Item
1. Business.
Overview
We
are a pre-clinical biotechnology company developing a novel and patented systemically-administered anti-cancer and anti-viral immunotherapy.
We have evolved from more than a century of immunotherapy advances. Our approach is based on the hypothesis that efficient activation
of both innate and adaptive immune cells and associated anti-tumor and anti-viral immune responses will require a multi-targeted package
of immune system activating signals that can be administered safely intravenously. Our patented technology is composed of single strains
of attenuated and killed, non-pathogenic, Gram-negative bacteria, with reduced i.v. toxicity, but largely uncompromised ability to prime
or activate many of the cellular components of innate and adaptive immunity. This approach has led to broad anti-tumor and anti-viral
activity, including safe, durable anti-tumor response synergy with each of five different classes of existing agents, including checkpoint
therapy, targeted antibody therapy and low-dose chemotherapy in pre-clinical models. Tumor eradication by our technology has demonstrated
activation of both innate and adaptive immunological memory and, importantly, does not require provision of or targeting a tumor antigen
in pre-clinical models. We have carried out successful GMP manufacturing of our lead clinical candidate, Decoy20, and completed other
IND-enabling studies.
Unlike
many competitor products, our technology does not depend on targeting with or to a specific antigen, providing broad applicability across
multiple indications. Our products are designed to have a much shorter half-life and produce less systemic exposure than small molecule,
antibody or human cell-based therapies, potentially reducing the risk of non-specific auto-immune reactions. Our technology produces
single agent activity and/or combination therapy-based durable responses of lymphoma, hepatocellular, colorectal and pancreatic tumors
and is also active against hepatitis B virus (HBV) and HIV infection in standard pre-clinical models. We have carried out a Pre-IND meeting
with the US FDA, plans to file an IND in the first half of 2022 and then initiate in 2022 a Phase 1 clinical trial targeting tumors that
exhibit low durable response rates to current immunotherapy. Target indications include, but not limited to, colorectal, hepatocellular
(± HBV), bladder, cervical and pancreatic carcinoma, which according to GLOBOCAN 2020, account in the aggregate
for 23% of yearly cancer cases and over 28% of yearly cancer deaths world-wide.
Historically,
we have operated virtually with a team of highly experienced consultants and advisors, carrying out research and development at contract
research organizations. We have a broad patent portfolio with 33
granted patents and 16 pending patent applications. Since our inception, we have funded our operations
primarily through public and private offerings of our equity securities.
We
are a smaller reporting company, and we will remain a smaller reporting company until the fiscal year following the determination that
our common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or
our annual revenues are more than $100 million during the most recently completed fiscal year and our common stock held by non-affiliates
is more than $700 million measured on the last business day of our second fiscal quarter. Similar to emerging growth companies, smaller
reporting companies are able to provide simplified executive compensation disclosure, are exempt from the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, and have certain other reduced disclosure obligations, including, among other things,
being required to provide only two years of audited financial statements and not being required to provide selected financial data, supplemental
financial information or risk factors.
Our
principal executive offices are located at 3 Columbus Circle, 15th Floor, New York, NY 10019 and our telephone number is (347)
480-9760. Our website address is http://www.indaptusrx.com. The information contained on, or that can be accessed through, our website
is neither a part of nor incorporated into this Annual Report. We have included our website address in this Annual Report solely as an
inactive textual reference.
We
use our investor relations website (https://indaptusrx.com/investors/) as a channel of distribution of Company information. The information
we post through this channel may be deemed material. Accordingly, investors should monitor our website, in addition to following our
press releases, SEC filings and public conference calls and webcasts. The contents of our website are not, however, a part of this Annual
Report.
Background
Approved
immunotherapies, such as Interluekin-2, Interferon-alpha and the more recently approved “checkpoint” and CAR-T therapies
produce durable responses in a few percent to about fifty percent of patients across about a dozen out of over one hundred different
types of cancer. Although checkpoint therapies are able to effectively cure many previously incurable patients, only about 15% of patients
receiving this type of therapy respond. The main limitation of existing immunotherapies is that they each activate only one or a small
number of key steps in either the innate or adaptive immune system, but there is general agreement that highly efficient cancer immunotherapy
will require activation of both innate and adaptive immunity. The human body’s innate and adaptive immune systems are each capable
of cell-mediated destruction of tumors if the tumor cells are recognized as foreign or damaged. Activation of innate and adaptive responses
is also dependent on immune cells sensing the presence of “danger.” The most potent immune cell activating danger signals
are released by bacteria and viruses in the setting of infection, and include agonists of immune cell receptors, such as Toll-Like (TLR),
NOD and STING. Bacterial danger signals, including TLR agonists are called pathogen-associated molecular patterns (PAMPs) and can activate
both innate and adaptive immune cells, including antigen-presenting cells, promoting innate (NK, macrophage) and adaptive (T cell-mediated)
destruction of tumors.
The
oldest form of cancer immunotherapy involves the provision of decoy danger signals from bacteria. It was based on the long-standing observation
of tumor regression in the setting of bacterial infection. Treatment of cancer patients with heat-killed bacteria (“Coley’s
toxins”) was established in 1891 and used for 70 years with significant success. For example, ≥5-year survival was reported
for 45% of 432 inoperable sarcoma, lymphoma, melanoma, and carcinoma patients. Despite this success, several limitations led to the abandonment
of this approach by the pharmaceutical industry. Although there was an indication that Coley’s toxins worked best when administered
intravenously (i.v.), it was too toxic when given by this route, limiting the approach to local administration, which produced highly
variable results. Another limitation was lack of knowledge about the mechanism of action, preventing optimization and standardization
of manufacturing, leading to another source of variability in clinical response. Due to this high variability, Coley’s toxins was
not grandfathered-in as an approved drug by the FDA in 1963 and was supplanted by radiation and chemotherapy, despite the fact that these
more modern approaches rarely produce durable responses in advanced cancer patients.
Scientists
now understand the mechanism of action of Coley’s toxins. Gram-negative bacteria contain multiple immune-stimulating danger signals,
including TLR agonists such as lipopolysaccharide (LPS). Bacteria and purified or mono-specific TLR agonists, including LPS derivatives,
have been validated and approved for prevention and treatment of early stage cancer. However, a safe and effective TLR agonist-based
approach for advanced cancer has been elusive, possibly due to limitations in the ability of intratumorally administered, mono-specific
TLR agonists to induce potent, systemic anti-tumor immune responses. In addition, the intratumoral approach is not feasible with all
tumor types or patients. Our hypothesis is that an effective TLR agonist-based immunotherapy for advanced cancer will require invention
of a packaged, multi-TLR agonist or multi-danger signal product that is modified or attenuated to allow safe i.v. administration.
Our
Approach
Our
patented approach is based on the hypothesis that efficient activation of both innate and adaptive immune cells and associated anti-tumor
immune responses can be achieved by using intact bacteria, containing multiple PAMPs, which have been attenuated so that they can be
administered safely intravenously. Because LPS appears to be the most important contributor to both toxicity and efficacy, our patented
products are single strains of killed, non-pathogenic Gram-negative bacteria that have been treated to kill the bacteria and significantly
reduce, but not completely eliminate, the cell surface lipopolysaccharide (LPS)-endotoxin activity. Our products are designed to have
enhanced i.v. safety and sufficient residual LPS to synergize with other PAMPs in the bacteria to efficiently prime innate and adaptive
immune pathways. This leads to broad anti-tumor responses, including safe, synergistic regressions and durable responses with five different
classes of existing anti-tumor agents, including checkpoint therapy, targeted antibody therapy and low-dose chemotherapy. Tumor eradication
by our technology produces both innate and adaptive immunological memory and, importantly, does not require provision of an exogenous
tumor antigen, probably due to the ability of LPS and other PAMPS to activate dendritic cells that have already captured a tumor antigen.
All
immune cells can participate in killing of tumors and viruses. As illustrated below, current therapies activate only one or a small subset
of both pathways and cure only a small percentage of patients.
Our
bacteria, however, are engineered to synergize with existing therapies to activate both innate and adaptive immune cells, inducing efficient
anti-tumor immune responses with a wide safety margin. Induction of adaptive anti-tumor immune responses and immunological memory by
our bacteria does not require an exogenous tumor antigen.
Innate
and adaptive immune responses require identification of a tumor as foreign or not self. However, most steps required for migration and
activation of immune cells are unrelated to the tumor or are tumor non-specific. All innate and adaptive non-specific steps are induced
or promoted by immune system “danger signal” molecules, such as those found in our bacteria. Bacteria-derived danger signals
are also able to enhance the processing and recognition of tumor antigens, which are frequently present, but not “seen” by
the immune system.
Results
We
have developed patented treatment methods (and associated patented compositions) for attenuation and killing of non-pathogenic, Gram-negative
bacteria (33 issued or granted patents). Indaptus treated bacteria induce significantly less systemic toxicity than untreated
bacteria but are still able to activate innate and adaptive immune responses. Despite exhibiting reduced in vivo pyrogenicity and toxicity,
our bacteria are able to induce cytokine and chemokine secretion from mouse and human immune cells at levels comparable to those seen
with untreated bacteria. Our bacteria are also able to synergize with human immune cells to kill human tumor cells in vitro.
We
have observed significant single agent anti-tumor activity and/or combination therapy-mediated regression with durable response of established
non-Hodgkin’s lymphoma, as well as colorectal, hepatocellular and pancreatic carcinoma in pre-clinical syngeneic and human tumor
xenograft models. Our bacteria safely synergize with each of five different classes of approved agents, including checkpoint therapy,
targeted antibodies, low-dose chemotherapy, non-steroidal anti-inflammatory drugs (NSAIDs) and cytokines to induce tumor regression,
providing significant flexibility for targeting of diverse types of cancer. Our technology eradicates tumors via activation of both innate
(NK cell) and adaptive (CD4+ and CD8+ T cell) mechanisms, producing both innate and adaptive immunological memory. Tumor eradication
occurs at non-toxic doses of our bacteria, with a very wide (10 to ≥33-fold) therapeutic index. Significant mechanism of action information
has also been obtained, via gene expression analysis with treated tumors and plasma cytokine analysis, demonstrating that our combination
technology turns “cold” tumors into “hot” tumors and induces, activates or recruits innate and adaptive genes,
cells and pathways. Immune cell pre-depletion studies have demonstrated that both innate (NK) and adaptive (CD4 T and CD8 T) immune cells
are involved in tumor eradication. We have also demonstrated significant single agent activity against chronic Hepatitis B virus (HBV)
and human immunodeficiency virus (HIV) infection in standard pre-clinical models.
We
have carried out successful GMP manufacturing and stability studies with our lead product, Decoy20. In addition, IND-enabling multi-dose
toxicology studies have completed and have not produced sustained induction of factors that are associated with cytokine release syndrome.
We plan to file an IND in the first half of 2022 and then initiate in 2022 a Phase 1 clinical trial with solid tumor patients.
The
chart above demonstrates that our bacteria synergize with Anti-PD-1 Checkpoint therapy to regress established mouse hepatocellular carcinoma
(HCC) Tumors. All mice (all groups) received a low-dose, non-steroidal anti-inflammatory drug (NSAID/Indomethacin), which increases the
number of regressions in the combination setting. Most regressions were durable, with 5/6 combination regressions stable through termination
at Day 91 and in a repeat experiment through termination at Day 143 (see next Figure below) (CR = complete response or complete regression).
The repeat experiment also produced safe, 5/6 or 6/6 durable regressions per group over a 33-fold Indaptus concentration range, demonstrating
a very wide therapeutic index. Similar tumor eradication results have been obtained by combining our bacteria with low-dose chemotherapy
in a mouse non-Hodgkin’s lymphoma model. Eradication of established non-Hodgkin’s lymphoma tumors by our technology has also
been observed with human tumor xenografts, via activation of the innate immune system. Development and preclinical efficacy characterization
of a systemically administered multiple Toll-like receptor (TLR) agonist for antitumor immunotherapy [abstract]. In: Proceedings of the
Fourth CRI-CIMT-EATI-AACR International Cancer Immunotherapy Conference: Translating Science into Survival; Sept 30-Oct 3, 2018; New
York, NY. Philadelphia (PA): AACR; Cancer Immunol Res 2019;7(2 Suppl):Abstract nr B178.
The
chart above illustrates that the synergistic tumor eradication by our and Anti-PD-1 produces immunological memory. Established tumors
were regressed in 11 mice by combination treatment as in the Figure above and then the mice were re-challenged with fresh HCC tumor cells,
without further treatment. All of the new tumors were rejected. Similar results have been obtained by combining our bacteria with low-dose
chemotherapy in a non-Hodgkin’s lymphoma model.
Business
Strategy
Our
mission is to enhance and expand curative cancer immunotherapy for patients with unresectable or metastatic solid tumors and lymphomas,
which are responsible for approximately 90% of all cancer deaths. We intend to initiate a Phase 1 clinical trial in 2022 with advanced
solid tumor patients. The trial will include a dose escalation to determine the side-effect profile and recommended Phase 2 dose, an
expansion with tumor types that may be responsive, and a Phase 1b combination trial with Checkpoint Therapy, targeted antibodies and/or
low-dose chemotherapy. Its business strategy includes:
| ● | Adding
operational, financial and management information systems and personnel, including personnel
to support our planned product development and commercialization efforts, as well as to support
our transition to a public reporting company; |
| | |
| ● | Filing
an IND in the first half of 2022 and then initiating in 2022 a Phase 1 clinical trial for
Decoy20, targeting solid tumors and possibly also hepatocellular carcinoma-associated HBV
infection; |
| | |
| ● | Expanding
our bacterial product platform to target additional types of cancer, as well as additional
infectious diseases; |
| | |
| ● | Maintaining,
expanding and protecting our intellectual property portfolio; and |
| | |
| ● | Seeking
regulatory approvals for any product candidates that successfully complete clinical trials. |
Competitive
Advantages
Our
bacteria contain multiple constituents, capable of priming or activating many of the cellular components of both innate and adaptive
immunity, but have been attenuated by a patented process to reduce the potential for over-stimulation of the immune system and consequential
induction of undesirable autoimmune reactions. Our bacteria are also likely to be cleared very quickly by the liver and spleen, which
may further reduce the risk of non-specific autoimmune side effects, relative to other types of immunotherapy that are designed for continuous
exposure. We believe a short Indaptus exposure is sufficient to act alone and as a “primer” to enhance other products. Additionally,
Our products can be manufactured by a highly cost-efficient process, potentially providing accelerated patient access in both developed
and developing geographical regions.
Governmental
Regulation
We
operate in a highly regulated industry that is subject to significant federal, state, local and foreign regulation. Its present and future
business strategy has been, and will continue to be, subject to a variety of laws including, the FDCA, subject to a variety of laws including,
the FDCA and the Public Health Service Act (PHSA), among others.
The
FDCA, PHSA, and other federal and state statutes and regulations govern the testing, manufacturing, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of our products. As a result of these laws and regulations, product development
and product approval processes are very expensive and time-consuming.
FDA
Approval Process
In
the United States, pharmaceutical products, including biologics, are subject to extensive regulation by the FDA. The FDCA and other federal
and state statutes and regulations, govern, among other things, the research, development, testing, manufacturing, storage, record keeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of
pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or
judicial sanctions, such as FDA refusal to approve pending NDAs or BLAs, warning letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Pharmaceutical
product development in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an
IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish
the safety and effectiveness of the drug or biologic for each indication for which FDA approval is sought. Satisfaction of FDA pre-market
approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity
and novelty of the product or disease.
Pre-clinical
tests include laboratory evaluation as well as animal trials to assess the characteristics and potential pharmacology and toxicity of
the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements including good laboratory practices.
The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information, including information about
product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term pre-clinical tests, such as animal tests
of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A
30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA
has not objected to the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical
trials involve the administration of the investigational drug to healthy volunteers or patients under the supervision of a qualified
investigator. Clinical trials must be conducted in compliance with federal regulations and good clinical practices, or GCP, as
well as under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness
criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to
the FDA as part of the IND.
The
FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that
the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial
patients. The clinical trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional
review board (“IRB”) for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily
or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
Clinical
trials to support NDAs or BLAs, which are applications for marketing approval, are typically conducted in three sequential Phases, but
the Phases may overlap. In oncology Phase 1 trials, the investigational drug candidate is typically given to cancer patients who have
failed all approved products in order to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing
doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population, to determine
the effectiveness of the investigational drug for a particular indication or indications, dosage tolerance and optimum dosage, and identify
common adverse effects and safety risks.
If
an investigational cancer drug demonstrates significant evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations,
it may be considered for accelerated approval, although more often, Phase 3 clinical trials are undertaken to obtain additional information
about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit
the FDA to evaluate the overall benefit-risk relationship of the investigational drug and to provide adequate information for its labeling.
After
completion of the required clinical testing, an NDA or, in the case of a biologic, a BLA, is prepared and submitted to the FDA. FDA approval
of the marketing application is required before marketing of the product may begin in the United States. The marketing application must
include the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s pharmacology,
chemistry, manufacture, and controls.
The
FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for filing based on the agency’s
threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the
FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of marketing applications. Most such applications
for non-priority drug products are reviewed within ten months. The review process may be extended by the FDA for three additional months
to consider new information submitted during the review or clarification regarding information already provided in the submission. The
FDA may also refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an
advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether
the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such
recommendations. Before approving a marketing application, the FDA will typically inspect one or more clinical sites to assure compliance
with GCP.
Additionally,
the FDA will inspect the facility or the facilities at which the drug product is manufactured. The FDA will not approve the NDA or, in
the case of a biologic, the BLA unless compliance with GMP is satisfactory and the marketing application contains data that provide substantial
evidence that the product is safe and effective in the indication studied. Manufacturers of biologics also must comply with FDA’s
general biological product standards.
After
the FDA evaluates the NDA or BLA and the manufacturing facilities, it issues an approval letter or a complete response letter. A complete
response letter outlines the deficiencies in the submission and may require substantial additional testing or information in order for
the FDA to reconsider the application. If and when those deficiencies have been addressed in a resubmission of the marketing application,
the FDA will re-initiate their review. If the FDA is satisfied that the deficiencies have been addressed, the agency will issue an approval
letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. It
is not unusual for the FDA to issue a complete response letter because it believes that the drug product is not safe enough or effective
enough or because it does not believe that the data submitted are reliable or conclusive.
An
approval letter authorizes commercial marketing of the drug product with specific prescribing information for specific indications. As
a condition of approval of the marketing application, the FDA may require substantial post-approval testing and surveillance to monitor
the drug product’s safety or efficacy and may impose other conditions, including labeling restrictions, which can materially affect
the product’s potential market and profitability. Once granted, product approvals may be withdrawn if compliance with regulatory
standards is not maintained or problems are identified following initial marketing.
Other
Regulatory Requirements
FDA
Post-Approval Requirements
Once
an NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the
post-approval marketing and promotion of therapeutic products, including standards and regulations for direct-to-consumer advertising,
off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.
Biologics
may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of
the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities,
require submission and FDA approval of a new BLA or BLA supplement, before the change can be implemented. A BLA supplement for a new
indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions
in reviewing BLA supplements as it does in reviewing BLAs. We cannot be certain that the FDA or any other regulatory agency will grant
approval for our product candidate for any other indications or any other product candidate for any indication on a timely basis, if
at all.
Adverse
event reporting and submission of periodic reports is required following FDA approval of a BLA. The FDA also may require post-marketing
testing, known as Phase IV testing, risk evaluation and mitigation strategies, and surveillance to monitor the effects of an approved
product or place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control as
well as product manufacturing, packaging, and labeling procedures must continue to conform with cGMP after approval. Manufacturers and
certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject
to periodic unannounced inspections by the FDA during which the agency inspects manufacturing facilities to assess compliance with GMP.
Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain
compliance with GMP. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with
regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently
discovered.
Competition
The
pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis
on proprietary products. While we believe that our technology, knowledge and scientific resources provide us with certain competitive
advantages, we face competition from many sources including pharmaceutical and biotechnology companies, academic institutions, governmental
agencies and public and private research institutions. Many of these competitors may have access to greater capital and resources than
us. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel. Any product candidates
that we successfully develop and commercialize will compete with new immunotherapies that may become available in the future. Our competitors
include larger and better funded biopharmaceutical, biotechnology and therapeutics companies, specifically companies focused on cancer
immunotherapies, such as Amgen, Inc., AstraZeneca plc, BMS, Genentech, Inc., GlaxoSmithKline PLC, Merck & Co., Inc., Novartis AG,
Pfizer Inc., Roche Holding Ltd and Sanofi S.A. In contrast, many of these companies are developing immunotherapeutics which may have
potential to be used in concert with Decoy20 and in this regard, we view them as potentially complimentary.
With
respect to our lead candidate Decoy20, there are a number of companies that are developing possible treatments for cancer, however, we
believe we are the only company using systemic administration of killed, non-pathogenic Gram-negative bacteria with reduced lipopolysaccharide-endotoxin
to stimulate innate and adaptive immune system pathways.
Our
success will be based in part upon our ability to successfully commercialize Decoy20 and to identify, develop and manage a portfolio
of therapeutics that are safer and more effective than competing products in our target indications. Our market opportunity has the potential
to be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects,
are more convenient or are less expensive than any therapeutics we may develop. Our competitive position will also be dependent upon
our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes,
and protect our intellectual property, and to secure sufficient capital resources for the period between technological conception and
commercial sales. The availability of reimbursement from government and other third-party payors will also significantly affect the pricing
and competitiveness of our products. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly
than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able
to enter the market.
Intellectual
Property
Our
success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without
infringing or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws,
know-how, intellectual property licenses and other contractual rights (including confidentiality and invention assignment agreements)
to protect our proprietary technology and intellectual property, including related intellectual property rights.
Patents
As
of March 1, 2022, we own 33 granted patents and 16 pending patent applications to use within our field of business. Our patents and patent
applications generally relate to compositions and methods for treating cancer and infectious diseases, and our patents and any patents
that issue from our pending patent applications are expected to expire at various dates between 2033 and 2039.
We
intend to submit patent applications for each new product and technology that we develop. The patent outlook for companies like ours
is generally uncertain and may involve complex legal and factual questions. Our ability to maintain and consolidate our proprietary position
for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether
any of our patent applications or any patent applications that we may license will result in the issuance of any patents. Our issued
patents and those that may be issued in the future, or patents that we may exclusively license, may be challenged, narrowed, circumvented
or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length
of term of patent protection that we may have for our products. We cannot be certain that we were the first to invent the inventions
claimed in our owned patents or patent applications. In addition, our competitors may independently develop similar technologies or duplicate
any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages
against these competitors. Furthermore, because of the extensive time required for development, testing and regulatory review of a potential
product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for
only a short period following commercialization, thereby reducing any advantage of the patent.
Trade
Secrets and Confidential Information
In
addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how
can be difficult to protect. We rely on, among other things, confidentiality and invention assignment agreements to protect our proprietary
know-how and other intellectual property that may not be patentable, or that we believe is best protected by means that do not require
public disclosure. For example, we require our employees to execute confidentiality agreements in connection with their employment relationships
with us, and to disclose and assign to us inventions conceived in connection with their services to us. However, there can be no assurance
that these agreements will be enforceable or that they will provide us with adequate protection. We also seek to preserve the integrity
and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic
security of our information technology systems.
We
may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject
to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business.
For a more comprehensive summary of the risks related to our intellectual property, see “Item 1A. Risk Factors — Risks Related
to Our Intellectual Property.”
Environmental
Matters
We
are subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater
discharges, noise emissions, the use, management and disposal of hazardous materials and wastes and the cleanup of contaminated sites.
In addition, all of our laboratory personnel participate in instruction on the proper handling of chemicals, including hazardous substances
before commencing employment, and during the course of their employment with us. In addition, all information with respect to any chemical
substance that we use is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations. Based
on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on
us. The operation of our facilities, however, entails risks in these areas. Significant expenditures could be required in the future
if we are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.
We
believe that our business, operations and facilities are being operated in compliance in all material respects with applicable environmental
and health and safety laws and regulations.
Human
Capital Management
As
of December 31, 2021, we have five full-time employees. None of our employees are
represented by labor unions or covered by collective bargaining agreements.
We
believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel. In particular,
we depend on the skills, experience and performance of our senior management and research personnel. We compete for qualified personnel
with other biotechnology, medical device, pharmaceutical and healthcare companies, as well as universities and
non-profit research institutions.
We
provide competitive compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs
(which vary by country/region and employment classification) include incentive compensation plan, pension, healthcare and insurance benefits,
paid time off, and family leave, among others. We also use targeted equity-based grants with vesting conditions
to facilitate retention of personnel, particularly for our key employees.
The
success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health and safety
of our employees including safety measures that are required for the COVID-19 pandemic and that comply with government regulations.
We
consider our relations with our employees to be good.
Historical
Background and Corporate Structure
Intec
Israel was established and incorporated in Israel on October 23, 2000 as a private Israeli company under the name Orly Guy Ltd. In February
2001, Intec Israel’s name was changed to Intec Pharmaceuticals (2000) Ltd. Intec Israel’s research and development activities
began originally through a private partnership, Intec Pharmaceutical Partnership I.P.P, a general Israeli partnership, formed on September
21, 2000. Its operations were transferred in full to Intec Israel at the beginning of 2002 in return for the allocation of shares
in Intec Israel to the partners in the partnership, pro rata with their ownership in the partnership. In March 2004, Intec Israel
changed its corporate name to Intec Pharma, Ltd. In February 2010, Intec Israel successfully completed an initial public offering in
Israel on the Tel Aviv Stock Exchange, or TASE and in August 2015 Intec Israel completed an initial public offering in the U.S.
Indaptus
(formerly Intec Parent) was established and incorporated in Delaware on February 24, 2021 as a private Delaware corporation and wholly
owned subsidiary of Intec Israel.
On
March 15, 2021, Indaptus, Domestication Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of Indaptus, or Domestication
Merger Sub, Dillon Merger Subsidiary, Inc., or Merger Sub, and Decoy Biosystems, Inc., a Delaware corporation, or Decoy, entered into
an Agreement and Plan of Merger Agreement, or the Merger Agreement, whereby upon satisfaction of certain closing conditions set forth
in the Merger Agreement, including consummation of the Domestication Merger (as defined herein), Merger Sub was to merge with and into
Decoy, with Decoy being the surviving entity and a wholly owned subsidiary of Indaptus, or the Merger.
On
April 27, 2021, Indaptus, Intec Israel and Domestication Merger Sub entered into an Agreement and Plan of Merger, or the Domestication
Merger Agreement, pursuant to which Intec Israel was to domesticate as a wholly owned subsidiary
of a Delaware corporation by Domestication Merger Sub merging with and into Intec Israel, with Intec Israel being the surviving
entity and a wholly owned subsidiary of Indaptus, or the Domestication Merger.
On
June 21, 2021, Intec Israel held a special meeting of shareholders, or the Special Meeting, to consider certain proposals related to
the Domestication Merger and the Merger. Each of Intec Israel’s proposals was approved at the Special Meeting by the requisite
vote of Intec Israel shareholders.
On
July 27, 2021, Intec Israel, Indaptus and Domestication Merger Sub completed the Domestication Merger pursuant to the terms and
conditions of the Domestication Merger Agreement, whereby Domestication Merger Sub merged with and into Intec Israel, with Intec
Israel being the surviving entity and a wholly-owned subsidiary of Indaptus. To effect the Domestication Merger, Intec Israel
ordinary shares, having no par value per share, or Intec Israel Shares, outstanding immediately prior to the Domestication Merger
converted, on a one-for-one basis, into shares of Indaptus’ common stock, $0.01 par value per share, and all options and
warrants to purchase Intec Israel Shares outstanding immediately prior to the Domestication Merger were exchanged for equivalent
securities of Indaptus. As a result of the Domestication Merger, Intec Israel continued to possess all of its assets, rights, powers
and property as constituted immediately prior to the Domestication Merger and continued to be subject to all of its debts,
liabilities and obligations as constituted immediately prior to the Domestication Merger.
On
August 3, 2021, Indaptus changed its name from Intec Parent, Inc. to Indaptus Therapeutics, Inc. and completed the Merger following
the satisfaction or waiver of the conditions set forth in the Merger Agreement.
At
the effective time of the Merger, each share of Decoy common stock (including shares issuable upon the conversion of Decoy SAFEs (Simple
Agreements for Future Equity) and Decoy preferred stock, par value $0.001 per share, into Decoy common stock) converted into 2.654353395
shares of our common stock, par value $0.01 per share. In addition, at the effective time of the Merger, each outstanding and unexercised
Decoy stock option converted into a stock option exercisable for that number of shares of our common stock subject to such option and
the exercise price being appropriately adjusted to reflect the exchange ratio. Immediately following closing of the Merger there were
5,405,970 shares of our common stock outstanding, with pre-merger Decoy stockholders owning approximately 65.6% and pre-merger Intec
Israel shareholders owning approximately 34.4% of our common stock. The figures above do not give effect to shares issuable upon the
exercise of our outstanding warrants or options. Assuming the exercise in full of the pre-funded warrants sold in the August 2021 Private
Placement (as defined below), there would have been 8,133,243 shares of our common stock outstanding.
Following
completion of the Merger, shares of our common stock commenced trading at market open on August 4, 2021 on the Nasdaq Capital Market
under the name “Indaptus Therapeutics, Inc.” and ticker symbol “INDP”.
In
connection with the completion of the Merger, on August 4, 2021, our board determined to wind down the Accordion Pill business of Intec
Israel. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Winding
Down of Accordion Pill Business”.
Available Information
We
maintain a corporate website at http://www.indaptusrx.com. Copies of our reports on Forms 10-K, Forms 10-Q and Forms 8-K, may be obtained,
free of charge, electronically through our corporate website at http://www.indaptusrx.com as soon as reasonably practicable after we
file such material electronically with, or furnish to, the SEC. All of our SEC filings are also available on our website at http://www.indaptusrx.com,
as soon as reasonably practicable after having been electronically filed or furnished to the SEC. The public may read and copy any materials
filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC at www.sec.gov. The information on our website is not, and will not be deemed, a part of this Annual Report or incorporated into
any other filings we make with the SEC.
Item
1A. Risk Factors.
You
should carefully consider the factors described below, together with all of the other information contained in this Annual Report, including
the audited consolidated financial statements and the related notes included in this Annual Report beginning on page F-1,
before deciding whether to invest in our common stock. If any of the risks discussed below actually occur, our business, financial condition,
operating results and cash flows could be materially adversely affected. The risks described below are not the only risks facing us.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
This could cause the trading price of our common stock to decline, and you may lose all or part of your investment.
Summary
Risk Factors
The
principal factors and uncertainties that make investing in our common stock risky, include, among others:
Risks
Related to Our Financial Position and Capital Resources
| ● | We
are a pre-clinical-stage company, has a limited operating history, is not currently profitable,
does not expect to become profitable in the near future and may never become profitable. |
| | |
| ● | Given
our lack of current cash flow, we will need to raise additional capital; however, it may
be unavailable to us or, even if capital is obtained, may cause dilution or place significant
restrictions on our ability to operate our business. |
Risks
Related to Our Business, Industry and Regulatory Requirements
|
● |
We are dependent
on the success of one or more of our current product candidates and we cannot be certain that any of them will receive regulatory
approval or be commercialized. |
|
|
|
|
● |
If development of our product
candidates does not produce favorable results, we and our collaborators, if any, may be unable to commercialize these products. |
|
|
|
|
● |
We
expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability. |
|
|
|
|
● |
Our
product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization
or have other significant adverse implications on our business, financial condition and results of operations. |
|
|
|
|
● |
Our efforts to discover
product candidates beyond our current product candidates may not succeed, and any product candidates we recommend for clinical development
may not actually begin clinical trials. |
|
|
|
|
● |
Delays
in the commencement or completion of clinical trials could result in increased costs to us and delay our ability to establish strategic
collaborations. |
|
|
|
|
● |
A
pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations. |
|
|
|
|
● |
Our product candidates
are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming,
cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates. |
|
|
|
|
● |
If
our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable
safety profile or are demonstrated to be more effective than our product candidates, our commercial opportunity may be reduced or
eliminated. |
|
|
|
|
● |
We
are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our product
candidates. |
|
|
|
|
● |
The
commercial success of our product candidates depends upon their market acceptance among physicians, patients, healthcare payors and
the medical community. |
|
|
|
|
● |
We
are highly dependent on our current senior management. If we fail to retain current members of our senior management and scientific
personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product
candidates. |
Risks
Related to Our Reliance on Third Parties
|
● |
We rely on third parties to conduct our preclinical studies and clinical trials and perform other
tasks. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory
requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, financial
condition and results of operations could be substantially harmed. |
|
|
|
|
● |
We rely completely on third parties to manufacture our preclinical and clinical supplies, and our business, financial condition and results of operations could be harmed if those third parties fail to provide us with sufficient quantities of product, or fail to do so at acceptable quality levels or prices. |
|
|
|
|
● |
Any collaboration arrangement that we may enter into in the future may not be successful, which
could adversely affect our ability to develop and commercialize our current and potential future product candidates. |
|
|
|
|
● |
If we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant revenues. |
Risks
Related to Our Intellectual Property
|
● |
We may not be able to protect our proprietary or licensed technology in the marketplace. |
|
|
|
|
● |
Obtaining and maintaining patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection for licensed
patents, pending patent applications and potential future patent applications and patents could be reduced or eliminated for non-compliance
with these requirements. |
|
|
|
|
● |
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and prevent us from commercializing or increase the costs of commercializing our products. |
|
|
|
|
● |
Any claims or lawsuits relating to infringement of intellectual property rights brought by or
against us will be costly and time consuming and may adversely affect our business, financial condition and results of operations. |
|
|
|
|
● |
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our
ability to protect our products. |
Risks
Related to Ownership of Our Common Stock
|
● |
We are currently operating in a period of economic uncertainty and capital markets disruption,
which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. |
|
|
|
|
● |
The market price of our common stock is volatile and you may sustain a complete loss of your investment. |
|
|
|
|
● |
Maintaining and improving our financial controls and the requirements of being a public company
may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members. |
|
|
|
|
● |
Failure to maintain effective internal control over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our share price. |
|
|
|
|
● |
Sales of a substantial number of our shares in the public market by our existing shareholders
could cause our share price to decline. |
|
|
|
|
● |
Raising additional capital would cause dilution to our existing shareholders and may restrict
our operations or require it to relinquish rights. |
|
|
|
|
● |
We are a smaller reporting company and, as a result of the reduced disclosure and governance requirements
applicable to such companies, our shares of common stock may be less attractive to investors. |
Risks
Related to Our Financial Position and Capital Requirements
We
are a pre-clinical-stage company, has a limited operating history, is not currently profitable, does not expect to become profitable
in the near future and may never become profitable.
We
are a pre-clinical-stage biotechnology company focused primarily on developing a novel and patented systemically-administered anti-cancer
and anti-viral immunotherapy. All of our product candidates are in the pre-clinical development stage and none of our product candidates
have been approved for marketing or are being marketed or commercialized.
As
a result, we have no meaningful historical operations upon which to evaluate our business and prospects and has not yet demonstrated
an ability to obtain marketing approval for any of our product candidates or successfully overcome the risks and uncertainties frequently
encountered by companies in the biopharmaceutical industry. As a result, we have not been profitable and has incurred significant operating
losses in every reporting period since our inception. For the years ended December 31, 2021, and 2020 we reported net losses of approximately
$7.7 million and approximately $3.6 million, respectively, and had an accumulated deficit of approximately $15.7 million
as of December 31, 2021.
For
the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand
our development activities, seeks regulatory approvals for our product candidates, and begins to commercialize them if they are approved
by the FDA, the European Medicines Agency, or the EMA, or comparable foreign authorities. Even if we succeed in developing and commercializing
one or more product candidates, we may never become profitable.
Given
our lack of current cash flow, we will need to raise additional capital; however, it may be unavailable to us or, even if capital is
obtained, may cause dilution or place significant restrictions on our ability to operate our business.
Since
we will be unable to generate sufficient, if any, cash flow to fund our operations for the foreseeable future, we will need to seek additional
equity or debt financing to provide the capital required to maintain or expand our operations.
There
can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing
is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit or eliminate the
development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial
condition and results of operations may be materially adversely affected. In addition, we may be required to grant rights to develop
and market product candidates that it would otherwise prefer to develop and market itself. Our inability to fund our business could lead
to the loss of your investment.
Our
future capital requirements will depend on many factors, including, but not limited to:
| ● | the
scope, rate of progress, results and cost of our clinical trials, preclinical studies and
other related activities; |
| | |
| ● | the
timing of, and the costs involved in, obtaining regulatory approvals for any of our current
or future product candidates; |
| | |
| ● | the
number and characteristics of the product candidates it seeks to develop or commercialize; |
| | |
| ● | the
cost of manufacturing clinical supplies, and establishing commercial supplies, of our product
candidates; |
| | |
| ● | the
cost of commercialization activities if any of our current or future product candidates are
approved for sale, including marketing, sales and distribution costs; |
| | |
| ● | the
expenses needed to attract and retain skilled personnel; |
| | |
| ● | the
costs associated with being a public company; |
| | |
| ● | the
amount of revenue, if any, received from commercial sales of our product candidates, should
any of our product candidates receive marketing approval; and |
| | |
| ● | the
costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible
patent claims, including litigation costs and the outcome of any such litigation. |
If
we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly
these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and
privileges senior to those of our common stock. Given our need for cash and that equity issuances are the most common type of fundraising
for similarly situated companies, the risk of dilution is particularly significant for our stockholders.
Risks
Related to Our Business, Industry and Regulatory Requirements
We
are dependent on the success of one or more of our current product candidates and we cannot be certain that any of them will receive
regulatory approval or be commercialized.
We
have spent significant time, money and effort on the development of our lead product candidate, Decoy20. As a result, our business is
largely dependent on the commencement of and success of the Decoy20 and our ability to complete the development of, obtain regulatory
approval for, and successfully commercialize Decoy20 in a timely manner. The commencement of a Phase 1 clinical trial with solid tumor
patients for Decoy20 is dependent, in part, upon the success of an Investigational New Drug, or an IND, application that we plan to file
with the FDA in the first half of 2022. There can be no assurance regarding the outcome of the IND. The process to develop, obtain regulatory
approval for and commercialize Decoy20 is long, complex, costly and uncertain as to our outcome.
To
date, no clinical trials designed to provide proof of efficacy, or to provide sufficient evidence of safety, have been completed with
any of our product candidates. All of our product candidates will require additional development, including clinical trials as well as
further preclinical studies to evaluate their toxicology and optimize their formulation and regulatory clearances before they can be
commercialized. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory
clearances will be obtained. Our development efforts may not lead to commercial products, either because our product candidates fail
to be safe and effective or because we have inadequate financial or other resources to advance our product candidates through the clinical
development and approval processes. If any of our product candidates fail to demonstrate safety or efficacy at any time or during any
phase of development, we would experience potentially significant delays in, or be required to abandon, development of the product candidate.
We
do not anticipate that any of our current product candidates will be eligible to receive regulatory approval from the FDA, the EMA or
comparable foreign authorities and begin commercialization for a number of years, if ever. Even if we ultimately receive regulatory approval
for any of these product candidates, we or our potential future partners, if any, may be unable to commercialize them successfully for
a variety of reasons. These include, for example, the availability of alternative treatments, lack of cost-effectiveness, the cost of
manufacturing the product on a commercial scale and competition with other products. The success of our product candidates may also be
limited by the prevalence and severity of any adverse side effects. If we fail to commercialize one or more of our current product candidates,
we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition may decline.
If
development of our product candidates does not produce favorable results, we and our collaborators, if any, may be unable to commercialize
these products.
To
receive regulatory approval for the commercialization of product candidates that we may develop, adequate and well-controlled clinical
trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA and comparable foreign
authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase 2 and/or
Phase 3 clinical trials, which our current product candidates have not yet reached and may never reach. The development process is expensive,
can take many years and has an uncertain outcome. Failure can occur at any stage of the process. We may experience numerous unforeseen
events during, or as a result of, the development process that could delay or prevent commercialization of our current or future product
candidates, including the following:
| ● | clinical
trials may produce negative or inconclusive results; |
| | |
| ● | preclinical
studies conducted with product candidates during clinical development to, among other things,
further evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their
formulation may produce unfavorable results; |
| | |
| ● | patient
recruitment and enrollment in clinical trials may be slower than we anticipate; |
| | |
| ● | costs
of development may be greater than we anticipate; |
| | |
| ● | our
product candidates may cause undesirable side effects that delay or preclude regulatory approval
or limit their commercial use or market acceptance, if approved; |
| | |
| ● | collaborators
who may be responsible for the development of our product candidates may not devote sufficient
resources to these clinical trials or other preclinical studies of these candidates or conduct
them in a timely manner; or |
| | |
| ● | we
may face delays in obtaining regulatory approvals to commence one or more clinical trials. |
Success
in early development does not mean that later development will be successful because, for example, product candidates in later-stage
clinical trials may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.
In
the future, we or any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for
development of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels
required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising,
such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities. Further, data generated
during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data
in different ways than we or our collaborators do. Our failure to adequately demonstrate the safety and efficacy of our product candidates
would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product candidates.
Since
we do not currently possess the resources necessary to independently develop and commercialize our product candidates or any other product
candidates that we may develop, we may seek to enter into collaborative agreements to assist in the development and potential future
commercialization of some or all of these assets as a component of our strategic plan. However, our discussions with potential collaborators
may not lead to the establishment of collaborations on acceptable terms, if at all, or it may take longer than expected to establish
new collaborations, leading to development and potential commercialization delays, which would adversely affect our business, financial
condition and results of operations.
We
expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.
We
expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our product candidates,
and to manufacture and market any product candidates in the event they are approved for commercial sale. We also may need additional
funding to develop or acquire complementary companies, technologies and assets, as well as for working capital requirements and other
operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically increase our costs in the near
and long-term.
However,
our spending on current and future research and development programs and product candidates for specific indications may not yield any
commercially viable products. Due to our limited financial and managerial resources, we must focus on a limited number of research programs
and product candidates and on specific indications. Our resource allocation decisions may cause it to fail to capitalize on viable commercial
products or profitable market opportunities.
Because
the successful development of our product candidates is uncertain, we are unable to precisely estimate the actual funds we will require
to develop and potentially commercialize them. In addition, we may not be able to generate sufficient revenue, even if we are able to
commercialize any of our product candidates, to become profitable.
Our
product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization or have
other significant adverse implications on our business, financial condition and results of operations.
Undesirable
side effects observed in supportive preclinical studies or in clinical trials with our product candidates could interrupt, delay or halt
their development and could result in the denial of regulatory approval by the FDA, the EMA or comparable foreign authorities for any
or all targeted indications or adversely affect the marketability of any such product candidates that receive regulatory approval. In
turn, this could eliminate or limit our ability to commercialize our product candidates. Since the mechanism of action of our product
candidates depends on stimulation of the immune system, there is the potential for over-stimulation or undesirable immune reactions.
Our
product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with certain drugs. There are
also risks associated with additional requirements the FDA, the EMA or comparable foreign authorities may impose for marketing approval
with regard to a particular disease.
Our
product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines,
appropriate promotional activities, a post-marketing observational study, and ongoing safety and reporting mechanisms, among other requirements.
Prescribing could be limited to physician specialists or physicians trained in the use of the product or could be limited to a more restricted
patient population. Any risk management program required for approval of our product candidates could potentially have an adverse effect
on our business, financial condition and results of operations.
Undesirable
side effects involving our product candidates may have other significant adverse implications on our business, financial condition and
results of operations. For example:
| ● | we
may
be unable to obtain additional financing on acceptable terms, if at all; |
| | |
| ● | our
collaborators
may terminate any development agreements covering these product candidates; |
| | |
| ● | if
any development agreements are terminated, we may determine not to further develop the affected
product candidates due to resource constraints and may not be able to establish additional
collaborations for their further development on acceptable terms, if at all; |
| | |
| ● | if
we were to later continue the development of these product candidates and receive regulatory
approval, earlier findings may significantly limit their marketability and thus significantly
lower our potential future revenues from their commercialization; |
| | |
| ● | we
may
be subject to product liability or stockholder litigation; and |
| | |
| ● | we
may
be unable to attract and retain key employees. In addition, if any of our product candidates
receive marketing approval and we or others later identify undesirable side effects caused
by the product: |
| | |
| ● | regulatory
authorities
may withdraw their approval of the product, or we or our partners may decide to cease marketing
and sale of the product voluntarily; |
| | |
| ● | we
may
be required to change the way the product is administered, conduct additional clinical trials
or preclinical studies regarding the product, change the labeling of the product, or change
the product’s manufacturing facilities; and |
| | |
| ● | our
reputation may suffer. |
Any
of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase
the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from
the sale of the product.
Our
efforts to discover product candidates beyond our current product candidates may not succeed, and any product candidates we recommend
for clinical development may not actually begin clinical trials.
We
intend to expand our existing pipeline of core assets. However, the process of researching and developing new product candidates is expensive,
time-consuming and unpredictable. Data from our current preclinical programs may not support the clinical development of our lead product,
Decoy20, and we may not identify any additional products suitable for recommendation for clinical development. Moreover, any product
we recommend for clinical development may not demonstrate, through preclinical studies, indications of safety and potential efficacy
that would support advancement into clinical trials. Such findings would potentially impede our ability to maintain or expand our clinical
development pipeline. Our ability to develop new product candidates and advance them into clinical development also depends upon our
ability to fund our research and development operations, and we cannot be certain that additional funding will be available on acceptable
terms, or at all.
Delays
in the commencement or completion of clinical trials could result in increased costs to us and delay our ability to establish strategic
collaborations.
Delays
in the commencement or completion of clinical trials could significantly impact our development costs. We plan to file an IND (or a foreign
equivalent) for Decoy20 in the first half of 2022 and then initiate in 2022 a Phase 1 clinical trial with solid tumor patients. We do
not know whether this or any other clinical trial will begin on time or be completed on schedule, if at all. The commencement of clinical
trials can be delayed for a variety of reasons, including, but not limited to, delays related to:
| ● | obtaining
regulatory approval to commence one or more clinical trials; |
| | |
| ● | reaching
agreement on acceptable terms with prospective third-party contract research organizations,
or CROs, and clinical trial sites; |
| | |
| ● | manufacturing
sufficient quantities of a product candidate or other materials necessary to conduct clinical
trials; |
| ● | obtaining
institutional review board approval to conduct one or more clinical trials at a prospective
site; |
| | |
| ● | recruiting
and enrolling patients to participate in one or more clinical trials; and |
| | |
| ● | the
failure of our collaborators to adequately resource our product candidates due to their focus
on other programs or as a result of general market conditions. In addition, once a clinical
trial has begun, it may be suspended or terminated by us, our collaborators, the institutional
review boards or data safety monitoring boards charged with overseeing our clinical trials,
and/or relevant governing authorities due to a number of factors, including: |
| | |
| ● | failure
to conduct the clinical trial in accordance with regulatory requirements or clinical protocols; |
| | |
| ● | inspection
of the clinical trial operations or clinical trial site by relevant governing authorities
resulting in the imposition of a clinical hold; |
| | |
| ● | unforeseen
safety issues; or |
| | |
| ● | lack
of adequate funding to continue the clinical trial. |
If
we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our
product candidates will be harmed, and our ability to commence product sales and generate product revenues from any of our product candidates
will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate
development and approval process. Delays in completing our clinical trials could also allow our competitors to obtain marketing approval
before we do or shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates.
Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
A
pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.
The
outbreak of a novel coronavirus (COVID-19) originated in Wuhan, China in December 2019. On March 11, 2020, the World Health Organization
declared the outbreak a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect our operations
and those of third parties on which we rely, including by causing disruptions in the supply of our product candidates and the conduct
of current and future clinical trials. For example, the pandemic has caused our GMP process to take longer than expected. In addition,
the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and
approvals, including with respect to our product candidates. Additionally, while the potential economic impact brought by, and the duration
of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce
our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19
pandemic is highly uncertain and subject to change. While it is unknown how long these conditions will last and what the complete financial
effect will be to us, capital raise efforts and additional development of our technologies may be negatively affected.
Our
product candidates are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be costly
and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
The
clinical development, manufacturing, testing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution
of our product candidates are subject to extensive regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities
in foreign markets. In the U.S., neither we nor our collaborators are permitted to market our product candidates until we or our collaborators
receive approval of an NDA or Biologics License Applications, or BLA, from the FDA or receive similar approvals abroad. The process of
obtaining these approvals is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty
of the product candidates involved. Approval policies or regulations may change and may be influenced by the results of other similar
or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any guidance that may
result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize such product candidates. In
addition, as a company, we have not previously filed any NDAs or BLAs with the FDA or filed similar applications with other foreign regulatory
agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency approval in a timely manner,
if at all, for our product candidates for which development and commercialization is our responsibility.
Despite
the time and expense invested, regulatory approval is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay,
limit or deny approval of a product candidate for many reasons, including:
| ● | a
product candidate may not be deemed safe or effective; |
| | |
| ● | agency
officials of the FDA, the EMA or comparable foreign authorities may not find the data from
non-clinical or preclinical studies and clinical trials generated during development to be
sufficient; |
| ● | the
FDA, the EMA or comparable foreign authorities may not approve our third-party manufacturers’
processes or facilities; or |
| | |
| ● | the
FDA, the EMA or a comparable foreign authority may change our approval policies or adopt
new regulations. |
Our
inability to obtain these approvals would prevent us from commercializing our product candidates.
Even
if our product candidates receive regulatory approval in the U.S., it may never receive approval or commercialize our products outside
of the U.S.
In
order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other
countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional
administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA
approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the
U.S. as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay
in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory
approval in other countries or any delay seeking or obtaining such approval would impair our ability to develop foreign markets for our
product candidates.
Even
if any of our product candidates receive regulatory approval, our product candidates may still face future development and regulatory
difficulties.
If
any of our product candidates ever receive regulatory approval, the FDA, the EMA or comparable foreign authorities may still impose significant
restrictions on the indicated uses or marketing of the product candidates or impose ongoing requirements for potentially costly post-approval
studies and trials. In addition, regulatory agencies subject a product, its manufacturer and the manufacturer’s facilities to continual
review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events
of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose
restrictions on that product, our collaborators or us, including requiring withdrawal of the product from the market. Our product candidates
will also be subject to ongoing FDA, the EMA or comparable foreign authorities’ requirements for the labeling, packaging, storage,
advertising, promotion, record-keeping and submission of safety and other post-market information on the product. If our product candidates
fail to comply with applicable regulatory requirements, a regulatory agency may:
| ● | issue
warning letters or other notices of possible violations; |
| | |
| ● | impose
civil or criminal penalties or fines or seek disgorgement of revenue or profits; |
| | |
| ● | suspend
any ongoing clinical trials; |
| | |
| ● | refuse
to approve pending applications or supplements to approved applications filed by us or our
collaborators; |
| | |
| ● | withdraw
any regulatory approvals; |
| | |
| ● | impose
restrictions on operations, including costly new manufacturing requirements, or shut down
our manufacturing operations; or |
| | |
| ● | seize
or detain products or require a product recall. |
If
our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable
safety profile or are demonstrated to be more effective than our product candidates, our commercial opportunity may be reduced or eliminated.
The
industry in which we operate is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary
products. While we believe that our technology, knowledge, experience and scientific resources provide it with competitive advantages,
we face potential competition from many different sources, including commercial biotechnology enterprises, academic institutions, government
agencies and private and public research institutions. Any product candidates that we successfully develop and commercializes will compete
with existing immunotherapies and new immunotherapies that may become available in the future.
Many
of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical
studies, clinical trials, regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our competitors
may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than any which we are developing,
or that would render our product candidates obsolete and noncompetitive. Even if we obtain regulatory approval for any of our product
candidates, our competitors may succeed in obtaining regulatory approvals for their products earlier than we do. We will also face competition
from these third parties in recruiting and retaining qualified scientific and management personnel, in establishing clinical trial sites
and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs
or advantageous to our business.
The
key competitive factors affecting the success of each of our product candidates, if approved, are likely to be its efficacy, safety,
tolerability, frequency and route of administration, convenience and price, the level of branded and generic competition and the availability
of coverage and reimbursement from government and other third-party payors.
We
are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our product
candidates.
The
process of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the process
of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper
installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes for any
of our product candidates could result in reduced production yields, product defects, and other supply disruptions. If microbial, viral,
or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are
made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
In addition, the manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures,
labor shortages, natural disasters, power failures and numerous other factors.
In
addition, any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory
shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of our product candidates. We also may need to
take inventory write-offs and incur other charges and expenses for product candidates that fail to meet specifications, undertake costly
remediation efforts, or seek costlier manufacturing alternatives.
The
commercial success of our product candidates depends upon their market acceptance among physicians, patients, healthcare payors and the
medical community.
Even
if our product candidates obtain regulatory approval, our products, if any, may not gain market acceptance among physicians, patients,
healthcare payors and the medical community. The degree of market acceptance of any of our approved product candidates will depend on
a number of factors, including:
| ● | the
effectiveness of our approved product candidates as compared to currently available products; |
| | |
| ● | patient
willingness to adopt our approved product candidates in place of current therapies; |
| | |
| ● | our
ability to provide acceptable evidence of safety and efficacy; |
| ● | relative
convenience and ease of administration; |
| | |
| ● | the
prevalence and severity of any adverse side effects; |
| | |
| ● | restrictions
on use in combination with other products; |
| | |
| ● | availability
of alternative treatments; |
| | |
| ● | pricing
and cost-effectiveness assuming either competitive or potential premium pricing requirements,
based on the profile of our product candidates and target markets; |
| | |
| ● | effectiveness
of us or our partners’ sales and marketing strategy; |
| | |
| ● | our
ability to obtain sufficient third-party coverage or reimbursement; and |
| | |
| ● | potential
product liability claims. |
In
addition, the potential market opportunity for our product candidates is difficult to precisely estimate. Our estimates of the potential
market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications,
third-party research reports and other surveys. Independent sources have not verified all of our assumptions. If any of these assumptions
proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of our potential market
opportunity. If the actual market for our product candidates is smaller than we expect, our product revenue may be limited, it may be
harder than expected to raise funds and it may be more difficult for us to achieve or maintain profitability. If we fail to achieve market
acceptance of our product candidates in the U.S. and abroad, our revenue will be limited and it will be more difficult to achieve profitability.
We
expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform,
which could adversely affect third-party coverage of our products and how much or under what circumstances healthcare providers will
prescribe or administer our products.
In
the United States, there have been, and continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare
system that could affect our future results and others in the biotechnology industry. In particular, there have been and continue to
be a number of initiatives at the federal and state levels that seek to reduce healthcare costs. For example, the Patient Protection
and Affordable Care Act, or the PPACA, was enacted in March 2010, which includes measures to significantly change the way healthcare
is financed by both governmental and private insurers.
Some
of the provisions of the PPACA have yet to be implemented, and there have been legal and political challenges to certain aspects of the
PPACA. Many of the details regarding the implementation of the PPACA are yet to be determined, and at this time, the full effect that
the PPACA would have on a pharmaceutical manufacturer remains unclear.
Individual
states have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and
biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access,
and marketing cost disclosure and transparency measures, and to encourage importation from other countries and bulk purchasing. Legally
mandated price controls on payment amounts by third-party payors or other restrictions could harm a pharmaceutical manufacturer’s
business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals
are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription
drug and other healthcare programs. This could reduce ultimate demand for certain products or put pressure product pricing, which could
negatively affect a pharmaceutical manufacturer’s business, results of operations, financial condition and prospects.
It
is also possible that President Biden will further reform the PPACA and other federal programs in manner that may impact our operations.
The Biden Administration has indicated that a goal of its administration is to expand and support Medicaid and the PPACA and to make
high-quality healthcare accessible and affordable. The potential increase in patients covered by government funded insurance may impact
pricing of our products should they be approved for commercial use and sale. Further, it is possible that the Biden Administration may
further increase the scrutiny on drug pricing.
In
addition, given recent federal and state government initiatives directed at lowering the total cost of healthcare, the executive branch,
Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and biologics and
the reform of the Medicare and Medicaid programs. For example, there have been several recent U.S. congressional inquiries and proposed
federal and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the
relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program
reimbursement methodologies for drug products. Further, in July 2020, President Trump issued a number of executive orders that are intended
to lower the costs of prescription drug products including one that directs the United States Department of Health and Human Services
to finalize the rulemaking process on modifying the anti-kickback law safe harbors for discounts for plans, pharmacies, and pharmaceutical
benefit managers. It remains to be seen whether these orders will remain in effect in the Biden Administration. While no one can predict
the full outcome of any such legislation, it may result in decreased reimbursement for drugs and biologics, which may further exacerbate
industry-wide pressure to reduce prescription drug prices. This could harm a drug manufacturer’s ability to generate revenue. Increases
in importation or re-importation of drug products from foreign countries into the United States could put competitive pressure on a drug
manufacturer’s ability to profitably price products, which, in turn, could adversely affect business, results of operations, financial
condition and prospects. A drug manufacturer might elect not to seek approval for or market products in foreign jurisdictions in order
to minimize the risk of re-importation, which could also reduce the revenue generated from product sales. It is also possible that other
legislative proposals having similar effects will be adopted.
Furthermore,
regulatory authorities’ assessment of the data and results required to demonstrate safety and efficacy can change over time and
can be affected by many factors, such as the emergence of new information, including on other products, changing policies and agency
funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable
to our business prospects. For example, average review times at the FDA for marketing approval applications can be affected by a variety
of factors, including budget and funding levels and statutory, regulatory and policy changes.
Changes
in government funding for the FDA and other government agencies could hinder our ability to hire and retain key leadership and other
personnel or prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial
condition and results of operations.
The
ability of the FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels, ability
to hire and retain key personnel, and statutory, regulatory and policy changes. In addition, government funding of other agencies that
fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
In
December 2016, the 21st Century Cures Act was signed into law. This new legislation is designed to advance medical innovation and empower
the FDA with the authority to directly hire positions related to drug and device development and review. However, government proposals
to reduce or eliminate budgetary deficits may include reduced allocations to the FDA and other related government agencies. These budgetary
pressures may result in a reduced ability by the FDA to perform their respective roles; including the related impact to academic institutions
and research laboratories whose funding is fully or partially dependent on both the level and timing of funding from government sources.
Disruptions
at the FDA and other agencies may also slow the time necessary for our product candidates to be reviewed or approved by necessary government
agencies, which could adversely affect our business, financial condition and results of operations.
We
are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail
in any litigation related to noncompliance could harm our business, financial condition and results of operations.
In
the U.S., we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false
claims laws and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The federal
Anti-Kickback Statute makes it illegal for any person, or a party acting on its behalf, to knowingly and willfully solicit, receive,
offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a
particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such
as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these
laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly,
it is possible that our practices may be challenged under the federal Anti-Kickback Statute.
The
federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the
government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for
items or services that were not provided as claimed, or claims for medically unnecessary items or services. Under the Health Insurance
Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare
benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making
any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items
or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal
or civil sanctions, including penalties, fines or exclusion or suspension from federal and state healthcare programs such as Medicare
and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions
on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.
Many
states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare
services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical
companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the
Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also
impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are
ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement,
it could be subject to penalties.
Neither
the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement
authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these
laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations
will involve substantial costs. If we are found in violation of one of these laws, we could be subject to significant civil, criminal
and administrative penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs and the curtailment
or restructuring of our operations. If this occurs, our business, financial condition and results of operations may be materially adversely
affected.
We
are highly dependent on our current senior management. If we fail to retain current members of our senior management and scientific
personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product candidates.
We
are highly dependent on our chief executive officer, Jeffrey A. Meckler, our chief scientific officer, Michael J. Newman, Ph.D and
our chief medical officer, Boyan Litchev, M.D.. Our success depends on our continued ability to attract, retain and motivate highly
qualified management and scientific personnel. However, competition for qualified personnel is intense. We may not be successful in attracting
qualified personnel to fulfill our current or future needs on a full-time employment basis, or at all. In the event we are unable to
fill critical open employment positions, we may need to delay our operational activities and goals, including the development of the
company’s product candidates, and may have difficulty in meeting our obligations as a public company. We do not currently maintain
“key person” insurance on any of our employees.
In
addition, competitors and others are likely in the future to attempt to recruit our employees. The loss of the services of any of our
key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly
senior management and other technical personnel, could materially and adversely affect our business, financial condition and results
of operations. In addition, the replacement of key personnel likely would involve significant time and costs and may significantly delay
or prevent the achievement of our business objectives.
From
time to time, our management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical and regulatory
development programs and other customary matters. These scientific advisors and consultants are not our employees and may have commitments
to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our scientific advisors
may have arrangements with other companies to assist those companies in developing products or technologies that may compete with us.
We
will need to increase the size of our organization and may not successfully manage our growth.
We
are a pre-clinical-stage biotechnology company with a small number of employees, and our management systems currently in place are not
likely to be adequate to support our future growth plans. Our ability to grow and to manage our growth effectively will require us to
hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management
systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise
by our senior management personnel. Hiring a significant number of additional employees, particularly those at the management level,
would increase our expenses significantly. Moreover, if we fail to expand and enhance our operational, financial and management
systems in conjunction with our potential future growth, it could have a material adverse effect on our business, financial condition
and results of operations.
We
are exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden upon us,
should lawsuits be filed against us.
Our
business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and
marketing of medical products. In addition, the use in our clinical trials of medical products and the subsequent sale of these products
by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or
series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
Our
research and development activities may involve the use of hazardous materials, which subject us to regulation, related costs and potential
delays and potential liabilities.
Our
research and development activities may involve the controlled use of hazardous materials, chemicals or various radioactive compounds.
If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental,
health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens
and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be
adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these laws
or regulations.
We
rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including
any cybersecurity incidents, could harm our ability to operate our business effectively.
Despite
the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable
to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures. System failures, accidents or security breaches could cause interruptions in our operations and could result in a material
disruption of our product development and clinical activities and business operations, in addition to possibly requiring substantial
expenditures of resources to remedy. The loss of product development or clinical trial data could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security
breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur liability and our development programs and the development of our product candidates could be delayed.
We
may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our
management.
From
time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing
of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different
business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations
and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures
and may pose significant integration challenges or disrupt our management or business, which could adversely affect our business, financial
condition and results of operations. For example, these transactions may entail numerous operational and financial risks, including:
| ● | exposure
to unknown liabilities; |
| | |
| ● | disruption
of our business and diversion of our management’s time and attention in order to develop
acquired products, product candidates or technologies; |
| | |
| ● | incurrence
of substantial debt or dilutive issuances of equity securities to pay for any of these transactions; |
| | |
| ● | higher-than-expected
transaction and integration costs; |
| | |
| ● | write-downs
of assets or goodwill or impairment charges; |
| | |
| ● | increased
amortization expenses; |
| | |
| ● | difficulty
and cost in combining the operations and personnel of any acquired businesses or product
lines with our operations and personnel; |
| | |
| ● | impairment
of relationships with key suppliers or customers of any acquired businesses or product lines
due to changes in management and ownership; and |
| | |
| ● | inability
to retain key employees of any acquired businesses. |
Accordingly,
although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any
transactions that we do complete may be subject to the foregoing or other risks and could have a material adverse effect on our business,
financial condition and results of operations.
Risks
Related to Our Reliance on Third Parties
We
rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully
carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory
approval for or commercialize our product candidates and our business, financial condition and results of operations could be substantially
harmed.
We
rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor and manage data for our
ongoing preclinical and clinical programs. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and
preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance
on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply
with requirements for cGMP, good clinical practice, or GCP, and good laboratory practice , or GLP, which are a collection of laws and
regulations enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development.
Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal
investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply
with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA,
the EMA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials before approving
our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will
determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products
produced consistent with cGMP regulations. Our failure to comply with these regulations may require it to repeat clinical trials, which
would delay the development and regulatory approval processes.
We
may not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, our CROs will not be our
employees, and except for remedies available to us under our agreements with such CROs, we will not be able to control whether or not
they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfully carry out their
contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they
obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials
may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product
candidates. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations
and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our
ability to generate revenue could be delayed.
Switching
or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires
management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO.
As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. There can be no
assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material
adverse effect on our business, financial condition or results of operations.
We
rely completely on third parties to manufacture our preclinical and clinical supplies, and our business, financial condition and results
of operations could be harmed if those third parties fail to provide us with sufficient quantities of product, or fail to do so at acceptable
quality levels or prices.
We
do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and
clinical supplies for use in our clinical trials, and we lack the resources and the capability to manufacture any of our product candidates
on a clinical or commercial scale. We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce
our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture
our product candidates, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of
the materials necessary to produce our product candidates for our clinical trials, and, if approved, ultimately for commercial sale.
We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Any significant
delay or discontinuity in the supply of a product candidate, or the raw material components thereof, for a clinical trial in the future
due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and
potential regulatory approval of our product candidates, which could harm our business, financial condition and results of operations.
Any
collaboration arrangement that we may enter into in the future may not be successful, which could adversely affect our ability to develop
and commercialize our current and potential future product candidates.
We
may seek collaboration arrangements with biopharmaceutical companies for the development or commercialization of our current and potential
future product candidates. To the extent that we decide to enter into collaboration agreements, we will face significant competition
in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, execute and implement.
We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose
to enter into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we collaborate with a third
party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future
success of that product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts
and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that
they will apply to these collaborations.
Disagreements
between parties to a collaboration arrangement can lead to delays in developing or commercializing the applicable product candidate and
can be difficult to resolve in a mutually beneficial manner. In some cases, collaborations with biopharmaceutical companies and other
third parties are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect our business,
financial condition and results of operations.
If
we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates,
we may be unable to generate significant revenues.
We
do not have a sales and marketing organization, and we have no experience as a company in the sales, marketing and distribution of pharmaceutical
products. If any of our product candidates are ever approved for commercialization, we may be required to develop our sales, marketing
and distribution capabilities, or make arrangements with a third party to perform sales and marketing services. Developing a sales force
for any product resulting from any of our product candidates is expensive and time consuming and could delay any product launch. We may
be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do
establish may not be capable of generating sufficient demand for our product candidates. To the extent that we enter into arrangements
with collaborators or other third parties to perform sales and marketing services, our product revenues are likely to be lower than if
we marketed and sold our product candidates independently. If we are unable to establish adequate sales and marketing capabilities, independently
or with others, we may not be able to generate significant revenues and may not become profitable.
Risks
Related to Our Intellectual Property
We
may not be able to protect our proprietary or licensed technology in the marketplace.
We
depend on our ability to protect our proprietary technology and products, or those that we may license. We intend to rely on trade secret,
patent, copyright and trademark laws, confidentiality, license, and other agreements with employees and third parties to protect our
intellectual property. Our success depends in large part on our ability and any licensor’s or licensee’s ability to obtain
and maintain patent protection in the U.S. and other countries with respect to our proprietary or licensed technology and products. We
cannot be certain that patent enforcement activities by future licensors will be conducted in compliance with applicable laws and regulations
or will result in valid and enforceable patents or other intellectual property rights. We also cannot be certain that future licensors
will allocate sufficient resources or prioritize their or our enforcement of such patents. Even if we are not a party to these legal
actions, an adverse outcome could prevent us from licensing intellectual property that we may need to operate our business, which would
have a material adverse effect on our business, financial condition and results of operations.
We
believe we will be able to obtain, through prosecution of patent applications covering our owned technology, adequate patent protection
for our proprietary technology. If we are compelled to spend significant time and money protecting or enforcing our patents and future
patents that we may own, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other
proprietary rights held by others, our business, financial condition and results of operations may be materially and adversely affected.
If we are unable to effectively protect the intellectual property that we own or in-license, other companies may be able to offer the
same or similar products for sale, which could materially adversely affect our business, financial condition and results of operations.
The patents of others from whom we may license technology, and any future patents we may own, may be challenged, narrowed, invalidated
or circumvented, which could limit our ability to stop competitors from marketing the same or similar products or limit the length of
term of patent protection that we may have for our products.
We
may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We
may be unable to acquire or in-license any compositions, methods of use, processes or other intellectual property rights from third parties
that we identify as necessary for our current or future product candidates. We may face competition with regard to acquiring and in-licensing
third-party intellectual property rights, including from a number of more established companies. These established companies may have
a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property rights to us.
We also may be unable to acquire or in-license third-party intellectual property rights on terms that would allow it to make an appropriate
return on our investment.
We
may enter into collaboration agreements with U.S. and foreign academic institutions to accelerate development of our current or future
preclinical product candidates. Typically, these agreements include an option for the company to negotiate a license to the institution’s
intellectual property rights resulting from the collaboration. Even with such an option, we may be unable to negotiate a license within
the specified timeframe or under terms that are acceptable to us. If we are unable to license rights from a collaborating institution,
the institution may offer the intellectual property rights to other parties, potentially blocking us ability to pursue our desired program.
If
we are unable to successfully obtain required third-party intellectual property rights or maintain our existing intellectual property
rights, we may need to abandon development of the related program and our business, financial condition and results of operations could
be materially and adversely affected.
Obtaining
and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by governmental patent agencies, and our patent protection for licensed patents, pending patent applications and potential future
patent applications and patents could be reduced or eliminated for non-compliance with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will be due to
be paid to the United States Patent and Trademark Office (USPTO) and various governmental patent agencies outside of the U.S. in several
stages over the lifetime of the applicable patent and/or patent application. The USPTO and various non-U.S. governmental patent agencies
require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process.
In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules.
However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting
in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs with respect to our in-licensed patents or
patent applications we may file in the future, our competitors might be able to use our technologies, which would have a material adverse
effect on our business, financial condition and results of operations.
The
patent positions of products are often complex and uncertain. The breadth of claims allowed in patents in the U.S. and many jurisdictions
outside of the U.S. may not be consistent. Changes in either the patent laws or interpretations of patent laws in the U.S. and other
countries may diminish the value of our licensed or owned intellectual property or create uncertainty. In addition, publication of information
related to our current product candidates and potential products may prevent us from obtaining or enforcing patents relating to these
product candidates and potential products, including without limitation composition-of-matter patents, which are generally believed to
offer the strongest patent protection.
Patents
that we may own now or may own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual
property for a number of reasons, including, without limitation, the following:
| ● | the
patents may not be broad or strong enough to prevent competition from other products that
are identical or similar to our product candidates; |
| | |
| ● | there
can be no assurance that the term of a patent can be extended under the provisions of patent
term extensions afforded by U.S. law or similar provisions in foreign countries, where available; |
| | |
| ● | the
issued patents and patents that we may own now or may obtain or license in the future may
not prevent generic or biosimilar entry into the market for our product candidates; |
| | |
| ● | we,
or third parties from whom we in-license or may license patents, may be required to disclaim
part of the term of one or more patents; |
| | |
| ● | there
may be prior art of which we are not aware that may affect the validity or enforceability
of a patent claim; |
| | |
| ● | there
may be prior art of which we are aware, which we do not believe affects the validity or enforceability
of a patent claim, but which, nonetheless, ultimately may be found to affect the validity
or enforceability of a patent claim; |
| | |
| ● | there
may be other patents issued to others that will affect our freedom to operate; |
| | |
| ● | if
the patents are challenged, a court could determine that they are invalid or unenforceable; |
| | |
| ● | there
might be a significant change in the law that governs patentability, validity and infringement
of our licensed patents or any future patents we may own that adversely affects the scope
of our patent rights; |
| | |
| ● | a
court could determine that a competitor’s technology or product does not infringe our
patents or any future patents we may own; and |
| | |
| ● | the
patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations
or could be subject to compulsory licensing. If we encounter delays in our development or
clinical trials, the period of time during which we could market our potential products under
patent protection would be reduced. |
Our
competitors may be able to circumvent patents or future patents that we may own by developing similar or alternative technologies
or products in a non-infringing manner. Our competitors may seek to market generic or biosimilar versions of any approved products by
submitting abbreviated new applications or biosimilar biological product applications to the FDA in which our competitors claim that
our licensed patents or any future patents we may own are invalid, unenforceable or not infringed. Alternatively, our competitors may
seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need
to defend or assert our patents or any future patents we may own, including by filing lawsuits alleging patent infringement. In any of
these types of proceedings, a court or other agency with jurisdiction may find our licensed patents or any future patents we may own
invalid or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late to obtain
patent protection. Even if we own or in-license valid and enforceable patents, these patents still may not provide protection against
competing products or processes sufficient to achieve our business objectives.
The
issuance of a patent is not conclusive as to its inventorship, scope, ownership, priority, validity or enforceability. In this regard,
third parties may challenge our patents or any future patents we may own in the courts or patent offices in the U.S. and abroad. Such
challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable,
in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products,
or limit the duration of the patent protection of our technology and potential products. In addition, given the amount of time required
for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire
before or shortly after such product candidates are commercialized.
We
may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and prevent us from
commercializing or increase the costs of commercializing our products.
Our
commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights
of third parties. For example, there could be issued patents of which we are not aware that our current or potential future product candidates
infringe. There also could be patents that we believe we do not infringe upon, but that may ultimately be found to infringe upon.
Moreover,
patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific
or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications
were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may
later result in issued patents that our product candidates or potential products infringe. For example, pending applications may exist
that claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors may file
continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part
applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.
Third
parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual
property infringement. These lawsuits are costly and could adversely affect our business, financial condition and results of operations
and divert the attention of managerial and scientific personnel. If we are sued for patent infringement, we would need to demonstrate
that our product candidates, potential products or methods either do not infringe the claims of the relevant patent or that the patent
claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are
successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel
could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient
resources to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and
cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize our products unless
it acquires or obtains a license under the applicable patents or until the patents expire.
We
may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability
to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the
manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors
access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing
technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble
damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from
commercializing our product candidates or force us to cease some of our business operations, which could materially and adversely affect
our business, financial condition and results of operations. Any claims by third parties that we have misappropriated their confidential
information or trade secrets could have a similar material and adverse effect on our business, financial condition and results of operations.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect
on our ability to raise the funds necessary to continue our operations.
Any
claims or lawsuits relating to infringement of intellectual property rights brought by or against us will be costly and time consuming
and may adversely affect our business, financial condition and results of operations.
We
may be required to initiate litigation to enforce or defend our licensed and owned intellectual property. Lawsuits to protect our intellectual
property rights can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual
property rights in the biopharmaceutical industry generally. Such litigation or proceedings could substantially increase our operating
expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
In
any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information
could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other
resources to file and pursue such infringement claims, which typically last for years before they are resolved. Further, any claims we
assert against a perceived infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their
patents. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because
of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings
could have a material adverse effect on our ability to compete in the marketplace.
In
addition, our patents and patent applications, and patents and patent applications that we may apply for, own or license in the future,
could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings and other forms of
post-grant review. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any
of our patents and patent applications and patents and patent applications that we may apply for, own or license in the future subject
to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve
and would divert our management and scientific personnel’s time and attention.
Changes
in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As
is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining
and enforcing patents in the biotechnology industry involves both technological and legal complexity and is costly, time-consuming and
inherently uncertain. For example, the U.S. previously enacted and is currently implementing wide-ranging patent reform legislation.
Specifically, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law and included a
number of significant changes to U.S. patent law, and many of the provisions became effective in March 2013. However, it may take the
courts years to interpret the provisions of the Leahy-Smith Act, and the implementation of the statute could increase the uncertainties
and costs surrounding the prosecution of our licensed and future patent applications and the enforcement or defense of our licensed and
future patents, all of which could have a material adverse effect on our business, financial condition and results of operations.
In
addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available
in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard
to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents,
once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents
could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in
the future.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on product candidates throughout the world could be prohibitively expensive. Competitors may
use our licensed and owned technologies in jurisdictions where we have not licensed or obtained patent protection to develop their own
products and, further, may export otherwise infringing products to territories where we may obtain or license patent protection, but
where patent enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we
do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or
sufficient to prevent them from so competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual
property protection, which could make it difficult for us to stop the infringement of our licensed patents and future patents we may
own, or marketing of competing products in violation of our proprietary rights generally. Further, 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 U.S. As a result, we may encounter significant
problems in protecting and defending our licensed and owned intellectual property both in the U.S. and abroad. Proceedings to enforce
our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention from
other aspects of our business.
We
may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
In
order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners,
employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements
may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information.
Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We
may be subject to claims challenging the inventorship of our patents, any future patents we may own, and other intellectual property.
Although
we are not currently experiencing any claims challenging the inventorship of our patents or our owned intellectual property, we may in
the future be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other
owned intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations
of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and
other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could
have a material adverse effect on our business, financial condition and results of operations. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Risks
Related to Ownership of Our Common Stock
We
are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by
geopolitical instability due to the ongoing military conflict between Russia and Ukraine.
U.S.
and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the
military conflict between Russia and Ukraine. In February 2022, Russia launched a full-scale military invasion of Ukraine. Although the
length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions,
including significant volatility in commodity prices, credit and capital markets. Additionally, Russia’s prior annexation of Crimea,
recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in
Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia,
Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic,
including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication
(SWIFT) payment system. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions
and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity
in capital markets, potentially making it more difficult for us to obtain additional funds. Any of the abovementioned factors could affect
our business, prospects, financial condition, and operating results. The extent and duration of the military action, sanctions and resulting
market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks
described in this Annual Report on Form 10-K.
The
market price of our common stock is volatile and you may sustain a complete loss of your investment.
Our
common stock currently trades on the Nasdaq Capital Market. The market price of our common stock has been, and is likely to continue
to be, volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are
beyond our control, such as:
| ● | inability
to obtain the approvals necessary to commence clinical trials; |
| | |
| ● | results
of clinical and preclinical studies; |
| | |
| ● | announcements
of regulatory approval or the failure to obtain it, or specific label indications or patient
populations for its use, or changes or delays in the regulatory review process; |
| ● | announcements
of technological innovations, new products or product enhancements by us or others; |
| | |
| ● | adverse
actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply
chain or sales and marketing activities; |
| | |
| ● | changes
or developments in laws, regulations or decisions applicable to our product candidates or
patents; |
| | |
| ● | any
adverse changes to our relationship with manufacturers, suppliers or partners; |
| | |
| ● | announcements
concerning our competitors or the pharmaceutical or biotechnology industries in general; |
| | |
| ● | achievement
of expected product sales and profitability or our failure to meet expectations; |
| | |
| ● | our
commencement of or results of, or involvement in, litigation, including, but not limited
to, any product liability actions or intellectual property infringement actions; |
| | |
| ● | any
major changes in our board of directors, management or other key personnel; |
| | |
| ● | legislation
in the United States, Europe and other foreign countries relating to the sale or pricing
of pharmaceuticals; |
| | |
| ● | announcements
by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures,
acquisitions or capital commitments; |
| | |
| ● | expiration
or terminations of licenses, research contracts or other collaboration agreements; |
| | |
| ● | public
concern as to the safety of therapeutics we, any licensees or others develop; |
| | |
| ● | success
of research and development projects; |
| | |
| ● | developments
concerning intellectual property rights or regulatory approvals; |
| | |
| ● | variations
in us and our competitors’ results of operations; |
| | |
| ● | changes
in earnings estimates or recommendations by securities analysts, if our common stock is
covered by analysts; |
| | |
| ● | future
issuances of common stock or other securities; |
| | |
| ● | general
market conditions, including the volatility of market prices for shares of biotechnology
companies generally, and other factors, including factors unrelated to our operating performance; |
| | |
| ● | political
and economic instability, war or acts of terrorism or natural disasters, emergence of a pandemic,
or other widespread health emergencies (or concerns over the possibility of such an emergency,
including for example, the COVID-19 pandemic); and |
| | |
| ● | the
other factors described in this “Risk Factors” section. |
These
factors and any corresponding price fluctuations may materially and adversely affect the market price of our common stock, which would
result in substantial losses by our investors.
Further,
the stock market in general, the Nasdaq Capital Market and the market for biotechnology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like theirs.
See also Risk Factors—Risks Relating to Ownership of Our Ordinary Shares “We are currently operating in a period of
economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing
military conflict between Russia and Ukraine.” Broad market and industry factors may negatively affect the market price
of our common stock regardless of our actual operating performance. In addition, a systemic decline in the financial markets and related
factors beyond our control may cause our share price to decline rapidly and unexpectedly. Price volatility of our common stock might
be worse if the trading volume of their common stock is low. In the past, following periods of market volatility, stockholders have often
instituted securities class action litigation. If it was involved in securities litigation, it could have a substantial cost and divert
resources and attention of management from their business, even if we are successful. Future sales of our common stock could also reduce
the market price of such shares.
Moreover,
the liquidity of our common stock will be limited, not only in terms of the number of shares of common stock that can be bought and sold
at a given price, but by potential delays in the timing of executing transactions in our common stock and a reduction in security analyst
and media’s coverage of us, if any. These factors may result in lower prices for our common stock than might otherwise be obtained
and could also result in a larger spread between the bid and ask prices for our common stock. In addition, without a large float, our
common stock will be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our
common stock may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate our investment
in our common stock. Trading of a relatively small volume of our common stock may have a greater impact on the trading price of our common
stock than would be the case if our public float were larger. It cannot predict the prices at which our common stock will trade in the
future.
We
do not anticipate paying any cash dividends on our shares of common stock in the foreseeable future.
We
have never declared or paid cash dividends on their respective shares. We do not anticipate paying any cash dividends on our shares of
common stock in the foreseeable future. It is anticipated that we will retain all available funds and any future earnings to fund the
development and growth of our business. As a result, capital appreciation, if any, of our shares of common stock will be our shareholders’
sole source of gain for the foreseeable future.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if we
adversely change our recommendations or publish negative reports regarding our business or our common stock, our share price and trading
volume could be negatively impacted.
The
trading market for our common stock could be influenced by the research and reports that industry or securities analysts may publish
about us, our business, our market or our competitors. We do not have any control over these analysts and cannot provide any assurance
that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation
regarding our common stock, or provide more favorable relative recommendations about our competitors, our share price would likely decline.
If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which in turn could negatively impact our share price or trading volume.
Maintaining
and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s
attention and affect our ability to attract and retain qualified board members.
As
a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley
Act and Nasdaq rules. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some
activities more difficult, time-consuming or costly and place strain on our personnel, systems and resources. The Exchange Act requires,
among other things, that we file annual, quarterly and current reports with respect to our business and financial condition.
The
Sarbanes-Oxley Act requires, among other things, that we disclose whether it maintains effective disclosure controls and procedures and
internal control over financial reporting. Ensuring that we will have adequate internal financial and accounting controls and procedures
in place is a costly and time-consuming effort that needs to be re-evaluated frequently.
We
may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and
employees, entail substantial costs, and take a significant period of time to complete. Such changes may not, however, be effective in
maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate
financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business.
Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud.
In
accordance with Nasdaq rules, we will be required to maintain a majority independent board of directors. The various rules and regulations
applicable to public companies make it more difficult and more expensive for us to maintain directors’ and officers’ liability
insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable
to maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified officers and directors
will be significantly curtailed.
It
is expected that the rules and regulations applicable to public companies will result in us incurring substantial legal and financial
compliance costs. These costs will decrease our net income or increase our net loss and may require it to reduce costs in other areas
of our business.
Failure
to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could
have a material adverse effect on our share price.
As
a public company in the U.S., we incur significant accounting, legal and other expenses in order to comply with requirements of the SEC,
and the Nasdaq Capital Market, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. These rules and
regulations have increased our legal and financial compliance costs, introduced new costs such as investor relations, stock exchange
listing fees and shareholder reporting, and made some activities more time consuming and costly. Any future changes in the laws and regulations
affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and
regulations adopted by the SEC and the Nasdaq Capital Market, for so long as they apply to it, will result in increased costs to us as
we respond to such changes.
If
we fail to maintain the adequacy of our internal control over financial reporting as such standards are modified, supplemented or amended
from time to time, it may not be able to ensure that it can conclude on an ongoing basis that it has effective internal control over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC.
If we cannot in the future favorably assess the effectiveness of our internal control over financial reporting, investor confidence in
the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our share price.
Sales
of a substantial number of our shares in the public market by our existing shareholders could cause our share price to decline.
Sales
of a substantial number of our shares in the public market or the perception that these sales might occur, could depress the market price
of our securities and could impair our ability to raise capital through the sale of additional equity securities. We are not able to
predict the effect that sales may have on the prevailing market price of our securities.
Raising
additional capital would cause dilution to our existing shareholders and may restrict our operations or require it to relinquish rights.
We
may seek additional capital through a combination of private and public equity offerings, “at-the-market” issuances, equity-linked
and structured transactions, debt (straight, convertible, or otherwise) financings, collaborations and licensing arrangements. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted,
and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available,
would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability
to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through
collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams or product candidates, or grant licenses on terms that are not favorable to it. Depending upon market liquidity
at the time, additional sales of shares registered at any given time could cause the trading price of our common stock to decline.
Our
securities could be delisted from Nasdaq if we do not comply with Nasdaq’s listing standards.
Pursuant
to Nasdaq rules, we are required to meet the continuing listing standards of Nasdaq. While we intend to maintain the same, no guarantees
can be made about our ability to do so. On September 3, 2019, Intec Israel was notified by Nasdaq that it was not in compliance with
the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on the Nasdaq Capital Market. Nasdaq
Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A)
provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business
days. The notification provided that Intec Israel had 180 calendar days, or until March 2, 2020, to regain compliance with Nasdaq Listing
Rule 5550(a)(2). On March 3, 2020, Intec Israel was notified by Nasdaq that Intec Israel is eligible for an additional 180 calendar day
period, or until August 31, 2020, to regain compliance. On April 17, 2020, Intec Israel was notified by Nasdaq that as a result of tolling
of compliance periods by Nasdaq, our term to regain compliance was extended until November 13, 2020. Following a 1-for-20 reverse share
split of Intec Israel’s ordinary shares which was effective for Nasdaq marketplace purposes at the open of business on October
30, 2020, Intec Israel regained compliance with the minimum bid price requirement. In any event, other factors unrelated to the number
of shares outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock
to fall below the minimum $1.00 bid price again and could result in a delisting of our common stock. Delisting of our common
stock from the Nasdaq Capital Market would cause it to pursue eligibility for trading on other markets or exchanges, or on the pink sheets.
In such case, our stockholders’ ability to trade, or obtain quotations of the market value of, our common stock would be severely
limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in
the bid and ask prices for our securities. There can be no assurance that our common stock, if delisted from the Nasdaq Capital Market
in the future, would be listed on a national securities exchange or quoted on a national quotation service, the OTCQB or OTC Pink. Delisting
from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make
it more difficult for us to raise additional capital, adversely affect the market liquidity of our common stock, reduce our security
analysts’ coverage and diminish investor, supplier and employee confidence. In addition, as a consequence of any such delisting,
our share price could be negatively affected and our stockholders would likely find it more difficult to sell, or to obtain accurate
quotations as to the prices of, our common stock.
We
are a smaller reporting company and, as a result of the reduced disclosure and governance requirements applicable to such companies,
our shares of common stock may be less attractive to investors.
We
are a smaller reporting company, (i.e. a company with “public float” held by non-affiliates with a market value of less than
$250 million) and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public
companies. We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock
less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a
result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
Tax
authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs, taxes
or non-realization of expected benefits.
A
tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, the U.S.
Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts
paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid
with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction
where we believe it has not established a taxable nexus, often referred to as a “permanent establishment” under international
tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. A tax authority
may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that it
might contest such assessment. Contesting such an assessment may be lengthy and costly and if it were unsuccessful in disputing the assessment,
the implications could increase our anticipated effective tax rate, where applicable.
If
the Domestication Merger, taken together with the Merger, fails to qualify as a Section 351(a) Exchange, former U.S. holders of Intec
Israel ordinary shares may recognize taxable gain as a result of the Domestication Merger.
Intec
Israel intended for the Merger to qualify as a Section 351(a) Exchange. The position of Intec Israel is not binding on the IRS or the
courts, and Intec Israel does not intend to request a ruling from the IRS with respect to the Merger. Accordingly, there can be
no assurance that the IRS will not challenge the qualification of the Domestication Merger and the Merger as a Section 351(a) Exchange
or that a court will not sustain such a challenge. If the IRS were to be successful in any such contention, or if for any other reason
the Domestication Merger was not treated as part of a Section 351(a) Exchange, the Domestication Merger could be a taxable event to the
U.S. holders of Intec Israel Shares. Former holders of Intec Israel Shares are urged to consult with their own tax advisors
with respect to the tax consequences of the Domestication Merger.
Notwithstanding
that the Domestication Merger and the Merger together are intended to qualify as a Section 351(a) Exchange, the Domestication Merger
could be a taxable event for certain U.S. Holders of Intec Israel ordinary shares.
Subject
to the limitations and qualifications described in “The Merger — Material U.S. Federal Income Tax Consequences
of the Domestication Merger and the Merger,” described in the registration statement on Form S-4, as amended (File No. 333-255389),
filed by us with the SEC, or the Form S-4, including the application of the passive foreign investment company, or PFIC rules, the Domestication
Merger is intended to qualify, taken together with the Merger, as a Section 351(a) Exchange. Nonetheless, certain former U.S. Holders
of Intec Israel Shares are likely to be taxed under the PFIC rules of the Code because of the likelihood that Intec Israel is classified
as a PFIC.
Changes
in tax law could have a material impact on us.
Changes
to the U.S. federal income tax laws are proposed regularly and there can be no assurance that, if enacted, any such changes would not
have an adverse impact on us. For example, President Biden has suggested the reversal or modification of some portions of the 2017 U.S.
tax legislation and certain of these proposals, if enacted, could result in a higher U.S. corporate income tax rate than is currently
in effect and thereby increase our effective tax rate following the Merger compared to current expectations. There can be no assurance
that any such proposed changes will be introduced as legislation, or if they are introduced that they would be enacted, or if enacted
what form they would take.