Item
1. Business.
Overview
Cocrystal
Pharma, Inc. (the “Company” or “Cocrystal”) is a biotechnology company seeking to discover and develop
novel antiviral therapeutics as treatments for serious and/or chronic viral diseases. We employ unique structure-based technologies
and Nobel Prize winning expertise to create first- and best-in-class antiviral drugs. These technologies are designed to efficiently
deliver small molecule therapeutics that are safe, effective, and convenient to administer. We have identified promising discovery,
preclinical and clinical stage antiviral compounds for unmet medical needs caused by influenza virus, coronavirus, hepatitis C
virus (“HCV”), and norovirus infections.
The
Company operates in one segment. Management uses cash flows as the primary measure to manage its business and does not segment
its business for internal reporting or decision-making.
Cocrystal
Technology
We
are developing antiviral therapeutics that inhibit the essential viral replication function of RNA viruses causing acute and chronic
viral diseases. Our goals include treating influenza virus, coronavirus, and norovirus infections by discovering and developing
drug candidates targeting the viral replication process. Additionally, one of our goals is to decrease the duration of HCV therapy
by advancing our drug candidate targeting the HCV RNA-dependent RNA polymerase enzyme through partnerships and/or licensing activities.
In the case of coronavirus, we target a major protease enzyme that produces the active form of the viral replication enzyme. To discover and design these inhibitors, we use a proprietary platform comprising computation, medicinal
chemistry, X-ray crystallography, and our extensive know-how. We determine the structures of cocrystals containing the inhibitors
bound to the enzyme or protein to guide our structure-based drug design. We also use advanced computational methods to screen
and design product candidates using proprietary cocrystal structural information. In designing the candidates, we seek to anticipate
and avert potential viral mutations leading to resistance. By designing and selecting drug candidates that interrupt the viral
replication process and also have specific binding characteristics, we seek to develop drugs that are not only effective against
both the virus and possible mutants of the virus, but which also have reduced off-target interactions that cause undesirable clinical
side effects. The successful application of our approach requires an extensive knowledge of viruses and drug targets. In addition,
knowledge and experience in the fields of structural biology, and enzymology are required. We developed our proprietary structure-based
drug design under the guidance of Dr. Roger Kornberg, our Chief Scientist, Chairman of our Scientific Advisory Board and recipient
of the Nobel Prize in Chemistry in 2006. Our drug discovery process focuses on the highly conserved regions of the viral enzymes
and inhibitor-enzyme interactions at the atomic level. Additionally, we have developed proprietary chemical libraries consisting
of non-nucleoside inhibitors, metal-binding inhibitors, and drug-like fragments. Our drug discovery process is different from
traditional, empirical, medicinal chemistry approaches that often require iterative high-throughput compound screening and lengthy
hit-to-lead processes. We will continue developing preclinical and clinical drug candidates using our proprietary drug discovery
technology.
The
Company’s proprietary technology integrates several powerful and specialized techniques:
(1)
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Selection
of viral drug targets amenable to broad-spectrum antiviral drug development and essential for viral genome replication;
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(2)
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Atomic
resolution 3-D structure determination of drug binding pockets;
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(3)
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In-depth
computational analysis of conservation of drug-binding pockets and critical molecular interactions between antiviral inhibitors
and amino acid residues of the target molecule’s drug-binding pocket;
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(4)
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Cocrystal
structure determinations to inform hit identification, hit-to-lead, and lead optimization processes;
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(5)
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Molecular
modeling and computer-guided lead discovery to support rational chemical modifications based on structure-activity relationships,
or SAR, of candidate inhibitor compounds;
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(6)
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Knowledge
of enzymatic mechanisms to guide the design of drugs with exceptional affinity, specificity, and broad-spectrum activity;
and
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(7)
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Platforms
for rapid identification of antiviral enzyme inhibitors showing broad-spectrum antiviral activity.
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We
have applied these techniques to develop antiviral inhibitors of four important viruses: influenza virus, coronavirus, HCV and
norovirus.
Market-Driven
Product Profiles
In
all of our programs our goal is to develop best-in-class broad-spectrum antiviral drugs with high-barrier-to-drug resistance.
An ideal product for an antiviral therapy would have at least the following characteristics:
(1)
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High
barrier to viral resistance;
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Effective
against all viral subtypes that cause disease;
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(3)
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Fast
onset of action and/or shortened therapeutic time;
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(4)
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Good
safety and tolerability profile; and
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Multiple
routes of administration including oral, inhalation, and/or injection.
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Even
at the discovery stage of drug development, we select compounds with these factors in mind. Furthermore, we believe our
technology is capable of delivering therapies that satisfy all of these key factors, as detailed below.
High
barrier to drug resistance: Drug resistance is a major obstacle to developing effective antiviral therapies. Viruses can reproduce
rapidly and in enormous quantities in infected human cells. During viral replication, random changes in the viral genome, called
mutations, develop. If such a mutation occurs in a region of the viral genome that is targeted by a given antiviral therapy, that
therapy may no longer be effective against the mutated virus. These mutated or “resistant” viruses can freely infect
and multiply even in individuals who have received drug treatment. In some cases, resistant virus strains may even predominate.
For example, in the 2009 swine influenza pandemic, the predominant strain was resistant to the best available therapies. In
the current COVID-19 pandemic mutated viruses have been identified and sequenced demonstrating that the potential for resistance
to current drugs and reduced effectiveness of vaccines is already present.
The
Company’s focus on viral replication proteins can overcome the obstacle of viral resistance. We identify and target critical
components of viral replication proteins that are essential for function, and therefore, sensitive to change. A mutation in these
critical components is likely to inactivate the replication protein and, in turn, render the virus incapable of replicating. Because
such mutations cannot propagate, the virus cannot effectively develop resistance to the enzyme inhibitors we employ. We test the
effectiveness of our compounds against potential viral mutations and select compounds with the highest barrier to resistance.
Broadly
effective against major strains responsible for a viral disease: For any given viral disease, there are different strains
of viruses that cause the disease. For example, there are three types of influenza viruses, A, B, and C. Influenza A and B viruses
are significant human respiratory pathogens that cause seasonal flu. Influenza A viruses can also cause an influenza pandemic.
Influenza C is a subtype of the influenza virus that tends to cause only mild illness and is not responsible for seasonal or pandemic
infections. Our goal is to design and develop drug candidates that will be effective on the broadest possible range of viruses
causing the disease.
Many
antiviral drugs available today are effective only against certain strains of a given virus and less effective or not effective
at all against other strains. To address this problem, we are developing drug candidates that specifically target viral proteins
involved in viral replication. Despite the various strains of virus that may exist, these enzymes required for viral replication
are essentially similar (highly conserved) among all strains of a given virus. By targeting these highly conserved regions of
the replication enzymes, our antiviral compounds are designed and tested to be effective against major virus strains. Replication
enzymes are generally conserved not only among subtypes of a given virus but also among many different viruses, creating an opportunity
for the development of broad-spectrum antiviral drugs.
Fast
onset of action: Antiviral drugs are needed with faster onset of viral load reduction resulting in shorter treatment time.
Safety
and tolerability: All drugs have side effects, also referred to as adverse effects. These usually result from a drug’s
ability to bind to human molecules (usually proteins). When this interaction is intentional (i.e., part of the drug’s mechanism
of action), the adverse effects are classified as on-target effects. When this interaction is unintentional (i.e., resulting from
the drug’s interaction with an unintended human molecule), the effects are called off-target effects. Our inhibitors target
viral replication enzymes, which are generally unique to viruses. Because the targets are viral, not human, minimal adverse effects
may be the result. During the discovery phase, we evaluate candidate compounds for potential cross-reactivity with human replication
enzymes and attempt to eliminate those compounds that are cross-reactive with human homologous proteins.
Ease
of administration: We select compounds for development that can be administered orally, preferably once daily in pill-form,
or by inhalation or injection.
Research
and Development Update
During
the year ended December 31, 2020 the Company focused its research and development efforts primarily in three areas:
Influenza
infections
We
have several preclinical candidates under development for the treatment of influenza infection. CC-42344, a novel PB2 inhibitor,
has been selected as a preclinical lead. This candidate binds to a highly conserved PB2 site of influenza polymerase complex (PB1:
PB2: PA) and exhibits a novel mechanism of action. CC-42344 showed excellent antiviral activity against influenza A strains, including
avian pandemic strains and Tamiflu resistant strains, and has favorable pharmacokinetic and drug resistance profiles. We are currently
conducting additional preclinical IND enabling studies and plan to initiate a Phase 1 study in the third quarter of 2021.
In
addition, novel inhibitors effective against both influenza strains A and B have been identified and are in the preclinical stage.
Several of these have potencies approaching single digit nanomolar. On January 2, 2019, the Company entered into an Exclusive
License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”)
to discover and develop certain proprietary influenza A/B antiviral agents. See “Item 1 – Business – Collaborations
– Merck Collaboration” for more information.
In
January 2021, we announced that we completed all research obligations under the Merck exclusive worldwide license and collaboration
agreement, and that Merck is now solely responsible for further development of the influenza A/B antiviral compounds that were
discovered using Cocrystal’s unique structure-based technologies and Nobel Prize-winning expertise. Merck is continuing
development of the compounds under the terms of our Collaboration Agreement.
Coronavirus
infections
In
December 2020 we announced the selection of CDI-45205 as the lead compound for further development against coronaviruses including
SARS-CoV-2, that causes COVID-19.
CDI-45205
was one of the broad-spectrum protease inhibitors that were obtained from Kansas State University Research Foundation (“KSURF”)
under an exclusive license agreement announced in April 2020. That agreement provides Cocrystal with an exclusive, royalty-bearing
license to develop and commercialize therapeutic, diagnostic and prophylactic products against coronaviruses, caliciviruses and
picornaviruses based on antivirals discovered by KSURF. See “Collaborations – Kansas State University Research Foundation.”
The Company believes these protease inhibitors have the ability to convert the inactive SARS-CoV-2 polymerase replication enzymes
into an active form. We are working toward pre-IND status with CDI-45205.
We
are also developing COVID-19 replication inhibitors using our drug discovery platform and expect to develop such additional
COVID-19 inhibitors with novel mechanism of action in 2021.
Norovirus
Infections
We
continue to identify and develop non-nucleoside polymerase and protease inhibitors using the Company’s proprietary structure-based
drug design technology platform. In addition, we now have exclusive rights to norovirus protease inhibitors for use in humans
obtained in the license from Kansas State University Research Foundation (see under Collaborations below). We expect to complete
proof-of-concept animal study in the first half of 2021.
Therapeutic
Targets
Influenza:
A worldwide public health problem, including the potential for pandemic disease.
Influenza
is a severe respiratory illness, caused primarily by influenza A or B virus. The Centers for Disease Control and Prevention (the
“CDC”) estimates that influenza was linked to approximately 79,000 deaths and 960,000 hospitalizations in the United
States during the 2017-2018 flu season. According to the report published by BCC Research in May 2018, the global influenza market
was valued at approximately $5.6 billion in 2017 and is expected to reach nearly $6.5 billion by 2022, increasing at a compound
annual growth rate (CAGR) of 3.0% from 2017 through 2022.
Currently,
approved antiviral treatments for influenza are effective, but burdened with significant viral resistance. Strains of influenza
virus that are resistant to the approved treatments osteltamivir phosphate (Tamiflu(R)) and zanamavir (Relenza(R)) have appeared,
and in some cases predominate. For example, the predominant strain of the 2009 swine influenza pandemic was resistant to Tamiflu.
These drugs target viral neuraminidase enzymes, which are not highly conserved between viral strains. In fact, different influenza
virus strains such as H1N1 and H5N1 are named according to their respective differences in hemagglutinin (H) and neuraminidase
(N).
The
Company has several preclinical candidates under development for the treatment of influenza infection. CC-42344, a novel PB2 inhibitor,
has been selected as a preclinical lead. This candidate binds to a highly conserved PB2 site of the influenza polymerase (PB1:
PB2: PA), and exhibits a novel mechanism of action. CC-42344 showed excellent antiviral activity against influenza A strains,
including avian pandemic strains, and Tamiflu-resistant, Xofluza-resistant strains, and has a favorable pharmacokinetic profile.
In addition to Tamiflu, an approved antiviral product candidate that is a competitor for the Company’s influenza programs,
S-033188, being developed by Shionogi/Roche. S-033188 was approved as Xofluza in Japan on February 23, 2018, and in the US as
baloxavir marboxil (trade name Xofluza®) on October 24, 2018. See “Item 1 – Business – Research
and Development Update – Influenza” for more information. Xofluza-resistant strains emerged in both the US and Japan
within several months of Xofluza being on the market.
Coronavirus:
COVID-19 continues to be a global pandemic fueled by an emergence of new strains.
COVID-19
continues to be a global pandemic with 117,332,262 confirmed cases globally, including 2,605,356 deaths, as of March 10, 2021,
according to the data reported by the World Health Organization. The COVID-19 pandemic and the measures taken by the federal,
state and foreign governments to stop the spread of the virus have caused a significant disruption to the U.S. and global economy.
Coronaviruses
(CoV) are a large family of viruses that historically have been associated with illness ranging from mild symptoms similar to
the common cold to more severe respiratory disease. Infection with the novel SARS-CoV-2 has been associated with a wide range
of responses, from no symptoms to more severe disease that has included pneumonia, severe acute respiratory syndrome, kidney failure,
and death. The incubation period for SARS-CoV-2 is believed to be within 14 days after exposure, with most illness occurring within
about 5 days after exposure. The ability of someone with no symptoms to transmit infection to another person has heightened the
public health challenge of COVID-19.
On
October 22, 2020, FDA approved the antiviral drug Veklury (remdesivir) for the treatment of COVID-19 requiring hospitalization.
Remdesivir is a nucleotide prodrug that inhibits viral replication and was previously evaluated in clinical trials for Ebola treatment
in 2014. We are aggressively pursuing the development of novel antiviral compounds for the treatment of coronavirus infections
using our established proprietary drug discovery platform. By targeting the viral replication enzymes and protease, we believe
it is possible to develop an effective treatment for all coronavirus diseases including COVID-19, Severe Acute Respiratory Syndrome
(SARS), and Middle East Respiratory Syndrome (MERS) - coronaviruses.
Hepatitis
C: A large competitive market with opportunity for shorter treatment regimens.
HCV
is a highly competitive and changing market. Currently, the standard treatment varies with the genotype of the HCV infection.
Prior to late 2013, treatment included peginterferon alpha and ribavirin, along with a protease inhibitor (either telaprevir,
boceprevir, or simeprevir). In late 2013, sofosbuvir, a drug belonging to a new class of drugs called “nucleoside analogs”
or “Nucs,” was approved to treat HCV. In patients infected with HCV genotype 1 (the most common HCV genotype in the
US), sofosbuvir was administered in combination with peginterferon alpha and ribavirin. In patients with HCV genotypes 2 and 3,
however, sofosbuvir could be effectively administered in combination with ribavirin, without the need for peginterferon alpha.
Since 2014, several new combinations of direct-acting antiviral agents (“DAAs”) have been approved for the treatment
of HCV infection. These include Harvoni (sofosbuvir/ledipasvir) 12 weeks of treatment, Viekira Pak (ombitasvir/paritaprevir/ritonavir,
dasabuvir) 12 weeks of treatment, Epclusa (sofosbuvir/velpatasvir) 12 weeks of treatment, Zepatier (elbasvir/grazoprevir) 12 weeks
of treatment and Mavyret (glecaprevir/pibrentasvir) 8 weeks of treatment. We believe the next improvements in HCV treatment will
be ultra-short treatments of four to six weeks, the goal of our program.
We
anticipate a significant global HCV market opportunity that will persist through at least 2036, given the large prevalence of
HCV infection worldwide. The 2017 World Health Organization Global Hepatitis Report estimates that 71 million people worldwide
have chronic HCV infections.
We
are targeting the viral NS5B polymerase with an NNI, which could be developed as part of an all-oral, pan-genotypic combination
regimen. Our focus is on developing what is now called ultrashort treatment regimens from 4 to 6 weeks in length. Such a combination
treatment CC-31244 with different classes of approved DAAs has the potential to change the paradigm of treatment for HCV with
a shorter duration of treatment. Combination strategies with approved drugs could allow us to expand CC-31244 into the HCV antiviral
therapeutic area globally and could lead to a high and fast cure rate, to improved compliance, and to reduced treatment duration.
To our knowledge no competing company has yet developed a short HCV treatment of less than 8 weeks with a high (>95%) sustained
virologic response (SVR) at week 12.
CC-31244,
an HCV NNI, is a potential best in class pan-genotypic inhibitor of NS5B polymerase for the treatment of HCV. The Company completed
a Phase 1a/b study in Canada in September 2016, with favorable safety results in a randomized, double-blinded, Phase 1a/b study
in healthy volunteers and HCV-infected subjects. The Company has completed a Phase 2a study in HCV genotype 1 subjects in the
United States. Cocrystal presented the interim results from the Phase1a/b study at the APASL in February 2017. HCV-infected subjects
treated with CC-31244 had a rapid and marked decline in HCV RNA levels, and slow viral rebound after treatment. Results of this
study suggest that CC-31244 could be an important component in a shortened duration all-oral HCV combination therapy. Patient
enrollment has been completed in the Phase 2b and the final study report filed with the FDA. See “Item 1 – Business
– Research and Development Update – Hepatitis C” for more information.
The
Company has been seeking a partner for further clinical development of CC-31244 since completing Phase 2a trials.
Norovirus:
A worldwide public health problem responsible for close to 90% of epidemic, non-bacterial outbreaks of gastroenteritis around
the world.
Norovirus
is a very common and highly contagious virus that causes symptoms of acute gastroenteritis including nausea, vomiting, stomach
pain and diarrhea. Other symptoms include fatigue, fever and dehydration. Noroviruses are a major cause of gastrointestinal illness
in closed and crowded environments, having become notorious for their common occurrence in hospitals, nursing homes, child care
facilities, and cruise ships. In the United States alone, noroviruses are the most common cause of acute gastroenteritis, and
are estimated to cause 20 million illnesses each year and contribute to 70,000 hospitalizations and 800 deaths. Noroviruses are
responsible for up to 1.1 million hospitalizations and 218,000 deaths annually in children in the developing world. In immunosuppressed
patients, chronic norovirus infection can lead to a debilitating illness with extended periods of nausea, vomiting and diarrhea.
There is currently no effective treatment or effective vaccine for norovirus, and the ability to curtail outbreaks is limited.
A few companies, including Chimerix, are developing antiviral treatments for this disease and three candidate vaccines are currently
in early stages of clinical testing by GlaxoSmithKline, Ligocyte and Takeda Pharmaceuticals.
By
targeting viral replication enzymes and a viral protease, we believe it is possible to develop an effective treatment for all
genogroups of norovirus. Also, because of the significant unmet medical need and the possibility of chronic norovirus infection
in immunocompromised individuals, new antiviral therapeutic approaches may warrant an accelerated path to market. The Company
is developing inhibitors of the RNA-dependent RNA polymerase and protease of norovirus. Similar to the HCV polymerases, these
enzymes are essential to viral replication and is highly conserved between all noroviral genogroups. Therefore, an inhibitor of
these enzymes might be an effective treatment or short-term prophylactic agent, when administered during a cruise or nursing home
stay, for example. We have developed X-ray quality norovirus polymerase and protease crystals and have identified promising inhibitors.
We are implementing the platform and approaches that have proven successful in our other antiviral programs.
Intellectual
Property
Our
success depends, in part, upon our ability to protect our core technology. To establish and protect our proprietary rights, we
rely on a combination of patents, patent applications, trademarks, copyrights, trade secrets and know-how, license agreements,
confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements,
and other contractual rights.
Our
patent portfolio consists of issued patents and pending applications in the areas primarily related to the treatment of disease
associated with HCV, Influenza A, Influenza B, and Norovirus/Coronavirus.
In
our HCV program, our patent portfolio consists of four patent families, with granted patents in the U.S. and Europe, as well as
China, Canada, Eurasia, Japan, and Singapore. Applications are pending in numerous other jurisdictions.
In
our Influenza A program, our patent portfolio consists of four patent families, including two pending international (PCT) applications
and two families of pending applications in the U.S. and various foreign countries.
In
our Influenza A/B program, our patent portfolio consists of a number of patent families pending, variously, as international (PCT)
applications and in Taiwan. Aspects of this program are developed in collaboration with Merck.
In
our Norovirus and Coronavirus programs, our patent portfolio consists of three pending families of U.S. provisional applications,
and a portfolio of patent families licensed through KSURF.
Collaborations
Merck
Collaboration
On
January 2, 2019, we entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”)
with Merck to discover and develop certain proprietary influenza A/B antiviral agents.
Under
the terms of the Collaboration Agreement, Merck is funding research and development for the program at Cocrystal and Merck, including
clinical development at Merck, and Merck is responsible for worldwide commercialization of any products derived from the collaboration.
The Company received an upfront payment of $4,000,000 in January 2019 and is eligible to receive milestone payments related to
designated development, regulatory and sales milestones with the potential to earn up to $156,000,000, as well as royalties on
product sales. The Collaboration Agreement operates under a Research Operating Plan (ROP) which includes goals for both organizations.
In January 2021, the Company announced it had completed all research obligations under the Merck exclusive worldwide license and
collaboration agreement, and that Merck is now solely responsible for further development of the influenza A/B antiviral compounds
that were discovered in the collaboration using Cocrystal’s unique structure-based technologies and Nobel Prize-winning
expertise.
Kansas
State University Research Foundation
Cocrystal
entered into a License Agreement with KSURF on February 18, 2020 to further develop certain proprietary broad-spectrum antiviral
compounds for the treatment of Norovirus and Coronavirus infections.
Pursuant
to the terms of the License Agreement, KSURF granted the Company an exclusive royalty bearing license to practice under certain
patent rights, under patent applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related
know-how, including to make and sell therapeutic, diagnostic and prophylactic products.
The
Company agreed to pay KSURF a one-time non-refundable license initiation fee of $80,000 under the License Agreement, and annual
license maintenance fees. The Company also agreed to make certain future milestone payments of up to approximately $3.1 million,
dependent upon the progress of clinical trials, regulatory approvals, and initiation of commercial sales in the United States
and certain countries outside the United States.
On
April 19, 2020, the Company entered into a second License Agreement with KSURF in addition to the License Agreement entered into
in February 2020.
Pursuant
to the terms of the second License Agreement, KSURF granted the Company an exclusive royalty bearing license to practice under
certain patent rights under patent applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses,
and related know-how, including to make and sell therapeutic, diagnostic and prophylactic products.
The
Company agreed to pay KSURF a one-time non-refundable license initiation fee and annual license maintenance fees. The Company
also agreed to make certain future milestone payments of up to approximately $4.2 million, dependent upon the progress of clinical
trials, regulatory approvals, and initiation of commercial sales in the United States and certain countries outside the United
States.
Drug
Discovery Collaboration with HitGen and InterX
Cocrystal
has a drug discovery collaboration with HitGen, a biotech company with an innovative DNA Encoded Library technology, and InterX
Inc., a computer software company with a biomolecular simulation for drug discovery. The collaboration was initiated in September
2017 and has a term through August 2023.
Through
this collaboration, Cocrystal, HitGen and InterX scientists are applying HitGen’s DNA-encoded library (DEL) technology platform,
Cocrystal’s structure-based drug discovery platform technology, and InterX’s computational science to develop novel
antiviral lead candidates. The DEL technology combines the power of molecular biology, combinatorial chemistry, high throughput
sequencing and advanced informatics to identify potential drug candidates. Cocrystal applies its technology to determine the cocrystal
structures of the potential drug candidates identified from the DEL library. This structural information is then combined with
InterX’s advanced computer algorithms to predict inhibitor-target interactions. A Joint Steering Committee comprised of
representatives from all three companies is overseeing the collaboration.
Competition
The
biotechnology and pharmaceutical industries are subject to intense and rapidly changing competition as companies seek to develop
new technologies and proprietary products. We know of several companies that have marketed or are developing products for the
treatment of influenza, coronavirus and HCV, including Roche, Gilead Sciences, Inc. (“Gilead”), Merck, Janssen Pharmaceuticals,
Inc., Bristol-Myers Squibb, Toyama Chemical Co., Shionogi/Roche and Abbvie, Inc. Their products are widely considered effective.
Further, in the wake of the global COVID-19 pandemic a number of third parties, including large biotechnology and pharmaceutical
companies such as Pfizer Inc., Moderna, Inc., Janssen Pharmaceuticals, Inc., and academic institutions have been conducting research
aimed at development of an effective treatment for, or a vaccine against, COVID-19. Many of the companies developing products
for the viral diseases that are the focus of our programs have substantially greater financial resources, including government
funding, expertise and capabilities than we do and have existing products in significantly more advanced stages of development.
Government
Regulation
Government
authorities extensively regulate the research, development, testing, manufacturing and commercialization of drug products. Any
product candidates we develop must be approved by the U.S. Food and Drug Administration (“FDA”) before they may be
legally marketed in the U.S., and by the appropriate foreign regulatory agencies before they may be legally marketed in other
countries. The clinical testing of product candidates to establish their safety and efficacy in humans is subject to substantial
statutory and regulatory requirements with which we must comply.
Human
Capital
As
of December 31, 2020, we employed 13 full-time employees. Of these full-time employees, eight are engaged in research and development
activities. In addition, we have contracts with Clinical Research Organizations (“CROs”), Contract Manufacturing Organizations
(“CMOs”) and consultants to provide chemistry, toxicology, preclinical, clinical, and regulatory work on our programs.
Corporate
History
The
Company was formerly incorporated in Nevada under the name Biozone Pharmaceuticals, Inc. (“Biozone”). On January 2,
2014, Biozone sold substantially all of its assets to MusclePharm Corporation, and, on the same day, merged with Cocrystal Discovery,
Inc. (“Discovery”) in a transaction accounted for as a reverse merger. Following the merger, the Company assumed Discovery’s
business plan and operations. On March 18, 2014, the Company reincorporated in Delaware under the name Cocrystal Pharma, Inc.
On
November 25, 2014, a subsidiary of the Company and affiliated entities completed a series of merger transactions. As a result,
a subsidiary of the Company merged with RFS Pharma, LLC, a Georgia limited liability company (RFS Pharma”).
Available
Information
Our
corporate website is www.cocrystalpharma.com. We make available on our website under “Investors – SEC Filings”
access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule
14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), free of charge.
ITEM
1A. RISK FACTORS
You
should carefully consider the risks described below, as well as other information contained in this report, including the consolidated
financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” The occurrence of any of the events discussed below could significantly and adversely affect our business,
prospects, results of operations, financial condition, and cash flows.
Summary
Risk Factors
Our
business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. The following
is a summary of the principal risk factors we face:
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We
have incurred significant losses since our inception, expect to incur losses over the next several years and may never achieve
or maintain profitability.
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We
have no history of commercializing products.
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We
will need additional funding to pursue our business objectives.
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We
allocated a significant amount of time and resources into developing a treatment for COVID-19, and these efforts may ultimately
be unfruitful.
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Our
business and operations may be adversely affected by the evolving and ongoing COVID-19 pandemic.
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The
regulatory approval processes of the FDA and other government authorities are lengthy, time consuming and inherently unpredictable.
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If
we are unable to successfully develop, receive regulatory approval for and commercialize our product candidates, our business
will be harmed.
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Even
if we do commercialize one or more products, most pharmaceutical products that achieve commercialization still do not recoup
their cost of capital.
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We
face uncertainties with respect to new United States healthcare legislation which may lead to reduced pricing, among other
things.
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The
cost of our research and development programs may be higher than expected, and there is no assurance that such efforts will
be successful in a timely manner or at all.
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Success
in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials.
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We
may not be successful in our efforts to research, develop, or in-license or acquire product candidates.
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We
face intense competition, which may limit or eliminate our commercial prospects with respect to product candidates.
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We
rely on third parties to research, develop and commercialize certain product candidates, and such third parties may not perform
satisfactorily or act in our best interests.
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If
we are unable to obtain or protect intellectual property rights related to any of our product candidates, we may not be able
to compete effectively in the market.
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We
may become subject to expensive intellectual property litigation to enforce our intellectual property rights or defend against
claims asserted by others.
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The
trading price and volume of our common stock may be volatile, and could decline in which case investors could lose all or
part of their investment.
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Risk
Factors
RISKS
RELATED TO OUR BUSINESS
Our
business has been and may continue to be affected by the COVID-19 pandemic, and the full extent of such impact remains uncertain.
The
United States and global impact from the COVID-19 virus has had and/or will have a material adverse effect on us in a number of
ways including:
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If
our scientists and other personnel (or their family members) are infected with the virus, it may hamper our ability to engage
in ongoing research activities;
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Similarly,
the third parties on whom we rely can be similarly impacted;
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If
these third parties are affected by COVID-19, they may focus on other activities which they may devote their limited time
to other priorities rather than to our joint research;
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We
have experienced and may in the future experience supply chain disruptions, including shortages, delays and price increases
in laboratory equipment and supplies, which would impact our research activities. For example, supply shortages caused by
the pandemic have delayed the development of our influenza A virus program;
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As
a result of the continuing impact of the virus, we may fail to get access to third party laboratories which would impact our
research activities;
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We
may face challenges related to restrictions and efforts to avoid further spread of the virus, in our efforts the conduct our
planned clinical trials consistent with normally applicable approaches and good clinical practice standards, and although
regulators including the FDA have offered guidance applicable during the COVID-19 pandemic allowing for flexibility of standards
in certain areas and alternate methods of meeting trial oversight obligations (for example, via remote monitoring), the potential
impact of these challenges cannot be fully predicted at this time.
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We
may encounter difficulties enrolling patients for our contemplated Phase 1 clinical trial or in conducting that trial due
to government actions to contain the outbreak or general public concern;
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We
may fail to appropriately allocate resources or adapt to the rapidly evolving market and regulatory environment caused by
the pandemic, including with respect to our efforts to develop a treatment for COVID-19;
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As
the FDA continues to focus its efforts on the pandemic, there may be material delays in our IND application for our Influenza
A Phase 1 study; and
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We
may sustain problems due to the serious short-term and possible longer term economic
disruptions and market volatility as the U.S. and global economy faces unprecedented
uncertainty.
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We
have never generated revenue from product sales and all of our product candidates are currently in the pre-clinical and early
clinical stage, we may continue to incur significant losses for the foreseeable future and never generate revenue from product
sales.
We
are a pre-clinical and early stage clinical, biopharmaceutical discovery and development company. We currently expect to initiate
a Phase 1 clinical trial for our Influenza A product candidate in the third quarter of 2021, although with the FDA’s focus
on the COVID-19 pandemic it is possible it could be delayed. Because of the need to complete clinical trials, establish safety
and efficacy and obtain regulatory approval, which is an expensive and time-consuming process, we do not anticipate generating
revenue from product sales for at least five years and will continue to sustain considerable losses. We may develop a partnership
that could generate income sooner, but there is no guarantee that will be achievable.
We
had an accumulated deficit of $245,000,000 from inception through December 31, 2020 and expect to continue losing money in the
future. We may never achieve income from operations or have positive cash flow from operations.
As
an early-stage drug development company, our focus is on developing product candidates, obtaining regulatory approvals and commercializing
pharmaceutical products. As a result, we have lost $245,000,000 from inception through December 31, 2020, expect losses to continue,
and have never generated revenue from product sales. It is likely that we will need to raise additional capital in the future.
There can be no assurance that we will ever generate income from operations or have positive cash flow from operations.
Because
we have yet to generate any revenue from product sales on which to evaluate our potential for future success and to determine
if we will be able to execute our business plan, it is difficult to evaluate our prospects and the likelihood of success or failure
of our business.
Our
ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with partners, to successfully
complete the development of, obtain the regulatory approvals for and commercialize pharmaceutical product candidates. We have
no pharmaceutical product candidates that have generated any commercial revenue, do not expect to generate revenues from the commercial
sale of pharmaceutical products for foreseeable future, and might never generate revenues from the sale of pharmaceutical products.
Our ability to generate revenue and achieve profitability will depend on, among other things, the following:
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identifying
and validating new therapeutic strategies;
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entering
into collaborations with large pharmaceutical or biotechnology companies, similar to our Collaboration Agreement with Merck;
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completing
our research and preclinical development of pharmaceutical product candidates;
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initiating
and completing clinical trials for pharmaceutical product candidates;
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seeking
and obtaining regulatory marketing approvals for pharmaceutical product candidates that successfully complete clinical trials;
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establishing
and maintaining supply and manufacturing relationships with third parties;
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launching
and commercializing pharmaceutical product candidates for which we obtain regulatory marketing approval, with a partner or,
if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;
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maintaining,
protecting, enforcing, defending and expanding our intellectual property portfolio; and
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attracting,
hiring and retaining qualified personnel.
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Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we cannot predict the timing or amount
of increased expenses and when we will be able to achieve or maintain profitability, if ever. Our expenses could increase beyond
expectations if we are required by regulatory agencies to perform additional unanticipated studies and trials.
Even
if one or more pharmaceutical product candidates we independently develop is approved for commercial sale, we anticipate incurring
significant costs associated with commercializing any approved pharmaceutical product candidate. Moreover, even if we can generate
revenues from the sale of any approved pharmaceutical products, we may not become profitable and may need to obtain additional
funding to continue operations.
Because
early-stage drug development requires major capital investment, as we continue to incur operating losses, we will need to raise
additional capital or form strategic partnerships to support our research and development activities in the future.
We
are still in the early stages of development of our product candidates and have no products approved for commercial sale or presently
in clinical trials. Although our Hepatitis C product advanced through Phase 2a, we are seeking a partner to fund and oversee that
product candidate’s further development. As stated earlier, we expect to initiate a Phase 1 clinical trial for our Influenza
A product in the third quarter. Developing pharmaceutical products, including conducting preclinical studies and clinical trials,
is capital-intensive. As a rule, research and development expenses increase substantially as we advance our product candidates
toward clinical programs. We currently have one hepatitis C product candidate that has completed a Phase 2a clinical trial and
have secured funding of the research and development of influenza A/B product candidates under our Collaboration Agreement with
Merck. See “Item 1 – Business – Collaborations – Merck Collaboration.” However, in order to conduct
trials for our other product candidates, including our potential COVID-19 therapy, we will need to raise additional capital to
support our operations or form partnerships, in addition to our existing collaborative alliances, which may give substantial rights
to a partner. Such funding or partnerships may not be available to us on acceptable terms, or at all. Moreover, any future financing
may be very dilutive to our existing stockholders.
As
we move lead compounds through toxicology and other preclinical studies, also referred to as nonclinical studies, we have and
we will be required to file an Investigational New Drug application (“IND”) or its equivalent in foreign countries,
and as we conduct clinical development of product candidates, we may have adverse results that may cause us to consume additional
capital. Our partners may not elect to pursue the development and commercialization of our product candidates subject to our respective
agreements with them. These events may increase our development costs more than we expect. We may need to raise additional capital
or otherwise obtain funding through strategic alliances if we initiate clinical trials for new product candidates other than programs
currently partnered. We will require additional capital to obtain regulatory approval for, and to commercialize, product candidates.
In
securing additional financing, such additional fundraising efforts may divert our management’s attention from our day-to-day
activities, which may adversely affect our ability to develop and commercialize product candidates. We cannot guarantee that future
financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we cannot raise additional capital
when required or on acceptable terms, we may be required to:
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accept
terms that restrict our ability to issue securities, incur indebtedness, or otherwise raise capital in the future, or restrict
our ability to pay dividends or engage in acquisitions;
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significantly
delay, scale back or discontinue the development or commercialization of any product candidates;
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seek
strategic alliances for research and development programs at an earlier stage than otherwise would be desirable or on terms
less favorable than might otherwise be available; or
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relinquish
or license on unfavorable terms, our rights to technologies or any product candidates we otherwise would seek to develop or
commercialize ourselves.
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If
we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing
development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects
or may render the Company unable to continue operations.
Because
we are unable to rely on certain exemptions from registration under the federal securities laws, as the result of a “disqualifying
event” involving a director of the Company, it could adversely affect our ability to obtain future private financing.
On
January 10, 2019, Dr. Phillip Frost, one of our directors, was permanently enjoined from violating a certain anti-fraud provision
of the Securities Act of 1933 (the “Securities Act”), future violations of Section 13(d) of the Exchange Act and Rule
13d-1(a) thereunder and participating in penny stock offerings with certain exceptions. So long as Dr. Frost is a director or
until five years have passed since the injunction, the Company will be unable to rely on certain exemptions from registration
including the exemptions under Rule 506 and Regulation A promulgated under the Securities Act absent a waiver issued by the Securities
and Exchange Commission (the “SEC”). We have not applied for a waiver, and even if we do, the SEC may choose not to
grant us a waiver. While there is a statutory exemption for private placements under Section 4(a)(2) of the Securities Act, the
absence of the Rule 506 safe harbor under Regulation D could adversely affect our ability to raise necessary capital in private
placements. It has not and will not affect our ability to raise capital in registered public offerings.
RISKS
RELATED TO THE DISCOVERY, DEVELOPMENT AND COMMERCIALIZATION OF PRODUCT CANDIDATES
Our
COVID-19 program is in the preclinical stage and we face significant competition from major companies who have developed vaccines
or COVID-19 treatments. If we fail to gain market share because our competitors develop and successfully commercialize effective
COVID-19 vaccines or therapies or if we fail to obtain or maintain FDA authorization or to otherwise account for uncertainties
surrounding the virus, our business and future prospects could be materially and adversely affected.
Our
COVID-19 program is in the preclinical stage. We initiated preclinical studies during the second quarter of 2020 and selected
the lead preclinical molecule in the fourth quarter of 2020. We may be unable to produce an effective therapy in a timely manner
or at all. Additionally, we are committing substantial financial and other resources to our COVID-19 program, which may negatively
impact our other programs. Further, in the wake of the global COVID-19 pandemic a number of third parties, including large biotechnology
and pharmaceutical companies and academic institutions have developed vaccines, at least three of which have FDA approval and
have FDA approval for the treatment of hospitalized patients for, or a vaccine against, COVID-19. Some of these large pharmaceutical
companies, including Pfizer, Moderna and Janssen Biotech, Inc., have obtained emergency use authorization from the FDA for vaccines
which have demonstrated high efficacy rates and are currently being distributed to the general population, with an initial priority
to the elderly and other more vulnerable individuals. While our COVID-19 program is focused on treatment rather than prevention,
widespread vaccination limits our prospects with respect to any therapeutic product candidate we develop.
Further,
some of our competitors that are also developing treatments for the virus have substantially more resources, including government
funding, than we do and have existing products in significantly more advanced stages of development. For example, the FDA approved
remdesivir, an investigational antiviral agent developed by Gilead Sciences, Inc. (“Gilead”), for the treatment of
patients with COVID-19 requiring hospitalization. In addition, the FDA has issued an emergency use authorization for the investigational
monoclonal antibody therapy for the treatment of mild-to-moderate COVID-19 in adult and pediatric patients. At least one other
competitor is conducting a combination Phase II/III clinical trial for a treatment using cannabidiol to treat COVID-19 for patients
with heart issues. Even if we do obtain FDA authorization for a therapeutic product, the FDA may subsequently rescind or limit
such authorization as more information about the product, including its efficacy and side effects, becomes available. Further,
this virus is highly mutative and a number of strains have already arisen, and any treatment we are able to develop and commercialize
will therefore remain subject to the risk that a mutation will occur that produces a strain or strains of the virus to which such
treatment has a diminished effect or is ineffective. If we are unable to timely advance our COVID-19 program, or if we fail to
gain or maintain a market share as a result of our competitors developing and successfully commercializing vaccines and effective
COVID-19 therapies more quickly than we do, our business and future prospects could be materially and adversely affected.
We
will depend on Merck for the successful research, development and commercialization of our influenza A/B product candidates.
We
are party to the Collaboration Agreement, dated January 4, 2019, with Merck to research, develop, and commercialize certain proprietary
influenza A/B antiviral agents. On January 19, 2021, the Company announced that it had completed all research obligations under
the Collaboration Agreement with Merck, and Merck is now solely responsible for further development of the influenza A/B antiviral
compounds, and will also be solely responsible for the commercialization of any products derived therefrom. See “Item 1
– Business – Collaborations – Merck Collaboration” for more information on the Collaboration Agreement.
As such, the success of this collaborative alliance will depend on the efforts and activities of Merck, particularly moving forward.
If
our research collaboration with Merck is terminated or is otherwise unsuccessful, including failure to reach milestones, we would
not receive milestone payments or royalties, which could materially and adversely affect our ability to successfully develop and
commercialize influenza A/B product candidates and our future financial condition.
Pursuant
to the terms of the Collaboration Agreement, Merck agreed to, among other things, (i) fund the research and development collaboration,
including clinical development and commercialization; (ii) make certain milestone payments up to a total of $156 million, including
payments associated with the successful product development and attainment of certain U.S. and EU regulatory approvals for the
developed products and sales volume; and (iii) pay royalties on net sales of the products.
Merck
can terminate the Collaboration Agreement at any time prior to the first commercial sale of the first product developed under
the Collaboration Agreement, in its sole discretion, without cause. Furthermore, research collaborations, including the Collaboration
Agreement, may turn out to be unsuccessful and are subject to certain risks, including the following risks:
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disagreements
with Merck resulting in delays or termination of the research, development or commercialization of product candidates, or
litigation;
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change
the focus by Merck of its development and commercialization efforts;
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failure
by Merck to commit sufficient resources to the testing, marketing, distribution or development of product candidates; and
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development
by Merck of alternative products either on its own or in collaboration with others, or conflicts of interest or changes in
business strategy or other business issues, which could adversely affect its willingness or ability to fulfill their obligations
to us.
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If
our collaboration with Merck is unsuccessful for these or other reasons, or is otherwise terminated for any reason, we would not
receive the milestone payments or royalties under the Collaboration Agreement.
Further,
pursuant to the Collaboration Agreement Merck will only be obligated to make many of the milestone payments if our influenza A/B
product receives required regulatory approvals, is commercialized and net sales exceed the thresholds set forth in the Collaboration
Agreement. Achieving the milestones may be difficult and time-consuming. If some or all of these goals are not achieved, we may
not receive some or all of the milestone payments under the Collaboration Agreement.
Any
of the foregoing could have a material adverse effect on our ability to successfully develop and commercialize influenza A/B product
candidates and our future financial condition.
If
we form strategic alliances which are unsuccessful or are terminated, we may be unable to develop or commercialize certain product
candidates and we may be unable to generate revenues from our development programs.
In
addition to the Collaboration Agreement with Merck, we are likely to use third-party alliance partners for financial, scientific,
manufacturing, marketing and sales resources for the clinical development and commercialization of certain of our product candidates.
These strategic alliances will likely constrain our control over development and commercialization of our product candidates,
especially once a candidate has reached the stage of clinical development. Our ability to recognize revenues from successful strategic
alliances may be impaired by several factors including:
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a
partner may shift its priorities and resources away from our programs due to a change in business strategies, or a merger,
acquisition, sale or downsizing of its company or business unit;
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a
partner may cease development in therapeutic areas which are the subject of our strategic alliances;
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a
partner may change the success criteria for a program or product candidate delaying or ceasing development of such program
or candidate;
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a
significant delay in initiation of certain development activities by a partner could also delay payment of milestones tied
to such activities, impacting our ability to fund our own activities;
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a
partner could develop a product that competes, either directly or indirectly, with an alliance product;
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a
partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution
or sale of a product;
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a
partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand
requirements;
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a
partner may exercise its rights under the agreement to terminate a strategic alliance, including termination without cause;
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a
dispute may arise between us and a partner concerning the research, development or commercialization of a program or product
candidate resulting in a delay in milestones, royalty payments or termination of a program and possibly resulting in costly
litigation or arbitration which may divert management attention and resources; and
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a
partner may use our proprietary information or intellectual property to invite litigation from a third-party or fail to maintain
or prosecute intellectual property rights possibly jeopardizing our rights in such property.
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Termination
of a strategic alliance may require us to seek out and establish alternative strategic alliances with third-party partners. This
may not be possible, including due to restrictions under the terms of our existing collaborations, or we may not be able to do
so on terms acceptable to us. See also the risk factor entitled “We will depend on Merck for the successful research, development
and commercialization of our influenza A/B product candidates.” If we fail to establish alternative strategic alliances
with third-party partners on terms acceptable to us, or at all, we may be required to limit the size or scope of one or more of
our programs or decrease our expenditures and seek additional funding by other means. Such events would likely have a material
adverse effect on our results of operations and financial condition.
We
expect to rely on third parties to conduct some or all aspects of our compound formulation, research and preclinical testing,
if those third parties do not perform satisfactorily our business and future prospects would be materially and adversely affected.
We
do not expect to independently conduct all aspects of our drug discovery activities, compound formulation research or preclinical
testing of product candidates. We rely and expect to continue to rely on third parties to conduct some aspects of our preclinical
testing and on third-party Clinical Research Organizations (“CROs”) to conduct clinical trials.
If
these third parties terminate their engagements, we will need to enter into alternative arrangements which would delay our product
development activities. Our reliance on these third parties for research and development activities will reduce our control over
these activities but will not relieve us of our responsibilities. If in the future, we elect to develop and commercialize any
product candidates on our own, we will remain responsible for ensuring that each of our IND-enabling preclinical studies and clinical
trials are conducted under the respective study plans and trial protocols. If these third parties do not successfully carry out
their contractual duties, meet expected deadlines or conduct our studies under regulatory requirements or our stated study plans
and protocols, we will not be able to complete, or may experience delays in completing, the necessary clinical trials and preclinical
studies to enable us or our partners to select viable product candidates for IND submissions and will not be able to, or may be
delayed in our efforts to, successfully develop and commercialize such product candidates.
Because
we intend to rely on third-party manufacturers to produce our preclinical and clinical supplies, and commercial supplies of any
approved product candidates, we will be subject to a variety of risks.
Our
reliance on third-party manufacturers to develop products and our anticipated reliance on third-party manufacturers to produce
products we may develop in the future entail risks to which we would not be subject if we supplied the materials needed to develop
and manufacture our product candidates ourselves, including:
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the
inability to meet any product specifications and quality requirements consistently;
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a
delay or inability to procure or expand sufficient manufacturing capacity;
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discontinuation
or recall of reagents, test kits, instruments, and other items used by us in the development, testing, and potential commercialization
of products;
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manufacturing
and product quality issues related to scale-up of manufacturing;
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costs
and validation of new equipment and facilities required for scale-up;
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a
failure to comply with cGMP and similar foreign standards;
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the
inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
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the
possibility of breach or termination or nonrenewal of manufacturing agreements with third parties in a manner that is costly
or damaging to us;
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the
reliance on a few sources, and sometimes, single sources for raw materials, such that if we cannot secure a sufficient supply
of these product components, we cannot manufacture and sell product candidates in a timely fashion, in sufficient quantities
or under acceptable terms;
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the
lack of qualified backup suppliers for any raw materials currently purchased from a single source supplier;
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operations
of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including
the bankruptcy of the manufacturer or supplier;
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carrier
disruptions or increased costs beyond our control;
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misappropriation
of our proprietary technology for the purpose of manufacturing a “generic” version of our product or sale of our
product to organizations that distribute and sell counterfeit goods, including drugs; and
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failing
to deliver products under specified storage conditions and in a timely manner.
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These
events could lead to clinical study delays or failure to obtain regulatory approval or impact our ability to successfully commercialize
future products. Some of these events could be the basis for regulatory actions, including injunction, recall, seizure or total
or partial suspension of production.
Because
we expect to rely on limited sources of supply for the drug substance and drug product of product candidates, any disruption in
the chain of supply may cause a delay in developing and commercializing these product candidates.
We
intend to establish manufacturing relationships with a limited number of suppliers to manufacture raw materials, the drug substance,
and the drug product of any product candidate for which we are responsible for preclinical or clinical development. Each supplier
may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain. As
part of any marketing approval, a manufacturer and its processes must be qualified by the FDA or foreign regulatory authorities
prior to commercialization. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial
supply. An alternative vendor would need to be qualified through an NDA or marketing authorization supplement, which could cause
further delay. The FDA or other regulatory agencies outside of the United States may also require additional studies if a new
supplier is relied upon for commercial production.
These
factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product
candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our
suppliers fail to deliver the required commercial quantities of drug substance or drug product on a timely basis and at commercially
reasonable prices, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent
cost, our clinical trials may be delayed, or we could lose potential revenue.
If
third party manufacturing issues arise, it could increase product and regulatory approval costs or delay commercialization.
As
third parties scale up manufacturing of product candidates and conduct required stability testing, product, packaging, equipment
and process-related issues may require refinement or resolution to proceed with any clinical trials and obtain regulatory approval
for commercial marketing. We or the manufacturers may identify significant impurities or stability problems, which could cause
discontinuation or recall by us or our manufacturers, increased scrutiny by regulatory agencies, delays in clinical programs and
regulatory approval, significant increases in our operating expenses, or failure to obtain or maintain approval for product candidates
or any approved products.
Since
we expect to continue to rely on third parties to conduct, supervise and monitor our clinical trials, if those third parties perform
in an unsatisfactory manner it may harm our business.
We
will rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we establish
agreements governing the activities of such CROs and clinical trial sites, we or our partners will have limited influence over
their actual performance. Nevertheless, we or our partners will be responsible for ensuring that each of our clinical trials is
conducted in accordance with its protocol, and that all legal, regulatory and scientific standards are met. Our reliance on the
CROs does not relieve us of our regulatory responsibilities.
We,
our partners and our CROs must comply with current Good Clinical Practices (“cGCPs”), as defined by the FDA and the
International Conference on Harmonization, for conducting, recording and reporting the results of IND-enabling preclinical studies
and clinical trials, to ensure that data and reported results are credible and accurate and that the rights, integrity and confidentiality
of clinical trial participants are protected. The FDA enforces these cGCPs through periodic inspections of trial sponsors, principal
investigators, and clinical trial sites. If we or our CROs fail to comply with cGCPs, the clinical data generated in our clinical
trials may be deemed unreliable and the FDA or other regulators may require us to perform additional clinical trials before approving
any marketing applications. Our clinical trials will require a sufficiently large number of test subjects to evaluate the safety
and effectiveness of a product candidate. If our CROs fail to comply with these regulations or fail to recruit a sufficient number
of patients, fail to recruit properly qualified patients or fail to properly record or maintain patient data, we may be required
to repeat such clinical trials, which would delay the regulatory approval process.
Our
contracted CROs will not be our employees, and we cannot control whether they devote sufficient time and resources to our clinical
and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for
whom they may also be conducting clinical trials, or other drug development activities that 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 failing to adhere to our clinical protocols or regulatory
requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not obtain regulatory
approval for, or successfully commercialize our product candidates. Our financial results and the commercial prospects for such
products and any product candidates we develop would be harmed, our costs could increase, and our ability to generate revenues
could be delayed.
We
also expect to rely on other third parties to store and distribute drug products for any clinical trials we may conduct. Any performance
failure by 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.
Because
the approach we are taking to discover and develop drugs is novel, it may never lead to marketable products.
We
are concentrating our antiviral therapeutic product research and development efforts on using our proprietary technology, and
our future success depends on the continued successful development of this technology and the products derived from it. We have
never commercialized any products. The scientific discoveries that form the basis for our efforts to discover and develop drug
product candidates are relatively new and unproven. The scientific evidence to support the feasibility of developing product candidates
based on our approach is limited. If we do not successfully develop and commercialize drug product candidates based upon our technological
approach, we may not become profitable and the value of our stock may decline.
Further,
our focus on the Company’s technology for developing drugs, as opposed to relying entirely on more standard technologies
for drug development, increases the risks associated with the ownership of our stock. If we are unsuccessful in developing any
product candidates using the Company’s technology, we may be required to change the scope and direction of our product development
activities. We may not successfully identify and implement an alternative product development strategy and may as a result cease
operations.
If
we do not succeed in our efforts to identify or discover additional potential product candidates, your investment may be lost.
The
success of our business depends primarily upon our ability to identify, develop and commercialize antiviral drug products, an
extremely risky business. Our research programs may initially show promise in identifying potential product candidates, yet fail
to yield product candidates for clinical development for several reasons, including:
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our
research methodology or that of our partners may be unsuccessful in identifying potential product candidates;
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potential
product candidates may have harmful side effects or may have other characteristics that make the products unmarketable or
unlikely to receive marketing approval; and
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we
or our partners may change their development profiles for potential product candidates or abandon a therapeutic area.
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Such
events may force us to abandon our development efforts for a program or programs, which would have a material adverse effect on
our business and could cause us to cease operations. Research programs to identify new product candidates require substantial
technical, financial, and human resources. We may focus our efforts and resources on potential programs or product candidates
that ultimately prove to be unsuccessful.
Because
our future commercial success depends on gaining regulatory approval for our products, we cannot generate revenue without obtaining
approvals.
Our
long-term success and generation of revenue will depend upon the successful development of new products from our research and
development activities, including those licensed or acquired from third parties. Product development is very expensive and involves
a high degree of risk. Only a small number of research and development programs result in the commercialization of a product.
The process for obtaining regulatory approval to market product candidates is expensive, usually takes many years, and can vary
substantially based on the type, complexity, and novelty of the product candidates involved. Our ability to generate revenues
would be adversely affected if we are delayed or unable to successfully develop our products.
We
cannot guarantee that any marketing application for our product candidates will be approved. If we do not obtain regulatory approval
of our products or we are significantly delayed or limited in doing so, we cannot generate revenue, and we may need to significantly
curtail operations.
If
we are unable to successfully complete preclinical testing and clinical trials of our product candidates or experience significant
delays in doing so, our business will be materially harmed.
We
intend to invest a significant portion of our efforts and financial resources in the identification and preclinical development
of product candidates that target viral replication enzymes. Our ability to generate product revenues, which we do not expect
will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product
candidates.
The
commercial success of our product candidates will depend on several factors, including:
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successful
completion of preclinical studies and clinical trials;
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receipt
of marketing and pricing approvals from regulatory authorities;
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obtaining
and maintaining patent and trade secret protection for product candidates;
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establishing
and maintaining manufacturing relationships with third parties or establishing our own manufacturing capability; and
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commercializing
our products, if and when approved, whether alone or in collaboration with others.
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If
we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to successfully complete development of, or to successfully commercialize, our product candidates, which would materially harm
our business. Most pharmaceutical products that do overcome the long odds of drug development and achieve commercialization still
do not recoup their cost of capital. If we are unable to design and develop each drug to meet a commercial need far in the future,
the approved drug may become a commercial failure and our investment in those development and commercialization efforts will have
been commercially unsuccessful.
We
may be unable to demonstrate safety and efficacy of our product candidates to the satisfaction of regulatory authorities or we
may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization
of our product candidates.
Before
obtaining marketing approval from regulatory authorities for the sale of product candidates, we or our partners must conduct extensive
preclinical studies and clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical trials
are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of
one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may
not be predictive of the success of later clinical trials, and interim results of a clinical trial do not predict final results.
Moreover, preclinical, and clinical data are often susceptible to varying interpretations and analyses, and many companies that
have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed
to obtain marketing approval for their products.
Events
that may cause a delay or unsuccessful completion of clinical development include, among other things:
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delays
in agreeing with the FDA or other regulatory authorities on final clinical trial design;
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imposition
of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory
authorities;
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delays
in agreeing on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;
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delays
in obtaining required institutional review board approval at each clinical trial site;
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delays
in recruiting suitable patients to participate in a trial;
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delays
in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;
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delays
in having patients complete participation in a trial or return for post-treatment follow-up;
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delays
caused by patients dropping out of a trial due to product side effects or disease progression;
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clinical
sites dropping out of a trial to the detriment of enrollment;
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negative
or inconclusive results of clinical trials of our product candidates;
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time
and expenses required to add new clinical sites; or
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delays
by our contract manufacturers in producing and delivering sufficient supply of clinical trial materials.
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If
we or our partners must conduct additional clinical trials or other testing of any product candidates beyond those that are contemplated,
or are unable to successfully complete clinical trials or other testing of any of our product candidates, or if the results of
these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or our partners may:
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be
delayed in obtaining marketing approval for our product candidates;
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not
obtain marketing approval at all;
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obtain
approval for indications or patient populations not as broad as intended or desired;
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obtain
approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be
subject to additional post-marketing testing requirements; or
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remove
the product from the market after obtaining marketing approval.
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Our
product development costs will also increase if we experience delays in testing or in obtaining marketing approvals. We do not
know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all.
Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize
our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully
commercialize our product candidates and may harm our business and results of operations. Any inability to successfully complete
preclinical and clinical development, whether independently or with our partners, could cause additional costs to us or impair
our ability to generate revenues from our product candidates, including product sales, milestone payments, profit sharing or royalties.
Our
product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or
limit the scope of any approved label or market acceptance.
Adverse
events (“AEs”) or serious adverse events (“SAEs”), that may be observed during clinical trials of our
product candidates could cause us, other reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay
or halt such trials and could cause denial of regulatory approval. If AEs or SAEs are observed in any clinical trials of our product
candidates, including those our partners may develop under alliance agreements, our or our partners’ ability to obtain regulatory
approval for product candidates may be negatively impacted.
Serious
or unexpected side effects caused by an approved product could result in significant negative consequences, including the following:
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regulatory
authorities may withdraw prior approval of the product or impose restrictions on its distribution in the form of a modified
risk evaluation and
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mitigation
strategy (“REMS”) which may restrict the manner in which the product can be distributed or administered;
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we
may be required to add labeling statements, such as warnings or contraindications;
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we
may be required to change the way the product is administered or conduct additional clinical trials;
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we
may decide or be forced to temporarily or permanently remove the affected product from the marketplace;
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we
could be sued and held liable for harm caused to patients; and
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our
reputation may suffer.
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These
events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially
increase the costs of commercializing our products and impair our ability to generate revenues from the commercialization of these
products either by us or by our partners.
Following
regulatory approval for a product candidate, we will still face extensive regulatory requirements and the approved product may
face future development and regulatory difficulties.
Even
if we obtain regulatory approval in the United States or elsewhere, the applicable regulators may still impose significant restrictions
on the indicated uses or marketing of our product candidates or impose ongoing requirements for potentially costly post-approval
studies or post-market surveillance. The following discussion is based on United States law. Similar types of regulatory provision
apply outside of the United States.
The
holder of an approved New Drug Application (“NDA”), must monitor and report AEs and SAEs and any failure of a product
to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain
FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional
materials must comply with FDA rules and other applicable federal and state laws and are subject to FDA review.
Drug
product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by
the FDA and other regulatory authorities for compliance with current Good Manufacturing Practices (“cGMP”), and adherence
to commitments made in the NDA. If we or a regulatory agency discover previously unknown problems with a product such as AEs or
SAEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency
may impose restrictions on that product or the manufacturing facility, including requiring recall or withdrawal of the product
from the market or suspension of manufacturing.
If
we or our partners fail to comply with regulatory requirements following approval of our product candidates, a regulatory agency
may:
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issue
a warning letter asserting we are in violation of the law;
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impose
a REMS or other restrictions on the manufacturing, marketing or use of the product;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve a pending NDA or supplements to an NDA submitted by us;
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seize
product; or
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refuse
to allow us to enter into supply contracts, including government contracts.
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Our
defense of any government investigation of alleged violations of law, or any lawsuit alleging such violations, could require us
to expend significant time and resources and could generate negative publicity. Further, the FDA’s and other regulatory
authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay
regulatory approval of our product candidates or increase the cost of compliance. The occurrence of any event or penalty described
above may prevent or inhibit our ability to commercialize our products and generate revenues.
We
may not succeed in obtaining or maintaining necessary rights to drug compounds and processes for our development pipeline through
acquisitions and in-licenses.
We
may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property
rights from third parties we identify. The licensing and acquisition of third-party intellectual property rights is a competitive
area, and more established companies are also pursuing strategies to license or acquire third-party intellectual property rights
we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources
and greater clinical development and commercialization capabilities.
Companies
that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire
third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are
unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition,
and prospects for growth could suffer.
Because
third parties may be developing competitive products without our knowledge, we may later learn that competitive products are superior
to our product candidates which may force us to terminate our research efforts of one or more product candidates.
We
face potential competition from companies, particularly privately-held companies and foreign companies that may be developing
competitive products that are superior to one or more of our product candidates. If in the future, we learn of the existence of
one or more competitive products, we may be required to:
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cease
our development efforts for a product candidate;
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cause
a partner to terminate its support of a product candidate; or
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cause
a potential partner to terminate discussions about a potential license.
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Any
of these events may occur after we have spent substantial sums in connection with the clinical research of one or more product
candidates.
We
have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain
approvals for marketing our product candidates, including approval by the FDA.
Our
efforts to develop our product candidates are at an early stage. To date, with one exception, we have not entered a compound into
human clinical trials, although we expect to initiate a Phase I trial for our Influenza A product candidate in the third quarter
of 2021. We may be unable to progress our other product candidates undergoing preclinical testing into clinical trials. Success
in preclinical testing and early clinical trials does not ensure that later clinical trials will succeed, and favorable initial
results from a clinical trial do not determine outcomes in subsequent clinical trials. The indications of use for which we are
pursuing development may have clinical effectiveness endpoints not previously reviewed or validated by the FDA or foreign regulatory
authorities, which may complicate or delay our effort to obtain marketing approval. We cannot guarantee that our clinical trials
will succeed. In fact, most compounds fail in clinical trials, even at companies far larger and more experienced than us.
We
have not obtained marketing approval or commercialized any of our product candidates. We may not successfully design or implement
clinical trials required for marketing approval to market our product candidates. If we are unsuccessful in conducting and managing
our preclinical development activities or clinical trials or obtaining marketing approvals, we might not be able to commercialize
our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
RISKS
RELATED TO OUR BUSINESS OPERATIONS AND INDUSTRY
If
we cannot obtain or protect intellectual property rights related to our future products and product candidates, we may not be
able to compete effectively in our markets.
We
rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property
related to our future products and product candidates. The strength of patents in the biotechnology and pharmaceutical field involves
complex legal and scientific questions and can be uncertain. The patent applications we own or in-license may fail to result in
patents with claims that cover the products in the United States or in other countries. There is no assurance that all potentially
relevant prior art relating to our patents and patent applications has been found; such prior art can invalidate a patent or prevent
issuance of a patent based on a pending patent application. Even if patents do successfully issue, third parties may challenge
their validity, enforceability or scope, which may cause such patents to be narrowed or invalidated. Even if unchallenged, our
patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our
claims.
If
the patent applications we hold or have in-licensed regarding our programs or product candidates fail to issue or if their breadth
or strength of protection is threatened, it could dissuade companies from collaborating with us to develop product candidates,
and threaten our ability to commercialize products. Patents may not issue and issued patents may be found invalid and unenforceable
or challenged by third parties. Since patent applications in the United States and most other countries are confidential for a
period after filing, and some remain so until issued, we cannot be certain that we were the first to invent a patent application
related to a product candidate. In certain situations, if we and one or more third parties have filed patent applications in the
United States and claiming the same subject matter, an administrative proceeding can be initiated to determine which applicant
is entitled to the patent on that subject matter. Patents have a limited lifespan. In the United States, the natural expiration
of a patent is 20 years after it is filed, although various extensions may be available. The life of a patent, and the protection
it affords, is limited. When the patent life has expired for a product, we will become vulnerable to competition from generic
medications attempting to replicate that product. Further, if we encounter delays in regulatory approvals, the time during which
we will be able to market and commercialize a product candidate under patent protection could be reduced.
In
addition to patent protection, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how
that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and
development processes that involve proprietary know-how, information or technology not covered by patents. Each of our employees
agrees to assign their inventions to us through an employee inventions agreement. In addition, as a general practice, our employees,
consultants, advisors and any third parties who have access to our proprietary know-how, information or technology enter into
confidentiality agreements. Nonetheless, our trade secrets and other confidential proprietary information may be disclosed and
competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
In addition, in January 2018 the FDA as part of its Transparency Initiative, launched a voluntary pilot program calling on biopharmaceutical
research companies to release clinical study reports summarizing clinical trial data. Following the completion of this pilot program
in March 2020, the FDA may consider making release of clinical study reports mandatory and may consider making additional information
publicly available on a routine basis in response to concerns expressed by the academic community emphasized by the COVID-19 pandemic,
including information we may consider to be trade secrets or other proprietary information. If the FDA takes these measures, we
may be forced to disclose propriety information about our product candidates and research, which could materially harm our business.
The
laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United
States. We may encounter significant problems in protecting and defending our intellectual property both in the United States
and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies
to third parties, and there is no guarantee we will have any such enforceable trade secret protection, we may not be able to establish
or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations
and financial condition.
If
third-party intellectual property infringement claims are asserted against us, it may prevent or delay our development and commercialization
efforts and have a material adverse effect on our business and future prospects.
Our
commercial success depends in part on our avoiding infringement on the patents and proprietary rights of third parties. There
is substantial litigation, both within and outside the United States, involving patent and other intellectual property rights
in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and reexaminations
and other post-grant proceedings before the U.S. Patent and Trademark Office, and corresponding foreign patent offices. Numerous
U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which
we and our partners are pursuing product candidates. As the biotechnology and pharmaceutical industries expand and more patents
are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third
parties.
Third
parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents
or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the
use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be patent applications
currently pending that may later result in patents that our product candidates may infringe upon. Third parties may obtain patents
in the future and claim that use of our technologies infringes on these patents. If any third-party patents were to be held by
a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during
the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize
such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if
any third-party patents were to be held by a court of competent jurisdiction to cover aspects of our formulations, processes for
manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability
to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either
case, such a license may not be available on commercially reasonable terms or at all.
Parties
making intellectual property claims against us may obtain injunctive or other equitable relief, which could block our ability
to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit,
involves substantial litigation expense and diversion of our management’s attention from our business. If a claim of infringement
against us succeeds, we may have to pay substantial damages, possibly including treble damages and attorneys’ fees for willful
infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be
impossible or require substantial time and monetary expenditure.
Because
of the costs involved in defending patent litigation, we currently lack and may in the future lack the capital to defend our intellectual
property rights.
We
depend on intellectual property licensed from third parties in our Coronavirus program and termination of any of these licenses
could have a material adverse effect on our business.
In
our Coronavirus program we leverage the rights to preclinical leads from our two License Agreements with KSURF. See “Item
1 – Business – Research and Development Update – Coronavirus infections” for more information on these
License Agreements.
We
depend on the patents, know-how and other intellectual property, licensed from KSURF for the development and, if approved, commercialization
of our COVID-19 therapy. If these licenses are terminated, or found to be unenforceable, it could result in the loss of significant
rights and could harm our ability to commercialize our future product candidates in the Coronavirus program.
The
License Agreements impose certain obligations on us, including obligations to use diligent efforts to meet development thresholds
and payment obligations. Failure by us to comply with such obligations may result in termination of the respective License Agreement.
If KSURF terminates these License Agreements, we may not be able to proceed with our Coronavirus program or discover, develop
or commercialize any other product candidates covered by these agreements.
Further,
the License Agreements are complex, and contain certain provisions which may be susceptible to multiple interpretations. Accordingly,
disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including those
relating to:
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the
scope of rights, if any, granted under the license agreement and other interpretation-related issues;
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whether
and to what extent our technology and processes infringe on intellectual property of the licensor that is not subject to the
license agreement;
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whether
our licensor or its licensor had the right to grant the license agreement;
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whether
third parties are entitled to compensation or equitable relief, such as an injunction, for our use of the intellectual property
without their authorization;
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our
right to sublicense patent and other rights to third parties under collaborative development relationships;
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whether
we are complying with our obligations with respect to the use of the licensed technology in relation to our development and
commercialization of product candidates;
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our
involvement in the prosecution and enforcement of the licensed patents and our licensors’ overall patent prosecution
and enforcement strategy;
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the
allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our
licensors and by us and any future partners or collaborators; and
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the
amounts of royalties, milestones or other payments due under the license agreement.
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The
resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights
to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under
the relevant agreement.
We
may need to obtain additional licenses to intellectual property rights from third parties.
We
may need to obtain additional licenses from third parties to advance our research or allow commercialization of our product candidates.
We may fail to obtain these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable
to further develop and commercialize one or more of our product candidates, which could harm our business significantly. We cannot
provide any assurances that third-party patents do not exist that might be enforced against our products, resulting in either
an injunction prohibiting our sales, or, with respect to our sales and other activities, an obligation on our part to pay royalties
and/or other forms of compensation to third parties
The
licensing and acquisition of third-party intellectual property rights is a competitive practice, and companies that may be more
established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual
property rights that we may consider necessary or attractive in order to develop and commercialize our product candidates. More
established companies may have a competitive advantage over us due to their larger size and cash resources or greater clinical
development and commercialization capabilities. We may not be able to successfully complete such negotiations and ultimately acquire
the rights to the intellectual property surrounding product candidates that we may seek to acquire, in which case our business
could be harmed.
We
may in the future be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive,
time-consuming and unsuccessful.
Competitors
may infringe on our patents or the patents of our licensors. To counter such infringement or unauthorized use, we may be required
to file infringement claims, or we may be required to defend the validity or enforceability of such patents, which can be expensive
and time-consuming. In an infringement proceeding, a court may decide that either one or more of our patents or our licensors’
patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue because our
patents do not cover that technology. An adverse result in any litigation or defense proceedings could put one or more of our
patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference
proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions regarding our
patents or patent applications or those of our partners or licensors. An unfavorable outcome could require us to cease using the
related technology or to license rights to it from the prevailing party. Our business could be harmed if the prevailing party
does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and,
even if successful, may cause us to incur substantial costs and distract the attention of our management and other employees.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly
in countries where the laws may not protect those rights as fully as in the United States.
Because
of the substantial amount of discovery required in intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. There could also be public announcements of the
results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these
results to be negative, it could have a material adverse effect on the price of our common stock.
We
may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information of third parties.
We
employ individuals previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims asserting
that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential
information of our employees’ former employers or other third parties. We may also be subject to claims that former employers
or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims.
There is no guarantee of success in defending these claims, and if we succeed, litigation could cause substantial cost and be
a distraction to our management and other employees.
Because
we face significant competition from other biotechnology and pharmaceutical companies, our operating results will suffer if we
fail to compete effectively.
The
biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and internationally,
including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.
Our competitors have substantially greater financial, technical and other resources, such as larger research and development staff
and experienced marketing and manufacturing organizations. This enables them, among other things, to make greater research and
development investments and efficiently utilize their research and development costs. Additional mergers and acquisitions in the
biotechnology and pharmaceutical industries may cause even more resources being concentrated in our competitors. Additionally,
smaller or early-stage companies of which we may not be aware could also prove to be material competitors, particularly through
collaborative arrangements with larger, more well-established companies or by competing with us for limited resources and strategic
alliances with our current or prospective partners. Competition may increase further because of advances in the commercial applicability
of technologies and greater availability of capital for investment in these industries. Our competitors may develop, acquire or
license drug products that are more effective or less costly than any product candidate we may develop.
The
programs we are focusing on are in a preclinical development stage and are targeted toward indications for which there are approved
products on the market or product candidates in clinical development. We will face competition from other drugs that are or will
be approved for the same therapeutic indications. Our ability to compete successfully will depend largely on our ability to leverage
our experience in drug discovery and development to:
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discover
and develop therapeutics superior to other products in the market;
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attract
and retain qualified scientific, product development and commercial personnel;
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obtain
patent and/or other proprietary protection for our technology platform and product candidates;
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obtain
required regulatory approvals; and
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successfully
collaborate with pharmaceutical companies in the discovery, development and commercialization of new therapeutics.
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The
availability of our competitors’ products could limit the demand, and the price we can charge, for any products we may develop
and commercialize. For example, the widespread distribution of COVID-19 vaccines which the FDA recently authorized for emergency
use will reduce the demand for any therapeutic product we develop to treat symptoms caused by the virus. We will not achieve our
business plan if the acceptance of our products is inhibited by price competition or the reluctance of physicians to switch from
existing drug products to our products, or if physicians switch to other new drug products or reserve our products for use in
limited circumstances. Additionally, the biopharmaceutical industry is characterized by rapid technological and scientific change,
and we may not be able to adapt to these rapid changes to the extent necessary to keep up with competitors or at all. The inability
to compete with existing or subsequently introduced drug products would have a material adverse impact on our business, financial
condition and prospects.
Established
pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel
compounds that could make our product candidates less competitive. Any new product that competes with an approved product must
typically demonstrate advantages, such as in efficacy, convenience, tolerability or safety, to overcome price competition and
to succeed. Our competitors may obtain patent protection, receive approval by FDA and/or foreign regulatory authorities or discover,
develop and commercialize product candidates before we do, which would have a material adverse impact on our business.
The
commercial success of our product candidates will depend upon the acceptance of these product candidates by the medical community,
including physicians, patients and healthcare payors.
Assuming
one or more product candidates achieve regulatory approval and we commence marketing such products, the market acceptance of any
product candidates will depend on several factors, including:
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demonstration
of clinical safety and efficacy compared to other products;
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the
relative convenience, ease of administration and acceptance by physicians, patients and healthcare payors;
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the
prevalence and severity of any adverse effects or serious adverse effects;
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limitations
or warnings in the label approved by FDA and/or foreign regulatory authorities for such products;
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the
timing of market introduction of our products relative to competitive products and the availability of alternative treatments;
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pricing
and cost-effectiveness;
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the
execution and effectiveness of our or any partners’ sales and marketing strategies;
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our
ability to obtain hospital formulary approval; and
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our
ability to obtain and maintain sufficient third-party payor coverage or reimbursement.
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If
we obtain regulatory approval for one product candidate, we expect sales to generate substantially all of our product revenues,
and as such, the failure of these products to find market acceptance would adversely affect our results of operations.
If
insurance and/or government coverage and adequate reimbursement are not available for our product candidates, it could impair
our ability to achieve and maintain profitability.
Market
acceptance and sales of any product candidates we develop will depend on coverage and reimbursement policies of third-party payors.
Government authorities and third-party payors, such as private health insurers, hospitals and health maintenance organizations,
decide which drugs they will pay for and establish reimbursement levels. Coverage and adequate reimbursement may not be available
for some or all of our product candidates. As patients generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment, inadequate reimbursement amounts may reduce the demand for, or the price of, our future products.
Thus, the availability of adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid,
and commercial payors is critical to new product acceptance.
Obtaining
coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process,
and no uniform policy of coverage and reimbursement for products exists among third-party payors in the United States. A primary
trend in the U.S. healthcare industry is cost containment. Third-party payors have attempted to control costs by limiting coverage
and the amount of reimbursement for particular products. Further, third-party payors are increasingly challenging prices charged
for pharmaceutical products, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs
when an equivalent generic drug or a less expensive therapy is available. There can be no assurance that coverage and reimbursement
will be available for any product we commercialize. Even if we obtain coverage for a given product, the resulting reimbursement
payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptable.
If reimbursement is not available, or is available at limited levels, we may not be able to successfully commercialize product
candidates we develop.
Due
to the recent change in the United States presidency, we expect increased regulation as well as uncertainty, which may adversely
affect our business.
With
the inauguration of President Biden, we expect that the FDA, the Centers for Disease Control and other agencies which affect our
business may increase their regulatory efforts. At the senior administrative level, new regulators with a regulatory zeal may
tighten existing regulations and that approach may also be taken in the routine interactions between staff and our scientists
and others. Increased regulation and enforcement may lead to increased costs and further delays in getting approvals, which may
adversely affect our business.
Pricing
pressures on our drug candidates, including as the result of proposed legislative changes, may negatively impact our future results
of operations.
There
have been numerous legislative and regulatory proposals to change the healthcare system in the United States and in some foreign
jurisdictions that could affect our ability to sell products profitably. President Biden has proposed a new health plan that would
rely on a “Medicare-like” public option for individuals who are not on Medicare and transition to a Medicare-for-All
single payor system in the future. Among other things, it will seek to:
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lower
prescription prices by permitting Medicare to negotiate prices;
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limit
price increases;
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set
prices for drugs which do not have competition; and
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permit
consumers to buy prescriptions from other countries.
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These
changes are subject to Congressional approval and we cannot predict what, if any, of these broad proposals or other legislation
will pass.
At
the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to
control drug pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access
and marketing cost disclosure and transparency measures. In addition, regional healthcare authorities and individual hospitals
are increasingly using bidding procedures to determine which pharmaceutical products and suppliers will be included in their prescription
drug and other healthcare programs. These measures could reduce the ultimate demand for our products, or put pressure on our product
pricing. The availability of generic treatments may also substantially increase pricing pressures on, and reduce reimbursement
for, our future products. The potential application of user fees to generic drug products may expedite approval of additional
generic drug treatments. We expect to experience additional pricing pressures in connection with the sale of any of our products,
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative
changes.
In
some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. The European Union, or EU, provides options for its member states
to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control
the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may
instead adopt a system of direct or indirect controls on the profitability of the Company placing the medicinal product on the
market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products
will allow favorable reimbursement and pricing arrangements for our products. Historically, products launched in the EU do not
follow price structures of the U.S. and tend to be priced significantly lower.
If
we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our
product candidates, we may be unable to generate any revenues from product sales.
We
do not have a team with experience in the sales, marketing and distribution of pharmaceutical products and the cost of establishing
and maintaining such an organization may exceed the cost-effectiveness of doing so. To market any products that may be approved,
we must build our sales, marketing, managerial and other non-technical capabilities or arrange with third parties to perform these
services.
Our
current and future partners may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise
fail in their commercialization efforts due to factors beyond our control. If we are unable to establish effective alliances to
enable the sale of our product candidates to healthcare professionals and in geographical regions, including the United States,
that will not be covered by our own marketing and sales force, or if our potential future strategic partners do not successfully
commercialize the product candidates, our ability to generate revenues from product sales will be adversely affected.
If
we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties,
we may not be able to generate sufficient product revenue and may not become profitable. We will be competing with many companies
that have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third-party to
perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
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
any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market them
on a worldwide basis or in more limited geographical regions. We expect 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 in foreign countries;
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reduced
protection for intellectual property 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 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 cause 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 endemic;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business
interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes,
typhoons, floods and fires.
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If
we lose key management or scientific personnel, cannot recruit qualified employees, directors, officers, or other personnel or
experience increases in our compensation costs, our business may materially suffer.
We
depend on principal members of our executive and research teams; the loss of whose services may adversely impact the achievement
of our objectives. We are highly dependent on our Chairman of the Board and Chief Executive Officer, Dr. Gary Wilcox, our President,
Dr. Sam Lee and our Chief Financial Officer, James Martin. We do not carry “key-man” life insurance on any of our
employees or advisors. 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 may not be able to attract and
retain personnel on acceptable terms, as there is significant competition among numerous pharmaceutical companies for individuals
with similar skill sets. Because of this competition, our compensation costs may increase significantly. If we lose key employees,
our business may suffer.
If
we expand our organization, we may experience difficulties in managing growth, which could disrupt our operations.
As
of March 15, 2021, we have 13 full-time employees. As our company matures, we expect to expand our employee base to increase our
managerial, scientific and operational, commercial, financial and other resources and to hire more consultants and contractors.
Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit,
maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a
disproportionate amount of its attention away from our day-to-day activities and to managing these growth activities. We may not
be able to effectively manage the expansion of our operations, which may cause weaknesses in our infrastructure, and give rise
to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.
Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such
as developing additional product candidates. If our management cannot effectively manage our growth, our expenses may increase
more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business
strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend,
in part, on our ability to manage our future growth.
Any
relationships with customers and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud
and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully
complied, with such laws, we could face criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.
If
we obtain FDA approval for any of our product candidates and commercialize those products in the United States, our operations
may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without
limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our
proposed sales, marketing and education programs. We may be subject to patient privacy regulation by the federal government and
by the U.S. states and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate
include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual,
or the purchase or recommendation of an item or service for which payment may be made under a federal healthcare program,
such as the Medicare and Medicaid programs;
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federal
civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers
that are false or fraudulent;
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the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes
that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare
matters;
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HIPAA,
as amended by the Health Information Technology and Clinical Health Act of 2009, or HITECH, and its implementing regulations,
which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health
information; and
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state
and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply
to items or services reimbursed by any third-party payer, including commercial insurers, and state and foreign laws governing
the privacy and security of health information in certain circumstances, many of which differ from each other in significant
ways and may not have the same effect, thus complicating compliance efforts.
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If
our operations are found to violate any of the laws described above or any other governmental regulations that apply to us, we
may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, possible exclusion from
Medicare, Medicaid and other government healthcare programs, and curtailment or restructuring of our operations, which could adversely
affect our ability to operate our business and our results of operations.
Because
we face potential product liability if claims are brought against us, we may incur substantial liability and costs.
Using
our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the
risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical
companies or others selling or otherwise coming into contact with our products. If we cannot successfully defend against product
liability claims, we could incur substantial liability and costs. Regardless of merit or eventual outcome, product liability claims
may cause:
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impairment
of our business reputation;
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withdrawal
of clinical trial participants;
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costs
due to related litigation;
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distraction
of management’s attention from our primary business;
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substantial
monetary awards to patients or other claimants;
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regulatory
scrutiny and product recalls, withdrawals or labeling, marketing or promotional restrictions;
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the
inability to commercialize our product candidates; and
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decreased
demand for our product candidates, if approved for commercial sale.
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Insurance
coverage is becoming increasingly expensive and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend
to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability
insurance on commercially reasonable terms or in adequate amounts. Occasionally, large judgments have been awarded in class action
lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought
against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our
results of operations and business.
Business
interruptions resulting from pandemics, natural disasters and adverse weather events could cause delays in research and development
of our product candidates.
Our
principal offices are in Bothell, Washington where we conduct our scientific research. We also maintain a small finance and accounting
office in Miami, Florida. We are vulnerable to natural disasters such as earthquakes and tornados as well as other events that
could disrupt our operations and cause delays in research and development of our product candidates. We do not carry insurance
for natural disasters, and we may not carry sufficient business interruption insurance to compensate us for losses that may occur.
Any losses or damages we incur could have a material adverse effect on our operations. See also risk factor entitled “Because
of the unknown impact from the COVID-19 pandemic, it may have unanticipated material adverse effect upon us.”
If
our information technology systems are compromised, the information we store and process, including our intellectual property,
could be accessed, publicly disclosed, lost or stolen, which could harm our business, relationships with strategic partners and
future results of operations.
Companies
are increasingly suffering damage from attacks by hackers. In the ordinary course of business, we store sensitive information,
such as our intellectual property, including trade secrets and results of our clinical and preclinical research, and that of our
suppliers and business partners, on a central server, and such information is transmitted via email correspondence. The secure
maintenance and processing of this information is critical to our research and development activities and future operations. Despite
our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breaches due to
employee error, malfeasance or other disruptions. Any such breach could compromise our information technology systems and the
information stored there could be accessed by third parties, publicly disclosed, lost or stolen. Any such unauthorized access,
disclosure, misappropriation or other loss of information could result in disruption of our operations, including our existing
and future research collaborations, and damage our reputation, which in its turn could harm our business and future results of
operations.
If
we fail to comply with applicable laws and regulations, including environmental, health and safety laws and regulations, we could
become subject to fines or penalties or incur costs that could have a material adverse effect on our business.
We
are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous materials and wastes, and the treatment of animals used in
research. Our operations involve using hazardous and flammable materials, including chemicals and biological materials. Our operations
also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes.
We cannot eliminate the risk of contamination or injury from these materials. If contamination occurs or injury results from our
use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We
also could incur significant costs associated with civil or criminal fines and penalties.
The
Federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for
health care employers, including clinical laboratories, whose workers may be exposed to blood-borne pathogens such as the hepatitis
C virus. These requirements, among other things, require work practice controls, protective clothing and equipment, training,
medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne pathogens.
In addition, the Needlestick Safety and Prevention Act requires, among other things, that we include in our safety programs the
evaluation and use of engineering controls such as safety needles if found to be effective at reducing the risk of needlestick
injuries in the workplace.
Although
our workers’ compensation insurance may cover us for costs and expenses, we may incur additional costs due to injuries to
our employees resulting from the use of hazardous materials or other work-related injuries, and this insurance may not provide
adequate coverage against other potential liabilities. We may incur substantial costs to comply with current or future environmental,
health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production
efforts. Failure to comply with these laws and regulations also may cause substantial fines, penalties or other sanctions.
RISKS
RELATED TO OUR COMMON STOCK
The
increase in our stock price and trading volume may be temporary for a number of reasons, which may cause investors to lose money.
After
we announced our entry into the License Agreement with the Kansas State University Research Foundation, the price of our common
stock surged from $0.49 on February 21, 2020 to the closing price of $1.77 on February 26, 2020 and our daily trading volume also
increased substantially during that time. After our March 6, 2020 announcement regarding the initiation of our Coronavirus program,
our trading volume remained extremely high relative to the prior 12-month period. Then, from September to November 2020, our stock
price hovered at or below approximately $1.00 per share before temporarily surging to $2.16 per share on November 30, 2020 with
our trading volume again increasing dramatically as well. Additionally, a similar trend occurred on January 20, 2021 as our stock
price abruptly increased from $1.51 per share to $2.35 per share and our trading volume increased to nearly 22 million shares
after we announced the completion of our research obligations under the Merck Collaboration Agreement. Our common stock may continue
to be volatile and could materially fall for a number of reasons including:
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Announcements
relating to the availability of vaccines and approval of new vaccines;
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Announcements
by the FDA of final approval of vaccines and treatments for COVID-19;
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Announcements
relating to the spread of new variants of COVID-19;
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Announcements
by competitors that they are initiating human trials of drugs to treat COVID-19;
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Announcement
that the rapid spread of COVID-19 has receded;
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Our
disclosure that the use of our technology and the patents we licensed do not appear promising for the treatment of this virus;
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Our
announcement concerning the initiation of or delay in clinical trials for our Influenza A product candidate;
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Merck’s
announcements concerning our Influenza A/B product candidate; or
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The
termination of any other factors which may have created the unusual volatility and spike in volume.
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If
the current price and volume level is reduced, investors may sustain large losses.
Due
to factors beyond our control, our common stock price may be volatile, or may decline regardless of our operating performance,
and you may not be able to resell your shares.
The
market price of our common stock will depend on a number of factors, many of which are beyond our control and may not be related
to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock since
you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the market price
of our common stock include the following:
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price
and volume fluctuations in the overall stock market from time-to-time;
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if
the current bull market ends, investors may sell our common stock to meet margin calls on other stocks or as the result of
economic disruptions;
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volatility
in the market prices and trading volumes of biotechnology stocks generally, or those in our peer group in particular;
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changes
in operating performance and stock market valuations of other biotechnology companies generally, or those in our industry
in particular;
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sales
of shares of our stock by us or our stockholders;
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he
failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow
our company or our failure to meet these estimates or the expectations of investors;
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announcements
by us or our competitors of new novel medicines;
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the
public’s reaction to our earnings releases, other public announcements and filings with the SEC;
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rumors
and market speculation involving us or other companies in our industry;
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actual
or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
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actual
or anticipated changes in our operating results or fluctuations in our operating results;
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developments
or disputes concerning our intellectual property or other proprietary rights;
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new
laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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changes
in accounting standards, policies, guidelines, interpretations or principles;
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any
significant change in our management; and
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general
economic conditions and slow or negative growth in any of our significant markets.
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In
addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s
securities, securities class action litigation has often been instituted against these companies. Any litigation, if instituted
against us, could result in substantial costs and a diversion of our management’s attention and resources.
If
we incur any future impairment in the carrying value of our goodwill asset, it could depress our stock price.
Historically,
we had a significant amount of goodwill on our balance sheet. Goodwill must be evaluated for impairment annually or more frequently
if events indicate it is warranted. If the carrying value of a reporting unit asset exceeds its current fair value, the goodwill
asset is considered impaired. Events and conditions that could result in impairment in the value of our goodwill include, but
are not limited to, significant negative industry or economic trends, significant decline in the Company’s stock price for
a sustained period of time, significant decline in market capitalization relative to net book value, limited funding that could
delay development efforts, significant changes in the manner of use of the assets or the strategy for the Company’s overall
business, safety or efficacy issues that surface during development efforts, or preclinical and clinical outcomes that reduce
the probability for technical and regulatory success of our product candidates.
We
did not incur any impairment to goodwill during the year ended December 31, 2020 and during the year ended December 31, 2019,
we had incurred an impairment charge of approximately $46,100,000 from our goodwill reducing it to $19,092,343.
We
may in the future be required to record additional impairment charges to write-off goodwill which is also related to our merger
with RFS Pharma in 2014. Our stock price could be negatively impacted should future impairments of our goodwill occur.
Because
certain of our stockholders control a significant number of shares of our common stock, they may have effective control over our
actions requiring stockholder approval.
As
of March 15, 2021, our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and
their respective affiliates, beneficially own approximately 27.1% of our outstanding shares of common stock. As a result, these
stockholders, acting together, would 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.
Dr. Raymond Schinazi, our former Board Chairman, owns approximately 14.3% of our common stock.
Dr.
Schinazi and Dr. Philip Frost, a director, and certain other stockholders entered into a Stockholders Rights Agreement in November
2014. This Agreement gives each of Dr. Schinazi (together with certain other stockholders) and Dr. Frost (together with certain
other stockholders) the right to designate three directors to a seven-person board of directors and together agree upon the seventh
designee. In addition, our principal stockholders, acting together, would have the ability to 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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Future
issuances of our common stock or rights to purchase our common stock could cause additional dilution of the percentage ownership
of our stockholders and could cause our stock price to fall.
During
the year ended December 31, 2020 we conducted public offerings in which we issued a total of approximately 35,289,000 shares of
common stock and raised a total of approximately $35,783,000 in net proceeds. Through March 15, 2021, we sold an additional 1,030,000
common shares and received net proceeds of $2,072,047 pursuant to our At-the-Market Offering Agreement. While we expect that these
financings will be sufficient to fund our operations for more than the 12 months, significant additional capital may be needed
in the future to continue our planned operations. To the extent we have raised and continue to raise additional capital by issuing
equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other
equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock,
convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent
sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior
to our existing stockholders.
Future
sales of large amounts of our common stock in the public market or a perception that such sales might occur could cause a decrease
in our stock price.
As
of March 15, 2021, out of approximately 71.5 million shares of common stock outstanding, approximately 56 million are either free
trading or may be sold without volume or manner of sale limitations under Rule 144. The remainder of our shares, because they
are held by our officers, directors and Dr. Schinazi, 10% shareholder, who we deem affiliates, are subject to additional restrictions
as described below.
In
general, Rule 144 provides that any person who is not an affiliate of the Company and has not been an affiliate for 90 days, and
who has held restricted common stock for at least six months, is entitled to sell their restricted stock freely, provided that
we stay current in our SEC filings. After one year, a non-affiliate may sell without any restrictions other than we must be current
in our filings for the second year.
The
shares of common stock outstanding which are held by affiliates of the Company are subject to additional restrictions. An affiliate
may sell the greater of (i) one percent of our outstanding stock or (ii) as long as our common stock is listed on The Nasdaq Capital
Market (“Nasdaq”) the average weekly trading volume over a prior four week period after a six-month holding period
with the following restrictions:
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(i)
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we
are current in our filings;
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(ii)
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certain
manner of sale provisions; and
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(iii)
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filing
of Form 144.
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Additionally,
as of December 31, 2020, we had 1,780,000 options and 243,000 warrants outstanding that, if fully exercised, would result in the
issuance of 2,023,000 shares of common stock and 2.3 million shares of common stock remain available for future grants under the
Cocrystal Pharma, Inc. 2015 Equity Incentive Plan.
Future
sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales may occur,
could cause the market price of our common stock to decline significantly, even if our business is performing well.
If
we fail to meet the Nasdaq continued listing requirements, it could result in delisting of our common stock, negatively affect
the price of our common stock and limit investors’ ability to trade in our common stock.
Our
common stock is listed on Nasdaq. Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price,
corporate governance standards and number of public stockholders. In two separate instances on December 13, 2019 and on November
4, 2020, we were notified by Nasdaq that we were not compliant with its closing bid price requirement because the closing bid
price of our common stock was below $1.00 per share for 30 consecutive trading days. While we subsequently regained compliance
with respect to each such occurrence, if we fail to meet these continued listing requirements in the future Nasdaq may delist
our common stock. If our common stock is delisted, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our common stock;
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reduced
liquidity with respect to our common stock;
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a
determination that our shares of common stock are a “penny stock” which will require broker-dealers trading in
our common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary
trading market for our common stock;
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a
limited amount of news and analyst coverage for our company; and
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a
limited ability to raise capital in the future.
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Our
ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Under
Section 382 of the Internal Revenue Code of 1986 if a corporation undergoes an “ownership change,” generally defined
as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use
its pre-change net operating loss carry forwards (“NOLs”), and other pre-change tax attributes (such as research tax
credits) to offset its post-change income may be limited. We believe that, with the RFS Pharma, LLC and Cocrystal Discovery, Inc.
mergers and other transactions that have occurred more than six years ago, we may have triggered an “ownership change”
limitation. We may also experience ownership changes in the future because of subsequent shifts in our stock ownership. If we
generate taxable income, our ability to use our pre-change NOLs carry forwards to offset U.S. federal taxable income may be subject
to limitations, which could result in increased future tax liability to us. At the state level, there may be periods during which
the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Because
we may not attract the attention of major brokerage firms, it could have a material impact upon the price of our common stock.
It
is possible that securities analysts of major brokerage firms will not provide research coverage for our common stock. The absence
of such coverage limits the likelihood that an active market will develop for our common stock. It may also make it more difficult
for us to attract new investors when we acquire additional capital.
We
may issue preferred stock which could make it more difficult for a third-party to acquire us and could depress our stock price.
In
accordance with the provisions of our Certificate of Incorporation and the Stockholder Rights Agreement described above, our Board
may issue one or more additional series of preferred stock that have more than one vote per share, so long as the Board obtains
the majority approval of each of the groups of stockholders who formerly held our Series A and Series B Convertible Preferred
Stock, which is no longer authorized. This could permit our Board to issue preferred stock to investors who support our management
and give effective control of our business to our management. Issuance of preferred stock could block an acquisition resulting
in both a drop in our stock price and a decline in interest of our common stock. This could make it more difficult for stockholders
to sell their common stock. This could also cause the market price of our common stock shares to drop significantly, even if our
business is performing well.
Our
amended and restated Bylaws provide for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes
between us and our stockholders, and the exclusive forum in the Delaware federal courts for the resolution of any complaint asserting
a cause of action under the Securities Act and the Exchange Act.
Our
amended and restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the
Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, the U.S. District
Court of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action
or proceeding brought on behalf of the Company (except to the extent that the Exchange Act provides otherwise), (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director or officer (or affiliate of any of the foregoing) of the
Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision
of the Delaware General Corporation Law, the Company’s Certificate of Incorporation or Bylaws, or (iv) any other action
asserting a claim arising under, in connection with, and governed by the internal affairs doctrine. The amended and restated Bylaws
further provide that unless the Company consents in writing to the selection of an alternative forum, the federal district courts
of the United States of America located in Delaware will be the exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act or the Exchange Act and any person or entity purchasing or otherwise acquiring
or holding any interest in shares of capital stock of the Company will be deemed to have notice of and consented to these provisions.
We
believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities
laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration
of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. If
a court were to find the choice of forum provision that is contained in our amended and restated Bylaws to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which
could materially adversely affect our business, results of operations, and financial condition. For example, Section 22 of the
Securities Act provides that state and federal courts have concurrent jurisdiction over claims to enforce any duty or liability
created by the Securities Act or the rules and regulations promulgated thereunder. Accordingly, there is uncertainty as to whether
a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act.
While to date, the Delaware Supreme Court has upheld the exclusive jurisdiction provisions in certificates of incorporation for
claims under the Securities Act, no court has ruled on the exclusive venue provision for claims under the Securities Act or the
Exchange Act. Accordingly, if a stockholder files a Securities Act claim or an Exchange Act claim in another federal district
court and we seek to rely upon the Delaware venues, we may not be successful.
Because
the choice of forum provisions in our Bylaws may have the effect of severing certain causes of action between federal and state
courts, stockholders seeking to assert claims against us or any of our current or former director, officer, other employee, agent,
or stockholder, may be discouraged from bringing such claims due to a possibility of increased litigation expenses arising from
litigating multiple related claims in two separate courts. The choice of forum provisions may therefore limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our current or former director,
officer, other employee, agent, or stockholder.