studies, 5 patients experienced a
serious adverse event, of which 2 received placebo and 3 received larazotide. None of these events were considered related to
treatment with study medication.
Trial
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Study Date
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Clinical Trial
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No. of Subjects
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-001
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2005
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Phase 1: Single Escalating Doses in Healthy Volunteers
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24
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-002
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2005-06
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Phase 1b: Multiple Dose POC in Celiac Patients – Gluten Challenge
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21
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-003
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2006
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Phase 1: Multiple Escalating Dose in Volunteers
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24
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-004
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2006-07
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Phase 2a: Multiple Dose POC in Celiac Patients Gluten Challenge 2 weeks
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86
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-006
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2008
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Phase 2b: Dose Ranging, in Celiac Patients Gluten Challenge, 6 weeks
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184
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-011
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2008-09
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Phase 2b: POC and Dose Ranging in Active Celiac Patients
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105
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-06B
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2008
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Phase 2b: Similar to -006, in Celiac Patients
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42
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-012
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2011-13
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Phase 2b: Multiple dose in Celiac patients with Symptoms on a Gluten-Free Diet
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342
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Table 2: Significant drug exposure in more than 800 subjects
in multiple clinical trials consistently showed a safety profile similar to placebo, which we believe is an important advantage
for chronic lifetime administration.
Clinical Trial (‘006) Results Revealed Key Insight into
Symptom Reduction as a Primary Endpoint
A Phase 2b study with a gluten challenge (CLIN1001-006) was conducted
in 184 subjects with well-controlled celiac disease on a gluten-free diet. Subjects were randomized to one of four treatment groups,
(placebo, 1 mg, 4 mg, or 8 mg larazotide) and asked to take treatment 15 minutes prior to each meal (TID). Nine hundred (900) mg
of gluten was taken with each meal. Subjects remained on their gluten-free diet throughout the duration of the trial. The trial
results revealed key insights into how to move the program forward by focusing on reduction of symptoms. The 1-mg dose prevented
the development of gluten-induced symptoms as measured by GSRS (a patient-reported outcome (PRO) devised and validated by AstraZeneca),
and all drug treatment groups had lower anti-transglutaminase antibody levels than the placebo group. Results of pre-specified
secondary endpoints suggest that larazotide reduced antigen exposure as manifested by reduced production of anti-tissue transglutaminase
(tTG) levels and immune reactivity towards gluten and gluten-related gastrointestinal symptoms in subjects with celiac disease
undergoing a gluten challenge.
Figure 6: The overall trial designs for Phase 2b and Phase
3 are similar with a screening period followed by 12 weeks of randomization to larazotide vs. placebo.
Figure 7: Responder Rate Analysis: Larazotide is the only drug
in development for celiac disease to meet its primary endpoint with statistical significance as measured by the copyrighted CeD
PRO (celiac disease patient reported outcome), an FDA-agreed upon primary endpoint for Phase 3 (shown above). Source: Gastroenterology
2015; 148:1311–1319; p. 1315
Clinical Trial (‘012) Met the Primary Endpoint with Statistical
Significance (CeD-GSRS/CeD PRO)
The purpose of the ‘012 study was to assess the efficacy (reduction
and relief of signs and symptoms of celiac disease) of 3 different doses of larazotide (0.5 mg, 1 mg, and 2 mg TID) versus placebo
for the treatment of celiac disease in adults as an adjunct to a gluten-free diet. Larazotide or placebo which was administered
TID, 15 minutes prior to each meal. After a screening period, subjects were asked to continue following their current gluten-free
diet into a placebo-run in phase for 4 weeks after which they were randomized to drug versus placebo. Subjects maintained an electronic
diary capturing: daily symptoms celiac disease patient reported outcome (CeD-PRO), weekly symptoms (CeD-GSRS), bowel movements
(BSFS), and a self-reported daily general well-being assessment (Figure 6).
The primary endpoint of average on-treatment CeD GSRS score throughout
the treatment period was met at the 0.5 mg TID dose. In addition, a number of pre-specified secondary and exploratory endpoints,
such as symptomatic days and symptom-free days, collectively demonstrated that a dose of 0.5 mg TID was superior to placebo and
higher doses of larazotide. No difference was observed between the two higher dose levels (1 and 2 mg TID) or placebo, suggesting
a narrow dose range around the 0.5mg dose which seems to correlate with pre-clinical data.
Figure 8: Treatment effect of larazotide from the Phase 2b trial
(‘012) compared to approved IBS/CIC drugs with varying treatment effects mostly in the mid to high single digit range. Source:
Gastroenterology 2015; 148:1311–1319; p. 1315 and FDA Drug Labels
The CeD PRO, a
copyrighted PRO created specifically for celiac disease and wholly owned by us, showed a statically significant (p=0.022)
treatment effect of 14.3% (drug responder rate minus placebo responder rate). Although to our knowledge there are no celiac
drugs approved as a comparator, the treatment effect was greater than several other GI dugs approved for IBS and chronic
idiopathic constipation (CIC) which use a similar clinical trial design (Figure 8).
Path Forward to Phase 3 Trials
After a successful End-of-Phase 2 meeting with the FDA, agreements
were reached on the key aspects of the Phase 3 trials. The FDA agreed on using the previously validated CeD PRO as the primary
endpoint with two doses of larazotide which bracket the range of efficacy in previous trials. Two Phase 3 trials with a size of
about 500 patients each would allow for more than a 90% power to replicate the Phase 2b trial results. Most other criteria, such
as inclusion, exclusion and site selection/coordination, are expected to remain similar to the ‘012 Phase 2b trial.
About Celiac Disease
Celiac disease is a genetic autoimmune disease triggered by the
ingestion of gluten-containing foods such as wheat, barley, and rye. Individuals with celiac disease have increased intestinal
permeability, commonly referred to as a ‘‘leaky’’ gut. This allows macromolecules that normally remain
on the luminal side of the intestine to pass through to the serosal side through tight junctions via paracellular diffusion (Figure
9). In the case of celiac disease, this permeability may allow gluten break-down products, the triggering antigens of celiac disease,
to reach gut-associated lymphoid tissue(GALT), initiating an inflammatory response. Celiac disease is characterized by chronic
inflammation of the small intestinal mucosa that may result in diverse symptoms, malabsorption, atrophy of intestinal villi, and
a variety of clinical manifestations.
Figure 9: The epithelial barrier separates the intestinal content
from the immune system (lamina propria) and the vasculature.
Figure 10: Intestinal villi atrophy in celiac patients, a characteristic
finding upon biopsy of the small intestine.
Large Population —
Unmet Need (no drug approved); Serious Long-Term Consequences
Celiac disease
affects an estimated 1% of the Western population (Dubé, 2005). Currently, there are no therapeutics available to treat
celiac disease, and the current management of celiac disease is a life-long adherence to a gluten-free diet. Changes in dietary
habits are difficult to maintain, and foods labeled as gluten-free may still contain small amounts of gluten (up to 20 ppm
per FDA labeling standards). Dietary compliance is imperfect in a large fraction of patients (Rostom, 2006) and difficult to adhere
to on an ongoing basis (Green, 2007). In a survey conducted in the United Kingdom non-adherence to the gluten-free diet was found
to be as high as 70% (Hall, 2013).
There are serious long-term consequences to exposure to gluten in
patients with celiac disease, including the risk of developing osteoporosis, stomach, esophageal, or colon cancers, and T-cell lymphoma
(Green 2003, Green 2007). The continuous GI symptoms often result in significant morbidity with a substantial reduction in quality
of life. In addition, not all patients respond to a gluten-free diet. Patients with known celiac disease may continue to have or
re-develop symptoms despite being on a gluten-free diet (Rostom 2006). This suggests a need for a therapeutic agent for the treatment
of celiac disease (Green, 2007; Hall, 2013).
Celiac disease represents a model of an autoimmune disorder in which
the following elements are known:
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1.
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The triggering environmental factor is glutenin or gliadin, the proline, glutamine and glycine rich glycoprotein fractions of gluten;
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2.
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There is a close genetic association with HLA haplotypes DQ2 and/or DQ8; and
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3.
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A highly specific humoral autoimmune response occurs.
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Genetics of Celiac Disease
The high incidence of celiac disease in first degree relatives of
celiac patients (10 − 15%) and high concordance rate in monozygotic twins (80%) suggest a strong genetic component. Gliadin
deamidation by tissue transglutaminase (tTG) enhances the recognition of gliadin peptides by human leukocyte antigen (HLA) DQ2
and DQ8 T cells in genetically predisposed subjects, which in turn may initiate the cascade of autoimmune reactions responsible
for mucosal destruction. This interaction implies that gliadin and/or its breakdown peptides in some way cross the intestinal epithelial
barrier and reach the
lamina propria
of the intestinal mucosa where they are recognized by antigen-presenting cells. The
enhanced paracellular permeability of individuals with celiac disease would allow passage of macromolecules through the paracellular
spaces with resulting autoimmune inflammation. There is a strong genetic predisposition to celiac disease, with major risk associated
with HLA DQ2 (approximately 95% of celiac disease patients) and HLA-DQ8 (approximately 5% of celiac disease patients). The prevalence
of celiac disease in the U.S. is estimated to be approximately 1%; however approximately 30% of the general U.S. population is
HLA DQ2 positive (Figure 11), indicating that additional factors are involved in the development of celiac disease.
Figure 11: Distribution of HLA-DQ2/DQ8 in the general US population
and in celiac disease. Source: J. Clin. Invest. 2007 Jan 2;117(1):41.
In celiac disease, an inflammatory reaction occurs in the intestine
that is characterized by infiltration of immune cells in the
lamina propria
and epithelial compartments with chronic inflammatory
cells and progressive architectural changes to the mucosa. Both adaptive and innate branches of the immune system are involved.
The adaptive response is mediated by gluten-reactive CD4+ T cells in the
lamina propria
that recognize gluten-derived peptides
when presented by the HLA class II molecules DQ2 or DQ8. The CD4+ T cells then produce pro-inflammatory cytokines such as interferon
gamma. This results in an inflammatory cascade with the release of cytokines, anti-tTG antibodies, T cells, and other tissue-damaging
mediators leading to villous injury and crypt hyperplasia in the intestine. Anti-human tissue transglutaminase (anti-tTG) antibodies
are also produced, which form the basis of serological diagnosis of celiac disease.
Anti-tTG Antibodies: Highly Sensitive
and Specific Blood-based ELISA Diagnostic Test
The current approach for diagnosis of celiac disease is to use anti-tissue
transglutaminase-2 (tTG-2) antibody tests as an initial screen with definitive diagnosis from biopsy of the small intestine mucosa.
The diagnosis of celiac disease is confirmed by demonstration of characteristic histologic changes in the small intestinal mucosa,
which are scored based on criteria initially put forth by Marsh and later modified. In 2012, the European Society of Pediatric
Gastroenterology, Hepatology, and Nutrition (ESPGHAN) Guidelines allowed symptomatic children with serum anti-tTG antibody levels
≥10 times upper limit of normal to avoid duodenal biopsies after positive human leukocyte (HLA) test and serum anti-endomysial
antibodies.
The need for multiple clinical and laboratory findings to diagnose
celiac disease makes monitoring disease progression difficult. International guidelines give standardized definitions and criteria
for the diagnosis of celiac disease, however there are not clear standards for follow-up and monitoring of treatment. This is particularly
true for celiac patients diagnosed as adults, who respond differently and less completely to a gluten-free diet than do celiac
patients diagnosed as children. It is not clear who should perform follow-up of patients with celiac disease and at what frequency
but the American College of Gastroenterology suggests that an annual follow-up seems reasonable. Recommendations for monitoring
disease progression include assessing symptoms and dietary compliance, and repeating serology tests. Markers of celiac disease
progression and improvement that are both validated and provide a timely assessment of disease activity are lacking.
Role of Tissue Transglutaminase in Celiac Disease
Anti-tTG-2 antibodies are produced in the small-intestinal mucosa
(Picarelli et al. 1996), where they can bind tTG-2 present in the basement membrane and around blood vessels and form deposits
characteristic of the disease. tTG-2 has been implicated in a variety of human disorders including several neurodegenerative conditions
and cancer. Transglutaminases (TGs) were first discovered in the 1950s and are a family of enzymes which catalyze Ca2+-dependent
post-translational modification of proteins. Of the seven isoforms discovered so far all share the same basic four-domain tertiary
structure, with minor variations, although their catalytic mechanism is conserved, resembling that of the cysteine proteases. tTGs
cause transamidation, esterification, and hydrolysis, all of which lead to post-translational modifications in the target proteins.
Characteristically, tTG’s mediate selective protein cross-linking by forming covalent isopeptide linkages between two target
proteins. The resulting cross-linked products in many cases have high molecular masses and are unusually resistant to proteolytic
degradation and mechanical strain. As in the case of the gliadin fragments in celiac disease, they are able to pass thru the leaky
paracellular pathway from the lumen to the
lamina propria
, where the immune cells reside and are then activated.
Gliadin fragments, in addition to being rich in proline, also have
high glutamine content, which makes them suitable substrates for tTG-2, which targets glutamine residues. For augmented DQ2/8 binding,
the conversion of glutamine residues to glutamic acid is catalyzed by tTG-2 as a deamidation reaction. After deamidation, the gliadin
peptides become highly negatively charged in key anchor positions, thereby increasing their affinity to the HLA molecules. CD4+
T cells recognize the deamidated gliadin peptides bound to the HLA DQ2 or DQ8 molecules by their T cell receptors, thus activating
intestinal inflammation leading to villous atrophy.
Gluten and Food Labeling
Gluten is a complex
molecule contained in several grains such as wheat, rye and barley. Gluten can be subdivided into two major protein subgroups
according to its solubility in alcohol and aqueous solutions. These subclasses consist of gliadins, soluble in 40 − 70%
ethanol and glutenins which are large, polymeric molecules insoluble in both alcohol and aqueous solutions. The gliadins and glutenins
can be further subdivided into groups according to their molecular weight. Glutenins can be subdivided into low and high molecular
weight proteins, while the gliadin protein family contains α-, β-, γ- and ω- types. Both glutenins and
gliadins are characterized by a high amount of prolines (20%) and glutamines (40%) that protect them from complete degradation
in the gastrointestinal tract and make them difficult to digest. Currently 31 nine-amino acid peptide sequences in the prolamins
of wheat and related species have been defined as being celiac toxic or celiac ‘‘epitopes.’’ These epitopes
are located in the repetitive domains of the prolamins, which are proline and glutamine-rich, and the high levels of proline make
the peptide resistant to proteolysis. In addition, the prolamin-reactive T cells also recognize these epitopes to a greater extent
when specific glutamine residues in their sequences have been deamidated to glutamic acid by tTG-2. The immunodominant sequence
after wheat challenge corresponds to a well-characterized 33 residue peptide from α-gliadin, ‘‘33-mer,’’
that is resistant to gastrointestinal digestion (with pepsin and trypsin) and was initially identified as the major celiac toxic
peptide in the gliadins.
The FDA finalized a standard definition of ‘‘gluten-free’’
in August 2013. As of August 5, 2014, all manufacturers of FDA-regulated packaged food making a gluten-free claim must comply with
the guidelines outlined by the FDA (
www.fda.gov/gluten-freelabeling
). A ‘‘gluten free’’ claim still
allows up to 20 ppm of gluten which leads to more than 100mg/day up to 500 mg/day of gluten exposure. Due to presence of gluten
in foods, beer/liquor, cosmetics and household products, exposure is virtually impossible to completely avoid, and with cross-contamination,
celiac patients cannot avoid exposure to gluten therefore, making symptoms more frequent than expected.
CNS
|
|
Endocrine
|
|
Oncology/Heme
|
|
Skin
|
|
Other
|
Headaches
|
|
Type 1 Diabetes
|
|
Enteropathy
associated T-cell
lymphoma (EATL)
|
|
Dermatitis herpetiformis
|
|
Rheumatoid arthritis (RA)
|
Gluten ataxia
|
|
Autoimmune
Thyroid
|
|
anemia
|
|
Alopecia areata
|
|
Reduced bone
Density
|
Peripheral neuropathies
|
|
Addison’s disease
|
|
|
|
Vitiligo
|
|
Sjogren’s syndrome
|
Table 3: Diseases associated with celiac
disease
Non-GI Manifestations of Celiac Disease and Co-Morbidities
Headache, Gluten Ataxia: Nervous System Manifestation of Celiac
Diseas
e. The association between celiac disease and neurologic disorders has been supported by numerous studies over the past
40 years. While peripheral neuropathy and ataxia have been the most frequently reported neurologic extra-intestinal manifestations
of celiac disease a growing body of literature has established headache as a common presentation of celiac disease as well. The
exact prevalence of headache among patients ranges from about 30% to 6% (Lebwohl, 2016).
Dermatitis herpetiformis: Skin Manifestation of Celiac Disease.
Dermatitis herpetiformis (DH) is an inflammatory cutaneous disease characterized by intensely pruritic polymorphic lesions
with a chronic-relapsing course, first described by Duhring in 1884. DH’s only treatment is a strict lifelong gluten-free
diet, for achieving and maintaining a permanent control. It appears in around 25% patients with celiac disease, at any age of
life, mainly in adults and is a very characteristic clinical presenting symptom.
INN-217: Non-alcoholic steatohepatitis (NASH) and The Microbiome
NASH is a growing
epidemic affecting approximately 5 – 6% of the general population. An additional 10% to 20% of the general population who
ingest little (< 70 g/week for females and <140 g/week for males) to no alcohol are characterized with fat accumulation
in the liver, without inflammation or damage, a condition called nonalcoholic fatty liver disease (NAFLD). The progression of
fatty liver to NAFLD to NASH to cirrhosis is a serious condition which has no approved FDA treatment. Evidence supporting a role
for the gut-liver axis in the pathogenesis of NAFLD/NASH has been accumulating over the past 20 years. LPS or endotoxin translocation is thought to be a primary cause of downstream signaling in the liver causing inflammation and
damage. NASH is associated with increased gut permeability caused by disruption of intercellular tight junctions in the intestine
allowing LPS from bacteria to pass into the portal circulation to the liver directly damaging hepatocytes. LPS constitutes the
outer leaflet of the outer membrane of most gram-negative bacteria. LPS is comprised of a hydrophilic polysaccharide and a hydrophobic
component known as lipid A which is responsible for the major bioactivity of endotoxin. When released and translocated into the
bloodstream from the gut, LPS can cause a variety of cytokine activity and inflammation in the host.
The disrupted
barrier along with an altered microbiome in the gut contribute to NASH as recently demonstrated by a group from Emory University,
Rahman
et. al.
, in
Gastroenterology
(2016). Knockout mice missing the junctional adhesion molecule A (JAM-A) (
F11r-/-
),
which have a defect in the intestinal epithelial barrier thus making it “leaky,” develop more severe steatohepatitis.
JAM-A is a component of the tight junction complex that regulates intestinal epithelial paracellular permeability.
F11r-/-
mice therefore have leaky tight junctions that allow for translocation of gut bacteria to peripheral organs. By restoring
the leaky tight junctions, larazotide could potentially have a beneficial therapeutic effect by blocking translocation of bacterial
toxins via the paracellular pathway and may also help normalize the dysbiotic microbiome found in NASH.
Significant
growth in the market for NASH therapeutics is expected according to Global Data’s research across the major markets of the
United States, France, Germany, Italy, Spain, the United Kingdom, and Japan, with these markets expected to grow to around $25.3
billion by 2026. By affecting the tight junctions in the intestinal epithelium, larazotide, a non-absorbable peptide with an established
favorable safety profile in human subjects, has a potentially synergistic therapeutic effect due to its mechanism of action, could
act alone or in combination with the multitude of NASH compounds in clinical trials.
Figure 12: Growing NASH population up to 5%-6% of adults in the
US alone.
INN-289: Crohn’s Disease:
Chronic Disease with need to oral therapeutics
Innovate is
working on a proprietary formulation of larazotide for Crohn’s disease, INN-289. Animal data has shown the effect of larazotide
on disease attenuation in an IL-10 knockout mouse model (Arrieta, 2009), which has been well established and used for several
drug development programs. Larazotide was placed in the drinking water of the mice at a low dose (0.1 mg/ml) or high dose (1.0
mg/ml) during the period from 4 to 17 weeks of age. Results were compared to wild type mice, IL-10 knockout mice with no treatment,
and IL-10 knockout mice treated with probiotics. Intestinal and colonic permeability was significantly reduced in the high dose
larazotide treatment group, but not in the untreated IL-10 knockout group. Larazotide treatment caused a reduction in all tissue
markers of colonic inflammation (IFNγ and TNFα) and in histological inflammation.
Other Indications using Larazotide’s Mechanism of Action
Larazotide for Environmental Enteric Dysfunction (EED): Positive
in vitro Data;
Environmental
enteric dysfunction (EED) is a rare pediatric tropical disease in the U.S. and Europe, however, more than 165 million
children in developing countries in Africa and Asia suffer from it. As per section 524 of the Federal Food, Drug, and
Cosmetic Act (FD&C) Act, EED would likely fall under ‘‘Current List of Tropical Disease’’ number
‘S,’ thus making a drug approved for EED in the U.S. potentially eligible for a Priority Review Voucher.
The histological
presentation of EED is very similar to celiac disease with villous atrophy and chronic inflammation of the small bowel and the
pathogenesis of EED is linked to increased intestinal permeability. We have tested larazotide against some of the pathogens commonly
found in EED (unpublished) and found positive
in vitro
results which will need to be confirmed in animal models before
starting a clinical trial in EED.
INN-108: Mild-to-Moderate Ulcerative Colitis
INN-108 is in
development for mild-to-moderate UC and is expected to enter a proof-of-concept Phase 2 trial in the second half of 2018 after
a successful Phase 1 trial demonstrating a favorable safety profile at currently approved doses of mesalamine. UC is an IBD that
affects more than 1.25 million people in the major markets of the United States, France, Germany, Italy, Spain, the United Kingdom,
and Japan and is characterized by inflammation and ulcers in the colon and rectum. UC is a chronic disease that can be debilitating
and sometimes lead to life-threatening complications. While poorly understood, a multitude of environmental factors and genetic
vulnerabilities are thought to lead to the dysregulation of the immune response via a defective epithelial barrier. Although the
majority of patients present with mild-to-moderate UC which can progress to severe UC, the focus of drug development has been in
moderate-to-severe UC with little innovation or drug development for mild-to-moderate UC. The mainstay of treatment for mild-to-moderate
UC remain various oral reformulations of mesalamine or 5-ASA (5-amino salicylic acid) such as Shire’s Lialda (approved 2007)
and Pentasa (approved 1993), Allergan’s Asacol HD (approved 2008) and Valeant/Salix’s Apriso (approved 2008).
The initial
IND was filed with the FDA by Nobex Corporation on 15 May 2003 for the use of APAZA (INN-108) for the treatment of ulcerative colitis.
The IND was then transferred from Seachaid Corporation to Innovate effective 19 March 2014. Two Phase 1 studies in healthy subjects
and patients with ulcerative colitis were conducted by Nobex with INN-108. No serious adverse events were reported during either
study.
INN-108 uses an azo-bonded pro-drug approach linking mesalamine
to 4-APAA. Mitsubishi Pharma developed 4-APAA as Actarit in Japan which was approved in 1994 for rheumatoid arthritis. IBD drugs
were all originally approved for RA, from the oldest 5-ASA, sulfasalazine, to the latest biologics, Humira and Enbrel. 4-APAA has
more than two decades of safety data as a standalone drug and has an MoA which is differentiated from mesalamine though the ultimate
effect for both is anti-inflammatory (Figure 13). Taken orally as a tablet, the azo-bond protects INN-108 from the low pH in the
stomach, thus allowing it to transit to the colon where the UC lesions are located. In the colon, the azo bond is broken enzymatically
leading to the release of mesalamine and 4-APAA which have a synergistic anti-inflammatory effect. With the addition of 4-APAA,
which is not approved in the U.S. or EU, to the already approved mesalamine, the synergistic effect could lead to superior clinical
efficacy over the currently approved oral mesalamines.
Figure 13: 4-APAA is covalently bonded to 5-ASA via a high
energy azo-bond which is only enzymatically cleaved in the colon. The anti-inflammatory effect of each of 5-ASA and 4-APAA
via different pathways which could lead to a potential synergistic anti-inflammatory effect as seen in animal
studies.
INN-108: UC Animal Model Data Shows Synergy
between 4-APAA and Mesalamine
The effects of chronic treatment with INN-108 on
Clostridium
diffıcile
toxin A — induced colitis of the colon is shown in Figure 14. Orally administered INN-108 was significantly
more potent than sulfasalazine or 4-APAA alone (McVey, 2005).
Figure 14: A rat UC model using toxin A induced-colitis as the
insult leads to sloughing of the colonic epithelium with increasing doses. Using sulfasalazine vs. INN-108 to protect against the
toxin A injury showed INN-108 was significantly more potent that sulfasalazine. Source: McVey DC et al. Digestive Diseases and
Sciences. 2005 Mar 1;50(3):565-73.
INN-108 Clinical Development Pathway
After completing
a Phase 1 study with 24 subjects, a favorable safety profile was established with dosing of mesalamine and 4-APAA at 2 grams each
for a total of 4 grams TID. The typical dose of the various approved mesalamine formulations range from 1.5g to 2.4g per day, thus
INN-108’s mesalamine content is within the established approved dose range. The addition of 4-APAA is thought to improve
the efficacy above mesalamine, which would allow INN-108 to be used either after or instead of current mesalamines. In a Phase
2 trial, we plan to compare INN-108 to mesalamine seeking to demonstrate a greater clinical effect than mesalamine alone.
Ulcerative Colitis: Lack of Innovation in New Drug Development
for Past Several Decades
Conventional therapies broadly inhibit mechanisms involved in the
inflammatory process and are commonly used to effectively treat patients experiencing a mild-to-moderate form of the disease. For
mild-to-moderate UC, oral mesalamine has an established efficacy and safety profile. However, gastroenterologists cite the need
for new therapies for mild-to-moderate UC.
Patients who
do not respond to mesalamine are typically eventually transitioned to biologics. The primary targets for biologics have been
to control the immune response and inflammatory cascade, by inhibiting or downregulating molecules such as TNF-α,
NF-κB, IL-1β and IFN1-γ. We believe INN-108 bridges the gap between mesalamine and biologics by its
mechanism of action of both inhibiting the inflammatory process and down-regulating the cytokines.
About Ulcerative Colitis
UC is a chronic intermittent relapsing inflammatory disorder of
the large intestine and rectum. While poorly understood, a multitude of environmental factors and genetic vulnerabilities are thought
to lead to the dysregulation of the immune response via a defective epithelial barrier. As a result, chronic inflammation and ulceration
of the colon occurs. UC is specific to the colon and affects only the mucosal lining of the colon. Common symptoms of UC include
diarrhea, bloody stools, and abdominal pain. The majority of patients are intermittent in their disease course, in that they experience
a relapse among periods of remission. However, some patients experience only a single episode of the disease prior to maintaining
remission whereas other patients are chronically symptomatic and may require a proctocolectomy to treat their condition.
History of Drug Development in Mild-to-Moderate Ulcerative Colitis
The original compound used in UC was sulfasalazine (Azulfidine),
a conjugate of 5-ASA linked to sulfapyridine by an azo bond, which is split into the two molecules by bacterial azoreductases in
the colon. The 5-ASA component or mesalamine is the active therapeutic moiety of sulfasalazine, with sulfapyridine thought to have
little if any therapeutic effect. Sulfapyridine, however, is the cause of most of the significant adverse side effects of sulfasalazine.
This led to the development of other 5-ASA preparations utilizing
azo chemistry to deliver high concentrations of mesalamine or 5-ASA to the colon by preventing early absorption of the drug in
the small intestine. Such preparations include olsalazine (Dipentum), consisting of two molecules of 5-ASA bonded together by an
azo bond, and balsalazide (Colazal), consisting of 5-ASA azo bonded to an inert carrier (4-aminobenzoyl-β-alanine). The efficacy
of these newer oral forms of 5-ASA is comparable to that of sulfasalazine, but they are better tolerated. However, some side effects
persist which prevent wider use. In each of these preparations, the only active moiety is mesalamine or 5-ASA, an anti-inflammatory
agent.
INN-329
INN-329 is a proprietary
formulation of secretin, a peptide hormone which is used to improve visualization in a magnetic resonance cholangiopancreatography
(MRCP) procedures. Secretin is a 27-amino acid long hormone which rapidly stimulates release of pancreatic secretions, thus improving
visualization of the pancreatic ducts during imaging procedures. Secretin has also been tested in a variety of central nervous
system conditions such as autism, though currently approved only for pancreatic function testing and imaging with endoscopic retrograde
cholangiopancreatography (ERCP).. We acquired the assets of secretin from Repligen Corporation in December 2014.
The initial
IND and was filed with the FDA by Repligen on July 29, 2005 for MRCP. The IND was transferred from Repligen to Innovate
in January 2015. The New Drug Application (NDA) for MRCP was filed with the FDA on December 21, 2011 and was transferred to
Innovate in January 2015.
MRCP has been used for more than 20 years as a non-invasive tool
for imaging pancreatic ducts. With the addition of secretin pancreatic secretions are increased leading to significantly improved
visualization of the pancreatic ducts for detection of abnormalities, including pancreatic cancer. The gold standard for pancreatic
duct imaging had been ERCP, an expensive and invasive procedure with complications such as pancreatitis (3 − 5%), bleeding
(1 − 2%), perforation (1%), infection (1 − 2%) and death (1/250). More than a half-million ERCP procedures are performed
annually in the U.S. and as the role of ERCP diminishes for screening, it will further the need for approval of secretin for S-MRCP.
We expect to repeat a Phase 3 trial with a partner, if and when secured, as per previous discussion with the FDA to look at improvement
in visualization of the pancreatic duct via MRCP with and without secretin.
Our Intellectual Property
We strive to protect the proprietary technology that we believe
is important to our business, including our product candidates and our processes. We seek patent protection in the United States
and internationally for our product candidates, their methods of use, and processes of manufacture and any other technology to
which we have rights, as appropriate. Additionally, we have licensed the rights to intellectual property related to certain of
our product candidates, including patents and patent applications that cover the products or their methods of use or processes
of manufacture. The terms of the licenses are described below under the heading “Licensing Agreements.” The patent
families related to the intellectual property covered by the licenses include 29 U.S. patents and 107 foreign patents with expiration
dates ranging from 2018 to 2035. We also rely on trade secrets that may be important to the development of our business.
Our success will in part depend on the ability to obtain and maintain
patent and other proprietary rights in commercially important technology, inventions and know-how related to our business, the
validity and enforceability of our patents, the continued confidentiality of our trade secrets, and our ability to operate without
infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on continuing technological
innovation and in-licensing opportunities to develop and maintain our proprietary position.
We cannot be sure that patents will be granted with respect to any
of our pending patent applications or with respect to any patent applications we may own or license in the future, nor can we be
sure that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology
and products. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks
Related to Our Intellectual Property.”
CeD PRO: Copyrighted Primary Endpoint for Celiac Disease Tested
in a Successful Clinical Trial
The
patient reported outcome (PRO) primary end point for celiac disease (CeD PRO) was developed based on FDA guidance and is
copyrighted in the United States effective October 13, 2011. The copyright registration is in effect for 95 years
from the year of first publication or 120 years from the year of creation, whichever expires first. If the drug is approved
by the FDA and is the first drug to be approved for celiac disease, Innovate believes that the PRO will become the standard
for assessing efficacy in celiac disease. Competitor companies seeking to use a PRO to establish efficacy in this
indication would either need to develop their own PRO or would be required to license the CeD PRO from Innovate, thus
providing an additional barrier to competitor entry into the marketplace.
Strategic Collaborations and License Agreements
We have entered into collaboration agreements with several academic
institutions and other contract research organizations to investigate pre-clinical studies for the use of our product candidates
in potential other indications or to further broaden our understanding of the current indications.
Licensing Agreements
License with Alba Therapeutics Corporation
In February 2016, we entered into a license agreement (the ”Alba
License”) with Alba Therapeutics Corporation (“Alba”) to obtain an exclusive worldwide license to certain intellectual
property relating to larazotide and related compounds.
Our initial area of focus for this asset relates to the treatment
of celiac disease. We now refer to this program as INN-202. The license agreement gives us the rights to (i) patent families owned
by University of Maryland, Baltimore (UMB) and licensed to Alba, (ii) certain patent families owned by Alba, and (iii) one patent
family that is jointly owned. In connection with the Alba License, we also entered into a sublicense agreement with Alba under
which Alba sublicensed the UMB patents to us (the “Alba Sublicense”).
As consideration
for the Alba License, we agreed to pay (i) a one-time, non-refundable fee of $0.4 million at the time of execution and (ii) set
payments totaling up to $151.5 million upon the achievement of certain milestones in connection with the development of the product,
which milestones include the dosing of the first patient in the Phase 3 clinical trial, acceptance and approval of the New Drug
Application, the first commercial sale, and the achievement of certain net sales targets. The last milestone payment is due upon
the achievement of annual net sales of INN-202 in excess of $1.5 billion. Upon the first commercial sale of INN-202, the license
becomes perpetual and irrevocable. The term of the Alba Sublicense, for which we paid a one-time, non-refundable fee of $0.1 million,
extends until the earlier of (i) the termination of the Alba License, (ii) the termination of the underlying license agreement,
or (iii) an assignment of the underlying license agreement to us. After we make the first milestone payment after the dosing of
the first patient in the Phase 3 clinical trial and are able to demonstrate sufficient financial resources to complete the trial,
we have the exclusive option to purchase the assets covered by the license.
The patents covering the composition-of-matter for the larazotide
peptide expire in 2018 (2019 outside the United States). The Alba Therapeutics patent estate nevertheless provides product exclusivity
for INN-202 in the U.S. until June 4, 2031, not including patent term extensions that may apply upon product approval.
The INN-202 patent estate includes issued patents in the U.S.
for methods of treating celiac disease with larazotide, of which the last to expire has a term to July 16, 2030. The INN-202
patent estate further includes patents covering the composition-of-matter and corresponding methods of treatment for the larazotide
formulation, with the last to expire patent having an expiration in the U.S. of June 4, 2031. The larazotide formulation patent
family (ALB-015) has three issued U.S. patents, as well as 39 filings outside the U.S. (31 issued).
License with Seachaid Pharmaceuticals, Inc.
In April 2013, we entered into a license agreement (the “Seachaid
License”) with Seachaid Pharmaceuticals, Inc. (“Seachaid”) to further develop and commercialize the licensed
product, the compound known as APAZA. This program is now referred to as INN-108 by us.
The license agreement gives us the exclusive rights to (i)
commercialize products covered by the patents owned or controlled by Seachaid related to the composition, formulation or use of
any APAZA compound in the territory that includes the U.S., Canada, Japan, and most countries in Europe, and (ii) use, research,
develop, export and make products worldwide for the purposes of such commercialization.
As consideration for the Seachaid License, we agreed to pay a one-time,
non-refundable fee of $0.2 million at the earlier of the time we meet certain financing levels or 18 months following the execution
of the agreement and set payments totaling up to $6.0 million upon the achievement of certain milestones in connection with the
development of the product, filing of the New Drug Application, the first commercial sale, and payments ranging from $1.0 million
to $2.5 million based on the achievement of certain net sales targets. There are future royalty payments in the single digits based
on achieving sales targets, and we are required to pay Seachaid a portion of any sublicense revenue. The royalty payments continue
for each licensed product and in each applicable country until the earlier of (i) the date of expiration of the last valid claim
for such products to expire or (ii) the date that one or more generic equivalents if such product makes up 50 percent or more of
sales in the applicable country. The term of the Seachaid License extends on a product-by-product and country-by-country basis
until the expiration of the royalty period for the applicable product in the applicable country.
The INN-108 patent estate includes issued patents for:
(i.) immunoregulatory compounds and derivatives and methods
of treating diseases therewith, of which the last to expire has a term to December 17, 2021 (in the U.S.) and August 28, 2021 (in
Europe);
(ii.) methods and compositions employing 4-aminophenylacetic
acid, of which the last to expire has a term to to August 29, 2021 (in the U.S.);
(iii.) 5-ASA derivatives having anti-inflammatory and antibiotic
activity, of which the last to expire has a term to August 29, 2021 (in the U.S.) and August 28, 2021 (in Europe); and
(iv.) synthesis of azo bonded immunoregulatory compounds, of
which the last to expire has a term to May 31, 2028 (in the U.S.) and July 7, 2025 (in Europe).
The corresponding European patent application for (ii.) methods
and compositions employing 4-aminophenylacetic acid is still pending, but if issued would provide a term to March 22, 2025 in the
countries where the application is validated.
The INN-108 patent estate includes also provisional patent applications
for pharmaceutical compositions, delivery compositions, methods of prophylaxis and methods of treatment. These patent applications
have not yet been issued, and so it is impossible to know the expiration date of any intellectual property that might result from
these applications.
Asset Purchase Agreement
In December
2014, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Repligen Corporation
(“Repligen”) to acquire Repligen’s RG-1068 program for the development of secretin for the pancreatic
imaging market and MRCP procedures. We now refer to this program as INN-329. As consideration for
the Asset Purchase Agreement, we agreed to make a non-refundable cash payment on the date of the agreement and future royalty
payments consisting of a percentage of annual net sales, with the royalty payment percentage increasing as annual net sales
increase. The royalty payments are made on a product-by-product and country-by-country basis and the obligation to make the
payments expires with respect to each country upon the later of (i) the expiration of regulatory exclusivity for the product
in that country or (ii) ten years after the first commercial sale in that country. The royalty amount is subject to reduction
in certain situations, such as the entry of generic competition in the market.
Manufacturing and Supply
We contract with third parties for the manufacturing of all of our
product candidates, including INN-108, INN-202 and INN-329, for pre-clinical and clinical studies and intend to continue to do
so in the future. We do not own or operate any manufacturing facilities, and we have no plans to build any owned clinical or commercial
scale manufacturing capabilities. We believe that the use of contract manufacturing organizations (CMOs) eliminates the need to
directly invest in manufacturing facilities, equipment and additional staff. Although we rely on contract manufacturers, our personnel
or consultants have extensive manufacturing experience overseeing CMOs.
As we further
develop our molecules, we expect to consider secondary or back-up manufacturers for both active pharmaceutical ingredient and
drug product manufacturing. To date, our third-party manufacturers have met the manufacturing requirements for our product
candidates in a timely manner. We expect third-party manufacturers to be capable of providing sufficient quantities of our
product candidates to meet anticipated full-scale commercial demands but we have not assessed these capabilities beyond the
supply of clinical materials to date. We currently engage CMOs on a ‘‘fee for services’’ basis based
on our current development plans. We plan to identify CMOs and enter into longer term contracts or commitments as we move our
product candidates into Phase 3 clinical trials.
We believe alternate sources of manufacturing will be available
to satisfy our clinical and future commercial requirements; however we cannot guarantee that identifying and establishing alternative
relationships with such sources will be successful, cost effective, or completed on a timely basis without significant delay in
the development or commercialization of our product candidates. All of the vendors we use are required to conduct their operations
under current Good Manufacturing Practices, or cGMP, a regulatory standard for the manufacture of pharmaceuticals.
Commercialization
We own or
control exclusive rights to all three of our product candidates in the markets of the United States, France, Germany, Italy,
Spain, the United Kingdom, and Japan. We plan to pursue regulatory approvals for our products in the United States and the
European Union, and may independently commercialize these products in the United States. In doing so, we may engage strategic
partners to assist with the sales and promotion of our products.
Our anticipated commercialization strategy in the United States
would target key prescribing physicians, including specialists such as gastroenterologists, as well as provide patients with support
programs to ensure product access. Outside of the United States, we plan to seek partners to commercialize our products via out-licensing
agreements or other similar commercial arrangements.
Competition
The pharmaceutical industry is highly competitive and characterized
by intense and rapidly changing competition to develop new technologies and proprietary products. Our potential competitors include
both major and specialty pharmaceutical companies worldwide. Our success will be based in part on our ability to identify, develop
and manage a portfolio of product candidates that are safer and more effective than competing products.
The competitive landscape in celiac disease is currently limited,
which we believe is due to lack of significant past R&D investments and lack of recognition and education around the disease.
To our knowledge, there are no late stage competitors entering Phase 3 clinical trials or any who have successfully completed Phase
2 studies to date. However, in recent years large pharmaceutical companies have begun to expand their focus areas to autoimmune
diseases such as celiac disease, and given the unmet medical needs in these areas, we anticipate increasing competition. A few
early stage programs are active, with time to enter Phase 1 clinical trials still several years away, including Roche/Genetech’s
RG7625 (cathepsin S inhibitor), Takeda/PvP’s KumaMax (gluten degrading enzyme), Celimmune/Amgen’s AMG-714 (an IL-15
MAb) and Dr. Falk Pharma/Zeria’s ZED-1227 (a tTG-2 inhibitor). ImmunogenX’s IMGX003 (two gluten degrading enzymes)
failed to meet its primary endpoint in a Phase 2b trial in 2015.
Product
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Status
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Mechanism
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Company
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Route
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Product Type
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AMG 714
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Phase 2
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Anti-IL-15
MAb
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Celimmune/
Amgen
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Subcutaneous;
2x/month
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MAb
(humanized)
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ZED-1227
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Phase 1b
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TGase-2 inhibitor
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Zedira GmbH/
Dr Falk
Pharma
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Oral
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Small molecule
(peptidomimetic)
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Nexvax2
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Phase 1
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Tolerizing vaccine
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ImmusanT
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Intradermal
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3 gliadin epitopes (peptides)
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KumaMax
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Pre-clinical
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Enzymatic degradation of gluten
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Takeda/PvP
Biologics
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Oral
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Recombinant enzyme
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Table 4: Current celiac drugs in
development are still in pre-clinical to early Phase 2 proof-of-concept stage. No drugs have completed a successful Phase 2b
efficacy trial other than larazotide.
Ulcerative colitis
drug development has historically been primarily focused on the moderate-to-severe UC population with little investment and research
and development in mild-to-moderate UC, which is the majority of the patient populations. Current treatments for mild-to-moderate
UC include the mesalamine reformulations that are pictured in Figure 15 below and described above under the heading “History
of Drug Development in Mild to Moderate Ulcerative Colitis,” as well as Lialda, Pentasa, Asacol HD and Apriso, Valeant/Salix’s
Uceris (oral MMX-formulated budesonide; a corticosteroid) and 5-mercaptopurine (severe side effects). Eventually, half of the
mild-to-moderate UC patients progress from mesalamine to the more expensive biologics, which creates a significant potential market
opportunity for any drug that is more effective than mesalamine and less expensive than the biologics.
Figure 15: Other than various reformulations of mesalamine which
have been used for the past several decades, no new drugs have been approved for mild-to-moderate UC
Government Regulations
The FDA and other regulatory authorities at
federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development,
testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record
keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of drugs, such as those
we are developing. Along with third-party contractors, we will be required to navigate the various preclinical, clinical and commercial
approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval
or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate
federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Government Regulation of Drugs
The process required by the FDA before drug
product candidates may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices, or GLP, regulation;
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submission to the FDA of an Investigational New Drug application, or IND, which must become effective before clinical trials may begin and must be updated annually or when significant changes are made;
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approval by an independent Institutional Review Board, or IRB, or ethics committee for each clinical site before a clinical trial can begin;
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performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed product candidate for its intended purpose;
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preparation of and submission to the FDA of a New Drug Application, or NDA, after completion of all required clinical trials;
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a determination by the FDA within 60 days of its receipt of a NDA to file the application for review;
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satisfactory completion of an FDA Advisory Committee review, if applicable;
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satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with current Good Manufacturing Practices, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the product’s continued safety, purity and potency, and of selected clinical investigational sites to assess compliance with current Good Clinical Practices, or cGCPs; and
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FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States, which must be updated annually and when significant changes are made.
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The testing and approval processes require
substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be
granted on a timely basis, if at all. Prior to beginning the first clinical trial with a product candidate, we must submit an IND
to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The
central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also
includes results of animal and
in vitro
studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic
characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature
to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety
concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor
and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore
may or may not result in FDA authorization to begin a clinical trial.
Clinical trials involve the administration
of the investigational product to human subjects under the supervision of qualified investigators in accordance with cGCPs, which
include the requirement that all research subjects provide their informed consent for their participation in any clinical study.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be
used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made
for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore,
an independent Institutional Review Board, or IRB, for each site proposing to conduct the clinical trial must review and approve
the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the
study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its
stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study
sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated
check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable
safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting
of ongoing clinical studies and clinical study results to public registries.
For purposes of NDA approval, human clinical
trials are typically conducted in three sequential phases that may overlap.
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Phase 1. The drug product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe or life-threatening diseases, the initial human testing is often conducted in patients.
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Phase 2. The drug product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.
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Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk to benefit ratio of the product and provide an adequate basis for product labeling.
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Phase 4. In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be required as a condition to approval of the NDA.
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Phase 1, Phase 2 and Phase 3 testing may not
be completed successfully within a specified period, if at all, and there can be no assurance that the data collected will support
FDA approval or licensure of the product. Concurrent with clinical trials, companies may complete additional animal studies and
develop additional information about the drug characteristics of the product candidate, and must finalize a process for manufacturing
the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently
producing quality batches of the product candidate. Additionally, appropriate packaging must be selected and tested and stability
studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf
life.
NDA Submission and Review by the FDA
Assuming successful completion of all required
testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and
clinical trials are submitted to the FDA as part of a NDA requesting approval to market the product for one or more indications.
The NDA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous
results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing,
controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the
safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators.
The submission of a NDA requires payment of a substantial User Fee to FDA, and the sponsor of an approved NDA is also subject to
annual product and establishment user fees. These fees are typically increased annually. A waiver of user fees may be obtained
under certain limited circumstances.
Within 60 days following submission of the
application, the FDA reviews an NDA to determine if it is substantially complete before the agency accepts it for filing. The FDA
may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission and may request additional
information. In this event, the NDA must be resubmitted with the additional information. Once a NDA has been filed, the FDA’s
goal is to review the application within ten months after it accepts the application for filing, or, if the application relates
to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing.
The review process may be significantly extended by FDA requests for additional information or clarification. The FDA reviews a
NDA to determine, among other things, whether a product is safe and effective for the indication being pursued, and the facility
in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety
and effectiveness. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before
approving a NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not
approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. Additionally, before approving a NDA,
the FDA will typically inspect one or more clinical sites to assure compliance with cGCP. If the FDA determines that the application,
manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often
will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA
ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The testing and approval process requires substantial
time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis,
or at all, and we may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals,
which could delay or preclude us from marketing our products. After the FDA evaluates a NDA and conducts inspections of manufacturing
facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or
a Complete Response Letter. An approval letter authorizes commercial marketing of the product with specific prescribing information
for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application
is not ready for approval. A Complete Response Letter may request additional information or clarification. The FDA may delay or
refuse approval of a NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or
require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve
the NDA with a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides,
physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and
other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the
development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with
pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace.
The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s
safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these
post-marketing studies. In addition, new government requirements, including those resulting from new legislation, may be established,
or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.
A sponsor may seek approval of its product
candidate under programs designed to accelerate FDA’s review and approval of new drugs that meet certain criteria. Specifically,
new drug products are eligible for fast track designation if they are intended to treat a serious or life-threatening condition
and demonstrate the potential to address unmet medical needs for the condition. For a fast track product, the FDA may consider
sections of the NDA for review on a rolling basis before the complete application is submitted if relevant criteria are met. A
fast track designated product candidate may also qualify for priority review, under which the FDA sets the target date for FDA
action on the NDA at six months after the FDA accepts the application for filing. Priority review is granted when there is evidence
that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention
of a serious condition. If criteria are not met for priority review, the application is subject to the standard FDA review period
of 10 months after FDA accepts the application for filing. Priority review designation does not change the scientific/medical standard
for approval or the quality of evidence necessary to support approval.
Under the accelerated approval program, the
FDA may approve an NDA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on
a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. Products subject to accelerated approval must have associated
marketing materials submitted for pre-approval by the FDA’s Office of Prescription Drug Promotion during the pre-approval
review period. Post-marketing studies or completion of ongoing studies after marketing approval are generally required to verify
the product’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical
benefit. In addition, the Food and Drug Administration Safety and Innovation Act, or FDASIA, which was enacted and signed into
law in 2012, established breakthrough therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough
therapy if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious
or life-threatening disease or condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed
early in clinical development. Sponsors may request the FDA to designate a breakthrough therapy at the time of or any time after
the submission of an IND, but ideally before an end-of-Phase 2 meeting with FDA. If the FDA designates a breakthrough therapy,
it may take actions appropriate to expedite the development and review of the application, which may include holding meetings with
the sponsor and the review team throughout the development of the therapy; providing timely advice to, and interactive communication
with, the sponsor regarding the development of the drug to ensure that the development program to gather the nonclinical and clinical
data necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as appropriate,
in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA review team to facilitate
an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor; and
considering alternative clinical trial designs when scientifically appropriate, which may result in smaller or more efficient clinical
trials that require less time to complete and may minimize the number of patients exposed to a potentially less efficacious treatment.
Breakthrough designation also allows the sponsor to file sections of the NDA for review on a rolling basis. We may seek designation
as a breakthrough therapy for some or all of our product candidates.
Fast Track designation, priority review and
breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.
Orphan Drug Status
Under the Orphan Drug Act, the FDA may grant
orphan drug designation to drug candidates intended to treat a rare disease or condition, which is generally a disease or condition
that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for
which there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered
by sales of the drug in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants
orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the
FDA. Although there may be some increased communication opportunities, orphan drug designation does not convey any advantage in
or shorten the duration of the regulatory review and approval process.
If a drug candidate that has orphan drug designation
subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan
drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug
for the same indication for seven years, except in very limited circumstances, such as if the second applicant demonstrates the
clinical superiority of its product or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure
the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which
the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease
or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax
credits for certain research and a waiver of the NDA application user fee.
Orphan drug exclusivity could block the approval
of our drug candidates for seven years if a competitor obtains approval of the same product as defined by the FDA or if our drug
candidate is determined to be contained within the competitor’s product for the same indication or disease.
As in the United States, designation as an
orphan drug for the treatment of a specific indication in the European Union, must be made before the application for marketing
authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity
for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically
superior to the orphan designated product.
The FDA and foreign regulators expect holders
of exclusivity for orphan drugs to assure the availability of sufficient quantities of their orphan drugs to meet the needs of
patients. Failure to do so could result in the withdrawal of marketing exclusivity for the orphan drug.
Post-Approval Requirements
Any products manufactured or distributed by
us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements
relating to record-keeping, reporting of adverse experiences, periodic reporting, distribution, and advertising and promotion of
the product. After approval, most changes to the approved product labeling, such as adding new indications or other labeling claims,
are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products
and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain
state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with GMP,
which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing
process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us
and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and
effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA
regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may, among
other things, halt their clinical trials, require them to recall a product from distribution, or withdraw approval of the NDA.
Future FDA and state inspections
may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production
or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product
or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved
NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could
delay or prohibit further marketing.
The FDA may withdraw approval of an NDA if
compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency,
or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling
to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition
of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls;
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fines, warning letters, or holds on post-approval clinical studies;
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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; or
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injunctions or the imposition of civil or criminal penalties.
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The FDA closely regulates the marketing,
labeling, advertising and promotion of drugs and biologics. A company can make only those claims relating to safety and efficacy
that are consistent with the FDA approved label and with FDA regulations governing marketing of prescription products. The FDA
and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with
these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential
civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s
labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties.
Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does
not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications
on the subject of off-label use of their products.
Other Healthcare Laws and Compliance Requirements
Our sales, promotion, medical education, clinical
research and other activities following product approval will be subject to regulation by numerous regulatory and law enforcement
authorities in the United States in addition to FDA, including potentially the Federal Trade Commission, the Department of Justice,
the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services and
state and local governments. Our promotional and scientific/educational programs and interactions with healthcare professionals
must comply with the federal Anti-Kickback Statute, the civil False Claims Act, physician payment transparency laws, privacy laws,
security laws, anti-bribery and corruption laws, and additional federal and state laws similar to the foregoing.
The federal Anti-Kickback Statute prohibits,
among other things, the knowing and willing, direct or indirect offer, receipt, solicitation or payment of remuneration in exchange
for or to induce the referral of patients, including the purchase, order or lease of any good, facility, item or service that would
be paid for in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined
to include anything of value, including cash, improper discounts, and free or reduced price items and services. The federal Anti-Kickback
Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers,
formulary managers, and beneficiaries on the other. Although there are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to increased
scrutiny and review if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback
Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all
its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose
of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal Anti-Kickback
Statute has been violated. The government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare
companies based on sham research or consulting and other financial arrangements with physicians. Further, a person or entity does
not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the False Claims Act. Many states have similar laws that apply to their
state health care programs as well as private payers.
Federal false claims and false statement laws,
including the federal civil False Claims Act, or FCA, impose liability on persons and/or entities that, among other things, knowingly
present or cause to be presented claims that are false or fraudulent or not provided as claimed for payment or approval by a federal
health care program. The FCA has been used to prosecute persons or entities that “cause” the submission of claims for
payment that are inaccurate or fraudulent, by, for example, providing inaccurate billing or coding information to customers, promoting
a product off-label, submitting claims for services not provided as claimed, or submitting claims for services that were provided
but not medically necessary. Actions under the FCA may be brought by the Attorney General or as a qui tam action by a private individual,
or whistleblower, in the name of the government. Violations of the FCA can result in significant monetary penalties and treble
damages. The federal government is using the FCA, and the accompanying threat of significant liability, in its investigation and
prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with the promotion
of products for unapproved uses and other illegal sales and marketing practices. The government has obtained multi-million and
multi-billion dollar settlements under the FCA in addition to individual criminal convictions under applicable criminal statutes.
In addition, certain companies that were found to be in violation of the FCA have been forced to implement extensive corrective
action plans, and have often become subject to consent decrees or corporate integrity agreements, restricting the manner in which
they conduct their business.
The federal Health Insurance Portability and
Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly
and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party
payers; knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services; and willfully
obstructing a criminal investigation of a healthcare offense. Like the federal Anti-Kickback Statute, the Affordable Care Act amended
the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation.
Given the significant size of actual and potential
settlements, it is expected that the federal government will continue to devote substantial resources to investigating healthcare
providers’ and manufacturers’ compliance with applicable fraud and abuse laws. Many states have similar fraud and abuse
statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed
under Medicaid and other state programs. To the extent that our products, once commercialized, are sold in a foreign country, we
may be subject to similar foreign laws.
There has been a recent trend of increased
federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, among other
things, imposed new reporting requirements on certain manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, for payments
or other transfers of value made by them to physicians and teaching hospitals, as well as ownership and investment interests held
by physicians and their immediate family members. Covered manufacturers are required to collect and report detailed payment data
and submit legal attestation to the accuracy of such data to the government each year. Failure to submit required information may
result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for
“knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely,
accurately and completely reported in an annual submission. Additionally, entities that do not comply with mandatory reporting
requirements may be subject to a corporate integrity agreement. Certain states also mandate implementation of commercial compliance
programs, impose restrictions on covered manufacturers’ marketing practices and/or require the tracking and reporting of
gifts, compensation and other remuneration to physicians and other healthcare professionals.
We may be subject to data privacy and security
regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information
Technology and Clinical Health Act, or HITECH, and their respective implementing regulations impose specified requirements on certain
health care providers, plans and clearinghouses (collectively, “covered entities”) and their “business associates,”
relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH
makes HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors
or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing
a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against
covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with
pursuing federal civil actions. In addition, certain states have their own laws that govern the privacy and security of health
information in certain circumstances, many of which differ from each other and/or HIPAA in significant ways and may not have the
same effect, thus complicating compliance efforts.
If our operations are found to be in violation
of any of such laws or any other governmental regulations that apply to them, we may be subject to penalties, including, without
limitation, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of our operations, exclusion
from participation in federal and state healthcare programs, imprisonment, contractual damages, reputational harm, and diminished
profits and future earnings, any of which could adversely affect our ability to operate our business and our financial results.
In addition to the foregoing health care laws,
we are also subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and similar worldwide anti-bribery laws, which generally
prohibit companies and their intermediaries from making improper payments to government officials or private-sector recipients
for the purpose of obtaining or retaining business. We have plans to adopt an anti-corruption policy, which will become effective
upon the completion of this transaction, and expect to prepare and implement procedures to ensure compliance with such policy.
The anti-corruption policy mandates compliance with the FCPA and similar anti-bribery laws applicable to our business throughout
the world. However, we cannot assure you that such a policy or procedures implemented to enforce such a policy will protect us
from intentional, reckless or negligent acts committed by our employees, distributors, partners, collaborators or agents. Violations
of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on
our business, results of operations and reputation.
Coverage and Reimbursement
Sales of pharmaceutical products depend significantly
on the extent to which coverage and adequate reimbursement are provided by third-party payers. Third-party payers include state
and federal government health care programs, managed care providers, private health insurers and other organizations. Although
we currently believe that third-party payers will provide coverage and reimbursement for our product candidates, if approved, we
cannot be certain of this. Third-party payers are increasingly challenging the price, examining the cost-effectiveness, and reducing
reimbursement for medical products and services. In addition, significant uncertainty exists as to the reimbursement status of
newly approved healthcare products. The U.S. government, state legislatures and foreign governments have continued implementing
cost containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution
of generic products. Adoption of price controls and cost containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, could further limit our net revenue and results. We may need to conduct expensive clinical
studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop may not be considered
cost-effective and thus may not be covered or sufficiently reimbursed. It is time consuming and expensive for us to seek coverage
and reimbursement from third-party payers, as each payer will make its own determination as to whether to cover a product and at
what level of reimbursement. Thus, one payer’s decision to provide coverage and adequate reimbursement for a product does
not assure that another payer will provide coverage or that the reimbursement levels will be adequate. Moreover, a payer’s
decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement
may not be available or sufficient to allow them to sell our products on a competitive and profitable basis.
Healthcare Reform
The United States and some foreign jurisdictions
are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could
materially affect our ability to sell our products profitably. Among policy makers and payers in the United States and elsewhere,
there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these
efforts and has been significantly affected by major legislative initiatives.
By way of example, in 2010 the Affordable Care
Act was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,
impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the Affordable
Care Act of importance to our potential drug candidates are:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;
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extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
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In addition, other legislative changes have
been proposed and adopted since the Affordable Care Act was enacted. These changes include, among others, the Budget Control Act
of 2011, which mandates aggregate reductions to Medicare payments to providers of up to 2% per fiscal year effective in 2013, and,
due to subsequent legislative amendments, will remain in effect through 2024, unless additional Congressional action is taken.
The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including
hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments
to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding,
which could have a material adverse effect on customers for our product candidates, if approved, and, accordingly, our financial
operations.
We expect that healthcare reform measures that
may be adopted in the future, including the possible repeal and replacement of the Affordable Care Act which the Trump administration
has stated is a priority, are unpredictable, and the potential impact on our operations and financial position are uncertain, but
may result in more rigorous coverage criteria and lower reimbursement, and place additional downward pressure on the price that
we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result
in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms
may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.
Foreign Regulation
In addition to regulations in the United States,
we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products
to the extent we choose to develop or sell any products outside of the United States. The approval process varies from country
to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement, and privacy, can vary greatly from country to country.
Research and Development Expenses
Private Innovate had research and development
expenses of $4.0 million and $1.9 million for the years ended December 31, 2017 and December 31, 2016, respectively.
Employees
Following completion of the Merger, we now
have five full-time employees. We also engage consultants to provide services to us, including clinical development, manufacturing
support, regulatory support, business development, and general business operational support.
Corporate Information
Private Innovate was incorporated under the
laws of North Carolina under the name “GI Therapeutics, Inc.” in 2012 and changed its name to “Innovate Biopharmaceuticals
Inc.” when it converted to a Delaware corporation in 2014. In January 2018,
Merger Sub merged
with and into Private Innovate with Private Innovate surviving as a wholly owned subsidiary of the Company,
and the
Company changed its name to Innovate Biopharmaceuticals, Inc. Our principal executive offices are located at 8480 Honeycutt Road,
Suite 120, Raleigh, NC 27615 and our telephone number is (919) 275-1933. Our corporate website address is
http://www.innovatebiopharma.com
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Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant
to Sections 13(a) and 15(d) of the Exchange Act, will be made available free of charge on our website as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or the SEC. The
contents of our website are not incorporated into this Annual Report on Form 10-K and our reference to the URL for our website
is intended to be an inactive textual reference only.
This Annual Report on Form 10-K contains references
to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to
in this Annual Report on Form 10-K, including logos, artwork and other visual displays, may appear without the ® or TM symbols,
but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law,
our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of
other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other
company.
We are an “emerging growth company”
as defined in the JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements.
As an “emerging growth company:”
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we will present no more than two years of audited financial statements and no more than two years of related management’s discussion and analysis of financial condition and results of operations;
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we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
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we will provide less extensive disclosure about our executive compensation arrangements; and
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we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.
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However, we have chosen to irrevocably opt out
of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards. We will
remain an “emerging growth company” for up to five years, although we will cease to be an “emerging growth company”
upon the earliest of (1) December 31, 2021, (2) the last day of the first fiscal year in which our annual gross revenues are $1.07
billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible
debt securities, and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange
Act.
Item 1A. Risk Factors.
Our business, financial condition and operating
results may be affected by a number of factors, including but not limited to those described below. Any one or more of such factors
could directly or indirectly cause our actual results of operations and financial condition to vary materially from our past or
anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and
adversely affect our business, financial condition, results of operations and stock price. The following information should be
read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements
and Supplementary Data” of this Annual Report on Form 10-K.
Risks Related to Our Capital Requirements and Financial Condition
We have a limited operating history and have incurred significant
losses since inception, and expect that we will continue to incur losses for the foreseeable future, which makes it difficult to
assess our future viability.
Monster had a
limited operating history and had generated significant negative operating cash flows since inception. Private Innovate has
also not been profitable since it commenced operations in 2012, and we may never achieve or sustain profitability. As a
clinical-stage biopharmaceutical company, we have a limited operating history upon which to evaluate our business and
prospects. In addition, we have limited history as an organization and have not yet demonstrated an ability to successfully
overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields,
particularly in the biopharmaceutical industry. Drug development is a highly speculative undertaking and involves a
substantial degree of risk. We have not yet obtained any regulatory approvals for any of our product candidates,
commercialized any of our product candidates, or generated any revenue from sales of products. We have devoted
significant resources to research and development and other expenses related to our ongoing clinical trials and operations,
in addition to acquiring product candidates.
Since inception, most of our resources have
been dedicated to the acquisition and development of our product candidates, INN-202 (larazotide acetate), INN-108 and INN-329
(secretin). We will require significant additional capital to continue operations and to execute on our current business strategy
to develop INN-202 through to regulatory approval and further develop INN-108 and INN-329 for eventually seeking regulatory approval.
We cannot estimate with reasonable certainty the actual amounts necessary to successfully complete the development and commercialization
of our product candidates and there is no certainty that we will be able to raise the necessary capital on reasonable terms or
at all.
Our auditor has expressed substantial doubt about our ability
to continue as a going concern.
The
audit reports on Monster’s financial statements for the years ended December 31, 2017 and 2016 and Private Innovate’s
financial statements for the years ended December 31, 2017 and 2016 include an explanatory paragraph related to recurring
losses from operations and dependence on additional financing to continue as a going concern. Monster and Private Innovate have
incurred net losses for the years ended December 31, 2017 and 2016, and had an accumulated deficit of $40.0 million and $19.4
million, respectively, as of December 31, 2017. In view of these matters, our ability to continue as a going concern
is dependent upon our ability to raise additional debt or equity financing or enter into strategic partnerships. On January
29, 2018, Private Innovate sold approximately $18.1 million of shares of common stock, or $16.5 million, net of approximately $1.6
million in placement agent fees and $80,000 in non-accountable expense costs. In addition, Private Innovate received
approximately $3.0 million in proceeds from a debt financing. We intend to continue to finance our operations through
debt or equity financing and/or strategic partnerships. The failure to obtain sufficient financing or strategic partnerships
could adversely affect our ability to achieve our business objectives and continue as a going concern.
We will require substantial additional financing
to obtain regulatory approval for INN-202 for celiac disease, and for further development of INN-217 (for NASH) INN-108 (for
ulcerative colitis) INN-289 (for Crohn’s disease) and INN-329 (for
magnetic
resonance cholangiopancreatography or
MRCP), and a failure to obtain this necessary capital when needed on
acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development efforts and
other operations.
For the years ended December 31, 2017 and
2016, Private Innovate incurred losses from operations of $11.2 million and $5.4 million, respectively, and net cash used in operating
activities was $5.1 million and $2.2 million, respectively. At December 31, 2017, Private Innovate had an accumulated deficit of
$19.4 million, cash and cash equivalents of $0.4 million, and a working capital deficit of $12.2 million. We expect to continue
to incur substantial operating losses for the next several years as we advance our product candidates through clinical development,
U.S. and other regional regulatory approvals, and commercialization. No revenue from operations will likely be available until,
and unless, one of our product candidates is approved by the FDA or another regulatory agency and successfully marketed, or we
enter into an arrangement that provides for licensing revenue or other partnering-related funding, outcomes which we may not achieve
on a timely basis, or at all.
Our capital requirements for the foreseeable
future will depend in large part on, and could increase significantly as a result of, our expenditures on our development programs.
Future expenditures on our development programs are subject to many uncertainties, and will depend on, and could increase significantly
as a result of, many factors, including:
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the number, size, complexity, results and timing of our drug development programs;
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the number of clinical and nonclinical studies necessary to demonstrate acceptable evidence of the safety and efficacy of our product candidates;
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the terms of any collaborative or other strategic arrangement that we may establish;
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changes in standards of care which could increase the size and complexity of clinical studies;
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the ability to locate patients to participate in a study given the limited number of patients available for orphan or ultra-orphan indications;
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the number of patients who participate, the rate of enrollment, and the ratio of randomized to evaluable patients in each clinical study;
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the number and location of sites and the rate of site initiation in each study;
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the duration of patient treatment and follow-up;
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the potential for additional safety monitoring or other post-marketing studies that may be requested by regulatory agencies;
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the time and cost to manufacture clinical trial material and commercial product, including process development and scale-up activities, and to conduct stability studies, which can last several years;
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the degree of difficulty and cost involved in securing alternate manufacturers or suppliers of drug product, components or delivery devices, as necessary to meet FDA requirements and/or commercial demand;
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the costs, requirements, timing of, and the ability to, secure regulatory approvals;
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the extent to which we increase our workforce and the costs involved in recruiting, training and incentivizing new employees;
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the costs related to developing, acquiring and/or contracting for sales, marketing and distribution capabilities, supply chain management capabilities, and regulatory compliance capabilities, if we obtain regulatory approval for a product candidate and commercialize it without a partner;
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the costs involved in evaluating competing technologies and market developments or the loss in sales in case of such competition; and
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the costs involved in establishing, enforcing or defending patent claims and other proprietary rights.
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In addition, we
are obligated to dedicate a portion of our cash flow to payments on our debt, which reduces the amounts available to fund other
corporate initiatives. An event of default on our debt could increase and accelerate the amounts due thereunder.
Additional capital may not be available when
we need it, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timely basis, we will
be required to delay, limit, reduce or terminate development activities, our establishment of sales and marketing, manufacturing
or distribution capabilities, or other activities that may be necessary to commercialize our product candidates, conduct preclinical
or clinical studies, or other development activities.
If we raise additional
capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements
with third parties, we may be required to relinquish certain valuable rights to our product candidates, technologies, future revenue
streams or research programs or grant licenses on terms that may not be favorable. If we raise additional capital through public
or private equity offerings, or through debt offerings in which the instruments can convert to equity, the ownership interest
of our stockholders will be diluted and the terms of any new equity securities may have preferential rights over our common stock.
If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt or making capital expenditures, or subject to specified financial ratios,
any of which could restrict our ability to develop and commercialize our product candidates or operate as a business.
We have not generated any revenue from product sales and may
never be profitable.
We have no products approved for commercialization
and have never generated any revenue from product sales. Our ability to generate revenue and achieve profitability depends on our
ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the requisite
regulatory approvals necessary to commercialize, one or more of our product candidates.
The recently passed comprehensive tax reform bill could adversely
affect our business and financial condition.
On December 22, 2017, President Trump signed
into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal
income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax
rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted
earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable
income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of
whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate
deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many
business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the
new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is
uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform
on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal
and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.
Risks Related to Our Business Strategy and Operations
We do not have any products that are approved for commercial
sale.
We currently do not have any therapeutic products
approved for commercial sale. We have not received, and may not receive within the next several years, if at all, any revenues
from the commercialization of our product candidates if approved.
We are substantially dependent upon the
clinical, regulatory and commercial success of our five product candidates, INN-202, INN-217, INN-108, INN-289 and INN-329.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome; results of earlier studies and
trials may not be predictive of future trial results; and our clinical trials may fail to adequately demonstrate to the
satisfaction of regulatory authorities the safety and efficacy of our three product candidates.
The success
of our business is dependent on our ability to advance the clinical development of INN-202 for the treatment of celiac
disease, INN-217 for NASH, INN-108 for the treatment of mild to moderate ulcerative colitis, INN-289 for Crohn’s
disease and INN-329 for MRCP. INN-202 has successfully completed Phase 2 trials; however, Phase 3 pivotal studies and
long-term safety studies remain to be conducted. INN-108 will be entering into Phase 2 efficacy trials for mild to moderate
ulcerative colitis. INN-329 requires additional studies to be performed for completion of Phase 3 trials.
Clinical testing is expensive and can take many
years to complete. The outcome of this testing is inherently uncertain. A failure of one or more of our clinical trials can occur
at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates
may not necessarily be predictive of the results of later-stage clinical trials. There is a high failure rate for drugs proceeding
through clinical trials, and product candidates in later stages of clinical trials may fail to show the required safety and efficacy
despite having progressed through preclinical studies and initial clinical trials. Many companies in the pharmaceutical industry
have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding
promising results in earlier clinical trials, and we cannot be certain that we will not face similar setbacks. Even if our clinical
trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.
Because of the developmental nature of our product
candidates, we are subject to risks associated with initiating, completing and achieving positive outcomes from our current and
future clinical trials, including:
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inability to enroll enough patients in the clinical trials;
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slow implementation, enrollment and completion of the clinical trials;
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low patient compliance and adherence to dosing and reporting requirements, such as incomplete reporting of patient reported outcomes in the clinical trials or missed doses;
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lack of safety and efficacy in the clinical trials;
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delays in the manufacture of supplies for drug components due to delays in formulation, process development, or manufacturing activities;
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requirements for additional nonclinical or clinical studies based on changes to formulation and/or changes to regulatory requirements;
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requirements for additional clinical studies based on inconclusive clinical results or changes in market, standard of care, and/or regulatory requirements;
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If we successfully complete the necessary clinical
trials for our product candidates, our success will be subject to the risks associated with obtaining regulatory approvals, product
launch, and commercialization, including:
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delays during regulatory review and/or requirements for additional CMC, nonclinical, or clinical studies, resulting in increased costs and/or delays in marketing approval and subsequent commercialization of our product candidates in the United States and other markets;
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FDA rejection of our New Drug Application (“NDA”) submissions for our product candidates;
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regulatory rejection in the EU, Japan, and other markets;
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inability to consistently manufacture commercial supplies of drug and delivery devices resulting in slowed market development and lower revenue;
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poor commercial sales due to:
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the ability of our future sales organization or our potential commercialization partners to effectively sell our product candidates;
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lack of success in educating physicians and patients about the benefits, administration, and use of our product candidates;
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low patient demand for our product candidates;
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the availability, perceived advantages, relative cost, relative safety and relative efficacy of other products or treatments for the targeted indications of our product candidates;
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poor prescription coverage and inadequate reimbursement for our product candidates;
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inability to enforce our intellectual property rights in and to our product candidates; and
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reduction in the safety profile of our product candidates following approval.
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Many of these clinical, regulatory and commercial
matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors” section. Accordingly,
we cannot provide any assurances that we will be able to advance our product candidates further through final clinical development
or obtain regulatory approval of, commercialize or generate significant revenue from them. If we cannot do so, or are significantly
delayed in doing so, our business will be materially harmed.
If we fail to attract and retain senior management and
key scientific personnel, we may be unable to successfully develop and commercialize our product candidates.
Private Innovate
has historically operated with a limited number of employees. Following the completion of the Merger, we now have five full-time
employees, including one employee engaged part-time in research and development. Therefore, institutional knowledge is concentrated
within a small number of employees. Our success depends in part on our continued ability to attract, retain and motivate highly
qualified management, clinical and scientific personnel. Our future success is highly dependent upon the contributions of our
senior management team. The loss of services of any of these individuals could delay or prevent the successful development of
our product pipeline, completion of our planned clinical trials or the commercialization of our product candidates.
There may be
intense competition from other companies and organizations for qualified personnel. Other companies and organizations with
which we compete for personnel may have greater financial and other resources and different risk profiles than we do, and a
history of successful development and commercialization of their product candidates. Replacing key employees may be difficult
and costly; and we may not have other personnel with the capacity to assume all the responsibilities of a key employee upon
his or her departure. If we cannot attract and retain skilled personnel, as needed, we may not achieve our development and
other goals.
In addition, the success of our business will
depend on our ability to develop and maintain relationships with respected service providers and industry-leading consultants and
advisers. If we cannot develop and maintain such relationships, as needed, the rate and success at which we can develop and commercialize
product candidates may be limited. In addition, our outsourcing strategy, which has included engaging consultants to manage key
functional areas, may subject us to scrutiny under labor laws and regulations, which may divert management time and attention and
have an adverse effect on our business and financial condition.
Our management team has limited experience managing
a public company.
Most members of
our management team have limited experience managing a publicly traded company, interacting with public company investors and
complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or
efficiently manage our existence as a public company subject to significant regulatory oversight and reporting obligations
under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and
constituencies require significant attention from our senior management and could divert their attention away from the
day-to-day management of our business.
We have identified a material weakness in our internal control
over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective
system of internal control, which may impair our ability to produce accurate financial statements or prevent fraud.
Monster has determined that it had a material
weakness in its internal control over financial reporting as of December 31, 2017 and 2016. In connection with the preparation
of Private Innovate’s audited financial statements for the year ended December 31, 2017, the independent auditors of Private
Innovate also advised that a material weakness exists in Private Innovate’s internal controls over financial reporting due
to its inability to adequately segregate duties as a result of our limited number of accounting personnel. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the subject company’s annual or interim financial statements will not be prevented
or detected on a timely basis. We have limited resources to address our internal controls and procedures and rely on consultants
to assist us with our financial accounting and compliance obligations. Although we are committed to continuing to improve our internal
control processes and intend to implement a plan to remediate this material weakness, we cannot be certain of the effectiveness
of such plan or that, in the future, additional material weaknesses or significant deficiencies will not exist or otherwise be
discovered. If we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate
financial statements and prevent fraud. In addition, if we are unable to successfully remediate the material weaknesses in our
internal controls or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected
and we may be unable to maintain compliance with applicable stock exchange listing requirements.
Our employees, independent contractors and consultants, principal
investigators, CROs, CMOs and other vendors, and any future commercial partners may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our
reputation.
We are exposed to the risk that our employees,
independent contractors and consultants, principal investigators, clinical research organizations (CROs), CMOs and other vendors,
and any future commercial partners may engage in fraudulent conduct or other misconduct. This type of misconduct may include intentional
failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate
information to the FDA or comparable foreign regulatory authorities, to comply with manufacturing standards required by cGMP or
our standards, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations
established and enforced by comparable foreign regulatory authorities, and to report financial information or data accurately or
disclose unauthorized activities to them. The misconduct of our employees and other of our service providers could involve the
improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm
to our reputation. We have adopted a code of business ethics and conduct, but it is not always possible to identify and deter such
misconduct, and the precautions we take to detect and prevent this activity, such as the implementation of a quality system which
entails vendor audits by quality experts, may not be effective in controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or
regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights,
those actions could have a significant impact on our business and results of operations, including the imposition of significant
fines or other sanctions.
We do not have, and do not have plans to establish, manufacturing
facilities. We completely rely on third parties for the manufacture and supply of our clinical trial drug supplies and, if approved,
commercial product materials. The loss of any of these vendors or a vendor’s failure to provide us with an adequate supply
of clinical trial or commercial product material in a timely manner and on commercially acceptable terms, or at all, could harm
our business.
We outsource the
manufacture of our product candidates and do not plan to establish our own manufacturing facilities. To manufacture our
product candidates, we have made numerous custom modifications at CMOs, making us highly dependent on these CMOs. For
clinical and commercial supplies, if approved, we have or plan to have supply agreements with third party CMOs for drug
substance and finished drug product. While we have existing supply agreements with third
party CMOs, we would need to negotiate agreements for commercial supply with several important CMOs, and we may not be able
to reach agreement on acceptable terms. In addition, we rely on these third parties to conduct or assist us in key
manufacturing development activities, including qualification of equipment, developing and validating methods, defining
critical process parameters, releasing component materials and conducting stability testing, among other things. If
these third parties are unable to perform their tasks successfully in a timely manner, whether for technical, financial or
other reasons, we may be unable to secure clinical trial material, or commercial supply material if approved, which likely
would delay the initiation, conduct or completion of our clinical studies or prevent us from having enough commercial supply
material for sale, which would have a material and adverse effect on our business.
Currently, we do not have alternative vendors
to back up our primary vendors of clinical trial material or, if approved, commercial supply material. Identification of and discussions
with other vendors may be protracted and/or unsuccessful, or these new vendors may be unsuccessful in producing the same results
as the current primary vendors producing the material. Therefore, if our primary vendors become unable or unwilling to perform
their required activities, we could experience protracted delays or interruptions in the supply of clinical trial material and,
ultimately, product for commercial sale, which would materially and adversely affect our development programs, commercial activities,
operating results and financial condition. In addition, the FDA or regulatory authorities outside of the United States may require
us to have an alternate manufacturer of a drug product before approving it for marketing and sale in the United States or abroad
and securing such alternate manufacturer before approval of an NDA could result in considerable additional time and cost prior
to approval.
Any new manufacturer or supplier of finished
drug product or our component materials, including drug substance and delivery devices, would be required to qualify under applicable
regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing
of such product or ingredients required by us. The FDA or foreign regulatory agency may require us to conduct additional clinical
studies, collect stability data and provide additional information concerning any new supplier, or change in a validated manufacturing
process, including scaling-up production, before we could distribute products from that manufacturer or supplier or revised process.
For example, if we were to engage a third party other than our current CMOs to supply the drug substance or drug product for future
clinical trial, or commercial product, the FDA or regulatory authorities outside of the United States may require us to conduct
additional clinical and nonclinical studies to ensure comparability of the drug substance or drug product manufactured by our current
CMOs to that manufactured by the new supplier.
The manufacture of pharmaceutical products requires
significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.
Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling-up initial production.
These problems include difficulties with production costs and yields, quality control, including stability of the product candidate
and quality assurance testing, and shortages of qualified personnel. Our product candidates have not been manufactured at the scale
we believe will be necessary to maximize their commercial value, and accordingly, we may encounter difficulties in attempting to
scale-up production and may not succeed in that effort on a timely basis or at all. In addition, the FDA or other regulatory authorities
may impose additional requirements as we scale-up initial production capabilities, which may delay our scale-up activities and/or
add expense.
All manufacturers of our clinical trial material
and, if approved, commercial product, including drug substance manufacturers, must comply with cGMP requirements enforced by the
FDA through its facilities inspection program and applicable requirements of foreign regulatory authorities. These requirements
include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our clinical trial
material may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. While
we or our representatives generally monitor and audit our manufacturers’ systems, we do not have full control over their
ongoing compliance with these regulations. And while the responsibility to maintain cGMP compliance is shared between the third-party
manufacturer and us, we bear ultimate responsibility for our supply chain and compliance with regulatory standards. Failure to
comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay or failure
to obtain product approval, product seizure or recall, or withdrawal of product approval.
If our manufacturers encounter any of the aforementioned
difficulties or otherwise fail to comply with their contractual obligations or there are delays entering commercial supply agreements
due to capital constraints, we may have insufficient quantities of material to support ongoing and/or planned clinical studies
or to meet commercial demand, if approved. In addition, any delay or interruption in the supply of materials necessary or useful
to manufacture our product candidates could delay the completion of our clinical studies, increase the costs associated with our
development programs and, depending upon the period of delay, require us to commence new clinical studies at significant additional
expense or terminate the studies completely. Delays or interruptions in the supply of commercial product could result in increased
cost of goods sold and lost sales. We cannot provide assurance that manufacturing or quality control problems will not arise in
connection with the manufacture of our clinical trial material or commercial product, if approved, or that third-party manufacturers
will be able to maintain the necessary governmental licenses and approvals to continue manufacturing such clinical trial material
or commercial product, as applicable. In addition, if our products are manufactured entirely or partially outside the United States,
we may experience interruptions in supply due to shipping or customs difficulties or regional instability. Furthermore, changes
in currency exchange rates, shipping costs and import tariffs could adversely affect our cost of goods sold. Any of the above factors
could cause us to delay or suspend anticipated or ongoing trials, regulatory submissions or commercialization of our product candidates,
entail higher costs or result in us being unable to effectively commercialize our products. Our dependence upon third parties for
the manufacture of our clinical trial material may adversely affect our future costs and our ability to develop and commercialize
our product candidates on a timely and competitive basis.
We currently rely significantly on third parties to conduct
our nonclinical testing and clinical studies and other aspects of our development programs. If those third parties do not satisfactorily
perform their contractual obligations or meet anticipated deadlines, the development of our product candidates could be adversely
affected.
We do not currently employ personnel or possess
the facilities necessary to conduct many of the activities associated with our programs. We engage consultants, advisors, CROs,
and others to assist in the design and conduct of nonclinical and clinical studies of our product candidates, with interpretation
of the results of those studies and with regulatory activities, and expect to continue to outsource all or a significant amount
of such activities. As a result, many important aspects of our development programs are and will continue to be outside our direct
control, and our third-party service providers may not perform their activities as required or expected including the maintenance
of GCP, GLP and GMP compliance, which are ultimately our responsibility to ensure. Further, such third parties may not be as committed
to the success of our programs as our own employees and, therefore, may not devote the same time, thoughtfulness or creativity
to completing projects or problem-solving as our own employees would. To the extent we are unable to successfully manage the performance
of third-party service providers, our business may be adversely affected.
The CROs that we engage or may engage to execute our clinical
studies play a significant role in the conduct of the studies, including the collection and analysis of study data, and we likely
will depend on CROs and clinical investigators to conduct future clinical studies and to assist in analyzing data from completed
studies and developing regulatory strategies for our product candidates. Individuals working at the CROs with which we contract,
as well as investigators at the sites at which our studies are conducted, are not our employees, and we have limited control over
the amount or timing of resources that they devote to their programs. If our CROs, study investigators, and/or third-party sponsors
fail to devote sufficient time and resources to studies of our product candidates, if we and/or our CROs do not comply with all
GLP and GCP regulatory and contractual requirements, or if their performance is substandard, it may delay commencement and/or completion
of these studies, submission of applications for regulatory approval, regulatory approval, and commercialization of our product
candidates. Failure of CROs to meet their obligations to us could adversely affect the development of our product candidates.
In addition, the CROs we engage may have relationships
with other commercial entities, some of which may compete with us. Through intentional or unintentional means, our competitors
may benefit from lessons learned on the project that could ultimately harm our competitive position. Moreover, if a CRO fails to
properly, or at all, perform our activities during a clinical study, we may not be able to enter into arrangements with alternative
CROs on acceptable terms or in a timely manner, or at all. Switching CROs may increase costs and divert management time and attention.
In addition, there likely would be a transition period before a new CRO commences work. These challenges could result in delays
in the commencement or completion of our clinical studies, which could materially impact our ability to meet our desired and/or
announced development timelines and have a material adverse impact on our business and financial condition.
We may not achieve our projected development goals within
the time frames that we have announced.
We have set goals for accomplishing certain
objectives material to the successful development of our product candidates. The actual timing of these events may vary due to
many factors, including delays or failures in our nonclinical testing, clinical studies and manufacturing and regulatory activities
and the uncertainties inherent in the regulatory approval process. From time to time, we create estimates for the completion of
enrollment of or announcement of data from clinical studies of our product candidates. However, predicting the rate of enrollment
or the time from completion of enrollment to announcement of data for any clinical study requires us to make significant assumptions
that may prove to be incorrect. As discussed in other risk factors above, our estimated enrollment rates and the actual rates may
differ materially and the time required to complete enrollment of any clinical study may be considerably longer than we estimate.
Such delays may adversely affect our business, financial condition and results of operations.
Even if we complete a clinical study with successful
results, we may not achieve our projected development goals within the periods we initially anticipate or announce. If a development
plan for a product candidate becomes more extensive and costly than anticipated, we may determine that the associated time and
cost are not financially justifiable and, as a result, may discontinue development in a particular indication or of the product
candidate as a whole. In addition, even if a study did complete with successful results, changes may occur in regulatory requirements
or policy during the period of product development and/or regulatory review of an NDA that relate to the data required to be included
in NDAs which may require additional studies that may be costly and time consuming. Any of these actions may be viewed negatively,
which could adversely impact our business, financial condition and results of operations.
Further, throughout development, we must provide
adequate assurance to the FDA and other regulatory authorities that we can consistently develop and produce our product candidates
in conformance with GLP, GCP, cGMP, and other regulatory standards. As discussed above, we rely on CMOs for the manufacture of
clinical, and future commercial, quantities of our product candidates. If future FDA or other regulatory authority inspections
identify cGMP compliance deficiencies at these third-party facilities, production of our clinical trial material or, in the future,
commercial product, could be disrupted, causing potentially substantial delay in or failure of development or commercialization
of our product candidates.
We currently have limited marketing capabilities and no sales
organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable
to successfully commercialize our products, if approved, or generate product revenue.
To commercialize our products, if approved,
in the United States and other jurisdictions we seek approvals, we must build our marketing, sales, managerial and other non-technical
capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If our
products receive regulatory approval, we expect to market such products in the United States through a focused, specialized sales
force, which will be costly and time consuming. We have no prior experience in the marketing and sale of pharmaceutical products
and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and
incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel
and effectively manage a geographically dispersed sales and marketing team. Outside of the United States, we may consider collaboration
arrangements. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully
commercialize our products in certain markets. Any failure or delay in the development of our internal sales, marketing and distribution
capabilities would adversely impact the commercialization of our products. If we are not successful in commercializing our products,
either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would
incur significant additional losses.
To establish a sales and marketing infrastructure and expand
our manufacturing capabilities, we will need to increase the size of our organization, and we may experience difficulties in managing
this growth.
Following completion
of the Merger, we now have five full-time employees, including one employee engaged part-time in research and development. As
we advance our product candidates through the development process and to commercialization, we will need to continue to expand
our development, regulatory, quality, managerial, sales and marketing, operational, finance and other resources to manage our
operations and clinical trials, continue our development activities and commercialize our product candidates, if approved. As
our operations expand, we expect that we will need to manage additional relationships with various manufacturers and collaborative
partners, suppliers and other organizations.
Due to our limited financial resources and our
limited experience in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of
our operations or recruit and train additional qualified personnel. In addition, the physical expansion of our operations may lead
to significant costs and may divert our management and resources. Any inability to manage growth could delay the execution of our
development and strategic objectives, or disrupt our operations, which could materially impact our business, revenue and operating
results.
Our product candidates may cause undesirable side effects
or adverse events, or have other properties that could delay or prevent their clinical development, regulatory approval or commercialization.
As with many pharmaceutical products, undesirable
side effects or adverse events caused by our product candidates could interrupt, delay or halt clinical studies and could result
in the denial of regulatory approval by the FDA or other regulatory authorities for any or all indications, and in turn prevent
us from commercializing our product candidates. If undesirable side effects occur, they could possibly prevent approval, which
would have a material and adverse effect on our business.
If any of our product candidates receive marketing
approval and we or others later identify undesirable side effects caused by the product:
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regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
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we may be required to change the way the product is administered, conduct additional clinical studies or change the labeling of the product;
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regulatory authorities may withdraw approval of the product; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product,
which in turn could delay or prevent us from generating significant revenue from its sale.
Our business and operations would suffer in the event of third-party
computer system failures, cyber-attacks on third-party systems or deficiency in our cyber security.
We rely on
information technology (IT) systems, including third-party “cloud based” service providers, to keep financial
records, maintain laboratory data, clinical data and corporate records, to communicate with staff and external parties, and
to operate other critical functions. This includes critical systems such as email, other communication tools, electronic
document repositories, and archives. If any of these third-party information technology providers are compromised due to
computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication failures,
electrical failures, cyber-attacks or cyber-intrusions over the internet, then sensitive emails or documents could be exposed
or deleted. Similarly, we could incur business disruption if our access to the internet is compromised and we are unable to
connect with third-party IT providers. The risk of a security breach or disruption, particularly through cyber-attacks or
cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the
number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition,
we rely on those third parties to safeguard important confidential personal data regarding our employees and patients
enrolled in our clinical trials. If a disruption event were to occur and cause interruptions in a third-party IT
provider’s operations, it could result in a disruption of our drug development programs. For example, the loss of
clinical trial data from completed, ongoing or planned clinical trials 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 inappropriate disclosure of confidential or proprietary
information, we could incur liability and development of our product candidates could be delayed, or could fail.
Risks Related to Drug Development and Commercialization
We depend on the successful completion of clinical studies
of our product candidates, and any positive results in prior clinical studies do not ensure that ongoing or future clinical studies
will be successful.
Pharmaceutical products are subject to stringent
regulatory requirements covering quality, safety and efficacy. The burden of proof is on the manufacturer, such as us, to show
with substantial clinical data that the risk/benefit profile for any new drug is favorable. Only after successfully completing
extensive pharmaceutical development, nonclinical testing and clinical studies may a product be considered for regulatory approval.
If we license rights to develop our product
candidates to independent third parties or otherwise permit such third parties to evaluate our product candidates in clinical studies,
we may have limited control over those clinical studies. Any safety or efficacy concern identified in a third-party sponsored study
could adversely affect our or another licensee’s development of our product candidate and prospects for our regulatory approval,
even if the data from that study are subject to varying interpretations and analyses.
There is
significant risk that ongoing and future clinical studies of our product candidates are or will be unsuccessful. Negative or
inconclusive results could cause the FDA and other regulatory authorities to require us to repeat or conduct additional
clinical studies, which could significantly increase the time and expense associated with development of that product
candidate or cause us to elect to discontinue one or more clinical programs. Failure to complete a clinical study of a
product candidate or an unsuccessful result of a clinical study could have a material adverse effect on our business.
Clinical drug development involves a lengthy and expensive
process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to
complete, the development and commercialization of our drug candidates.
Clinical studies are expensive, difficult to
design and implement, may take many years to complete, and outcomes are inherently uncertain. A drug product may fail to demonstrate
positive results at any stage of testing despite having progressed satisfactorily through nonclinical testing and initial clinical
studies. There is significant risk in clinical development where later stage clinical studies are designed and powered based on
the analysis of data from earlier studies, with these earlier studies involving a smaller number of patients, and the results of
the earlier studies being driven primarily by a subset of responsive patients. In addition, interim results of a clinical study
do not necessarily predict final results. Further, clinical study data frequently are susceptible to varying interpretations. Medical
professionals and/or regulatory authorities may analyze or weigh study data differently than the sponsor company, resulting in
delay or failure to obtain marketing approval for a product candidate. Additionally, the possible lack of standardization across
multiple investigative sites may induce variability in the results, which can interfere with the evaluation of treatment effects.
Delays in commencement and completion of clinical studies
are common and have many causes. Delays in clinical studies of our product candidates could increase overall development costs
and jeopardize our ability to obtain regulatory approval and successfully commercialize any approved products.
Clinical studies may not commence on time or
be completed on schedule, if at all. The commencement and completion of clinical studies can be delayed for a variety of reasons,
including:
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inability to raise sufficient funding to initiate or to continue a clinical study;
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delays in obtaining regulatory approval to commence a clinical study;
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delays in identifying and reaching agreement on acceptable terms with prospective CROs and clinical study sites and investigators, which agreements can be subject to extensive negotiation and may vary significantly among study sites;
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delays in obtaining regulatory approval in a prospective country;
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delays in obtaining ethics committee approval to conduct a clinical study at a prospective site;
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delays in reaching agreements on acceptable terms with prospective CMOs or other vendors for the production and supply of clinical trial material and, if necessary, drug administration devices, which agreements can be subject to extensive negotiation;
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delays in the production or delivery of sufficient quantities of clinical trial material from our CMOs and other vendors to initiate or continue a clinical study;
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delays due to product candidate recalls as a result of stability failure, excessive product complaints or other failures of the product candidate during its use or testing;
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invalidation of clinical
data caused by premature unblinding or integrity issues;
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invalidation of clinical data caused by mixing up of the active drug and placebo through randomization or manufacturing errors;
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delays on the part of our CROs, CMOs and other third-party contractors in developing procedures and protocols or otherwise conducting activities in accordance with applicable policies and procedures and in accordance with agreed upon timelines;
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delays in identifying and hiring or engaging, as applicable, additional employees or consultants to assist in managing clinical study-related activities;
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delays in recruiting and enrolling individuals to participate in a clinical study, which historically can be challenging in orphan diseases;
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delays caused by patients dropping out of a clinical study due to side effects, concurrent disorders, difficulties in adhering to the study protocol, unknown issues related to different patient profiles than in previous studies, or otherwise;
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delays in having patients complete participation in a clinical study, including returning for post-treatment follow-up;
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delays resulting from study sites dropping out of a trial, providing inadequate staff support for the study, problems with shipment of study supplies to clinical sites, or focusing our staff’s efforts on enrolling studies that compete for the same patient population;
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suspension of enrollment at a study site or the imposition of a clinical hold by the FDA or other regulatory authority following an inspection of clinical study operations at study sites or finding of a drug-related serious adverse event; and
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delays in quality control/quality assurance procedures necessary for study database lock and analysis of unblinded data.
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We may experience difficulties in the enrollment of patients
in our clinical trials, which may delay or prevent us from obtaining regulatory approval.
We may not be able to continue clinical trials
for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these
trials as required by the FDA or similar regulatory authorities outside the United States. In particular, because we are focused
on diseases in genomically defined patient populations, our ability to enroll eligible patients may be limited or may result in
slower enrollment than we anticipate. In addition, some of our competitors have ongoing clinical trials for drug candidates that
treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead
enroll in clinical trials of our competitors’ drug candidates.
Patient enrollment, a critical component to
successful completion of a clinical study, is affected by many factors, including:
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the size of the target patient population;
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other ongoing studies competing for the same patient population;
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the eligibility criteria for the clinical trial;
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the design of the clinical study;
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the perceived risks and benefits of the product candidate under study;
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the efforts to facilitate timely enrollment in clinical trials;
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the proximity and availability of clinical trial sites for prospective patients; and
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the ability to monitor patients adequately during and after treatment.
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Clinical studies may not begin on time or be
completed in the time frames we anticipate. The length of time necessary to successfully complete clinical studies varies significantly
and is difficult to predict accurately. We may make statements regarding anticipated timing for completion of enrollment in and/or
availability of results from our clinical studies, but such predictions are subject to a number of significant assumptions and
actual timing may differ materially for a variety of reasons, including patient enrollment rates, length of time needed to prepare
raw study data for analysis and then to review and analyze it, and other factors described above. If we experience delays in the
completion of a clinical study, if a clinical study is terminated, or if failure to conduct a study in accordance with regulatory
requirements or the study’s protocol leads to deficient safety and/or efficacy data, the regulatory approval and/or commercial
prospects for our product candidates may be harmed and our ability to generate product revenue will be delayed. In addition, any
delays in completing our clinical studies likely will increase our development costs. Further, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical studies may ultimately lead to the denial of regulatory approval
of a product candidate. Even if we ultimately commercialize our product candidates, the standard of care may have changed or other
therapies for the same indications may have been introduced to the market in the interim and may establish a competitive threat
to us or may diminish the need for our products.
Clinical studies are very expensive, difficult to design and
implement, often take many years to complete, and the outcome is inherently uncertain.
Clinical development of pharmaceutical products
for humans is generally very expensive and takes many years to complete. Failures can occur at any stage of clinical testing. We
estimate that clinical development of our product candidates will take several additional years to complete, but because of the
variety of factors that can affect the design, timing, and outcome of clinical studies, we are unable to estimate the exact funds
required to complete research and development, to obtain regulatory approval and to commercialize all of our product candidates.
We will need significant additional capital to continue to advance our product candidates pursuant to our current development and
commercialization plans.
Failure at any stage of clinical testing is
not uncommon and we may encounter problems that would require additional, unplanned studies or cause us to abandon a clinical development
program.
In addition, a clinical study may be suspended
or terminated by us, an IRB, a data safety monitoring board, the FDA or other regulatory authorities due to a number of factors,
including:
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lack of adequate funding to continue the study;
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failure to conduct the study in accordance with regulatory requirements or the study’s protocol;
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inspection of clinical study operations or sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues, including adverse side effects; or
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changes in governmental regulations or administrative actions.
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Changes in governmental regulations and guidance
relating to clinical studies may occur and we may need to amend study protocols to reflect these changes, or we may amend study
protocols for other reasons. Amendments may require us to resubmit protocols to IRBs for reexamination and approval or renegotiate
terms with CROs, study sites and investigators, all of which may adversely impact the costs or timing of or our ability to successfully
complete a trial.
There is significant uncertainty regarding the regulatory
approval process for any investigational new drug, substantial further testing and validation of our product candidates and related
manufacturing processes may be required, and regulatory approval may be conditioned, delayed or denied, any of which could delay
or prevent us from successfully marketing our product candidates and substantially harm our business.
Pharmaceutical products generally are subject
to rigorous nonclinical testing and clinical studies and other approval procedures mandated by the FDA and foreign regulatory authorities.
Various federal and foreign statutes and regulations also govern or materially influence the manufacturing, safety, labeling, storage,
record keeping and marketing of pharmaceutical products. The process of obtaining these approvals and the subsequent compliance
with appropriate U.S. and foreign statutes and regulations is time-consuming and requires the expenditure of substantial resources.
We are preparing INN-202, larazotide acetate,
for Phase 3 clinical trials, the success of which will be needed for FDA approval to market INN-202 in the United States to treat
celiac disease in patients with persistent symptoms while adhering to a gluten free diet. While significant communication with
the FDA on the Phase 3 study design has occurred, even if the Phase 3 clinical study meets all of its statistical goals and protocol
end points, the FDA may not view the results as robust and convincing and may require additional clinical studies and/or other
costly studies, which could require us to expend substantial additional resources and could significantly extend the timeline for
clinical development prior to market approval. Additionally, we are required by the FDA to conduct a long-term safety study on
INN-202. The results of this study will not be known until a short time prior to potential submission of an NDA for INN-202. If
the safety study cannot be completed for technical or other reasons, or provides results that the FDA determines to be concerning,
this may cause a delay or failure in obtaining approval for INN-202. We are conducting pre-clinical work for INN-217 in NASH and INN-289 in Crohn's disease to prepare for future clinical proof-of-concept
trials.
We are planning
Phase 2 clinical trials for INN-108 for mild-to-moderate ulcerative colitis. Concurrently, we may make
formulation changes to INN-108 that would simplify the dosing in pediatric patients. While this change is expected by us to
reduce studies and/or other documentation requirements, the regulatory agencies may require additional clinical or
nonclinical studies prior to approval, even if current clinical studies are deemed successful, which could require us to
expend substantial additional resources and significantly extend the timeline for clinical development of INN-108.
We intend
to prepare INN-329, secretin, for additional testing in its Phase 3 clinical trial, the success of which will be needed for
FDA approval to market INN-329 in the United States for MRCP procedures. While significant communication with the FDA on the
Phase 3 study design has occurred in the past, we will be required to initiate communication with the FDA to finalize the
study design and to seek its approval for the additional Phase 3 trial design. Even if the Phase 3 clinical study meets all
of its statistical goals and protocol end points, the FDA may not view the results as robust and convincing. The FDA may
require additional clinical studies and/or other costly studies, which could require us to expend substantial additional
resources and could significantly extend the timeline for clinical development prior to market approval. Additionally, we are
required by the FDA to conduct a long-term safety study on INN-329. The results of this study will not be known until a short
time prior to potential submission of an NDA for INN-329. If the safety study cannot be completed for technical or other
reasons, or provides results that the FDA determines to be concerning, this may cause a delay or failure in obtaining
approval for INN-329.
Significant
uncertainty exists with respect to the regulatory approval process for any investigational new drug, including
INN-202, INN-217, INN-108, INN-289 and INN-329. Regardless of any guidance the FDA or foreign regulatory agencies may provide
a drug’s sponsor during its development, the FDA or foreign regulatory agencies retain complete discretion in deciding
whether to accept an NDA or the equivalent foreign regulatory approval submission for filing or, if accepted, approve an NDA.
There are many components to an NDA or marketing authorization application submission in addition to clinical study data. For
example, the FDA or foreign regulatory agencies will review the sponsor’s internal systems and processes, as well as
those of its CROs, CMOs and other vendors, related to development of its product candidates, including those pertaining to
its clinical studies and manufacturing processes. Before accepting an NDA for review or before approving the NDA, the FDA
or foreign regulatory agencies may request that we provide additional information that may require significant resources
and time to generate and there is no guarantee that its product candidates will be approved for any indication for which we
may apply. The FDA or foreign regulatory agencies may choose not to approve an NDA for any of a variety of reasons, including
a decision related to the safety or efficacy data, manufacturing controls or systems, or for any other issues that the
agency may identify related to the development of its product candidates. Even if one or more Phase 3 clinical studies
are successful in providing statistically significant evidence of the efficacy and safety of the investigational drug, the
FDA or foreign regulatory agencies may not consider efficacy and safety data from the submitted studies adequate scientific
support for a conclusion of effectiveness and/or safety and may require one or more additional Phase 3 or other studies prior
to granting marketing approval. If this were to occur, the overall development cost for the product candidate would
be substantially greater and our competitors may bring products to market before we do, which could impair our ability
to generate revenues from the product candidates, or even seek approval, if blocked by a competitor’s Orphan
Drug exclusivity, which would have a material adverse effect on our business, financial condition and results of
operations.
Further, development of our product candidates
and/or regulatory approval may be delayed for reasons beyond our control. For example, a U.S. federal government shut-down or budget
sequestration, such as ones that occurred during 2013 and 2018, may result in significant reductions to the FDA’s budget,
employees and operations, which may lead to slower response times and longer review periods, potentially affecting our ability
to progress development of our product candidates or obtain regulatory approval for our product candidates.
Even if the FDA or foreign regulatory agencies
grant approvals for our product candidates, the conditions or scope of the approval(s) may limit successful commercialization of
the product candidates and impair our ability to generate substantial sales revenue. The FDA or foreign regulatory agencies may
also only grant marketing approval contingent on the performance of costly post-approval nonclinical or clinical studies, or subject
to warnings or contraindications that limit commercialization. Additionally, even after granting approval, the manufacturing processes,
labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for our products
will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing
information and reports, registration, and continued compliance with cGMP, good clinical
practices, international conference on harmonization regulations and good laboratory practices, which are regulations and guidelines
that are enforced by the FDA or foreign regulatory agencies for all of our clinical development and for any clinical studies that
we conduct post-approval. The FDA or foreign regulatory agencies may decide to withdraw approval, add warnings or narrow the approved
indications in the product label, or establish risk management programs that could restrict distribution of our products. These
actions could result from, among other things, safety concerns, including unexpected side effects or drug-drug interaction problems,
or concerns over misuse of a product. If any of these actions were to occur following approval, we may have to discontinue commercialization
of the product, limit our sales and marketing efforts, implement risk minimization procedures, and/or conduct post-approval studies,
which in turn could result in significant expense and delay or limit our ability to generate sales revenues.
Regulations may be changed prior to submission
of an NDA that require higher hurdles than currently anticipated. These may occur as a result of drug scandals, recalls, or a political
environment unrelated to our products.
Even if we receive regulatory approval for a product candidate,
we may face regulatory difficulties that could materially and adversely affect our business, financial condition and results of
operations.
Even if initial regulatory approval is obtained,
as a condition to the initial approval the FDA or a foreign regulatory agency may impose significant restrictions on a product’s
indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies or marketing surveillance
programs, any of which would limit the commercial potential of the product. Our product candidates also will be subject to ongoing
FDA requirements related to the manufacturing processes, labeling, packaging, storage, distribution, advertising, promotion, record-keeping
and submission of safety and other post-market information regarding the product. For instance, the FDA may require changes to
approved drug labels, require post-approval clinical studies and impose distribution and use restrictions on certain drug products.
In addition, approved products, manufacturers and manufacturers’ facilities are subject to continuing regulatory review and
periodic inspections. If previously unknown problems with a product are discovered, such as adverse events of unanticipated severity
or frequency, or problems with the facility where the product is manufactured, the FDA may impose restrictions on that product
or us, including requiring withdrawal of the product from the market. If one of our CMOs or us fail to comply with applicable
regulatory requirements, a regulatory agency may:
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issue warning letters or untitled letters;
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impose civil or criminal penalties;
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suspend or terminate any ongoing clinical studies;
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close the facilities of a CMO;
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refuse to approve pending applications or supplements to approved applications;
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suspend or withdraw regulatory approval;
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exclude our product from reimbursement under government healthcare programs, including Medicaid or Medicare;
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impose restrictions or affirmative obligations on our or our CMOs’ operations, including costly new manufacturing requirements; or
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seize or detain products or require a product recall.
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If any of our product candidates for which we receive regulatory
approval fails to achieve significant market acceptance among the medical community, patients or third-party payers, the revenue
we generate from our sales will be limited and our business may not be profitable.
Our success will depend in substantial part
on the extent to which our product candidates, if approved, are accepted by the medical community and patients and reimbursed by
third-party payers, including government payers. We cannot predict with reasonable accuracy whether physicians, patients, healthcare
insurers or health maintenance organizations, or the medical community in general, will accept or utilize any of our products,
if approved. If our product candidates are approved but do not achieve an adequate level of acceptance by these parties, we may
not generate sufficient revenue to become or to remain profitable. In addition, our efforts to educate the medical community and
third-party payers regarding the benefits of our products may require significant resources and may never be successful.
The degree of market acceptance with respect
to each of our approved products, if any, will depend upon a number of factors, including:
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the safety and efficacy of our product as demonstrated in clinical studies;
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acceptance in the medical and patient communities of our product as a safe and effective treatment;
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the perceived advantages of our product over alternative treatments, including with respect to the incidence and severity of any adverse side effects and the cost of treatment;
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the indications for which our product is approved;
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claims or other information (including limitations or warnings) in our product’s approved labeling;
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reimbursement and coverage policies of government and other third-party payers;
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smaller than expected market size due to lack of disease awareness of a rare disease, or the patient population with a specific rare disease being smaller than anticipated;
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availability of alternative treatments;
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pricing and cost-effectiveness of our product relative to alternative treatments;
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inappropriate diagnostic efforts due to limited knowledge and/or resources among clinicians;
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the prevalence of off-label substitution of chemically equivalent products or alternative treatments; and
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the resources we devote to marketing our product and restrictions on promotional claims we can make with respect to the product.
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If we determine that a product candidate may
not achieve adequate market acceptance or that the potential market size does not justify additional expenditure on the program,
we may reduce our expenditures on the development and/or the process of seeking regulatory approval of the product candidate while
we evaluate whether and on what timeline to move the program forward.
Even if we receive regulatory approval to market one or more
of our product candidates in the United States, we may never receive approval or commercialize our products outside of the United
States, which would limit our ability to realize the full commercial potential of our product candidates.
In order to market products outside of the United
States, we must establish and comply with the numerous and varying regulatory requirements of other countries regarding safety
and efficacy. Approval procedures vary among countries and can involve additional product testing and validation and additional
administrative review periods. The time required to obtain approval in other countries generally differs from that required to
obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA
approval in the United States, as well as other risks. Regulatory approval in one country does not ensure regulatory approval in
another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process
in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have
the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the
risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product
candidates and have an adverse effect on product sales, and that such approval may be subject to limitations on the indicated uses
for which the product may be marketed or require costly, post-marketing follow-up studies.
Conversely, even if our product candidates receive
approval outside the United States in the future, we may still be unable to meet the FDA requirements necessary for approval in
the United States.
We must comply with the U.S. Foreign Corrupt Practices Act
and similar foreign anti-corruption laws.
The U.S. Foreign Corrupt Practices Act, to which
we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence
a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any
foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain
business or to otherwise influence a person working in an official capacity. Other countries, such as the United Kingdom, have
similar laws with which we must comply. We face the risk that an employee or agent could be accused of violating one or more of
these laws, particularly in geographies where significant overlap exists between local government and healthcare industries. Such
an accusation, even if unwarranted, could prove disruptive to our developmental and commercialization efforts.
We may expend our limited resources to pursue a particular
product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for
which there is a greater likelihood of success.
Because we have limited financial and managerial
resources, we intend to focus on developing product candidates for specific indications that we identify as most likely to succeed,
in terms of their potential both to gain regulatory approval and to achieve commercialization. As a result, we may forego or delay
pursuit of opportunities with other product candidates or in other indications with greater commercial potential.
Our resource allocation decisions may cause
us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research
and development programs and product candidates for specific indications may not yield any commercially viable product candidates.
If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would
have been more advantageous for us to retain sole development and commercialization rights to the product candidate.
Risks Related to Our Intellectual Property
Our success will depend in part on obtaining and maintaining
effective patent and other intellectual property protection for our product candidates and proprietary technology.
We rely on
patents and other intellectual property to maintain exclusivity for our product candidates. INN-202 and INN-108 are covered
by several issued patents in the U.S. as well as patents outside the U.S., with patent applications pending in several
jurisdictions. INN-329 is not protected by patents. Intellectual property relating to the INN-202 program is exclusively
licensed from Alba Therapeutics Corp. Intellectual property relating to INN-108 program is exclusively licensed from Seachaid
Pharmaceuticals Inc. Our success will depend in part on our ability to:
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obtain and maintain patents and other exclusivity with respect to our products;
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prevent third parties from infringing upon our proprietary rights;
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maintain proprietary know-how and trade secrets;
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operate without infringing upon the patents and proprietary rights of others; and
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obtain and maintain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur or if necessary to secure exclusive rights to them, both in the United States and in foreign countries.
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The patent and intellectual property positions
of biopharmaceutical companies generally are highly uncertain, involve complex legal and factual questions, and have been and continue
to be the subject of much litigation. There is no guarantee that we have or will develop or obtain the rights to products or processes
that are patentable, that patents will issue from any pending applications or that claims issued will be sufficient to protect
the technology we develop or have developed or that is used by us, our CMOs or our other service providers. In addition, any patents
that are issued and/or licensed to us may be limited in scope or challenged, invalidated, infringed or circumvented, including
by our competitors, and any rights we have under issued and/or licensed patents may not provide competitive advantages to us. If
competitors can develop and commercialize technology and products similar to ours, our ability to successfully commercialize our
technology and products may be impaired.
Patent applications in the United States are
confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically
lags actual discoveries by several months. As a result, we cannot be certain that the inventors listed in any patent or patent
application owned or licensed by us were the first to conceive of the inventions covered by such patents and patent applications
(for U.S. patent applications filed before March 16, 2013), or that such inventors were the first to file patent applications
for such inventions outside the United States and, after March 15, 2013, in the United States. In addition, changes in or
different interpretations of patent laws in the United States and foreign countries may affect our patent rights and limit the
patents we can obtain, which could permit others to use our discoveries or to develop and to commercialize our technology and products
without any compensation to us.
We also rely on unpatented know-how and trade
secrets and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in
part, through confidentiality agreements with employees, consultants, collaborators and others. We also have invention or patent
assignment agreements with our employees and certain consultants. The steps we have taken to protect our proprietary rights, however,
may not be adequate to preclude misappropriation of or otherwise protect our proprietary information or prevent infringement of
our intellectual property rights, and we may not have adequate remedies for any such misappropriation or infringement. In addition,
it is possible that inventions relevant to our business could be developed by a person not bound by an invention assignment agreement
with us or independently discovered by a competitor.
We also intend to rely on regulatory exclusivity
for protection of our product candidates, if approved for commercial sale. Implementation and enforcement of regulatory exclusivity,
which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify
for regulatory exclusivity, or failure to obtain or to maintain the extent or duration of such protections that we expect for our
product candidates, if approved, could affect our decision on whether to market the products in a particular country or countries
or could otherwise have an adverse impact on our revenue or results of operations.
We may rely on trademarks, trade names and brand
names to distinguish our products, if approved for commercial sale, from the products of our competitors. However, our trademark
applications may not be approved. Third parties may also oppose our trademark applications or otherwise challenge our use of the
trademarks, in which case we may expend substantial resources to defend our proposed or approved trademarks and may enter into
agreements with third parties that may limit our use of our trademarks. In the event that our trademarks are successfully challenged,
we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote significant
resources to advertising and marketing these new brands. Further, our competitors may infringe our trademarks or we may not have
adequate resources to enforce our trademarks.
If we fail to comply with our obligations under any license,
collaboration or other agreements, we could lose intellectual property rights that are necessary for developing and commercializing
our product candidates.
Our intellectual property relating to the INN-202
program is licensed from Alba Therapeutics Corp. Our intellectual property relating to the INN-108 program is licensed from Seachaid
Pharmaceuticals Inc. Our license agreements with Alba and Seachaid impose, and any future licenses or collaboration agreements
we enter into are likely to impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing,
patent prosecution and enforcement, and other obligations on us. These type of agreements and related obligations are complex and
subject to contractual disputes. If we breach any of these imposed obligations, or use the intellectual property licensed to us
in an unauthorized manner, we may be required to pay damages or the licensor may have the right to terminate the license, which
could result in our loss of the intellectual property rights and us being unable to develop, manufacture and sell drugs that are
covered by the licensed technology.
Our success depends on our ability to prevent competitors
from duplicating or developing and commercializing equivalent versions of our product candidates, and intellectual property protection
may not be sufficient or effective to exclude this competition.
We have patent protection in the United States
and other countries to cover the composition of matter, formulation and method of use for INN-202 and INN-108. However, these patents
may not provide us with significant competitive advantages, because the validity, scope, term, or enforceability of the patents
may be challenged and, if instituted, one or more of the challenges may be successful. Patents may be challenged in the United
States under post-grant review proceedings,
inter partes
reexamination,
ex parte
re-examination, or challenged in
district court. Any patents issued in foreign jurisdictions may be subjected to comparable proceedings lodged in various foreign
patent offices or courts. These proceedings could result in either loss of the patent or loss or reduction in the scope of one
or more of the claims of the patent. Even if a patent issues, and is held valid and enforceable, competitors may be able to design
around our patent rights, such as by using pre-existing or newly developed technology, in which case competitors may not infringe
our issued claims and may be able to market and sell products that compete directly with ours before and after our patents expire.
Further, the INN-202 primary end point is a
proprietary Patient Report Outcome measure (CeD PRO) that is protected by copyright. However, copyright protection may not be sufficient
to exclude others from developing products that compete with INN-202.
The patent prosecution process is expensive
and time-consuming. We and any future licensors and licensees may not apply for or prosecute patents on certain aspects of our
product candidates at a reasonable cost, in a timely fashion, or at all. We may not have the right to control the preparation,
filing and prosecution of some patent applications related to our product candidates or technologies. As a result, these patents
and patent applications may not be prosecuted and enforced in a manner consistent with our best interests. It is also possible
that we or any future or present licensors or licensees will fail to identify patentable aspects of inventions made in the course
of development and commercialization activities before it is too late to obtain patent protection on them. Further, it is possible
that defects of form in the preparation or filing of our patent applications may exist, or may arise in the future, such as with
respect to proper priority claims, inventorship, assignment, term or claim scope. If there are material defects in the form or
preparation of our patents or patent applications, such patents or applications may be invalid or unenforceable. In addition, one
or more parties may independently develop similar technologies or methods, duplicate our technologies or methods, or design around
the patented aspects of our products, technologies or methods. Any of these circumstances could impair our ability to protect our
products, if approved, in ways which may have an adverse impact on our business, financial condition and operating results.
Furthermore, the issuance of a patent is not
conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the
courts or patent offices in and outside of the United States. Such challenges may result in loss of exclusivity or freedom to operate
or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to use
our patents to stop others from using or commercializing similar or identical products or technology, or to limit the duration
of the patent protection of our technology and drugs. Given the amount of time required for the development, testing and regulatory
review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing
drugs similar to or identical to ours.
Enforcement of intellectual property rights
in certain countries outside the United States, including China in particular, has been limited or non-existent. Future enforcement
of patents and proprietary rights in many other countries will likely be problematic or unpredictable. Moreover, the issuance of
a patent in one country does not assure the issuance of a similar patent in another country. Claim interpretation and infringement
laws vary by nation, so the extent of any patent protection is uncertain and may vary in different jurisdictions.
Obtaining and maintaining patent protection depends on compliance
with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our
patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity
fees and various other governmental fees on patents and applications are required to be paid to the United States Patent and Trademark
Office, or USPTO, and various governmental patent agencies outside of the United States in several stages over the lifetime of
the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There
are situations in which non-compliance can result in decreased patent term or in abandonment or lapse of the patent or patent application,
leading to partial or complete loss of patent rights in the relevant jurisdiction.
Third parties may claim that our products, if approved, infringe
on their proprietary rights and may challenge the approved use or uses of a product or our patent rights through litigation or
administrative proceedings, and defending such actions may be costly and time consuming, divert management attention away from
our business, and result in an unfavorable outcome that could have an adverse effect on our business.
Our commercial success depends on our ability
and the ability of our CMOs and component suppliers to develop, manufacture, market and sell our products and product candidates
and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued
patents and pending patent applications, which are owned by third parties, exist in the fields in which we are or may be developing
products. Because patent applications can take many years to publish and issue, there currently may be pending applications, unknown
to us, that may later result in issued patents that our products, product candidates or technologies infringe, or that the process
of manufacturing our products or any of our respective component materials, or the component materials themselves, infringe, or
that the use of our products, product candidates or technologies infringe.
We, our CMOs and/or
our component material suppliers may be exposed to, or threatened with, litigation by third parties alleging that our products,
product candidates and/or technologies infringe our patents and/or other intellectual property rights, or that one or more of
the processes for manufacturing our products or any of our respective component materials, or the component materials themselves,
or the use of our products, product candidates or technologies, infringe our patents and/or other intellectual property rights.
If a third-party patent or other intellectual property right is found to cover our products, product candidates, technologies
or uses, or any of the underlying manufacturing processes or components, we could be required to pay damages and could be unable
to commercialize our products or to use our technologies or methods unless we are able to obtain a license to the patent or intellectual
property right. A license may not be available to us in a timely manner or on acceptable terms, or at all. In addition, during
litigation, the third-party alleging infringement could obtain a preliminary injunction or other equitable remedy that could prohibit
us from making, using, selling or importing our products, technologies or methods.
There generally is
a substantial amount of litigation involving patent and other intellectual property rights in the industries in which we operate
and the cost of such litigation may be considerable. We can provide no assurance that our product candidates or technologies will
not infringe patents or rights owned by others, licenses to which may not be available to us in a timely manner or on acceptable
terms, or at all. If a third party claims that we or our CMOs or component material suppliers infringe its intellectual property
rights, we may face a number of issues, including, but not limited to:
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infringement and other intellectual property claims which, with or without merit, may be expensive and time consuming to litigate and may divert management’s time and attention from our core business;
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substantial damages for infringement, including the potential for treble damages and attorneys’ fees, which we may have to pay if it is determined that the product and/or its use at issue infringes or violates the third party’s rights;
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a court prohibiting us from selling or licensing the product unless the third-party licenses its intellectual property rights to us, which it may not be required to do;
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if a license is available from the third party, we may have to pay substantial royalties, fees and/or grant cross-licenses to the third party; and
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redesigning our products or processes so they do not infringe, which may not be possible or may require substantial expense and time.
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No assurance can be given that patents do not
exist, have not been filed, or could not be filed or issued, which contain claims covering our products, product candidates or
technology or those of our CMOs or component material suppliers or the use of our products, product candidates or technologies.
Because of the large number of patents issued and patent applications filed in the industries in which we operate, there is a risk
that third parties may allege they have patent rights encompassing our products, product candidates or technologies, or those of
our CMOs or component material suppliers, or uses of our products, product candidates or technologies.
In the future, it may be necessary for us to
enforce our proprietary rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights,
through litigation or other dispute proceedings, which may be costly and, to the extent we are unsuccessful, adversely affect our
rights. In these proceedings, a court or administrative body could determine that our claims, including those related to enforcing
patent rights, are not valid or that an alleged infringer has not infringed our rights. The uncertainty resulting from the mere
institution and continuation of any patent- or other proprietary rights-related litigation or interference proceeding could have
a material and adverse effect on our business prospects, operating results and financial condition.
Risks Related to Our Industry
We are subject to uncertainty relating to healthcare reform
measures and reimbursement policies that, if not favorable to our products, could hinder or prevent our products’ commercial
success, if any of our product candidates are approved.
The unavailability or inadequacy of third-party
payer coverage and reimbursement could negatively affect the market acceptance of our product candidates and the future revenues
we may expect to receive from our products. The commercial success of our product candidates, if approved, will depend in part
on the extent to which the costs of such products will be covered by third-party payers, such as government health programs, commercial
insurance and other organizations. Third-party payers are increasingly challenging the prices and examining the medical necessity
and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payers
do not consider our products to be cost-effective compared to other therapies, we may not obtain coverage for our products after
approval as a benefit under the third-party payers’ plans or, even if we do, the level of coverage or payment may not be
sufficient to allow us to sell our products on a profitable basis.
Significant uncertainty exists as to the reimbursement
status for newly approved drug products, including coding, coverage and payment. There is no uniform policy requirement for coverage
and reimbursement for drug products among third-party payers in the United States; therefore coverage and reimbursement for drug
products can differ significantly from payer to payer. The coverage determination process is often a time-consuming and costly
process that will require us to provide scientific and clinical support for the use of our products to each payer separately, with
no assurance that coverage and adequate payment will be applied consistently or obtained. The process for determining whether a
payer will cover and how much it will reimburse a product may be separate from the process of seeking approval of the product or
for setting the price of the product. Even if reimbursement is provided, market acceptance of our products may be adversely affected
if the amount of payment for our products proves to be unprofitable for healthcare providers or less profitable than alternative
treatments or if administrative burdens make our products less desirable to use. Third-party payer reimbursement to providers of
our products, if approved, may be subject to a bundled payment that also includes the procedure of administering our products or
third-party payers may require providers to perform additional patient testing to justify the use of our products. To the extent
there is no separate payment for our product(s), there may be further uncertainty as to the adequacy of reimbursement amounts.
The continuing efforts of governments, private
insurance companies, and other organizations to contain or to reduce costs of healthcare may adversely affect:
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our ability to set an appropriate price for our products;
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the rate and scope of adoption of our products by healthcare providers;
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our ability to generate revenue or achieve or maintain profitability;
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the future revenue and profitability of our potential customers, suppliers and collaborators; and
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our access to additional capital.
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Our ability to successfully commercialize our
products will depend in part on the extent to which governmental authorities, private health insurers and other organizations establish
what we believe are appropriate coverage and reimbursement for our products. The containment of healthcare costs has become a priority
of federal, state and foreign governments and the prices of drug products have been a focus in this effort. For example, there
have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency
to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement
methodologies for drugs, and the Trump administration has stated that reducing drug pricing is a priority. We expect that federal,
state and local governments in the United States, as well as governments in other countries, will continue to consider legislation
directed at lowering the total cost of healthcare. In addition, in certain foreign markets, the pricing of drug products is subject
to government control and reimbursement may in some cases be unavailable or insufficient. It is uncertain whether and how future
legislation, whether domestic or abroad, could affect prospects for our product candidates or what actions governmental or private
payers for healthcare treatment and services may take in response to any such healthcare reform proposals or legislation. Adoption
of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls
and measures, may prevent or limit our ability to generate revenue, attain profitability or commercialize our product candidates,
especially in light of our plans to price our product candidates at a high level.
Furthermore, we expect that the U.S. Congress
will again attempt to pass reform measures that may be adopted in the future, including the possible repeal and replacement of
the Affordable Care Act, which the Trump administration has stated is a priority. These potential courses of action are unpredictable,
and the potential impact of new legislation on our operations and financial position is uncertain, but may result in more rigorous
coverage criteria, lower reimbursement, and additional downward pressure on the price we may receive for an approved product. Any
reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from
private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our products, if approved.
We expect competition in the marketplace for our product candidates,
should any of them receive regulatory approval.
Larazotide
acetate has issued patents for composition of matter, method of use and its formulation in the United States, our primary
targeted market. INN-202 has either been issued patents or is prosecuting patent applications in numerous countries outside
the United States. The barrier to entry for any company developing larazotide acetate for celiac disease is very high. We
believe that INN-202 is the first drug entering into Phase 3 clinical trials for celiac disease. Additionally, if larazotide
acetate is the first drug granted FDA approval for celiac disease, competitors may need to license or to seek approval from
us for the usage of our CeD-PRO as an endpoint in subsequent celiac disease trials.
We have received Orphan Drug Designation from
the FDA for INN-108 for pediatric ulcerative colitis. Orphan Drug Designation will provide market exclusivity in the U.S. for seven
years, but only if (1) INN-108 receives market approval before a competitor using the same active compound for the same indication,
(2) we are able to produce sufficient supply to meet demand in the marketplace, and (3) another product with the same active ingredient(s)
is not deemed clinically superior.
INN-329, secretin, has received Orphan Drug
Designation from the FDA. Orphan Drug Designation will provide market exclusivity in the U.S. for seven years, but only if (1)
INN-329 receives market approval before a competitor using a similar peptide for the same indication, (2) we are able to produce
sufficient supply to meet demand in the marketplace, and (3) another product with the same active ingredient is not deemed clinically
superior.
The industries in which we operate are highly
competitive and subject to rapid and significant changes. Developments by others may render potential application of any of our
product candidates in a particular indication obsolete or noncompetitive, even prior to completion of our development and approval
for that indication.
If successfully
developed and approved, we expect our product candidates will face competition. We may not be able to compete successfully
against organizations with competitive products, particularly large pharmaceutical companies. Many of our potential
competitors have significantly greater financial, technical and human resources than we do, and may be better equipped to
develop, manufacture, market and distribute products. Many of these companies operate large, well-funded research,
development and commercialization programs, have extensive experience in nonclinical and clinical studies, obtaining FDA and
other regulatory approvals and manufacturing and marketing products, and have multiple products that have been approved or
are in late-stage development. These advantages may enable them to receive approval from the FDA or any foreign regulatory
agency before us and prevent us from competing due to their orphan drug protections. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, heightened awareness on the part of academic institutions, government agencies and other public and
private research organizations of the potential commercial value of their inventions have led them to actively seek to
commercialize the technologies they develop, which increases competition for investment in our programs. Competitive
products may be more effective, easier to dose, or more effectively marketed and sold, which would have a
material adverse effect on our ability to generate revenue.
We face potential product liability exposures, and if successful
claims are brought against us, we may incur substantial liability for a product or product candidate and may have to limit its
commercialization. In the future, we anticipate that we will need to obtain additional or increased product liability insurance
coverage, and we are uncertain whether such increased or additional insurance coverage can be obtained on commercially reasonable
terms, if at all.
Our business (in particular, the use of our
product candidates in clinical studies and the sale of any products for which we obtain marketing approval) will expose us to product
liability risks. Product liability claims may be brought against us by patients, healthcare providers, pharmaceutical companies
or others selling or involved in the use of our products. If we cannot successfully defend ourselves against any such claims, we will
incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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significant costs of related litigation;
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decreased demand for our products and loss of revenue;
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impairment of our business reputation;
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a “clinical hold,” suspension or termination of a clinical study or amendments to a study design;
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delays in enrolling patients to participate in our clinical studies;
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withdrawal of clinical study participants;
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substantial monetary awards to patients or other claimants; and
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the inability to commercialize our products and product candidates.
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We maintain limited product liability insurance
for our clinical studies, and our insurance coverage may not reimburse us or may not be sufficient to reimburse us for all expenses
or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and in the future, we may not be able
to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.
We expect that
we will expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of
our product candidates, but we may be unable to obtain product liability insurance on commercially acceptable terms or may
not be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect us against potential losses.
Large judgments have been awarded in class action lawsuits based on drug products that had unanticipated side effects. A
successful product liability claim or series of claims brought against us, if judgments exceed our insurance coverage, could
materially decrease our cash and adversely affect our business.
Risks Related to Our Common Stock
The market price of our common stock is likely to be volatile.
The stock market
in general and the market for pharmaceutical companies in particular have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. For example, since our stock began trading under the symbol
“INNT” on January 29, 2018 through March 12, 2018, the closing price thereof has ranged from a low of $3.52 per
share to a high of $19.00 per share. The market price of our common stock may be highly volatile and could be subject to wide
fluctuations in response to various factors, some of which are beyond our control, including:
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regulatory or legal developments in the United States and foreign countries;
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results from or delays in clinical trials of our product candidates;
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announcements of regulatory approval or disapproval of INN-202 (for celiac disease), INN-108 (for ulcerative colitis), INN-329 (for magnetic resonance cholangiopancreatography or MRCP) or any future product candidates;
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commercialization of our product candidates;
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FDA or other U.S. or foreign regulatory actions affecting us or our industry;
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introductions and announcements of new products by us, any commercialization partners or our competitors, and the timing of these introductions and announcements;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in the structure of healthcare payment systems;
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announcements by us or our competitors of significant acquisitions, licenses, strategic partnerships, joint ventures or capital commitments;
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market conditions in the pharmaceutical and biopharmaceutical sectors and issuance of securities analysts’ reports or recommendations;
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actual or anticipated quarterly variations in our results of operations or those of our future competitors;
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changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;
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sales of substantial amounts of our stock by insiders and large stockholders, or the expectation that such sales might occur;
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general economic, industry and market conditions;
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additions or departures of key personnel;
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intellectual property, product liability or other litigation against us;
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expiration or termination of our potential relationships with strategic partners; and
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the other factors described in this section entitled “Risk Factors.”
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If securities or industry analysts do not publish research
or publish unfavorable research about our business, our common stock price and trading volume could decline.
Equity research analysts
do not currently provide research coverage of our common stock. In particular, as a smaller company, it may be difficult for us
to attract the interest of equity research analysts. A lack of research coverage may adversely affect the liquidity of and market
price of our common stock. To the extent we obtain equity research analyst coverage, we will not have any control of the analysts
or the content and opinions included in their reports. The market price of our stock could decline if one or more equity research
analysts begin coverage of our common stock and downgrade our common stock or issue other unfavorable commentary or research on
us. If one or more equity research analysts ceases coverage of us in the future, or fails to publish reports on us regularly,
demand for our common stock could decrease, which in turn could cause the market price of our common stock or trading volume to
decline.
Sales of substantial amounts of our common stock in the public
markets, or the perception that such sales might occur, could cause the market price of our common stock to drop significantly,
even if our business is doing well.
If
our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock that are eligible for sale
in the public market, in some cases subject to compliance with the requirements of Rule 144, the trading price of our common stock
could decline significantly. As of March 9, 2018,
we had approximately 25.7 million shares of common stock outstanding and exercisable warrants to purchase approximately 2.2 million
shares of common stock outstanding. We have agreed to register approximately 11.9 million shares and 2.1 million shares issuable
upon exercise of outstanding warrants for resale, representing approximately 50.1% of our total outstanding shares of common stock
and warrants as of March 9, 2018. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial
amounts of our common stock in the public market, the market price of our common stock could decline significantly.
The issuance of shares upon exercise of our outstanding options
and warrants may cause substantial dilution to our existing stockholders and reduce the trading price of our common stock.
We presently have outstanding and exercisable
options and warrants that if exercised would result in the issuance of approximately 7.6 million shares of our common stock.
The issuance of shares upon exercise of warrants and options may result in dilution to the interests of other stockholders and
may reduce the trading price of our common stock.
Claims for indemnification by our directors and officers may
reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to
us.
Our certificate of incorporation and restated
bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
To the extent that a claim for indemnification
is brought by any of our directors or officers, it would reduce the amount of funds available for use in our business.
If we sell of our common stock in the future, stockholders
may experience immediate dilution and, as a result, the market price of our common stock may decline.
We may from time to time issue additional shares
of our common stock at a discount from the then-current trading price. As a result, our stockholders would experience immediate
dilution upon the purchase of any shares of such common stock sold at such discount. In addition, as opportunities present themselves,
we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or
common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional
dilution and, as a result, the market price of our common stock may decline.
Concentration of ownership of our common stock among our existing
principal stockholders may effectively limit the voting power of other stockholders.
Our executive officers, directors and current
beneficial owners of 5% or more of our common stock, in aggregate, beneficially own approximately 56.3% of our outstanding common
stock. Accordingly, these stockholders, acting together, will continue to be able to significantly influence all matters requiring
stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions.
These stockholders may therefore delay or prevent a change of control, even if such a change of control would benefit the other
stockholders. The significant concentration of stock ownership may adversely affect the market price of our common stock due to
investors’ perception that conflicts of interest may exist or arise.
A
nti-takeover provisions in our corporate charter documents
and under Delaware law could make an acquisition of us more difficult, which could discourage takeover attempts and lead to management
entrenchment, and the market price of our common stock may be lower as a result.
Certain provisions in our certificate of incorporation
and bylaws may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change
in control was considered favorable by the stockholders. For example, the Board has the authority to issue up to 10,000,000
shares of preferred stock. The Board can fix the price, rights, preferences, privileges, and restrictions of the preferred stock
without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change
in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may
be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.
Our organizational documents also contain other provisions that
could have an anti-takeover effect, including provisions that:
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provide that vacancies on the Board may be filled only by a majority of directors then in office, even though less than a quorum;
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eliminate cumulative voting in the election of directors;
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authorize the Board to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;
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permit stockholders to only take actions at a duly called annual or special meeting and not by written consent;
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prohibit stockholders from calling a special meeting of stockholders;
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require that stockholders give advance notice to nominate directors or submit proposals for
consideration at stockholder meetings; and
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authorize the Board, by a majority vote, to amend the bylaws.
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In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess
of 15% of our outstanding voting stock to merge or combine with us. These provisions could discourage potential acquisition proposals and could delay or prevent a
change in control transaction. They could also have the effect of discouraging others from making tender offers for our common
stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or
limit the price that certain investors are willing to pay for our stock.
We may be subject to securities litigation, which is expensive
and could divert management attention.
The market price of our common stock may be
volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities
class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could
result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm
our business.
We have not paid cash dividends in the past and do not expect
to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common
stock and do not anticipate paying cash dividends in the near future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may
consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur
if our stock price appreciates.
Our ability to use our net operating loss carryforwards and
certain other tax attributes to offset future taxable income may be subject to certain limitations.
We have U.S. federal net operating loss carryforwards,
or NOLs, which expire in various years if not utilized. In addition, we have federal research and development credit carryforwards.
The federal research and development credit carryforwards expire in various years if not utilized. Under Sections 382 and 383 of
Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s
ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change
income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in
our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar
rules may apply under state tax laws. We have not performed a formal study to determine whether any of our NOLs are subject
to these limitations. We have recorded deferred tax assets for our NOLs and research and development credits and have recorded
a full valuation allowance against these deferred tax assets. In the event that it is determined that we have in the past
experienced additional ownership changes, or if we experience one or more ownership changes as a result of future transactions
in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net
taxable income that we earn in the event that we attain profitability. Any such limitations on the ability to use our NOLs and
other tax assets could adversely impact our business, financial condition and operating results in the event that we attain profitability.
We have incurred and will continue to incur significant costs
as a result of operating as a public company, and our management will be required to devote substantial time to new compliance
initiatives and corporate governance practices, including maintaining an effective system of internal control over financial reporting.
As a
public company in the United States, and increasingly after we are no longer an “emerging growth company,” we
may incur significant additional legal, accounting and other expenses that Private Innovate did not incur as a private
company. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act and regulations implemented by the SEC and Nasdaq, may increase our legal and financial
compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying
interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by
regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and
this investment may result in increased general and administrative expenses and a diversion of management’s time and
attention from revenue-generating activities to compliance activities. If notwithstanding our efforts to comply with applicable
laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our
business may be harmed.
As a public company
in the United States, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, to
furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. We
are required to disclose any material weaknesses identified by our management in our internal control over financial reporting,
and, when we are no longer an “emerging growth company,” we will need to provide a statement that our independent
registered public accounting firm has issued an opinion on our internal control over financial reporting.
The controls and other procedures are designed
to ensure that information required to be disclosed by us in the reports that we file with the Securities and Exchange Commission,
or SEC, is disclosed accurately and is recorded, processed, summarized and reported within the time periods specified in SEC rules
and forms. We are in the early stages of conforming our internal control procedures to the requirements of Section 404 and
we may not be able to complete our evaluation, testing and any required remediation needed to comply with Section 404 in a
timely fashion. Our independent registered public accounting firm was not engaged to perform an audit of our internal control over
financial reporting for the year ended December 31, 2017, or for any other period. Accordingly, no such opinion will be expressed.
Even after we develop these new procedures,
these new controls may become inadequate because of changes in conditions or the degree of compliance with these policies or procedures
may deteriorate and material weaknesses in our internal control over financial reporting may be discovered. We may err in the design
or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable
assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there
can be no absolute assurance that all control issues have been or will be detected. If we are unable, or are perceived as unable,
to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial
information and operating results, which could result in a negative market reaction.
To fully comply with Section 404, we will
need to retain additional employees to supplement our current finance staff, and we may not be able to do so in a timely manner,
or at all. In addition, in the process of evaluating our internal control over financial reporting, we expect that certain of our
internal control practices will need to be updated to comply with the requirements of Section 404 and the regulations promulgated
thereunder, and we may not be able to do so on a timely basis, or at all. In the event that we are not able to demonstrate compliance
with Section 404 in a timely manner, or are unable to produce timely or accurate financial statements, we may be subject to
sanctions or investigations by regulatory authorities, such as the SEC or the stock exchange on which our stock is listed, and
investors may lose confidence in our operating results and the price of our common stock could decline. Furthermore, if we are
unable to certify that our internal control over financial reporting is effective and in compliance with Section 404, we may
be subject to sanctions or investigations by regulatory authorities, such as the SEC or stock exchanges, and we could lose investor
confidence in the accuracy and completeness of our financial reports, which could hurt our business, the price of our common stock
and our ability to access the capital markets.
Being a public company
makes it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage
or incur substantially higher costs to maintain coverage. These factors could also make it more difficult for us to attract and
retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
We are an “emerging growth company,” and the reduced
disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups, or JOBS, Act enacted in April 2012, and may remain an “emerging growth
company” for up to five years following the completion of our initial public offering, although, if we have more than $1.07
billion in annual revenue, we are deemed to be a large accelerated filer under the rules of the SEC, or we issue more than $1.0
billion of non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging
growth company” as of the following December 31. For as long as we remain an “emerging growth company,” we are
permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that
are not “emerging growth companies.” These exemptions include:
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being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “management’s discussion and analysis of financial condition and results of operations” disclosure;
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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
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reduced disclosure obligations regarding executive compensation; and
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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In addition, the JOBS Act provides that an emerging
growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying
the adoption of these accounting standards until they would apply to private companies. We have irrevocably elected not to avail
ourselves of this exemption, and as a result, our financial statements may not be comparable to the financial statements of issuers
who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.
We cannot predict whether investors will find our common stock less attractive as a result of our reliance on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock
and the market price of our common stock may be reduced or more volatile.