Item 1A. Risk Factors
You should consider carefully the following
information about the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q
and in our other public filings, in evaluating our business. If any of the following risks actually occurs, our business, financial
condition, results of operations, and future growth prospects would likely be materially and adversely affected. In these circumstances,
the market price of our common stock would likely decline.
Risks Related to Our Financial Condition
We have a very limited operating
history and have never generated any revenues.
We are an early-stage biopharmaceutical
company with a very limited operating history that may make it difficult to evaluate the success of our business to date and to
assess our future viability. Our operations, with respect to the entity that operationally survived the Merger, have been limited
to organizing and staffing the company, business planning, raising capital, developing our pipeline assets (TARA-002 and IV Choline
Chloride), identifying product candidates, and other research and development. We have not yet demonstrated an ability to successfully
complete any clinical trials and have never completed the development of any product candidate, nor have we ever generated any
revenue from product sales or otherwise. Consequently, we have no meaningful operations upon which to evaluate our business, and
predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history
or a history of successfully developing and commercializing biopharmaceutical products.
We expect to incur significant losses for the foreseeable
future and may never achieve or maintain profitability.
Investment in biopharmaceutical product
development is highly speculative because it entails substantial upfront capital and significant risk that a product candidate
will fail to gain regulatory approval or become commercially viable. We have never generated any revenues, and cannot estimate
with precision the extent of our future losses. We expect to incur increasing levels of operating losses for the foreseeable future
as we execute on the plan to continue research and development activities, including the ongoing and planned clinical development
of our product candidates, potentially acquire new products and/or product candidates, seek regulatory approvals of and potentially
commercialize any approved product candidates, hire additional personnel, protect our intellectual property, and incur the additional
costs of operating as a public company. We expect to continue to incur significant and increasing operating losses and negative
cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on our financial position
and working capital.
To become and remain profitable, we must
develop or acquire and eventually commercialize a product with significant market potential. This will require the Company to
be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing
approval, manufacturing, marketing and selling any product candidate for which we obtain marketing approval, and satisfying post-marketing
requirements, if any. We may never succeed in these activities and, even if we succeed in obtaining approval for and commercializing
one or more products, we may never generate revenues that are significant enough to achieve profitability. In addition, as a young
business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. Furthermore,
because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately
predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual basis and may continue to incur substantial research
and development and other expenditures to develop and market additional product candidates. Our failure to become and remain profitable
would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts,
expand the business or continue operations. A decline in the value of the Company could also cause you to lose all or part of
your investment.
The COVID-19 coronavirus could adversely impact our business,
including our clinical development plans.
In December 2019, a novel coronavirus
disease (“COVID-19”) was reported and in January 2020, the World Health Organization (the “WHO”) declared
it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat
from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March
11, 2020, the WHO characterized COVID-19 as a pandemic. As COVID-19 continues to spread in the United States and around the world,
we may experience disruptions that could severely impact our business, including:
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interruption of key manufacturing, research
and clinical development activities, due to limitations on work and travel imposed or recommended by federal or state governments,
employers and others;
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delays or difficulties in clinical trial site
operations, including difficulties in recruiting clinical site investigators and clinical site staff and difficulties in enrolling
patients;
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interruption of key business activities, due
to illness and/or quarantine of key individuals and delays associated with recruiting, hiring and training new temporary or
permanent replacements for such key individuals, both internally and at our third party service providers;
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delays in research and clinical trial sites
receiving the supplies and materials needed to conduct preclinical studies and clinical trials, due to work stoppages, travel
and shipping interruptions or restrictions or other reasons;
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delays or difficulties conducting nonclinical studies due to limitations in employee resources or laboratory closures;
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difficulties in raising additional capital needed
to pursue the development of our programs due to the slowing of our economy and near term and/or long term negative effects
of the pandemic on the financial, banking and capital markets;
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changes in local regulations as part of a response
to the COVID-19 coronavirus outbreak which may require us to change the ways in which research, including clinical development,
is conducted, which may result in unexpected costs; and
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delays in necessary interactions with regulators,
ethics committees and other important agencies and contractors due to limitations in employee resources, travel restrictions
or forced furlough of government employees.
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The global outbreak of COVID- continues
to evolve. The extent to which the COVID-19 coronavirus may impact our business will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration
of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business
disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the virus. The
duration and extent of the impact from the COVID-19 pandemic depend on future developments that cannot be accurately predicted
at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and
the impact of these and other factors on our operations, employees, partners and vendors. If we are not able to respond to and
manage the impact of such events effectively, our business will be harmed.
In addition, while the potential economic
impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has significantly disrupted global
financial markets, and may limit our ability to access additional capital, which could in the future negatively affect our liquidity.
A recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our
common stock.
To the extent the COVID-19 pandemic adversely
affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties
described elsewhere in this “Risk Factors” section.
We will need to raise additional financing in the future
to fund our operations, which may not be available to us on favorable terms or at all.
We will require substantial additional
funds to conduct the costly and time-consuming clinical efficacy trials necessary to pursue regulatory approval of each potential
product candidate and to continue the development of TARA-002 and IV Choline Chloride in new indications or uses. Our future capital
requirements will depend upon a number of factors, including: the number and timing of future product candidates in the pipeline;
progress with and results from preclinical testing and clinical trials; the ability to manufacture sufficient drug supplies to
complete preclinical and clinical trials; the costs involved in preparing, filing, acquiring, prosecuting, maintaining and enforcing
patent and other intellectual property claims; and the time and costs involved in obtaining regulatory approvals and favorable
reimbursement or formulary acceptance. Raising additional capital may be costly or difficult to obtain and could significantly
dilute stockholders’ ownership interests or inhibit our ability to achieve our business objectives. As a result of economic
conditions, general global economic uncertainty, political change, and other factors, including uncertainty associated with the
COVID-19 pandemic, we do not know whether additional capital will be available when needed, or that, if available, we will be
able to obtain additional capital on reasonable terms. Specifically, the COVID-19 pandemic has significantly disrupted global
financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity.
If we raise additional funds through public
or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect
the rights of our common stockholders. Further, to the extent that we raise additional capital through the sale of common stock
or securities convertible or exchangeable into common stock, the ownership interests of our common stockholders will be diluted.
In addition, any debt financing may subject us to fixed payment obligations and covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional
capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements
with third parties, we may have to relinquish certain valuable intellectual property or other rights to our product candidates,
technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. Even if
we were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to us or our stockholders.
Clinical drug development is very expensive, time-consuming
and uncertain.
Clinical development for our product candidates
is very expensive, time-consuming, difficult to design and implement, and the outcomes are inherently uncertain. Most product
candidates that commence clinical trials are never approved by regulatory authorities for commercialization and of those that
are approved many do not cover their costs of development. In addition, we, any partner with which we may in the future collaborate,
the FDA, an institutional review board (IRB), or other regulatory authorities, including state and local agencies and counterpart
agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time.
Risks Related to Drug/Biologics Development
Our business depends on the successful clinical development,
regulatory approval and commercialization of TARA-002 and IV Choline Chloride.
The success of our business, including
our ability to finance our self and generate revenue in the future, primarily depends on the successful development, regulatory
approval and commercialization of TARA-002 and IV Choline Chloride. The clinical and commercial success of TARA-002 and IV Choline
Chloride depends on a number of factors, including the following:
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timely and successful completion of required
clinical trials not yet initiated, which may be significantly slower or costlier than we currently anticipate and/or produce
results that do not achieve the endpoints of the trials;
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whether we are required by the FDA or similar
foreign regulatory agencies to conduct additional studies beyond those planned to support the approval and commercialization
of TARA-002 and IV Choline Chloride;
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achieving and maintaining, and, where applicable,
ensuring that our third-party contractors achieve and maintain compliance with their contractual obligations and with all
regulatory requirements applicable to TARA-002 and IV Choline Chloride;
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ability to confirm the comparability of TARA-002
and OK-432;
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ability of third parties with whom we contract
to manufacture adequate clinical trial and commercial supplies of TARA-002 and IV Choline Chloride, to remain in good standing
with regulatory agencies and to develop, validate and maintain commercially viable manufacturing processes that are compliant
with current good manufacturing practices (“cGMP”);
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a continued acceptable safety profile during
clinical development and following approval of TARA-002 and IV Choline Chloride;
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ability to obtain favorable labeling for TARA-002
and IV Choline Chloride through regulators that allows for successful commercialization, given the drugs may be marketed only
to the extent approved by these regulatory authorities (unlike with most other industries);
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ability to successfully commercialize TARA-002
and IV Choline Chloride in the United States and internationally, if approved for marketing, sale and distribution in such
countries and territories, whether alone or in collaboration with others;
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acceptance by physicians, insurers and payors,
and patients of the quality, benefits, safety and efficacy of TARA-002 and IV Choline Chloride, if either is approved, including
relative to alternative and competing treatments;
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existence of a regulatory environment conducive
to the success of TARA-002 and IV Choline Chloride;
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ability to price TARA-002 and IV Choline Chloride
to recover our development costs and generate a satisfactory profit margin; and
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our ability and our partners’ ability
to establish and enforce intellectual property rights in and to TARA-002 and IV Choline Chloride.
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If we do not achieve one or more of these
factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays or an inability
to obtain regulatory approvals or commercialize TARA-002 and IV Choline Chloride. Even if regulatory approvals are obtained, we
may never be able to successfully commercialize TARA-002 and IV Choline Chloride. Accordingly, we cannot assure you that we will
be able to generate sufficient revenue through the sale of TARA-002 and IV Choline Chloride to continue our business.
The COVID-19 pandemic is impacting our
business and the business of the third-parties with which we contract for key services related to our clinical development plans.
If the crisis persists, it is likely to have a significant delay in our development timelines and result in additional and unexpected
costs. Presently, we anticipate that the stress of COVID-19 on healthcare systems around the globe will negatively impact our
ability to conduct clinical trials in the near term due primarily to the lack of resources at clinical trial sites and the resulting
inability to enroll patients in these trials. In addition, it is possible that the stress of the COVID-19 pandemic on regulatory
agencies may make it more difficult to collaborate with, and receive guidance from, such agencies, which could delay our development
timelines and negatively impact our business.
We have never made an IND, BLA or NDA submission or conducted
a clinical trial and may be unable to successfully do so for TARA-002 or IV Choline Chloride.
The conduct of a clinical trials is a
long, expensive, complicated and highly regulated process. Although our employees have made regulatory submissions and conducted
successful clinical trials in the past across many therapeutic areas while employed at other companies, we, as a company, have
not submitted an investigational new drug application (IND), conducted any clinical trials, or submitted a BLA or new drug application
(NDA), and as a result may require more time and incur greater costs than we anticipate. Failure to commence or complete, or delays
in, our planned regulatory submissions or clinical trials would prevent us from, or delay us, in obtaining regulatory approval
of and commercializing TARA-002 and IV Choline Chloride, which would adversely impact our financial performance, as well as subject
us to significant contract liabilities.
TARA-002 is an immunopotentiator, one indication for
which we plan to pursue is the treatment of lymphatic malformations. There are no FDA-approved therapies for the treatment of
lymphatic malformations. It is difficult to predict the timing and costs of clinical development for TARA-002 with respect to
lymphatic malformations as well as the corresponding regulatory approval path.
To date, there are no FDA-approved therapies
for the treatment of lymphatic malformations. The regulatory approval process for novel product candidates such as TARA-002 can
be more expensive and take longer than for other, better known or extensively studied therapeutic approaches. In addition, the
previous clinical trials conducted on OK-432 for LMs in the United States included a control arm in which treatment was initially
delayed. It is unclear whether this trial design could support FDA approval or whether a placebo-control or other randomization
will be required by the FDA. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to
bring TARA-002 to market could decrease our ability to generate sufficient revenue to maintain our business.
The regulatory path to approval of TARA-002 is dependent
on FDA acceptance of prior clinical data from OK-432.
The proposed regulatory strategy for the
TARA-002 program is a combination of demonstrating comparability to a product that is not FDA approved and relying upon existing
data. By demonstrating that TARA-002 is, in fact, OK-432, we believe that the large volume of data published on OK-432 including
the data generated by the University of Iowa led study in LMs will then apply to TARA-002. This strategy will rely on some components
of a biosimilar pathway, with a significant difference being that the same genetically distinct strain and proprietary manufacturing
processes will be used to produce TARA-002 as OK-432. If comparability is fully demonstrated and accepted by regulatory authorities,
we will attempt to rely on existing OK-432 safety and efficacy data to submit the BLA. There is no example to date of a biologic
product that was approved utilizing this regulatory approach that we are aware of.
Our product candidates may cause undesirable side effects
or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an
approved label, or result in post-approval regulatory action.
Unforeseen side effects from TARA-002
or IV Choline Chloride could arise either during clinical development or, if approved, after it has been marketed. Undesirable
side effects could cause us, any partners with which we may collaborate, or regulatory authorities to interrupt, extend, modify,
delay or halt clinical trials and could result in a more restrictive or narrower label or the delay or denial of regulatory approval
by the FDA or comparable foreign authorities.
Results of clinical trials could reveal
a high and unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated, and
the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of a product
candidate for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of
enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business,
financial condition, operating results and prospects.
Additionally, if we or others identify
undesirable side effects, or other previously unknown problems, caused by a product after obtaining U.S. or foreign regulatory
approval, a number of potentially negative consequences could result, which could prevent us or our potential partners from achieving
or maintaining market acceptance of the product and could substantially increase the costs of commercializing such product.
A fast track designation by the FDA may not actually
lead to a faster development or regulatory review or approval process for IV Choline Chloride for the treatment of IFALD.
The FDA has granted fast track designation
to IV Choline Chloride for the treatment of IFALD. If a drug is intended for the treatment of a serious or life-threatening condition
and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for fast
track designation. Even though we have received fast track designation for IV Choline Chloride for the treatment of IFALD, we
may not experience a faster development process, review or approval. The FDA may withdraw fast track designation if it believes
that the designation is no longer supported by data from our clinical development program.
Although the FDA has granted Rare Pediatric Disease Designation
for TARA-002 for the treatment of LMs, a BLA for TARA-002, if approved, may not meet the eligibility criteria for a priority
review voucher.
Rare Pediatric Disease Designation has
been granted for TARA-002 for the treatment of LMs. In 2012, Congress authorized the FDA to award priority review vouchers to
sponsors of certain rare pediatric disease product applications. This provision is designed to encourage development of new drug
and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor
who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can
be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare
pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor.
The voucher may be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer
has not yet submitted the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug
for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval.
For the purposes of this program, a “rare
pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations
primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents;
and (b) rare disease or conditions within the meaning of the Orphan Drug Act. Congress has only authorized the Rare Pediatric
Disease Priority Review Voucher program until September 30, 2020. However, if a drug candidate receives Rare Pediatric Disease
Designation before October 1, 2020, it is eligible to receive a voucher if it is approved before October 1, 2022.
However, TARA-002 for the treatment of
LMs may not be approved by that date, or at all, and, therefore, we may not be in a position to obtain a priority review voucher
prior to expiration of the program, unless Congress further reauthorizes the program. Additionally, designation of a drug for
a rare pediatric disease does not guarantee that a BLA will meet the eligibility criteria for a rare pediatric disease
priority review voucher at the time the application is approved. Finally, a Rare Pediatric Disease Designation does not lead
to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval.
We may or may not realize any benefit from receiving a voucher.
Even if a product candidate obtains regulatory approval,
it may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.
The commercial success of both TARA-002
and IV Choline Chloride, if approved, will depend significantly on the broad adoption and use of them by physicians and patients
for approved indications, and neither may be commercially successful even though the product is shown to be safe and effective.
The degree and rate of physician and patient adoption of a product, if approved, will depend on a number of factors, including
but not limited to:
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patient demand for approved products that treat
the indication for which a product is approved;
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the effectiveness of the product compared to
other available therapies;
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the availability of coverage and adequate reimbursement
from managed care plans and other healthcare payors;
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the cost of treatment in relation to alternative
treatments and willingness to pay on the part of patients;
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in the case of TARA-002, overcoming physician
or patient biases toward surgery for the treatment of lymphatic malformations;
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insurers’ willingness to see the applicable
indication as a disease worth treating;
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patient satisfaction with the results, administration
and overall treatment experience;
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limitations or contraindications, warnings,
precautions or approved indications for use different than those sought by us that are contained in the final FDA-approved
labeling for the applicable product;
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any FDA requirement to undertake a risk evaluation
and mitigation strategy;
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the effectiveness of our sales, marketing, pricing,
reimbursement and access, government affairs, and distribution efforts;
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adverse publicity about a product or favorable
publicity about competitive products;
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new government regulations and programs, including
price controls and/or limits or prohibitions on ways to commercialize drugs, such as increased scrutiny on direct-to-consumer
advertising of pharmaceuticals; and
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potential product liability claims or other
product-related litigation.
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If either TARA-002 or IV Choline Chloride
is approved for use but fails to achieve the broad degree of physician and patient adoption necessary for commercial success,
our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate
revenue and continue our business.
Any adverse developments that occur in patients undergoing
treatment with OK-432 / Picibanil or in patients participating in clinical trials conducted by third parties may affect our ability
to obtain regulatory approval or commercialize TARA-002.
Chugai Pharmaceutical Co., Ltd., over
which we have no control, has the rights to commercialize TARA-002 and it is currently marketed in Japan and Taiwan, under the
name Picibanil, for various indications. In addition, clinical trials using Picibanil are currently ongoing in various countries
around the world. If serious adverse events occur with patients using Picibanil or during any clinical trials of Picibanil conducted
by third parties, the FDA may delay, limit or deny approval of TARA-002 or require us to conduct additional clinical trials as
a condition to marketing approval, which would increase our costs. If we receive FDA approval for TARA-002 and a new and serious
safety issue is identified in connection with use of Picibanil or in clinical trials of Picibanil conducted by third parties,
the FDA may withdraw their approval of the product or otherwise restrict our ability to market and sell TARA-002. In addition,
treating physicians may be less willing to administer TARA-002 due to concerns over such adverse events, which would limit our
ability to commercialize TARA-002.
We may in the future conduct clinical trials for our
product candidates outside the United States, and the FDA and applicable foreign regulatory authorities may not accept data from
such trials.
We may in the future choose to conduct
one or more of our clinical trials outside of the United States. Although the FDA or applicable foreign regulatory authority may
accept data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study
data by the FDA or applicable foreign regulatory authority may be subject to certain conditions or exclusion. Where data from
foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve
the application on the basis of foreign data alone unless such data are applicable to the U.S. population and U.S. medical practice;
the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need
for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate
the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In
addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are
conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted
outside of the United States or the applicable home country. If the FDA or applicable foreign regulatory authority does not accept
such data, it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects
of our business plan.
We may choose not to continue developing or commercializing
any of our product candidates at any time during development or after approval, which would reduce or eliminate the potential
return on investment for those product candidates.
At any time, we may decide to discontinue
the development of any of our product candidates for a variety of reasons, including the appearance of new technologies that make
our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements.
For example, we are reviewing the research and preclinical and clinical data of vonapanitase and have not yet determined whether
to pursue further development of this product candidate in the future.
If we terminate a program in which we
have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity
to have allocated those resources to potentially more productive uses.
Our or our third party’s clinical trials may fail
to demonstrate the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may be identified
during their development, which could prevent or delay marketing approval and commercialization, increase our costs or necessitate
the abandonment or limitation of the development of the product candidate.
Before obtaining marketing approvals for
the commercial sale of any product candidate, we must demonstrate through lengthy, complex and expensive preclinical testing and
clinical trials that such product candidate is both safe and effective for use in the applicable indication, and failures can
occur at any stage of testing. Clinical trials often fail to demonstrate safety and are associated with side effects or have characteristics
that are unexpected. Based on the safety profile seen in clinical testing, we may need to abandon development or limit development
to more narrow uses in which the side effects or other characteristics are less prevalent, less severe or more tolerable from
a risk-benefit perspective. The FDA or an IRB may also require that we suspend, discontinue, or limit clinical trials based on
safety information. Such findings could further result in regulatory authorities failing to provide marketing authorization for
the product candidate. Many pharmaceutical candidates that initially showed promise in early stage testing and which were efficacious
have later been found to cause side effects that prevented further development of the drug candidate and, in extreme cases, the
side effects were not seen until after the drug was marketed, causing regulators to remove the drug from the market post-approval.
Our regulatory strategy for TARA-002 requires
that we demonstrate that TARA-002 is the same biologic substance as OK-432, which is currently manufactured in Japan and marketed
in Japan and Taiwan by Chugai. The FDA has agreed that we have successfully demonstrated initial manufacturing comparability between
TARA-002 and OK-432; we are on track to conduct three large-scale batch runs to confirm comparability. Good Manufacturing Practice
(GMP) scale up is currently in process and the Company will initiate GMP comparability runs with an expected completion date in
mid-2021. There can be no assurances that our contract manufacturer will be able to produce a sufficiently comparable product
or that the FDA will find such substances comparable or permit us to use any of the data from prior clinical trials as part of
the BLA filing for TARA-002.
Other Risks Related to Our Business
Our product candidates, if approved, will face significant
competition and their failure to compete effectively may prevent them from achieving significant market penetration.
The pharmaceutical industry is characterized
by rapidly advancing technologies, intense competition, less effective patent terms, and a strong emphasis on developing newer,
fast-to-market proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing
of healthcare products competitive with those that we are developing, including TARA-002 and IV Choline Chloride. We will face
competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies and academic
and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing
capabilities, research and development capabilities, regulatory expertise, clinical trial expertise, intellectual property portfolios,
more international reach, experience in obtaining patents and regulatory approvals for product candidates and other resources
than we have. Some of the companies that offer competing products also have a broad range of other product offerings, large direct
sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts.
With respect to our lead product candidate,
TARA-002, for the treatment of LMs and NMIBC, the active ingredient in TARA-002 is a genetically distinct strain of Streptococcus
pyogenes (group A, type 3) Su strain. TARA-002 is produced through a proprietary manufacturing process. We anticipate that,
if approved by the FDA, TARA-002 will be protected by 12 years of biologic exclusivity. In addition, TARA-002 is likely to have
seven years of concurrent Orphan Drug Designation exclusivity for the treatment of LMs if deemed comparable to OK-432 by the FDA
based on the prevalence of the disease. There are no approved pharmacotherapies currently available for the treatment of LMs and
the current standard of care is a high-risk surgical procedure. There are a handful of drug development companies and academic
researchers exploring oral formulations of various agents including macrolides, phosphodiesterase inhibitors, and calcineurin/
mTOR inhibitors. These are in early development and earlier experiments in LMs utilizing other compounds utilizing these mechanisms
have not produced conclusive evidence of safety or efficacy. TARA-002, if approved for the treatment of NMIBC, would be subject
to competition from existing treatment methods of surgery, chemotherapy and immunomodulatory therapy.
There are no treatments currently available
for IFALD. With respect to IV Choline Chloride for the treatment of IFALD, IV Choline Chloride is the only sterile injectable
form of choline chloride that can be combined with parenteral nutrition. Further, if approved, IV Choline Chloride will be protected
by Orphan Drug Designation exclusivity for seven years.
TARA-002 and any future product candidates for which
we intend to seek approval as biologic products may face competition sooner than anticipated.
The Patient Protection and Affordable
Care Act, or Affordable Care Act, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition
and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar
to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product
may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA.
In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the
reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing
version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical
data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product.
The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation
and meaning are subject to uncertainty. While it is uncertain when such processes are intended to implement BPCIA may be fully
adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological
products.
We believe that any of our product candidates
approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that
this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates
to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated.
Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation.
Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way
that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number
of marketplace and regulatory factors that are still developing.
We expect to rely on third-party CROs and other third
parties to conduct and oversee our clinical trials. If these third parties do not meet our requirements or otherwise conduct the
trials as required, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize,
our product candidates.
We expect to rely on third-party contract
research organizations (CROs) to conduct and oversee our TARA-002 and IV Choline Chloride clinical trials and other aspects of
product development. We also expect to rely on various medical institutions, clinical investigators and contract laboratories
to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s
regulations and good clinical practice (GCP) requirements, which are an international standard meant to protect the rights and
health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing
the handling, storage, security and recordkeeping for drug and biologic products. These CROs and other third parties will play
a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials.
We will rely heavily on these parties for the execution of our clinical trials and preclinical studies and will control only certain
aspects of their activities. We and our CROs and other third-party contractors will be required to comply with GCP and good laboratory
practice (GLP) requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities.
Regulatory authorities enforce these GCP and GLP requirements through periodic inspections of trial sponsors, principal investigators
and trial sites. If we or any of these third parties fail to comply with applicable GCP and GLP requirements, or reveal noncompliance
from an audit or inspection, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other
regulatory authorities may require us to perform additional clinical trials before approving our or our partners’ marketing
applications. We cannot assure that upon inspection by a given regulatory authority, such regulatory authority will determine
that any of our clinical or preclinical trials comply with applicable GCP and GLP requirements. In addition, our clinical trials
generally must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations and policies
may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our CROs or clinical trial sites
terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative
CROs or clinical trial sites or do so on commercially reasonable terms. In addition, if our relationship with clinical trial sites
is terminated, we may experience the loss of follow-up information on patients enrolled in our clinical trials unless we are able
to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our
clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation
in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts
of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.
We currently have no 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 product candidates, if approved, or generate product revenue.
We currently have no marketing capabilities
and no sales organization. To commercialize our product candidates, if approved, in the United States, Canada, the European Union,
Latin America and other jurisdictions we seek to enter, we must build our marketing, sales, distribution, managerial and other
non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in
doing so. Although our employees have experience in the marketing, sale and distribution of pharmaceutical products, and business
development activities involving external alliances, from prior employment at other companies, we, as a company, have no prior
experience in the marketing, sale and distribution 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. Any failure or delay in the development of our internal sales, marketing, distribution and pricing/reimbursement/access
capabilities would impact adversely the commercialization of these products.
We have only received the exclusive rights to the materials
required to commercialize TARA-002 in territories other than Japan and Taiwan until June 17, 2030, or an earlier date if Chugai
terminates the agreement with us for any number of reasons, including for convenience after June 30, 2021, following which such
rights become nonexclusive.
Pursuant to an agreement with Chugai Pharmaceutical
Co., Ltd. dated June 17, 2019, as amended on July 14, 2020 (effective June 30, 2020), Chugai agreed to provide us with exclusive
access to the starting material necessary to manufacture TARA-002 as well as technical support necessary for us to develop and
commercialize TARA-002 anywhere in the world other than Japan and Taiwan. However, this agreement does not prevent Chugai from
providing such materials and support to any third party for medical, compassionate use and/or non-commercial research purposes
and this agreement is not exclusive following June 17, 2030 or following any termination of the agreement by either party, which
includes a termination by Chugai for convenience, which it has the right to do upon 90 days’ notice after June 30, 2021.
Once our rights to the materials and technology necessary to manufacture, develop and commercialize TARA-002 are not exclusive,
third parties, including those with greater expertise and greater resources, could obtain such materials and technology and develop
a competing therapy, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
We currently have no products approved for sale, and
we may never obtain regulatory approval to commercialize any of our product candidates.
The research, testing, manufacturing,
safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution,
import, export and reporting of safety and other post-market information related to our biopharmaceutical products are subject
to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign countries, and such regulations
differ from country to country and frequently are revised.
Even after we achieve U.S. regulatory
approval for a product candidate, if any, we will be subject to continued regulatory review and compliance obligations. For example,
with respect to our product candidates, the FDA may impose significant restrictions on the approved indicated uses for which the
product may be marketed or on the conditions of approval. A product candidate’s approval may contain requirements for potentially
costly post-approval studies and surveillance, including Phase 4 clinical trials, to monitor the safety and efficacy of the product.
We also will be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing,
processing, labeling, packaging, distribution, pharmacovigilance and adverse event reporting, storage, advertising, promotion
and recordkeeping for our product candidates.
These requirements include submissions
of safety and other post-marketing information and reports, registration, continued compliance with cGMP requirements and with
the FDA’s GCP requirements and GLP requirements, which are regulations and guidelines enforced by the FDA for all of our
product candidates in clinical and preclinical development, and for any clinical trials that it conducts post-approval, as well
as continued compliance with the FDA’s laws governing commercialization of the approved product, including but not limited
to the FDA’s Office of Prescription Drug Promotion (OPDP) regulation of promotional activities, fraud and abuse, product
sampling, scientific speaker engagements and activities, formulary interactions as well as interactions with healthcare practitioners.
To the extent that a product candidate is approved for sale in other countries, we may be subject to similar or more onerous (i.e.,
prohibition on direct-to-consumer advertising that does not exist in the United States) restrictions and requirements imposed
by laws and government regulators in those countries.
In addition, manufacturers of drug and
biologic products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory
authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously unknown problems with a product,
such as adverse events of unanticipated severity or frequency, or problems with the manufacturing, processing, distribution or
storage facility where, or processes by which, the product is made, a regulatory agency may impose restrictions on that product
or us, including requesting that we initiate a product recall, or requiring notice to physicians or the public, withdrawal of
the product from the market, or suspension of manufacturing.
If we, our product candidates or the manufacturing
facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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impose restrictions on the
sale, marketing or manufacturing of the product, amend, suspend or withdraw product approvals or revoke necessary licenses;
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mandate modifications to
promotional and other product-specific materials or require us to provide corrective information to healthcare practitioners
or in our advertising;
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require us or our partners
to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required
due dates for specific actions, penalties for noncompliance and, in extreme cases, require an independent compliance monitor
to oversee our activities;
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issue warning letters, bring
enforcement actions, initiate surprise inspections, issue show cause notices or untitled letters describing alleged violations,
which may be publicly available;
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commence criminal investigations
and prosecutions;
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impose injunctions, suspensions
or revocations of necessary approvals or other licenses;
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impose other civil or criminal
penalties;
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suspend any ongoing clinical
trials;
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place restrictions on the
kind of promotional activities that can be done;
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delay or refuse to approve
pending applications or supplements to approved applications filed by us or our potential partners;
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refuse to permit drugs or
precursor chemicals to be imported or exported to or from the United States;
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suspend or impose restrictions
on operations, including costly new manufacturing requirements; or
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seize or detain products
or require us or our partners to initiate a product recall.
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The regulations, policies or guidance
of the FDA and other applicable government agencies may change, and new or additional statutes or government regulations may be
enacted, including at the state and local levels, which can differ by geography and could prevent or delay regulatory approval
of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or
extent of adverse government regulations that may arise from future legislation or administrative action, either in the United
States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to commercialize our
product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
We may face product liability exposure, and if successful
claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability
or similar causes of action as a result of the clinical testing of our product candidates and will face an even greater risk if
we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured
in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority and notwithstanding that we comply
with applicable laws on promotional activity. Our products and product candidates are designed to affect important bodily functions
and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in
injury to a patient or potentially even death. We cannot offer any assurance that we will not face product liability suits in
the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases.
In addition, a liability claim may be
brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought
against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with
our product candidates, among others, and under some circumstances even government agencies. If we cannot successfully defend
our self against product liability or similar claims, we will incur substantial liabilities, reputational harm and possibly injunctions
and punitive actions. In addition, regardless of merit or eventual outcome, product liability claims may result in:
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withdrawal or delay of recruitment or decreased
enrollment rates of clinical trial participants;
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termination or increased government regulation
of clinical trial sites or entire trial programs;
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the inability to commercialize our product candidates;
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decreased demand for our product candidates;
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impairment of our business reputation;
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product recall or withdrawal from the market
or labeling, marketing or promotional restrictions;
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substantial costs of any related litigation
or similar disputes;
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distraction of management’s attention
and other resources from our primary business;
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significant delay in product launch;
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substantial monetary awards to patients or other
claimants against us that may not be covered by insurance;
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withdrawal of reimbursement or formulary inclusion;
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We intend to obtain product liability
insurance coverage for our clinical trials. Large judgments have been awarded in class action or individual lawsuits based on
drugs that had unanticipated side effects. Our insurance coverage may not be sufficient to cover all of our product liability-related
expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly
expensive, restrictive and narrow, and, in the future, we may not be able to maintain adequate insurance coverage at a reasonable
cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability or other similar legal
actions. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval,
which will be costly, and we may be unable to obtain this increased product liability insurance on commercially reasonable terms
or at all and for all geographies in which we wish to launch. A successful product liability claim or series of claims brought
against us, if judgments exceed our insurance coverage, could decrease our cash and harm our business, financial condition, operating
results and future prospects.
Our employees, independent contractors, principal investigators,
other clinical trial staff, consultants, vendors, CROs and any partners with whom we may collaborate may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees,
independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with
which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional,
reckless, gross or negligent misconduct or unauthorized activity that violates: laws or regulations, including those laws requiring
the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards;
federal, state and foreign healthcare fraud and abuse laws and data privacy; anticorruption laws, anti-kickback and Medicare/Medicaid
rules, or laws that require the true, complete and accurate reporting of financial information or data, books and records. If
any such or similar actions are instituted against us and we are not successful in defending our self or asserting our rights,
those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative
and punitive penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, debarments, contractual damages, imprisonment, reputational harm, diminished profits and future earnings,
injunctions, and curtailment or cessation of our operations, any of which could adversely affect our ability to operate our business
and our operating results.
We may be subject to risks related to off-label use of
our product candidates.
The FDA strictly regulates the advertising
and promotion of drug products, and drug products may only be marketed or promoted for their FDA approved uses, consistent with
the product’s approved labeling. Advertising and promotion of any product candidate that obtains approval in the United
States will be heavily scrutinized by the FDA, the Department of Justice, the Office of Inspector General of the Department of
Health and Human Services, state attorneys general, members of Congress and the public. Violations, including promotion of our
products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil, criminal
and/or administrative sanctions by the FDA. Additionally, advertising and promotion of any product candidate that obtains approval
outside of the United States will be heavily scrutinized by relevant foreign regulatory authorities.
Even if we obtain regulatory approval
for our product candidates, the FDA or comparable foreign regulatory authorities may require labeling changes or impose significant
restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-approval
studies or post-market surveillance.
In the United States, engaging in impermissible
promotion of our product candidates for off-label uses can also subject us to false claims litigation under federal and state
statutes, which can lead to significant civil, criminal and/or administrative penalties and fines and agreements, such as a corporate
integrity agreement, that materially restrict the manner in which we promote or distribute our product candidates. If we do not
lawfully promote our products once they have received regulatory approval, we may become subject to such litigation and, if we
are not successful in defending against such actions, those actions could have a material adverse effect on our business, financial
condition and operating results and even result in having an independent compliance monitor assigned to audit our ongoing operations
for a lengthy period of time.
If we or any partners with which we may collaborate are
unable to achieve and maintain coverage and adequate levels of reimbursement for TARA-002 or IV Choline Chloride following regulatory
approval, their commercial success may be hindered severely.
If TARA-002 and IV Choline Chloride only
becomes available by prescription, successful sales by us or by any partners with which we may collaborate depend on the availability
of coverage and adequate reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their
conditions generally rely on third-party payors to reimburse most or part of the costs associated with their prescription drugs.
The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid in
the United States, and private third-party payors is often critical to new product acceptance. Coverage decisions may depend on
clinical and economic standards that disfavor new drug products when more established or lower-cost therapeutic alternatives are
already available or subsequently become available, or may be affected by the budgets and demands on the various entities responsible
for providing health insurance to patients who will use TARA-002 and IV Choline Chloride. Even if we obtain coverage for our products,
the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high.
Patients are unlikely to use a product unless coverage is provided, and reimbursement is adequate to cover a significant portion
of the cost.
In addition, the market for our products
will depend significantly on access to third-party payors’ drug formularies or lists of medications for which third-party
payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward
pricing pressures on pharmaceutical companies and there may be time limitations on when a new drug may even apply for formulary
inclusion. Also, third-party payors may refuse to include products in their formularies or otherwise restrict patient access to
such products when a less costly generic equivalent or other treatment alternative is available in the discretion of the formulary.
Third-party payors, whether foreign or
domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In
addition, in the United States, although private third-party payors tend to follow Medicare practices, no uniform or consistent
policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement
for drug products can differ significantly from payor to payor as well as state to state. Consequently, the coverage determination
process is often a time-consuming and costly process that must be played out across many jurisdictions and different entities
and which will require us to provide scientific, clinical and health economics support for the use of our products compared to
current alternatives and do so to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained
and in what time frame.
Further, we believe that future coverage
and reimbursement likely will be subject to increased restrictions both in the United States and in international markets. Third-party
coverage and reimbursement for our products may not be available or adequate in either the United States or international markets,
which could harm our business, financial condition, operating results and prospects.
Healthcare reform measures could hinder or prevent the
commercial success of our product candidates.
The current presidential administration
and certain members of the majority of the U.S. Congress have sought to repeal all or part of the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “Affordable Care Act”), and
implement a replacement program. For example, the so-called “individual mandate” was repealed as part of tax reform
legislation adopted in December 2017, such that the shared responsibility payment for individuals who fail to maintain minimum
essential coverage under section 5000A of the Code was eliminated beginning in 2019. In addition, litigation may result in the
repeal or replacement of prevent some or all of the Affordable Care Act legislation from taking effect. For example, on December
14, 2018, the U.S. District Court for the Northern District of Texas held that the individual mandate is a critical and inseverable
feature of the Affordable Care Act, and therefore, because it was repealed as part of the tax reform legislation, the remaining
provisions of the Affordable Care Act are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit
upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court
to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court
granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected
to occur in the fall. It is unclear how such litigation and other efforts to repeal and replace the Affordable Care Act will impact
the Affordable Care Act and our business.
Additionally, there has been increasing
legislative and enforcement interest in the United States with respect to drug pricing practices. For example, the Trump administration
previously released a “Blueprint,” or plan, to lower drug prices and reduce out of pocket costs of drugs that contained
proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize
manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers,
and the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative
proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient
access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for
drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket
pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical
price increases. Further, on June 24 , 2020, President Trump signed four (4) executive orders designed to lower drug
costs, including measures to increase drug importation from abroad; finalize the rulemaking process on modifying the
anti-kickback law safe harbor on discounts for plans, pharmacies and pharmaceutical benefit managers; require the Medicare
program to purchase certain drug products at the same price available in other countries; and require federally qualified
health centers to pass discounts on the cost of insulin and epipens to patients. While these and other measures may require additional
authorization to become effective, we expect that additional state and federal healthcare reform measures will be adopted in the
future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services,
which could result in reduced demand for our product candidates if approved or additional pricing pressures.
There are also calls to place additional
restrictions on or to ban all direct-to-consumer advertising of pharmaceuticals, which would limit our ability to market our product
candidates. The United States is in a minority of jurisdictions that allow this kind of advertising and its removal could limit
the potential reach of a marketing campaign.
We may also be subject to stricter healthcare laws, regulation
and enforcement, and our failure to comply with those laws could adversely affect our business, operations and financial condition.
Certain federal and state healthcare laws
and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject
to regulation by both the federal government and the states in which we or our partners conduct business. The healthcare laws
and regulations that may affect our ability to operate include but are not limited to: the federal Anti-Kickback Statute; federal
civil and criminal false claims laws and civil monetary penalty laws; the federal Health Insurance Portability and Accountability
Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act; the Prescription Drug Marketing
Act (for sampling of drug product among other things); the federal physician sunshine requirements under the Affordable Care Act;
the Foreign Corrupt Practices Act as it applies to activities outside of the United States; the new federal Right-to-Try legislation;
and state law equivalents of many of the above federal laws.
Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could
be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these
laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal
Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge
of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert
that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with
these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against
it, could cause us to incur significant legal expenses and divert management’s attention from the operation of our business
and result in reputational damage. If our operations are found to be in violation of any of the laws described above or any other
governmental laws or regulations that apply to us, we may be subject to significant penalties, including administrative, civil
and criminal penalties, damages, including punitive damages, fines, disgorgement, the exclusion from participation in federal
and state healthcare programs, imprisonment or the curtailment or restructuring of our operations, and injunctions, any of which
could adversely affect our ability to operate our business and financial results.
We intend to in-license and acquire product candidates
and may engage in other strategic transactions, which could impact our liquidity, increase our expenses and present significant
distractions to our management.
Our strategy is to in-license and acquire
product candidates and we may engage in other strategic transactions. Additional potential transactions that we may consider include
a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures,
business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase
our near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which
could adversely affect our operations and financial results. Accordingly, there can be no assurance that we will undertake or
successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business,
financial condition, operating results and prospects. We have no current plan, commitment or obligation to enter into any transaction
described above, and we are not engaged in discussions related to additional partnerships.
Our failure to successfully in-license, acquire, develop
and market additional product candidates or approved products would impair our ability to grow our business.
We intend to in-license, acquire, develop
and market additional products and product candidates. Because our internal research and development capabilities are limited,
we may be dependent on pharmaceutical companies, academic or government scientists and other researchers to sell or license products
or technology to us. The success of this strategy depends partly on our ability to identify and select promising pharmaceutical
product candidates and products, negotiate licensing or acquisition agreements with their current owners, and finance these arrangements.
The process of proposing, negotiating
and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies,
including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license
or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition
or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover,
we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize
the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that
we find acceptable or at all.
Further, any product candidate that we
acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval
by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical
product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective
for approval by regulatory authorities. In addition, we cannot provide assurance that any approved products that we acquire will
be manufactured or sold profitably or achieve market acceptance.
We expect to rely on collaborations with third parties
for the successful development and commercialization of our product candidates.
We expect to rely upon the efforts of
third parties for the successful development and commercialization of our current and future product candidates. The clinical
and commercial success of our product candidates may depend upon maintaining successful relationships with third-party partners
which are subject to a number of significant risks, including the following:
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our partners’ ability to execute their
responsibilities in a timely, cost-efficient and compliant manner;
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reduced control over delivery and manufacturing
schedules;
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price increases and product reliability;
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manufacturing deviations from internal or regulatory
specifications;
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the failure of partners to perform their obligations
for technical, market or other reasons;
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misappropriation of our current or future product
candidates; and
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other risks in potentially meeting our current
and future product commercialization schedule or satisfying the requirements of our end-users.
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We cannot assure you that we will be able
to establish or maintain third-party relationships in order to successfully develop and commercialize our product candidates.
We rely completely on third-party contractors to supply,
manufacture and distribute clinical drug supplies for our product candidates, which may include sole-source suppliers and manufacturers;
we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive
regulatory approval; and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical
and commercial supplies of any future product candidates.
We do not currently have, nor do we plan
to acquire, the infrastructure or capability to supply, store, manufacture or distribute preclinical, clinical or commercial quantities
of drug substances or products. Additionally, we have not entered into a long-term commercial supply agreement to provide us with
such drug substances or products. As a result, our ability to develop our product candidates is dependent, and our ability to
supply our products commercially will depend, in part, on our ability to obtain the APIs and other substances and materials used
in our product candidates successfully from third parties and to have finished products manufactured by third parties in accordance
with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail
to develop and maintain supply and other technical relationships with these third parties, we may be unable to continue to develop
or commercialize our products and product candidates.
We do not have direct control over whether
our contract suppliers and manufacturers will maintain current pricing terms, be willing to continue supplying us with API and
finished products or maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance
and qualified personnel. We are dependent on our contract suppliers and manufacturers for day-to-day compliance with applicable
laws and cGMPs for production of both APIs and finished products. If the safety or quality of any product or product candidate
or component is compromised due to a failure to adhere to applicable laws or for other reasons, we may not be able to commercialize
or obtain regulatory approval for the affected product or product candidate successfully, and we may be held liable for injuries
sustained as a result.
In order to conduct larger or late-stage
clinical trials for our product candidates and supply sufficient commercial quantities of the resulting drug product and its components,
if that product candidate is approved for sale, our contract manufacturers and suppliers will need to produce our drug substances
and product candidates in larger quantities, more cost-effectively and, in certain cases, at higher yields than they currently
achieve. If our third-party contractors are unable to scale up the manufacture of any of our product candidates successfully in
sufficient quality and quantity and at commercially reasonable prices, or are shut down or put on clinical hold by government
regulators, and we are unable to find one or more replacement suppliers or manufacturers capable of production at a substantially
equivalent cost in substantially equivalent volumes and quality, and we are unable to transfer the processes successfully on a
timely basis, the development of that product candidate and regulatory approval or commercial launch for any resulting products
may be delayed, or there may be a shortage in supply, either of which could significantly harm our business, financial condition,
operating results and prospects.
We expect to continue to depend on third-party
contract suppliers and manufacturers for the foreseeable future. Our supply and manufacturing agreements, if any, do not guarantee
that a contract supplier or manufacturer will provide services adequate for our needs. Additionally, any damage to or destruction
of our third-party manufacturer’s or suppliers’ facilities or equipment, even by force majeure, may significantly
impair our ability to have our products and product candidates manufactured on a timely basis. Our reliance on contract manufacturers
and suppliers further exposes us to the possibility that they, or third parties with access to their facilities, will have access
to and may misappropriate our trade secrets or other proprietary information. In addition, the manufacturing facilities of certain
of our suppliers may be located outside of the United States. This may give rise to difficulties in importing our products or
product candidates or their components into the United States or other countries.
In addition, we cannot be certain that
any prolonged, intensified or worsened effect from the COVID-19 pandemic would not impact our supply chain.
The manufacture of biologics is complex and our third-party
manufacturers may encounter difficulties in production. If our CMO encounters such difficulties, the ability to provide supply
of TARA-002 for clinical trials, our ability to obtain marketing approval, or our ability to obtain commercial supply of TARA-002,
if approved, could be delayed or stopped.
We have no experience in biologic manufacturing
and do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution,
or testing. We are completely dependent on CMOs to fulfill our clinical and commercial supply of TARA-002. The process of manufacturing
biologics is complex, highly regulated and subject to multiple risks. Manufacturing biologics is highly susceptible to product
loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency
in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from
normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions and higher
costs. If microbial, viral or other contaminations are discovered at the facilities of our manufacturer, such facilities may need
to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials, result
in higher costs of drug product and adversely harm our business. Moreover, if the FDA determines that our manufacturer is not
in compliance with FDA laws and regulations, including those governing cGMPs, the FDA may deny BLA approval until the deficiencies
are corrected or we replace the manufacturer in our BLA with a manufacturer that is in compliance.
In addition, there are risks associated
with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems
with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot consistency and timely availability
of raw materials. Even if we obtain regulatory approval for TARA-002 or any future product candidates, there is no assurance that
our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory
authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet
potential future demand. If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization,
commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results
of operations and growth prospects. Scaling up a biologic manufacturing process is a difficult and uncertain task, and any CMO
we contract may not have the necessary capabilities to complete the implementation and development process of further scaling
up production, transferring production to other sites, or managing its production capacity to timely meet product demand.
We expect our stock price to be highly volatile.
The market price of our shares could be
subject to significant fluctuations. Market prices for securities of biotechnology and other life sciences companies historically
have been particularly volatile subject even to large daily price swings. Some of the factors that may cause the market price
of our shares to fluctuate include, but are not limited to:
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our ability to obtain timely regulatory approvals
for TARA-002, IV Choline Chloride or future product candidates, and delays or failures to obtain such approvals;
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failure of TARA-002 or IV Choline Chloride,
if approved, to achieve commercial success;
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issues in manufacturing TARA-002, IV Choline
Chloride or future product candidates;
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the results of current and any future clinical
trials of TARA-002 or IV Choline Chloride;
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failure of other of our product candidates,
if approved, to achieve commercial success;
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the entry into, or termination of, or breach
by partners of key agreements, including key commercial partner agreements;
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the initiation of, material developments in,
or conclusion of any litigation to enforce or defend any intellectual property rights or defend against the intellectual property
rights of others;
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announcements of any dilutive equity financings;
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announcements by commercial partners or competitors
of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital
commitments;
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failure to elicit meaningful stock analyst coverage
and downgrades of the company’s stock by analysts; and
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the loss of key employees.
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Moreover, the stock markets in general
have experienced substantial volatility in our industry that has often been unrelated to the operating performance of individual
companies or a certain industry segment. These broad market fluctuations may also adversely affect the trading price of our shares.
In the past, following periods of volatility in the market
price of a company’s securities, shareholders have often instituted class action securities litigation against those companies.
Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could
significantly harm our profitability and reputation. In addition, such securities litigation often has ensued after a reverse
merger or other merger and acquisition activity. Such litigation if brought could impact negatively our business.
We incur costs and demands upon management as a result
of complying with the laws and regulations affecting public companies.
As a newly public company, we have incurred, and will continue
to incur, significant legal, accounting and other expenses that ArTara Subsidiary Inc. did not incur as a private company, including
costs associated with public company reporting and other SEC requirements. We have also incurred, and will continue to incur, costs
associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented
by the SEC and Nasdaq.
We expect the rules and regulations applicable
to public companies will continue to substantially increase our legal and financial compliance costs and to make some activities
more time-consuming and costly. Our executive officers and other personnel will need to continue to devote substantial time to
gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and
regulations may also make it expensive for us to operate our business.
We are able to take advantage of reduced disclosure and
governance requirements applicable to smaller reporting companies, which could result in our common stock being less attractive
to investors.
We have a public float of less than $250
million and therefore qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company, we are
able to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial
statement disclosure requirements in our SEC filings. Decreased disclosures in our SEC filings due to our status as a smaller
reporting company may make it harder for our investors to analyze our results of operations and financial prospects. We cannot
predict if investors will find our common stock less attractive due to 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 our stock price
may be more volatile. We may take advantage of the reporting exemptions applicable to a smaller reporting company until we are
no longer a smaller reporting company, which status would end once we have a public float greater than $250 million. In that event,
we could still be a smaller reporting company if our annual revenues were below $100 million and we have a public float of less
than $700 million.
We do not anticipate paying any dividends in the foreseeable
future.
The current expectation is that we will
retain our future earnings to fund the development and growth of the Company’s business. As a result, capital appreciation,
if any, of your shares of the Company will be your sole source of gain, if any, for the foreseeable future.
If we fail to attract and retain management and other
key personnel, we may be unable to continue to successfully develop or commercialize our product candidates or otherwise implement
our business plan.
Our ability to compete in the highly competitive
pharmaceuticals industry depends on our ability to attract and retain highly qualified managerial, scientific, medical, legal,
sales and marketing and other personnel. We are highly dependent on our management and scientific personnel. The loss of the services
of any of these individuals could impede, delay or prevent the successful development of our product pipeline, completion of our
planned clinical trials, commercialization of our product candidates or in-licensing or acquisition of new assets and could impact
negatively our ability to implement successfully our business plan. If we lose the services of any of these individuals, we might
not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We might
not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for
qualified personnel among biotechnology, pharmaceutical and other businesses.
Our ability to use our net operating loss carry-forwards
to offset future taxable income may be subject to certain limitations.
As of December 31, 2019, for U.S. federal
and state income tax reporting purposes, Private ArTara had approximately $11.4 million of unused net operating losses (“NOLs”)
available for carry forward to future years. The 2019 and 2018 federal and New York City NOLs may be carried forward indefinitely,
but utilization will be subject to an annual deduction limitation of 80% of taxable income. These 2019 and 2018 losses will not
be allowed to be carried back. The 2019 state NOLs may be carried forward through the year 2039 and may be applied against future
taxable income. The 2017 federal and New York City NOLs will begin to expire during the year ended December 31, 2037.
Furthermore, as of December 31, 2019,
for U.S. federal and state income tax reporting purposes, Proteon had approximately $41.7 million of unused NOLs available to
carry forward to future years. The pre-2018 federal net operating loss carryforwards expire at various dates through 2037. Federal
net operating loss carryforwards generated in 2018 and forward will have an unlimited carryforward period as part of the Tax Cuts
and Jobs Act. The indefinite lived net operating loss carryforwards as of December 31, 2019 are approximately $30.6 million. As
of December 31, 2019, Proteon had state net operating loss carryforwards of approximately $37.2 million to offset future state
taxable income, which will expire at various dates through 2039. As of December 31, 2019, Proteon has tax credit carryforwards
of approximately $3.6 million to offset future federal and state income taxes, which will expire at various dates through 2039.
Because United States tax laws limit the
time during which NOL carry forwards may be applied against future taxable income, we may be unable to take full advantage of
our NOLs for federal income tax purposes when we do generate taxable income. Further, net operating loss carryforwards of both
Private ArTara and Proteon entities will be limited since there was a more than 50% ownership change for each entity.
We may be adversely affected by natural disasters, pandemics
and other catastrophic events and by man-made problems such as terrorism that could disrupt our business operations, and our business
continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate office is located in New
York, New York. If a disaster, power outage, computer hacking, or other event occurred that prevented us from using all or a significant
portion of an office, that damaged critical infrastructure, such as enterprise financial systems, IT systems, manufacturing resource
planning or enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible
for us to continue our business for a substantial period of time. As an example, New York City has been significantly impacted
by the COVID-19 pandemic and, due to safety considerations for our employees and government restrictions, we do not know when
we will be able to use our office facilities located there. Our contract manufacturer’s and suppliers’ facilities
are located in multiple locations where there are similar stay-at-home orders in place for the current crisis and where other
natural disasters or similar events, such as tornadoes, fires, explosions or large-scale accidents or power outages, or IT threats,
pandemic, acts of terrorism and other geo-political unrest, could severely disrupt our operations and have a material adverse
effect on our business, financial condition, operating results and prospects. All of the aforementioned risks may be further increased
if we do not implement a disaster recovery plan or our partners’ or manufacturers’ disaster recovery plans prove to
be inadequate. To the extent that any of the above should result in delays in the regulatory approval, manufacture, distribution
or commercialization of TARA-002 or IV Choline Chloride, our business, financial condition, operating results and prospects would
suffer.
Our business and operations would suffer in the event
of system failures, cyber-attacks or a deficiency in our cyber-security.
Despite the implementation of security
measures, our internal computer systems and those of our current and future CROs and other contractors and consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
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. If such an event were to occur and cause interruptions in our operations,
it could result in a material disruption of our development programs and our business operations. In the first quarter of 2020,
our email server was compromised in a cyber-attack. We quickly isolated the incident and have, since, implemented additional risk
prevention measures. In addition, since the Company sponsors clinical trials, any breach that compromises patient data and identities
causing a breach of privacy could generate significant reputational damage and legal liabilities and costs to recover and repair,
including affecting trust in the company to recruit for future clinical trials. For example, the loss of clinical trial data from
completed or future 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 were to result in a loss of, or damage
to, our data or applications or inappropriate disclosure of confidential or proprietary information, we could incur liability
and the further development and commercialization of our products and product candidates could be delayed.
Anti-takeover provisions in our charter documents and
under Delaware law could make an acquisition of the Company more difficult and may prevent attempts by our stockholders to replace
or remove management.
Provisions in our certificate of incorporation
and bylaws may delay or prevent an acquisition or a change in management. In addition, because we are incorporated in Delaware,
we are governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding
voting stock from merging or combining with the Company. These provisions may frustrate or prevent any attempts by our stockholders
to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors,
which is responsible for appointing the members of management.
The certificate of incorporation of the Company provides
that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the Company
and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with
us or our directors, officers or other employees.
The certificate of incorporation of the
Company provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action
or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by any of our directors, officers or
other employees to the Company or our stockholders, any action asserting a claim against us arising pursuant to any provisions
of the DGCL, our certificate of incorporation or our bylaws, or any action asserting a claim against us that is governed by the
internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits
against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in
the certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions.
Certain stockholders have the ability to control or significantly
influence certain matters submitted to our stockholders for approval.
Certain stockholders have consent rights
over certain significant matters of our business. These include decisions to effect a merger or other similar transaction, changes
to the principal business of the Company, and the sale or other transfer of TARA-002 or other assets with an aggregate value of
more than $2,500,000. As a result, these stockholders, have significant influence over certain matters that require approval by
our stockholders.
If we fail to maintain proper and effective internal
controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Exchange
Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that
we maintain effective disclosure controls and procedures and internal control over financial reporting. We must perform system
and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness
of our internal controls over financial reporting in our Annual Report on Form 10-K filing for that year, as required by Section
404 of the Sarbanes-Oxley Act. As a private company, ArTara Subsidiary was not required to test its internal controls within a
specified period. This will require that we incur substantial professional fees and internal costs to expand our accounting and
finance functions and that we expend significant management efforts. We may experience difficulty in meeting these reporting requirements
in a timely manner.
We may discover weaknesses in our system of internal financial
and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal
control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements
due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act, or if we are unable to maintain proper and effective internal controls,
we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our common
stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
Risks Related to Intellectual Property Rights
We may not be able to obtain, maintain or enforce global
patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient
breadth to prevent third parties from competing against us.
Our success with respect to our product
candidates will depend, in part, on our ability to obtain and maintain patent protection in both the United States and other countries,
to preserve our trade secrets and to prevent third parties from infringing on our proprietary rights. Our ability to protect our
product candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and
maintain valid and enforceable patents around the world.
The patent application process, also known
as patent prosecution, is expensive and time-consuming, and we and our current or future licensors and licensees may not be able
to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner in all
the countries that are desirable. It is also possible that we or our current licensors, or any future 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. Therefore, these and any of our patents and applications may not be prosecuted
and enforced in a manner consistent with the best interests of our business. Moreover, our competitors independently may develop
equivalent knowledge, methods and know-how or discover workarounds to our patents that would not constitute infringement. Any
of these outcomes could impair our ability to enforce the exclusivity of our patents effectively, which may have an adverse impact
on our business, financial condition and operating results.
Due to legal standards relating to patentability,
validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce
patents is uncertain and involves complex legal and factual questions especially across countries. Accordingly, rights under any
existing patents or any patents we might obtain or license may not cover our product candidates or may not provide us with sufficient
protection for our product candidates to afford a sustainable commercial advantage against competitive products or processes,
including those from branded, generic and over-the-counter pharmaceutical companies. In addition, we cannot guarantee that any
patents or other intellectual property rights will issue from any pending or future patent or other similar applications owned
by or licensed to us. Even if patents or other intellectual property rights have issued or will issue, we cannot guarantee that
the claims of these patents and other rights are or will be held valid or enforceable by the courts, through injunction or otherwise,
or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us in
every country of commercial significance that we may target.
Competitors in the field of immunology
and oncology therapeutics have created a substantial amount of prior art, including scientific publications, posters, presentations,
patents and patent applications and other public disclosures including on the Internet. Our ability to obtain and maintain valid
and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be
patentable over the prior art. We do not have outstanding issued patents covering all of the recent developments in our technology
and are unsure of the patent protection that we will be successful in obtaining, if any. Even if the patents do successfully issue,
third parties may design around or challenge the validity, enforceability or scope of such issued patents or any other issued
patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. If the breadth
or strength of protection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could
dissuade companies from collaborating with us to develop or threaten our ability to commercialize or finance our product candidates.
The laws of some foreign jurisdictions
do not provide intellectual property rights to the same extent or duration as in the United States, and many companies have encountered
significant difficulties in acquiring, maintaining, protecting, defending and especially enforcing such rights in foreign jurisdictions.
If we encounter such difficulties in protecting, or are otherwise precluded from effectively protecting, our intellectual property
in foreign jurisdictions, our business prospects could be substantially harmed, especially internationally.
Proprietary trade secrets and unpatented
know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how
by entering into confidentiality agreements with third parties, and intellectual property protection agreements with officers,
directors, employees, and certain consultants and advisors, there can be no assurance that binding agreements will not be breached
or enforced by courts, that we would have adequate remedies for any breach, including injunctive and other equitable relief, or
that our trade secrets and unpatented know-how will not otherwise become known, inadvertently disclosed by us or our agents and
representatives, or be independently discovered by our competitors. If trade secrets are independently discovered, we would not
be able to prevent their use and if we and our agents or representatives inadvertently disclose trade secrets and/or unpatented
know-how, we may not be allowed to retrieve this and maintain the exclusivity we previously enjoyed.
We may not be able to protect our intellectual property
rights throughout the world.
Filing, prosecuting and defending patents
on our product candidates does not guarantee exclusivity. The requirements for patentability differ in certain countries, particularly
developing countries. In addition, the laws of some foreign countries do not protect intellectual property rights to the same
extent as laws in the United States, especially when it comes to granting use and other kinds of patents and what kind of enforcement
rights will be allowed, especially injunctive relief in a civil infringement proceeding. Consequently, we may not be able to prevent
third parties from practicing our inventions in all countries outside the United States and even in launching an identical version
of our product notwithstanding we have a valid patent in that country. Competitors may use our technologies in jurisdictions where
we have not obtained patent protection to develop their own products, or produce copy products, and, further, may export otherwise
infringing products to territories where we have patent protection but enforcement on infringing activities is inadequate or where
we have no patents. These products may compete with our products, and our patents or other intellectual property rights may not
be effective or sufficient to prevent them from competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to pharmaceuticals, and the judicial and government systems are often corrupt, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our global patents at risk of being invalidated or interpreted
narrowly and our global patent applications at risk of not issuing, and could provoke third parties to assert claims against us.
We may not prevail in any lawsuits that we initiate or infringement actions brought against us, and the damages or other remedies
awarded, if any, may not be commercially meaningful when we are the plaintiff. When we are the defendant we may be required to
post large bonds to stay in the market while we defend ourselves from an infringement action.
In addition, certain countries in Europe
and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses
to third parties, especially if the patent owner does not enforce or use its patents over a protracted period of time. In some
cases, the courts will force compulsory licenses on the patent holder even when finding the patent holder’s patents are
valid if the court believes it is in the best interests of the country to have widespread access to an essential product covered
by the patent. In these situations, the royalty the court requires to be paid by the license holder receiving the compulsory license
is not calculated at fair market value and can be inconsequential, thereby disaffecting the patent holder’s business. In
these countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents
to a third party, which could also materially diminish the value of those patents. This would limit our potential revenue opportunities.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we own or license, especially in comparison to what we enjoy from enforcing
our intellectual property rights in the Unites States. Finally, our ability to protect and enforce our intellectual property rights
may be adversely affected by unforeseen changes in both U.S. and foreign intellectual property laws, or changes to the policies
in various government agencies in these countries, including but not limited to the patent office issuing patents and the health
agency issuing pharmaceutical product approvals For example, in Brazil, pharmaceutical patents require initial approval of the
Brazilian health agency (ANVISA). Finally, many countries have large backlogs in patent prosecution, and in some countries in
Latin America it can take years, even decades, just to get a pharmaceutical patent application reviewed notwithstanding the merits
of the application.
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 and annuity fees
on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process. While an inadvertent lapse can, in many cases, be cured by
payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can
result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in
the relevant jurisdiction just for failure to know about and/or timely pay a prosecution fee. Non-compliance events that could
result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed
time limits, non-payment of fees in prescribed time periods, and failure to properly legalize and submit formal documents in the
format and style the country requires. If we or our licensors fail to maintain the patents and patent applications covering our
product candidates for any reason, our competitors might be able to enter the market, which would have an adverse effect on our
business.
If we fail to comply with our obligations under our intellectual
property license agreements, we could lose license rights that are important to our business. Additionally, these agreements may
be subject to disagreement over contract interpretation, which could narrow the scope of our rights to the relevant intellectual
property or technology or increase our financial or other obligations to our licensors.
We have entered into in-license arrangements
with respect to certain of our product candidates. These license agreements impose various diligence, milestone, royalty, insurance
and other obligations on us. If we fail to comply with these obligations, the respective licensors may have the right to terminate
the license, in which event we may not be able to develop or market the affected product candidate. The loss of such rights could
materially adversely affect our business, financial condition, operating results and prospects.
If we are sued for infringing intellectual property rights
of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing
our product candidates.
Our commercial success depends on our
ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing
the proprietary rights of third parties. We cannot assure that marketing and selling such candidates and using such technologies
will not infringe existing or future patents. Numerous U.S.- and foreign-issued patents and pending patent applications owned
by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical industries expand
and more patents are issued, the risk increases that others may assert that our product candidates, technologies or methods of
delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents
and other intellectual property rights cover various drugs, biologics, drug delivery systems or their methods of use, and which
of these patents may be valid and enforceable. Thus, because of the large number of patents issued and patent applications filed
in our fields across many countries, there may be a risk that third parties may allege they have patent rights encompassing our
product candidates, technologies or methods.
In addition, there may be issued patents
of third parties that are infringed or are alleged to be infringed by our product candidates or proprietary technologies notwithstanding
patents we may possess. Because some patent applications in the United States may be maintained in secrecy until the patents are
issued, because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months
after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that
others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications.
Our competitors may have filed, and may in the future file, patent applications covering our product candidates or technology
similar to our technology. Any such patent application may have priority over our own and in-licensed patent applications or patents,
which could further require us to obtain rights to issued patents covering such technologies, which may mean paying significant
licensing fees or the like. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed
to us, or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an interference
proceeding to determine priority of invention.
We may be exposed to, or threatened with,
future litigation by third parties having patent or other intellectual property rights alleging that our product candidates or
proprietary technologies infringe such third parties’ intellectual property rights, including litigation resulting from
filing under Paragraph IV of the Hatch-Waxman Act or other countries’ laws similar to the Hatch-Waxman Act. These lawsuits
could claim that there are existing patent rights for such drug, and this type of litigation can be costly and could adversely
affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents
or the patents asserted against us is ultimately established as invalid. There is a risk that a court would decide that we are
infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there
is a risk that a court will order us to pay the other party significant damages for having violated the other party’s patents.
Because we rely on certain third-party
licensors and partners and will continue to do so in the future, if one of our licensors or partners is sued for infringing a
third party’s intellectual property rights, our business, financial condition, operating results and prospects could suffer
in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify certain third-party
licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered or may enter
into cost-sharing agreements with some our licensors and partners that could require us to pay some of the costs of patent litigation
brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In certain
instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than
would be assumed just on the basis of our technology.
The occurrence of any of the foregoing
could adversely affect our business, financial condition or operating results.
We may be subject to claims that our officers, directors,
employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their former
employers or their former or current customers.
As is common in the biotechnology and
pharmaceutical industries, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development
of our products and product candidates, many of whom were previously employed at, or may have previously been or are currently
providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
We may be subject to claims that these employees and consultants or the Company has inadvertently or otherwise used or disclosed
trade secrets or other proprietary information of their former employers or their former or current customers. Although we have
no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against
any such claims. Even if we are successful in defending against any such claims, any such litigation could be protracted, expensive,
a distraction to our management team, not viewed favorably by investors and other third parties, and may potentially result in
an unfavorable outcome.
General Risk Factors
If equity research analysts do not publish research or
reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume
could decline.
The trading market for our common stock
is influenced by the research and reports that equity research analysts publish about us and our business. Equity research analysts
may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market
price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts
or the content and opinions included in their reports. The price of our common stock could decline if one or more equity research
analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases
coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which in turn could cause
our stock price or trading volume to decline.