ITEM
1. BUSINESS
Change
in Fiscal Year End
On
May 10, 2018, our board of directors approved a change in our fiscal year end from December 31st to March 31st. As a
result of this change, we are filing this Transition Report on Form 10-KT for the three-month transition period ended March 31,
2018. References to any of our previous fiscal years mean the fiscal years ending on December 31st.
Overview
We
are an emerging medical device company developing a nitric oxide (NO) delivery system, or the AIT NO Delivery System, that is
capable of generating NO from ambient air. The AIT NO Delivery System can generate up to 400 parts per million (ppm) for delivery
to a patient’s lung. The AIT NO Delivery System can deliver NO either continuously or for a fixed amount of time and has
the ability to either titrate dose on demand or maintain a constant dose. We believe that there is a high unmet medical need for
patients suffering from certain severe lung infections for which our system can be used. Our current product candidates will be
subject to premarket reviews and approvals by the FDA, as well as similar regulatory agencies in other countries or regions. If
approved, our System will be marketed as a medical device in the U.S. (U.S.).
In
contrast to approved NO delivery systems, our novel AIT NO Delivery System is designed to deliver not only low concentrations
of NO, but also high concentrations of NO to the lungs, which we believe has the potential to eliminate microbial infections,
including bacteria, fungi and viruses. Current FDA approved NO delivery systems are approved for persistent pulmonary hypertension
of the newborn, or PPHN, which requires a NO concentration of 20 ppm and is not intended to treat microbial infections. The body
produces NO naturally as an innate immunity mechanism. Based on our clinical studies, we believe that 160 ppm is the minimum therapeutic
dose to achieve the desired pulmonary antimicrobial effect of NO. To date, the FDA, nor any other major regulatory agency in other
countries or regions, has not approved any NO formulation and/or delivery system for the delivery of 160 ppm or higher to the
lungs.
We
were incorporated in Delaware on April 28, 2015 under the name “KokiCare, Inc.” and operated as a healthcare software
company prior to the Merger (as defined below). Concurrent with the closing of the Merger, we abandoned our pre-Merger business
plan in the healthcare software industry and we are now solely pursuing our business in the medical device industry.
The
Merger and Reverse Acquisition
On
December 29, 2016, we entered into an Agreement and Plan of Merger, which, as amended, we refer to as the Merger Agreement, together
with Red Maple Ltd., or Merger Sub, a wholly owned subsidiary of KokiCare, Inc., , and Advanced Inhalation Therapies (AIT) Ltd.,
or AIT Ltd. The Merger Agreement provided for (i) the merger of Merger Sub with and into AIT Ltd. pursuant to the laws of the
State of Israel, referred to as the Israeli Merger, and (ii) the conversion of the ordinary shares and other outstanding securities
of AIT Ltd. into the right to receive shares and other applicable securities of KokiCare, Inc., with AIT Ltd. surviving as our
wholly owned subsidiary, which we refer to as the Merger. The Israeli Merger became effective on December 29, 2016 and the Merger
closed on January 13, 2017.
Prior
to consummation of the Merger, effective as of January 9, 2017, we amended and restated our Certificate of Incorporation to (i)
change our name from “KokiCare, Inc.” to “AIT Therapeutics, Inc.”, (ii) increase our capitalization to
provide for the issuance of up to 100,000,000 shares of common stock and up to 10,000,000 shares of preferred stock, par value
$0.0001 per share; and (iii) effect a one-for-100 reverse stock split of our common stock. On January 9, 2017, our Board of Directors
declared a $2.50 per share cash dividend to our stockholders of record as of January 9, 2017, and we repurchased 90,000 shares
of common stock (on a post-reverse stock split basis) at a price of $0.2667 per share from our principal stockholder, Jason Lane.
The
Merger was accounted for as a reverse merger and recapitalization. AIT Ltd. is the acquirer for financial reporting purposes,
and we are the acquired company.
Unless
otherwise indicated, all information contained in this Transition Report on Form 10-KT with respect to periods prior
to the date on which we consummated the Merger relates solely to Kokicare, Inc., without regard to the Merger.
Our
offices are located at 500 Mamaroneck Avenue, Suite 320 Harrison, NY 10528, telephone number 516.665.8200.
Business
Overview
We
are an emerging medical device company developing our AIT NO Delivery System, which is capable of generating NO from ambient air.
The AIT NO Delivery System can generate NO up to 400 ppm for delivery to a patient’s lung. The AIT NO Delivery System can
deliver NO either continuously or for a fixed amount of time and has the ability to either titrate dose on demand or maintain
a constant dose. We believe the AIT NO Delivery System can be used to treat patients on a ventilator that require NO, as well
as patients with chronic lung disease or acute severe lung infections via delivery through a breathing mask. Furthermore, we believe
that there is a high unmet medical need for patients suffering from certain severe lung infections that our AIT NO Delivery System
can potentially address. Our initial areas of focus are PPHN, bronchiolitis and nontuberculous mycobacteria, or NTM
.
Our
current product candidates will be subject to premarket reviews and approvals by the U.S. Food and Drug Administration, or the
FDA, as well as similar regulatory agencies in other countries or regions. If approved, our System will be marketed as a medical
device in the U.S.
With
respect to PPHN, our novel AIT NO Delivery System is designed to deliver a dosage of NO to the lungs that is consistent with current
guidelines for delivery of 20 ppm NO with a range of 0.5 ppm – 80 ppm (low-concentration NO). We believe our AIT NO Delivery
System has many competitive advantages over the current approved NO delivery systems in the U.S., European Union, Japan and other
markets. For example, our AIT NO Delivery System does not require the use of a high-pressure cylinder, utilizes less space than
other similar devices, does not require cumbersome purging procedures and places less burden on hospital staff in carrying out
safety procedures.
Our
novel AIT NO Delivery System can also deliver a high dosage of NO to the lungs, which we believe has the potential to eliminate
microbial infections, including bacteria, fungi and viruses, among other benefits. We believe current FDA approved NO vasodilation
treatments would have limited success in treating microbial infections given the low concentrations of NO being delivered. Given
that NO is produced naturally by the body as an innate immunity mechanism at a concentration of 200 ppm, supplemental high dose
NO should aid in the body’s fight against infection. Based on our clinical studies, we believe that 160 ppm is the minimum
therapeutic dose to achieve the desired pulmonary antimicrobial effect of NO. To date, neither the FDA nor equivalent regulatory
agencies in other countries or regions have approved any NO formulation and/or delivery system for the delivery of a dosage of
NO at 160 ppm or higher to the lungs.
To
date, we have conducted the following studies:
Date
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Study
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Indication
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Primary
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Results
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2011
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Phase
1 Safety (n=10)
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All
comers
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Safety
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●
No SAEs
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|
|
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2013
– 2014
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Phase
2 double blind randomized (n=43)
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Bronchiolitis
(all
causes)
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Safety
& Efficacy
|
|
●
No SAEs
●
Length of hospital stay reduced by 24 hours in hospitalized infants
|
|
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|
|
|
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2013
– 2014
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Phase
2 open label
(n=9)
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Cystic
Fibrosis (CF)
|
|
Safety
& Efficacy
|
|
●
No SAEs
●
Lowered bacterial load
|
|
|
|
|
|
|
|
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2016
|
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Compassionate
use Israel (n=2)
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Nontuberculous
Mycobacteria(NTM) in CF patients
|
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Efficacy
|
|
●
No SAEs
●
Improvements in clinical and surrogate endpoints
|
|
|
|
|
|
|
|
|
|
2017
|
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Compassionate
use National Institute of Health (n=1)
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NTM
in CF patient
|
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Efficacy
|
|
●
No SAEs
●
Improvements in clinical endpoints
|
|
|
|
|
|
|
|
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2017
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Pilot
open label (N=9)
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Refractory
NTM
abscessus
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Safety
|
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●
No SAEs
●
Improvements in clinical and surrogate endpoints
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|
|
|
|
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2018
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Pilot
double blind randomized (n=68)
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Bronchiolitis
(all
causes)
|
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Efficacy
|
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●
No SAEs
●
Dosing complete, results pending
|
Our
active pipeline of product candidates is shown in the table below:
Product
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|
Indication
|
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Development
Status
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Further
Information
|
AIT-PH
(Pulmonary
Hypertension)
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In-Hospital
Use
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Commercial
system in development
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Regulatory
filings expected ~year end 2018
|
AIT-BRO
(Bronchiolitis)
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Bronchiolitis
in Infants
(elderly
to follow)
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94
patient study ongoing
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Data
expected in 2Q18
|
AIT-NTM
(Nontuberculous
Mycobacteria)
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Mycobacterium
Abscessus Complex
(MABSC)
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9
patient pilot study dosing complete
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Meet
with FDA by mid-year to discuss potential pivotal trial design
|
We
plan to submit a 510(k) premarket notification to the FDA around year end 2018 for the use of AIT NO Delivery System in PPHN.
We also expect to make certain regulatory filings outside of the U.S. beginning in 2019. According to the 2017 year end report
from Mallinckrodt Pharmaceuticals, aggregate sales of low concentration NO in the U.S. were $505 million in 2017, while sales
outside of the U.S., where there are multiple market participants, were considerably lower than in the U.S.
With
respect to bronchiolitis, we expect to initiate a pivotal trial for infants hospitalized due to bronchiolitis in the fourth quarter
of 2019. The trial would last approximately 6 months after initiation. If the trial is successful, we would submit a premarket
approval or PMA to the FDA about 6 months after trial completion. Regulatory filings outside of the U.S. would begin after our
review process is completed in the U.S.
Our
NTM program has produced data from three compassionate use subjects and patients from a multi-center pilot study completed earlier
this year. All patients suffered from NTM
Abscessus
infection and had underlying cystic fibrosis (CF). One compassion patient
was treated with our NO generator based delivery system at the National Heart, Lung and Blood Institute (NHLBI). The rest were
treated with our NO cylinder based delivery system. All patients were treated with 160 ppm NO at intermittent 30 minute dosing
over 21 days, except one patient who was treated over 26 days. We expect to meet with the FDA during the second calendar quarter
of 2018 to discuss a pivotal trial design for the use of the AIT NO Delivery System (generator based) for patients suffering from
the effects of NTM and potentially other serious, chronic, and refractory lung infections.
For
our high concentration platform, the initial target is lower respiratory tract infections, or LRTI. Our initial two target indications
are infants hospitalized due to bronchiolitis (mainly caused by RSV) and patients suffering from NTM
abscessus
and other
severe, chronic, refractory infections. There are over 1.5 million hospitalizations related to LRTI annually in the U.S., and
LRTI is the third leading cause of death worldwide.
NTM
abscessus
lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. There
is an increasing rate of lung disease caused by NTM, which is an emerging public health concern worldwide. There are approximately
50,000 patients diagnosed with NTM in the U.S., and there are an estimated additional 100,000 patients in the U.S. that have not
yet been diagnosed. In Asia, the number of patients suffering from NTM surpasses what is seen in the U.S. The
abscessus
form of NTM comprises approximately 25% of all NTM.
Patients
with NTM lung disease may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats,
blood in the sputum and fatigue. Patients with NTM lung disease, specifically
abscessus,
frequently require lengthy and
repeated hospital stays to manage their condition. There are no treatments specifically indicated for the treatment of NTM lung
disease in North America, Europe or Japan. Current guideline-based approaches to treat NTM lung disease involve multi-drug regimens
of anti-biotics that may cause severe, long lasting side effects, and treatment can be as long as two years or more. The prevalence
of human disease attributable to NTM has increased over the past two decades. In a study conducted between 1997 and 2007, researchers
found that the prevalence of NTM in the U.S. is increasing at approximately 8% per year and that NTM patients on Medicare over
the age of 65 are 40% more likely to die over the period of the study than those who did not have the disease (Adjemian et al.,
2012). A 2015 publication from co-authors from several U.S. government departments stated that prior year statistics led to a
projected 181,037 national annual cases in 2014 costing the U.S. healthcare system approximately $1.7 billion (Strollo et al.,
2015).
Over
150 million new cases of bronchiolitis are reported worldwide each year. In the U.S., there are more than 100,000 annual bronchiolitis
hospitalizations among children two years of age or younger.
Currently,
there is no approved treatment for bronchiolitis. The treatment for acute viral lung infections that cause bronchiolitis in infants
is largely supportive care and is based primarily on prolonged hospitalization during which the infant receives a constant flow
of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with
bronchodilators are sometimes utilized until recovery, but we believe these treatments do not successfully eliminate microbes
and reduce hospital length of stay.
We
believe, based on the currently understood mechanisms of action of NO, that our AIT NO Delivery System can deliver NO at 160 ppm
and higher to potentially eliminate bacteria, viruses, fungi and other microbes from the lungs and may also be effective against
antibiotic-resistant bacteria. Because our product candidates are not antibiotics, we believe there is a reduced risk of the development
of resistant bacteria and there could be synergy with co-administration of antibiotics.
In
addition, our NO Delivery System can deliver NO at concentrations of 1 – 80 ppm consistent with currently approved NO delivery
systems for the treatment of PPHN while providing significant advantages associated with the elimination of the use of high-pressure
cylinders.
We
have a broad intellectual property portfolio directed to our product candidates and mode of delivery, monitoring parameters and
methods of treating specific disease indications. Our intellectual property portfolio consists of seven issued patents and their
continuations and foreign counterparts, which we have obtained through a non-exclusive worldwide license from SensorMedics Corporation,
a subsidiary of CareFusion, 17 issued patents which we acquired pursuant to the exercise of an option in 2017 granted to us by
Pulmonox Technologies Corporation (“Pulmonox”) and 22 patent applications developed by us internally. Eight of the
Pulmonox patents that we acquired are jointly owned by CareFusion and Pulmonox, five of which are covered by our non-exclusive
license with CareFusion. Our royalty and other license obligations to CareFusion with respect to these five patents will remain
in effect as long as our CareFusion license remains in effect. In January 2018, we entered into a global, exclusive, transferable
license to the eNOGenerator and all associated patents from NitricGen, Inc., or NitricGen.
Background
and Mechanism of Action
NO
is recognized as a vital molecule involved in many physiological and pathological processes. NO is naturally produced by the body’s
immune system to provide a first line of defense against invading pathogens. It is a powerful molecule with a short half-life
of a few seconds in the blood, enabling it to be cleared rapidly from the body. NO has been shown to play a critical role in the
function of several body systems. For example, as vasodilator of smooth muscles, NO enhances blood flow and circulation. In addition,
NO is involved in regulation of a wound healing and immune responses to infection. The pharmacology, toxicity and other data for
NO in humans is generally well known, and its use has been approved by the FDA as a vasodilator. The precise effect of inhaled
NO is dependent on concentration, oxidation state and type of pathogen.
NO
has multiple immunoregulatory and antimicrobial functions that are likely to be of relevance to inhaled NO therapy.
In vitro
studies suggest that NO possesses anti-microbial activity against common bacteria, gram positive and gram negative, as well
as mycobacteria, fungi, yeast, parasites and helminthes. It has the potential to eliminate multi-drug resistant strains of the
above. Anti-viral activity covers respiratory viruses such as influenza, corona viruses, RSV and others. In healthy humans, NO
has been shown to stimulate muccocilary clearance, and low levels of nasal NO correlate with impaired muccociliary function in
the human upper airway. Unlike other inhaled drugs, NO is also a smooth muscle relaxant and avoids the concomitant bronchial constriction
often associated with inhaled antibiotics and muccolytics. In addition to treating CF infections, this suggests that NO may be
useful in directly treating the mucus caused by CF, which is the principal manifestation of the disease.
Nitric
Oxide and Infection
NO
possesses broad-spectrum anti-microbial activity acting against bacteria, fungi and viruses. NO is produced at high output as
part of the innate immune response. NO and its by-products (for example, reactive nitrogen species, or RNS) are responsible for
the process of killing microorganisms within white blood cells called macrophages and in organs such as the lungs and other mucolytic
tissues.
More
than a decade ago, several research groups showed that NO and RNS possess anti-viral activity and affect several viruses including
coxsackievirus, or CVB, RSV, influenza, severe acute respiratory syndrome, or SARS, coronavirus, rhinovirus, herpes simplex virus,
or HSV, Epstein-Barr virus, or EBV, and others. NO has also been shown to be useful in preventing bacterial growth on surfaces.
Continuous
exposure to 160 ppm NO and above, especially in the lungs, may have side effects and cause damage to host cells. Intermittent
exposure to NO in cycles retains NO anti-microbial activity both in vitro and in animal model of infection. Exposure of bacteria
to concomitant 30-minute treatments with 160 ppm NO resulted in a significant reduction in bacterial load. A similar dose has
been shown to reduce viruses (common influenza) by 30-100% in a canine kidney infection model. In vivo, in a pneumonia model in
rats, inhaled 160 ppm NO, for 30 minutes, every 4 hours, resulted in significant reduction in bacteria counts in the lungs, without
affecting the body’s defense mechanisms, and without any other adverse effect. In addition, we believe a daily dose of 160
ppm of NO can treat bovine respiratory disease (“BRD”) in cattle.
Importantly,
several studies report synergy between NO and antibiotic drugs. Adjunctive treatment combining NO together with inhaled tobramycin
antibiotics or other anti-microbial agents has been shown to greatly enhance the efficacy of the antibiotics in dispersing P.
aeruginosa biofilms and to increase their ability to elicit anti-microbial activity. These studies suggest that adjuvant treatment
combining NO with antibiotics might have a beneficial role by reducing bacterial infectivity, and therefore reduce the dependency
on antibiotics.
AIT
Technology
We
have developed the AIT NO Delivery System, a novel and precise delivery system that uses NO generated from ambient air with a
novel NO generator. We believe our system provides continuous monitoring and control of the gaseous content administered during
intermittent and continuous NO inhalation treatments, as well as a precise and reliable monitoring system that is able to monitor
patient status and alert medical staff to any adverse effects.
Our
novel AIT NO Delivery System is designed to provide patients with a gaseous dose of NO (ranging from 10.5 ppm up to 400 ppm) combined
with ambient air. The gaseous blend is supplied to the patient via a ventilator for concentrations up to 80 ppm and a face mask
for concentrations of 160 ppm and higher. Our AIT NO Delivery System is designed to minimize the time that NO is mixed with oxygen
and air. The system is also designed to continuously monitor inhaled NO concentration, NO
2
concentration, methemoglobin
and the fraction of inspired oxygen, or FiO
2
, blood oxygen saturation and heart rate, all of which are important parameters
. A dedicated screen allows for monitoring of the gas mixture and the patient’s vital signs. Further, our product candidates
resemble other inhalation systems, making it user friendly, with operation and maintenance that we believe will be familiar to
medical staff. Our novel delivery system for use with a mask has been manufactured at commercial scale with a contract manufacturer.
Our
novel NO delivery system, when programmed for lung infections, is designed to specifically deliver a NO dosage of 160 ppm and
higher, and we believe that it has a number of advantages over other NO formulation delivery systems. For example, it is:
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optimized
to deliver 160 ppm and higher of NO, whereas existing formulations of NO currently on the market consist of a maximum deliverable
NO concentration of 80 ppm;
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equipped
with a monitoring system that continuously monitors system parameters (e.g., NO, NO
2
and FiO
2
concentrations)
as well as patient parameters (e.g. vital signs, MetHemoglobin and OxyHemoglobin percentages);
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capable
of providing constant flow of our NO formulation, which we believe allows it to adequately cover the surface area of the lung
to eliminate bacteria, viruses, fungi and other microbes;
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programmable
and able to deliver different dosage regimens for a wide range of lung infections;
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able
to generate NO from ambient air, eliminating the need for the use of high-pressure cylinders;
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designed
to be used by the patient, thus convenient and portable; and
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administered
non-invasively through a facial mask, which has the potential to address large, underserved chronic-care markets, such as
CF and chronic obstructive pulmonary disease (COPD).
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We
believe that our solution has the potential for a number of additional benefits and opportunities, as follows:
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The
antimicrobial and multiple other properties of the NO molecule delivered to the lungs suggest the potential for application
in a wide range of respiratory diseases. In contrast to the often arduous and slow drug discovery process for small molecules,
proteins, peptides, etc., the use of NO in medicine is well-known, and therefore the identification of conditions where NO
provides benefits has been, and we expect will continue to be, much simpler, quicker and less costly.
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The
FDA approved the use of NO as an inhaled drug for the treatment of pulmonary hypertension in newborns in 1999. More than 18
years of clinical experience in the delivery, monitoring and understanding of NO in the clinical environment for vascular
uses has been documented.
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NO
is naturally produced by the immune system and acts as a first line of defense against infectious diseases. We believe therapeutic
use of NO for viral and bacterial co-infections would potentially improve the success of antimicrobial and anti-viral treatments
by mimicking the body’s natural defense mechanism and thereby directly reduce viral infectivity, as well as antibiotic
drug resistant bacteria.
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NO
is used naturally by the body for vasodilation and we believe that the benefits to patients with various medical conditions
will be seen via vasodilation when delivered with our system
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NitricGen
License
On
January 31, 2018 we announced that we have entered into a definitive agreement to acquire a global, exclusive, transferable license
to the eNOGenerator and associated critical assets including intellectual property, know-how, trade secrets and confidential information
(the “License”) from NitricGen.
The
AIT NO delivery system, which incorporates the eNOGenerator, has been designated as a medical device by the U.S. Food and Drug
Administration. The eNOGenerator can generate NO on demand for delivery to the lungs at concentrations ranging from 1 to 400 ppm.
With the License, we expect that we will be able to target all conditions requiring NO at any concentration, regardless of the
need for intermittent or continuous dosing.
Under
the terms of the License, we agree to pay NitricGen an aggregate of $2 million in up-front, clinical, and regulatory milestone
payments, with the majority pertaining to regulatory milestones, as well as royalties on net sales of the delivery system containing
the eNOGenerator at a percentage in the low-single digits. As partial consideration for the License, we have also agreed to issue
to NitricGen or its designees options to purchase 100,000 shares of our Common Stock at an exercise price of $6.90.
Strategies
Our
objective is to build a leading medical device company that will develop and commercialize patented and proprietary products for
the treatment of respiratory infections and diseases, with an initial focus on the treatment of PPHN, bronchiolitis, severe lung
infections such as NTM, COPD, and CF. If our clinical trials for our product candidates are successful, we expect to seek marketing
approval from the FDA and other worldwide regulatory bodies.
Our
completed clinical trials and plans for future clinical trials are as follows:
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We
licensed Phase 1 study results in healthy volunteers from University of British Columbia Hospital, or UBC. Results showed
safe delivery of 160 ppm NO to the lung.
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Bronchiolitis
.
We completed a double blind, randomized, placebo controlled pilot study conducted in Israel in infants with bronchiolitis.
We commenced an Israeli-based clinical trial in the first quarter of 2017 that will complete in the second quarter of 2018
which will serve as another pilot study. We intend to submit an Investigational Device Exemption (“IDE”) to the
FDA in 2018 and expect to commence a pivotal clinical trial in 2019 in the U.S.
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NTM
.
Three patients with CF who suffer from NTM infections (specifically,
M. Abscessus
) have been treated under compassionate
use, comprising two patients at the Rambam healthcare campus in Israel and one patient in the U.S., treated with our AIT generator
based NO Delivery System, at the National Heart, Lung and Blood Institute (NHLBI). A pilot study of nine CF patients infected
with NTM
Abscessus
in Israel were treated with our AIT NO Delivery System using cylinder gas was completed in the fourth
quarter of 2017. In addition, we intend to speak with the FDA in 2018 to get agreement on a pivotal trial design. We expect
that the pivotal study will use our generator based NO delivery system and treat patients infected with NTM and other severe,
refractory lung infections with and without CF. Endpoints are expected to include 6-minute walk, bacterial load, forced expiratory
volume in one second (FEV1), quality of life and safety. The study is anticipated to commence in 2019.
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CF-Related
Lung Infections
. We completed a pilot open label, multi-center study in Israel of CF patients who are over 10 years old.
Results showed a reduction in bacterial load in multiple infections.
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Our
Initial Disease Targets and Market Opportunity
Our
initial targets are PPHN, infants suffering from bronchiolitis and patients infected by NTM Abscessus.
PPHN
is a condition at birth that requires mechanical ventilation. NO is added as a vasodilator to improve oxygenation and reduce the
need for ventilation in neonates with hypoxic respiratory failure. The use of NO in the hospital setting had associated net sales
of $505m in 2018 according to published reports.
According
to the World Health Organization, bronchiolitis is the most common acute lower respiratory infection in infants, and is the leading
cause of the hospitalization of infants during the first year of life. Bronchiolitis is an acute inflammatory injury of the bronchioles
that is usually caused by viruses, most commonly by RSV. While bronchiolitis may affect persons of any age, severe symptoms are
usually evident only in young infants. The initial symptoms of bronchiolitis are similar to that of a common cold, but the illness
sometimes leads to fast and troubled breathing due to spread of the infection to the lower respiratory system. To date, the standard
treatment has been supportive care consisting of assisted feeding and hydration, minimal handling, nasal suctioning and oxygen
administration. In addition, better airway cleaning, which improves the respiratory function, has been achieved using nebulized
hypertonic saline. We believe that many pharmacological therapies, ranging from bronchodilators to corticosteroids, have been
found to offer either no or short-term benefits.
Each
year, according to the World Health Organization, 150 million new cases of bronchiolitis are reported worldwide in infants, and
2-3% of infants affected require hospitalization. In the U.S., there are greater than 150,000 annual bronchiolitis hospitalizations
among children younger than five years, of which 115,000 hospitalizations are among children younger than two years old. These
hospital visits resulted in total hospital charges of $1.7 billion in 2009 according to a study published in 2013. For infants,
bronchiolitis accounts for 20% of annual hospitalizations and 18% of emergency department visits.
According
to the American Academy of Pediatrics, in 2009, almost 3,000 children in the U.S. with bronchiolitis needed mechanical ventilation,
and the average length of hospital stay for previously healthy infants was 2.5 days. The mortality in children less than one year
of age was 0.25%. In 2009, the total direct cost of bronchiolitis related hospitalization was $545 million.
Clinical
practice in the management of acute bronchiolitis varies widely even among medical centers in the same country, and there is much
controversy, confusion and lack of evidence concerning the best treatment option. Disease management mainly consists of supportive
care by means of oxygen supplementation, but also includes inhalations of hypertonic saline or steroids with or without beta agonist
drugs, anti-viral therapy and chest physiotherapy.
We
believe that none of the specified treatments has been proven to have a positive outcome on the course of the disease or a reduction
in the length of hospitalization. In addition, some treatment strategies have been subject to debate regarding whether they work.
For example, the anti-viral drug, Ribavirin, a broad-spectrum antiviral agent approved for treatment of RSV infections, is controversial
due to questions regarding its high cost and uncertain treatment effect.
NTM
infection of the lungs is a chronic, as well as progressive lung condition. NTM exhibits across a variety of lung diseases such
as bronchiectasis, COPD, Asthma, CF and Cancer. In certain severe NTM cases, life expectancy is under five years, for which we
believe there are no successful treatments available.
There
are an estimated 50,000-86,000 cases of NTM lung infections in the U.S. with an annual 8% increase. More than 70% of NTM cases
are underreported, and therefore the projected number of NTM cases could be as high as 181,000 in the U.S. alone. With the rise
of NTM infections, NTM is currently more prevalent than tuberculosis in the U.S. NTM mostly affects adults middle-aged to elderly,
with increasing infection in patients aged 65 and over, a population that is expected to double by the year 2030.
NTM
lung infections also pose a substantial financial burden on the U.S. healthcare system. In 2010, the annual cost was over $800
million, and the same study estimated the cost for 2014 to be $1.7 billion in the U.S.
Our
initial indication is for the treatment of NTM Abscessus, which is a limited portion of the market discussed above.
There
are no approved products in the U.S. and Europe to treat NTM infections.
For
NTM patients, prolonged treatment is necessary and varies among different types of NTM species, severity of the disease and drug-susceptibility.
As NTM are typically antibiotic-resistant, treatment requires a combination of two to three different drugs. Therefore, current
treatment includes a mixture of IV antibiotics as well as steroids.
Our
Clinical Results to Date
We
have conducted several clinical trials to assess our 160 ppm NO inhalation-treatment in various indications. These trials include:
A
prospective, open label, controlled, single-center Phase 1 study was conducted on ten healthy adults between 20 and 62 years of
age. Subjects received our proprietary 160 ppm NO formulation for 30 minutes, five times a day, for five consecutive days by direct
inhalation to the lungs via a prototype delivery system. The study was performed at the UBC and was published in 2012 in the Journal
of Cystic Fibrosis.
The
primary objective of the study was to determine the effect of the inhaled NO formulation treatment, to determine the effect of
the treatment based on pulmonary function test results, to determine the met hemoglobin (MetHb - a form of hemoglobin that cannot
bind oxygen, a bi-product of NO and hemoglobin) level associated with the inhaled NO formulation treatment and to assess adverse
events associated with the treatment. Secondary objectives of the study were to assess the changes in cytokine levels. NO and
NO
2
concentrations (a gaseous substance that is a bi-product of NO and O
2
, that can be toxic at high concentrations),
inhaled fraction of inspired oxygen (FiO
2
), as well as. MetHb and oxygen saturation (SaO2) were continuously monitored,
as elevation of MetHb or reduction in SaO
2
levels may be harmful. Vital signs, lung function, blood chemistry (including
nitrite/nitrates), hematology, prothrombin time, inflammatory cytokine/chemokines levels and endothelial activation (angiopoietin
ratio) were also closely monitored.
All
individuals tolerated the NO formulation treatment courses well. No significant adverse events occurred. The maximal amount of
air one can forcefully exhale in one second, known as forced expiratory volume in one second (“FEV1”) and other lung
function parameters, serum nitrites/nitrates, prothrombin, pro-inflammatory cytokine and chemokine levels did not differ between
baseline and day five, while MetHb increased during the study period to a level of 0.9%, as expected. These data suggest that
inhalation of 160 ppm NO for 30 minutes, five times a day, for five consecutive days is well tolerated in healthy individuals.
Rambam
healthcare campus in Israel conducted a compassionate use treatment for two patients with CF who suffer from NTM
Abscessus
infections. The data were published in the Pediatric Infectious Disease Journal in 2017. The NO treatment regime, as well
as the device for this treatment, were supplied by AIT Ltd. Patients received intermittent 30-minute treatments of 160 ppm NO,
with two different regimes including hospitalization (5 times a day) and ambulatory treatment (2-3 inhalations a day).
Treatment
was well tolerated with no evidence of any serious side effects. We observed significant improvement in sputum production (up
to 5-10 time more sputum), and subjective improvement in the well-being of both patients.
Significant
reduction in systemic inflammation was observed in the first patient, as observed by reduction of CRP (C-reactive protein, a systemic
inflammation marker that rises in response to inflammation) levels during treatment. In addition, the first patient had a 2 log
(100-fold) reduction in NTM Abscessus during treatment (an effect that was lost after the treatment regime changed to ambulatory).
The second patient showed a significant increase in the 6-minute walk test and the sputum culture became negative, which is consistent
with eradication of the NTM Abscessus.
Further
information is needed, but we believe these results suggest that the treatment of NTM Abcsessus with high dose inhaled NO is effective.
Further,
one patient with CF who suffers from NTM infections (specifically, M. Abscessus) has been treated under compassionate use in the
United Sates at the National Heart, Lung and Blood Institute with our generator based NO delivery system. The patient saw improvements
in 6-minute walk, FEV1, most Quality of Life measures and had no SAEs. The bacteria was not eradicated. The patient requested
to be treated again and this treatment was commenced in February 2018. A total of 38 treatments were administered over 8 days,
29 of them at a concentration of 240 ppm, with no SAEs related to NO reported. We are awaiting further evaluation at this time
and may treat the patient again in the near future.
We
have completed a Phase 2 open label, multi-center study in nine CF patients (≥10 years old). Patients received intermittent
(30 minutes, three times a day) inhalation of 160 ppm NO formulation, five days a week, over a two-week period. The study was
performed in two centers, Soroka Medical Center and Schneider Children’s Medical Center of Israel.
The
primary endpoints of the study were to determine the MetHb percentage, adverse events associated with inhaled NO and the percentage
of subjects who prematurely discontinued the study due to adverse events, or AEs, and/or SAEs, or for any other reason.
AEs
were reported by five (55.5%) subjects. There were no SAEs or AEs, no treatment withdrawals due to AEs, and no deaths. AEs considered
by the investigator as possibly or probably related to treatment were reported for two (22.2%) subjects. There were no AEs of
MetHb elevation >5% or NO
2
elevation >5 ppm (study safety threshold of MetHb and NO
2
, respectively).
In total, seven cases of haemoptysis were reported in two subjects and all events were mild in severity.
There
were no subjects with MetHb >5% at any point during the study and there was no cumulative effect of MetHb exposure during the
study. The maximum MetHb level reported was 4.6%.
Several
secondary efficacy analyses were conducted in this study, and though the study was not powered for efficacy, results show various
positive effects of the treatment regime. Bacterial and fungal sputum load analysis results were highly variable, though marked
reductions of MSSA, Achromabacter, P. aeruginosa, and Asperigillus were seen in several subjects. These results suggest non-specific
targeting of bacteria and fungi that commonly manifest in CF patients. In subjects with systemic inflammation (CRP >5 mg/mL)
at baseline, CRP levels decreased over the treatment period, showing the effect of NO in the reduction of systemic inflammation.
There were no statistically significant or clinically relevant changes in FEV1 over time, and lung function indices also remained
relatively constant throughout the study duration.
We
completed a double blind, randomized Pilot study for infants with bronchiolitis. The study was performed at Soroka University
Medical Center in Israel. Forty-three infants between the ages of two to 12 months diagnosed with bronchiolitis were randomly
assigned to either the treatment group or the control group. The treatment group comprised 21 subjects who received intermittent
(30 minutes, five times a day) inhalation of 160 ppm NO formulation, in addition to supportive O
2
treatment for up
to five days. The control group, 22 subjects, received ongoing inhalation of the supportive O
2
treatment.
Primary
endpoints included determination of the MetHb levels, adverse events associated with the inhaled NO formulation and proportion
of subjects who prematurely discontinued the study. Baseline clinical score, indicating disease severity at screening, was similar
between treatment groups (~8).
Results
were encouraging, with similar overall incidence of AEs between the treatment groups. Out of 43 patients, 39 (~90%) completed
the study per protocol (“PP”), with similar percentages (90%) for both the control and the treatment groups, individually.
Only one subject from the treatment group discontinued treatment due to an adverse event, namely – repeated MetHb levels
above 5%. Adverse events were reported by 23 (53.5%) subjects overall, with ten (47.6%) subjects in the NO group reporting a total
of 22 AEs, and 13 (59.1%) subjects in the control group reporting a total of 22 AEs. Serious adverse events were reported by four
(19.0%) subjects in the NO group and four (18.2%) in the standard treatment group. There were no deaths during the study. There
were no treatment-related SAEs in the NO treatment group.
In
the NO group, six (28.6%) subjects had any MetHb measurement >5% during the study treatment period, and three of these subjects
had more than one MetHb >5%. The maximum MetHb level was 5.6% in one subject in the NO group. There was no cumulative effect
of MetHb exposure during the study. It should be noted that MetHb levels in this study were defined to <5% as a safety measure,
though previous findings have shown that higher levels (6.4%) are non-toxic in children.
Secondary
and exploratory analyses were performed, and results show positive impact of the treatment regime. In a subgroup of subjects that
stayed at the hospital at least 24 hours (Length of Stay (“LOS”) >24 hours), a statistically significant treatment
benefit of NO versus standard treatment was demonstrated. Mean results for subjects with LOS > 24 hours show that LOS was shortened
by approximately 34% in the NO group compared to the standard treatment group, with a one-day difference between the groups (PP,
N=24). Time to normal oxygenation ((SaO2 of 92%) was shortened by approximately 44% (27.75 hours) in the NO group compared to
the standard treatment group (PP, N=24). An 80% improvement in time to clinical score (indicating improvement in disease severity)
and time to normal oxygenation (92%) was observed in favor of the NO group (PP, N=24).The results of preclinical studies and early
clinical studies of our product candidates may not be predictive of the results of later-stage clinical studies.
Furthermore,
the FDA or other regulatory agencies may not concur with our assessment of safety and efficacy. Product candidates that have shown
promising results in early-stage clinical studies may still suffer significant setbacks in subsequent advanced clinical studies.
We do not know whether any Phase 2, Phase 3 or other clinical studies we may conduct will demonstrate consistent or adequate efficacy
and safety sufficient to obtain regulatory approval to market our product candidates. While we believe the results of our Phase
2 trials in bronchiolitis and CF demonstrated improvements in various endpoints and clinical outcomes, the trials were small,
and it is likely that the FDA will view them as not statistically or clinically significant because of their size and scope. We
must conduct larger clinical trials with statistically significant favorable results or we will not be able to obtain regulatory
approval to market our product candidates.
We
have completed a single-arm, open-label Pilot trial in nine patients with MABSC, who were refractory to standard-of-care. The
patients were treated with inhaled NO at a concentration of 160 ppm for 30 minutes, in addition to treatment with standard-of-care.
Our inhaled NO treatment was administered intermittently five times per day over a 14-day period, followed by a seven-day period
with three treatments per day. The primary endpoint of safety, as measured by NO-related SAEs, over the 21-day treatment period
was met with no SAEs reported. Secondary endpoints of a 6-minute walk test, FEV1, Quality of Life and Mycobacterium abscessus
load in sputum all trended positively. 6MW showed an increase of >40 meters at the end of treatment at day 21 versus baseline
and an increase of >25 meters on day 81 (60 days after the cessation of therapy). The mean percentage change in FEV1 at day
21 and day 51 (30 days after the cessation of treatment) was > 3.5% with FEV1 returning to baseline at day 81 (60 days after
the cessation of thera py). At day 81 (60 days after the cessation of therapy) bacterial load was 65% lower than baseline. 1 of
9 patients saw culture conversion.
We
are currently completing a study in bronchiolitis. The prospective, randomized, double-blind, controlled pilot study is expected
to enroll 94 patients, aged 0-12 months, who are hospitalized due to bronchiolitis. The patients will receive either standard-of-care
(typically oxygen and hydration) or standard-of-care plus inhaled NO at a concentration of 160 ppm for 30 minutes 5 times per
day for up to 5 days. The primary endpoint is hospital length-of-stay (LOS). Secondary endpoints are time required to achieve
a clinical score of 5 or less on the modified Tal score and time required to achieve oxygen saturation (SaO2) of 92% or greater.
We expect to announce data from the trial in the second quarter of 2018.
We
plan to seek regulatory approval for our current product candidates and, if approved, we expect they will be marketed as medical
devices.
If
we reach the commercialization stage, we expect that we will collaborate with companies outside the U.S. for all indications and
inside the U.S. for PPHN, specifically. We are still determining whether to attempt to collaborate for bronchiolitis and/or NTM
in the U.S.
The
biotechnology, pharmaceutical and medical device industries are highly competitive. There are many pharmaceutical companies, biotechnology
companies, medical device companies, public and private universities and research organizations actively engaged in the research
and development of products that may be similar to our product candidates. We are aware of several companies currently developing
and selling NO therapies for various indications such as pulmonary hypertension. For example, Mallinkrodt commercializes INOMAX®
(nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the U.S., Canada, Australia,
Mexico and Japan. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in Europe,
called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension
that occurs during or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® and Air
Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations. Bellepheron Therapeutics is
developing NO-based products for pulmonary arterial hypertension and pulmonary hypertension associated with chronic obstructive
pulmonary disease. Geno LLC is developing NO-based products for the treatment of a variety of pulmonary and cardiac diseases such
as acute vasoreactivity testing, pulmonary arterial hypertension and pulmonary hypertension associated with idiopathic pulmonary
fibrosis. In addition, other companies may be developing generic NO formulation delivery systems for various dosages. Ceretec,
Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market a NO gas product
for use in membrane diffusing capacity testing in pulmonary function laboratories in the U.S. Novoteris, LLC previously received
orphan drug designation from the FDA and the European Medicines Agency (“EMA”) for the use of inhaled NO-based treatments
in treating CF. If the FDA approves Novoteris’ product candidate for the indication for which it received orphan drug designation,
then Novoteris will be eligible for orphan drug exclusivity if its product receives approval first, which would have no effect
on our product given we are a medical device. In January 2015, Ikaria entered into an agreement with Novoteris to collaborate
on the development of an outpatient program for treating bacterial infections associated with CF. Recently, we have become aware
that each of Ikaria and Novoteris is conducting a Phase 2 clinical trial using a 160 ppm NO formulation to treat patients with
CF. Moreover, Novoteris is also conducting a Phase 2 study in NTM
Abscessus
in Canada.
Our
competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial,
technical, manufacturing, marketing and human resources than we do and greater experience and infrastructure in the research and
clinical development of pharmaceutical products, obtaining FDA and other regulatory approvals of those products and commercializing
those products around the world.
We
have contracted with a third party contract manufacturer who has completed a substantial portion of the commercial manufacturing
process for our generator based NO delivery system. We will be reliant on our partner for commercial manufacture of our systems
for both clinical studies and commercial supply, if regulatory approval is received.
We
have patent filings that relate to our NO generator, NO2 filtration, delivery systems and devices configured for delivering NO
to patients by inhalation. We also have other patent filings that pertain to methods of exposing patients to inhalation of NO,
and to utilizing these methods for treating subjects in need of NO inhalation. In addition, we are in possession of trade secrets
and know-how regarding the practice of these methods.
Our
intellectual property portfolio consists of seven issued patents and one patent application, as well as their continuations and
foreign counterparts, which we have obtained through a non-exclusive worldwide license from CareFusion, 17 issued patents that
we acquired from Pulmonox and 21 patent applications developed internally, including PCT patent applications. Additionally, we
acquired one issued patent and one patent application in connection with the NitricGen license.
CareFusion
Non-Exclusive License Agreement
. In October 2013, we entered into a non-exclusive worldwide license agreement with CareFusion,
whereby we licensed seven issued U.S. patents, and one U.S. patent application, including corresponding foreign counterparts -
including patents granted in Australia, Mexico and China. Our intellectual property licensed from CareFusion, for which the earliest
expiring patent term is 2019, covers devices and methods for delivering NO formulations to a patient at steady and alternating
concentrations, including intermittent delivery of NO. Our CareFusion license also covers patents relating to devices and methods
for delivering alternating concentrations of NO topically, nasally and to an upper respiratory tract, for which the expiring patent
terms range from 2020 to 2025. The term of the agreement extends through the life of applicable patents and may be terminated
by either party with 60 days’ prior written notice in the event of a breach of the agreement, and may be terminated unilaterally
by CareFusion with 30 days’ prior written notice in the event that we do not meet certain milestones. Pursuant to the agreement,
we are required to pay CareFusion, in addition to a one-time up-front fee of $150,000 already paid, royalty payments of 5% of
the net sales of a licensed product by the Company and an annual fee of $50,000, which is creditable against the royalty payments
for the respective year.
Pulmonox
Patents and Assets - Option to Acquire
. On August 31, 2015, we entered into an agreement with Pulmonox whereby we acquired
for $25,000 the option, referred to as the Option, to purchase certain intellectual property assets, including Pulmonox’s
rights in 17 issued U.S. patents, which are directed to:
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devices
and methods for delivering NO formulations to a patient at steady and alternating concentrations (80-400 ppm), including intermittent
delivery of NO;
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a
device and methods for treatment of surface infections; and
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use
of NO as a mucolytic agent and for treatment and disinfection of biofilms.
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On
January 24, 2017, we exercised the Option and, for a purchase price of $500,000, acquired Pulmonox’s rights in the patents
described above. Upon exercise of the Option, we became obligated to make certain one-time development and sales milestone payments
to Pulmonox, commencing with the date on which we receive regulatory approval for the commercial sale of our first product candidate.
Of
the 17 Pulmonox patents, eight U.S. patents are jointly owned by CareFusion and Pulmonox. Pursuant to an agreement with CareFusion,
we currently have a non-exclusive world-wide license to five of the eight U.S. patents and their corresponding foreign counterparts
jointly owned by CareFusion and Pulmonox, including patents granted in China and Canada, and pending applications in China and
Europe. Following the exercise of the option, six patents directed to devices and methods for delivering NO formulations to a
patient; one patent directed to systems and methods for using NO to reduce pathogens in blood; one patent directed to use of NO
as a mucolytic agent; and one patent directed to methods of using NO for treatment and disinfection of biofilms will be solely
owned by us. In addition, four patents directed to devices and methods for delivering NO formulations to a patient at steady and
alternating concentrations (80-400 ppm), including intermittent delivery of NO; and four patents directed to a device and methods
for treatment of surface infections will be jointly owned by CareFusion and us.
Patent
Applications
. We have filed 21 patent applications, including one in Canada, eight in the U.S., one in Israel, five in Europe,
three PCT patent applications and three provisional patent applications in the U.S.
A
PCT patent application is a filing under the Patent Cooperation Treaty to which the U.S. and a number of other countries are a
party. It provides a unified procedure for filing a single patent application to protect inventions in those countries. A search
with respect to the application is conducted by the International Searching Authority, accompanied by a written opinion regarding
the patentability of the invention. A PCT application does not itself result in the grant of a patent, and the grant of patent
is a prerogative of each national or regional authority where the PCT application is filed during national phase filings.
In
January 2018 we entered into a definitive agreement with NitricGen which granted us an exclusive global license to one issued
patent and one pending patent application covering the NO generator and the NO2 filter.
Government
Regulations
U.S.
Regulation.
In the U.S., the FDA regulates drug and medical device products under the Federal Food, Drug, and Cosmetic Act
(“FFDCA”), and its implementing regulations. Our products have been designated devices by FDA and will be regulated
by the Center for Devices and Radiological Health (CDRH). Given that currently approved NO products and delivery systems were
approved in the Unites States as drug-device combinations, we expect our device to not only be reviewed by CDRH, but also have
input from the Center for Drug Evaluation and research (CDER).
Among
other things, we will have to demonstrate compliance with applicable QSRs, to ensure that the device is in compliance with applicable
performance standards.
Orphan
Drug Designation and Exclusivity.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to products that are
intended to treat rare diseases or conditions (i.e., those affecting fewer than 200,000 patients in the U.S.). Although orphan
drug designation does not convey any advantage in the regulatory review and approval process, it can provide certain tax benefits
and access to grants. Additionally, FDA user fees, which can be substantial, are waived for products that obtain orphan drug designation.
Further, if a product with orphan drug designation subsequently receives FDA approval for the designated disease or condition,
the product is entitled to orphan product exclusivity, which (with certain limited exceptions) blocks for seven years FDA approval
of another product with the same active ingredient for the same indication.
Approval
or Clearance of Medical Devices.
To varying degrees, each of the regulatory agencies having oversight over medical devices,
including the FDA and comparable foreign regulators, has laws and regulations governing the development, testing, manufacturing,
labeling, marketing and distribution of medical devices. In the U.S., medical device products are subject to regulation that is
intended to ensure that the device is either safe and effective or is substantially equivalent to a previously marketed device.
Medical devices are classified into one of three classes based on the level of control necessary to assure the safety and effectiveness
of the device. The three classes and the requirements that apply to them are: (i) Class I General Controls, with exemptions and
without exemptions, (ii) Class II General Controls and Special Controls, with exemptions and without exemptions and (iii) Class
III General Controls and Premarket Marketing authorization. The class to which a device is assigned determines the process that
applies for gaining marketing authorization. Most Class I devices are exempt from Premarket Notification 510(k); most Class II
devices require Premarket Notification clearance under section 510(k) of the Food, Drug, and Cosmetic Act; and most Class III
devices require Premarket Approval.
A
brief summary overview of the three classifications is set forth below.
Exempt
Class I Medical Device:
Prior to marketing an exempt Class I medical device, the manufacturer must register its establishment,
list the generic category or classification name of the medical device being marketed and pay a registration fee.
510(k)
Clearance Process:
A Class II medical device normally requires FDA clearance in the U.S. pursuant to the 510(k) clearance
process. The 510(k) clearance process is available to medical device developers that can demonstrate that their device is substantially
equivalent to a legally marketed medical device. In this process, the developer would be required to submit data that supports
the equivalence claim and wait for an order from the FDA finding substantial equivalence to another legally marketed medical device
before distributing the device for commercial sale. Modifications to cleared medical devices can be made without using the 510(k)
process if the changes do not significantly affect safety or effectiveness.
Premarket
Approval:
A more rigorous and time-consuming process applicable to Class III medical devices, known as pre-market approval
(“PMA”) which would require the developer to independently demonstrate that a medical device is safe and effective.
This is done by submitting data regarding design, materials, bench and animal testing and human clinical data for the medical
device. The FDA will authorize commercial release of a Class III medical device if it determines there is reasonable assurance
that the medical device is safe and effective. This determination is based on benefit outweighing risk for the population intended
to be treated with the device. This process is much more detailed, time-consuming and expensive than the 510(k) clearance process.
The
basic design of our delivery system will be similar to those functions used in current predicate devices. However, our therapy
requires the administration of a higher concentration of NO than is currently approved by the FDA. Therefore, the FDA could reject
a Class II-510(k) and declare it not substantially equivalent to a legally marketed device, and set it on the regulatory path
of Class III-PMA.
Continuing
Regulation of Approved or Cleared Drugs and Medical Devices.
Products manufactured or distributed pursuant to FDA approval
or clearance are subject to continuing regulation by the FDA, including requirements for ongoing recordkeeping, annual product
quality review, annual reporting, post-market surveillance requirements, post-market study commitments, drug adverse experience
reporting in a timely fashion, maintenance of pharmacovigilance program to proactively monitor for adverse events and medical
device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have
caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death
or serious injury if the malfunction of the device or a similar device were to recur.
Quality
System Regulation.
Companies engaged in the manufacture of medical devices or their components are required to register their
establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain
state agencies for compliance with ongoing regulatory requirements. Medical devices must comply with QSR requirements. These requirements
impose certain procedural and documentation requirements upon us and our third-party manufacturers related to the methods used
in and the facilities and controls used for designing, manufacturing, packaging, labeling, storing, medical devices. Following
these inspections, the FDA may assert noncompliance with QSR requirements on a Form 483, which is a report of observations from
an inspection, or by way of “untitled letters” or “warning letters” that could cause us or any third-party
manufacturers to modify certain activities. A Form 483 notice, if issued at the conclusion of an FDA inspection, can list conditions
the FDA investigators believe may have violated QSR or other FDA requirements. We cannot be certain that we or our present or
any future third-party manufacturers or suppliers will be able to comply with QSR or other FDA regulatory requirements to the
agency’s satisfaction. Failure to comply with these obligations may lead to possible legal or regulatory enforcement action
by the FDA, such as suspension of manufacturing, operating restrictions, seizure or recall of product, injunctive action, withdrawal
of approval or clearance, import detention, refusal or delay in approving or clearing new products or supplemental applications,
fines, civil penalties and criminal prosecution.
Advertising
and Promotion.
The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of medical
devices, including standards and regulations for direct-to-consumer advertising, communications about unapproved uses, industry-
sponsored scientific and educational activities and promotional activities involving the internet. Devices may be marketed only
for the approved or cleared indications and in accordance with the provisions of the approved or cleared label.
Healthcare
providers are permitted to prescribe approved devices for “off-label” uses—that is, uses not approved by the
FDA and therefore not described in the product’s labeling. These off-label uses are common across medical specialties. Physicians
may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate
the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’
communications regarding off-label use. Thus, we may market our products, if approved by the FDA, only for their approved indications,
but under certain conditions may engage in non-promotional, balanced communication regarding off-label uses. Failure to comply
with applicable FDA requirements and restrictions in this area may subject us to adverse publicity and a variety of sanctions,
which could harm our business and financial condition.
Anti-Kickback,
False Claims Act and Other Laws.
In addition to the FDA’s ongoing post-approval regulation of devices discussed above,
several other types of laws and regulations, subject to differing enforcement regimes, govern advertising and promotion. In recent
years, promotional activities regarding FDA-regulated products have come under intense scrutiny and have been the subject of enforcement
action brought by the Department of Justice and the Office of Inspector General of the Department of Health and Human Services,
as well as state authorities and even private individuals.
A
development affecting the healthcare industry is the increased use of the federal civil False Claims Act to impose liability on
any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for
payment by a federal healthcare program. In addition, many states have enacted false claim laws similar to the federal False Claims
Act. If certain conditions are met, the False Claims Act allows a private individual (typically a “whistleblower”)
to bring a civil action on behalf of the federal government and to share in any monetary recovery. Engaging in impermissible promotion
of our products for off-label uses can subject us to false claims litigation under federal and state statutes, which can lead
to civil money penalties, restitution, criminal fines and imprisonment and exclusion from participation in Medicare, Medicaid
and other federal and state health care programs In recent years, the number of suits brought by private individuals against pharmaceutical
and device companies for off-label promotion has increased dramatically.
The
federal Anti-Kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical or device manufacturers, on the one hand, and prescribers, purchasers and formulary
managers on the other. Violations are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from
participation in federal healthcare programs. Any sales or marketing practices that involve remuneration intended to induce prescribing,
purchases or recommendations may be subject to scrutiny under the Anti-Kickback statute. Many states have likewise adopted state
anti-kickback statutes and enforcement has been significant.
A
host of other laws and regulations govern the advertising and promotion of devices. The federal Sunshine Law, which is part of
the Health Care Reform Law, each enacted in March 2010, imposes federal “sunshine” provisions, requiring annual reporting
of various types of payments to physicians and teaching hospitals. CMS published the first set of data about these financial relationships
on its website on September 30, 2014. Inaccurate or incomplete reports may be subject to enforcement. Like the federal Sunshine
Law, several states have existing laws that require manufacturers to report transfers of value to select healthcare providers
licensed within the state. Additionally, other laws such as the federal Lanham Act and similar state laws allow competitors and
others to initiate litigation relating to advertising claims. Additionally, the FCPA and local laws of other countries potentially
implicate the sale and marketing of devices internationally. This complex patchwork of laws can change rapidly with relatively
short notice.
Environmental
Laws.
Elements of our potential products may be classified as hazardous materials, subject to regulation by the Department
of Transportation, the International Air Transportation Association, the International Maritime Organization, the Environmental
Protection Agency and the Occupational Safety and Health Administration, which may impose various requirements pertaining to the
way we manufacture, transport, store, handle and dispose of our products.
European
Regulation.
In order for our products to be marketed and sold in the EEA, we must obtain the required regulatory approvals
and comply with the extensive regulations regarding safety, manufacturing processes and quality requirements of the respective
countries. These regulations, including the requirements for approvals to market, and the various regulatory frameworks may differ.
In addition, there may be foreign regulatory barriers other than approval or clearance.
Medicinal
Product Approval.
In the EEA, we expect our products to be regulated as a combination drug-delivery device product falling
within the scope of Directive 2001/83/EC, commonly known as the Community Code on medicinal products. Under this Directive, we
are required to obtain a marketing authorization for our products before they are placed on the market. Medicinal products must
be authorized in one of two ways, either through the decentralized procedure or mutual recognition procedure by the competent
authorities of the EEA Member States, or through the centralized procedure by the European Commission following a positive opinion
by the EMA. The authorization process is essentially the same irrespective of which route is used, and requires us to demonstrate
the quality, safety and efficacy of the NO delivered to the patient by our product. We are also required to demonstrate that the
drug delivery component of our products complies with the relevant Essential Requirements contained in Annex I to the Medical
Devices Directive.
Innovative
medicinal products are authorized in the EEA on the basis of a full marketing authorization application that must contain the
results of pharmaceutical tests, pre-clinical tests and clinical trials conducted with the medicinal product for which marketing
authorization is sought, and demonstrating the product’s quality, safety and efficacy. Once approved, an innovative medicinal
product is entitled to eight years of data exclusivity. During this period, no application for approval of a generic version of
the innovative product relying on data contained in the marketing authorization dossier for the innovative product may be submitted.
Innovative medicinal products are also entitled to ten years of market exclusivity. During this 10-year period, no generic medicinal
product can be placed on the EU market. The 10-year period of market exclusivity can be extended to a maximum of 11 years if,
during the first eight years of those ten years, the holder of the marketing authorization for the innovative product obtains
an authorization for one or more new therapeutic indications that are held to bring a significant clinical benefit in comparison
with existing therapies.
After
expiration of the data exclusivity period, an application for marketing authorization for a generic version of an approved innovative
medicinal product may be submitted. Such an application does not contain data demonstrating the proposed product’s quality,
safety and efficacy, but instead relies on the data in the dossier for the related innovative product, and a demonstration that
the two products are the same and bioequivalent. If approved, the generic product may not be placed on the market until expiration
of the 10-year marketing exclusivity period for the innovative medicinal product.
A
marketing application for a product that, although similar to an approved medicinal product does not qualify as a generic, may
also seek to rely to some degree on the data in the dossier for the approved product. As with a generic product, the application
may not be submitted until expiration of the data exclusivity period, and the product, if approved, may not be placed on the market
until expiration of the market exclusivity period. Such an application must also contain data specific to the proposed product,
however. The extent to which such a “hybrid” application requires new data is determined on a case-by-case basis by
the competent authorities, based on the differences between the innovative medicinal product and the medicinal product subject
to the hybrid application for marketing authorization. The purpose of the pre-clinical tests and clinical trials is to generate
additional data that complement the data relating to the innovative medicinal product and to demonstrate the quality, safety and
efficacy of the medicinal product for which authorization is sought.
Because
an NO formulation is already authorized in the EEA for treating pulmonary hypertension, we expect to be able to seek marketing
authorization for our products under the “hybrid” approach described in the previous paragraph. We anticipate that
the hybrid application for marketing authorization will require the successful completion of limited studies confirming the quality,
safety and efficacy of the NO formulation delivered using our proprietary delivery technology.
Continuing
Regulation.
As in the U.S., marketing authorization holders and manufacturers of medicinal products are subject to comprehensive
regulatory oversight by the EMA and/or the competent authorities of the EEA Member States. This oversight applies both before
and after grant of manufacturing and marketing authorizations. It includes control of compliance with EU GMP rules and pharmacovigilance
rules.
In
the EEA, the advertising and promotion of our products will also be subject to EEA Member States’ laws concerning promotion
of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices, as
well as other EEA Member State legislation that may apply to the advertising and promotion of medicinal products. These laws require
that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product
Characteristics (“SmPC”), as approved by the competent authorities. The SmPC is the document that provides information
to physicians concerning the safe and effective use of the medicinal product. Promotion of a medicinal product that does not comply
with the SmPC is considered to constitute off-label promotion, which is prohibited. The applicable laws at the EU level and in
the individual EEA Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations
of the rules governing the promotion of medicinal products in the EEA could be penalized by administrative measures, fines and
imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public and
may also impose limitations on our promotional activities with health care professionals.
Interactions
between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes
of conduct and physicians’ codes of professional conduct in the individual EEA Member States. The provision of benefits
or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use
of medicinal products is prohibited. The provision of benefits or advantages to physicians is also governed by the national anti-bribery
laws of the EEA Members states, including the UK Bribery Act 2010. Payments made to physicians in certain EEA Member States must
be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the
physician’s employer, his/her competent professional organization and/or the competent authorities of the individual EEA
Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable
in the EEA Member States.
Pricing
and Reimbursement.
Each EEA Member State is free to restrict the range of medicinal products for which their national health
insurance systems provide reimbursement and to control the prices and/or reimbursement levels of medicinal products for human
use. An EEA Member State may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt
a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the
market, including volume-based arrangements and reference pricing mechanisms.
Health
technology assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement
procedures in some EEA Member States, particularly the United Kingdom, France, Germany and Sweden. The HTA process in each EEA
Member State is governed by the national laws of the country. HTA is the procedure according to which an assessment is conducted
of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the
national healthcare systems of the individual country. HTA generally focuses on the clinical efficacy and effectiveness, safety,
cost and cost-effectiveness of individual medicinal products, as well as their potential implications for the healthcare system.
Those elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding
specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the
competent authorities of individual EEA Member States. The extents to which pricing and reimbursement decisions are influenced
by the HTA of the specific medicinal product vary between EEA Member States.
Data
Privacy Regulation.
The collection and use of personal health data in the EEA is governed by the provisions of the Data Protection
Directive. This Directive imposes a number of requirements relating to the consent of the individuals to whom the personal data
relates, the information provided to the individuals, notification of data processing obligations to the competent national data
protection authorities and the security and confidentiality of the personal data. The Data Protection Directive also imposes strict
rules on the transfer of personal data out of the EEA to the U.S. Failure to comply with the requirements of the Data Protection
Directive and the related national data protection laws of the EEA Member States may result in fines.
Orphan
Designation and Exclusivity.
In the European Union, the Committee for Medicinal Products for Human Use grants orphan drug
designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening
or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union Community and for
which no satisfactory method of diagnosis, prevention or treatment has been authorized (or the product would be a significant
benefit to those affected). Additionally, designation is granted for products intended for the diagnosis, prevention or treatment
of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that
sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the medicinal product.
In
the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers
and ten years of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if
the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable
not to justify maintenance of market exclusivity.
Orphan
drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey
any advantage in, or shorten the duration of, the regulatory review and approval process.
Exceptional
Circumstances/Conditional Approval.
Orphan medicinal product or products for unmet medical needs may be eligible for EU approval
under exceptional circumstances or with conditional approval. Approval under exceptional circumstances is applicable to orphan
products and is used when an applicant is unable to provide comprehensive data on the efficacy and safety under normal conditions
of use because the indication for which the product is intended is encountered so rarely that the applicant cannot reasonably
be expected to provide comprehensive evidence, when the present state of scientific knowledge does not allow comprehensive information
to be provided, or when it is medically unethical to collect such information. Conditional marketing authorization is applicable
to orphan medicinal products, medicinal products for seriously debilitating or life- threatening diseases or medicinal products
to be used in emergency situations in response to recognized public threats. Conditional marketing authorization can be granted
on the basis of less complete data than is normally required in order to meet unmet medical needs and in the interest of public
health, provided the risk-benefit balance is positive, it is likely that the applicant will be able to provide the comprehensive
clinical data, and unmet medical needs will be fulfilled.
Conditional
marketing authorization is subject to certain specific obligations to be reviewed annually.
Other
Regulations.
We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances.
We may incur significant costs to comply with such laws and regulations now or in the future.
Regulation
in Israel.
In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained
from the ethics committee and general manager of the institution in which the clinical studies are scheduled to be conducted,
as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations
(Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These regulations require
authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except
in certain circumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional
authorization of the Ministry of Health’s overseeing ethics committee. The institutional ethics committee must, among other
things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies the risks
and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for the
rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing.
Since we perform a portion of the clinical studies on certain of our therapeutic candidates in Israel, we are required to obtain
authorization from the ethics committee and general manager of each institution in which we intend to conduct our clinical trials,
and in most cases, from the Israeli Ministry of Health.
Available
Information
We
file electronically with the Securities and Exchange Commission, or SEC, our annual reports, this transition report on
Form 10-KT, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended. We make available on our website at www.ait-therapeutics.com, free of charge, copies of these
reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The public
may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that website is www.sec.gov. The information in or accessible through the SEC
and our website are not incorporated into, and are not considered part of, this filing. Further, our references to the URLs for
these websites are intended to be inactive textual references only
Employees
As of June 15,
2018, we had 13 full-time employees, 8 of whom were primarily engaged in research and development activities. A total of 2 employees
have either one or both an M.D. or Ph.D. degree. None of our employees are represented by a labor union and we consider our employee
relations to be good.
ITEM
1A. RISK FACTORS
Investing
in our common stock involves a high degree of risk. You should consider carefully the risks described below, together with the
other information included or incorporated by reference in this Transition Report on Form 10-KT. If any of the following
risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely
affected. In these circumstances, the market price of our common stock could decline. Other events that we do not currently anticipate
or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Risks
Related to Our Financial Position and Capital Requirements
We
have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable
future. We are a clinical-stage company. We have no approved products and have generated no revenue to date and may never generate
revenue or achieve profitability.
Our
ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment
decision. These are not the only risks we face. These risks include, among others, that:
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we
are a development-stage medical device and biopharmaceutical company and have a limited operating history on which to assess
our business, have incurred significant losses since our inception, including a net income of $1 million for the three months
ended March 31, 2018, and an accumulated deficit of approximately $30.6 million as of March 31, 2018, and anticipate that
we will continue to incur significant losses for the foreseeable future
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we
are unable to predict the extent of future losses or when we will become profitable based on the sale of any product, if at
all. Even if we succeed in developing and commercializing our product candidates, we may never generate revenue to sustain
profitability;
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we
have no source of revenue, and we expect that we will need to raise additional funding before we can expect to become profitable
from sales of our products;
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we
are heavily dependent upon the success of our product candidates, which are in various stages of clinical development, and
we cannot provide any assurance that the FDA or other regulatory agencies will allow us to conduct further clinical trials;
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we
are in the process of developing our proprietary NO delivery system, and unexpected delays will adversely impact the timing
of our U.S.-based clinical trials and approvals;
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we
might be unable to develop product candidates that will achieve commercial success in a timely and cost-effective manner,
or ever;
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our
competitors may develop or commercialize products faster or more successfully than us;
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because
some of the target patient populations of our product candidates are small, we must be able to successfully identify patients
and achieve a significant market share to maintain profitability and growth;
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our
reliance on third parties to help conduct our pre-clinical studies, clinical trials and commercial scale manufacturing;
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we
do not have any products approved for sale by the FDA or any other regulatory agencies, and we cannot provide any assurance
that any of our product candidates will receive regulatory approval;
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if
we are unable to obtain and maintain effective intellectual property rights for our technologies, product candidates or any
future product candidates, we may not be able to compete effectively in our markets; and
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our
future success depends in part upon our ability to retain our executive and scientific teams, and to attract, retain and motivate
other qualified personnel.
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It
is highly likely that we will need to raise additional capital to meet our business requirements in the future, and such capital
raising may be costly or difficult to obtain, and could dilute current stockholders’ ownership interests.
Our
future capital requirements will depend on many factors, including the progress and results of our clinical trials, the timing
and outcome of regulatory review of our product candidates, commercial manufacturing success, the number and development requirements
of other product candidates that we pursue, and the costs of commercialization activities, including product marketing, sales,
and distribution. Because of the numerous risks and uncertainties associated with the development and commercialization of our
product candidates, we are unable to reasonably estimate the amounts of additional capital outlays and operating expenditures
that our business will require. It is likely that we will need to raise additional funds through public or private debt or equity
financings to meet various objectives including, but not limited to:
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clinical
trials for our product candidates;
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researching
and developing new products;
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pursuing
growth opportunities, including more rapid expansion;
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acquiring
complementary businesses or technologies;
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making
capital improvements to improve our infrastructure;
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hiring
qualified management and key employees;
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responding
to competitive pressures;
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complying
with regulatory requirements; and
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maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership
in us and could also result in a decrease in the market price of our Common Stock. The terms of those securities issued by us
in future capital transactions may be more favorable to new investors and may include preferences, superior voting rights and
the issuance of warrants or other derivative securities, which may have a further dilutive effect.
Furthermore,
any debt or equity financing that we may need may not be available on terms favorable to us, or at all.
Additionally,
we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting
fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize
non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely
impact our financial condition.
If
we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business,
and we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
Risks
Related to the Discovery and Development of Our Product Candidates
We
are heavily dependent on the success of our product candidates, which are in the early stages of clinical development. We cannot
give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be
commercialized.
To
date, we have invested substantially all of our efforts and financial resources to design and develop our product candidates,
including conducting clinical studies and providing general and administrative support for these operations. Our future success
is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or
more product candidates. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize
a marketable product.
Two
of our product candidates is in the early stages of development and will require additional clinical development (and in some
cases additional preclinical development), management of nonclinical, clinical and manufacturing activities, regulatory approval,
obtaining adequate manufacturing supply, building of a commercial organization and significant marketing efforts before we generate
any revenue from product sales. To date, we have conducted a pilot clinical trial involving 43 patients with bronchiolitis (mainly
caused by RSV) and a pilot clinical trial in nine patients with CF. In addition, Rambam healthcare campus in Israel conducted
a compassionate treatment for two patients with CF who suffer from NTM infections (specifically M. Abscessus). All of these studies
were conducted outside the U.S. and were not conducted pursuant to an FDA IND. The results of these three studies showed improvements
in various endpoints and clinical outcomes. The trials were small, however, and it is likely that the FDA will view them as not
significant because of their size and scope. In addition, the delivery systems were different from the one that we intend to test
and market, subject to FDA approval, in the U.S., further reducing the likelihood that FDA would view these test results as adequate
or sufficient to support marketing applications. We therefore intend to conduct larger clinical trials aiming for statistically
and clinically significant favorable results, or we will not be able to obtain regulatory approval to market our product candidates.
It may be years before a pivotal study is initiated, if at all. Before a medical device clinical trial can be undertaken in the
U.S., the sponsor of the trial must submit an IDE application for a medical device and the FDA must permit the trial to go forward.
We cannot assure that we will obtain such agency acquiescence in a timely manner, or at all.
In
addition, we cannot be sure that we will be successful in completing the development of our NO Delivery System to the satisfaction
of the FDA, which could lead to material delays in our ability to commence U.S.-based clinical trials, if at all. We are not permitted
to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory
authorities, and we may never receive such regulatory approval for any of our product candidates.
We
as a company have never submitted marketing applications for approval of our product candidates to the FDA or comparable foreign
regulatory authorities; although in 2014 the FDA granted the Company orphan drug designation for the use of NO in the treatment
of CF and in 2015, the EU also granted the Company orphan drug designation for the use of NO in the treatment of CF. We are no
longer pursuing the drug regulatory pathway so the orphan drug designation may mean nothing. We cannot be certain that any of
our product candidates will be successful in clinical studies or receive regulatory approval. Further, our product candidates
may not receive regulatory approval even if they are successful in clinical studies. If we do not receive regulatory approvals
for our product candidates, we may not be able to continue our operations. Even if we do receive FDA approval for our drug, the
indications for which we are initially seeking approval are very narrow and this, as a result, may limit their commercial viability.
We
generally plan to seek regulatory approval to commercialize our product candidates in the U.S., the EU and in additional foreign
countries. To obtain regulatory approvals we must comply with the numerous and varying regulatory requirements of such countries
regarding safety, efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing and distribution
of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will
obtain approval in any other jurisdictions. If we are unable to obtain approval for our product candidates in multiple jurisdictions,
our revenue and results of operations would be negatively affected.
The
regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable.
If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following
the commencement of clinical studies and depends upon numerous factors. In addition, approval policies, regulations or the type
and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development
and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. We have
not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or
any product candidates we may seek to develop in the future will ever obtain regulatory approval.
The
process required by the FDA before a new medical device may be marketed in the U.S. generally involves the following:
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completion
of or reference to extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with
the FDA’s Good Laboratory Practice (“GLP”);
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submission
to the FDA of a pre-IDE application, which the FDA authorizes before we may begin conducting human clinical trials, provided
that the FDA does not object; the IDE must be updated annually;
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performance
of adequate and well-controlled human clinical trials to establish the safety and efficacy of the medical device candidate
for each proposed indication; and
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submission
to the FDA of a 510(k) or PMA, after completion of all pivotal clinical trials.
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An
IDE application is a request for authorization from the FDA to administer an investigational medical device to humans. We currently
do not have any IDEs in effect.
Clinical
trials involve the administration of the medical device to human subjects under the supervision of qualified investigators in
accordance with current Good Clinical Practices (“cGCPs”) which include the requirement that all research subjects
provide their informed consent for participation in any clinical trial. A protocol for each clinical trial and any subsequent
protocol amendments must be submitted to the FDA as part of the IDE. Additionally, approval must also be obtained from each clinical
trial site’s Institutional Review Board (“IRB”) before the trials may be initiated, and the IRB must monitor
the study until completed and re-assess and approve the study at least annually. There are also requirements governing the reporting
of ongoing clinical trials and clinical trial results to public registries.
Clinical
trials for medical devices are usually conducted in two phases. Pilot clinical trials are normally conducted in small groups of
patients to assess safety, find the optimal dosing range and assess potential efficacy. After a successful pilot study or studies,
the device is administered to a population of patients large enough to meet the requirements for regulatory approval. This size
of trial is usually multi-center, controlled and potentially double-blind.
During
the course of a clinical trial, we are required to inform the FDA and the IRB about adverse events associated with our product
candidate. The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds,
including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials
are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring
board or committee, or DSMB. This group reviews unblinded data from clinical trials and provides authorization for whether a trial
may move forward at designated check points based on access to certain data from the study. We may also suspend or terminate a
clinical trial based on evolving business objectives or competitive climates.
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational
medical device information is submitted to the FDA in the form of an PMA requesting approval to market the product for one or
more indications. The application includes all relevant data available from pertinent preclinical and clinical trials, including
negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s
chemistry, manufacturing, controls and proposed labeling, among other things.
Once
the PMA submission has been accepted for filing, the FDA’s goal is to review applications within ten months of filing. However,
the review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer
the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved.
The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
An
IDE is a request for authorization from the FDA to administer an investigational medical device to humans. We currently do not
have any IDEs in effect.
Applications
for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the
FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;
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we
may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit
ratio for its proposed indication is acceptable;
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the
FDA may determine that the population studied in the clinical program was not sufficiently broad or representative to assure
safety in the full population for which we seek approval;
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the
FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or
clinical studies;
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the
data collected from clinical studies of our product candidates may not be sufficient to support the submission of a PMA in
the U.S. or elsewhere;
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the
FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
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the
approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval; and
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This
lengthy approval process, as well as the unpredictability of the results of clinical studies, may result in our failing to obtain
regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations
and prospects.
Medical
device development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not
be predictive of future study results.
Clinical
testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time
during the clinical study process. The results of preclinical studies and early clinical studies of our product candidates may
not be predictive of the results of later-stage clinical studies. Product candidates that have shown promising results in early-stage
clinical studies may still suffer significant setbacks in subsequent advanced clinical studies. There is a high failure rate for
medical devices proceeding through clinical studies, and product candidates in later stages of clinical studies may fail to show
the desired safety and efficacy traits despite having progressed satisfactorily through preclinical studies and initial clinical
studies. A number of companies in the medical device and biopharmaceutical industry have suffered significant setbacks in advanced
clinical studies due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies. Moreover,
preclinical and clinical data are often susceptible to varying interpretations and analyses. We do not know whether any pivotal
studies we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to
market our product candidates. Nor do we know whether the FDA will permit us to proceed directly to pivotal trials without performing
pilot trials in the U.S. using the same delivery system that we will seek approval by the agency.
We
are working on NTM Abscessus which is very rare.
NTM
Abscessus
is a very rare disease and only a small number of people suffer from this condition. As a result of these small
numbers, we may not be able to complete the study related to NTM
Abscessus
or, even if approved, the device for that indication
may never be profitable. In addition, there are many strains of NTM but our study is only on one of them,
Abscessus
. Therefore,
we may face a situation that this strain will disappear or there will no candidates with this strain, so the FDA may not grant
us approval to treat other NTM strains without further validation and trials, or possibly ever, and/or the FDA may not allow us
to work on NTM in patients who do not have CF.
We
are working on bronchiolitis in infants that usually is caused by the RSV virus.
RSV
is a seasonal virus (only in the winter). In our trial, we are heavily dependent on the occurrence and the severity of this virus.
RSV or the winter cannot be predicted. For example, if the winter is warm or short, or the RSV infection was not severe enough
when we conducted our trial, or the length of stay in the hospital at the year that trial was conducted was different from previous
seasons, then we might miss the season or the results can be significantly different between two seasons or between different
countries or even between different sites.
We
are working on PPHN which is a highly competitive market and regulatory approval may not be easily obtained.
Our
NO Delivery System has not yet been manufactured for use with a ventilator and this process has significant risks. Additionally,
a delivery system with a generator of NO has never been approved anywhere in the world and this may cause significant delays in
the approval process.
We
are heavily dependent on the Aeronox system to conduct our trial outside the U.S., and we may be required to seek an alternative
delivery system for our proprietary 160 ppm NO formulation if we were to conduct a clinical trial within the U.S.
We
are heavily dependent on the Aeronox system and the company that manufactures it, International Biomedical, located in Texas.
If International Biomedical decides not to continue to support the Aeronox system (for example, selling parts and providing repair
services for the device), then we might not be able to conduct our U.S. trial. This system is not manufactured specifically for
us, and we have no agreement with International Biomedical for the continued manufacture or support of this Aeronox system. Additionally,
the Aeronox system is not currently approved for use in the U.S. at the 160 ppm concentration required by our proprietary 160
ppm NO formulation, and we currently engage a third-party contractor to modify the Aeronox system in order for it to monitor our
NO formulation at 160 ppm. Unless the Aeronox system obtains such approval, of which we have no current expectation, we would
be required to seek an alternative delivery system in order to conduct a clinical trial of our formulation within the U.S.
We
may find it difficult to enroll patients in our clinical studies. Difficulty in enrolling patients could delay or prevent clinical
studies of our product candidates.
Identifying
and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of
our clinical studies depends in part on the speed at which we can recruit patients to participate in testing our product candidates,
and we may experience delays in our clinical studies if we encounter difficulties in enrollment.
Some
of the conditions for which we plan to evaluate our current product candidates are for rare diseases. For example, we estimate
that 5,000 patients suffer from NTM
abscessus
in the U.S. Accordingly, there is a limited patient pool from which to draw
for clinical studies. Further, the eligibility criteria of our clinical studies will further limit the pool of available study
participants as we will require that patients have specific characteristics that we can measure or to assure their disease is
either severe enough or not too advanced to include them in a study.
Additionally,
the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number
of patients to complete our clinical studies because of the perceived risks and benefits of the product candidate under study,
particularly the toxicity of NO in certain doses, the availability and efficacy of competing therapies and clinical studies, the
proximity and availability of clinical study sites for prospective patients and the patient referral practices of physicians.
If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies
and obtaining regulatory approval of potential products will be delayed.
If
we experience delays in the completion or termination of any clinical study of our product candidates, the commercial prospects
of our product candidates will be harmed, and our ability to generate product revenue from any of these product candidates could
be delayed or prevented. In addition, any delays in completing our clinical studies will increase our costs, slow down our product
candidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these
occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical studies may also ultimately lead to the denial of regulatory
approval of our product candidates.
We
may encounter substantial delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction
of applicable regulatory authorities.
Before
obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical
studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming
and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule,
if at all. Our clinical studies involve infants, children, and adults and, before we are permitted to enroll them in clinical
trials, we must demonstrate that although the research may pose a risk to the subjects, there is a prospect of direct benefit
to each patient. We must do so to the satisfaction of each research site’s IRB. If we fail to adequately demonstrate this
to the satisfaction of the relevant IRB, it will decline to approve the research, which could have significant adverse consequences
for the Company.
A
failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful.
Events that may prevent successful or timely completion of clinical development include but are not limited to:
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inability
to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical
studies;
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delays
in reaching a consensus with regulatory agencies on study design;
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delays
in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical
study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and
clinical study sites;
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delays
in obtaining required IRB approval at each clinical study site;
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imposition
of a clinical hold by regulatory agencies, after review of an IDE application, or equivalent application, or an inspection
of our clinical study operations or study sites;
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delays
in recruiting suitable patients to participate in our clinical studies;
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difficulty
collaborating with patient groups and investigators;
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failure
by our CROs, other third parties or us to adhere to clinical study requirements;
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failure
to perform in accordance with the FDA’s GPC requirements, or applicable regulatory guidelines in other countries;
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delays
in having patients complete participation in a study or return for post-treatment follow-up;
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patients
dropping out of a study;
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occurrence
of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
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changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols;
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the
cost of clinical studies of our product candidates being greater than we anticipate;
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clinical
studies of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators
requiring us, to conduct additional clinical studies or abandon product development programs; and
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delays
in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates
for use in clinical studies or the inability to do any of the foregoing.
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Any
inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability
to generate revenue. We may also be required to conduct additional safety, efficacy and comparability studies before we will be
allowed to start clinical studies. Clinical study delays could also shorten any periods during which our products have patent
protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully
commercialize our product candidates and may harm our business and results of operations.
Our
product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label or result in significant negative consequences following marketing approval,
if any.
Undesirable
side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical studies
and could result in a more restrictive marketing label or the delay or denial of regulatory approval by the FDA or other comparable
foreign authorities. There is currently limited data regarding possible side effects for an antimicrobial dosage of NO treatments,
such as our product candidates. Potential side effects of NO treatments may include high methemoglobin, nitrogen dioxide (“NO
2
”)
toxicity, nose bleeding and low blood pressure. Results of our studies may identify unacceptable severity and prevalence of these
or other side effects. In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory
authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted
indications.
NO-related
side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product
liability claims.
Additionally,
if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects
caused by such products, a number of potentially significant negative consequences could result, including but not limited to:
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regulatory
authorities may withdraw approvals of such product;
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regulatory
authorities may require additional warnings on the label;
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as
a condition of approval, we may be required to create a Risk Evaluation and Mitigation Strategy (“REMS”) plan,
which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication
plan for healthcare providers and/or other elements to assure safe use;
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we
could be sued and held liable for harm caused to patients; and
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our
reputation may suffer.
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Any
of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved,
and could significantly harm our business, results of operations and prospects.
Even
if we obtain regulatory approval for our product candidates, we will still face extensive, ongoing regulatory requirements and
review, and our products may face future development and regulatory difficulties.
Even
if we obtain regulatory approval for one or more of our product candidates in the U.S., the FDA may still impose significant restrictions
on the indicated uses or marketing or to the conditions for approval, or impose ongoing requirements for potentially costly post-approval
studies, including post-market surveillance. As a condition to granting marketing approval of a product, the FDA may require a
company to conduct additional clinical trials. The results generated in these post-approval clinical trials could result in loss
of marketing approval, changes in product labeling, or new or increased concerns about side effects or efficacy of a product.
For example, the labeling for our product candidates, if approved, may include restrictions on use or warnings. The Food and Drug
Administration Amendments Act of 2007 (“FDAAA”) gives the FDA enhanced post-market authority, including the explicit
authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance
with FDA-approved REMS programs. If approved, our product candidates will also be subject to ongoing FDA requirements governing
the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record keeping, and
reporting of safety and other post-market information. The FDA’s exercise of its authority could result in delays or increased
costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval
regulatory requirements, and potential restrictions on sales of approved products. Foreign regulatory agencies often have similar
authority and may impose comparable costs. Post-marketing studies, whether conducted by us or by others and whether mandated by
regulatory agencies or voluntary, and other emerging data about marketed products, such as adverse event reports, may also adversely
affect sales of our product candidates once approved, and potentially our other marketed products. Further, the discovery of significant
problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products
could have an adverse effect on sales of our approved products. Accordingly, new data about our products could negatively affect
demand because of real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product
withdrawal or recall. Furthermore, new data and information, including information about product misuse, may lead government agencies,
professional societies, and practice management groups or organizations involved with various diseases to publish guidelines or
recommendations related to the use of our products or the use of related therapies or place restrictions on sales. Such guidelines
or recommendations may lead to lower sales of our products.
The
holder of an approved PMA or cleared 510(k) also is subject to obligations to monitor and report adverse events and instances
of the failure of a product to meet the specifications in the marketing application. Application holders must submit new or supplemental
applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process.
Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical trials.
Legal requirements have also been enacted to require disclosure of clinical trial results on publicly available databases.
In
addition, manufacturers of FDA regulated products and their facilities are subject to continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with the FDA’s cGMPs regulations. If we or a regulatory agency
discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems
with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing
facility, or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing, requiring
new warnings or other labeling changes to limit use of the product, requiring that we conduct additional clinical trials, imposing
new monitoring requirements, or requiring that we establish a REMS program for our approved products. Advertising and promotional
materials must comply with FDA rules in addition to other potentially applicable federal and state laws. The distribution of product
samples to physicians must comply with the requirements of the Prescription Drug Marketing Act. Sales, marketing, and scientific/educational
grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar
state laws. We would also be required under the Sunshine provision of the Affordable Care Act (“ACA”) to report annually
to the Centers for Medicare & Medicaid Services on payments that we make to physicians and teaching hospitals and ownerships
interests in the company held by physicians. Pricing and rebate programs must comply with the Medicaid rebate requirements of
the Omnibus Budget Reconciliation Act of 1990 and the Veterans Healthcare Act of 1992. If products are made available to authorized
users of the Federal Supply Schedule of the General Services Administration and to low income patients of certain hospitals, additional
laws and requirements apply. Our activities are also potentially subject to federal and state consumer protection and unfair competition
laws. If we or our third-party collaborators fail to comply with applicable regulatory requirements, a regulatory agency may take
any of the following actions:
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conduct
an investigation into our practices and any alleged violation of law;
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issue
warning letters or untitled letters asserting that we are in violation of the law;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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require
that we suspend or terminate any ongoing clinical trials;
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refuse
to approve pending applications or supplements to applications filed by us;
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suspend
or impose restrictions on operations, including costly new manufacturing requirements;
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seize
or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or
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exclude
us from providing our products to those participating in government health care programs, such as Medicare and Medicaid, and
refuse to allow us to enter into supply contracts, including government contracts.
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The
occurrence of any of the foregoing events or penalties may force us to expend significant amounts of time and money and may significantly
inhibit our ability to bring to market or continue to market our products and generate revenue. Similar regulations apply in foreign
jurisdictions.
Risks
Related to our Reliance on Third Parties
We
rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us. If these third parties do
not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not
be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We
have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and
clinical programs. We rely on these parties for execution of our preclinical and clinical studies, and we directly control only
certain aspects of their activities, although from a regulatory perspective we are responsible for their actions. We are responsible
for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific
standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors
are required to comply with Good Clinical Practice (“GCP”), QSR and GLP, which are regulations and guidelines enforced
by the FDA, the Competent Authorities of the Member States of the European Economic Area (“EEA”), and comparable foreign
regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations
through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our
CROs or vendors fail to comply with applicable regulations, the clinical data generated in our clinical studies may be deemed
unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical studies
before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory
authority will determine that any of our clinical studies comply with GCP regulations. In addition, our clinical studies must
be conducted with products that are produced under QSR regulations. Our failure to comply with these regulations may require us
to repeat clinical studies, which would delay the regulatory approval process, or have other adverse consequences.
If
any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative
CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available
to us under our agreements with such CROs, we cannot control whether they devote sufficient time and resources to our on-going
clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations
or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised
due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical studies may
be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our
product candidates. CROs may also generate higher costs than anticipated. As a consequence, our results of operations and the
commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue
could be delayed.
Switching
or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition
period when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired
clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we
will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse
impact on our business, financial condition and prospects.
We
will rely on third parties to manufacture our NO delivery system. Our business could be harmed if those third parties fail to
provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.
We
do not currently have the infrastructure or capability internally to manufacture the components of our NO delivery system, and
we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We plan
to rely on third parties for such supplies. There are a limited number of manufacturers who have the ability to produce our delivery
system, and there may be a need to identify alternate manufacturers to prevent a possible disruption of our clinical studies.
Any significant delay or discontinuity in the supply of these components could considerably delay completion of our clinical studies,
product testing and potential regulatory approval of our product candidates, which could harm our business and results of operations.
We
and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product
candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
All
entities involved in the preparation of medical devices for clinical studies or commercial sale, including our existing contract
manufacturers for our product candidates, are subject to extensive regulation. Components of a finished medical device product
approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with QSR. These regulations
govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems
to control and assure the quality of investigational products and products approved for sale. Poor control of production processes
can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates
that may not be detectable in final product testing. We, our collaborators or our contract manufacturers must supply all necessary
documentation in support of any marketing application on a timely basis and must adhere to GLP and QSR regulations enforced by
the FDA and other regulatory agencies through their facilities inspection program. The facilities and quality systems of some
or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable
regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition,
the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product
candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to
the activities being conducted. We do not control the manufacturing process of, and are completely dependent on, our contract
manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection,
regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the
satisfaction of the regulatory authority, if ever.
The
regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our
collaborators and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations
or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we
or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third
party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales, or the
temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business.
If
we, our collaborators, or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable
regulatory authorities can impose regulatory sanctions including, among other things, refuse to approve a pending application
for a new drug product, withdrawal of an approval, suspend production, suspend clinical studies, require a recall or suspension
of production. As a result, our business, financial condition and results of operations may be materially harmed.
Additionally,
if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an PMA
or Marketing Authorization Application amendment, or equivalent foreign regulatory filing, which could result in further delay.
The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching
manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These
factors could cause us to incur higher costs and could cause the delay or termination of clinical studies, regulatory submissions,
required approvals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements
and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical
studies may be delayed or we could lose potential revenue.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover
them or that our trade secrets will be misappropriated or disclosed.
Because
we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them.
We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material
transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators,
advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically
limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual
provisions employed when working with third parties, the need to share trade secrets and other confidential information increases
the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others,
or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how
and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our
competitive position and may have a material adverse effect on our business.
Risks
Related to Commercialization of Our Product Candidates
If
the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected,
and our business may suffer.
Our
projections of both the number of people who have our target diseases, as well as the subset of people with these diseases who
have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates
have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market
research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases.
The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat
is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally,
the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment
with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely
affect our results of operations and our business.
We
intend to rely on third-party manufacturers to produce our product candidates, but we have not entered into binding agreements
with any such manufacturers to support commercialization.
We
have not yet secured manufacturing capabilities for commercial quantities of our product candidates. We intend to rely on third-party
manufacturers for commercialization. We may be unable to negotiate binding agreements with the manufacturers to support our commercialization
activities on commercially reasonable terms, or at all. See
“Risk Related to our Reliance on Third Parties—We and
our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates.
The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.”
We
face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize
therapies that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and
our ability to successfully commercialize our product candidates.
The
medical device, biotechnology and pharmaceutical industries are highly competitive. There are many medical device companies, pharmaceutical
companies, biotechnology companies, public and private universities and research organizations actively engaged in the research
and development of products that may be similar to our products. We are aware of several companies currently developing and/or
selling NO therapies for various indications such as PPHN. For example, Ikaria, Inc. commercializes INOMAX® (nitric oxide)
for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the U.S., Canada, Australia, Mexico and
Japan. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in Europe, called VasoKINOX™,
together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during
or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® and Air Products PLC has a
gas product called NOXAP®, each used in delivering inhaled NO formulations. Bellepheron Therapeutics is developing NO-based
products for persistent arterial hypertension and pulmonary hypertension associated with chronic obstructive pulmonary disease.
Geno LLC is developing NO-based products for the treatment of a variety of pulmonary and cardiac diseases such as acute vasoreactivity
testing, pulmonary arterial hypertension and pulmonary hypertension associated with idiopathic pulmonary fibrosis. In addition,
other companies may be developing generic NO formulation delivery systems for various dosages. Ceretec, Inc., a company affiliated
with 12th Man Technologies Inc., recently obtained clearance from the FDA to market a NO gas product for use in membrane diffusing
capacity testing in pulmonary function laboratories in the U.S. Novoteris, LLC previously received orphan drug designation from
the FDA and EMA for the use of inhaled NO-based treatments in treating CF. In January 2015, Ikaria entered into an agreement with
Novoteris to collaborate on the development of an outpatient program for treating bacterial infections associated with CF. Recently,
we have become aware that Ikaria and Novoteris are planning a Phase 2 clinical trial using a 160 ppm NO formulation to treat patients
with CF.
In
addition to NO treatments currently available or under development, we also face competition from non-NO-based drugs and therapies.
For example, the successful development of immunizations for bronchiolitis may render useless any product we develop for that
indication. Also, antibiotic treatments for infections associated with CF, and inhaled short-acting beta-2 agonist and oral corticosteroids
for the treatment of asthma may be preferred over any product that we develop. Even if we successfully develop our product candidates,
and obtain approval for them, other treatments may be preferred and we may not be successful in commercializing our product candidates.
Many
of our competitors have substantially greater financial, technical and other resources, such as larger research and development
staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies
may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products
as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large, established companies. Competition may increase further as a result of advances in the commercial applicability of
technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing,
acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that
we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than
we do. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete,
and we may not be successful in marketing our product candidates against competitors.
We
currently have no marketing and sales organization. If we are unable to establish sales and marketing capabilities or enter into
agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.
Although
our employees may have sold other similar products in the past while employed at other companies, we as a company have no experience
selling and marketing our product candidates and we currently have no marketing or sales organization. To successfully commercialize
any products that may result from our development programs, we will need to develop these capabilities, either on our own or with
others. If our product candidates receive regulatory approval, we intend to establish a sales and marketing organization with
technical expertise and supporting distribution capabilities to commercialize our product candidates in major markets, which will
be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution
capabilities would adversely impact the commercialization of our products.
Further,
given our lack of prior experience in marketing and selling medical device products, our initial estimate of the size of the required
sales force may be materially more or less than the size of the sales force actually required to effectively commercialize our
product candidates. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization
of our product candidates or we may incur excess costs as a result of hiring more sales representatives than necessary. With respect
to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution
capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do
not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing
capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We may be competing
with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support
of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established
companies.
The
commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians,
patients, third-party payors and others in the medical community.
Even
with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product
candidates will depend in part on the medical community, patients and third-party payors accepting our product candidates as medically
useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients,
third-party payors and others in the medical community. The degree of market acceptance of any of our product candidates, if approved
for commercial sale, will depend on a number of factors, including:
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the
safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;
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the
prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved
labeling;
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the
clinical indications for which approval is granted;
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relative
convenience and ease of administration;
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the
cost of treatment, particularly in relation to competing treatments;
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the
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the
strength of marketing and distribution support and timing of market introduction of competitive products;
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publicity
concerning our products or competing products and treatments; and
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sufficient
third-party insurance coverage and reimbursement.
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Even
if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance
of the product will not be fully known until after it is launched. Our efforts to educate the medical community and third-party
payors on the benefits of the product candidates may require significant resources and may never be successful. If our product
candidates are approved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others
in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.
The
insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage
and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate
revenue.
The
pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure.
Our per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieve profitability.
Accordingly, the availability and adequacy of coverage and reimbursement by governmental and private payors are essential for
most patients to be able to afford expensive treatments such as ours, assuming approval. Sales of our product candidates will
depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid for
by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government
authorities, private health insurers and other third-party payors. If coverage and reimbursement are not available, or are available
only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided,
the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a
return on our investment.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the U.S., the principal
decisions about coverage and reimbursement for new medical devices are typically made by the Centers for Medicare & Medicaid
Services (“CMS”), an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to
what extent a new device will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement
policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement
for products such as ours.
Outside
the U.S., international operations are generally subject to extensive governmental price controls and other market regulations,
and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue
to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject
to varying price control mechanisms as part of national health systems. In general, the prices of medical devices under such systems
are substantially lower than in the U.S. Other countries allow companies to fix their own prices for medical products, but monitor
and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount
that we are able to charge for our product candidates. Accordingly, in markets outside the U.S., the reimbursement for our products
may be reduced compared with the U.S. and may be insufficient to generate commercially reasonable revenue and profits.
Moreover,
increasing efforts by governmental and third-party payors in the U.S. and abroad to cap or reduce healthcare costs may cause such
organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover
or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale
of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations
and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and
surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to
the entry of new products.
Healthcare
legislative reform measures may have a material adverse effect on our business and results of operations.
In
the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in
March 2010, the Patient Protection and American Care Act (“ACA”) as amended by the ACA was passed, which substantially
changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. medical
device industry. We can’t predict how our product candidates may be impacted.
Future
legislation or regulations may adversely affect reimbursement from government programs.
In
addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, President Obama
signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction
to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve targeted deficit reductions,
triggering the legislation’s automatic reduction of several government programs. This includes aggregate reductions to Medicare
payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into
law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare
providers and increased the statute of limitations period for the government to recover overpayments to providers from three to
five years. On December 13, 2016, the President signed into law the 21st Century Cures Act, which, among other things, may increase
the types of clinical trial designs that would be acceptable to support a PMA. It is unclear, at this time, how these provisions
will be implemented or whether they would have any effect on our company.
Legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
medical device products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates
may be. In that regard, Congress has taken the first step in repealing the funding mechanism for certain aspects of the ACA. If
the ACA or parts of it are repealed, it is unclear what impact that would have on reimbursements or coverage and it is equally
unclear what programs, if any, Congress and the Trump Administration might enact and sign into law to replace the repealed portions
of the ACA.
We
are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those
laws could have a material adverse effect on our results of operations and financial conditions
We
are subject to additional health care regulation and enforcement by the federal government and the states in which we conduct
our business. The laws that may affect our ability to operate include the following:
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the
federal health care program Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully
soliciting, receiving, offering, or paying remuneration, directly or indirectly, in exchange for or to induce either the referral
of an individual for, or the purchase, order, or recommendation of, any good or service for which payment may be made under
government health care programs such as the Medicare and Medicaid programs;
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federal
false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid or other government health care programs that are false or fraudulent;
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federal
criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating
to health care matters; and
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payor, including commercial insurers.
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Further,
the ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes.
A person or entity can now be found guilty of fraud or false claims under the ACA without actual knowledge of the statute or specific
intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims
statutes. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion
from Medicare, Medicaid and other government programs and forfeiture of amounts collected in violation of such prohibitions. Any
violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could
result in a material adverse effect on our reputation, business, results of operations, and financial condition.
The
ACA also imposes new reporting requirements on device and pharmaceutical manufacturers to make annual public disclosures of payments
to certain health care providers and physician ownership of their stock by health care providers. Failure to submit required information
may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year
for “knowing failures”), for all payments, transfers of value, or ownership or investment interests that are not reported.
Manufacturers were required to begin data collection on August 1, 2013 and were required to report such data to CMS by March 31,
2014.
In
addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing.
Some states, such as California, Massachusetts and Vermont mandate implementation of corporate compliance programs, along with
the tracking and reporting of gifts, compensation, and other remuneration to physicians.
The
scope and enforcement of these laws is uncertain and subject to change in the current environment of health care reform, especially
in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these
laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge
could have a material adverse effect on our reputation, business, results of operations, and financial condition. Any state or
federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.
Risks
Related to Our Intellectual Property
If
we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may
not be able to compete effectively in our markets.
We
rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property
related to our technologies and product candidates. Our success depends in large part on our and our licensors’ ability
to obtain and maintain intellectual property protection in the U.S. and in other countries with respect to our proprietary technology
and products.
We
have sought to protect our proprietary position by filing patent applications in the U.S. and abroad related to our novel technologies
and products that are important to our business. This process is expensive and time consuming, and we may not be able to file
and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify
patentable aspects of our research and development output before it is too late to obtain patent protection.
The
patent position of medical device, biotechnology and pharmaceutical companies generally is highly uncertain and involves complex
legal and factual questions for which legal principles remain unsolved. The patent applications that we own or in-license may
fail to result in issued patents with claims that cover our product candidates in the U.S. or in other foreign countries. There
is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which
can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue,
and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which
may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our
patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates
or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from
third parties, which may have an adverse impact on our business.
We
have filed several patent applications directed to various aspects of our product candidates. We cannot offer any assurances about
which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable
or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to
us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that
we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product
candidate under patent protection could be reduced. In addition, some or all of our patent applications may not result in issued
patents.
If
we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively and
our business and results of operations would be harmed.
We
have a non-exclusive license to certain patents owned by CareFusion that relate to methods and devices for delivering 80-400 PPM
NO formulations to patients. CareFusion may grant additional non-exclusive licenses to third parties.
Absent
any agreement with CareFusion to the contrary, each of the joint owners may make, use, offer to sell, or sell the patented invention
within the U.S., or import the patented invention into the U.S., without the consent of and without accounting to the other owner.
While we are unaware of any other licenses issued by CareFusion to third parties granting rights in the patents CareFusion licensed
to us, we cannot be sure other licenses have not already been granted, or will not be granted in the future, by CareFusion to
third parties.
Any
such licenses may enable third parties to develop and market products competitive with ours, provided that they do not infringe
our other intellectual property rights. The terms of our non-exclusive license with CareFusion leaves full control of any and
all enforcement of the licensed patents with CareFusion. If CareFusion elects to not enforce any or all of the licensed patents
it could significantly undercut the value of any of our product candidates, which would materially adversely affect our revenue,
financial condition and results of operations.
Intellectual
property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required
to litigate or obtain licenses from third parties in order to develop or market our product candidate. Such litigation or licenses
could be costly or not available on commercially reasonable terms.
Given
the number of companies developing various types of NO devices, it is difficult to conclusively assess our freedom to operate
without infringing on third party rights. There are numerous companies that have pending patent applications and issued patents
in the field of therapeutic NO delivery. Our competitive position may suffer if patents issued to third parties or other third
party intellectual property rights cover our products or elements thereof, or our manufacture or uses relevant to our development
plans. In such cases, we may not be in a position to develop or commercialize products or our product candidates unless we successfully
pursue litigation to nullify or invalidate the third party intellectual property right concerned, or enter into a license agreement
with the intellectual property right holder, if available on commercially reasonable terms. There may be pending patent applications
of which we are not aware, that if they result in issued patents, could be alleged to be infringed by our product candidates.
If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to
abandon our product candidates or seek a license from any patent holders. No assurances can be given that a license will be available
on commercially reasonable terms, if at all.
It
is also possible that we have failed to identify relevant third party patents or applications. For example, U.S. applications
filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the U.S. remain
confidential until patents issue. Patent applications in the U.S. and elsewhere are published approximately 18 months after the
earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date.
Therefore, patent applications covering our product candidate or platform technology could have been filed by others without our
knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended
in a manner that could cover our platform technologies, our product candidate or the use of our product candidate. Third party
intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be
able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims
on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and
may be prevented from or experience substantial delays in pursuing the development of and/or marketing our product candidate.
If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from
commercializing our product candidate that is held to be infringing. We might, if possible, also be forced to redesign our product
candidate so that we no longer infringe the third party intellectual property rights. Any of these events, even if we were ultimately
to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote
to our business.
Patent
terms are limited and we may not be able to effectively protect our products and business.
Patents
have a limited lifespan. In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Although various
extensions may be available, the life of a patent, and the protection it affords, is limited.
In
addition, upon issuance in the U.S., the patent term may be extended based on certain delays caused by the applicant(s) or the
U.S. Patent and Trademark Office (“USPTO”). Even if we obtain effective patent rights for our product candidates,
we may not have sufficient patent terms or regulatory exclusivity to protect our products, and our business and results of operations
would be adversely affected.
Patent
policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents.
Changes
in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of our patents
or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the
laws of the U.S. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent
applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not
at all. We therefore cannot be certain that we or our licensor were the first to make the invention claimed in our owned and licensed
patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming
the other requirements for patentability are met, in the U.S. prior to March 15, 2013, the first to invent the claimed invention
is entitled to the patent, while outside the U.S., the first to file a patent application is entitled to the patent. After March
15, 2013, under the Leahy-Smith America Invents Act (“Leahy-Smith Act”), enacted on September 16, 2011, the U.S. has
moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent
applications will be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the
USPTO must still implement various regulations, the courts have yet to address these provisions and the applicability of the act
and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, the
Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial
condition.
If
we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not
be able to compete effectively in our markets.
In
addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary
know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other
elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology
that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology
and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our
premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,
organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
All
of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology
enter into confidentiality agreements and we expect they will assign all rights in their inventions to us pursuant to the terms
of such agreements; however, we cannot provide any assurances that all such agreements have been duly executed or that our trade
secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access
to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized
disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business.
Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against
third parties for misappropriating the trade secret.
Third-party
claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our
commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There
have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and
pharmaceutical industries, including with respect to NO delivery systems and formulations, including patent infringement lawsuits,
interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S.
and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we
are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the
risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Third
parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents
or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the
use or manufacture of our product candidates. We do not know whether there are any third-party patents that would impair our ability
to commercialize these product candidates. We also cannot be sure that we have identified each and every patent and pending patent
application in the U.S. and abroad that is relevant or necessary to the commercialization of our product candidates. Because patent
applications can take many years to issue, there may be currently pending patent applications that may later result in issued
patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use
of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to
cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any
final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate
unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid
or unenforceable.
Similarly,
if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for
manufacture or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the
applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be invalid
or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties
making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’
fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties,
which may be impossible or require substantial time and monetary expenditure.
We
may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We
currently own and have in-licensed rights to intellectual property through licenses from third parties and under patents that
we own, to develop our product candidates. Because our programs may require the use of proprietary rights held by third parties,
the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In
addition, our product candidates may require specific formulations to work effectively and efficiently and the rights to these
formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other
third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing
and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies
are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These
established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development
and commercialization capabilities.
For
example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development
underwritten agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license
to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be
unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do
so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our
program.
In
addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable
to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our
investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, we may have to
abandon development of that program and our business and financial condition could suffer.
If
we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third
parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that
are important to our business.
We
are currently a party to intellectual property license agreements that are important to our business, and we expect to enter into
additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements
will impose, various diligence, milestone payment, royalty and other obligations on us. For example, our existing license agreement
with CareFusion imposes the following milestones, which comport with the plans we discuss under “Business—Our Strategy”:
completion of a Phase II study by September 2017; completion of a Phase III study by September 2018; FDA approval for a licensed
product by September 2020; and the first sale of a licensed product by September 2021. We have completed the Phase II, double
blind, randomized study conducted in Israel in infants with bronchiolitis discussed under “Business—Our Strategy”,
and we have commenced the “Phase III” study referenced under “Business—Our Strategy”. Obtaining
FDA approval by September 2020 of a licensed product will most likely not occur. If we fail to comply with our obligations under
the CareFusion agreement or other agreements, or we are subject to a bankruptcy, we may be required to make certain payments to
the licensor, we may lose our license or the licensor may have the right to terminate the license, in which event we would not
be able to develop or market products covered by the license.
Licensing
of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues.
Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
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the
scope of rights granted under the license agreement and other interpretation-related issues;
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the
extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
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the
sublicensing of patent and other rights;
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our
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the
ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and
us and our collaborators; and
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the
priority of invention of patented technology.
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If
disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current
licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We
may be involved in lawsuits or post-grant proceedings to protect or enforce our patents or the patents of our licensor, which
could be expensive, time consuming and unsuccessful.
Competitors
may infringe the patents of our licensor. If our licensing partner were to initiate legal proceedings against a third party to
enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product
candidate is invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory
requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an
allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading
statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Pending
patent applications may be subject to third-party pre-issuance submission of prior art to the USPTO, and any patents issuing thereon
may become involved in derivation, reexamination, inter partes review, post grant review, interference proceedings or other patent
office proceedings in the U.S. challenging our patent rights.
Proceedings
provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with
respect to our patents or patent applications or those of our licensor. An unfavorable outcome could require us to cease using
the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing
party does not offer us a license on commercially reasonable terms. Our defense of litigation or proceedings may fail and, even
if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties
associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical
trials, continue our research programs, license necessary technology from third parties or enter into development partnerships
that would help us bring our product candidates to market.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.
We
may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We
employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors
do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our
employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including
trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation
may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We
may be subject to claims challenging the inventorship of our patents and other intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation
with respect to our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship
disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation
may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we
fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights,
such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse
effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees. To the extent that our employees have not effectively waived the right
to compensation with respect to inventions that they helped create, they may be able to assert claims for compensation with respect
to our future revenue may be successful. As a result, we may receive less revenue from future products if such claims are successful
which in turn could impact our future profitability.
Changes
in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As
is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity. Therefore, obtaining
and enforcing biotechnology patents is costly, time consuming and inherently uncertain. In addition, the U.S. has recently enacted
and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope
of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition
to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty
with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and
the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain
new patents or to enforce our existing patents and patents that we might obtain in the future.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition,
the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in
the U.S.
Competitors
may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also
export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that
in the U.S. These products may compete with our products and our patents or other intellectual property rights may not be effective
or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial
costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated
or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against
us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially
meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license.
Under
applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our
competitors from benefiting from the expertise of some of our former employees.
We
generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our
employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors
or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which
our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees
or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete
undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited
number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s
confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests
will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants
and our ability to remain competitive may be diminished.
Risks
Relating to Our Business Operations
We
manage our business through a small number of employees and key consultants. We depend on them even more than similarly-situated
companies.
We
have a total of thirteen full-time employees and a number of dedicated consultants, of whom work for us on a part-time
basis. In addition, any of our employees and consultants may leave our company at any time, subject to certain notice periods.
The loss of the services of any of our executive officers or any key employees or consultants would adversely affect our ability
to execute our business plan and harm our operating results.
We
do not currently carry “key person” insurance on the lives of members of management.
We
will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants,
which could disrupt our operations.
As
our development and commercialization plans and strategies develop and because we are so leanly staffed, we will need additional
managerial, operational, sales, marketing, financial, legal and other resources. The competition for qualified personnel in the
pharmaceutical field is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary
for the development of our business or to recruit suitable replacement personnel.
Our
management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial
amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations,
which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees
and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may
divert financial resources from other projects, such as the development of additional product candidates. If our management is
unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue
could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to
commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future
growth.
Although
a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our
existing product candidates, the success of our business also depends upon our ability to identify, license or discover additional
product candidates. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development
for a number of reasons, including but not limited to the following:
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our
research or business development methodology or search criteria and process may be unsuccessful in identifying potential product
candidates;
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we
may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
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our
product candidates may not succeed in preclinical or clinical testing;
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our
potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the
products unmarketable or unlikely to receive marketing approval;
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competitors
may develop alternatives that render our product candidates obsolete or less attractive;
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product
candidates we develop may be covered by third parties’ patents or other exclusive rights;
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the
market for a product candidate may change during our program so that such a product may become unreasonable to continue to
develop;
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a
product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a
product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
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If
any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able
to identify, license or discover additional product candidates, which would have a material adverse effect on our business and
could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical,
financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately
prove to be unsuccessful.
We
will incur significant increased costs as a result of operating as a public company, and our management will be required to devote
substantial time to new compliance initiatives.
As
a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, such as
the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC. In July 2010, the Dodd-Frank Wall Street Reform
and Consumer Protection Act (“Dodd-Frank Act”), was enacted. There are significant corporate governance and executive
compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these
areas such as “say on pay” and pay parity. Recent legislation permits smaller “emerging growth companies”
to implement many of these requirements over a longer period and up to five years from the pricing of our initial offering. We
intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements
sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment
and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure
obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot
currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance
initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities
more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current
levels of such coverage.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal
controls over financial reporting to allow management to report, commencing in our Current Report on Form 8-K, as filed with the
SEC on January 20, 2017, on the effectiveness of our internal controls over financial reporting, if then required by Section 404
of the Sarbanes-Oxley Act. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed
to be material weaknesses. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting
expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire
additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover,
if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or if we identify
or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting
that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or
investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
New
laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions
of the Sarbanes-Oxley Act and rules adopted by the SEC, would likely result in increased costs to us as we respond to their requirements.
Similarly, in the future, we may attempt to list our Common Stock on the Nasdaq Capital Market, the NYSE MKT or another national
securities exchange, which would subject us to additional rules and regulations, as well as additional costs.
We
may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information
privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If
we obtain FDA approval for any of our product candidates and begin commercializing those products in the U.S., our operations
may directly, or indirectly through our customers, subject us to various federal and state fraud and abuse laws, including, without
limitation, the federal Anti-Kickback Statute, the federal False Claims Act and physician sunshine laws and regulations. These
laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient
privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our
ability to operate include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an
item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal
civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors
that are false or fraudulent;
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the
federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal
statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to
healthcare matters;
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HIPAA,
as amended by the Health Information Technology and Clinical Health Act (“HITECH”), and its implementing regulations,
which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health
information;
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the
federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices and medical
supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other
transfers of value to physicians, other healthcare providers and teaching hospitals and ownership and investment interests
held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations;
and
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral
sources; state laws that require manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures and state laws governing the privacy and security of health information
in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus
complicating compliance efforts.
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Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform
legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement
of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge
of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides that the government may assert
that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or
fraudulent claim for purposes of the False Claims Act.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in
government health care programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our operations,
any of which could adversely affect our ability to operate our business and our results of operations.
International
expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated
with doing business outside of the U.S. or Israel.
Other
than our operations that are located in Israel (as further described below), we currently have limited international operations,
but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval
of our product candidates. We plan to maintain sales representatives and conduct physician and patient association outreach activities,
as well as clinical trials, outside of the U.S. and Israel. Doing business internationally involves a number of risks, including
but not limited to:
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multiple,
conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment
laws, regulatory requirements and other governmental approvals, permits and licenses;
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failure
by us to obtain regulatory approvals for the use of our products in various countries;
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additional
potentially relevant third-party patent rights;
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complexities
and difficulties in obtaining protection and enforcing our intellectual property;
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difficulties
in staffing and managing foreign operations;
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complexities
associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
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limits
on our ability to penetrate international markets;
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financial
risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial
crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
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natural
disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts,
curtailment of trade and other business restrictions;
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certain
expenses including, among others, expenses for travel, translation and insurance; and
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regulatory
and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within
the purview of the U.S. Foreign Corrupt Practices Act (“FCPA”), its books and records provisions or its anti-bribery
provisions.
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Any
of these factors could significantly harm our future international expansion and operations and, consequently, our results of
operations.
If
we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could have a material adverse effect on the success of our business.
Our
research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled
storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds.
We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are
stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination,
which could cause an interruption of our commercialization efforts, research and development efforts, business operations and
environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage,
handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized
by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed
by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or
injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed
our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our
business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become
more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently
carry biological or hazardous waste insurance coverage.
The
use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation
and harm our business.
Our
business exposes us to an inherent risk of potential product liability or similar claims. The medical device industry has historically
been litigious, and we face financial exposure to product liability or similar claims if the use of any of our products were to
cause or contribute to injury or death. There is also the possibility that defects in the design or manufacture of any of our
products might necessitate a product recall. Although we plan to maintain product liability insurance, the coverage limits of
these policies may not be adequate to cover future claims. In the future, we may be unable to maintain product liability insurance
on acceptable terms or at reasonable costs and such insurance may not provide us with adequate coverage against potential liabilities.
A product liability claim, regardless of merit or ultimate outcome, or any product recall could result in substantial costs to
us, damage to our reputation, customer dissatisfaction and frustration and a substantial diversion of management attention. A
successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on
our business, financial condition and results of operations.
Our
business and operations would suffer in the event of system failures.
Despite
the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our development programs. For example, the
loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval
efforts and we may incur substantial costs to attempt to recover or reproduce the data. If any disruption or security breach resulted
in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we
could incur liability and/or the further development of our product candidates could be delayed.
Risks
Related to the Ownership of our Common Stock
There
is a limited liquid and orderly trading market for our Common Stock, which may make it difficult for you to sell your shares of
our Common Stock.
There
is limited trading activity in our Common Stock and an active trading market for our shares may never develop or be sustained.
As a result, investors in our Common Stock must bear the economic risk of holding those shares for an indefinite period of time.
Our
Common Stock is subject to only limited quotation on the OTC Pink, and it is not otherwise regularly quoted on any other over-the-counter
market.
Although
our Common Stock is quoted on the OTC, trading of our Common Stock is extremely limited and sporadic and at very low volumes.
We do not now, and may not in the future, meet the initial listing standards of any national securities exchange. We presently
anticipate that our Common Stock will continue to be quoted on OTC Pink or another over-the-counter quotation system in the foreseeable
future. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their
shares of our Common Stock, and may find few buyers to purchase their stock and few market makers to support its price. As a result
of these and other factors, you may be unable to resell your shares of our Common Stock at or above the price for which you purchased
them, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the
future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of
Common Stock as consideration.
Our
share price is volatile and may be influenced by numerous factors, some of which may be beyond our control.
The
trading price of our Common Stock is likely to be highly volatile, and could be subject to wide fluctuations in response to various
factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section
and elsewhere in this Transition Report on Form 10-KT, these factors include:
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the
product candidates we seek to pursue, and our ability to obtain rights to develop, commercialize and market those product
candidates;
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our
decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
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actual
or anticipated adverse results or delays in our clinical trials;
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our
failure to commercialize our product candidates, if approved;
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unanticipated
serious safety concerns related to the use of any of our product candidates;
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adverse
regulatory decisions;
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additions
or departures of key scientific or management personnel;
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changes
in laws or regulations applicable to our product candidates, including without limitation clinical trial requirements for
approvals;
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disputes
or other developments relating to patents and other proprietary rights and our ability to obtain patent protection for our
product candidates;
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our
dependence on third parties, including CROs as well as our potential partners that provide us with companion diagnostic products;
failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the
public;
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actual
or anticipated variations in quarterly operating results;
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failure
to meet or exceed the estimates and projections of the investment community;
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overall
performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance
of our competitors, including changes in market valuations of similar companies;
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conditions
or trends in the biotechnology and biopharmaceutical industries;
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introduction
of new products offered by us or our competitors;
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announcements
of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
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our
ability to maintain an adequate rate of growth and manage such growth;
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issuances
of debt or equity securities;
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sales
of our Common Stock by us or our stockholders in the future, or the perception that such sales could occur;
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trading
volume of our Common Stock; ineffectiveness of our internal control over financial reporting or disclosure controls and procedures;
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general
political and economic conditions;
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effects
of natural or man- made catastrophic events; and
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other
events or factors, many of which are beyond our control.
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In
addition, the stock market in general, and the stocks of small-cap biotechnology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating
performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these
“Risk Factors,” could have a dramatic and material adverse impact on the market price of our Common Stock.
Our
Common Stock may be a “penny stock.”
Generally,
a “penny stock” is an equity security that is not listed on a national securities exchange and has a market price
of less than $5.00 per share, subject to specific exceptions. Our Common Stock presently has, and since our inception has had,
no trading activity to support a market price, but many historical sales of our Common Stock have been at a price per share less
than $5.00. As a result, our Common Stock may be considered to be a penny stock. Regulations imposed by the SEC and other regulatory
authorities requiring, among other things, that broker-dealers effecting transactions in a penny stock make certain disclosures
to and obtain a written suitability statement from potential purchasers, could restrict the ability of broker-dealers to sell
our Common Stock if it were to be considered a penny stock, which could affect the ability of our stockholders to sell their shares
of our stock. In addition, if our Common Stock continues to be quoted on the “OTC Pink Current Information” tier of
OTC Markets, then our stockholders may find it difficult to obtain accurate quotations for our Common Stock, and may find few
buyers to purchase our Common Stock and few market makers to support its price.
FINRA
sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
In
addition to rules applicable to “penny stock,” the Financial Industry Regulatory Authority, or FINRA, has adopted
rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing
that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that
there is a high probability that speculative low-priced securities will not be suitable for at least some customers. These FINRA
requirements make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock,
which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market
for and price of our shares.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
Any
trading market for our Common Stock that may develop will depend in part on the research and reports that securities or industry
analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research
on us or our business. If no securities or industry analysts commence coverage of our company, the trading price for our stock
would be negatively affected. If securities or industry analysts initiate coverage, and one or more of those analysts downgrade
our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more
of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease,
which might cause our stock price and trading volume to decline.
We
may be exposed to additional risks as a result of “going public” by means of a reverse merger transaction.
We
may be exposed to additional risks because the business of AIT Ltd. has become a public company through a “reverse merger”
transaction. There has been increased focus by government agencies on transactions such as the Merger in recent years, and we
may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result of the
completion of that transaction. Further, since we existed as a “shell company” under applicable rules of the SEC prior
to the closing of the Merger on January 13, 2017, we are subject to certain restrictions and limitations for certain specified
periods of time relating to potential future issuances of our securities and compliance with applicable SEC rules and regulations.
Additionally, our “going public” by means of a reverse merger transaction may make it more difficult for us to obtain
coverage from securities analysts of major brokerage firms following the Merger because there may be little incentive to those
brokerage firms to recommend the purchase of our Common Stock. The occurrence of any such event could cause our business or stock
price to suffer.
We
incur increased costs associated with, and our management currently do and in the future will need to devote substantial time
and effort to, compliance with public company reporting and other requirements.
As
a public company, and particularly if and after we cease to be an “emerging growth company” or a “smaller reporting
company,” we incur significant legal, accounting and other expenses that AIT Ltd. did not incur as a private company. In
addition, the rules and regulations of the SEC and national securities exchanges impose numerous requirements on public companies,
including requirements relating to our corporate governance practices, with which we now need to comply. Since becoming subject
to the Exchange Act, we have been required to, among other things, file annual, quarterly and current reports with respect to
our business and operating results. Our management and other personnel currently do and in the future will need to devote substantial
time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations, and our
efforts and initiatives to comply with those requirements could be expensive.
AIT
Ltd. was not subject to requirements to establish, and did not establish, internal control over financial reporting and disclosure
controls and procedures prior to the Merger. Our management team and Board of Directors currently do and in the future will need
to devote significant efforts to maintaining adequate and effective disclosure controls and procedures and internal control over
financial reporting in order to comply with applicable regulations, which may include hiring additional legal, financial reporting
and other finance staff. Additionally, any of our efforts to improve our internal controls and design, implement and maintain
an adequate system of disclosure controls may not be successful and will require that we expend significant cash and other resources.
We
are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies
will make our Common Stock less attractive to investors.
We
are an emerging growth company as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may
choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies, including,
among other things:
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exemption
from the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002;
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reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements;
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exemption
from the requirements of holding non-binding stockholder votes on executive compensation arrangements; and
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exemption
from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless the SEC otherwise determines,
any future audit rules that may be adopted by the Public Company Accounting Oversight Board.
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We
will be an emerging growth company until the earliest of (i) December 31, 2021, (ii) the last day of the fiscal year during which
we have total annual gross revenues of $1 billion or more, (iii) the date on which we have, during the previous three-year period,
issued more than $1 billion in non-convertible debt and (iv) the date on which we are deemed to be a large accelerated filer under
the federal securities laws. We will qualify as a large accelerated filer as of the first day of the first fiscal year after we
(i) have more than $700 million in aggregate market value of outstanding common equity held by our non-affiliates as of the last
day of our second fiscal quarter, (ii) have been public for at least 12 months and (iii) have filed at least one annual report
pursuant to the Exchange Act.
We
cannot predict if investors will find our Common Stock less attractive if we rely on these exemptions. If some investors find
our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price
may be more volatile.
Shares
of our Common Stock that have not been registered under federal securities laws are subject to resale restrictions imposed by
Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
Prior
to the closing of the Merger, we were deemed a “shell company” under applicable SEC rules and regulations, because
we had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets
consisting of any amount of cash and cash equivalents and nominal other assets. Pursuant to Rule 144 (“Rule 144”),
promulgated under the Securities Act, sales of the securities of a former shell company, such as us, under that rule are not permitted
until at least 12 months have elapsed from the date on which the Current Report on Form 8-K, filed by us on January 20, 2017,
reflecting our status as a non-shell company, was filed with the SEC. As a result, most of our stockholders will be forced to
hold their shares of our Common Stock for at least that 12-month period before they are eligible to sell those shares, and even
after that 12-month period, sales may not be made under Rule 144 unless we and the selling stockholders are in compliance with
other requirements of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the
sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to
expend additional time and cash resources. Additionally, our previous status as a shell company could also limit our use of our
securities to pay for any acquisitions we may seek to pursue in the future (although none are currently planned). The lack of
liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time could cause the market
price of our securities to decline.
If
we issue additional shares of our capital stock in the future, our existing stockholders will be diluted.
Our
Amended and Restated Certificate of Incorporation authorize the issuance of up to 100,000,000 shares of our Common Stock and up
to 10,000,000 shares of preferred stock with the rights, preferences and privileges that our Board of Directors may determine
from time to time. In addition to capital raising activities, which we expect to pursue in order to raise the funding we will
need in order to continue our operations, other possible business and financial uses for our authorized capital stock include,
without limitation, future stock splits, acquiring other companies, businesses or products in exchange for shares of our capital
stock, issuing shares of our capital stock to partners or other collaborators in connection with strategic alliances, attracting
and retaining employees by the issuance of additional securities under our equity compensation plans, or other transactions and
corporate purposes that our Board of Directors deems are in the best interest of our company. Additionally, shares of our capital
stock could be used for anti-takeover purposes or to delay or prevent changes in control or our management. Any future issuances
of shares of our capital stock may not be made on favorable terms or at all, they may not enhance stockholder value, they may
have rights, preferences and privileges that are superior to those of our Common Stock, and they may have an adverse effect on
our business or the trading price of our Common Stock. The issuance of any additional shares of our Common Stock will reduce the
book value per share and may contribute to a reduction in the market price of the outstanding shares of our Common Stock. Additionally,
any such issuance will reduce the proportionate ownership and voting power of all of our current stockholders.
Future
sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans or
otherwise, could result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We
expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital,
we may sell Common Stock, convertible securities or other equity securities in one or more transactions at prices and in a manner
we determine from time to time. If we sell Common Stock, convertible securities or other equity securities in more than one transaction,
investors in a prior transaction may be materially diluted by subsequent sales. Additionally, any such sales may result in material
dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders
of our Common Stock.
Anti-takeover
provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions
of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our Board of Directors or
management and, therefore, depress the trading price of our Common Stock.
Our
amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may depress
the market price of our Common Stock by acting to discourage, delay or prevent a merger, acquisition or other change in control
that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares
of our Common Stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove members
of our Board of Directors or our management. Our corporate governance documents include provisions:
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providing
that directors may be removed by stockholders with or without cause;
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limiting
the ability of our stockholders to call and bring business before special meetings and to take action by written consent in
lieu of a meeting;
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requiring
advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of
candidates for election to our Board of Directors;
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authorizing
blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Common
Stock; and
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limiting
the liability of, and providing indemnification to, our directors and officers.
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As
a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation
Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock from engaging in certain
business combinations with us. Any provision of our amended and restated certificate of incorporation, amended and restated bylaws
or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders
to receive a premium for their shares of our Common Stock, and could also affect the price that some investors are willing to
pay for our Common Stock.
The
existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay
in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood
that you could receive a premium for your Common Stock in an acquisition.
The
elimination of personal liability against our directors and officers under Delaware law and the existence of indemnification rights
held by our directors, officers and employees may result in substantial expenses.
Our
Amended and Restated Certificate of Incorporation and our Bylaws eliminate the personal liability of our directors and officers
to us and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Delaware
law. Further, our Amended and Restated Certificate of Incorporation and our Bylaws and individual indemnification agreements we
have entered with each of our directors and executive officers provide that we are obligated to indemnify each of our directors
or officers to the fullest extent authorized by the Delaware law and, subject to certain conditions, advance the expenses incurred
by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations
could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers,
which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing
a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions
might otherwise benefit our stockholders.
We
do not intend to pay cash dividends on our capital stock in the foreseeable future.
Other
than the cash dividend paid in connection with the Merger, we have never declared or paid any dividends on our Common Stock and
do not anticipate paying any dividends in the foreseeable future. Any future payment of cash dividends in the future would depend
on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations,
anticipated cash requirements and other factors and will be at the discretion of the our Board of Directors. Our stockholders
should not expect that we will ever pay cash or other dividends on our outstanding capital stock.
We
could be subject to securities class action litigation.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock
price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
Comprehensive
tax reform bills could adversely affect our business and financial condition.
The
U.S. government recently enacted comprehensive federal income tax legislation that includes significant changes to the taxation
of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a
partial limitation on the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations
from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income
tax base) and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at
a lower rate. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain,
and our business and financial condition could be adversely affected. This Transition Report on Form 10-KT does
not discuss any such tax legislation or the manner in which it might affect holders of our common stock. We urge our stockholders
to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing
in our common stock.