RISK
FACTORS
You
should carefully consider the risks described below, together with any risks set forth in our subsequent filings under the Exchange
Act, before making an investment decision. The risks described below are not the only ones we face. Additional risks we are not
presently aware of or that we currently believe are immaterial may also impair our business operations. Our business could be
harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose
all or part of your investment. In assessing these risks, you should also refer to the other information contained or incorporated
by reference into this prospectus, including our financial statements and related notes.
RISKS
RELATED TO OUR BUSINESS
We
have a history of operating losses and expect to incur losses for the foreseeable future. We may never generate revenues or, if
we are able to generate revenues, achieve profitability.
We
are focused on product development, and we have not generated any revenues to date. We have incurred losses in each year of our
operations, and we expect to continue to incur operating losses for the foreseeable future. These operating losses have adversely
affected and are likely to continue to adversely affect our working capital, total assets and stockholders’ equity.
We
and our prospects should be examined in light of the risks and difficulties frequently encountered by new and early-stage companies
in new and rapidly evolving markets. These risks include, among other things, the speed at which we can scale up operations, our
complete dependence upon development of our product candidates that currently have no market acceptance, our ability to establish
and expand our brand name, our ability to expand our operations to meet the commercial demand of our clients, our development
of and reliance on strategic and customer relationships and our ability to minimize fraud and other security risks.
The
process of developing our products requires significant clinical, nonclinical and CMC development, laboratory testing and clinical
studies. In addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals and
establish sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships
with others. We expect to incur substantial losses for the foreseeable future as a result of anticipated increases in our research
and development costs, including costs associated with conducting preclinical and nonclinical testing and clinical studies, and
regulatory compliance activities.
We
expect to incur substantial additional operating expenses over the next several years as our research, development, preclinical
and nonclinical testing, and clinical study activities increase. The amount of future losses and when, if ever, we will achieve
profitability are uncertain. We have no products that have generated any commercial revenue, do not expect to generate revenues
from the commercial sale of products in the near future, and might never generate revenues from the sale of products. Our ability
to generate revenue and achieve profitability will depend on, among other things, successful completion of the development of
our product candidates; obtaining necessary regulatory approvals from the FDA; establishing manufacturing, sales, and marketing
arrangements with third parties; successfully commercializing our products; establishing a favorable competitive position; and
raising sufficient funds to finance our activities. Many of these factors will depend on circumstances beyond our control. We
might not succeed at any of these undertakings. If we are unsuccessful at some or all of these undertakings, our business, prospects,
and results of operations may be materially adversely affected.
We
have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on a quarterly
and annual basis, which may make it difficult to predict our future performance.
We
are a development-stage biopharmaceutical company with a limited operating history. Our operations to date have been primarily
limited to developing our technology and undertaking preclinical and nonclinical testing and clinical studies of our clinical-stage
product candidate, Tonmya for PTSD. We have not yet obtained regulatory approvals for Tonmya or any of our other product candidates.
Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer
operating history or commercialized products. Our financial condition has varied significantly in the past and will continue to
fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating
to our business that may contribute to these fluctuations include other factors described elsewhere in this annual report and
also include, among other things:
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our
ability to obtain additional funding to develop our product candidates;
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delays
in the commencement, enrollment and timing of clinical studies;
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the
success of our clinical studies through all phases of clinical development, including studies of our most advanced product candidate
Tonmya for PTSD;
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any
delays in regulatory review and approval of product candidates in clinical development;
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our
ability to obtain and maintain regulatory approval for our product candidate Tonmya for PTSD or any of our other product candidates
in the United States and foreign jurisdictions;
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potential
nonclinical toxicity and/or side effects of our product candidates that could delay or prevent commercialization, limit the indications
for any approved drug, require the establishment of risk evaluation and mitigation strategies, or cause an approved drug to be
taken off the market;
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our
ability to establish or maintain collaborations, licensing or other arrangements;
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market
acceptance of our product candidates;
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competition
from existing products or new products that may emerge;
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the
ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our products;
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our
ability to leverage our proprietary technology platform to discover and develop additional product candidates;
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our
ability and our licensors’ abilities to successfully obtain, maintain, defend and enforce intellectual property rights important
to our business; and
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potential
product liability claims.
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Accordingly,
the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
RISKS
RELATED TO PRODUCT DEVELOPMENT, REGULATORY APPROVAL,
MANUFACTURING AND COMMERCILAIZATION
Our
product candidates are novel and still in development.
We
are a clinical-stage pharmaceutical company focused on the development of drug product candidates, all of which are still in development.
Our drug development methods may not lead to commercially viable drugs for any of several reasons. For example, we may fail to
identify appropriate targets or compounds, our drug candidates may fail to be safe and effective in clinical studies, or we may
have inadequate financial or other resources to pursue development efforts for our drug candidates. Our drug candidates will require
significant additional development, clinical studies, regulatory clearances and additional investment by us or our collaborators
before they can be commercialized.
Further,
we and our product candidates are subject to extensive regulation by the FDA and comparable regulatory authorities in other countries
governing, among other things, research, testing, clinical studies, manufacturing, labeling, promotion, selling, adverse event
reporting and recordkeeping. We are not permitted to market any of our product candidates in the United States until we receive
approval of an NDA for a product candidate from the FDA or the equivalent approval from a foreign regulatory authority. Obtaining
FDA approval is a lengthy, expensive and uncertain process. We currently have one product candidate, Tonmya, in Phase 3 development
for the treatment of PTSD, and the success of our business currently depends on its successful development, approval and commercialization.
Any projected sales or future revenue predictions are predicated upon FDA approval and market acceptance of Tonmya. If projected
sales do not materialize for any reason, it would have a material adverse effect on our business and our ability to continue operations.
As
we have no approved products on the market, we do not expect to generate any revenues from product sales in the foreseeable future,
if at all.
To
date, we have no approved product on the market and have generated no product revenues. We have funded our operations primarily
from sales of our securities. We have not received, and do not expect to receive for at least the next couple of years, if at
all, any revenues from the commercialization of our product candidates. To obtain revenues from sales of our product candidates,
we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing
drugs with commercial potential. We may never succeed in these activities, and we may not generate sufficient revenues to continue
our business operations or achieve profitability.
We
are largely dependent on the success of our clinical-stage product candidate, Tonmya for PTSD, and we cannot be certain that this
product candidate will receive regulatory approval or be successfully commercialized.
Tonmya
has not completed the clinical development process; therefore, we have not yet submitted an NDA or foreign equivalent or received
marketing approval for this product candidate anywhere in the world. The clinical development program for Tonmya for PTSD may
not lead to commercial products for a number of reasons, including if we fail to obtain necessary approvals from the FDA or foreign
regulatory authorities because our clinical studies fail to demonstrate to their satisfaction that this product candidate is safe
and effective or a clinical program may be put on hold due to unexpected safety issues. We may also fail to obtain the necessary
approvals if we have inadequate financial or other resources to advance our product candidates through the clinical study process.
Any failure or delay in completing clinical studies or obtaining regulatory approvals for Tonmya for PTSD in a timely manner would
have a material adverse impact on our business and our stock price.
Successful
development of our products is uncertain.
Our
development of current and future product candidates is subject to the risks of failure and delay inherent in the development
of new pharmaceutical products, including: delays in product development, clinical testing, or manufacturing; unplanned expenditures
in product development, clinical testing, or manufacturing; failure to receive regulatory approvals; emergence of superior or
equivalent products; inability to manufacture on its own, or through any others, product candidates on a commercial scale; and
failure to achieve market acceptance.
Because
of these risks, our research and development efforts may not result in any commercially viable products. If a significant portion
of these development efforts are not successfully completed, required regulatory approvals are not obtained or any approved products
are not commercially successfully, our business, financial condition, and results of operations may be materially harmed.
Clinical
studies required for our product candidates are expensive and time-consuming, and their outcome is uncertain.
In
order to obtain FDA approval to market a new pharmaceutical product, we must demonstrate proof of safety and effectiveness in
humans. To meet these requirements, we must conduct “adequate and well controlled” clinical studies. Conducting clinical
studies is a lengthy, time-consuming, and expensive process. The length of time may vary substantially according to the type,
complexity, novelty, and intended use of the product candidate, and often can be several years or more per study. Delays associated
with products for which we are directly conducting clinical studies may cause us to incur additional operating expenses. The commencement
and rate of completion of clinical studies may be delayed by many factors, including, for example: inability to manufacture sufficient
quantities of stable and qualified materials under cGMP, for use in clinical studies; slower than expected rates of patient recruitment;
failure to recruit a sufficient number of patients; modification of clinical study protocols; changes in regulatory requirements
for clinical studies; the lack of effectiveness during clinical studies; the emergence of unforeseen safety issues; delays, suspension,
or termination of the clinical studies due to the ITB responsible for overseeing the study at a particular study site; and government
or regulatory delays or “clinical holds” requiring suspension or termination of the studies.
The
results from early clinical studies are not necessarily predictive of results obtained in later clinical studies. Accordingly,
even if we obtain positive results from early clinical studies, we may not be able to confirm the results in future clinical studies.
For example, in a Phase 3 trial for a product candidate for fibromyalgia, we were not able replicate the results we received from
the Phase 2b trial for this product candidate, and as a result discontinued this program. Clinical studies may not demonstrate
sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates.
Our
clinical studies may be conducted in patients with CNS conditions, and in some cases, our product candidates are expected to be
used in combination with approved therapies that themselves have significant adverse event profiles. During the course of treatment,
these patients could suffer adverse medical events or die for reasons that may or may not be related to our product candidates.
We cannot ensure that safety issues will not arise with respect to our product candidates in clinical development.
The
failure of clinical studies to demonstrate safety and effectiveness for the desired indications could harm the development of
that product candidate and other product candidates. This failure could cause us to abandon a product candidate and could delay
development of other product candidates. Any delay in, or termination of, our clinical studies would delay the filing of our NDAs
with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenues. Any change in,
or termination of, our clinical studies could materially harm our business, financial condition, and results of operations.
We
are subject to extensive and costly government regulation.
Product
candidates employing our technology are subject to extensive and rigorous domestic government regulation including regulation
by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human
Services, the United States Department of Justice, state and local governments, and their respective foreign equivalents. The
FDA regulates the research, development, preclinical and nonclinical testing and clinical studies, manufacture, safety, effectiveness,
record-keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of biopharmaceutical
products. The FDA regulates small molecule chemical entities as drugs, subject to an NDA under the FDCA. The FDA applies the same
standards for biologics, requiring an IND application, followed by a Biologic License Application, or BLA, prior to licensure.
Other products, such as vaccines, are also regulated under the Public Health Service Act. FDA has conflated the standards for
approval of NDAs and BLAs so that they require the same types of information on safety, effectiveness, and CMCs. If products employing
our technologies are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not
they have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than
corresponding United States regulation.
Government
regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling our products. The
regulatory review and approval process, which includes preclinical and nonclinical testing and clinical studies of each product
candidate, is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to
conduct clinical studies. We or our collaborators must obtain regulatory approval for each product we intend to market, and the
manufacturing facilities used for the products must be inspected and meet legal requirements. Securing regulatory approval requires
the submission of extensive preclinical, nonclinical and clinical data and other supporting information for each proposed therapeutic
indication in order to establish the product’s safety and efficacy, and in the case of biologics also potency and purity,
for each intended use. The development and approval process takes many years, requires substantial resources, and may never lead
to the approval of a product.
Even
if we are able to obtain regulatory approval for a particular product, the approval may limit the indicated medical uses for the
product, may otherwise limit our ability to promote, sell, and distribute the product, may require that we conduct costly post-marketing
surveillance, and/or may require that we conduct ongoing post-marketing studies. Material changes to an approved product, such
as, for example, manufacturing changes or revised labeling, may require further regulatory review and approval. Once obtained,
any approvals may be withdrawn, including, for example, if there is a later discovery of previously unknown problems with the
product, such as a previously unknown safety issue.
If
we, our collaborators, or our CMOs fail to comply with applicable regulatory requirements at any stage during the regulatory process,
such noncompliance could result in, among other things delays in the approval of applications or supplements to approved applications;
refusal of a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved
applications; warning letters; fines; import and/or export restrictions; product recalls or seizures; injunctions; total or partial
suspension of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations
by the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
We
do not have, and may never obtain, the regulatory approvals we need to market our product candidates.
Following
completion of clinical studies, the results are evaluated and, depending on the outcome, submitted to the FDA in the form of an
NDA or BLA in order to obtain FDA approval of the product and authorization to commence commercial marketing. In responding to
an NDA, the FDA may require additional testing or information, may require that the product labeling be modified, may impose post-approval
study and other commitments or reporting requirements or other restrictions on product distribution, or may deny the application.
The FDA has established performance goals for review of NDAs or BLAs: six months for priority applications and ten months for
standard applications. However, the FDA is not required to complete its review within these time periods. The timing of final
FDA review and action varies greatly but can take years in some cases and may involve the input of an FDA advisory committee of
outside experts. Product sales in the United States may commence only when an NDA or BLA is approved.
To
date, we have not applied for or received the regulatory approvals required for the commercial sale of any of our products in
the United States or in any foreign jurisdiction. None of our product candidates have been determined to be safe and effective,
and we have not submitted an NDA or BLA to the FDA or an equivalent application to any foreign regulatory authorities for any
of our product candidates.
It
is possible that none of our product candidates will be approved for marketing. Failure to obtain regulatory approvals, or delays
in obtaining regulatory approvals, may adversely affect the successful commercialization of any drugs or biologics that we or
our partners develop, may impose additional costs on us or our collaborators, may diminish any competitive advantages that we
or our partners may attain, and/or may adversely affect our receipt of revenues or royalties.
We
have limited experience in completing a Phase 3 clinical study and have never submitted an NDA before, and may be unable to do
so for Tonmya or other product candidates we are developing.
We
initiated a Phase 3 study in military-related PTSD in the first quarter of 2017. As this study is intended to provide efficacy
and safety evidence to support marketing approval by the FDA, it is considered a pivotal, confirmatory or registration, study.
The conduct of pivotal clinical studies and the submission of a successful NDA is a complicated process. Although members of our
management team have extensive industry experience, including in the development and clinical testing of drug candidates and the
commercialization of drug, we have conducted only one pivotal clinical study before (the AFFIRM study in fibromyalgia participants),
have limited experience in preparing, submitting and prosecuting regulatory filings, and have not submitted an NDA before. Consequently,
we may be unable to successfully and efficiently execute and complete this planned clinical study in a way that leads to NDA submission
and approval of Tonmya and other product candidates we are developing. We may require more time and incur greater costs than our
competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or
complete, or delays in, our planned clinical studies would prevent or delay commercialization of Tonmya and other product candidates
we are developing.
Our
product candidates may cause SAEs or undesirable side effects which may delay or prevent marketing approval, or, if approval is
received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
SAEs
or undesirable side effects from Tonmya or any of our other product candidates could arise either during clinical development
or, if approved, after the approved product has been marketed. The results of future clinical studies, including Tonmya, may show
that our product candidates cause SAEs or undesirable side effects, which could interrupt, delay or halt clinical studies, resulting
in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.
If
Tonmya or any of our other product candidates cause SAEs or undesirable side effects or suffer from quality control issues:
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regulatory
authorities may impose a clinical hold or risk evaluation and mitigation strategies, or REMS, which could result in substantial
delays, significantly increase the cost of development, and/or adversely impact our ability to continue development of the
product;
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regulatory
authorities may require the addition of statements, specific warnings, or contraindications to the product label, or restrict
the product’s indication to a smaller potential treatment population;
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we
may be required to change the way the product is administered or conduct additional clinical studies;
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we
may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a
negative impact on our ability to commercialize the product;
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we
may be required to limit the participants who can receive the product;
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we
may be subject to limitations on how we promote the product;
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we
may, voluntarily or involuntarily, initiate field alerts for product recall, which may result in shortages;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially
increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from
the sale of our products.
If
a competing drug shows efficacy in military-related PTSD prior to the FDA approval of Tonmya or if Tonmya fails to confirm the
results of the AtEase Phase 2 study in showing activity in military-related PTSD in the Phase 3 HONOR study, then the FDA may
rescind the Breakthrough Therapy designation.
In
December 2016, the FDA granted Tonmya for PTSD Breakthrough Therapy designation based on several factors, including that Tonmya
has the potential to be an improvement over existing therapies for military-related PTSD. If another therapy is shown to be effective
in military-related PTSD before FDA approval of Tonmya, then the FDA may rescind the designation. In addition, if Tonmya fails
to confirm the activity from the AtEase study in treating military-related PTSD, then the FDA may rescind the Breakthrough Therapy
designation.
Breakthrough
Therapy designation for Tonmya may not lead to faster development or regulatory processes nor does it increase the likelihood
that Tonmya will receive marketing approval for PTSD.
There
is no guarantee that the receipt of Breakthrough Therapy designation will result in a faster development, review or approval process
for Tonmya for PTSD or increase the likelihood that Tonmya will be granted marketing approval for PTSD. In some cases, the development
program for the Breakthrough Therapy could be shorter than for other drugs intended to treat the disease being studied. However,
the FDA notes that a compressed drug development program still must generate adequate data to demonstrate that the drug is safe,
effective and meets the statutory standard for approval. Breakthrough Therapy designation does not change the standards for approval.
If a clinical development program granted Breakthrough Therapy designation does not continue to meet the criteria, the FDA may
rescind the designation.
Likewise,
any future Breakthrough Therapy designation for any other potential indication of TNX-102 SL neither guarantees a faster development
process, review or approval nor improves the likelihood of the granting of marketing approval by the FDA for any such potential
indication of TNX-102 SL compared to drugs considered for approval under conventional FDA procedures. We may seek a Breakthrough
Therapy designation for other of our product candidates, but the FDA may not grant this status to any of our proposed product
candidates.
If
we are unable to file for approval of Tonmya under Section 505(b)(2) of the FDCA or if we are required to generate additional
data related to safety and efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated
development and commercialization timelines.
Our
current plans for filing NDAs for our product candidates include efforts to minimize the data we will be required to generate
in order to obtain marketing approval for our product candidates and therefore reduce the development time. We held a pre-IND
meeting with the FDA in October 2012 to discuss the development of Tonmya in PTSD. Following the results of the AtEase Study,
we held an End-of-Phase 2/Pre-Phase 3 meeting with the FDA in August 2016 to discuss our most advanced development program, in
which we are developing Tonmya for the treatment of PTSD. In March 2017, we had our initial Cross-disciplinary Breakthrough Therapy
meeting with the FDA to discuss ways to expedite the development and NDA submission of Tonmya. Although our interactions with
the FDA have encouraged our efforts to continue to develop Tonmya for PTSD, there is no assurance that we will satisfy the FDA’s
requirements for approval in this indication. The timeline for filing and review of our NDA for Tonmya for PTSD is based on our
plan to submit this NDA under Section 505(b)(2) of the FDCA, which would enable us to rely in part on data in the public domain
or elsewhere. We have not yet filed an NDA under Section 505(b)(2) for any of our product candidates. Depending on the data that
may be required by the FDA for approval, some of the data may be related to products already approved by the FDA. If the data
relied upon is related to products already approved by the FDA and covered by third-party patents we would be required to certify
that we do not infringe the listed patents or that such patents are invalid or unenforceable. As a result of the certification,
the third-party would have 45 days from notification of our certification to initiate an action against us.
In
the event that an action is brought in response to such a certification, the approval of our NDA could be subject to a stay of
up to 30 months or more while we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may therefore
be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents to our product
candidates. Alternatively, we may elect to generate sufficient additional clinical data so that we no longer rely on data which
triggers a potential stay of the approval of our product candidates. Even if no exclusivity periods apply to our applications
under Section 505(b)(2), the FDA has broad discretion to require us to generate additional data on the safety and efficacy of
our product candidates to supplement third-party data on which we may be permitted to rely. In either event, we could be required,
before obtaining marketing approval for any of our product candidates, to conduct substantial new research and development activities
beyond those we currently plan to engage in order to obtain approval of our product candidates. Such additional new research and
development activities would be costly and time consuming.
We
may not be able to realize a shortened development timeline for Tonmya for PTSD, and the FDA may not approve our NDA based on
their review of the submitted data. If CBP-containing products are withdrawn from the market by the FDA for any safety reason,
we may not be able to reference such products to support a 505(b)(2) NDA for Tonmya, and we may need to fulfill the more extensive
requirements of Section 505(b)(1). If we are required to generate additional data to support approval, we may be unable to meet
our anticipated development and commercialization timelines, may be unable to generate the additional data at a reasonable cost,
or at all, and may be unable to obtain marketing approval of our lead product candidate.
Even
if approved, our products will be subject to extensive post-approval regulation.
Once
a product is approved, numerous post-approval requirements apply. Among other things, the holder of an approved NDA is subject
to periodic and other FDA monitoring and reporting obligations, including obligations to monitor and report adverse events and
instances of the failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental
applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process.
Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical studies.
Depending
on the circumstances, failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions,
recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals,
or refusal to allow us to enter into supply contracts, including government contracts. In addition, even if we comply with FDA
and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw
product approval.
Even
if we obtain regulatory approval to market our product candidates, our product candidates may not be accepted by the market.
Even
if the FDA approves one or more of our product candidates, physicians and patients may not accept it or use it. Even if physicians
and patients would like to use our products, our products may not gain market acceptance among healthcare payors such as managed
care formularies, insurance companies or government programs such as Medicare or Medicaid. Acceptance and use of our products
will depend upon a number of factors including: perceptions by members of the health care community, including physicians, about
the safety and effectiveness of our drug or device product; cost-effectiveness of our product relative to competing products;
availability of reimbursement for our product from government or other healthcare payors; and effectiveness of marketing and distribution
efforts by us and our licensees and distributors, if any.
The
degree of market acceptance of any pharmaceutical product that we develop will depend on a number of factors, including:
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the
safety and effectiveness of our products, including any significant potential side effects (including drowsiness and dry mouth),
as compared to alternative products or treatment methods;
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the
timing of market entry as compared to competitive products;
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the
rate of adoption of our products by doctors and nurses;
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product
labeling or product insert required by the FDA for each of our products;
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reimbursement
policies of government and third-party payors;
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effectiveness
of our sales, marketing and distribution capabilities and the effectiveness of such capabilities of our collaborative partners,
if any; and
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unfavorable
publicity concerning our products or any similar products.
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Because
we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the
foreseeable future, the failure of these products to find market acceptance would harm our business and could require us to seek
additional financing.
We
may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize
on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and human resources, we are currently focusing on the regulatory approval of Tonmya for PTSD. As a result,
we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products
or profitable market opportunities. Our spending on existing and future product candidates for specific indications may not yield
any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular
product candidate, we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other
royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization
rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which
it would have been more advantageous to enter into a partnering arrangement.
RISKS
RELATED TO OUR FINANCIAL CONDITION AND CAPITAL REQUIREMENTS; COMPETITION
We
received a report from our independent registered public accounting firm with an explanatory paragraph for the year ended December
31, 2017 with respect to our ability to continue as a going concern.
In
their report dated March 9, 2018, our independent registered public accounting firm expressed substantial doubt about our ability
to continue as a going concern as we have incurred losses since inception, have a negative cash flow from operations, and require
additional financing to fund future operations. Our ability to continue as a going concern is subject to our ability to obtain
necessary funding from outside sources, including obtaining additional funding from the sale of our securities
We
will need additional capital. If additional capital is not available or is available at unattractive terms, we may be forced to
delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail
our operations.
In
order to develop and bring our product candidates to market, we must commit substantial resources to costly and time-consuming
research, preclinical and nonclinical testing, clinical studies and marketing activities. We anticipate that our existing cash
and cash equivalents will enable us to maintain our current operations for at least until the end of 2018. We anticipate using
our cash and cash equivalents to fund further research and development with respect to our lead product candidate. Unless we raise
additional capital, we may not have sufficient cash to last through the analysis of the topline data for the Phase 3 trial of
our lead product candidate, which is currently expected to occur in the first quarter of 2019. Moreover, we will need to raise
additional funding sooner if our business or operations change in a manner that consumes available resources more rapidly than
we anticipate. Our requirements for additional capital will depend on many factors, including:
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successful
commercialization of our product candidates;
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the
time and costs involved in obtaining regulatory approval for our product candidates;
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costs
associated with protecting our intellectual property rights;
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development
of marketing and sales capabilities;
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payments
received under future collaborative agreements, if any; and
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market
acceptance of our products.
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To
the extent we raise additional capital through the sale of equity securities, the issuance of those securities could result in
dilution to our stockholders. In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be
dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities.
If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development
programs, reduce our commercialization efforts or curtail our operations. In addition, we may be required to obtain funds through
arrangements with collaborative partners or others that may require us to relinquish rights to technologies, product candidates
or products that we would otherwise seek to develop or commercialize ourselves or license rights to technologies, product candidates
or products on terms that are less favorable to us than might otherwise be available.
We
will require substantial additional funds to support our research and development activities, and the anticipated costs of preclinical
and nonclinical testing and clinical studies, regulatory approvals and eventual commercialization. Such additional sources of
financing may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms,
we may be unable to commence or complete clinical studies or obtain approval of any product candidates from the FDA and other
regulatory authorities. In addition, we could be forced to discontinue product development, forego sales and marketing efforts
and forego attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity
securities, which will have a dilutive effect on our stockholders.
There
is no assurance that we will be successful in raising the additional funds needed to fund our business plan. If we are not able
to raise sufficient capital in the near future, our continued operations will be in jeopardy and we may be forced to cease operations
and sell or otherwise transfer all or substantially all of our remaining assets.
The
sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by
Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On
September 28, 2017, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to
purchase up to $15,000,000 of our common stock. Upon the execution of the Purchase Agreement, we issued 73,039
shares of common stock to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the Purchase
Agreement. The remaining shares of our common stock that may be issued under the Purchase Agreement may be sold by us to Lincoln
Park at our discretion from time to time through March 2020. The purchase price for the shares that we may sell to Lincoln Park
under the Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time,
sales of such shares may cause the trading price of our common stock to fall.
We
generally have the right to control the timing and amount of any future sales of our shares to Lincoln Park. Additional sales
of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. We may
ultimately decide to sell to Lincoln Park all, some, or none of the additional shares of our common stock that may be available
for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired
the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore,
sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock. Additionally,
the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make
it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise
wish to effect sales.
We
face intense competition in the markets targeted by our product candidates. Many of our competitors have substantially greater
resources than we do, and we expect that all of our product candidates under development will face intense competition from existing
or future drugs.
We
expect that all of our product candidates under development, if approved, will face intense competition from existing and future
drugs marketed by large companies. These competitors may successfully market products that compete with our products, successfully
identify drug candidates or develop products earlier than we do, or develop products that are more effective, have fewer side
effects or cost less than our products.
Additionally,
if a competitor receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for
our product candidate may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by
the competitor of patents covering its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing
drugs such as our current drug product candidate, Tonmya, can extend up to three and one-half years.
These
competitive factors could require us to conduct substantial new research and development activities to establish new product targets,
which would be costly and time consuming. These activities would adversely affect our ability to commercialize products and achieve
revenue and profits.
Competition
and technological change may make our product candidates and technologies less attractive or obsolete.
We
compete with established pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same or
similar indications we are pursuing and that have greater financial and other resources. Other companies may succeed in developing
products earlier than us, obtaining FDA approval for products more rapidly, or developing products that are more effective than
our product candidates. Research and development by others may render our technology or product candidates obsolete or noncompetitive,
or result in treatments or cures superior to any therapy we develop. We face competition from companies that internally develop
competing technology or acquire competing technology from universities and other research institutions. As these companies develop
their technologies, they may develop competitive positions that may prevent, make futile, or limit our product commercialization
efforts, which would result in a decrease in the revenue we would be able to derive from the sale of any products.
There
can be no assurance that any of our product candidates will be accepted by the marketplace as readily as these or other competing
treatments. Furthermore, if our competitors’ products are approved before ours, it could be more difficult for us to obtain
approval from the FDA. Even if our products are successfully developed and approved for use by all governing regulatory bodies,
there can be no assurance that physicians and patients will accept our product(s) as a treatment of choice.
Furthermore,
the pharmaceutical research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith
are numerous and significant. The effects of competition, intellectual property disputes, market acceptance, and FDA regulations
preclude us from forecasting revenues or income with certainty or even confidence.
RISKS
RELATED TO OUR INTELLECTUAL PROPERTY RIGHTS AND REGULATORY EXCLUSIVITY
If
we fail to protect our intellectual property rights, our ability to pursue the development of our technologies and products would
be negatively affected.
Our
success will depend in part on our ability to obtain patents and maintain adequate protection of our technologies and products.
If we do not adequately protect our intellectual property, competitors may be able to use our technologies to produce and market
drugs using our technologies and patents in direct competition with us and erode our competitive advantage. Some foreign countries
lack rules and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as
the United States. Many companies have had difficulty protecting their proprietary rights in these foreign countries. We may not
be able to prevent misappropriation of our proprietary rights and intellectual property rights in these and other countries.
We
have received, and are currently seeking, patent protection for numerous compounds and methods of treating diseases. However,
the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in
protecting our products by obtaining and defending patents related to them. These risks and uncertainties include the following:
patents that may be issued or licensed may be challenged, invalidated, or circumvented, or otherwise may not provide us any competitive
advantage; our competitors, many of which have substantially greater resources than we and many of which have made significant
investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate
our ability to make, use, and sell our potential products either in the United States or in international markets; there may be
significant pressure on the United States government and other international governmental bodies to limit the scope of patent
protection both inside and outside the United States for treatments that prove successful as a matter of public policy regarding
worldwide health concerns; and countries other than the United States may have less robust patent laws than those upheld by United
States courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products
using our technologies and patents.
Moreover,
any patents issued to us may not provide us with meaningful protection, or others may challenge, circumvent or narrow our patents.
Third parties may also independently develop products similar to our products, duplicate our unpatented products or design around
any patents or propriety technologies on products we develop. Additionally, extensive time is required for development, testing
and regulatory review of a potential product. While extensions of patent term due to regulatory delays may be available, it is
possible that, before any of our product candidates can be commercialized, any related patent, even with an extension, may expire
or remain in force for only a short period following commercialization, thereby reducing any advantages to us of the patent.
In
addition, the PTO and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical
and/or biotechnology-related inventions be limited or narrowed substantially to cover only the innovations specifically exemplified
in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents may be substantially narrower than anticipated.
Our
success depends on our patents and patent applications that may be licensed exclusively to us and other patents and patent applications
to which we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications or published
literature that may affect our business either by blocking our ability to commercialize our product candidates, by preventing
the patentability of our product candidates to us or our licensors, or by covering the same or similar technologies. These patents,
patent applications, and published literature may limit the scope of our future patent claims or adversely affect our ability
to market our product candidates.
In
addition to patents, we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions,
and security measures to protect our confidential and proprietary information. These measures may not adequately protect our trade
secrets or other proprietary information. If they do not adequately protect our rights, third parties could use our technology,
and we could lose any competitive advantage we may have. In addition, others may independently develop similar proprietary information
or techniques or otherwise gain access to our trade secrets, which could impair any competitive advantage we may have.
Patent
protection and other intellectual property protection is crucial to the success of our business and prospects, and there is a
substantial risk that such protections will prove inadequate.
We
may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.
The
pharmaceutical industry has been characterized by extensive litigation regarding patents and other intellectual property rights,
and companies have employed intellectual property litigation to gain a competitive advantage. We may become subject to infringement
claims or litigation arising out of present and future patents and other proceedings of our competitors. The defense and prosecution
of intellectual property suits are costly and time-consuming to pursue, and their outcome is uncertain. Litigation may be necessary
to determine the enforceability, scope, and validity of the proprietary rights of others. An adverse determination in litigation
to which we may become a party could subject us to significant liabilities, require us to obtain licenses from third parties,
or restrict or prevent us from selling our products in certain markets. Although patent and intellectual property disputes might
be settled through licensing or similar arrangements, the costs associated with such arrangements may be substantial and could
include our paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory
terms or at all.
Competitors
may infringe our patents, and we may file infringement claims to counter infringement or unauthorized use. Third parties may assert
that our patents are invalid and/or unenforceable in these proceedings. Such litigation can be expensive, particularly for a company
of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid
or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents
do not cover its technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated or interpreted narrowly.
Third
parties may also assert that our patents are invalid in patent office administrative proceedings. These proceedings include oppositions
in the European Patent Office and inter partes review and post-grant review proceedings in the PTO. The success rate of
these administrative challenges to patent validity in the United States is higher than it is for validity challenges in litigation.
Interference
or derivation proceedings brought before the PTO may be necessary to determine priority of invention with respect to innovations
disclosed in our patents or patent applications. During these proceedings, it may be determined that we do not have priority of
invention for one or more aspects in our patents or patent applications and could result in the invalidation in part or whole
of a patent or could put a patent application at risk of not issuing. Even if successful, an interference or derivation proceeding
may result in substantial costs and distraction to our management.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation or interference or
derivation proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition,
there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If investors
perceive these results to be negative, the price of our common stock could be adversely affected.
There
are no unresolved communications, allegations, complaints or threats of litigation related to the possibility that our patents
are invalid or unenforceable. Any litigation or claims against us, whether or not merited, may result in substantial costs, place
a significant strain on our financial resources, divert the attention of management and harm our reputation. An adverse decision
in litigation or administrative proceedings could result in inadequate protection for our product candidates and/or reduce the
value of any license agreements we have with third parties.
If
we infringe the rights of third parties we could be prevented from selling products, forced to pay damages, and defend against
litigation.
If
our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial
costs and we may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an
infringing product candidate; redesign our products or processes to avoid infringement; stop using the subject matter claimed
in the patents held by others; pay damages; and/or defend litigation or administrative proceedings which may be costly whether
we win or lose, and which could result in a substantial diversion of our financial and management resources.
GENERAL
COMPANY-RELATED RISKS
If
preclinical and nonclinical testing or clinical studies for our product candidates are unsuccessful or delayed, we will be unable
to meet our anticipated development and commercialization timelines.
We
rely and expect to continue to rely on third parties, including contract research organizations, or CROs, and outside consultants,
to conduct, supervise or monitor some or all aspects of preclinical and nonclinical testing and clinical studies involving our
product candidates. We have less control over the timing and other aspects of these preclinical and nonclinical testing activities
and clinical studies than if we performed the monitoring and supervision entirely on our own. Third parties may not perform their
responsibilities for our preclinical and nonclinical testing and clinical studies on our anticipated schedule or, for clinical
studies, consistent with a clinical study protocol. Delays in preclinical and nonclinical testing, and clinical studies could
significantly increase our product development costs and delay product commercialization. In addition, many of the factors that
may cause, or lead to, a delay in the clinical studies may also ultimately lead to denial of regulatory approval of a product
candidate.
The
commencement of clinical studies can be delayed for a variety of reasons, including delays in:
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demonstrating
sufficient safety and efficacy to obtain regulatory approval to commence a clinical study;
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reaching
agreement on acceptable terms with prospective CROs and study sites;
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developing
a stable formulation of a product candidate;
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manufacturing
sufficient quantities of a product candidate; and
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obtaining
institutional review board, or IRB, approval to conduct a clinical study at a prospective site.
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Once
a clinical study has begun, it may be delayed, suspended or terminated by us or the FDA or other regulatory authorities due to
a number of factors, including:
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ongoing
discussions with the FDA or other regulatory authorities regarding the scope or design of our clinical studies;
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failure
to conduct clinical studies in accordance with regulatory requirements;
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lower
than anticipated recruitment or retention rate of patients in clinical studies;
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inspection
of the clinical study operations or study sites by the FDA or other regulatory authorities resulting in the imposition of
a clinical hold;
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lack
of adequate funding to continue clinical studies;
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negative
results of clinical studies;
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investigational
drug product out-of-specification; or
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nonclinical
or clinical safety observations, including adverse events and SAEs.
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If
clinical studies are unsuccessful, and we are not able to obtain regulatory approvals for our product candidates under development,
we will not be able to commercialize these products, and therefore may not be able to generate sufficient revenues to support
our business.
We
rely on third parties to conduct, supervise and monitor our clinical studies, and if those third parties perform in an unsatisfactory
manner, it may harm our business.
We
rely on CROs and clinical study sites to ensure the proper and timely conduct of our clinical studies. While we have agreements
governing their activities, we will have limited influence over their actual performance. We will control only certain aspects
of our CROs’ activities. Nevertheless, we will be responsible for ensuring that our clinical studies are conducted in accordance
with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our
regulatory responsibilities.
We
and our CROs are required to comply with the FDA’s cGCP for conducting, recording and reporting the results of clinical
studies to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality
of clinical study participants are protected. The FDA enforces these cGCPs through periodic inspections of study sponsors, principal
investigators and clinical study sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in
our clinical studies may be deemed unreliable and the FDA may require us to perform additional clinical studies before approving
any marketing applications. Upon inspection, the FDA may determine that our clinical studies did not comply with cGCPs. In addition,
our clinical studies, including our ongoing Phase 3 HONOR study in military-related PTSD, will require a sufficiently large number
of test subjects to evaluate the effectiveness and safety of Tonmya. Accordingly, if our CROs fail to comply with these regulations
or fail to recruit a sufficient number of participants, our clinical studies may be delayed or we may be required to repeat such
clinical studies, which would delay the regulatory approval process.
Our
CROs are not our employees, and we are not able to control whether or not they devote sufficient time and resources to our clinical
studies. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also
be conducting clinical studies, or other drug development activities which could harm our competitive position.
If
our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality
or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory
requirements, or for any other reasons, our clinical studies may be extended, delayed or terminated, and we may not be able to
obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the
commercial prospects for such product candidates would be harmed, our costs could increase, and our ability to generate revenues
could be delayed.
We
also rely on other third parties to store and distribute drug products for our clinical studies. Any performance failure on the
part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization
of our products, if approved, producing additional losses and depriving us of potential product revenue.
We
will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As
we advance our product candidates through preclinical and nonclinical testing and clinical studies, and develop new product candidates,
we will need to increase our product development, scientific, regulatory and compliance and administrative headcount to manage
these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative
capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our
need to effectively manage our operations, growth and various projects requires that we:
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successfully
attract and recruit new employees with the expertise and experience we will require;
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manage
our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop
a marketing, distribution and sales infrastructure in addition to a post-marketing surveillance program if we seek to market
our products directly; and
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continue
to improve our operational, manufacturing, quality assurance, financial and management controls, reporting systems and procedures.
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If
we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
Our
executive officers and other key personnel are critical to our business, and our future success depends on our ability to retain
them.
Our
success depends to a significant extent upon the continued services of Dr. Seth Lederman, our President and Chief Executive Officer
and Dr. Gregory M. Sullivan, our Chief Medical Officer. Dr. Lederman has overseen Tonix Pharmaceuticals, Inc., a wholly-owned
subsidiary, since inception and provides leadership for our growth and operations strategy as well as being an inventor on many
of our patents. Dr. Sullivan has served as our Chief Medical Officer since 2014 and directed the Phase 2 AtEase study and is directing
the Phase 3 HONOR study. Loss of the services of Drs. Lederman or Sullivan would have a material adverse effect on our growth,
revenues, and prospective business. The loss of any of our key personnel, or the inability to attract and retain qualified personnel,
may significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely
affect our business, financial condition and results of operations.
Any
employment agreement we enter into will not ensure the retention of the employee who is a party to the agreement. In addition,
we have only limited ability to prevent former employees from competing with us. Furthermore, our future success will also depend
in part on the continued service of our key scientific and management personnel and our ability to identify, hire, and retain
additional personnel. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel
necessary for the development of our business. Moreover, competition for personnel with the scientific and technical skills that
we seek is extremely high and is likely to remain high. Because of this competition, our compensation costs may increase significantly.
If
we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.
Over
time we will need to hire additional qualified personnel with expertise in drug development, product registration, clinical, preclinical
and nonclinical research, quality compliance, government regulation, formulation and manufacturing, financial matters and sales
and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be
successful. Attracting and retaining qualified personnel will be critical to our success.
We
rely on third parties to manufacture the compounds used in our studies, and we intend to rely on them for the manufacture of any
approved products for commercial sale. If these third parties do not manufacture our product candidates in sufficient quantities
and at an acceptable cost, clinical development and commercialization of our product candidates could be delayed, prevented or
impaired.
We
have no manufacturing facilities, and we have no experience in the clinical or commercial-scale manufacture of drugs or in designing
drug manufacturing processes. We intend to rely on CMOs to manufacture some or all of our product candidates in clinical studies
and our products that reach commercialization. Completion of our clinical studies and commercialization of our product candidates
requires the manufacture of a sufficient supply of our product candidates. We have contracted with outside sources to manufacture
our development compounds, including Tonmya. If, for any reason, we become unable to rely on our current sources for the manufacture
of our product candidates, either for clinical studies or, at some future date, for commercial quantities, then we would need
to identify and contract with additional or replacement third-party manufacturers to manufacture compounds for nonclinical, preclinical,
clinical, and commercial purposes. Although we are in discussions with other manufacturers we have identified as potential alternative
CMOs of Tonmya, we may not be successful in negotiating acceptable terms with any of them.
We
believe that there are a variety of manufacturers that we may be able to retain to produce these products. However, once we retain
a manufacturing source, if our manufacturers do not perform in a satisfactory manner, we may not be able to develop or commercialize
potential products as planned. Certain specialized manufacturers are expected to provide us with modified and unmodified pharmaceutical
compounds, including finished products, for use in our preclinical and nonclinical testing and clinical studies. Some of these
materials are available from only one supplier or vendor. Any interruption in or termination of service by such sole source suppliers
could result in a delay or interruption in manufacturing until we locate an alternative source of supply. Any delay or interruption
in manufacturing operations (or failure to locate a suitable replacement for such suppliers) could materially adversely affect
our business, prospects, or results of operations. We do not have any short-term or long-term manufacturing agreements with many
of these manufacturers. If we fail to contract for manufacturing on acceptable terms or if third-party manufacturers do not perform
as we expect, our development programs could be materially adversely affected. This may result in delays in filing for and receiving
FDA approval for one or more of our products. Any such delays could cause our prospects to suffer significantly.
Failure
by our third-party manufacturers to comply with the regulatory guidelines set forth by the FDA with respect to our product candidates
could delay or prevent the completion of clinical studies, the approval of any product candidates or the commercialization of
our products.
Such
third-party manufacturers must be inspected by FDA for cGMP compliance before they can produce commercial product. We may be in
competition with other companies for access to these manufacturers’ facilities and may be subject to delays in manufacture
if the manufacturers give other clients higher priority than they give to us. If we are unable to secure and maintain third-party
manufacturing capacity, the development and sales of our products and our financial performance may be materially affected.
Manufacturers
are obligated to operate in accordance with FDA-mandated requirements. A failure of any of our third-party manufacturers to establish
and follow cGMP requirements and to document their adherence to such practices may lead to significant delays in the availability
of material for clinical studies, may delay or prevent filing or approval of marketing applications for our products, and may
cause delays or interruptions in the availability of our products for commercial distribution following FDA approval. This could
result in higher costs to us or deprive us of potential product revenues.
Complying
with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping,
and quality control to assure that the product meets applicable specifications and other requirements. We, or our contracted manufacturing
facility, must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection may significantly
delay FDA approval of our products. If we fail to comply with these requirements, we would be subject to possible regulatory action
and may be limited in the jurisdictions in which we are permitted to sell our products. As a result, our business, financial condition,
and results of operations may be materially harmed.
Drug
manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the Drug Enforcement Administration, or DEA,
and corresponding state and foreign agencies to ensure strict compliance with cGMP requirements and other requirements under Federal
drug laws, other government regulations and corresponding foreign standards. If we or our third-party manufacturers fail to comply
with applicable regulations, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure by the government
to grant marketing approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating
restrictions and criminal prosecutions.
Corporate
and academic collaborators may take actions to delay, prevent, or undermine the success of our products.
Our
operating and financial strategy for the development, clinical testing, manufacture, and commercialization of drug candidates
is heavily dependent on our entering into collaborations with corporations, academic institutions, licensors, licensees, and other
parties. Our current strategy assumes that we will successfully establish these collaborations, or similar relationships; however,
there can be no assurance that we will be successful establishing such collaborations. Some of our existing collaborations are,
and future collaborations may be, terminable at the sole discretion of the collaborator. Replacement collaborators might not be
available on attractive terms, or at all. The activities of any collaborator will not be within our control and may not be within
our power to influence. There can be no assurance that any collaborator will perform its obligations to our satisfaction or at
all, that we will derive any revenue or profits from such collaborations, or that any collaborator will not compete with us. If
any collaboration is not pursued, we may require substantially greater capital to undertake development and marketing of our proposed
products and may not be able to develop and market such products effectively, if at all. In addition, a lack of development and
marketing collaborations may lead to significant delays in introducing proposed products into certain markets and/or reduced sales
of proposed products in such markets.
Data
provided by collaborators and others upon which we rely that has not been independently verified could turn out to be false, misleading,
or incomplete.
We
rely on third-party vendors, scientists, and collaborators to provide us with significant data and other information related to
our projects, clinical studies, and our business. If such third parties provide inaccurate, misleading, or incomplete data, our
business, prospects, and results of operations could be materially adversely affected.
Our
product candidates may face competition sooner than expected.
We
intend to seek data exclusivity or market exclusivity for our product candidates provided under the FDCA and similar laws in other
countries. We believe that TNX-801 could qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation
Act of 2009, or BPCIA, which was enacted as part of the Patient Protection and Affordable Care Act. Under the BPCIA, an application
for a biosimilar product or BLA cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after
the original brand product identified as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway
for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal
authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable”
based on its similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and implemented
by the FDA. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material
adverse effect on the future commercial prospects for any of our product candidates that are biologics. There is also a risk that
President Trump’s administration could repeal or amend the BPCIA to shorten this exclusivity period, potentially creating
the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Although there
is no current discussion of repeal or modification of the BPCIA, the future remains uncertain. Moreover, the extent to which a
biosimilar, once approved, will be substituted for any reference product 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.
Our
product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be eligible
for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within
the U.S. to the first applicant to gain approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved
any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance.
During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2)
NDA, submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference
to all the data required for approval. However, an application may be submitted after four years if it contains a certification
of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA
or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored
by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages,
or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations
and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.
Even
if, as we expect, our product candidates are considered to be reference products eligible for 12 years of exclusivity under the
BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full
BLA or full NDA for such 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 the products. Moreover, an amendment or repeal of the BPCIA could
result in a shorter exclusivity period for our product candidates, which could have a material adverse effect on our business.
If
we fail to establish marketing, sales and distribution capabilities, or fail to enter into arrangements with third parties, we
will not be able to create a market for our product candidates.
Our
strategy with our product candidates is to control, directly or through contracted third parties, all or most aspects of the product
development process, including marketing, sales and distribution. Currently, we do not have any sales, marketing or distribution
capabilities. In order to generate sales of any product candidates that receive regulatory approval, we must either acquire or
develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements
with third parties to perform these services for us. The acquisition or development of a sales and distribution infrastructure
would require substantial resources, which may divert the attention of our management and key personnel and defer our product
development efforts.
To
the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of
others. These efforts may not be successful. If we fail to develop sales, marketing and distribution channels, or enter into arrangements
with third parties, we will experience delays in product sales and incur increased costs.
Sales
of pharmaceutical products largely depend on the reimbursement of patients’ medical expenses by government health care programs
and private health insurers. Without the financial support of the government or third-party payors, the market for our products
will be limited. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical
products and services. Recent proposals to change the health care system in the United States have included measures that would
limit or eliminate payments for medical products and services or subject the pricing of medical treatment products to government
control. Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors
may not reimburse sales of our products or enable our collaborators to sell them at profitable prices.
Our
business strategy might involve out-licensing product candidates to or collaborating with larger firms with experience in marketing
and selling pharmaceutical products. There can be no assurance that we will be able to successfully establish marketing, sales,
or distribution relationships; that such relationships, if established, will be successful; or that we will be successful in gaining
market acceptance for our products. To the extent that we enter into any marketing, sales, or distribution arrangements with third
parties, our product revenues will be lower than if we marketed and sold our products directly, and any revenues we receive will
depend upon the efforts of such third-parties. If we are unable to establish such third-party sales and marketing relationships,
or choose not to do so, we will have to establish and rely on our own in-house capabilities.
We,
as a company, have no experience in marketing or selling pharmaceutical products and currently have no sales, marketing, or distribution
infrastructure. To market any of our products directly, we would need to develop a marketing, sales, and distribution force that
both has technical expertise and the ability to support a distribution capability. The establishment of a marketing, sales, and
distribution capability would significantly increase our costs, possibly requiring substantial additional capital. In addition,
there is intense competition for proficient sales and marketing personnel, and we may not be able to attract individuals who have
the qualifications necessary to market, sell, and distribute our products. There can be no assurance that we will be able to establish
internal marketing, sales, or distribution capabilities. If we are unable to, or choose not to establish these capabilities, or
if the capabilities we establish are not sufficient to meet our needs, we will be required to establish collaborative marketing,
sales, or distribution relationships with third parties.
Our
relationships with customers, physicians, and third-party payors will be subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and
regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Healthcare
providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation
and prescription of any drug candidates for which we obtain marketing approval. Our current and future arrangements with healthcare
professionals, principal investigators, consultants, customers and third-party payors may subject us to various federal and state
fraud and abuse laws and other health care laws, including, without limitation, the federal Anti-Kickback Statute, the federal
civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations.
These laws will impact, among other things, our clinical research, proposed sales, marketing and educational programs. In addition,
we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our
business. The laws that will affect our operations include, but are not limited to:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly
or covertly, in cash or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable
under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal
civil and criminal false claims laws, including, without limitation, the False Claims Act, and civil monetary penalty laws
which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims
for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false
statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes
that prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud
any healthcare benefit program, regardless of the payor (e.g., public or private);
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations,
and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach
Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published
in January 2013, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable
health information without appropriate authorization by entities subject to the rule, such as health plans, health care clearinghouses
and health care providers, and their respective business associates;
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federal
transparency laws, including the federal Physician Payments Sunshine Act, which is part of PPACA, that require certain manufacturers
of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services,
or CMS, information related to: (i) payments or other “transfers of value’’ made to physicians and teaching
hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members;
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state
and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and
state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by
state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; and
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state
and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from
each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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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.
It
is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found
to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded
healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a
corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment
or restructuring of our operations.
The
risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted
by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure
that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial
costs. 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 our management’s attention from the operation of our business. The shifting compliance environment
and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance
and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
Coverage
and adequate reimbursement may not be available for our current or any future drug candidates, which could make it difficult for
us to sell profitably, if approved.
Market
acceptance and sales of any drug candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement
for these drugs and related treatments will be available from third-party payors, including government health administration authorities,
managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and
establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement
to be provided for any drug candidates that we develop will be made on a payor-by-payor basis. One payor’s determination
to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement, for the
drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement
rate will be approved. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the
manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered
drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly
influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions
and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare
costs. Patients are unlikely to use our drugs unless coverage is provided and reimbursement is adequate to cover a significant
portion of the cost of our drugs.
A
primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control
costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement
will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will
be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval.
If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able to successfully
commercialize our current and any future drug candidates that we develop.
Healthcare
legislative reform measures may have a negative impact on our business and results of operations.
In
the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes
and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug candidates, restrict
or regulate post-approval activities, and affect our ability to profitably sell any drug candidates for which we obtain marketing
approval.
Among
policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare
systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States,
the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. In March 2010, the PPACA was passed, which substantially changed the way healthcare is financed by both the government
and private insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things: (i) addresses
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that
are inhaled, infused, instilled, implanted or injected; (ii) increases the minimum Medicaid rebates owed by manufacturers under
the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations;
(iii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expands the availability
of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) establishes a new Medicare
Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices
of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D. Some of the provisions of the PPACA have yet to be fully implemented, while
certain provisions have been subject to judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget
resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal
portions of the PPACA. The Budget Resolution is not a law, however, it is widely viewed as the first step toward the passage of
legislation that would repeal certain aspects of the PPACA. Further, on January 20, 2017, President Trump signed an Executive
Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from,
or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals,
healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The PPACA remains subject to legislative
efforts to repeal, modify or delay the implementation of the law. Recent efforts to repeal, modify or delay implementation of
the ACA have resulted in some level of success. If the PPACA is repealed or further modified, or if implementation of certain
aspects of the PPACA are delayed, such repeal, modification or delay may materially adversely impact our business, strategies,
prospects, operating results or financial condition. We are unable to predict the full impact of any repeal, modification or delay
in the implementation of the PPACA on us at this time. Due to the substantial regulatory changes that will need to be implemented
by CMS and others, and the numerous processes required to implement these reforms, we cannot predict which healthcare initiatives
will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future
legislation or regulation will have on our business.
Additional
changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives
for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which will be fully implemented in 2019.
At this time, it is unclear how the introduction of the Medicare quality payment program will impact overall physician reimbursement.
Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their
marketed products, which have resulted in several Congressional inquiries and proposed bills designed to, among other things,
bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform
government program reimbursement methodologies for drug products.
We
expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement
from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation
of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability,
or commercialize our drugs.
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 drug candidates or additional pricing pressures.
If
we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international
operations could materially adversely affect our business.
If
Tonmya or any of our other product candidates are approved for commercialization outside of the United States, we intend to enter
into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. We expect that
we will be subject to additional risks related to entering into international business relationships, including:
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different
regulatory requirements for drug approvals;
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reduced
protection for intellectual property rights, including trade secret and patent rights;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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economic
weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance
with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign
taxes, including withholding of payroll taxes;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident
to doing business in another country;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
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business
interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes,
hurricanes, floods and fires; and
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difficulty
in importing and exporting clinical study materials and study samples.
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We
face the risk of product liability claims and may not be able to obtain insurance.
Our
business exposes us to the risk of product liability claims that are inherent in the development of drugs. If the use of one or
more of our or our collaborators’ drugs harms people, we may be subject to costly and damaging product liability claims
brought against us by clinical study participants, consumers, health care providers, pharmaceutical companies or others selling
our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with collaborators.
While we currently carry clinical study insurance and product liability insurance, we cannot predict all of the possible harms
or side effects that may result and, therefore, the amount of insurance coverage we hold now or in the future may not be adequate
to cover all liabilities we might incur. We intend to expand our insurance coverage to include the sale of commercial products
if we obtain marketing approval for our drug candidates in development, but we may be unable to obtain commercially reasonable
product liability insurance for any products approved for marketing. If we are unable to obtain insurance at an acceptable cost
or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially
and adversely affect our business and financial position. If we are sued for any injury allegedly caused by our or our collaborators’
products, our liability could exceed our total assets and our ability to pay the liability. A product liability claim or series
of claims brought against us would decrease our cash and could cause our stock price to fall.
We
use hazardous chemicals in our business. Potential claims relating to improper handling, storage or disposal of these chemicals
could affect us and be time consuming and costly.
Our
research and development processes and/or those of our third party contractors may involve the controlled use of hazardous materials
and chemicals. These hazardous chemicals are reagents and solvents typically found in a chemistry laboratory. Our operations also
produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling
and disposal of hazardous materials. While we attempt to comply with all environmental laws and regulations, including those relating
to the outsourcing of the disposal of all hazardous chemicals and waste products, we cannot eliminate the risk of contamination
from or discharge of hazardous materials and any resultant injury. In the event of such an accident, we could be held liable for
any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations.
Compliance
with environmental laws and regulations may be expensive. Current or future environmental regulations may impair our research,
development or production efforts. We might have to pay civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to, hazardous materials. We are not insured against these environmental risks.
If
we enter into collaborations with third parties, they might also work with hazardous materials in connection with our collaborations.
We may agree to indemnify our collaborators in some circumstances against damages and other liabilities arising out of development
activities or products produced in connection with these collaborations.
In
addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of
hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially
adversely affect our business, financial condition and results of operations.
Our
insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured
liabilities.
We
carry insurance for most categories of risk that our business may encounter, however, we may not have adequate levels of coverage.
We currently maintain general liability, clinical study, property, workers’ compensation, products liability and directors’
and officers’ insurance, along with an umbrella policy, which collectively costs approximately $500,000 per annum. We cannot
provide any assurances that we will be able to maintain existing insurance at current or adequate levels of coverage. Any significant
uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
If
we retain collaborative partners and our partners do not satisfy their obligations, we will be unable to develop our partnered
product candidates.
In
the event we enter into any collaborative agreements, we may not have day-to-day control over the activities of our collaborative
partners with respect to any of these product candidates. Any collaborative partner may not fulfill its obligations under these
agreements. If a collaborative partner fails to fulfill its obligations under an agreement with us, we may be unable to assume
the development of the products covered by that agreement or enter into alternative arrangements with a third party. In addition,
we may encounter delays in the commercialization of the product candidate that is the subject of the agreement. Accordingly, our
ability to receive any revenue from the product candidates covered by these agreements will be dependent on the efforts of our
collaborative partner. We could also become involved in disputes with a collaborative partner, which could lead to delays in or
termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. In addition,
any such dispute could diminish our collaborators’ commitment to us and reduce the resources they devote to developing and
commercializing our products. Conflicts or disputes with our collaborators, and competition from them, could harm our relationships
with our other collaborators, restrict our ability to enter future collaboration agreements and delay the research, development
or commercialization of our product candidates. If any collaborative partner terminates or breaches its agreement, or otherwise
fails to complete its obligations in a timely manner, our chances of successfully developing or commercializing these product
candidates would be materially and adversely affected. We may not be able to enter into collaborative agreements with partners
on terms favorable to us, or at all. Our inability to enter into collaborative arrangements with collaborative partners, or our
failure to maintain such arrangements, would limit the number of product candidates that we could develop and ultimately, decrease
our sources of any future revenues.
We
may be unsuccessful in obtaining a priority review voucher for material threat medical countermeasures.
In
2016, the 21st Century Cures Act, or the Act, was signed into law to support ongoing biomedical innovation. One part of the Act,
Section 3086, is aimed at “Encouraging Treatments for Agents that Present a National Security Threat.” The Act created
a new priority review voucher program for “material threat medical countermeasures.” The Act defines such countermeasures
as drugs or vaccines intended to treat biological, chemical, radiological, or nuclear agents that present a national security
threat or to treat harm from a condition that may be caused by administering a drug or biological product against such an agent.
The Department of Homeland Security has identified 13 such threats, including anthrax, smallpox, Ebola/Marburg, tularemia, and
botulism. A priority review voucher can be applied to any other product; it shortens the FDA review timeline for a new application
from 10-12 months to 6 months. The recipient of a priority review voucher may transfer it.
We
intend to seek a priority review voucher for TNX-801 as a material threat medical countermeasure. However, the structure of voucher
programs limits the number of medical countermeasures eligible for a priority review voucher. Further, the medical countermeasure
must qualify for priority review in order to be eligible and may not include any commercially approved indication. Moreover, the
Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not receive
FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century Cures Act unless the provision
allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed. As such, the market for the
TNX-801 will be limited if we are successful in obtaining a priority review voucher, assuming that the Priority Review Voucher
Program is in effect at the time TNX-801 is available for licensing.
There
may not be market interest in TNX-801.
The
government is the only market for most medical countermeasures. This is because unlike other drugs and vaccines, these products
are not sold to doctors, hospitals, or pharmacies. The BioShield Special Reserve Fund, or SRF, has been the sole medical countermeasures
market for the last decade; a 10 year advance appropriation of $5.6 billion was available to procure successful candidate medical
countermeasures. The SRF expired in 2013 and all funds were used to add 12 new medical countermeasures to the national stockpile.
Congress reauthorized the SRF but adequate funding has not yet followed; the SRF is now appropriated annually and has not kept
pace with the need for purchasing products ready for stockpiling. Further, Emergent BioSolutions markets an FDA approved smallpox
vaccine, ACAM2000® and potentially similar products are being developed by other companies, such as Bavarian Nordic, which
is developing Imvamune® or Modified Virus Ankara, or MVA, which may compete with TNX-801. As such, even if TNX-801 were to
receive FDA licensure, the commercial success of TNX-801 remains uncertain.
If
technology developed for the purposes of developing new medicines or vaccines can be applied to the creation or development of
biological weapons, then our technology may be considered “dual use” technology and be subject to limitations on public
disclosure or export.
Together
with the University of Alberta, we are consulting with government authorities before publishing work that describes the synthesis
of poxviruses, including TNX-801. Our research collaboration is dedicated not only to creating tools that better protect public
health but also to safeguarding any information with broad, dual-use potential that could be inappropriately applied. “Dual
use research” is research conducted for legitimate purposes that generates knowledge, information, technologies, and/or
products that can be reasonably anticipated to provide knowledge, information, products, or technologies that could be directly
misapplied to pose a significant threat to public health, agricultural crops, or national security. Because variola, the agent
that causes smallpox, is a pox virus, the technology we created could be considered dual use and could be subject to export control,
for example under the Wassenaar Arrangement. Further, if federal authorities determine that our research is subject to institutional
oversight, we will need to implement a risk-management plan developed in collaboration with the institutional review entity. Failure
to comply with the plan may result in suspension, limitation, or termination of federal funding or loss of future federal funding
opportunities for any of our or the University of Alberta’s research.
We
face risks in connection with existing and future collaborations with respect to the development, manufacture, and commercialization
of our product candidates.
We
face a number of risks in connection with our current collaborations, including the University of Alberta. Our collaboration agreements
are subject to termination under various circumstances. Our collaborators may change the focus of their development and commercialization
efforts or may have insufficient resources to effectively assist in the development of our products. Any future collaboration
agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in collaboration
with third parties. Further, disagreements with collaborators, including disagreements over proprietary rights, contract interpretation,
or the preferred course of development, might cause delays, might result in litigation or arbitration, or might result in termination
of the research, development or commercialization of our products. Any such disagreements would divert management attention and
resources and be time-consuming and costly.
We
face risks in connection with the production and storage of the TNX-801 vaccine.
The
TNX-801 vaccine candidate is a live form of HPXV. We have initiated vaccine-manufacturing activities to support further nonclinical
testing of TNX-801. While it is potentially safer and possibly better tolerated than existing smallpox-preventing vaccines, the
production and storage of the synthesized HPXV virus stock may carry risk of infection and harm to individuals. HPXV, an equine
disease caused by a virus and characterized by eruptions in the mouth and on the skin, is believed to be eradicated. No true HPXV
outbreaks have been reported since 1976, at which time the United States Department of Agriculture obtained the viral sample used
for the sequence published in 2006 that allowed the synthesis of TNX-801.
RISKS
RELATED TO OUR STOCK
Sales
of additional shares of our common stock could cause the price of our common stock to decline.
Sales
of substantial amounts of our common stock in the public market, or the availability of such shares for sale, by us or others,
including the issuance of common stock upon exercise of outstanding options and warrants, could adversely affect the price of
our common stock. We and our directors and officers may sell shares into the market, which could adversely affect the market price
of shares of our common stock.
The
market price for our common stock may be volatile, and your investment in our common stock could decline in value.
The
stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology
and specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been highly
volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance
of particular companies. The following factors, in addition to other risk factors described in this section, may have a significant
impact on the market price of our common stock:
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announcements
of technological innovations or new products by us or our competitors;
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announcement
of FDA approval, disapproval or delay of approval of our product candidates or other product-related actions;
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developments
involving our discovery efforts and clinical studies;
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developments
or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation
against us or our potential licensees;
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developments
involving our efforts to commercialize our products, including developments impacting the timing of commercialization;
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announcements
concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;
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public
concerns as to the safety or efficacy of our product candidates or our competitors’ products;
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changes
in government regulation of the pharmaceutical or medical industry;
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changes
in the reimbursement policies of third party insurance companies or government agencies;
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actual
or anticipated fluctuations in our operating results;
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changes
in financial estimates or recommendations by securities analysts;
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developments
involving corporate collaborators, if any;
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changes
in accounting principles; and
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the
loss of any of our key scientific or management personnel.
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In
the past, securities class action litigation has often been brought against companies that experience volatility in the market
price of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion
of management’s attention and resources, which could adversely affect our business, operating results and financial condition.
We
do not anticipate paying dividends on our common stock and, accordingly, stockholders must rely on stock appreciation for any
return on their investment.
We
have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration
of dividends is subject to applicable Nevada law and the discretion of our board of directors and will depend on various factors,
including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors.
You should not rely on an investment in our company if you require dividend income from your investment in our company. The success
of your investment will likely depend entirely upon any future appreciation of the market price of our common stock, which is
uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value.
We
expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline.
Our
quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline.
The nature of our business involves variable factors, such as the timing of the research, development and regulatory pathways
of our product candidates, which could cause our operating results to fluctuate.
Due
to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating
results are not a good indication of our future performance.
The
rights of the holders of common stock may be impaired by the potential issuance of preferred stock.
Our
articles of incorporation give our board of directors the right to create new series of preferred stock. As a result, the board
of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other
rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which
could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing
a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we
have no present intention to issue any shares of preferred stock or to create a series of preferred stock, we may issue such shares
in the future.
If
we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures, or if we
discover material weaknesses and deficiencies in our internal control and accounting procedures, our stock price could decline
significantly and raising capital could be more difficult.
If
we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we
discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline
significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments
of the effectiveness of our internal control over financial reporting. If material weaknesses or significant deficiencies are
discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure
that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial
reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud,
our business and operating results could be harmed, investors could lose confidence in our reported financial information, and
the trading price of our common stock could drop significantly.
Because
certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions
requiring stockholder approval.
As
of April 30, 2018, our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and
their respective affiliates, beneficially own approximately 18% of our outstanding shares of common stock. As a result, these
stockholders, acting together, could have the ability to influence or control the outcome of matters submitted to our stockholders
for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets.
In addition, these stockholders, acting together, could have the ability to influence or control the management and affairs of
our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:
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delaying,
deferring or preventing a change in corporate control;
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impeding
a merger, consolidation, takeover or other business combination involving us; or
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discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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If
securities or industry analysts do not publish research or reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. Our research coverage by industry and financial analysts is currently limited. Even if our analyst coverage
increases, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more
of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.
Other
companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due to provisions under our corporate
charter and bylaws, as well as Nevada law.
Provisions
in our articles of incorporation, our bylaws, and under Nevada law could make it more difficult for other companies to acquire
us, even if doing so would benefit our stockholders. Our articles of incorporation and bylaws contain the following provisions,
among others, which may inhibit an acquisition of our company by a third party:
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advance
notification procedures for matters to be brought before stockholder meetings,
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limitations
on who may call stockholder meetings,
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a two-thirds
stockholder vote threshold for the removal of directors, and
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the
ability of our board of directors to issue up to 5,000,000 shares of preferred stock without a stockholder vote
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We
also may be subject to provisions of Nevada law that may have the effect of limiting or prohibiting certain business combinations
with stockholders beneficially owning more than 10% of our common stock.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation,
intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking
statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties
known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such
statements.
In
some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,”
“intends,” “estimates,” “plans,” “believes,” “seeks,” “may,”
“should”, “could” or the negative of such terms or other similar expressions. Accordingly, these statements
involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in
them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.
You
should read this prospectus and any accompanying prospectus supplement and the documents that we reference herein and therein
and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding
that our actual future results may be materially different from what we expect. You should assume that the information appearing
in this prospectus and any accompanying prospectus supplement is accurate as of the date on the front cover of this prospectus
or such prospectus supplement only. Because the risk factors referred to above, as well as the risk factors referred to on page
2 of this prospectus and incorporated herein by reference, could cause actual results or outcomes to differ materially from those
expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking
statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation
to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict
which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
We qualify all of the information presented in this prospectus and any accompanying prospectus supplement, and particularly our
forward-looking statements, by these cautionary statements.