Item 1A. Risk Factors.
Risks Related to Our Capital Requirements and Financial
Condition
We have a limited operating history and have incurred
significant losses since inception, and expect that we will continue to incur losses for the foreseeable future, which makes it
difficult to assess our future viability.
We have not been profitable since we commenced
operations, and we may never achieve or sustain profitability. As a clinical-stage biopharmaceutical company, we have a limited
operating history upon which to evaluate our business and prospects. In addition, we have limited history as an organization and
have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies
in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Drug development is a highly speculative undertaking
and involves a substantial degree of risk. We have not yet obtained any regulatory approvals for any of our product candidates,
commercialized any of our product candidates, or generated any revenue from sales of products. We have devoted significant resources
to research and development and other expenses related to our ongoing clinical trials and operations, in addition to acquiring
product candidates.
Since inception, substantial
resources have been dedicated to the acquisition and development of our product candidates, INN-202 (larazotide acetate),
INN-108 and INN-329 (secretin). We will require significant additional capital to continue operations and to execute on our
current business strategy to develop INN-202 through to regulatory approval and further develop INN-108 and INN-329 for
eventually seeking regulatory approval. We cannot estimate with reasonable certainty the actual amounts necessary to
successfully complete the development and commercialization of our product candidates and there is no certainty that we will
be able to raise the necessary capital on reasonable terms or at all.
Our auditor has expressed substantial doubt about our
ability to continue as a going concern.
The audit report on our financial
statements for the years ended December 31, 2017 and 2016 included an explanatory paragraph related to recurring losses
from operations and dependence on additional financing to continue as a going concern. We have incurred net losses for
the three months ended March 31, 2018 and 2017 and for the years ended December 31, 2017 and 2016, and had an accumulated
deficit of $35.5 million as of March 31, 2018. In view of these matters, our ability to continue as a going concern
is dependent upon our ability to raise additional debt or equity financing or enter into strategic partnerships. On
January 29, 2018, we sold approximately $18.1 million of shares of common stock, or $16.5 million, net of approximately $1.6
million in placement agent fees and non-accountable expense costs. In addition, we received approximately $3.0
million in proceeds from a debt financing. We intend to continue to finance our operations through strategic
partnerships and/or debt or equity financing. The failure to obtain strategic partnerships or sufficient financing could
adversely affect our ability to achieve our business objectives and continue as a going concern.
We will require substantial additional financing
to obtain regulatory approval for INN-202 for celiac disease, and for further development of INN-217 (for NASH) INN-108 (for ulcerative
colitis) INN-289 (for Crohn’s disease) and INN-329 (for magnetic resonance cholangiopancreatography or MRCP), and a failure
to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate
our product development efforts and other operations.
For
the three months ended 2018 and 2017 and for the years ended December 31, 2017 and 2016, we incurred losses from
operations of $16.2 million, $4.0 million, $11.2 million and $5.4 million, respectively, and net cash used in operating
activities was $7.0 million, $0.8 million, $5.1 million and $2.2 million, respectively. At March 31, 2018, we had an
accumulated deficit of $35.5 million and cash and cash equivalents of $13.0 million. We expect to continue to incur
substantial operating losses for the next several years as we advance our product candidates through clinical development,
U.S. and other regional regulatory approvals, and commercialization. No revenue from operations will likely be available
until, and unless, one of our product candidates is approved by the FDA or another regulatory agency and successfully
marketed, or we enter into an arrangement that provides for licensing revenue or other partnering-related funding, outcomes
which we may not achieve on a timely basis, or at all.
Our capital requirements
for the foreseeable future will depend in large part on, and could increase significantly as a result of, our expenditures on
our development programs. Future expenditures on our development programs are subject to many uncertainties, and will depend on,
and could increase significantly as a result of, many factors, including:
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the
number, size, complexity, results and timing of our drug development programs;
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the
number of clinical and nonclinical studies necessary to demonstrate acceptable evidence
of the safety and efficacy of our product candidates;
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the
terms of any collaborative or other strategic arrangement that we may establish;
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changes
in standards of care which could increase the size and complexity of clinical studies;
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the
ability to locate patients to participate in a study given the limited number of patients
available for orphan or ultra-orphan indications;
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the
number of patients who participate, the rate of enrollment, and the ratio of randomized
to evaluable patients in each clinical study;
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the
number and location of sites and the rate of site initiation in each study;
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the
duration of patient treatment and follow-up;
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the
potential for additional safety monitoring or other post-marketing studies that may be
requested by regulatory agencies;
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the
time and cost to manufacture clinical trial material and commercial product, including
process development and scale-up activities, and to conduct stability studies, which
can last several years;
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the
degree of difficulty and cost involved in securing alternate manufacturers or suppliers
of drug product, components or delivery devices, as necessary to meet FDA requirements
and/or commercial demand;
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the
costs, requirements, timing of, and the ability to, secure regulatory approvals;
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the
extent to which we increase our workforce and the costs involved in recruiting, training
and incentivizing new employees;
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the
costs related to developing, acquiring and/or contracting for sales, marketing and distribution
capabilities, supply chain management capabilities, and regulatory compliance capabilities,
if we obtain regulatory approval for a product candidate and commercialize it without
a partner;
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the
costs involved in evaluating competing technologies and market developments or the loss
in sales in case of such competition; and
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the
costs involved in establishing, enforcing or defending patent claims and other proprietary
rights.
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In addition,
we are obligated to dedicate a portion of our cash flow to payments on our debt, which reduces the amounts available to fund other
corporate initiatives. An event of default on our debt could increase and accelerate the amounts due thereunder.
Additional capital
may not be available when we need it, on terms that are acceptable to us or at all. If adequate funds are not available to us
on a timely basis, we will be required to delay, limit, reduce or terminate development activities, our establishment of sales
and marketing, manufacturing or distribution capabilities, or other activities that may be necessary to commercialize our product
candidates, conduct preclinical or clinical studies, or other development activities.
If we raise additional
capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements
with third parties, we may be required to relinquish certain valuable rights to our product candidates, technologies, future revenue
streams or research programs or grant licenses on terms that may not be favorable. If we raise additional capital through public
or private equity offerings, or through debt offerings in which the instruments can convert to equity, the ownership interest
of our stockholders will be diluted and the terms of any new equity securities may have preferential rights over our common stock.
If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt or making capital expenditures, or subject to specified financial ratios,
any of which could restrict our ability to develop and commercialize our product candidates or operate as a business.
We have not generated any revenue from product sales
and may never be profitable.
We have no products
approved for commercialization and have never generated any revenue from product sales. Our ability to generate revenue and achieve
profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development
of, and obtain the requisite regulatory approvals necessary to commercialize, one or more of our product candidates.
The recently passed comprehensive tax reform bill could
adversely affect our business and financial condition.
On December 22,
2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The
newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction
of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest
expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses
to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings
at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important
exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying
or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall
impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition,
it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this
tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with
their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our
common stock.
Risks Related to Our Business Strategy and Operations
We do not have any products that are approved for commercial
sale.
We
currently do not have any therapeutic products approved for commercial sale. We have not received, and may not receive within
the next several years, if at all, any revenues from the commercialization of our product candidates if approved. In the
event one or more of our product candidates is approved for commercial sale, we will incur significant costs in connection
with commercializing any approved product candidate and we may not generate significant revenue from sales of such products,
which would impact our ability to become profitable and maintain profitability.
We are substantially dependent upon the clinical, regulatory
and commercial success of our five product candidates, INN-202, INN-217, INN-108, INN-289 and INN-329. Clinical drug development
involves a lengthy and expensive process with an uncertain outcome; results of earlier studies and trials may not be predictive
of future trial results; and our clinical trials may fail to adequately demonstrate to the satisfaction of regulatory authorities
the safety and efficacy of our three product candidates.
The success of
our business is dependent on our ability to advance the clinical development of INN-202 for the treatment of celiac disease, INN-217
for NASH, INN-108 for the treatment of mild to moderate ulcerative colitis, INN-289 for Crohn’s disease and INN-329 for
MRCP. INN-202 has successfully completed Phase 2 trials; however, Phase 3 pivotal studies and open label safety studies remain
to be conducted. We will need to prepare for INN-108 to enter Phase 2 efficacy trials for mild to moderate ulcerative colitis.
INN-329 requires additional studies to be performed for completion of Phase 3 trials.
Clinical testing
is expensive and can take many years to complete. The outcome of this testing is inherently uncertain. A failure of one or more
of our clinical trials can occur at any time during the clinical trial process. The results of preclinical studies and early clinical
trials of our product candidates may not necessarily be predictive of the results of later-stage clinical trials. There is a high
failure rate for drugs proceeding through clinical trials, and product candidates in later stages of clinical trials may fail
to show the required safety and efficacy despite having progressed through preclinical studies and initial clinical trials. Many
companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy
or adverse safety profiles, notwithstanding promising results in earlier clinical trials, and we cannot be certain that we will
not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval
for our product candidates.
Because of the
developmental nature of our product candidates, we are subject to risks associated with initiating, completing and achieving positive
outcomes from our current and future clinical trials, including:
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inability
to enroll enough patients in the clinical trials;
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slow
implementation, enrollment and completion of the clinical trials;
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low
patient compliance and adherence to dosing and reporting requirements, such as incomplete
reporting of patient reported outcomes in the clinical trials or missed doses;
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lack
of safety and efficacy in the clinical trials;
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delays
in the manufacture of supplies for drug components due to delays in formulation, process
development, or manufacturing activities;
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requirements
for additional nonclinical or clinical studies based on changes to formulation and/or
changes to regulatory requirements;
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requirements
for additional clinical studies based on inconclusive clinical results or changes in
market, standard of care, and/or regulatory requirements;
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If we successfully complete the necessary
clinical trials for our product candidates, our success will be subject to the risks associated with obtaining regulatory approvals,
product launch, and commercialization, including:
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delays
during regulatory review and/or requirements for additional CMC, nonclinical, or clinical
studies, resulting in increased costs and/or delays in marketing approval and subsequent
commercialization of our product candidates in the United States and other markets;
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FDA
rejection of our New Drug Application (“NDA”) submissions for our product
candidates;
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regulatory
rejection in the EU, Japan, and other markets;
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inability
to consistently manufacture commercial supplies of drug and delivery devices resulting
in slowed market development and lower revenue;
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poor
commercial sales due to:
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the ability of our future sales organization or our potential
commercialization partners to effectively sell our product candidates;
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lack of success in educating physicians and patients about the
benefits, administration, and use of our product candidates;
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low patient demand for our product candidates;
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the availability, perceived advantages, relative cost, relative
safety and relative efficacy of other products or treatments for the targeted indications
of our product candidates;
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poor prescription coverage and inadequate reimbursement for
our product candidates;
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inability
to enforce our intellectual property rights in and to our product candidates; and
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reduction
in the safety profile of our product candidates following approval.
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Many of these clinical, regulatory and
commercial matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors”
section. Accordingly, we cannot provide any assurances that we will be able to advance our product candidates further through
final clinical development or obtain regulatory approval of, commercialize or generate significant revenue from them. If we cannot
do so, or are significantly delayed in doing so, our business will be materially harmed.
If we fail to attract and retain senior management and
key scientific personnel, we may be unable to successfully develop and commercialize our product candidates.
We have historically
operated with a limited number of employees. We currently have seven full-time employees, including
one employee engaged full-time and two employees engaged part-time in research and development. Therefore, institutional knowledge
is concentrated within a small number of employees. Our success depends in part on our continued ability to attract, retain and
motivate highly qualified management, clinical and scientific personnel. Our future success is highly dependent upon the contributions
of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development
of our product pipeline, completion of our planned clinical trials or the commercialization of our product candidates.
We may
have intense competition from other companies and organizations for qualified personnel. Other companies and organizations
with which we compete for personnel may have greater financial and other resources and different risk profiles than we do,
and a history of successful development and commercialization of their product candidates. Replacing key employees may be
difficult and costly; and we may not have other personnel with the capacity to assume all the responsibilities of a key
employee upon his or her departure. If we cannot attract and retain skilled personnel, as needed, we may not achieve our
development and other goals.
In addition,
the success of our business will depend on our ability to develop and maintain relationships with respected service providers
and industry-leading consultants and advisers. If we cannot develop and maintain such relationships, as needed, the rate and success
at which we can develop and commercialize product candidates may be limited. In addition, our outsourcing strategy, which has
included engaging consultants to manage key functional areas, may subject us to scrutiny under labor laws and regulations, which
may divert management time and attention and have an adverse effect on our business and financial condition.
Our management team has limited experience managing a
public company.
Most members
of our management team have limited experience managing a publicly traded company, interacting with public company investors and
complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently
manage our existence as a public company subject to significant regulatory oversight and reporting obligations under the federal
securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituencies require
significant attention from our senior management and could divert their attention away from the day-to-day management of our business.
Innovate has identified a material weakness in its internal
control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an
effective system of internal control, which may impair its ability to produce accurate financial statements or prevent fraud.
Currently, we
have limited resources to address our internal controls and procedures and rely on part-time consultants to assist us with our
financial accounting and compliance obligations. In connection with the preparation of our audited financial statements for the
years ended December 31, 2017 and 2016, our independent auditors advised management that a material weakness existed in internal
controls over financial reporting due to inadequate segregation of duties and appropriate level of review. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the subject company’s annual or interim financial statements will not be prevented
or detected on a timely basis. Although we are committed to continuing to improve our internal control processes and intend to
implement a plan to remediate this material weakness, we cannot be certain of the effectiveness of such plan or that, in the future,
additional material weaknesses or significant deficiencies will not exist or otherwise be discovered. If we are unable to maintain
proper and effective internal controls, we may not be able to produce timely and accurate financial statements and prevent fraud.
In addition, if we are unable to successfully remediate the material weaknesses in our internal controls or if we are unable to
produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance
with applicable stock exchange listing requirements.
Our employees, independent contractors and consultants,
principal investigators, CROs, CMOs and other vendors, and any future commercial partners may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us
and harm our reputation.
We are exposed
to the risk that our employees, independent contractors and consultants, principal investigators, clinical research organizations
(CROs), CMOs and other vendors, and any future commercial partners may engage in fraudulent conduct or other misconduct. This
type of misconduct may include intentional failures to comply with FDA regulations or similar regulations of comparable foreign
regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply with
manufacturing standards required by cGMP or our standards, to comply with federal and state healthcare fraud and abuse laws and
regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, and to report
financial information or data accurately or disclose unauthorized activities to them. The misconduct of our employees and other
of our service providers could involve the improper use of information obtained in the course of clinical trials, which could
result in regulatory sanctions and serious harm to our reputation. We have adopted a code of business ethics and conduct, but
it is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity,
such as the implementation of a quality system which entails vendor audits by quality experts, may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results
of operations, including the imposition of significant fines or other sanctions.
We do not have, and do not have plans to establish, manufacturing
facilities. We completely rely on third parties for the manufacture and supply of our clinical trial drug supplies and, if approved,
commercial product materials. The loss of any of these vendors or a vendor’s failure to provide us with an adequate supply
of clinical trial or commercial product material in a timely manner and on commercially acceptable terms, or at all, could harm
our business.
We outsource
the manufacture of our product candidates and do not plan to establish our own manufacturing facilities. To manufacture our product
candidates, we have made numerous custom modifications at CMOs, making us highly dependent on these CMOs. For clinical and commercial
supplies, if approved, we have or plan to have supply agreements with third party CMOs for drug substance and finished drug product.
While we have existing supply agreements with third party CMOs, we would need to negotiate agreements for commercial supply with
several important CMOs, and we may not be able to reach agreement on acceptable terms. In addition, we rely on these third parties
to conduct or assist us in key manufacturing development activities, including qualification of equipment, developing and validating
methods, defining critical process parameters, releasing component materials and conducting stability testing, among other things.
If these third parties are unable to perform their tasks successfully in a timely manner, whether for technical, financial or
other reasons, we may be unable to secure clinical trial material, or commercial supply material if approved, which likely would
delay the initiation, conduct or completion of our clinical studies or prevent us from having enough commercial supply material
for sale, which would have a material and adverse effect on our business.
Currently, we
do not have alternative vendors to back up our primary vendors of clinical trial material or, if approved, commercial supply material.
Identification of and discussions with other vendors may be protracted and/or unsuccessful, or these new vendors may be unsuccessful
in producing the same results as the current primary vendors producing the material. Therefore, if our primary vendors become
unable or unwilling to perform their required activities, we could experience protracted delays or interruptions in the supply
of clinical trial material and, ultimately, product for commercial sale, which would materially and adversely affect our development
programs, commercial activities, operating results and financial condition. In addition, the FDA or regulatory authorities outside
of the United States may require us to have an alternate manufacturer of a drug product before approving it for marketing and
sale in the United States or abroad and securing such alternate manufacturer before approval of an NDA could result in considerable
additional time and cost prior to approval.
Any new manufacturer
or supplier of finished drug product or our component materials, including drug substance and delivery devices, would be required
to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property
laws to the method of manufacturing of such product or ingredients required by us. The FDA or foreign regulatory agency may require
us to conduct additional clinical studies, collect stability data and provide additional information concerning any new supplier,
or change in a validated manufacturing process, including scaling-up production, before we could distribute products from that
manufacturer or supplier or revised process. For example, if we were to engage a third party other than our current CMOs to supply
the drug substance or drug product for future clinical trial, or commercial product, the FDA or regulatory authorities outside
of the United States may require us to conduct additional clinical and nonclinical studies to ensure comparability of the drug
substance or drug product manufactured by our current CMOs to that manufactured by the new supplier.
The manufacture
of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly
in scaling-up initial production. These problems include difficulties with production costs and yields, quality control, including
stability of the product candidate and quality assurance testing, and shortages of qualified personnel. Our product candidates
have not been manufactured at the scale we believe will be necessary to maximize their commercial value, and accordingly, we may
encounter difficulties in attempting to scale-up production and may not succeed in that effort on a timely basis or at all. In
addition, the FDA or other regulatory authorities may impose additional requirements as we scale-up initial production capabilities,
which may delay our scale-up activities and/or add expense.
All manufacturers
of our clinical trial material and, if approved, commercial product, including drug substance manufacturers, must comply with
cGMP requirements enforced by the FDA through its facilities inspection program and applicable requirements of foreign regulatory
authorities. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers
of our clinical trial material may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory
requirements. While we or our representatives generally monitor and audit our manufacturers’ systems, we do not have full
control over their ongoing compliance with these regulations. And while the responsibility to maintain cGMP compliance is shared
between the third-party manufacturer and us, we bear ultimate responsibility for our supply chain and compliance with regulatory
standards. Failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension
or delay or failure to obtain product approval, product seizure or recall, or withdrawal of product approval.
If our manufacturers
encounter any of the aforementioned difficulties or otherwise fail to comply with their contractual obligations or there are delays
entering commercial supply agreements due to capital constraints, we may have insufficient quantities of material to support ongoing
and/or planned clinical studies or to meet commercial demand, if approved. In addition, any delay or interruption in the supply
of materials necessary or useful to manufacture our product candidates could delay the completion of our clinical studies, increase
the costs associated with our development programs and, depending upon the period of delay, require us to commence new clinical
studies at significant additional expense or terminate the studies completely. Delays or interruptions in the supply of commercial
product could result in increased cost of goods sold and lost sales. We cannot provide assurance that manufacturing or quality
control problems will not arise in connection with the manufacture of our clinical trial material or commercial product, if approved,
or that third-party manufacturers will be able to maintain the necessary governmental licenses and approvals to continue manufacturing
such clinical trial material or commercial product, as applicable. In addition, if our products are manufactured entirely or partially
outside the United States, we may experience interruptions in supply due to shipping or customs difficulties or regional instability.
Furthermore, changes in currency exchange rates, shipping costs and import tariffs could adversely affect our cost of goods sold.
Any of the above factors could cause us to delay or suspend anticipated or ongoing trials, regulatory submissions or commercialization
of our product candidates, entail higher costs or result in us being unable to effectively commercialize our products. Our dependence
upon third parties for the manufacture of our clinical trial material may adversely affect our future costs and our ability to
develop and commercialize our product candidates on a timely and competitive basis.
We currently rely significantly on third parties to conduct
our nonclinical testing and clinical studies and other aspects of our development programs. If those third parties do not satisfactorily
perform their contractual obligations or meet anticipated deadlines, the development of our product candidates could be adversely
affected.
We do not currently
employ personnel or possess the facilities necessary to conduct many of the activities associated with our programs. We engage
consultants, advisors, CROs, and others to assist in the design and conduct of nonclinical and clinical studies of our product
candidates, with interpretation of the results of those studies and with regulatory activities, and expect to continue to outsource
all or a significant amount of such activities. As a result, many important aspects of our development programs are and will continue
to be outside our direct control, and our third-party service providers may not perform their activities as required or expected
including the maintenance of GCP, GLP and GMP compliance, which are ultimately our responsibility to ensure. Further, such third
parties may not be as committed to the success of our programs as our own employees and, therefore, may not devote the same time,
thoughtfulness or creativity to completing projects or problem-solving as our own employees would. To the extent we are unable
to successfully manage the performance of third-party service providers, our business may be adversely affected.
The CROs that
we engage or may engage to execute our clinical studies play a significant role in the conduct of the studies, including the collection
and analysis of study data, and we likely will depend on CROs and clinical investigators to conduct future clinical studies and
to assist in analyzing data from completed studies and developing regulatory strategies for our product candidates. Individuals
working at the CROs with which we contract, as well as investigators at the sites at which our studies are conducted, are not
our employees, and we have limited control over the amount or timing of resources that they devote to their programs. If our CROs,
study investigators, and/or third-party sponsors fail to devote sufficient time and resources to studies of our product candidates,
if we and/or our CROs do not comply with all GLP and GCP regulatory and contractual requirements, or if their performance is substandard,
it may delay commencement and/or completion of these studies, submission of applications for regulatory approval, regulatory approval,
and commercialization of our product candidates. Failure of CROs to meet their obligations to us could adversely affect the development
of our product candidates.
In addition,
the CROs we engage may have relationships with other commercial entities, some of which may compete with us. Through intentional
or unintentional means, our competitors may benefit from lessons learned on the project that could ultimately harm our competitive
position. Moreover, if a CRO fails to properly, or at all, perform our activities during a clinical study, we may not be able
to enter into arrangements with alternative CROs on acceptable terms or in a timely manner, or at all. Switching CROs may increase
costs and divert management time and attention. In addition, there likely would be a transition period before a new CRO commences
work. These challenges could result in delays in the commencement or completion of our clinical studies, which could materially
impact our ability to meet our desired and/or announced development timelines and have a material adverse impact on our business
and financial condition.
We may not achieve our projected development goals within
the time frames that we have announced.
We have set goals
for accomplishing certain objectives material to the successful development of our product candidates. The actual timing of these
events may vary due to many factors, including delays or failures in our nonclinical testing, clinical studies and manufacturing
and regulatory activities and the uncertainties inherent in the regulatory approval process. From time to time, we create estimates
for the completion of enrollment of or announcement of data from clinical studies of our product candidates. However, predicting
the rate of enrollment or the time from completion of enrollment to announcement of data for any clinical study requires us to
make significant assumptions that may prove to be incorrect. As discussed in other risk factors above, our estimated enrollment
rates and the actual rates may differ materially and the time required to complete enrollment of any clinical study may be considerably
longer than we estimate. Such delays may adversely affect our business, financial condition and results of operations.
Even if we complete
a clinical study with successful results, we may not achieve our projected development goals within the periods we initially anticipate
or announce. If a development plan for a product candidate becomes more extensive and costly than anticipated, we may determine
that the associated time and cost are not financially justifiable and, as a result, may discontinue development in a particular
indication or of the product candidate as a whole. In addition, even if a study did complete with successful results, changes
may occur in regulatory requirements or policy during the period of product development and/or regulatory review of an NDA that
relate to the data required to be included in NDAs which may require additional studies that may be costly and time consuming.
Any of these actions may be viewed negatively, which could adversely impact our business, financial condition and results of operations.
Further, throughout
development, we must provide adequate assurance to the FDA and other regulatory authorities that we can consistently develop and
produce our product candidates in conformance with GLP, GCP, cGMP, and other regulatory standards. As discussed above, we rely
on CMOs for the manufacture of clinical, and future commercial, quantities of our product candidates. If future FDA or other regulatory
authority inspections identify cGMP compliance deficiencies at these third-party facilities, production of our clinical trial
material or, in the future, commercial product, could be disrupted, causing potentially substantial delay in or failure of development
or commercialization of our product candidates.
We currently have limited marketing capabilities and
no sales organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we
will be unable to successfully commercialize our products, if approved, or generate product revenue.
To commercialize
our products, if approved, in the United States and other jurisdictions we seek approvals, we must build our marketing, sales,
managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may
not be successful in doing so. If our products receive regulatory approval, we expect to market such products in the United States
through a focused, specialized sales force, which will be costly and time consuming. We have no prior experience in the marketing
and sale of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including
our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training
to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Outside of the United
States, we may consider collaboration arrangements. If we are unable to enter into such arrangements on acceptable terms or at
all, we may not be able to successfully commercialize our products in certain markets. Any failure or delay in the development
of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our products. If
we are not successful in commercializing our products, either on our own or through collaborations with one or more third parties,
our future product revenue will suffer and we would incur significant additional losses.
To establish a sales and marketing infrastructure
and expand our manufacturing capabilities, we will need to increase the size of our organization, and we may experience difficulties
in managing this growth.
We currently
have seven full-time employees, including one employee engaged full-time and two employees engaged part-time in research and
development. As we advance our product candidates through the development process and to commercialization, we will need to
continue to expand our development, regulatory, quality, managerial, sales and marketing, operational, finance and other
resources to manage our operations and clinical trials, continue our development activities and commercialize our
product candidates, if approved. As our operations expand, we expect that we will need to manage additional relationships
with various manufacturers and collaborative partners, suppliers and other organizations.
Due to our limited
financial resources and our limited experience in managing a company with such anticipated growth, we may not be able to effectively
manage the expansion of our operations or recruit and train additional qualified personnel. In addition, the physical expansion
of our operations may lead to significant costs and may divert our management and resources. Any inability to manage growth could
delay the execution of our development and strategic objectives, or disrupt our operations, which could materially impact our
business, revenue and operating results.
Our product candidates may cause undesirable side effects
or adverse events, or have other properties that could delay or prevent their clinical development, regulatory approval or commercialization.
As with many
pharmaceutical products, undesirable side effects or adverse events caused by our product candidates could interrupt, delay or
halt clinical studies and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any
or all indications, and in turn prevent us from commercializing our product candidates. If undesirable side effects occur, they
could possibly prevent approval, which would have a material and adverse effect on our business.
If any of our
product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:
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regulatory
authorities may require the addition of labeling statements, such as a “black box”
warning or a contraindication;
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we
may be required to change the way the product is administered, conduct additional clinical
studies or change the labeling of the product;
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regulatory
authorities may withdraw approval of the product; and
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our
reputation may suffer.
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Any of these events could prevent
us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses
of commercializing the product, which in turn could delay or prevent us from generating significant revenue from its sale.
Our business and operations would suffer in the event
of third-party computer system failures, cyber-attacks on third-party systems or deficiency in our cyber security.
We rely on information
technology (IT) systems, including third-party “cloud based” service providers, to keep financial records, maintain
laboratory data, clinical data and corporate records, to communicate with staff and external parties, and to operate other critical
functions. This includes critical systems such as email, other communication tools, electronic document repositories, and archives.
If any of these third-party information technology providers are compromised due to computer viruses, unauthorized access, malware,
natural disasters, fire, terrorism, war and telecommunication failures, electrical failures, cyber-attacks or cyber-intrusions
over the internet, then sensitive emails or documents could be exposed or deleted. Similarly, we could incur business disruption
if our access to the internet is compromised and we are unable to connect with third-party IT providers. The risk of a security
breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments,
and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions
from around the world have increased. In addition, we rely on those third parties to safeguard important confidential personal
data regarding our employees and patients enrolled in our clinical trials. If a disruption event were to occur and cause interruptions
in a third-party IT provider’s operations, it could result in a disruption of our drug development programs. For example,
the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval
efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach
results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information,
we could incur liability and development of our product candidates could be delayed, or could fail.
Risks Related to Drug Development and Commercialization
We depend on the successful completion of clinical studies
of our product candidates, and any positive results in prior clinical studies do not ensure that ongoing or future clinical studies
will be successful.
Pharmaceutical
products are subject to stringent regulatory requirements covering quality, safety and efficacy. The burden of proof is on the
manufacturer, such as us, to show with substantial clinical data that the risk/benefit profile for any new drug is favorable.
Only after successfully completing extensive pharmaceutical development, nonclinical testing and clinical studies may a product
be considered for regulatory approval.
If we license
rights to develop our product candidates to independent third parties or otherwise permit such third parties to evaluate our product
candidates in clinical studies, we may have limited control over those clinical studies. Any safety or efficacy concern identified
in a third-party sponsored study could adversely affect our or another licensee’s development of our product candidate and
prospects for our regulatory approval, even if the data from that study are subject to varying interpretations and analyses.
There is significant
risk that ongoing and future clinical studies of our product candidates are or will be unsuccessful. Negative or inconclusive
results could cause the FDA and other regulatory authorities to require us to repeat or conduct additional clinical studies, which
could significantly increase the time and expense associated with development of that product candidate or cause us to elect to
discontinue one or more clinical programs. Failure to complete a clinical study of a product candidate or an unsuccessful result
of a clinical study could have a material adverse effect on our business.
Clinical drug development involves a lengthy and expensive
process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable
to complete, the development and commercialization of our drug candidates.
Clinical studies
are expensive, difficult to design and implement, may take many years to complete, and outcomes are inherently uncertain. A drug
product may fail to demonstrate positive results at any stage of testing despite having progressed satisfactorily through nonclinical
testing and initial clinical studies. There is significant risk in clinical development where later stage clinical studies are
designed and powered based on the analysis of data from earlier studies, with these earlier studies involving a smaller number
of patients, and the results of the earlier studies being driven primarily by a subset of responsive patients. In addition, interim
results of a clinical study do not necessarily predict final results. Further, clinical study data frequently are susceptible
to varying interpretations. Medical professionals and/or regulatory authorities may analyze or weigh study data differently than
the sponsor company, resulting in delay or failure to obtain marketing approval for a product candidate. Additionally, the possible
lack of standardization across multiple investigative sites may induce variability in the results, which can interfere with the
evaluation of treatment effects.
Delays in commencement and completion of clinical studies
are common and have many causes. Delays in clinical studies of our product candidates could increase overall development costs
and jeopardize our ability to obtain regulatory approval and successfully commercialize any approved products.
Clinical studies
may not commence on time or be completed on schedule, if at all. The commencement and completion of clinical studies can be delayed
for a variety of reasons, including:
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inability
to raise sufficient funding to initiate or to continue a clinical study;
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delays
in obtaining regulatory approval to commence a clinical study;
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delays
in identifying and reaching agreement on acceptable terms with prospective CROs and clinical
study sites and investigators, which agreements can be subject to extensive negotiation
and may vary significantly among study sites;
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delays
in obtaining regulatory approval in a prospective country;
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delays
in obtaining ethics committee approval to conduct a clinical study at a prospective site;
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delays
in reaching agreements on acceptable terms with prospective CMOs or other vendors for
the production and supply of clinical trial material and, if necessary, drug administration
devices, which agreements can be subject to extensive negotiation;
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delays
in the production or delivery of sufficient quantities of clinical trial material from
our CMOs and other vendors to initiate or continue a clinical study;
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delays
due to product candidate recalls as a result of stability failure, excessive product
complaints or other failures of the product candidate during its use or testing;
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invalidation
of clinical data caused by premature unblinding or integrity issues;
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invalidation
of clinical data caused by mixing up of the active drug and placebo through randomization
or manufacturing errors;
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delays
on the part of our CROs, CMOs and other third-party contractors in developing procedures
and protocols or otherwise conducting activities in accordance with applicable policies
and procedures and in accordance with agreed upon timelines;
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delays
in identifying and hiring or engaging, as applicable, additional employees or consultants
to assist in managing clinical study-related activities;
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delays
in recruiting and enrolling individuals to participate in a clinical study, which historically
can be challenging in orphan diseases;
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delays
caused by patients dropping out of a clinical study due to side effects, concurrent disorders,
difficulties in adhering to the study protocol, unknown issues related to different patient
profiles than in previous studies, or otherwise;
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delays
in having patients complete participation in a clinical study, including returning for
post-treatment follow-up;
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delays
resulting from study sites dropping out of a trial, providing inadequate staff support
for the study, problems with shipment of study supplies to clinical sites, or focusing
our staff’s efforts on enrolling studies that compete for the same patient population;
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suspension
of enrollment at a study site or the imposition of a clinical hold by the FDA or other
regulatory authority following an inspection of clinical study operations at study sites
or finding of a drug-related serious adverse event; and
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delays
in quality control/quality assurance procedures necessary for study database lock and
analysis of unblinded data.
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We may experience difficulties in the enrollment of patients
in our clinical trials, which may delay or prevent us from obtaining regulatory approval.
We may not be
able to continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible
patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In
particular, because we are focused on diseases in genomically defined patient populations, our ability to enroll eligible patients
may be limited or may result in slower enrollment than we anticipate. In addition, some of our competitors have ongoing clinical
trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible
for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates.
Patient enrollment,
a critical component to successful completion of a clinical study, is affected by many factors, including:
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the
size of the target patient population;
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other
ongoing studies competing for the same patient population;
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the
eligibility criteria for the clinical trial;
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the
design of the clinical study;
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the
perceived risks and benefits of the product candidate under study;
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the
efforts to facilitate timely enrollment in clinical trials;
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the
proximity and availability of clinical trial sites for prospective patients; and
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the
ability to monitor patients adequately during and after treatment.
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Clinical studies may not begin on time
or be completed in the time frames we anticipate. The length of time necessary to successfully complete clinical studies varies
significantly and is difficult to predict accurately. We may make statements regarding anticipated timing for completion of enrollment
in and/or availability of results from our clinical studies, but such predictions are subject to a number of significant assumptions
and actual timing may differ materially for a variety of reasons, including patient enrollment rates, length of time needed to
prepare raw study data for analysis and then to review and analyze it, and other factors described above. If we experience delays
in the completion of a clinical study, if a clinical study is terminated, or if failure to conduct a study in accordance with
regulatory requirements or the study’s protocol leads to deficient safety and/or efficacy data, the regulatory approval
and/or commercial prospects for our product candidates may be harmed and our ability to generate product revenue will be delayed.
In addition, any delays in completing our clinical studies likely will increase our development costs. Further, many of the factors
that cause, or lead to, a delay in the commencement or completion of clinical studies may ultimately lead to the denial of regulatory
approval of a product candidate. Even if we ultimately commercialize our product candidates, the standard of care may have changed
or other therapies for the same indications may have been introduced to the market in the interim and may establish a competitive
threat to us or may diminish the need for our products.
Clinical studies are very expensive, difficult to design
and implement, often take many years to complete, and the outcome is inherently uncertain.
Clinical development
of pharmaceutical products for humans is generally very expensive and takes many years to complete. Failures can occur at any
stage of clinical testing. We estimate that clinical development of our product candidates will take several additional years
to complete, but because of the variety of factors that can affect the design, timing, and outcome of clinical studies, we are
unable to estimate the exact funds required to complete research and development, to obtain regulatory approval and to commercialize
all of our product candidates. We will need significant additional capital to continue to advance our product candidates pursuant
to our current development and commercialization plans.
Failure at any
stage of clinical testing is not uncommon and we may encounter problems that would require additional, unplanned studies or cause
us to abandon a clinical development program.
In addition,
a clinical study may be suspended or terminated by us, an IRB, a data safety monitoring board, the FDA or other regulatory authorities
due to a number of factors, including:
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lack
of adequate funding to continue the study;
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failure
to conduct the study in accordance with regulatory requirements or the study’s
protocol;
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inspection
of clinical study operations or sites by the FDA or other regulatory authorities resulting
in the imposition of a clinical hold;
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unforeseen
safety issues, including adverse side effects; or
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changes
in governmental regulations or administrative actions.
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Changes in governmental regulations
and guidance relating to clinical studies may occur and we may need to amend study protocols to reflect these changes, or we may
amend study protocols for other reasons. Amendments may require us to resubmit protocols to IRBs for reexamination and approval
or renegotiate terms with CROs, study sites and investigators, all of which may adversely impact the costs or timing of or our
ability to successfully complete a trial.
There is significant uncertainty regarding the regulatory
approval process for any investigational new drug, substantial further testing and validation of our product candidates and related
manufacturing processes may be required, and regulatory approval may be conditioned, delayed or denied, any of which could delay
or prevent us from successfully marketing our product candidates and substantially harm our business.
Pharmaceutical
products generally are subject to rigorous nonclinical testing and clinical studies and other approval procedures mandated by
the FDA and foreign regulatory authorities. Various federal and foreign statutes and regulations also govern or materially influence
the manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate U.S. and foreign statutes and regulations is time-consuming and
requires the expenditure of substantial resources.
We are preparing
INN-202, larazotide acetate, for Phase 3 clinical trials, the success of which will be needed for FDA approval to market INN-202
in the United States to treat celiac disease in patients with persistent symptoms while adhering to a gluten free diet. While
significant communication with the FDA on the Phase 3 study design has occurred, even if the Phase 3 clinical study meets all
of its statistical goals and protocol end points, the FDA may not view the results as robust and convincing and may require additional
clinical studies and/or other costly studies, which could require us to expend substantial additional resources and could significantly
extend the timeline for clinical development prior to market approval. Additionally, we are required by the FDA to conduct a long-term
safety study on INN-202. The results of this study will not be known until a short time prior to potential submission of an NDA
for INN-202. If the safety study cannot be completed for technical or other reasons, or provides results that the FDA determines
to be concerning, this may cause a delay or failure in obtaining approval for INN-202. We are conducting pre-clinical work for
INN-217 in NASH and INN-289 in Crohn's disease to prepare for future clinical proof-of-concept trials.
We are preparing
INN-108 to enter Phase 2 clinical trials for mild-to-moderate ulcerative colitis. Concurrently, we may make formulation changes
to INN-108 that would simplify the dosing in pediatric patients. While this change is expected by us to reduce studies and/or
other documentation requirements, the regulatory agencies may require additional clinical or nonclinical studies prior to approval,
even if current clinical studies are deemed successful, which could require us to expend substantial additional resources and
significantly extend the timeline for clinical development of INN-108.
We intend to
prepare INN-329, secretin, for additional testing in its Phase 3 clinical trial, the success of which will be needed for FDA approval
to market INN-329 in the United States for MRCP procedures. While significant communication with the FDA on the Phase 3 study
design has occurred in the past, we will be required to initiate communication with the FDA to finalize the study design and to
seek its approval for the additional Phase 3 trial design. Even if the Phase 3 clinical study meets all of its statistical goals
and protocol end points, the FDA may not view the results as robust and convincing. The FDA may require additional clinical studies
and/or other costly studies, which could require us to expend substantial additional resources and could significantly extend
the timeline for clinical development prior to market approval. Additionally, we are required by the FDA to conduct a long-term
safety study on INN-329. The results of this study will not be known until a short time prior to potential submission of an NDA
for INN-329. If the safety study cannot be completed for technical or other reasons, or provides results that the FDA determines
to be concerning, this may cause a delay or failure in obtaining approval for INN-329.
Significant uncertainty
exists with respect to the regulatory approval process for any investigational new drug, including INN-202, INN-217, INN-108,
INN-289 and INN-329. Regardless of any guidance the FDA or foreign regulatory agencies may provide a drug’s sponsor during
its development, the FDA or foreign regulatory agencies retain complete discretion in deciding whether to accept an NDA or the
equivalent foreign regulatory approval submission for filing or, if accepted, approve an NDA. There are many components to an
NDA or marketing authorization application submission in addition to clinical study data. For example, the FDA or foreign regulatory
agencies will review the sponsor’s internal systems and processes, as well as those of its CROs, CMOs and other vendors,
related to development of its product candidates, including those pertaining to its clinical studies and manufacturing processes.
Before accepting an NDA for review or before approving the NDA, the FDA or foreign regulatory agencies may request that we provide
additional information that may require significant resources and time to generate and there is no guarantee that its product
candidates will be approved for any indication for which we may apply. The FDA or foreign regulatory agencies may choose not to
approve an NDA for any of a variety of reasons, including a decision related to the safety or efficacy data, manufacturing controls
or systems, or for any other issues that the agency may identify related to the development of its product candidates. Even if
one or more Phase 3 clinical studies are successful in providing statistically significant evidence of the efficacy and safety
of the investigational drug, the FDA or foreign regulatory agencies may not consider efficacy and safety data from the submitted
studies adequate scientific support for a conclusion of effectiveness and/or safety and may require one or more additional Phase
3 or other studies prior to granting marketing approval. If this were to occur, the overall development cost for the product candidate
would be substantially greater and our competitors may bring products to market before we do, which could impair our ability to
generate revenues from the product candidates, or even seek approval, if blocked by a competitor’s Orphan Drug exclusivity,
which would have a material adverse effect on our business, financial condition and results of operations.
Further, development
of our product candidates and/or regulatory approval may be delayed for reasons beyond our control. For example, a U.S. federal
government shut-down or budget sequestration, such as ones that occurred during 2013 and 2018, may result in significant reductions
to the FDA’s budget, employees and operations, which may lead to slower response times and longer review periods, potentially
affecting our ability to progress development of our product candidates or obtain regulatory approval for our product candidates.
Even if the FDA
or foreign regulatory agencies grant approvals for our product candidates, the conditions or scope of the approval(s) may limit
successful commercialization of the product candidates and impair our ability to generate substantial sales revenue. The FDA or
foreign regulatory agencies may also only grant marketing approval contingent on the performance of costly post-approval nonclinical
or clinical studies, or subject to warnings or contraindications that limit commercialization. Additionally, even after granting
approval, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion
and recordkeeping for our products will be subject to extensive and ongoing regulatory requirements. These requirements include
submissions of safety and other post-marketing information and reports, registration, and continued compliance with cGMP, good
clinical practices, international conference on harmonization regulations and good laboratory practices, which are regulations
and guidelines that are enforced by the FDA or foreign regulatory agencies for all of our clinical development and for any clinical
studies that we conduct post-approval. The FDA or foreign regulatory agencies may decide to withdraw approval, add warnings or
narrow the approved indications in the product label, or establish risk management programs that could restrict distribution of
our products. These actions could result from, among other things, safety concerns, including unexpected side effects or drug-drug
interaction problems, or concerns over misuse of a product. If any of these actions were to occur following approval, we may have
to discontinue commercialization of the product, limit our sales and marketing efforts, implement risk minimization procedures,
and/or conduct post-approval studies, which in turn could result in significant expense and delay or limit our ability to generate
sales revenues.
Regulations may
be changed prior to submission of an NDA that require higher hurdles than currently anticipated. These may occur as a result of
drug scandals, recalls, or a political environment unrelated to our products.
Even if we receive regulatory approval for a product
candidate, we may face regulatory difficulties that could materially and adversely affect our business, financial condition and
results of operations.
Even if initial
regulatory approval is obtained, as a condition to the initial approval the FDA or a foreign regulatory agency may impose significant
restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-approval
studies or marketing surveillance programs, any of which would limit the commercial potential of the product. Our product candidates
also will be subject to ongoing FDA requirements related to the manufacturing processes, labeling, packaging, storage, distribution,
advertising, promotion, record-keeping and submission of safety and other post-market information regarding the product. For instance,
the FDA may require changes to approved drug labels, require post-approval clinical studies and impose distribution and use restrictions
on certain drug products. In addition, approved products, manufacturers and manufacturers’ facilities are subject to continuing
regulatory review and periodic inspections. If previously unknown problems with a product are discovered, such as adverse events
of unanticipated severity or frequency, or problems with the facility where the product is manufactured, the FDA may impose restrictions
on that product or us, including requiring withdrawal of the product from the market. If one of our CMOs or us fail to comply
with applicable regulatory requirements, a regulatory agency may:
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issue
warning letters or untitled letters;
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impose
civil or criminal penalties;
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suspend
or terminate any ongoing clinical studies;
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close
the facilities of a CMO;
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refuse
to approve pending applications or supplements to approved applications;
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suspend
or withdraw regulatory approval;
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exclude
our product from reimbursement under government healthcare programs, including Medicaid
or Medicare;
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impose
restrictions or affirmative obligations on our or our CMOs’ operations, including
costly new manufacturing requirements; or
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seize
or detain products or require a product recall.
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If any of our product candidates for which we receive
regulatory approval fails to achieve significant market acceptance among the medical community, patients or third-party payers,
the revenue we generate from our sales will be limited and our business may not be profitable.
Our success will
depend in substantial part on the extent to which our product candidates, if approved, are accepted by the medical community and
patients and reimbursed by third-party payers, including government payers. We cannot predict with reasonable accuracy whether
physicians, patients, healthcare insurers or health maintenance organizations, or the medical community in general, will accept
or utilize any of our products, if approved. If our product candidates are approved but do not achieve an adequate level of acceptance
by these parties, we may not generate sufficient revenue to become or to remain profitable. In addition, our efforts to educate
the medical community and third-party payers regarding the benefits of our products may require significant resources and may
never be successful.
The degree of
market acceptance with respect to each of our approved products, if any, will depend upon a number of factors, including:
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the
safety and efficacy of our product as demonstrated in clinical studies;
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acceptance
in the medical and patient communities of our product as a safe and effective treatment;
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the
perceived advantages of our product over alternative treatments, including with respect
to the incidence and severity of any adverse side effects and the cost of treatment;
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the
indications for which our product is approved;
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claims
or other information (including limitations or warnings) in our product’s approved
labeling;
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reimbursement
and coverage policies of government and other third-party payers;
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smaller
than expected market size due to lack of disease awareness of a rare disease, or the
patient population with a specific rare disease being smaller than anticipated;
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availability
of alternative treatments;
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pricing
and cost-effectiveness of our product relative to alternative treatments;
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inappropriate
diagnostic efforts due to limited knowledge and/or resources among clinicians;
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the
prevalence of off-label substitution of chemically equivalent products or alternative
treatments; and
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the
resources we devote to marketing our product and restrictions on promotional claims we
can make with respect to the product.
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If we determine
that a product candidate may not achieve adequate market acceptance or that the potential market size does not justify additional
expenditure on the program, we may reduce our expenditures on the development and/or the process of seeking regulatory approval
of the product candidate while we evaluate whether and on what timeline to move the program forward.
Even if we receive regulatory approval to market one
or more of our product candidates in the United States, we may never receive approval or commercialize our products outside of
the United States, which would limit our ability to realize the full commercial potential of our product candidates.
In order to market
products outside of the United States, we must establish and comply with the numerous and varying regulatory requirements of other
countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and
validation and additional administrative review periods. The time required to obtain approval in other countries generally differs
from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed
above regarding FDA approval in the United States, as well as other risks. Regulatory approval in one country does not ensure
regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect
on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining
such approval could have the same adverse effects detailed above regarding FDA approval in the United States. As described above,
such effects include the risks that our product candidates may not be approved for all indications requested, which could limit
the uses of our product candidates and have an adverse effect on product sales, and that such approval may be subject to limitations
on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.
Conversely, even
if our product candidates receive approval outside the United States in the future, we may still be unable to meet the FDA requirements
necessary for approval in the United States.
We must comply with the U.S. Foreign Corrupt Practices
Act and similar foreign anti-corruption laws.
The U.S. Foreign
Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to
obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize
the payment of anything of value to any foreign government official, government staff member, political party or political candidate
in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Other countries,
such as the United Kingdom, have similar laws with which we must comply. We face the risk that an employee or agent could be accused
of violating one or more of these laws, particularly in geographies where significant overlap exists between local government
and healthcare industries. Such an accusation, even if unwarranted, could prove disruptive to our developmental and commercialization
efforts.
We may expend our limited resources to pursue a particular
product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for
which there is a greater likelihood of success.
Because we have
limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that
we identify as most likely to succeed, in terms of their potential both to gain regulatory approval and to achieve commercialization.
As a result, we may forego or delay pursuit of opportunities with other product candidates or in other indications with greater
commercial potential.
Our resource
allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our
spending on current and future research and development programs and product candidates for specific indications may not yield
any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular
product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights
to the product candidate.
Risks Related to Our Intellectual Property
Our success will depend in part on obtaining and maintaining
effective patent and other intellectual property protection for our product candidates and proprietary technology.
We rely on patents
and other intellectual property to maintain exclusivity for our product candidates. INN-202 and INN-108 are covered by several
issued patents in the U.S. as well as patents outside the U.S., with patent applications pending in several jurisdictions. INN-329
is not protected by patents. Intellectual property relating to the INN-202 program is exclusively licensed from Alba Therapeutics
Corp. Intellectual property relating to INN-108 program is exclusively licensed from Seachaid Pharmaceuticals Inc. Our success
will depend in part on our ability to:
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obtain
and maintain patents and other exclusivity with respect to our products;
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prevent
third parties from infringing upon our proprietary rights;
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maintain
proprietary know-how and trade secrets;
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operate
without infringing upon the patents and proprietary rights of others; and
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obtain
and maintain appropriate licenses to patents or proprietary rights held by third parties
if infringement would otherwise occur or if necessary to secure exclusive rights to them,
both in the United States and in foreign countries.
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The patent and intellectual property positions
of biopharmaceutical companies generally are highly uncertain, involve complex legal and factual questions, and have been and
continue to be the subject of much litigation. There is no guarantee that we have or will develop or obtain the rights to products
or processes that are patentable, that patents will issue from any pending applications or that claims issued will be sufficient
to protect the technology we develop or have developed or that is used by us, our CMOs or our other service providers. In addition,
any patents that are issued and/or licensed to us may be limited in scope or challenged, invalidated, infringed or circumvented,
including by our competitors, and any rights we have under issued and/or licensed patents may not provide competitive advantages
to us. If competitors can develop and commercialize technology and products similar to ours, our ability to successfully commercialize
our technology and products may be impaired.
Patent applications
in the United States are confidential for a period of time until they are published, and publication of discoveries in scientific
or patent literature typically lags actual discoveries by several months. As a result, we cannot be certain that the inventors
listed in any patent or patent application owned or licensed by us were the first to conceive of the inventions covered by such
patents and patent applications (for U.S. patent applications filed before March 16, 2013), or that such inventors were the
first to file patent applications for such inventions outside the United States and, after March 15, 2013, in the United
States. In addition, changes in or different interpretations of patent laws in the United States and foreign countries may affect
our patent rights and limit the patents we can obtain, which could permit others to use our discoveries or to develop and to commercialize
our technology and products without any compensation to us.
We also rely
on unpatented know-how and trade secrets and continuing technological innovation to develop and maintain our competitive position,
which we seek to protect, in part, through confidentiality agreements with employees, consultants, collaborators and others. We
also have invention or patent assignment agreements with our employees and certain consultants. The steps we have taken to protect
our proprietary rights, however, may not be adequate to preclude misappropriation of or otherwise protect our proprietary information
or prevent infringement of our intellectual property rights, and we may not have adequate remedies for any such misappropriation
or infringement. In addition, it is possible that inventions relevant to our business could be developed by a person not bound
by an invention assignment agreement with us or independently discovered by a competitor.
We also intend
to rely on regulatory exclusivity for protection of our product candidates, if approved for commercial sale. Implementation and
enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from
country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or to maintain the extent or duration
of such protections that we expect for our product candidates, if approved, could affect our decision on whether to market the
products in a particular country or countries or could otherwise have an adverse impact on our revenue or results of operations.
We may rely on
trademarks, trade names and brand names to distinguish our products, if approved for commercial sale, from the products of our
competitors. However, our trademark applications may not be approved. Third parties may also oppose our trademark applications
or otherwise challenge our use of the trademarks, in which case we may expend substantial resources to defend our proposed or
approved trademarks and may enter into agreements with third parties that may limit our use of our trademarks. In the event that
our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition
and could require us to devote significant resources to advertising and marketing these new brands. Further, our competitors may
infringe our trademarks or we may not have adequate resources to enforce our trademarks.
If we fail to comply with our obligations under
any license, collaboration or other agreements, we could lose intellectual property rights that are necessary for developing and
commercializing our product candidates.
Our intellectual
property relating to the INN-202 program is licensed from Alba Therapeutics Corp. Our intellectual property relating to the INN-108
program is licensed from Seachaid Pharmaceuticals Inc. Our license agreements with Alba and Seachaid impose, and any future licenses
or collaboration agreements we enter into are likely to impose, various development, commercialization, funding, milestone, royalty,
diligence, sublicensing, patent prosecution and enforcement, and other obligations on us. These type of agreements and related
obligations are complex and subject to contractual disputes. If we breach any of these imposed obligations, or use the intellectual
property licensed to us in an unauthorized manner, we may be required to pay damages or the licensor may have the right to terminate
the license, which could result in our loss of the intellectual property rights and us being unable to develop, manufacture and
sell drugs that are covered by the licensed technology.
Our success depends on our ability to prevent competitors
from duplicating or developing and commercializing equivalent versions of our product candidates, and intellectual property protection
may not be sufficient or effective to exclude this competition.
We have patent
protection in the United States and other countries to cover the composition of matter, formulation and method of use for INN-202
and INN-108. However, these patents may not provide us with significant competitive advantages, because the validity, scope, term,
or enforceability of the patents may be challenged and, if instituted, one or more of the challenges may be successful. Patents
may be challenged in the United States under post-grant review proceedings,
inter partes
reexamination,
ex parte
re-examination, or challenged in district court. Any patents issued in foreign jurisdictions may be subjected to comparable proceedings
lodged in various foreign patent offices or courts. These proceedings could result in either loss of the patent or loss or reduction
in the scope of one or more of the claims of the patent. Even if a patent issues, and is held valid and enforceable, competitors
may be able to design around our patent rights, such as by using pre-existing or newly developed technology, in which case competitors
may not infringe our issued claims and may be able to market and sell products that compete directly with ours before and after
our patents expire.
Further, the
INN-202 primary end point is a proprietary Patient Report Outcome measure (CeD PRO) that is protected by copyright. However, copyright
protection may not be sufficient to exclude others from developing products that compete with INN-202.
The patent prosecution
process is expensive and time-consuming. We and any future licensors and licensees may not apply for or prosecute patents on certain
aspects of our product candidates at a reasonable cost, in a timely fashion, or at all. We may not have the right to control the
preparation, filing and prosecution of some patent applications related to our product candidates or technologies. As a result,
these patents and patent applications may not be prosecuted and enforced in a manner consistent with our best interests. It is
also possible that we or any future or present licensors or licensees will fail to identify patentable aspects of inventions made
in the course of development and commercialization activities before it is too late to obtain patent protection on them. Further,
it is possible that defects of form in the preparation or filing of our patent applications may exist, or may arise in the future,
such as with respect to proper priority claims, inventorship, assignment, term or claim scope. If there are material defects in
the form or preparation of our patents or patent applications, such patents or applications may be invalid or unenforceable. In
addition, one or more parties may independently develop similar technologies or methods, duplicate our technologies or methods,
or design around the patented aspects of our products, technologies or methods. Any of these circumstances could impair our ability
to protect our products, if approved, in ways which may have an adverse impact on our business, financial condition and operating
results.
Furthermore,
the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed
patents may be challenged in the courts or patent offices in and outside of the United States. Such challenges may result in loss
of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part,
which could limit our ability to use our patents to stop others from using or commercializing similar or identical products or
technology, or to limit the duration of the patent protection of our technology and drugs. Given the amount of time required for
the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before
or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with
sufficient rights to exclude others from commercializing drugs similar to or identical to ours.
Enforcement of
intellectual property rights in certain countries outside the United States, including China in particular, has been limited or
non-existent. Future enforcement of patents and proprietary rights in many other countries will likely be problematic or unpredictable.
Moreover, the issuance of a patent in one country does not assure the issuance of a similar patent in another country. Claim interpretation
and infringement laws vary by nation, so the extent of any patent protection is uncertain and may vary in different jurisdictions.
Obtaining and maintaining patent protection depends on
compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies,
and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance
fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the
United States Patent and Trademark Office, or USPTO, and various governmental patent agencies outside of the United States in
several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies
require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application
process and after a patent has issued. There are situations in which non-compliance can result in decreased patent term or in
abandonment or lapse of the patent or patent application, leading to partial or complete loss of patent rights in the relevant
jurisdiction.
Third parties may claim that our products, if approved,
infringe on their proprietary rights and may challenge the approved use or uses of a product or our patent rights through litigation
or administrative proceedings, and defending such actions may be costly and time consuming, divert management attention away from
our business, and result in an unfavorable outcome that could have an adverse effect on our business.
Our commercial
success depends on our ability and the ability of our CMOs and component suppliers to develop, manufacture, market and sell our
products and product candidates and use our proprietary technologies without infringing the proprietary rights of third parties.
Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields
in which we are or may be developing products. Because patent applications can take many years to publish and issue, there currently
may be pending applications, unknown to us, that may later result in issued patents that our products, product candidates or technologies
infringe, or that the process of manufacturing our products or any of our respective component materials, or the component materials
themselves, infringe, or that the use of our products, product candidates or technologies infringe.
We, our CMOs
and/or our component material suppliers may be exposed to, or threatened with, litigation by third parties alleging that our products,
product candidates and/or technologies infringe our patents and/or other intellectual property rights, or that one or more of
the processes for manufacturing our products or any of our respective component materials, or the component materials themselves,
or the use of our products, product candidates or technologies, infringe our patents and/or other intellectual property rights.
If a third-party patent or other intellectual property right is found to cover our products, product candidates, technologies
or uses, or any of the underlying manufacturing processes or components, we could be required to pay damages and could be unable
to commercialize our products or to use our technologies or methods unless we are able to obtain a license to the patent or intellectual
property right. A license may not be available to us in a timely manner or on acceptable terms, or at all. In addition, during
litigation, the third-party alleging infringement could obtain a preliminary injunction or other equitable remedy that could prohibit
us from making, using, selling or importing our products, technologies or methods.
There generally
is a substantial amount of litigation involving patent and other intellectual property rights in the industries in which we operate
and the cost of such litigation may be considerable. We can provide no assurance that our product candidates or technologies will
not infringe patents or rights owned by others, licenses to which may not be available to us in a timely manner or on acceptable
terms, or at all. If a third party claims that we or our CMOs or component material suppliers infringe its intellectual property
rights, we may face a number of issues, including, but not limited to:
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infringement
and other intellectual property claims which, with or without merit, may be expensive
and time consuming to litigate and may divert management’s time and attention from
our core business;
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substantial
damages for infringement, including the potential for treble damages and attorneys’
fees, which we may have to pay if it is determined that the product and/or its use at
issue infringes or violates the third party’s rights;
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a
court prohibiting us from selling or licensing the product unless the third-party licenses
its intellectual property rights to us, which it may not be required to do;
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if
a license is available from the third party, we may have to pay substantial royalties,
fees and/or grant cross-licenses to the third party; and
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redesigning
our products or processes so they do not infringe, which may not be possible or may require
substantial expense and time.
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No assurance
can be given that patents do not exist, have not been filed, or could not be filed or issued, which contain claims covering our
products, product candidates or technology or those of our CMOs or component material suppliers or the use of our products, product
candidates or technologies. Because of the large number of patents issued and patent applications filed in the industries in which
we operate, there is a risk that third parties may allege they have patent rights encompassing our products, product candidates
or technologies, or those of our CMOs or component material suppliers, or uses of our products, product candidates or technologies.
In the future,
it may be necessary for us to enforce our proprietary rights, or to determine the scope, validity and unenforceability of other
parties’ proprietary rights, through litigation or other dispute proceedings, which may be costly and, to the extent we
are unsuccessful, adversely affect our rights. In these proceedings, a court or administrative body could determine that our claims,
including those related to enforcing patent rights, are not valid or that an alleged infringer has not infringed our rights. The
uncertainty resulting from the mere institution and continuation of any patent- or other proprietary rights-related litigation
or interference proceeding could have a material and adverse effect on our business prospects, operating results and financial
condition.
Risks Related to Our Industry
We are subject to uncertainty relating to healthcare
reform measures and reimbursement policies that, if not favorable to our products, could hinder or prevent our products’
commercial success, if any of our product candidates are approved.
The unavailability
or inadequacy of third-party payer coverage and reimbursement could negatively affect the market acceptance of our product candidates
and the future revenues we may expect to receive from our products. The commercial success of our product candidates, if approved,
will depend in part on the extent to which the costs of such products will be covered by third-party payers, such as government
health programs, commercial insurance and other organizations. Third-party payers are increasingly challenging the prices and
examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy.
If these third-party payers do not consider our products to be cost-effective compared to other therapies, we may not obtain coverage
for our products after approval as a benefit under the third-party payers’ plans or, even if we do, the level of coverage
or payment may not be sufficient to allow us to sell our products on a profitable basis.
Significant uncertainty
exists as to the reimbursement status for newly approved drug products, including coding, coverage and payment. There is no uniform
policy requirement for coverage and reimbursement for drug products among third-party payers in the United States; therefore coverage
and reimbursement for drug products can differ significantly from payer to payer. The coverage determination process is often
a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products
to each payer separately, with no assurance that coverage and adequate payment will be applied consistently or obtained. The process
for determining whether a payer will cover and how much it will reimburse a product may be separate from the process of seeking
approval of the product or for setting the price of the product. Even if reimbursement is provided, market acceptance of our products
may be adversely affected if the amount of payment for our products proves to be unprofitable for healthcare providers or less
profitable than alternative treatments or if administrative burdens make our products less desirable to use. Third-party payer
reimbursement to providers of our products, if approved, may be subject to a bundled payment that also includes the procedure
of administering our products or third-party payers may require providers to perform additional patient testing to justify the
use of our products. To the extent there is no separate payment for our product(s), there may be further uncertainty as to the
adequacy of reimbursement amounts.
The continuing
efforts of governments, private insurance companies, and other organizations to contain or to reduce costs of healthcare may adversely
affect:
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our
ability to set an appropriate price for our products;
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the
rate and scope of adoption of our products by healthcare providers;
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our
ability to generate revenue or achieve or maintain profitability;
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the
future revenue and profitability of our potential customers, suppliers and collaborators;
and
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our
access to additional capital.
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Our ability to successfully commercialize
our products will depend in part on the extent to which governmental authorities, private health insurers and other organizations
establish what we believe are appropriate coverage and reimbursement for our products. The containment of healthcare costs has
become a priority of federal, state and foreign governments and the prices of drug products have been a focus in this effort.
For example, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring
more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drugs, and the Trump administration has stated that reducing drug pricing is a priority.
We expect that federal, state and local governments in the United States, as well as governments in other countries, will continue
to consider legislation directed at lowering the total cost of healthcare. In addition, in certain foreign markets, the pricing
of drug products is subject to government control and reimbursement may in some cases be unavailable or insufficient. It is uncertain
whether and how future legislation, whether domestic or abroad, could affect prospects for our product candidates or what actions
governmental or private payers for healthcare treatment and services may take in response to any such healthcare reform proposals
or legislation. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, may prevent or limit our ability to generate revenue, attain profitability or commercialize
our product candidates, especially in light of our plans to price our product candidates at a high level.
Furthermore,
we expect that the U.S. Congress will again attempt to pass reform measures that may be adopted in the future, including the possible
repeal and replacement of the Affordable Care Act, which the Trump administration has stated is a priority. These potential courses
of action are unpredictable, and the potential impact of new legislation on our operations and financial position is uncertain,
but may result in more rigorous coverage criteria, lower reimbursement, and additional downward pressure on the price we may receive
for an approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar
reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent
us from being able to generate revenue, attain profitability or commercialize our products, if approved.
We expect competition in the marketplace for our product
candidates, should any of them receive regulatory approval.
Larazotide acetate
has issued patents for composition of matter, method of use and its formulation in the United States, our primary targeted market.
INN-202 has either been issued patents or is prosecuting patent applications in numerous countries outside the United States.
The barrier to entry for any company developing larazotide acetate for celiac disease is very high. We believe that INN-202 is
the first drug entering into Phase 3 clinical trials for celiac disease. Additionally, if larazotide acetate is the first drug
granted FDA approval for celiac disease, competitors may need to license or to seek approval from us for the usage of our CeD-PRO
as an endpoint in subsequent celiac disease trials.
We have received
Orphan Drug Designation from the FDA for INN-108 for pediatric ulcerative colitis. Orphan Drug Designation will provide market
exclusivity in the U.S. for seven years, but only if (1) INN-108 receives market approval before a competitor using the same active
compound for the same indication, (2) we are able to produce sufficient supply to meet demand in the marketplace, and (3) another
product with the same active ingredient(s) is not deemed clinically superior.
INN-329, secretin,
has received Orphan Drug Designation from the FDA. Orphan Drug Designation will provide market exclusivity in the U.S. for seven
years, but only if (1) INN-329 receives market approval before a competitor using a similar peptide for the same indication, (2)
we are able to produce sufficient supply to meet demand in the marketplace, and (3) another product with the same active ingredient
is not deemed clinically superior.
The industries
in which we operate are highly competitive and subject to rapid and significant changes. Developments by others may render potential
application of any of our product candidates in a particular indication obsolete or noncompetitive, even prior to completion of
our development and approval for that indication.
If successfully
developed and approved, we expect our product candidates will face competition. We may not be able to compete successfully against
organizations with competitive products, particularly large pharmaceutical companies. Many of our potential competitors have significantly
greater financial, technical and human resources than we do, and may be better equipped to develop, manufacture, market and distribute
products. Many of these companies operate large, well-funded research, development and commercialization programs, have extensive
experience in nonclinical and clinical studies, obtaining FDA and other regulatory approvals and manufacturing and marketing products,
and have multiple products that have been approved or are in late-stage development. These advantages may enable them to receive
approval from the FDA or any foreign regulatory agency before us and prevent us from competing due to their orphan drug protections.
Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical
and biotechnology companies. Furthermore, heightened awareness on the part of academic institutions, government agencies and other
public and private research organizations of the potential commercial value of their inventions have led them to actively seek
to commercialize the technologies they develop, which increases competition for investment in our programs. Competitive products
may be more effective, easier to dose, or more effectively marketed and sold, which would have a material adverse effect on our
ability to generate revenue.
We face potential product liability exposures, and if
successful claims are brought against us, we may incur substantial liability for a product or product candidate and may have to
limit its commercialization. In the future, we anticipate that we will need to obtain additional or increased product liability
insurance coverage, and we are uncertain whether such increased or additional insurance coverage can be obtained on commercially
reasonable terms, if at all.
Our business
(in particular, the use of our product candidates in clinical studies and the sale of any products for which we obtain marketing
approval) will expose us to product liability risks. Product liability claims may be brought against us by patients, healthcare
providers, pharmaceutical companies or others selling or involved in the use of our products. If we cannot successfully defend
ourselves against any such claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims
may result in:
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significant
costs of related litigation;
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decreased
demand for our products and loss of revenue;
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impairment
of our business reputation;
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a
“clinical hold,” suspension or termination of a clinical study or amendments
to a study design;
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delays
in enrolling patients to participate in our clinical studies;
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withdrawal
of clinical study participants;
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substantial
monetary awards to patients or other claimants; and
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the
inability to commercialize our products and product candidates.
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We maintain limited product liability
insurance for our clinical studies, and our insurance coverage may not reimburse us or may not be sufficient to reimburse us for
all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and in the future, we may
not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.
We expect that
we will expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our
product candidates, but we may be unable to obtain product liability insurance on commercially acceptable terms or may not be
able to maintain such insurance at a reasonable cost or in sufficient amounts to protect us against potential losses. Large judgments
have been awarded in class action lawsuits based on drug products that had unanticipated side effects. A successful product liability
claim or series of claims brought against us, if judgments exceed our insurance coverage, could materially decrease our cash and
adversely affect our business.
Risks Related to Our Common Stock
The market price of our common stock is likely to be
volatile.
The
stock market in general and the market for pharmaceutical companies in particular have experienced extreme volatility that
has often been unrelated to the operating performance of particular companies. For example, since our stock began trading
under the symbol “INNT” on January 29, 2018 through May 10, 2018, the price thereof has ranged from a low of
$3.43 per share to a high of $50.50 per share. Companies like us with a lower number of shares comprising their public floats
and limited trading activity may experience greater volatility in their stock prices. The market price of our common stock
may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond
our control, including:
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regulatory
or legal developments in the United States and foreign countries;
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results
from or delays in clinical trials of our product candidates;
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announcements
of regulatory approval or disapproval of INN-202 (for celiac disease), INN-108 (for ulcerative
colitis), INN-329 (for magnetic resonance cholangiopancreatography or MRCP) or any future
product candidates;
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commercialization
of our product candidates;
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FDA
or other U.S. or foreign regulatory actions affecting us or our industry;
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introductions
and announcements of new products by us, any commercialization partners or our competitors,
and the timing of these introductions and announcements;
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variations
in our financial results or those of companies that are perceived to be similar to us;
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changes
in the structure of healthcare payment systems;
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announcements
by us or our competitors of significant acquisitions, licenses, strategic partnerships,
joint ventures or capital commitments;
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market
conditions in the pharmaceutical and biopharmaceutical sectors and issuance of securities
analysts’ reports or recommendations;
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actual
or anticipated quarterly variations in our results of operations or those of our
competitors;
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changes
in financial estimates or guidance, including our ability to meet our future revenue
and operating profit or loss estimates or guidance;
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sales
of substantial amounts of our stock by insiders and large stockholders, or the expectation
that such sales might occur;
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general
economic, industry and market conditions;
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additions
or departures of key personnel;
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intellectual
property, product liability or other litigation against us;
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expiration
or termination of our potential relationships with strategic partners; and
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the
other factors described in this section entitled “Risk Factors.”
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If securities or industry analysts do not publish research
or publish unfavorable research about our business, our common stock price and trading volume could decline.
Equity research
analysts do not currently provide research coverage of our common stock. In particular, as a smaller company, it may be difficult
for us to attract the interest of equity research analysts. A lack of research coverage may adversely affect the liquidity of
and market price of our common stock. To the extent we obtain equity research analyst coverage, we will not have any control of
the analysts or the content and opinions included in their reports. The market price of our stock could decline if one or more
equity research analysts begin coverage of our common stock and downgrade our common stock or issue other unfavorable commentary
or research on us. If one or more equity research analysts ceases coverage of us in the future, or fails to publish reports on
us regularly, demand for our common stock could decrease, which in turn could cause the market price of our common stock or trading
volume to decline.
Sales of substantial amounts of our common stock in the
public markets, or the perception that such sales might occur, could cause the market price of our common stock to drop significantly,
even if our business is doing well.
If our
existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock that are eligible for sale
in the public market, in some cases subject to compliance with the requirements of Rule 144, the trading price of our common
stock could decline significantly. As of May 10, 2018, we had approximately 25.7 million shares of common stock outstanding
and exercisable warrants to purchase approximately 2.2 million shares of common stock outstanding. We have filed a
registration statement to register approximately 11.9 million shares and 2.1 million shares issuable upon exercise of
outstanding warrants for resale, representing approximately 50.1% of our total outstanding shares of common stock and
warrants as of May 10, 2018. If our stockholders sell, or the market perceives that our stockholders intend to sell,
substantial amounts of our common stock in the public market, the market price of our common stock could decline
significantly.
The issuance of shares upon exercise of our outstanding
options and warrants may cause substantial dilution to our existing stockholders and reduce the trading price of our common
stock.
We presently
have outstanding and exercisable options and warrants that if exercised would result in the issuance of approximately 7.6
million shares of our common stock. The issuance of shares upon exercise of warrants and options may result in dilution to the
interests of other stockholders and may reduce the trading price of our common stock.
Claims for indemnification by our directors and officers
may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available
to us.
Our certificate
of incorporation and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent
permitted by Delaware law.
To the extent
that a claim for indemnification is brought by any of our directors or officers, it would reduce the amount of funds available
for use in our business.
If we sell of our common stock in the future, stockholders
may experience immediate dilution and, as a result, the market price of our common stock may decline.
We may from time
to time issue additional shares of our common stock at a discount from the then-current trading price. As a result, our stockholders
would experience immediate dilution upon the purchase of any shares of such common stock sold at such discount. In addition, as
opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of
debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common
stockholders would experience additional dilution and, as a result, the market price of our common stock may decline.
Concentration of ownership of our common stock among
our existing principal stockholders may effectively limit the voting power of other stockholders.
Our executive
officers, directors and current beneficial owners of 5% or more of our common stock, in aggregate, beneficially own approximately
58.2% of our outstanding common stock. Accordingly, these stockholders, acting together, will continue to be able to significantly
influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other
significant corporate transactions. These stockholders may therefore delay or prevent a change of control, even if such a change
of control would benefit the other stockholders. The significant concentration of stock ownership may adversely affect the market
price of our common stock due to investors’ perception that conflicts of interest may exist or arise.
Anti-takeover provisions in our corporate charter documents
and under Delaware law could make an acquisition of us more difficult, which could discourage takeover attempts and lead to management
entrenchment, and the market price of our common stock may be lower as a result.
Certain provisions
in our certificate of incorporation and bylaws may make it difficult for a third party to acquire, or attempt to acquire, control
of our company, even if a change in control was considered favorable by the stockholders. For example, the Board has the authority
to issue up to 10,000,000 shares of preferred stock. The Board can fix the price, rights, preferences, privileges, and restrictions
of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay
or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights
of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control
to other stockholders.
Our organizational
documents also contain other provisions that could have an anti-takeover effect, including provisions that:
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provide
that vacancies on the Board may be filled only by a majority of directors then in office,
even though less than a quorum;
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eliminate
cumulative voting in the election of directors;
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authorize
the Board to issue shares of preferred stock and determine the price and other terms
of those shares, including preferences and voting rights, without stockholder approval;
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permit
stockholders to only take actions at a duly called annual or special meeting and not
by written consent;
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prohibit
stockholders from calling a special meeting of stockholders;
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require
that stockholders give advance notice to nominate directors or submit proposals for consideration
at stockholder meetings; and
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authorize
the Board, by a majority vote, to amend the bylaws.
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In addition,
we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which limits the ability
of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. These provisions could discourage
potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of
discouraging others from making tender offers for our common stock, including transactions that may be in your best interests.
These provisions may also prevent changes in our management or limit the price that certain investors are willing to pay for our
stock.
We may be subject to securities litigation, which is
expensive and could divert management attention.
The market price
of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their stock
have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities
litigation against us could result in substantial costs and divert our management’s attention from other business concerns,
which could seriously harm our business.
We have not paid cash dividends in the past and do not
expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never
paid cash dividends on our common stock and do not anticipate paying cash dividends in the near future. The payment of dividends
on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such
time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because
a return on investment will only occur if our stock price appreciates.
Our ability to use our net operating loss carryforwards
and certain other tax attributes to offset future taxable income may be subject to certain limitations.
We have U.S.
federal net operating loss carryforwards, or NOLs, which expire in various years if not utilized. In addition, we have federal
research and development credit carryforwards. The federal research and development credit carryforwards expire in various years
if not utilized. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes
an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes,
such as research tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownership
change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage
points over a rolling three-year period. Similar rules may apply under state tax laws. We have not performed a formal
study to determine whether any of our NOLs are subject to these limitations. We have recorded deferred tax assets for our
NOLs and research and development credits and have recorded a full valuation allowance against these deferred tax assets.
In the event that it is determined that we have in the past experienced additional ownership changes, or if we experience one
or more ownership changes as a result of future transactions in our stock, then we may be further limited in our ability to use
our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain profitability.
Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition
and operating results in the event that we attain profitability.
We have incurred and will continue to incur significant
costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance
initiatives and corporate governance practices, including maintaining an effective system of internal control over financial reporting.
As a public company
in the United States, and increasingly after we are no longer an “emerging growth company,” we may incur significant
additional legal, accounting and other expenses that Innovate did not incur as a private company. In addition, changing laws,
regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and regulations
implemented by the SEC and Nasdaq, may increase our legal and financial compliance costs and make some activities more time consuming.
These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with
evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and
a diversion of management’s time and attention from revenue-generating activities to compliance activities. If notwithstanding
our efforts to comply with applicable laws, regulations and standards, we fail to comply, regulatory authorities may initiate
legal proceedings against us and our business may be harmed.
As a public company
in the United States, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, to
furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. We
are required to disclose any material weaknesses identified by our management in our internal control over financial reporting,
and, when we are no longer an “emerging growth company,” we may need to provide a statement that our independent registered
public accounting firm has issued an opinion on our internal control over financial reporting.
The controls
and other procedures are designed to ensure that information required to be disclosed by us in the reports that we file with the
SEC is disclosed accurately and is recorded, processed, summarized and reported within the time periods specified in SEC rules
and forms. We are in the early stages of conforming our internal control procedures to the requirements of Section 404 and
we may not be able to complete our evaluation, testing and any required remediation needed to comply with Section 404 in
a timely fashion. Our independent registered public accounting firm was not engaged to perform an audit of our internal control
over financial reporting for the year ended December 31, 2017, or for any other period. Accordingly, no such opinion will
be expressed.
Even after we
develop these new procedures, these new controls may become inadequate because of changes in conditions or the degree of compliance
with these policies or procedures may deteriorate and material weaknesses in our internal control over financial reporting may
be discovered. We may err in the design or operation of our controls, and all internal control systems, no matter how well designed
and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent
limitations in all control systems, there can be no absolute assurance that all control issues have been or will be detected.
If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors
could lose confidence in our reported financial information and operating results, which could result in a negative market reaction.
To fully comply
with Section 404, we will need to retain additional employees to supplement our current finance staff, and we may not be
able to do so in a timely manner, or at all. In addition, in the process of evaluating our internal control over financial reporting,
we expect that certain of our internal control practices will need to be updated to comply with the requirements of Section 404
and the regulations promulgated thereunder, and we may not be able to do so on a timely basis, or at all. In the event that we
are not able to demonstrate compliance with Section 404 in a timely manner, or are unable to produce timely or accurate financial
statements, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or the stock exchange
on which our stock is listed, and investors may lose confidence in our operating results and the price of our common stock could
decline. Furthermore, if we are unable to certify that our internal control over financial reporting is effective and in compliance
with Section 404, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or stock exchanges,
and we could lose investor confidence in the accuracy and completeness of our financial reports, which could hurt our business,
the price of our common stock and our ability to access the capital markets.
Being a public
company makes it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced
coverage or incur substantially higher costs to maintain coverage. These factors could also make it more difficult for us to attract
and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior
management.
We are an “emerging growth company,” and
the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an “emerging
growth company,” as defined in the Jumpstart Our Business Startups, or JOBS, Act enacted in April 2012, and may remain an
“emerging growth company” for up to five years following the completion of our initial public offering, although,
if we have more than $1.07 billion in annual revenue, we are deemed to be a large accelerated filer under the rules of the SEC,
or we issue more than $1.0 billion of non-convertible debt over a three-year period before the end of that five-year period, we
would cease to be an “emerging growth company” as of the following December 31. For as long as we remain an “emerging
growth company,” we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable
to other public companies that are not “emerging growth companies.” These exemptions include:
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being
permitted to provide only two years of audited financial statements, in addition to any
required unaudited interim financial statements, with correspondingly reduced “management’s
discussion and analysis of financial condition and results of operations” disclosure;
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not
being required to comply with the auditor attestation requirements in the assessment
of our internal control over financial reporting;
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not
being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to
the auditor’s report providing additional information about the audit and the financial
statements;
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reduced
disclosure obligations regarding executive compensation; and
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exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved.
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In addition, the JOBS Act provides that
an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards,
delaying the adoption of these accounting standards until they would apply to private companies. We have irrevocably elected not
to avail ourselves of this exemption. We cannot predict whether investors will find our common stock less attractive as a result
of our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less
active trading market for our common stock and the market price of our common stock may be reduced or more volatile.