UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
orMarch 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36323001-36694
Protara Therapeutics, Inc.
PROTEON THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 20-4580525 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
345 Park Avenue South
200 West StreetWaltham, MA3rd Floor
New York, NY
(Address of principal executive offices)
02451
10010
(Zip Code)
(781) 890-0102
(646) 844-0337
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.001 par value per share | TARA | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
| Emerging growth company | ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No [X]☒
As of October 31, 2017May 1, 2023 there were 17,619,41811,307,962 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
i
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. YouIn some cases, you can identify these forward-looking statements by the use of wordsterminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,“seek,” “approximately,” “predicts,“predict,” “intends,“intend,” “plans,” “estimates,” “anticipates” or the negative version of these wordsterms or other comparable words.terminology. These forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.
These forward-looking statements include, but are not limited to, statements about:
| estimates regarding our financial performance, including future revenue, expenses and capital requirements; |
| ● | our expected cash position and ability to obtain financing in the future on satisfactory terms or at all; |
| ● | expectations regarding our plans to research, develop and commercialize our current and future product candidates, including TARA-002, and Intravenous, or IV, Choline Chloride; |
| ● | expectations regarding the safety and efficacy of our product candidates; |
| ● | expectations regarding the timing, costs and outcomes of our planned clinical trials; |
| ● | expectations regarding potential market size; |
| ● | expectations regarding the timing of |
| ● | expectations regarding our commercialization, marketing and |
| ● | the implementation of our |
ii
| our ability to |
| ● | the impact of government laws and |
| ● | our ability to attract and retain key personnel |
| our ability to prevent system failures, data breaches or violations of data protection laws; |
| ● | the timing or likelihood of regulatory filings and approvals; |
| ● | our ability to protect our intellectual property position; and |
| the impact of |
All forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, the risk factors set forth below in Part II, Item 1A, Risk Factors, and elsewhere in this Quarterly Report on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain medical conditions, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
iii
SUMMARY OF RISKS AFFECTING OUR BUSINESS
Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, and other risks and uncertainties that we face, are set forth in Part II, Item 1A, Risk Factors, and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the United States Securities and Exchange Commission, or SEC, before making investment decisions regarding our securities.
| ● | We have a limited operating history and have never generated any revenues. |
| ● | We expect to incur significant expenses and significant losses for the foreseeable future and may never generate revenue or achieve or maintain profitability. |
| ● | We will need to raise additional financing in the future to fund our operations, which may not be available to us on favorable terms or at all. |
| ● | Our business depends on the successful clinical development and regulatory approval of our product candidates, including TARA-002 and IV Choline Chloride. |
| ● | We have never completed a clinical trial or made a biologics license application, or BLA, or new drug application, or NDA, submission and may be unable to successfully do so for TARA-002 or IV Choline Chloride. |
| ● | TARA-002 is an immunopotentiator, and one indication that we plan to pursue is the treatment of lymphatic malformations, or LMs. There are no therapies approved by the United States Food and Drug Administration, or the FDA, for the treatment of LMs and it is difficult to predict the timing and costs of clinical development for TARA-002 for LMs. |
| ● | Even if a product candidate obtains regulatory approval, it may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success. |
| ● | Our product candidates, if approved, will face significant competition and their failure to compete effectively may prevent them from achieving significant market penetration. |
| ● | We currently have limited marketing capabilities and no sales organization. If we are unable to grow our sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize our product candidates, if approved, or generate product revenue. |
| ● | Certain stockholders have the ability to control or significantly influence certain matters submitted to our stockholders for approval. |
| ● | We may not be able to obtain, maintain or enforce global patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us. |
| ● | We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; a disruption of our business operations, including our clinical trials; harm to our reputation; and other adverse effects on our business or prospects. |
iv
PART I—I - FINANCIAL INFORMATION
PROTARA THERAPEUTICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
| September 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 19,986 | $ | 36,392 | ||||
| Available-for-sale investments | 27,444 | 4,925 | ||||||
| Prepaid expenses and other current assets | 554 | 1,438 | ||||||
| Total current assets | 47,984 | 42,755 | ||||||
| Property and equipment, net | 280 | 372 | ||||||
| Other non-current assets | 300 | 393 | ||||||
| Total assets | $ | 48,564 | $ | 43,520 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 226 | $ | 556 | ||||
| Accrued expenses | 8,868 | 4,523 | ||||||
| Total current liabilities | 9,094 | 5,079 | ||||||
| Total liabilities | 9,094 | 5,079 | ||||||
| Commitments and contingencies (Note 5) | - | |||||||
| Stockholders’ equity: | ||||||||
| Series Aconvertible preferred stock, par value $0.001 per share, 22,000 and zero shares authorized, issued and outstanding at September 30, 2017, and December 31, 2016, respectively | 21,536 | - | ||||||
| Preferred stock, $0.001 par value per share; 9,978,000 shares authorized, no shares issued and outstanding at September 30, 2017 and December 31, 2016 | - | - | ||||||
| Common stock, $0.001 par value, 100,000,000 shares authorized at September 30, 2017 and December 31, 2016; 17,619,418 and 16,603,559 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 18 | 17 | ||||||
| Additional paid-in capital | 202,113 | 198,201 | ||||||
| Accumulated deficit | (184,190 | ) | (159,777 | ) | ||||
| Accumulated other comprehensive loss | (7 | ) | - | |||||
| Total stockholders’ equity | 39,470 | 38,441 | ||||||
| Total liabilities and stockholders’ equity | $ | 48,564 | $ | 43,520 | ||||
| As of | ||||||||
| March 31, 2023 | December 31, 2022 | |||||||
(unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 21,035 | $ | 24,127 | ||||
| Marketable debt securities | 65,575 | 60,243 | ||||||
| Prepaid expenses and other current assets | 8,006 | 1,776 | ||||||
| Total current assets | 94,616 | 86,146 | ||||||
| Restricted cash, non-current | 745 | 745 | ||||||
| Marketable debt securities, non-current | 2,893 | 17,886 | ||||||
| Property and equipment, net | 1,521 | 1,592 | ||||||
| Operating lease right-of-use asset | 6,044 | 6,277 | ||||||
| Other assets | 586 | 644 | ||||||
| Total assets | $ | 106,405 | $ | 113,290 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,081 | $ | 1,586 | ||||
| Accrued expenses | 1,396 | 3,237 | ||||||
| Operating lease liability | 933 | 917 | ||||||
| Total current liabilities | 6,410 | 5,740 | ||||||
| Operating lease liability, non-current | 5,227 | 5,467 | ||||||
| Total liabilities | 11,637 | 11,207 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $0.001 par value, authorized 10,000,000 shares: Series 1 Convertible Preferred Stock, 8,028 shares authorized at March 31, 2023 and December 31, 2022, 8,027 shares issued and outstanding as of March 31, 2023 and December 31, 2022. | - | - | ||||||
| Common stock, $0.001 par value, authorized 100,000,000 shares: Common stock, 11,306,753 and 11,267,389 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. | 11 | 11 | ||||||
| Additional paid-in capital | 264,235 | 262,724 | ||||||
| Accumulated deficit | (169,009 | ) | (159,964 | ) | ||||
| Accumulated other comprehensive income (loss) | (469 | ) | (688 | ) | ||||
| Total stockholders’ equity | 94,768 | 102,083 | ||||||
| Total liabilities and stockholders’ equity | $ | 106,405 | $ | 113,290 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PROTARA THERAPEUTICS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 10,336 | $ | 4,842 | $ | 18,473 | $ | 14,432 | ||||||||
| General and administrative | 1,970 | 2,324 | 6,299 | 7,407 | ||||||||||||
| Total operating expenses | 12,306 | 7,166 | 24,772 | 21,839 | ||||||||||||
| Loss from operations | (12,306 | ) | (7,166 | ) | (24,772 | ) | (21,839 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Investment income | 83 | 46 | 161 | 155 | ||||||||||||
| Other (expense) income, net | (84 | ) | 13 | 198 | 120 | |||||||||||
| Total other (expense) income | (1 | ) | 59 | 359 | 275 | |||||||||||
| Net loss | $ | (12,307 | ) | $ | (7,107 | ) | $ | (24,413 | ) | $ | (21,564 | ) | ||||
| Unrealized (loss) gain on available-for-sale investments | - | (2 | ) | (7 | ) | 19 | ||||||||||
| Comprehensive loss | $ | (12,307 | ) | $ | (7,109 | ) | $ | (24,420 | ) | $ | (21,545 | ) | ||||
| Reconciliation of net loss to net loss attributable to common stockholders | ||||||||||||||||
| Net loss | $ | (12,307 | ) | $ | (7,107 | ) | $ | (24,413 | ) | $ | (21,564 | ) | ||||
| Accretion of convertible preferred stock | (6,747 | ) | - | (6,747 | ) | - | ||||||||||
| Net loss attributable to common stockholders | $ | (19,054 | ) | $ | (7,107 | ) | $ | (31,160 | ) | $ | (21,564 | ) | ||||
| Net loss per share attributable to common stockholders - basic and diluted | $ | (1.08 | ) | $ | (0.43 | ) | $ | (1.82 | ) | $ | (1.30 | ) | ||||
| Weighted-average common shares outstanding used in net loss per share attributable to common stockholders - basic and diluted | 17,574,371 | 16,582,276 | 17,158,032 | 16,550,483 | ||||||||||||
| Supplemental disclosure of stock-based compensation expense and loss from currency forward contracts: | ||||||||||||||||
| Included in operating expenses, above, are the following amounts for non-cash stock based compensation expense: | ||||||||||||||||
| Research and development | $ | 235 | $ | 168 | $ | 841 | $ | 797 | ||||||||
| General and administrative | 512 | 519 | 1,618 | 1,702 | ||||||||||||
| Total | $ | 747 | $ | 687 | $ | 2,459 | $ | 2,499 | ||||||||
| Included in other (expense) income, net, above, are the following amounts from forward foreign currency contracts: | ||||||||||||||||
| Realized losses from forward foreign currency contracts | $ | - | $ | (4 | ) | $ | - | $ | (8 | ) | ||||||
| Unrealized (losses) gains from forward foreign currency contracts | - | 2 | - | 127 | ||||||||||||
| Total | $ | - | $ | (2 | ) | $ | - | $ | 119 | |||||||
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 5,143 | $ | 5,269 | ||||
| General and administrative | 4,589 | 5,605 | ||||||
| Total operating expenses | 9,732 | 10,874 | ||||||
| Loss from operations | (9,732 | ) | (10,874 | ) | ||||
| Other income (expense), net: | ||||||||
| Interest and investment income | 687 | 119 | ||||||
| Other income (expense), net | 687 | 119 | ||||||
| Net loss | (9,045 | ) | (10,755 | ) | ||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.80 | ) | $ | (0.96 | ) | ||
| Weighted-average shares outstanding, basic and diluted | 11,303,869 | 11,250,127 | ||||||
| Other comprehensive income (loss): | ||||||||
| Net unrealized gain (loss) on marketable debt securities | 219 | (731 | ) | |||||
| Other comprehensive income (loss) | 219 | (731 | ) | |||||
| Comprehensive Loss | $ | (8,826 | ) | $ | (11,486 | ) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PROTARA THERAPEUTICS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity
(in thousands)thousands, except share and per share data)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (24,413 | ) | $ | (21,564 | ) | ||
| Reconciliation of net loss to net cash used in operating activities: | ||||||||
| Depreciation | 115 | 87 | ||||||
| Amortization of premium/discount on available-for-sale securities | (2 | ) | 108 | |||||
| Unrealized gain on forward foreign currency contracts included in net income | - | (127 | ) | |||||
| Foreign currency remeasurement gain | 196 | (6 | ) | |||||
| Stock-based compensation | 2,459 | 2,499 | ||||||
| Changes in: | ||||||||
| Prepaid expenses and other assets | 1,049 | (20 | ) | |||||
| Interest receivable | (73 | ) | 46 | |||||
| Accounts payable, accrued expenses and other current liabilities | 4,015 | 869 | ||||||
| Net cash used in operating activities | (16,654 | ) | (18,108 | ) | ||||
| Investing activities | ||||||||
| Purchases of available-for-sale investments | (31,443 | ) | (39,756 | ) | ||||
| Proceeds from maturities of available-for-sale investments | 8,920 | 44,603 | ||||||
| Purchase of property and equipment | (23 | ) | (259 | ) | ||||
| Net cash (used in) provided by investing activities | (22,546 | ) | 4,588 | |||||
| Financing activities | ||||||||
| Exercise of stock options | 109 | 156 | ||||||
| Proceeds from issuance of common stock under ESPP | 58 | 5 | ||||||
| Proceeds from issuance of common stock, net of issuance costs | 1,287 | - | ||||||
| Proceeds from the issuance of Series A redeemable convertible preferred stock, net of issuance costs | 21,536 | - | ||||||
| Net cash provided by financing activities | 22,990 | 161 | ||||||
| Effect of exchange rate changes on cash | (196 | ) | 6 | |||||
| Decrease in cash and cash equivalents | (16,406 | ) | (13,353 | ) | ||||
| Cash and cash equivalents, beginning of period | 36,392 | 40,031 | ||||||
| Cash and cash equivalents, end of period | $ | 19,986 | $ | 26,678 | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Accretion of convertible preferred stock | $ | 6,747 | $ | - | ||||
| Series 1 Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2021 | 8,027 | $ | - | 11,235,731 | $ | 11 | $ | 256,126 | $ | (94,012 | ) | $ | (211 | ) | $ | 161,914 | ||||||||||||||||
| Settlement of restricted stock units | - | - | 16,196 | - | (72 | ) | - | - | (72 | ) | ||||||||||||||||||||||
| Stock-based compensation - restricted stock units | - | - | - | - | 314 | - | - | 314 | ||||||||||||||||||||||||
| Stock-based compensation - stock options | - | - | - | - | 1,565 | - | - | 1,565 | ||||||||||||||||||||||||
| Unrealized gain (loss) on marketable debt securities | - | - | - | - | - | - | (731 | ) | (731 | ) | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | (10,755 | ) | - | (10,755 | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | 8,027 | $ | - | 11,251,927 | $ | 11 | $ | 257,933 | $ | (104,767 | ) | $ | (942 | ) | $ | 152,235 | ||||||||||||||||
| Balance at December 31, 2022 | 8,027 | $ | - | 11,267,389 | $ | 11 | $ | 262,724 | $ | (159,964 | ) | $ | (688 | ) | $ | 102,083 | ||||||||||||||||
| Settlement of restricted stock units | - | - | 39,364 | - | (64 | ) | - | - | (64 | ) | ||||||||||||||||||||||
| Stock-based compensation - restricted stock units | - | - | - | - | 314 | - | - | 314 | ||||||||||||||||||||||||
| Stock-based compensation - stock options | - | - | - | - | 1,261 | - | - | 1,261 | ||||||||||||||||||||||||
| Unrealized gain (loss) on marketable debt securities | - | - | - | - | - | - | 219 | 219 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (9,045 | ) | - | (9,045 | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | 8,027 | $ | - | 11,306,753 | $ | 11 | $ | 264,235 | $ | (169,009 | ) | $ | (469 | ) | $ | 94,768 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PROTARA THERAPEUTICS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | (9,045 | ) | $ | (10,755 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 1,575 | 1,879 | ||||||
| Operating lease right-of-use asset | 341 | 341 | ||||||
| Depreciation | 77 | 56 | ||||||
| Amortization of premium on marketable debt securities | (71 | ) | 410 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (6,145 | ) | (1,186 | ) | ||||
| Other assets | 58 | 78 | ||||||
| Accounts payable | 2,495 | (413 | ) | |||||
| Accrued expenses | (1,841 | ) | (1,039 | ) | ||||
| Operating lease liabilities | (332 | ) | (332 | ) | ||||
| Net cash used in operating activities | (12,888 | ) | (10,961 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of marketable debt securities | (12,186 | ) | (12,415 | ) | ||||
| Proceeds from maturity and redemption of marketable debt securities | 22,052 | 13,171 | ||||||
| Purchase of property and equipment | (6 | ) | (11 | ) | ||||
| Net cash provided by investing activities | 9,860 | 745 | ||||||
| Cash flows from financing activities: | ||||||||
| Repurchase of shares in connection with settlement of RSUs | (64 | ) | (72 | ) | ||||
| Net cash used in financing activities | (64 | ) | (72 | ) | ||||
| Net decrease in cash and cash equivalents and restricted cash | (3,092 | ) | (10,288 | ) | ||||
| Cash and cash equivalents and restricted cash - beginning of year | 24,872 | 36,469 | ||||||
| Cash and cash equivalents and restricted cash - end of period | $ | 21,780 | $ | 26,181 | ||||
| Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | 21,035 | $ | 25,436 | ||||
| Restricted cash, non-current | 745 | 745 | ||||||
| Cash and cash equivalents and restricted cash | $ | 21,780 | $ | 26,181 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Unaudited)(amounts in thousands, except share and per share data)
| 1. | Organization and Nature of the Business |
Overview
Protara Therapeutics, Inc., and its consolidated subsidiaries (“Protara” or the “Company”), is a clinical-stage biopharmaceutical company committed to advancing transformative therapies for the treatment of cancer and rare diseases. Protara’s portfolio includes two development programs utilizing TARA-002, an investigational cell therapy in development for the treatment of non-muscle invasive bladder cancer, or NMIBC and lymphatic malformations, or LMs. The third program in the portfolio is Intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy initially in development for patients receiving parenteral nutrition, or PN, who have intestinal failure associated liver disease, or IFALD.
The CompanyLiquidity, Capital Resources and Management Plans
Proteon Therapeutics, Inc. (the “Company”) is a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the medical needs of patients with kidney and vascular disease. The Company was formed in June 2001 and incorporated on March 24, 2006.
The Company devotes substantially allis in the business of its efforts to product researchdeveloping biopharmaceuticals and development, initial market development and raising capital.has no current or near-term revenues. The Company has not generated any product revenue related toincurred substantial clinical and other costs in its primary business purpose to date and is subject to a number of risks similar to those of otherdrug development stage companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products and theefforts. The Company will need to obtain adequateraise additional financingcapital in order to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the biotechnology industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from therapeutic alternatives and larger companies, compliance with government regulations, protection of proprietary technology, dependence on third parties and product liability.fully realize management’s plans.
As of September 30, 2017, the Company had cash, cash equivalents and available-for-sale investments of $47.4 million. The Company believes that its existing cash, cash equivalents and available-for-sale investments will becurrent financial resources are sufficient to fund operations and capital expenditures intosatisfy the fourth quarterCompany’s estimated liquidity needs for at least twelve months from the date of 2019. The Company had an accumulated deficitissuance of $184.2 million as of September 30, 2017.these unaudited condensed consolidated financial statements.
On November 12, 2015,Impact of the COVID-19 Pandemic
As a result of the impacts of the COVID-19 pandemic, the Company filedhas experienced delays and, should another global pandemic or other public health crisis occur, may experience additional future delays that impact the business, research and development activities, the healthcare systems in which the Company operates and the global economy as a shelf registration statement on Form S-3 (the “Registration Statement”), and entered into a Sales Agreement (the "Sales Agreement") with Cowen and Company, LLC (“Cowen”) to establish an at-the-market (“ATM”) equity offering program pursuant to which they are able, with the Company’s authorization, to offer and sell up to $40 million of the Company’s Common Stock at prevailing market prices from time to time. The Registration Statement became effective on January 12, 2016.whole. The Company will pay Cowen a commission equalcontinue to 3%monitor the long-term consequences of the gross proceeds ofCOVID-19 pandemic and its related macroeconomic effects closely including whether the sales price of all shares sold through it as sales agent under the Sales Agreement. The offering costs are offset against proceeds from the sale of common stock under this agreement. The Company filedeffects would have a prospectus supplementmaterial impact on March 16, 2017 because the Company is currently subject to General Instruction I.B.6 of Form S-3, which limits the amounts that the Company may sell under the Registration Statement. For the three and nine months ended September 30, 2017, the Company sold 0 shares and 896,811 shares, respectively, of common stock under the Sales Agreement for aggregate gross proceeds of $0 and $1.4 million, respectively. For the three and nine months ending September 30, 2017, total offering costs of $0 and $0.2 million, respectively, were offset against the proceeds from the sale of common stock.
On June 22, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a syndicate of current and new institutional investors, led by an affiliate of Deerfield Management Company, L.P., pursuant to which the Company agreed to issue and sell to the investors an aggregate of 22,000 shares of the Company’s Series A Convertible Preferred Stock, par value $0.001operations, liquidity and capital resources.
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share (the “Transaction”), for a purchase price of $1,000 per share, or an aggregate gross purchase price of $22.0 million, all upon the terms and conditions set forth in the Purchase Agreement. The Company closed this Transaction on August 2, 2017 (see Note 6).data)
| 2. | Summary of Significant Accounting Policies |
The Company’s significant accounting policies are disclosed in the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the United States Securities and Exchange Commission, or SEC, on March 8, 2023. Except as reflected below, there were no changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K. Reflected in this note are updates to accounting policies, including the impact of the adoption of new policies.
Basis of Presentation Principles of Consolidation and Use of Estimates
The unaudited interimaccompanying condensed consolidated financial statements and the related disclosures as of March 31, 2023 and for the Company included hereinthree months ended March 31, 2023 and 2022 are unaudited and have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, of America have been condensed or omitted from this report, as is permitted by suchU.S. GAAP, and the rules and regulations.regulations of the SEC for interim financial statements. Accordingly, thesethey do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the 2022 and 2021 audited consolidated financial statements and notes included in the Annual Report on Form 10-K. The December 31, 2022 consolidated balance sheet included herein was derived from the audited financial statements as of andthat date but does not include all disclosures including notes required by U.S. GAAP for the year ended December 31, 2016 and notes thereto, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 16, 2017.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the auditedcomplete financial statements. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements containreflect all adjustments, which areconsisting of normal and recurring adjustments, necessary to fairly presentfor the fair presentation of the Company’s financial position as of September 30, 2017, theand results of its operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016 and its cash flows2022. The results of operations for the nine months ended September 30, 2017 and 2016. Such adjustments are of a normal and recurring nature. The results for the three and nine months ended September 30, 2017interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2017,2023 or for any other interim period or future year or period.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Thesethe accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United Statesstatements.
Use of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts reported inof assets, liabilities, expenses, and related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statementsstatements. Significant items subject to such estimates include but are not limited to accrued research and accompanying notes. development expenses, income taxes, the valuation of deferred tax assets, and contingencies.
On an ongoing basis, the Company’s management evaluates its estimates which include, but are not limited to, estimates related to stock-based compensation expense, clinical trial accruals and reported amounts of revenues and expenses during the reported period. The Company bases its estimatesbased on historical experience and anticipated results, trends, and various other market-specific or other relevant assumptions that it believesbelieved to be reasonable under the circumstances.reasonable. Actual results maycould differ from those estimates. The results of any changes in accounting estimates or assumptions.are reflected in the financial statements of the period in which the change becomes evident.
Fair ValueConcentrations of Financial InstrumentsCredit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consists principally of cash, cash equivalents and investments in marketable debt securities.
The Company currently invests its excess cash primarily in money market funds and high quality investment grade marketable debt securities of corporations. The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve principal and liquidity.
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or the FASB, issued ASU 2016-13 - Measurement of Credit Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. In November 2019, the FASB issued ASU 2019-10 – Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the effective date for certain companies. The standard is effective for public companies eligible to be smaller reporting companies for annual and interim periods beginning after December 15, 2022. On January 1, 2023, the Company adopted ASU 2016-13, using a modified retrospective approach. The adoption of this standard did not have an effect on the Company’s financial instruments consistposition, results of operations, or cash and cash equivalents, available-for-sale investments, forward foreign currency contracts (see Note 4), accounts payable, and accrued liabilities. flows.
Recent Accounting Pronouncements Not Yet Adopted
The Company ishas evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.
Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. The Company did not identify any subsequent events that would have required to disclose information on alladjustment or disclosure in the financial statements.
| 3. | Fair Value of Financial Instruments |
The Company measures certain financial assets and liabilities reported at fair value. Fair value is determined based upon the exit price that enableswould be received to sell an assessment ofasset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the inputsprincipal market or the most advantageous market.
Inputs used in determining the reportedvaluation techniques to derive fair values. FASB ASC Topic 820, Fair Value Measurement and Disclosures, established a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputsvalues are inputs that market participants would use in pricing the financial instrumentclassified based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the financial instrument and are developed based on the best information available under the circumstances. The fair valuea three-level hierarchy, applies only to the valuation inputs used in determining the reported or disclosed fair value of the financial instruments and is not a measure of the investment credit quality. Fair value measurements are classified and disclosed in one of the following three categories:as follows:
| ● | Level |
| ● | Level |
| ● | Level |
ToThe following tables present the extent that valuation is based on models or inputsCompany’s financial assets and liabilities that are less observable or unobservable in the market, the determination ofmeasured and carried at fair value requires more judgment. Accordingly,and indicate the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significantvaluation techniques it utilizes to determine such fair value:
| March 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds(a) | $ | 20,722 | $ | - | $ | - | $ | 20,722 | ||||||||
| Corporate bonds(a) | - | - | - | - | ||||||||||||
| Restricted cash, non-current: | - | |||||||||||||||
| Money market funds(b) | 745 | - | - | 745 | ||||||||||||
| Marketable debt securities: | ||||||||||||||||
| Corporate bonds(c) | - | 68,468 | - | 68,468 | ||||||||||||
| Total | $ | 21,467 | $ | 68,468 | $ | - | $ | 89,935 | ||||||||
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds(a) | $ | 13,284 | $ | - | $ | - | $ | 13,284 | ||||||||
| Corporate bonds(a) | 2,523 | 2,523 | ||||||||||||||
| Restricted cash, non-current: | - | |||||||||||||||
| Money market funds(b) | 745 | - | - | 745 | ||||||||||||
| Marketable debt securities: | ||||||||||||||||
| Corporate bonds(c) | - | 78,129 | - | 78,129 | ||||||||||||
| Total | $ | 14,029 | $ | 80,652 | $ | - | $ | 94,681 | ||||||||
| (a) | Money market funds and corporate debt securities with original maturities of 90 days or less are included within Cash and cash equivalents in the Consolidated Balance Sheets. |
| (b) | Restricted Money market funds are included within Restricted Cash, non-current in the Consolidated Balance Sheets. |
| (c) | Corporate debt securities with original maturities greater than 90 days are included within Marketable securities in the Consolidated Balance Sheets and classified as current or noncurrent based upon whether the maturity of the financial asset is less than or greater than 12 months. |
Money market funds are classified as Level 1 within the fair value measurement.
Financial instruments measured athierarchy, because they are valued using quoted prices in active markets. Corporate debt securities classified as Level 2 within the fair value hierarchy are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. Prices of these securities are obtained through independent, third-party pricing services and include market quotations that may include both observable and unobservable inputs. In determining the value of a recurring basis include cash equivalents, short-termparticular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and forward foreign currency contracts (see Note 3). There have been no changes to the valuation methods utilized by the Company during the nine months ended September 30, 2017 and 2016. The Company evaluates transfersvarious relationships between levels at the end of each reporting period.investments. There were no transfers of financial instruments between levelsamong Level 1, Level 2, and Level 3 during the nine months ended September 30, 2017 and 2016.period presented.
Cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses at March 31, 2023 and December 31, 2022 are carried at amounts that approximate fair value due to their short-term maturities.
Derivative Financial Instruments
| 4. | Marketable Debt Securities |
Marketable debt securities, all of which were classified as available-for-sale, consist of the following:
| March 31, 2023 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses(a) | Estimated Fair Value | |||||||||||||
| Corporate bonds - presented in marketable debt securities | $ | 66,042 | $ | 5 | $ | (472 | ) | $ | 65,575 | |||||||
| Corporate bonds - presented in marketable debt securities, non-current | 2,895 | - | (2 | ) | 2,893 | |||||||||||
| Total | $ | 68,937 | $ | 5 | $ | (474 | ) | $ | 68,468 | |||||||
| (a) | The unrealized loss of $474 is comprised of bonds with losses sustained for greater than 12 months of $360 and of bonds with losses sustained for less than 12 months of $114. |
| December 31, 2022 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | |||||||||||||
| Corporate bonds - presented in marketable debt securities | $ | 60,790 | $ | - | $ | (547 | ) | $ | 60,243 | |||||||
| Corporate bonds - presented in marketable debt securities, non-current | 18,027 | - | (141 | ) | 17,886 | |||||||||||
| Total | $ | 78,817 | $ | - | $ | (688 | ) | $ | 78,129 | |||||||
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
The Company purchases Swiss Francs and enters into forward foreign currency contracts from time to time to mitigatehas recorded the securities at fair value in its exposure to fluctuations in the exchange rates between the Swiss Franc and the U.S. dollar (see Note 4). The latter are considered derivative financial instruments that the Company records on thecondensed consolidated balance sheet at fair value. Although these derivative contractssheets and unrealized gains and losses are intended to economically hedge foreign exchange risk, the Company has not elected to apply hedge accounting. As such, changes in the fair value of these instruments are recorded directly in earningsreported as a component of accumulated other comprehensive income (loss). The amount of realized gains and losses reclassified into earnings are based on the specific identification of the securities sold or securities that reached maturity date. The amount of realized gains and losses reclassified into earnings have not been material to the Company’s condensed consolidated statements of operations.
At the time of purchase, the Company determines the appropriate classification of investments based upon its intent with regard to such investments. The Company classifies investments in marketable debt securities with remaining maturities when purchased of greater than three months as available-for-sale. Investments with a remaining maturity date greater than one year are classified as non-current. The contractual maturities of all securities held at March 31, 2023 was 13 months or less. There were no sales of securities in the periods presented.
The Company periodically evaluates the need for an allowance for credit losses. This evaluation includes consideration of several qualitative and quantitative factors, including whether it plans to sell the security, whether it is more likely than not it will be required to sell any marketable debt securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity, and the portion of any unrealized loss that is the result of a credit loss. Factors considered in making these evaluations include quoted market prices, recent financial results, operating trends, and implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, expected cash flows from securities, other publicly available information that may affect the value of the marketable debt security, duration and severity of decline in value and the Company’s strategy and intentions for holding the marketable debt security.
Securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of the excess, if any, is caused by expected credit losses. For the period ended March 31, 2023, it was determined that none of the unrealized loss is related to expected credit losses as the Company has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. Further, the entire portfolio is held with investment grade high credit quality institutions. The Company intend to continue only investing in such securities. Expected credit losses, if they existed, would be recognized in other income (expense), as they occur.net. The Company executes its derivative instruments with financial institutions that the Company judgesremaining unrealized losses, not related to be credit-worthy, defined as institutions that hold an investment-grade credit rating.losses, net of taxes, are included in accumulated other comprehensive loss in stockholders’ equity.
Investment Income
Net Loss
Investment income consists of the following:
For the Three Months March 31, | ||||||||
| 2023 | 2022 | |||||||
| Interest income | $ | 605 | $ | 529 | ||||
| Accretion/(amortization) of discount/premium, net | 82 | (410 | ) | |||||
| Total interest and investment income | $ | 687 | $ | 119 | ||||
| 5. | Prepaid Expenses and Other Current Assets |
Included in the Company’s prepaid expenses and other current assets within the condensed consolidated balance sheets are:
| As of | ||||||||
| March 31, 2023 | December 31, 2022 | |||||||
| Prepaid insurance | $ | 689 | $ | 288 | ||||
| Prepaid research and development | 6,250 | 569 | ||||||
| Prepaid software | 153 | 122 | ||||||
| Accrued interest on marketable debt securities | 491 | 486 | ||||||
| Other prepaid expenses | 296 | 184 | ||||||
| Other current assets | 127 | 127 | ||||||
| Total | $ | 8,006 | $ | 1,776 | ||||
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per Share Attributable to Common Stockholdersshare data)
| 6. | Accrued Expenses |
Included in the Company’s accrued expenses within the condensed consolidated balance sheets are:
| As of | ||||||||
| March 31, 2023 | December 31, 2022 | |||||||
| Employee Costs | $ | 625 | $ | 2,543 | ||||
| Research and development costs | 658 | 512 | ||||||
| Other expenses | 113 | 182 | ||||||
| Total | $ | 1,396 | $ | 3,237 | ||||
| 7. | Leases |
Operating leases
Basic net lossLeases classified as operating leases are included in operating lease right-of use, or ROU, assets, operating lease liabilities and operating lease liabilities, non-current, in the Company’s consolidated balance sheets. Cash paid for operating lease liabilities was $332 and $332 during the three months ended March 31, 2023 and 2022, respectively, which is included in operating cash flows.
The components of lease expense were as follows:
For the Three Months Ended March 31, | ||||||||
| Lease cost | 2023 | 2022 | ||||||
| Operating lease cost | $ | 341 | $ | 341 | ||||
| Short-term lease cost | - | 3 | ||||||
| Total | $ | 341 | $ | 344 | ||||
Variable lease expense for the three months ended March 31, 2023 and 2022, respectively, was not material.
The weighted-average remaining lease term and the weighted average discount rate for operating leases were:
| As of March 31, 2023 | ||||
| Weighted-average discount rate | 7.0 | % | ||
| Weighted-average remaining lease term – operating lease (in months) | 64 | |||
As of March 31, 2023, the expected annual minimum lease payments of the Company’s operating lease liabilities were as follows:
| For Years Ending December 31, | Operating Lease Payments | |||
| 2023 (excluding the three months ended March 31, 2023) | $ | 995 | ||
| 2024 | 1,327 | |||
| 2025 | 1,395 | |||
| 2026 | 1,429 | |||
| 2027 | 1,429 | |||
| Thereafter | 805 | |||
| Total operating lease payments | 7,380 | |||
| Less: imputed interest | (1,220 | ) | ||
| Present value of future minimum lease payments | $ | 6,160 | ||
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
| 8. | Commitments and Contingencies |
Commitments
The Company has commitments under certain license and collaboration agreements, lease agreements, and employment agreements. Commitments under certain license agreements primarily include annual payments, payments upon the achievement of certain milestones, and royalty payments based on net sales of licensed products. Commitments under lease agreements consist of future minimum lease payments for operating leases which are further described in Note 7 of this Quarterly Report on Form 10-Q.
Contingencies
From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Management is calculated by dividing net loss attributable to common stockholders byof the weighted-average numberopinion that the ultimate outcome of common shares outstanding duringthese matters would not have a material adverse impact on the period. Net loss attributable to common stockholders is calculated by adjusting the net lossfinancial position of the Company for cumulative preferred stock dividends and accretionor the results of preferred stock. Diluted net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common equivalent shares outstanding for the period, including any dilutive effect from outstanding stock options and warrants using the treasury stock method.its operations.
TheIn the normal course of business, the Company computes basicenters into contracts in which it makes representations and diluted loss per share using a methodologywarranties regarding the performance of its services and that gives effect to the impact of outstanding participating securities (the “two-class method”). As the three and nine months ended September 30, 2017 and 2016 resulted in net losses, there is no income allocation required under the two-class method or dilution attributed to weighted-average shares outstanding in the calculation of diluted loss per share.
Recent Accounting Pronouncements
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entityits services will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modifiedinfringe on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance on its financial statements but does not expect it to have a material impact.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies various aspects of the accounting for share-based payments, including accounting for income taxes, earnings per share, and forfeitures. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company adopted ASU 2016-09 during the quarter ended March 31, 2017. As a result of adoption, the deferred tax assets associated with net operating losses increased by $0.6 million. These amounts were offset by a corresponding increase in the valuation allowance. In addition, the Company has elected to recognize the effect of forfeitures in compensation cost when they occur rather than estimate forfeitures in advance. The Company will reverse any previously recognized compensation cost for an award in the period that the award is forfeited. The adoption had an immaterial impact on the condensed consolidated financial statements.
third-party intellectual rights. There have been no other material changessignificant events related to such representations and warranties in which the significant accounting policies previously disclosedCompany believes the outcome could result in losses or penalties in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 16, 2017.future.
Below is a summary of assets and liabilities measured at fair value (in thousands):Common Stock
| As of September 30, 2017 | ||||||||||||||||
| Quoted Prices in Active Markets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash equivalents | $ | 11,297 | $ | - | $ | - | $ | 11,297 | ||||||||
| Government securities | 27,444 | - | - | 27,444 | ||||||||||||
| Total | $ | 38,741 | $ | - | $ | - | $ | 38,741 | ||||||||
| As of December 31, 2016 | ||||||||||||||||
| Quoted Prices in Active Markets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash equivalents | $ | 28,876 | $ | - | $ | - | $ | 28,876 | ||||||||
| Government securities | 4,925 | - | - | 4,925 | ||||||||||||
| Total | $ | 33,801 | $ | - | $ | - | $ | 33,801 | ||||||||
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, the Company had 100,000,000 shares of common stock authorized for issuance, $0.001 par value per share, of which 11,306,753 and 11,267,389 shares were issued and outstanding, respectively.
The holders of the Company’s cash equivalents consist principallycommon stock are entitled to one vote per share.
Preferred Stock
As of money market funds with original maturitiesMarch 31, 2023 and December 31, 2022, the Company had 10,000,000 shares of 90 days or less.preferred stock authorized for issuance, $0.001 par value per share, of which 8,028 shares of Series 1 Convertible Preferred Stock were authorized for issuance and 8,027 shares were issued and outstanding. Each share of Series 1 Convertible Preferred Stock is convertible into 1,000 shares of common stock, at a conversion price initially equal to approximately $7.01 per common share, subject to certain adjustments as described in the certificate of designation of preferences, rights and limitations of Series 1 Convertible Preferred Stock.
Available-for-sale securities consistThe holders of the following (in thousands):Series 1 Convertible Preferred Stock are not entitled to vote.
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
| September 30, 2017 | ||||||||||||||||
| Government securities | ||||||||||||||||
| (Due within 1 year) | $ | 27,450 | $ | 1 | $ | (7 | ) | $ | 27,444 | |||||||
| $ | 27,450 | $ | 1 | $ | (7 | ) | $ | 27,444 | ||||||||
| December 31, 2016 | ||||||||||||||||
| Government securities | ||||||||||||||||
| (Due within 1 year) | $ | 4,924 | $ | 1 | $ | - | $ | 4,925 | ||||||||
| $ | 4,924 | $ | 1 | $ | - | $ | 4,925 | |||||||||
Beginning2020 Inducement Plan
On March 26, 2020, the Compensation Committee of the Board of Directors (the “Compensation Committee”) approved the 2020 Inducement Plan in May 2015order to award nonstatutory stock options, restricted stock awards, restricted stock unit awards and through 2016,other stock-based awards to persons not previously an employee or director of the Company, has purchased Swiss Francsor following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company.
Protara Therapeutics, Inc. and enters intoSubsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
The 2020 Inducement Plan provides for a seriestotal of forward foreign currency contracts600,000 shares for the issuance of the Company’s common stock. The Compensation Committee also adopted a form of stock option grant notice and stock option agreement and forms of restricted stock unit grant notice and restricted stock unit agreement for use with the Inducement Plan.
As of March 31, 2023, 148,000 shares remain available to mitigatebe issued under the 2020 Inducement Plan.
2017 Equity Incentive Plan
On August 10, 2017, Private ArTara (a predecessor entity of the Company), its exposureBoard of Directors and its stockholders approved the ArTara Therapeutics, Inc. 2017 Equity Incentive Plan to fluctuations inenable Private ArTara and its affiliates to recruit and retain highly qualified personnel and to incentivize personnel for productivity and growth.
The 2017 Equity Incentive Plan provided for the U.S. dollar valuegrant of forecasted transactions denominated in Swiss Franc. a total of 2,000,000 shares for the issuance of stock options, stock appreciation rights, restricted stock and restricted stock units to among others, members of the Board of Directors, employees, consultants and service providers to the Company and its affiliates. As of January 9, 2020, no additional awards will be made under the 2017 Equity Incentive Plan.
2014 Equity Incentive Plan
On October 3, 2014, the stockholders approved the 2014 Equity Incentive Plan. On June 20, 2017, the Company’s Board of Directors amended the 2014 Equity Incentive Plan, or the Amended 2014 Plan. On July 31, 2017, the stockholders approved this amendment. On January 1, 2020, Protara Therapeutics, Inc. amended its Amended and Restated 2014 Equity Incentive Plan.
The latter are considered derivative financial instrumentsAmended and Restated 2014 Plan, as amended, provides for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock and stock unit awards, performance units, stock grants and qualified performance-based awards. The Amended and Restated 2014 Plan, as amended, provides that the Company recordsnumber of shares reserved and available for issuance will automatically increase each January 1, by four percent of the Company’s common stock on the consolidated balance sheet at fair value. The Company elected not to apply hedge accounting to these instruments. As a result, during the nine months ended September 30, 2016, the Company experienced unrealized gains within other income (expense), net, in the consolidated statements of operations from the mark-to-market of outstanding forward foreign currency contracts. As ofimmediately preceding December 31, 2016, all forward foreign currency contracts had been settled and are no longer outstanding.
In July 2015, the Company entered into a manufacturing services agreement with Lonza Ltd, or (“Lonza”)adjusted for the processing, development and manufacturingnumber of the active pharmaceutical ingredient (“API”) in its lead product candidate, vonapanitase. Under the agreement, the Company will issue purchase orders authorizing Lonza to manufacture API batches and will pay for the services and batches in accordance with terms and assumptions in the agreement and to be set forth in a project plan. As of September, 30, 2017, the Company has issued a purchase order for 7.6 million Swiss Francs, approximately $7.8 million at current exchange rates, for the manufacturing of three batches that commenced in July 2017 and one batch to commence by the end of 2019. As of September 30, 2017, nearly all of the services related to the three batches that commenced in July 2017 have been rendered under this purchase order.
Future minimum payments required under operating leases as of September 30, 2017 are summarized as follows (in thousands):
| Year Ending December 31: | Amount | ||||||
| 2017 | 44 | ||||||
| 2018 | 270 | ||||||
| 2019 | 207 | ||||||
| Total minimum lease payments | $ | 521 | |||||
In addition to the base rent, the Company is also responsible for its share of operating expenses and real estate taxes, in accordance with the terms of the lease agreement. In August 2017, the Company extended its lease until September 30, 2019. Pursuant to the lease amendment, the Company has provided a security deposit in the amount of $22,000 to the lessor.
Restricted cash related to facilities leases
As of September, 30, 2017 and December 31, 2016, the Company had $22,000 in an outstanding letter of credit to be used as collateral for leased premises. As of September, 30, 2017 and December 31, 2016, the Company pledged an aggregate of $22,000 to the bank as collateral for the letter of credit, which is included in long-term assets.
On August 2, 2017, the Company issued and sold 22,000 shares of the Company’s Series A Convertible Preferred Stock, par valuecommon stock issuable upon conversion of $0.001 per share (the “Series A Preferred”), for a purchase price of $1,000 per share, or aggregate purchase price and gross proceeds of $22.0 million, all uponany security that the terms and conditions set forth in the Securities Purchase Agreement dated as of June 22, 2017. The Company incurred $0.5 million of issuance costs in connection with the transaction. Each share of Series A Preferredmay issue that is convertible into approximately 1,005 shares ofor exchangeable for the Company’s Common Stock at a conversion price of $0.9949 per share, in each case subject to adjustment for anycommon stock, splits, stock dividends and similar events, provided that any conversion of Series A Preferred by a holder into shares of Common Stock is prohibited if, as a result ofor such conversion, the holder, together with its affiliates and any other person or entity whose beneficial ownership of the Company’s Common Stock would be aggregated with such holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), would beneficially own more than 9.985% of the totallesser number of shares as determined by the Company’s Board of Common Stock issued and outstanding after giving effect to such conversion.Directors.
On January 1, 2023, pursuant to the Amended and Restated 2014 Plan, as amended, annual evergreen feature, the number of shares authorized under the Amended and Restated 2014 Plan, as amended, was increased by 861,933 shares to 3,563,303 shares. As of March 31, 2023, 479,501 shares remain available to be issued under the Amended and Restated 2014 Plan, as amended.
Upon issuance, each share of Series A Preferred included an embedded beneficial conversion feature as the market price
Terms of the Company’s Common Stock onstock awards, including vesting requirements, are determined by the dateBoard of issuance of the Series A Preferred was $1.30 per share. As a result, the Company recorded the intrinsic value of the beneficial conversion feature of $6.7 million as a discount on the Series A Preferred at issuance. As the Series A Preferred is immediately convertible upon issuance and does not include a stated redemption date, the discount on the Series A Preferred was immediately accreted.
The Company evaluated the Series A Preferred for liability or equity classification in accordance withDirectors, subject to the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Series A Preferred did not meet the definition of the liability instruments defined thereunderplans. Certain awards provide for convertible instruments. Specifically, the Series A Preferred are not mandatorily redeemable and do not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets. Additionally, the Company determined that the Series A Preferred would be recorded as permanent equity, not temporary equity, based on the guidance of ASC 480 given thataccelerated vesting if there is no scenario wherea change in control as defined in the holders of equally and more subordinated equity of the entity would not be entitled to also receive the same form of consideration upon the occurrence of the event that gives rise to the redemption.
plan.
Stock Options
The following table summarizes stock option activity for employees and non-employees:
| Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2016 | 2,166,254 | $ | 8.55 | 7.1 | $ | 124 | ||||||||||
| Granted | 719,337 | |||||||||||||||
| Exercised | (74,001 | ) | ||||||||||||||
| Forfeited | (30,272 | ) | ||||||||||||||
| Expired | (97,406 | ) | ||||||||||||||
| Outstanding at September 30, 2017 | 2,683,912 | $ | 7.18 | 7.4 | $ | 140 | ||||||||||
| Exercisable at September 30, 2017 | 1,384,925 | $ | 8.00 | 6.2 | $ | 98 | ||||||||||
| Vested or expected to vest at September 30, 2017 (1) | 2,683,912 | $ | 7.18 | 7.4 | $ | 140 | ||||||||||
__________________
(1) Represents the number of vested options at September 30, 2017 plus the number of unvested options expected to vest based on the unvested options outstanding at September 30, 2017.
2014 Employee Stock Purchase Plan
TheOn October 3, 2014, the stockholders approved the 2014 Employee Stock Purchase Plan, (ESPP)or the 2014 ESPP. The 2014 ESPP initially authorized the issuance of up to 140,5003,513 shares of Common Stock.the Company’s common stock. The number of shares increases each January 1, commencing on January 1, 2015 and ending on (and including) January 1, 2024, by an amount equal to the lesser of one percent of the outstanding shares as of the end of the immediately preceding fiscal year, 281,0007,025 shares or any lower amount determined by the Company’s Board of Directors prior to each such January 1st. The Company’s Board of Directors has determined there was to be no increase on
On January 1, 2017. As of September 30, 2017,2023, pursuant to the increase per the 2014 ESPP, authorized the issuancenumber of up to 304,991 shares of Common Stock. The sixth offeringauthorized under the 2014 ESPP began on July 1, 2017was increased by 7,025 shares to 39,087 shares. As of March 31, 2023, the authorized number of shares under the 2014 ESPP was 39,087 and ends on Decemberthe number of shares available for issuance was 39,087. During the three months ended March 31, 2017. No shares2023 and 45,0472022, no shares were issued during the three and nine months ended September 30, 2017 under the 2014 ESPP.
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
Restricted Stock Units
The Company incurred $18,000 and $0.1 million in stock-based compensation expense related to the 2014 ESPPfollowing table summarizes restricted stock unit, or RSU, activities for the three and nine months ended September 30, 2017, respectively.March 31, 2023:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Non-vested as of December 31, 2022 | 196,838 | $ | 12.49 | |||||
| Granted | 165,100 | 3.02 | ||||||
| Forfeited | (3,933 | ) | 4.73 | |||||
| Vested | (61,444 | ) | 16.19 | |||||
| Non-vested as of March 31, 2023 | 296,561 | $ | 6.55 | |||||
The fair value of RSUs is amortized on a straight-line basis over the requisite service period of the respective awards. As of March 31, 2023, the unamortized value of RSUs was $1,578. As of March 31, 2023, the weighted average remaining amortization period was 2.10 years. As of March 31, 2023 and December 31, 2022, 289,500 and 289,500 RSUs, respectively, have vested that have not yet been settled into shares of the Company’s common stock.
During the three months ended March 31, 2023, the Company issued 39,364 shares of the Company’s common stock from the net settlement of 61,444 RSUs. The Company incurred $30,000 and $62,000paid $64 in stock-based compensation expense related toconnection with the 2014 ESPPnet share settlement of these RSUs.
Stock Options
The following table summarizes stock option activities for the three and nine months ended September 30, 2016, respectively.March 31, 2023:
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of December 31, 2022 | 1,828,329 | $ | 14.23 | 8.16 | $ | - | ||||||||||
| Granted | 1,162,900 | 3.06 | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited | (13,047 | ) | 7.36 | - | - | |||||||||||
| Expired | (4,651 | ) | 16.03 | - | - | |||||||||||
| Outstanding as of March 31, 2023 | 2,973,531 | $ | 9.89 | 8.69 | $ | 100 | ||||||||||
| Vested and expected to vest at March 31, 2023 | 2,973,531 | $ | 9.89 | 8.69 | $ | 100 | ||||||||||
| Exercisable as of March 31, 2023 | 987,679 | 16.58 | 7.58 | - | ||||||||||||
The weighted average grant date fair value per share of the options granted during the three months ended March 31, 2023 and 2022 was $2.42 and $5.37, respectively. As of March 31, 2023, there was approximately $9,816 of unrecognized share-based compensation for unvested stock option grants, which is expected to be recognized over a weighted average period of 3.10 years. The total unrecognized stock-based compensation cost will be adjusted for actual forfeitures as they occur.
Protara Therapeutics, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share data)
Common StockSummary of Stock-Based Compensation Expense
The Company has the following shares reserved for future issuance:tables summarize total stock-based compensation costs recognized:
For the Three Months March 31, | ||||||||
| 2023 | 2022 | |||||||
| Restricted stock units | $ | 314 | $ | 314 | ||||
| Stock options | 1,261 | 1,565 | ||||||
| Total | $ | 1,575 | $ | 1,879 | ||||
| September 30, 2017 | December 31, 2016 | |||||||
| Stock-based compensation awards | 3,587,144 | 2,982,470 | ||||||
| Employee Stock Purchase Plan | 247,774 | 292,821 | ||||||
| Total | 3,834,918 | 3,275,291 | ||||||
Stock-based compensation expense was reflected within the condensed consolidated statements of operations and comprehensive loss as:
For the Three Months March 31, | ||||||||
| 2023 | 2022 | |||||||
| Research and development | $ | 400 | $ | 366 | ||||
| General and administrative | 1,175 | 1,513 | ||||||
| Total | $ | 1,575 | $ | 1,879 | ||||
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The Company has evaluated the positive and negative evidence bearing upon the Company’s ability to realize the benefit of its deferred tax assets. Based on the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has provided a full valuation allowance against its deferred tax assets. There were no significant income tax provisions or benefits for the nine months ended September 30, 2017 and 2016.
The Company computes basic and diluted loss per share using a methodology that gives effect to the impact of outstanding participating securities (the “two-class method”). As the three and nine months ended September 30, 2017 and 2016 resulted in net losses, there is no income allocation required under the two-class method or dilution attributed to weighted-average shares outstanding in the calculation of diluted loss per share.
The following Common Stock equivalents, presented on an as converted basis, were excluded fromtable sets forth the calculationcomputation of the net loss per share attributable to common stockholders, basic and diluted:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net loss attributable to common stockholders | $ | 9,045 | $ | 10,755 | ||||
| Denominator: | ||||||||
| Weighted-average shares of common stock outstanding, basic and diluted | 11,303,869 | 11,250,127 | ||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.80 | ) | $ | (0.96 | ) | ||
Since the Company was in a net loss position for all periods presented, net loss per share attributable to common stockholders was the same, on a basic and diluted basis, as the inclusion of all potential common equivalent shares outstanding would have been anti-dilutive. The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods presented, due to theirindicated because including them would have had an anti-dilutive effect:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Stock options issued and outstanding | 2,973,531 | 1,980,055 | ||||||
| Restricted stock units issued and outstanding | 586,061 | 489,238 | ||||||
| Conversion of Series 1 Convertible Preferred Stock | 8,029,039 | 8,029,039 | ||||||
| Total potentially dilutive shares | 11,588,631 | 10,498,332 | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Outstanding stock options | 2,683,912 | 2,169,617 | 2,683,912 | 2,169,617 | ||||||||||||
| Outstanding ESPP shares | 34,464 | 10,913 | 34,464 | 10,913 | ||||||||||||
| 2,718,376 | 2,180,530 | 2,718,376 | 2,180,530 | |||||||||||||
The Company has evaluated all activity that occurred subsequent to quarter end but prior to issuance of the unaudited condensed consolidated financial statements for events or transactions that could require disclosure or that could impact the carrying value of assets or liabilities as of the balance sheet date.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report.Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.
Overview
We are a late-stageNew York City based clinical-stage biopharmaceutical company focusedcommitted to advancing transformative therapies for the treatment of cancer and rare diseases. We were founded on the principle of applying modern scientific, regulatory or manufacturing advancements to established mechanisms in order to create new development opportunities. We prioritize creativity, diverse perspectives, integrity and tenacity to expedite our goal of bringing life-changing therapies to people with limited treatment options.
Our portfolio includes two development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator, OK-432, which was originally granted marketing approval by the Japanese Ministry of Health and Welfare as an immunopotentiating cancer therapeutic agent. This cell therapy is currently approved in Japan and Taiwan for LMs and multiple oncologic indications. We have secured worldwide rights to the asset excluding Japan and Taiwan and are exploring its use in oncology and rare disease indications. TARA-002 was developed from the same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed as Picibanil® in Japan and Taiwan by Chugai Pharmaceutical Co., Ltd., or Chugai Pharmaceutical). We are currently developing TARA-002 in non-muscle invasive bladder cancer, or NMIBC, and in LMs.
Our lead oncology program is TARA-002 in NMIBC, which is cancer found in the tissue that lines the inner surface of the bladder that has not spread into the bladder muscle. Bladder cancer is the sixth most common cancer in the United States, with NMIBC representing approximately 80% of bladder cancer diagnoses. Approximately 65,000 patients are diagnosed with NMIBC in the United States each year. Very few new therapeutics have been approved for NMIBC since the 1990s and the current standard of care for NMIBC includes intravesical Bacillus Calmette–Guérin, or BCG. The mechanism of action of TARA-002 is similar to that of BCG. TARA-002 and BCG are both intravesically administered, elicit a Th1 type immune response and produce a locally-activated generally similar array of cytokines and immune cells.
We are conducting a Phase 1 dose-finding, open-label clinical trial to evaluate TARA-002 in treatment-naïve and treatment-experienced NMIBC patients with carcinoma in situ, or CIS, and high-grade papillary tumors, or Ta, known as the ADVANCED-1 trial. In the initial dose escalation phase of the trial, patients received six weekly intravesical doses of TARA-002, evaluating the 10KE, 20KE and 40KE doses (Klinische Einheit, or KE, is a German term indicating a specified number of dried cells in vial). The primary objective of the trial was to evaluate the safety, tolerability and preliminary signs of anti-tumor activity of TARA-002, with the goal of establishing a recommended dose for a future Phase 2 clinical trial. In April 2023, we announced positive preliminary data from the Phase 1a dose escalation component of the ongoing ADVANCED-1 trial, in which TARA-002 indicated favorable tolerability and anti-tumor activity in NMIBC patients.
Preliminary data from the ADVANCED-1 trial suggested that TARA-002 was generally well tolerated at all three dose levels evaluated in the trial, and no dose limiting toxicities were observed. A maximum tolerated dose was not determined, and dose escalation remains ongoing in exploratory cohorts. The Company has selected the 40KE dose for use in subsequent clinical trials. The majority of reported adverse events were Grades 1 and 2 across all dose levels, and treatment-related adverse events, as assessed by study investigators, were in line with typical responses to bacterial immunopotentiation and included fatigue, headache, fever and chills. The most common urinary symptoms were urinary urgency, urinary frequency, urinary tract pain/burning, incomplete emptying, and bladder spasm. Most bladder irritations resolved soon after administration, or in a few hours to a few days. A total of nine patients were enrolled in the study, including three patients with CIS that reached the three-month efficacy assessment. Of those three patients with CIS, one heavily pre-treated BCG-unresponsive patient achieved a complete response (CR) at the 20KE dose, and tumor regression was observed in the other two patients.
The ongoing open-label expansion trial, or ADVANCED-1EXP, is evaluating intravesical TARA-002 at the 40KE dose in 12 CIS patients, including BCG-naïve, BCG-unresponsive, and BCG-inadequately treated patients.
Based on the preliminary results of ADVANCED-1, we are advancing the clinical development of novel, first-in-class pharmaceuticalsTARA-002 for the treatment of NMIBC. We plan to address the medical needs ofinitiate ADVANCED-2, a Phase 1b/2 open-label trial evaluating intravesical TARA-002 in up to 102 patients with kidneyhigh-grade CIS. The Phase 1b trial is expected to enroll 27 patients with CIS (± Ta/T1), BCG-Naïve or BCG-experienced, who have not received intravesical BCG for at least 24 months prior to CIS diagnosis. The Phase 2 trial is expected to enroll 75 patients with BCG-unresponsive CIS (± Ta/T1). ADVANCED-2 is expected to initiate in the second half of 2023.
In addition, we continue to conduct pre-clinical studies on TARA-002 to better characterize the mechanism of action to help us understand how TARA-002 may perform in potential combinations with other agents used to treat NMIBC. We use pre-clinical data to help us define other cancer targets for TARA-002, both within the urothelial cancer space and other types of cancer affecting different parts of the body.
We are also pursuing TARA-002 in LMs, which are rare, non-malignant cysts of the lymphatic vascular disease. Our product candidate, vonapanitase,system that primarily form in the head and neck region of children before the age of two. In July 2020, the FDA granted Rare Pediatric Disease designation for TARA-002 for the treatment of LMs and in May 2022 the European Medicines Agency granted orphan drug designation to TARA-002 for the treatment of LMs. In addition to the clinical experience in Japan, we have secured the rights to a dataset from one of the largest ever conducted Phase 2 trials in LMs, in which OK-432 was administered via a compassionate use program led by the University of Iowa to over 500 pediatric and adult patients. We have an investigational new drug application for LMs with the Vaccines and Related Products Division of the FDA, or Vaccines Division. In April 2023, we received regulatory clearance from the Vaccines Division to commence STARBORN-1, a Phase 2 clinical trial of TARA-002 in pediatric patients with macrocystic and mixed-cystic LMs.
STARBORN-1 is a recombinant human elastase thatPhase 2 single-arm, open-label, prospective clinical trial to evaluate the safety and efficacy of intracystic injection of TARA-002 for the treatment of macrocystic and mixed cystic LMs (≥ 50% macrocystic disease) in participants six months to less than 18 years of age. Following completion of an age de-escalation safety lead-in, the trial will enroll approximately 30 patients who will receive up to four injections of TARA-002 spaced approximately six weeks apart.
The primary endpoint of the trial is the proportion of participants with macrocystic LMs and mixed cystic LMs who demonstrated clinical success, defined as having either a complete response (90% to 100% reduction from baseline in total LM volume) or substantial response (60% to less than 90% reduction in total LM volume) eight weeks after the last injection, as measured by axial imaging. Trial start-up activities are well underway in the 10 pediatric centers of excellence participating in the trial and initiation is expected in the fourth quarter of 2023.
The third development program in our portfolio is intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy, initially in development for patients receiving parenteral nutrition, or PN, who have intestinal failure associated liver disease, or IFALD. IV Choline Chloride has been granted Orphan Drug Designation by the FDA for this indication and has also been granted Fast Track Designation for the treatment of IFALD. We are conducting a two-part prevalence study to enhance our understanding of the PN patient population. The first part of the prevalence study was completed in September 2021, when we are developing to improve vascular access outcomesreported results of the retrospective part of the prevalence study, which supported the significant unmet medical need in patients with chronic kidney disease, or CKD, undergoing or preparing for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe the data from our completed Phase 2 and Phase 3 clinical trials of vonapanitase in patients undergoing creation of an arteriovenous fistula support that a one-time, local application of vonapanitase during surgical creation of a radiocephalic fistula for hemodialysis may improve secondary patency (time to fistula abandonment) and fistula use for hemodialysis, thereby improving patient outcomes and reducing the burdendependent on patients and the healthcare system.PN who have IFALD. We are currently conducting ourthe second Phase 3 trial, PATENCY-2,part of the study, the prospective part of the prevalence study, which is evaluating vonapanitasea multi-center, cross-sectional observational study to assess the prevalence of choline deficiency, as well as cholestasis and steatosis, in radiocephalic fistulas, our initial indication. Following our review of the complete data sets from our first Phase 3 trial, PATENCY-1, and discussions with the U.S. Food and Drug Administration, or FDA, we amended the protocol for the PATENCY-2 trial in the first quarter of 2017. The protocol amendment reordered the existing endpoints for this ongoing trial, establishing secondary patency (time to fistula abandonment) and fistula use for hemodialysis as co-primary endpoints. The protocol amendment also increased the planned enrollment for this trial from 300 to 500 patients which we subsequently increased to 600 patients in the second quarter of 2017. The increased sample size of 600 patients for the PATENCY-2 trial provides power to detect the differences observed in the PATENCY-1 trial, with a p-value ≤0.05, for secondary patency (time to fistula abandonment) and fistula use for hemodialysis of 88% and 98%, respectively. We received written confirmation from the FDA that, if PATENCY-2 is successful in showing statistical significance (p≤0.05)dependent on each of the co-primary endpoints, the PATENCY-2 trial together with data from previously completed studies would provide the basis for a Biologics License Application, or BLA, submission as a single pivotal study, in which case no additional studies would need to be conducted. Vonapanitase also received a Breakthrough Therapy designation from the FDA in May 2017 for hemodialysis vascular access. The FDA awards Breakthrough Therapy designations to expedite the development and review of investigational drugs that are intended to treat serious or life-threatening conditions when preliminary clinical evidence indicates that the treatment may offer a substantial improvement over currently available therapies on one or more clinically significant endpoints.PN. We expect to complete enrollmenthave results of the prospective prevalence study in the third quarter of 2023. We continue to engage with the FDA and plan to take into account, among other relevant factors we deem appropriate, the regulatory feedback received and the results of the prevalence study to determine the next steps for the PATENCY-2 trial indevelopment program.
We have devoted substantial efforts to the first quarterdevelopment of 2018these programs and to report top-line data in the first quarter of 2019. If the PATENCY-2 trial is successful, we expect to submit a BLA in 2019.
We commenced business operations in June 2001do not have any approved products and incorporated in March 2006. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of vonapanitase, protecting our intellectual property and providing general and administrative support for these operations. To date, we have not generated any revenue from product revenuesales. TARA-002 has not yet been approved for use for treatment of NMIBC, LMs or any other indications. We do not expect to generate revenues in the near-term, and have primarily financedit is possible we may never generate revenues in the future. To finance our operations throughcurrent strategic plans, including the private placementconduct of our equity securities, businessongoing and future clinical trials and further research and development activities, convertible note financings, and our initial public offering, or IPO, completed in October 2014.costs, we will need to raise additional capital.
Since inception, we have incurred significant operating losses. As of September, 30, 2017, we had received an aggregate of $197.2 million in net proceeds comprised of $115.5 million from the issuance of private equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities, $0.2 million from government grants, $62.5 million from our IPO and $1.3 million from the sale of common stock under our at-the-market, or ATM, program with Cowen and Company, LLC.
We have never been profitable and have incurred net losses in each year since inception. As of September 30, 2017,March 31, 2023, we had an accumulated deficit of $184.2 million and our net loss for the three and nine months ended September 30, 2017 was $12.3 million and $24.4approximately $169.0 million. We expect to continue to incur significant expenses and increasing operating losses for at least the foreseeable future. We expect our research and development expenses to increasenext few years as we continue the clinical trialsour development of, and seek regulatory approvalmarketing approvals for, vonapanitase. If we obtain regulatory approvalour product candidates, prepare for vonapanitase, we expectand begin the commercialization of any approved products, and add infrastructure and personnel to incur significant commercialization expenses related tosupport our product sales, marketing, manufacturingdevelopment efforts and distribution. Furthermore, we expect that our general and administrative costs will increase as we grow and operateoperations as a public company. company in the United States.
As a result, we will needclinical-stage company, our expenses and results of operations are likely to generate significant revenue if we are to achieve profitability,fluctuate significantly from quarter-to-quarter and we may never be able to do so.
year-to-year. We believe that our existingperiod-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.
As of March 31, 2023, we had approximately $89.5 million in cash, cash equivalents, and available-for-sale investmentsmarketable debt securities.
COVID-19 and Related Macroeconomic Conditions
The COVID-19 pandemic and related macroeconomic conditions, such as supply chain shortages, inflation and economic volatility have, and any future global public health crisis may have, an impact on our results of operations. We will be sufficientcontinue to fund operations and capital expenditures into the fourth quarter of 2019, thus allowing us to report top-line data from our second Phase 3 trial of vonapanitase in radiocephalic fistulas and to fund our chemistry, manufacturing and controls, or CMC, activities.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for vonapanitase, which we expect will take a number of years and is subject to significant uncertainty. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently use third-party clinical research organizations, or CROs, to carry out our clinical development activities and we do not yet have a sales organization. If we obtain regulatory approval for vonapanitase, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we may seek to further fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable to raise additional funds or enter intomonitor whether such other arrangements when needed on favorable terms or at all. Our failure to raise additional capital or enter into such other arrangements as and when neededconditions would have a negativematerial impact on our financial conditionoperations, liquidity and our ability to develop vonapanitase or any additional product candidates, if developed.
Recent Developments
On June 22, 2017, we entered intocapital resources. Further, rising inflation has, in part, caused a Securities Purchase Agreement (the “Purchase Agreement”) with a syndicate of current and new institutional investors (collectively, the “Investors”), led by an affiliate of Deerfield Management Company, L.P., pursuant to which the Company agreed to issue and sell to the Investors an aggregate of 22,000 shares (the “Preferred Shares”) of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Transaction”), for a purchase price of $1,000 per share, or an aggregate purchase price of $22.0 million, all upon the terms and conditions set forthdisruption in the Purchase Agreement. We also entered into certain Voting Agreementscapital markets, which may lead to a recession or market correction that could impact our access to capital, and could in the future negatively affect our liquidity. A recession or market correction, continued supply chain disruptions and/or inflation could materially affect our business and the Fifth Amended and Restated Investors’ Rights Agreement in connection on June 22, 2017. We closed the Transaction on August 2, 2017.value of our common stock.
The rights, preferences and privileges of the Series A Preferred Stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock that we filed on August 1, 2017, with the Secretary of State of the State of Delaware. The holders of a majority of the outstanding shares of Series A Convertible Preferred Stock are entitled to elect one (1) member of the Company’s Board of Directors (the “Series A Director”). Jonathan Leff was elected as the Series A Director on August 2, 2017.
In addition, on August 2, 2017, we entered into a registration rights agreement with the Investors (the “Registration Rights Agreement”). On August 3, 2017, in accordance with the Registration Rights Agreement, we filed a registration statement on Form S-3 to register the common stock issuable upon conversion of the Preferred Shares.
Financial Overview
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of vonapanitase,TARA-002 and IV Choline Chloride, which include:
| include employee-related expenses, including salaries, benefits, travel and stock-based compensation | ||
We expense, expenses incurred under agreements with clinical research organizations, or CROs, contract development and developmentmanufacturing organizations, or CDMOs, the cost of acquiring, developing and manufacturing clinical trial materials, clinical and non-clinical related costs, to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.
We cannot determine with certainty the duration and completion costs of the current or future clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of vonapanitase. We may never succeed in achieving regulatory approval for vonapanitase. The duration, costs and timing of clinical trials and development of vonapanitase will depend on a variety of factors, which include:
A change in any of these factors could mean a significant change in the costs and timing associated with the developmentregulatory operations and facilities, depreciation and other expenses, which include expenses for rent and maintenance of vonapanitase. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resourcesfacilities and time on the completion of clinical development. We expect our research and development expenses to increase for the foreseeable future as we continue the development of vonapanitase. Our current development activities and future plans include the following:other supplies.
General and Administrative Expenses
General and administrative expenses consist principally of employee-related expenses, including salaries, benefits, travel and related costs for personnel, including stock-based compensation and travel expenses,expense, in executive and other administrative functions. Other general and administrative expenses also include professional fees for legal, patent review,intellectual property matters, consulting and accounting services, facility related costs, as well as facility related costs. We anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with our NASDAQNasdaq listing and SEC requirements, director and officer liability insurance premiums and investor relations costs associated with being a public company.
Additionally, ifOther Income (Expense), net
Interest and when we believe a regulatory approval of vonapanitase appears likely, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.
Investment Income
Investmentinvestment income consists of interest income earned on our cash, cash equivalents and marketable securities.debt securities, accretion of investment discounts and amortization of investment premiums.
Other Income (Expense), Net
Other income (expense), net consists of the gain realized from non-cash gains and losses from currency exchange rate fluctuations on transactions or balances denominated in a foreign currency and realized and unrealized gains and losses on the forward foreign currency contracts we entered into in the second quarter of 2015 to purchase Swiss Francs to reduce our foreign currency exposure through 2016. This foreign currency exposure is the result of a contract with the manufacturer of active pharmaceutical ingredient, or API, for our lead product candidate, vonapanitase, which requires us to make payments in Swiss Francs. The last outstanding forward foreign currency contract was executed during December 2016.
Derivative Financial Instruments
We purchase Swiss Francs or have entered into forward foreign currency contracts to reduce our foreign currency exposure in making contractual payments under our Lonza agreement. The latter are considered derivative financial instruments that are recorded on the consolidated balance sheet at fair value. Although these derivative contracts are intended to economically hedge foreign exchange risk, we have not elected to apply hedge accounting. As such, changes in the fair value of the Swiss Francs we hold or in these derivative instruments are recorded directly in earnings as a component of other income (expense) as they occur. We execute derivative instruments with financial institutions that we judge to be credit-worthy, defined as institutions that hold an investment-grade credit rating.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to clinical trial accruals, stock-based compensation expense, embedded derivatives and reported amounts of revenues and expenses during the reported period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.
There have been no material changes to ourOur critical accounting policies from those describedare the accounting for accrued research and development expenses, income taxes and the valuation of deferred tax assets.
We record accruals for estimated costs of research, preclinical, clinical and manufacturing development within accrued expenses which are significant components of research and development expenses. A substantial portion of our ongoing research and development activities are conducted by third-party service providers. We accrue costs incurred under these third-party arrangements based on estimates of actual work completed in accordance with the respective agreements. We determine the estimated costs to accrue through discussions with internal personnel and our Annual Report on Form 10-K. external service providers as to the percentage of completion of the services and the agreed-upon fees to be paid for such services. Payments made to third parties under these arrangements in advance of performance of the related services are recorded as prepaid expenses until the services are rendered.
It is important that the discussion of our operating results that followsfollow be read in conjunction with thethese critical accounting policies which have been disclosed in our Annual Report on Form 10-K as filed with the SEC on March 16, 2017.8, 2023.
Results of Operations
Comparison of the Three Months Ended September 30, 2017March 31, 2023 and 20162022
The following table summarizes our results of operations for the three months ended September 30, 2017March 31, 2023 and 20162022 (in thousands):
| Three Months Ended September 30, | ||||||||||||
| 2017 | 2016 | Period-to-Period Change | ||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 10,336 | $ | 4,842 | $ | 5,494 | ||||||
| General and administrative | 1,970 | 2,324 | (354 | ) | ||||||||
| Total operating expenses | 12,306 | 7,166 | 5,140 | |||||||||
| Loss from operations | (12,306 | ) | (7,166 | ) | (5,140 | ) | ||||||
| Other income (expense): | ||||||||||||
| Investment income | 83 | 46 | 37 | |||||||||
| Other (expense) income, net | (84 | ) | 13 | (97 | ) | |||||||
| Total other income (expense) | (1 | ) | 59 | (60 | ) | |||||||
| Net Loss | $ | (12,307 | ) | $ | (7,107 | ) | $ | (5,200 | ) | |||
| For The Three Months Ended March 31, | Period-to- Period | |||||||||||
| 2023 | 2022 | Change | ||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 5,143 | $ | 5,269 | $ | (126 | ) | |||||
| General and administrative | 4,589 | 5,605 | (1,016 | ) | ||||||||
| Total operating expenses | 9,732 | 10,874 | (1,142 | ) | ||||||||
| Loss from operations | (9,732 | ) | (10,874 | ) | 1,142 | |||||||
| Other income (expense), net: | ||||||||||||
| Interest and investment income | 687 | 119 | 568 | |||||||||
| Other income (expense), net | 687 | 119 | 568 | |||||||||
| Net Loss | $ | (9,045 | ) | $ | (10,755 | ) | $ | 1,710 | ||||
Research and Development Expenses. The following table identifies research and development expenses on both an external and internal basis for the three months ended September 30, 2017 and 2016 (in thousands):
| Three Months Ended September 30, | ||||||||||||
| 2017 | 2016 | Period-to-Period Change | ||||||||||
| External vonapanitase research and development expenses | $ | 9,264 | $ | 3,690 | $ | 5,574 | ||||||
| Internal research and development expenses | 1,072 | 1,152 | (80 | ) | ||||||||
| Total research and development expenses | $ | 10,336 | $ | 4,842 | $ | 5,494 | ||||||
During the three months ended September 30, 2017,March 31, 2023, our total research and development expenses increased by $5.5were approximately $5.1 million, primarily due to an increase of $6.0 million in our manufacturing pre-validation and validation efforts offset bywhich represented a decrease of $0.4approximately $0.1 million in clinical expenses related to our ongoing radiocephalic AVF Phase 3 and our PAD clinical trials in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016March 31, 2022.
General and a decrease of $0.1 million in our internal research and development expenses inAdministrative Expenses. During the three months ended September 30, 2017March 31, 2023, our general and administrative expenses were approximately $4.6 million, which represented a decrease of approximately $1.0 million as compared to the three months ended September 30, 2017.
General and Administrative Expenses. During the three months ended September 30, 2017, our total general and administrative expenses were $0.4 million lower as compared to the three months ended September 30, 2016March 31, 2022. This decrease was primarily due to decreased overhead and personneldecreases of $0.5 million in employee related expenses of(including $0.3 million of stock-based compensation expense), $0.3 million resulting from a reduction in directors and decreased expenses associated with beingofficers liability insurance premiums, as well as $0.2 million related to a public company of $0.1 million.reduction in market development activities.
Investment Income. During the three months ended September 30, 2017, investment income decreased by an immaterial amount.
Other Income (Expense), Net. During the three months ended September 30, 2017,March 31, 2023, our other (expense) income (expense), net changed by $0.1was approximately $0.7 million primarily due to foreign currency remeasurement loss for cash denominated in Swiss Francs.
Comparison of the Nine Months Ended September 30, 2017 and 2016
The following table summarizes our results of operations for the nine months ended September 30, 2017 and 2016 (in thousands):
| Nine Months Ended September 30, | ||||||||||||
| 2017 | 2016 | Period-to-Period Change | ||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 18,473 | $ | 14,432 | $ | 4,041 | ||||||
| General and administrative | 6,299 | 7,407 | (1,108 | ) | ||||||||
| Total operating expenses | 24,772 | 21,839 | 2,933 | |||||||||
| Loss from operations | (24,772 | ) | (21,839 | ) | (2,933 | ) | ||||||
| Other income: | ||||||||||||
| Investment income | 161 | 155 | 6 | |||||||||
| Other income, net | 198 | 120 | 78 | |||||||||
| Total other income | 359 | 275 | 84 | |||||||||
| Net Loss | $ | (24,413 | ) | $ | (21,564 | ) | $ | (2,849 | ) | |||
Research and Development Expenses. The following table identifies research and development expenses on both an external and internal basis for the nine months ended September 30, 2017 and 2016 (in thousands):
| Nine Months Ended September 30, | ||||||||||||
| 2017 | 2016 | Period-to-Period Change | ||||||||||
| External vonapanitase research and development expenses | $ | 14,859 | $ | 10,559 | $ | 4,300 | ||||||
| Internal research and development expenses | 3,614 | 3,873 | (259 | ) | ||||||||
| Total research and development expenses | $ | 18,473 | $ | 14,432 | $ | 4,041 | ||||||
During the nine months ended September 30, 2017, our total research and development expenses increased by $4.0 million primarily due towhich represented an increase of $4.6approximately $0.6 million in our manufacturing pre-validation and validation efforts in the nine months ended September 30, 2017 as compared to the ninethree months ended September 30, 2016 and offset by $0.3 million in lower clinical expenses related to our ongoing radiocephalic AVF Phase 3 and our PAD clinical trials and a decrease of $0.3 millionMarch 31, 2022 which results from higher market interest rates paid on the marketable debt securities in our internal research and development expenses in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2017.portfolio.
General and Administrative Expenses. During the nine months ended September 30, 2017, our total general and administrative expenses were $1.1 million lower as compared to the nine months ended September 30, 2016 primarily due to decreased overhead and personnel expenses.
Investment Income. During the nine months ended September 30, 2017, investment income decreased by an immaterial amount.
Other Income, Net. During the nine months ended September 30, 2017, other income, net changed by $0.1 million primarily due to foreign currency remeasurement gain of $0.2 million for cash denominated in Swiss Francs and the change in the nine months ended September 30, 2016 in the fair value associated with the forward foreign currency contracts we entered into in the second quarter of 2015. As of December 31, 2016, all forward foreign currency contracts had been settled and are no longer outstanding.
Liquidity and Capital Resources
Overview
SinceAs of March 31, 2023 and December 31, 2022, our cash, cash equivalents, and marketable debt securities were $89.5 million and $102.3 million, respectively. We have not generated revenues since our inception and throughhave incurred net losses of approximately $9.0 million and $10.8 million for the ninethree months ended September 30, 2017,March 31, 2023 and 2022, respectively. As of March 31, 2023, we had received $197.2working capital of approximately $88.2 million and stockholder’s equity of approximately $94.8 million. During the three months ended March 31, 2023, cash flows used in operating activities were approximately $12.9 million, consisting primarily of a net proceeds comprisedloss of $115.5approximately $9.0 million, from the issuancenon-cash expenses of private equity securities, $7.7approximately $1.9 million, from the issuanceas well as a working capital adjustment of convertible notes, $10.0 million from business development activities, $0.2 million from government grants, $62.5 million from$5.8 million. Since inception, we have met our IPO and $1.3 million fromliquidity requirements principally through the sale of our common stock underand preferred stock in private placements.
We are in the business of developing biopharmaceuticals and have no current or near-term revenues. We have incurred substantial clinical and other costs in our ATM program. As of September 30, 2017, our cash and cash equivalents and available-for-sale investments totaled $47.4 million.drug development efforts. We will need to raise additional capital in order to fully realize management’s plans.
Operating Capital Requirements
We expect to incur increasing operating losses for at least the next several years as we (i) conduct our Phase 3 clinical trials for vonapanitase in radiocephalic fistulas, thereafter seeking marketing approval for vonapanitase in radiocephalic fistulas assuming successful trial outcomes, and (ii) pursue development of vonapanitase for additional indications, including brachiocephalic arteriovenous fistulas and grafts. We may not be able to complete the development and initiate commercialization of vonapanitase if, among other things, our clinical trials are not successful, the FDA does not approve vonapanitase, or the FDA does not approve vonapanitase when we expect.
We believe that our cash and cash equivalents and available-for-sale investmentscurrent financial resources, as of September 30, 2017 will bethe date of the issuance of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, are sufficient to fundsatisfy our operating expenses and capital expenditure requirements into the fourth quarter of 2019. We believe that these funds will be sufficient to enable us to report top line data from our second Phase 3 trial of vonapanitase in radiocephalic fistulas, named PATENCY-2 and to fund our ongoing development and CMC activities.estimated liquidity needs for at least twelve months.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary asAs a result of volatility in the capital markets, economic conditions, general global economic uncertainty, political change, global pandemics, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we may need to curtail planned development activities. Specifically, rising inflation, which is in part, tied to the impacts of the COVID-19 pandemic and resulting supply chain disruptions, has, in part, caused a numberdisruption in the capital markets, which may lead to a recession or market correction that could impact our access to capital, and could in the future negatively affect our liquidity. A recession or market correction, continued supply chain disruptions and/or inflation could materially affect our business and the value of factors. Weour common stock. Further, recent rises in interest rates have basedhad, and may continue to have, a negative effect on market prices for common stock of public companies, especially those in the pharmaceutical industry and those that have no current or near-term revenue. Further increases in interest rates, which have been implemented, and may be further implemented, to counteract inflationary pressures, may continue to exacerbate this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including:issue.
Cash Flows
Cash Flows
The following table summarizes our sources and uses of cash for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Net cash used in operating activities | $ | (16,654 | ) | $ | (18,108 | ) | ||
| Net cash (used in) provided by investing activities | (22,546 | ) | 4,588 | |||||
| Net cash provided by financing activities | 22,990 | 161 | ||||||
| Effect of exchange rate changes on cash | (196 | ) | 6 | |||||
| Net decrease in cash and cash equivalents | $ | (16,406 | ) | $ | (13,353 | ) | ||
| For The Three Months Ended March 31, | Period-to- Period | |||||||||||
| 2023 | 2022 | Change | ||||||||||
| Net cash used in operating activities | $ | (12,888 | ) | $ | (10,961 | ) | $ | (1,927 | ) | |||
| Net cash provided by/(used in) investing activities | 9,860 | 745 | 9,115 | |||||||||
| Net cash used in financing activities | (64 | ) | (72 | ) | 8 | |||||||
| Net decrease in cash and cash equivalents, and restricted cash | $ | (3,092 | ) | $ | (10,288 | ) | $ | 7,196 | ||||
Comparison of the NineThree Months Ended September 30, 2017March 31, 2023 and 20162022
Net cash used in operating activities was $16.7$12.9 million for the ninethree months ended September 30, 2017March 31, 2023 compared to $18.1$11.0 million for the ninethree months ended September 30, 2016.March 31, 2022. The decreaseincrease of $1.4$1.9 million was primarily driven by an approximate $4.1 million decrease in cash outflows related to changes in the components of working capital, offset by an increase in our net loss of $2.9 million and an increase in non-cash operating expenses of $0.2 million as compared to the nine months ended September 30, 2016.
Net cash used in investingoperating activities was $22.5 million for the nine months ended September 30, 2017 compared to $4.6 million provided by investing activities in the nine months ended September 30, 2016. The change of $27.1 million was primarily driven by a $2.9 million decrease in maturitiesworking capital, primarily related to changes in prepaid expenses and saleother current assets, accounts payable, and accrued expenses resulting from the timing of investments of $35.7 millionpayments to our service providers, and a $0.8 million decrease in capital expendituresnon-cash items including stock-based compensation, operating lease right-of-use asset, depreciation, and amortization of $0.2 million,premium on marketable debt securities which was partially offset by a decrease in the purchasesnet loss of available-for-sale investments of $8.3 million as compared to the nine months ended September 30, 2016.$1.7 million.
Net cash provided by investing activities was $9.9 million for the three months ended March 31, 2023 compared to $0.7 million for the three months ended March 31, 2022. The change of $9.1 million resulted primarily from an increase in proceeds from the maturity of marketable debt securities of $8.9 million.
Net cash used in financing activities was approximately $0.1 million for each of the three months ended March 31, 2023 and 2022.
Contractual and Other Obligations
Operating lease obligations
Our operating lease obligations primarily consist of lease payments on our corporate headquarters in New York, New York, as well as lease payments for our development laboratory, a manufacturing facility and an additional manufacturing space, all located in North America which are described in further detail in Note 7 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Other obligations
From time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims, supply agreements, and agreements with directors and officers. The terms of such obligations vary by contract and in most instances a maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted, thus no liabilities have been recorded for these obligations on our condensed consolidated balance sheet for the nine months ended September 30, 2017 increased by $22.9 million comparedperiods presented.
We enter into contracts in the normal course of business with CROs, CDMOs, and clinical sites for the conduct of clinical trials, non-clinical research studies, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts generally provide for termination on notice, and therefore are cancelable contracts.
Certain of these agreements require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial milestones as further described in Note 8 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the nine months ended September 30, 2016 primarily due to net proceedssuccessful achievement of $21.5 million from our preferred equity financing in August 2017certain development, regulatory approval and $1.3 million from the sale of common stock under our ATM program.commercial milestones, which may not be achieved.
We also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones, including future payments to third parties with whom we have entered into research, development and commercialization agreements. We have not included these commitments on our condensed consolidated balance sheet for the periods presented because the achievement and timing of these milestones is not fixed and determinable.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations of the SEC.
Contractual Obligations
We have the following contractual obligations and commitments as of September 30, 2017 (in thousands):
| Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | ||||||||||||||||
| Operating Leases (1) | $ | 521 | $ | 245 | 276 | - | - | |||||||||||||
| Purchase Obligations (2) | CHF | 7,600 | CHF | 5,700 | CHF | 1,900 | - | - | ||||||||||||
|
The contractual obligation table does not include any potential future royalty payments we may be required to make under our license assignment with Johns Hopkins University, due to the uncertainty of the occurrence of the events requiring payment under that agreement.
JOBS Act
In April 2012, the Jumpstart Our Business Startups Act, or JOBS Act was enacted in the United States. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of September 30, 2017, we had cash equivalents and available-for-sale investments of $47.4 million consisting primarily of investments in U.S. Treasuries and certificates of deposit. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments.Not applicable.
We contract with CROs and contract manufacturers internationally. Transactions with one of our contract manufacturers is settled in Swiss Francs and therefore, while we believe we have some foreign currency exposure, we have entered into forward foreign currency contracts to purchase Swiss Francs to manage this risk. The last outstanding forward foreign currency contract was executed during December 2016.
Item 4. Controls and Procedures
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures, (asas defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act)Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2017,March 31, 2023, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report.Report on Form 10-Q. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of September 30, 2017March 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.
We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Changes in Internal Control Over Financial Reporting
During the ninethree months ended September 30, 2017,March 31, 2023, there have beenwere no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act, of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—II – OTHER INFORMATION
From time to time, we may becomebe subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this Quarterly Report on Form 10-Q, we doWe are not believe we arecurrently a party to any claim or litigation, the outcome of which, if determined adversely to us, would individually orlegal proceedings that, in the aggregate be reasonably expectedopinion of our management, are likely to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Any investment in our Common Stock involves a high degree of risk. TheYou should consider carefully the following risk factors andinformation about the risks described below, together with the other information includedcontained in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affectin our other public filings, in evaluating our business. We refer you to our “Cautionary Note Regarding Forward-Looking Statements,” which identifies certain forward-looking statements contained in this report that are qualified by these risk factors. If any of the following risks occur,actually occurs, our business, financial condition, results of operations, and future growth prospects couldwould likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline. The following risk factors amend and restate in their entirety the Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022:
Risks Related to Our Financial Condition and Need for Additional Capital
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future.never generated any revenues.
We are a late-stage biotechnologyclinical stage biopharmaceutical company and we have not commercialized any products or generated any revenues from the sale of products. We have incurred losses from operations in each year since our inception, and our net losses were $28.5 million and $21.4 million for the years ended December 31, 2016 and 2015, respectively, and $12.3 million and $24.4 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, we had an accumulated deficit of $184.2 million. We do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable.
We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through the sale of equity securities and, prior to our initial public offering, the sale of convertible debt. Our current product candidate, vonapanitase, is in clinical trials and we have no commercial sales, which, together with oura limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability. The amountOur operations have been limited to organizing and staffing the Company, business planning, raising capital, developing our pipeline assets (TARA-002 and IV Choline Chloride), identifying product candidates, and other research and development. Although our employees have made regulatory submissions and conducted successful clinical trials in the past across many therapeutic areas while employed at other companies, we have not yet demonstrated an ability to successfully complete any clinical trials and have never completed the development of any product candidate, nor have we ever generated any revenue from product sales or otherwise. Consequently, we have no meaningful operations upon which to evaluate our business, and predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing biopharmaceutical products.
We expect to incur significant expenses and significant losses for the foreseeable future and may never generate revenue or achieve or maintain profitability.
Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have never generated any revenues, and cannot estimate with precision the extent of our future netlosses. We expect to incur increasing levels of operating losses will depend, in part,for the foreseeable future as we execute on the rateplan to continue research and development activities, including the ongoing and planned clinical development of our future expenditures and our ability to obtain funding through equity or debt financings or strategic collaborations. We have not completed pivotal clinical trials for any product candidate and it will be several years, if ever, before we have vonapanitase or any future product candidates, ready for commercialization. Even if we obtain regulatory approval to market vonapanitase potentially acquire new products and/or any additional product candidates, our future revenues will depend upon the sizeseek regulatory approvals of and potentially commercialize any markets in which vonapanitase or any additionalapproved product candidates, have received approval,hire additional personnel, protect our ability to achieve sufficient market acceptance, reimbursement from third-party payorsintellectual property, and other factors.
incur the additional costs of operating as a public company. We expect to continue to incur significant expenses and increasing operating losses and negative cash flows for the foreseeable future. We anticipate that our expenses will increase substantially ifThese losses have had and as we:
The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, any commercialization efforts or other operations.
Our operations have consumed substantial amounts of cash since inception. As of September 30, 2017, our cash, cash equivalents and available-for-sale investments were $47.4 million. Our research and development expenses were $18.5 million and $14.4 million for the nine months ended September 30, 2017 and 2016, respectively. We believe that we will continue to expend substantial resources for the foreseeable future developing vonapanitase and any additional product candidates. These expenditures will include costs associated with research and development, potentially acquiring new technologies, potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to fund and successfully complete the development and commercialization of vonapanitase or any additional product candidates.
We began enrolling patients in our first Phase 3 clinical trial of vonapanitase during the third quarter of 2014 for patients undergoing creation of radiocephalic fistulas, completed patient enrollment in October 2015 and released top-line data in December 2016. We enrolled the first patient in our second Phase 3 trial in August 2015, expect to complete enrollment in the first quarter of 2018 and expect to release top-line data in the first quarter of 2019. Based on our current operating plan, and absent any future financings or strategic partnerships, we believe that our existing cash, cash equivalents and available-for-sale investments will be sufficient to fund our projected operating expenses and capital expenditure requirements into the fourth quarter of 2019, allowing us to report top-line data from our second Phase 3 trial of vonapanitase in radiocephalic fistulas, named PATENCY-2. Our cash runway could be shortened if there are any significant and unexpected increases in spending on development programs or more rapid progress of development programs than anticipated. In addition, we initiated two Phase 1 clinical trials of vonapanitase in patients with PAD in the fourth quarter of 2016. We may increase the planned enrollment in the Phase 1 trial evaluating vonapanitase ashave an adjunct to angioplasty for PAD below the knee and begin patient enrollment in the Phase 1 trial evaluating vonapanitase as a monotherapy for PAD above the knee. We may also initiate other small Phase 1 or Phase 1/2 trials in additional indications, which would further reduce our capital resources. However, we do not expect to initiate any other Phase 2 or Phase 3 trials prior to receiving and reviewing data from our second Phase 3 clinical trial. Furthermore, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize vonapanitase or any additional product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, or at all. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than would otherwise be ideal and we may be required to relinquish rights to vonapanitase or any additional product candidates, or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating resultsfinancial position and prospects.working capital.
IfTo become and remain profitable, we must develop or acquire and eventually commercialize a product with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing approval, manufacturing, marketing and selling any product candidate for which we obtain marketing approval, and satisfying post-marketing requirements, if any. We may never succeed in these activities and, even if we succeed in obtaining approval for and commercializing one or more products, we may never generate revenues that are significant enough to achieve profitability. In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. Furthermore, because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delayaccurately predict the timing or discontinue oneamount of increased expenses or more of our research or development programs or the commercialization of any approved products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially adversely affect our business, financial condition and results of operations.
We have never generated any revenue from product sales and may never be profitable.
As a company, we have never obtained regulatory approval for, or commercialized, any product candidate. Our ability to generate substantial revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, vonapanitase or any additional product candidates. We do not anticipate generating revenues from product sales for at least the next several years, if ever. If vonapanitase or any additional product candidates fail in clinical trials or do not gain regulatory approval,when, or if, vonapanitase or any additional product candidates, if approved, failwe will be able to achieve market acceptance, we may never become profitable. Even ifprofitability. If we achieve profitability, in the future, we may not be able to sustain or increase profitability in subsequent periods. Our abilityon a quarterly or annual basis and may continue to generate future revenues from product sales depends heavily on our success in:
Even if vonapanitase or any additional product candidates that we may develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the United States Food and Drug Administration, or the FDA, the European Medicines Agency, or EMA, or other regulatory agencies, domestic or foreign, to perform clinical trials and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.candidates. Our failure to become and remain profitable would depressdecrease the market pricevalue of our Common Stockus and could impair our ability to raise capital, maintain our research and development efforts, expand ourthe business diversify our product offerings or continue our operations. A decline in theour value of our company could also cause you to lose all or part of your investment.
The effects of the COVID-19 pandemic and other macroeconomic factors could materially and adversely impact our business, including our clinical development plans and non-clinical research.
As a result of the COVID-19 pandemic and the associated health and safety measures that were imposed, we have and, in the event of a resurgence of the pandemic or the onset of another public health crisis, may again experience disruptions that could severely impact our business, including but not limited to delays or difficulties in clinical trial site operations and in the enrollment, scheduling and retention of patients in our clinical trials; interruption of key manufacturing, research and clinical development and other activities; and delays or difficulties conducting and completing non-clinical studies.
In addition, macroeconomic factors, including supply chain disruptions, rising inflation and resulting increases in interest rates, which are, in part, tied to the lasting impacts of the COVID-19 pandemic, have and will continue to have an impact on our operations. Similarly, if banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, there could be an adverse effect on our ability to access our cash, cash equivalents and investments, including transferring funds, making payments or receiving funds, any of which could have a material adverse effect on our business and financial condition.
If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.
To the extent the impacts of the COVID-19 pandemic or other macroeconomic factors adversely affect our business and results of operations, they may also have the effect of heightening many of the other risks and uncertainties described elsewhere in this “Risk Factors” section.
We will need to raise additional financing in the future to fund our operations, which may not be available to us on favorable terms or at all.
We will require substantial additional funds to conduct the costly and time-consuming preclinical studies and clinical trials necessary to pursue regulatory approval of each potential product candidate and to continue the development of TARA-002 and IV Choline Chloride in new indications or uses. Our future capital requirements will depend upon a number of factors, including: the number and timing of future product candidates in the pipeline; progress with and results from preclinical testing and clinical trials; the ability to manufacture sufficient drug supplies to complete preclinical and clinical trials; the costs involved in preparing, filing, acquiring, prosecuting, maintaining and enforcing patent and other intellectual property claims; and the time and costs involved in obtaining regulatory approvals and favorable reimbursement or formulary acceptance. Raising additional capital may be costly or difficult to obtain and could significantly dilute stockholders’ ownership interests and divert our management’s focus on achieving our business objectives. As a result of economic conditions, general global economic uncertainty, U.S. and foreign political conditions, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. Further, rising inflation has, in part, caused a disruption in the capital markets and an increase in interest rates, which may lead to a recession or market correction that could impact our access to capital, increase the cost of capital, and could in the future negatively affect our liquidity. A recession or market correction, inflation and/or further increases in interest rates could materially affect our business and the value of our common stock.
If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, the ownership interests of our common stockholders will be diluted. In addition, any debt financing may subject us to fixed payment obligations and covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable intellectual property or other rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. Even if we were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to us or our stockholders.
Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income or taxes may be limited.
Under current law, federal net operating losses incurred in tax years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal net operating losses in tax years beginning after December 31, 2020 is limited to 80% of taxable income. It is uncertain if and to what extent various states and localities will conform to federal tax laws. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change” which is generally defined as a greater than 50% change in its equity ownership value over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post- change income or taxes may be limited. We have experienced ownership changes in the past and we may also experience additional ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. In addition, at the state level, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, if we earn net taxable income, we may be unable to use all or a material portion of our net operating loss carryforwards and other tax attributes, which could potentially result in increased future tax liability to us and adversely affect our future cash flows.
Risks Related to ClinicalDrug/Biologics Development Regulatory Review and Approval of Our ProductCommercialization
We are substantially dependentOur business depends on the successful clinical development and regulatory approval of our product candidates, including TARA-002 and IV Choline Chloride.
The success of our current product candidate, vonapanitase,business, including our ability to finance our operations and cannot guarantee that this product candidate will successfully complete Phase 3 clinical trials, receive regulatory approval or be successfully commercialized.
We currently have no products approved for commercial distribution. We have invested substantially all of our efforts and financial resourcesgenerate revenue in the development of our current product candidate, vonapanitase. Our businessfuture, primarily depends entirely on the successful development and commercializationregulatory approval of vonapanitase, in vascular accessour product candidates, including of TARA-002 and IV Choline Chloride. The clinical success of TARA-002 and IV Choline Chloride depend on a number of factors, including the following:
| ● | the timely and successful completion of planned and ongoing preclinical studies and clinical trials, including our ongoing Phase 1 clinical trial of TARA-002 in NMIBC and our planned Phase 2 clinical trial of TARA-002 in LMs, which may be significantly slower or costlier than we currently anticipate and/or produce results that do not achieve the endpoints of the trials; |
| ● | the results of our prevalence study and our enhanced understanding of the PN patient population as part of our IV Choline Chloride program; |
| ● | whether we are required by the FDA or similar foreign regulatory agencies to conduct additional studies beyond those planned to support the approval and commercialization of TARA-002 and IV Choline Chloride; |
| ● | achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain compliance with their contractual obligations and with all regulatory requirements applicable to TARA-002 and IV Choline Chloride; |
| ● | the ability of third parties with whom we contract to manufacture adequate clinical trial and commercial supplies of TARA-002 and IV Choline Chloride, to remain in good standing with regulatory agencies and to develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices, or cGMP; |
| ● | a continued acceptable safety profile during clinical development and following approval of TARA-002 and IV Choline Chloride; and |
| ● | the existence of a regulatory environment conducive to the successful development of TARA-002 and IV Choline Chloride. |
If any one of these factors is not present, many of which are beyond our control, we could experience significant delays or additional indications,an inability to obtain regulatory approval of TARA-002 or IV Choline Chloride.
Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may be identified during their development, which could increase our costs or necessitate the abandonment or limitation of the development of the product candidate.
We have never completed a clinical trial or made a BLA or NDA submission and may never occur. Our abilitybe unable to generate revenuessuccessfully do so for TARA-002 or IV Choline Chloride.
The conduct of a clinical trial is a long, expensive, complicated and highly regulated process. Although our employees have conducted successful clinical trials and made regulatory submissions in the near term is substantially dependentpast across many therapeutic areas while employed at other companies, we, as a company, have not completed any clinical trials, or submitted a BLA or NDA and as a result may require more time and incur greater costs than we anticipate. Failure to commence or complete, or delays in clinical trials or planned regulatory submissions would prevent us from, or delay us, in obtaining regulatory approval of and commercializing TARA-002 or IV Choline Chloride, which would adversely impact our financial performance.
We rely, and expect to continue to rely, on third-party CROs and other third parties to conduct and oversee our abilityclinical trials. If these third parties do not meet our requirements or otherwise conduct the trials as required, we may not be able to develop,satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our product candidates.
We rely, and then successfully commercialize vonapanitase.expect to continue to rely, on third-party CROs to conduct and oversee our TARA-002 and IV Choline Chloride clinical trials and studies and other aspects of product development. We currently generate no revenuesalso rely on various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s regulations and cGCP, requirements, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security and record-keeping for drug and biologic products. These CROs and other third parties have and will continue to play a significant role in the conduct of these trials and the subsequent collection and analysis of data from salesthe clinical trials. We will rely heavily on these parties for the execution of our clinical trials and preclinical studies and will control only certain aspects of their activities. We and our CROs and other third-party contractors will be required to comply with cGCP and cGLP, requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities. Regulatory authorities enforce these cGCP and cGLP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any products,of these third parties fail to comply with applicable cGCP and cGLP requirements, or reveal non-compliance from an audit or inspection, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require us to perform additional clinical trials before approving our or our partners’ marketing applications. We cannot assure that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials or preclinical studies comply with applicable cGCP and cGLP requirements. In addition, our clinical trials generally must be conducted with product candidate produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our CROs or clinical trial sites fail to comply with their contractual commitments or terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative CROs or clinical trial sites or do so on commercially reasonable terms. In addition, if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.
Interim, topline and preliminary data from our clinical trials may change as more patient data become available, and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary, interim or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change as patient enrollment and treatment continues and more patient data become available. Adverse differences between previous preliminary or interim data and future interim or final data could significantly harm our business prospects. We may also announce topline data following the completion of a preclinical study or clinical trial, which may be subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may nevernot have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary, interim, or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the data we previously published. Accordingly, preliminary, interim, and topline data should be viewed with caution until the final data are available.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine to be material or otherwise appropriate information to include in our disclosure.
We are expanding our clinical development of our product candidates to clinical trial sites outside the United States, and the FDA and applicable foreign regulatory authorities may not accept data from such sites.
We are expanding our clinical development of TARA-002 in NMIBC to clinical trial sites outside the United States and may in the future choose to conduct one or more of our full clinical trials outside of the United States. Although the FDA or applicable foreign regulatory authority may accept data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study data by the FDA or applicable foreign regulatory authority may be subject to certain conditions or exclusions. Where data from foreign clinical trials or clinical trial sites are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless such data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to developvalidate the data through an on-site inspection or commercialize a marketable product.other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable home country. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.
Vonapanitase will require additionalTARA-002 is an immunopotentiator, and one indication that we plan to pursue is the treatment of LMs. There are no FDA-approved therapies for the treatment of LMs and it is difficult to predict the timing and costs of clinical development for TARA-002 for LMs.
To date, there are no FDA-approved therapies for the treatment of LMs. The regulatory approval commercial manufacturing arrangements, establishment of a commercial organization, significant marketing effortsprocess for novel product candidates such as TARA-002 can be more expensive and further investment before we generate any revenues from product sales. We are not permittedtake longer than for other, better known or extensively studied therapeutic approaches. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring TARA-002 to market in LMs could decrease our ability to generate sufficient revenue to maintain our business.
Our product candidates may cause undesirable side effects or promote vonapanitase for any indication before we receivehave other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in post-approval regulatory action.
Unforeseen side effects from TARA-002 or IV Choline Chloride could arise either during clinical development or, if approved, after the product has been marketed. Undesirable side effects could cause us, any partners with which we may collaborate, or regulatory authorities to interrupt, extend, modify, delay or halt clinical trials and could result in a more restrictive or narrower label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities.
Results of clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials 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 a product candidate for any or all targeted indications. Any side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, in connection with a product after obtaining U.S. or foreign regulatory approval, a number of potentially negative consequences could result, which could prevent us or our potential partners from achieving or maintaining market acceptance of the product and could substantially increase the costs of commercializing such product.
A fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process for IV Choline Chloride for the treatment of IFALD.
The FDA has granted fast track designation to IV Choline Chloride for the treatment of IFALD. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for fast track designation. Even though we have received fast track designation for IV Choline Chloride for the treatment of IFALD, we may never receivenot experience a faster development process, review or approval. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.
Although the FDA has granted Rare Pediatric Disease Designation for TARA-002 for the treatment of LMs, a BLA for TARA-002, if approved, may not meet the eligibility criteria for a priority review voucher.
Rare Pediatric Disease Designation has been granted for TARA-002 for the treatment of LMs. In 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications. This provision is designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this regulatoryprogram, a sponsor who receives an approval for any of our product candidates. If we do not receive FDA approval and successfully commercialize vonapanitase, we will not be able to generate revenue from vonapanitase in the United States in the foreseeable future, or at all. Moreover, any significant delays in obtaining approval for and commercializing vonapanitase will have a substantial adverse impact on our business and financial condition.
We have not previously submitted a Biologics License Application, or BLA, to the FDA, or similar drug or biologic approval filingsfor a “rare pediatric disease” may qualify for a voucher that can be redeemed to comparable foreign authorities,receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any productnumber of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval.
For the purposes of this program, a “rare pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents; and (b) rare disease or conditions within the meaning of the Orphan Drug Act. Congress has only authorized the Rare Pediatric Disease Priority Review Voucher program until September 30, 2024. However, if a drug candidate and we cannot be certain that vonapanitase or any additional product candidates will be successful in clinical trials orreceived Rare Pediatric Disease Designation before September 30, 2024, it is eligible to receive regulatory approval. In our first Phase 3 clinical trial, our primary efficacy endpoint of primary unassisted patency did not show statistically significant benefita voucher if it is approved before September 30, 2026.
TARA-002 for the 30 microgram dose versus placebo. While analysestreatment of LMs may not be approved by that date, or at all, and, therefore, we may not be in a position to obtain a priority review voucher prior to expiration of the first Phase 3 trial’s other efficacy endpoints, including secondary patency and fistula useprogram, unless Congress further reauthorizes the program. Additionally, designation of a drug for hemodialysis, suggested clinically meaningful improvements over placebo, we cannot assure youa rare pediatric disease does not guarantee that these resultsa BLA will be repeated in our second Phase 3 trial. Following ourmeet the eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Finally, a Rare Pediatric Disease Designation does not lead to faster development or regulatory review of the data from our first Phase 3 clinical trial of vonapanitase and discussions with the FDA, we amended the protocol for our second Phase 3 clinical trial in the first quarter of 2017 toproduct or increase the planned enrollment from 300 to 500 patients, which we subsequently increased to 600 patients in the second quarter of 2017.likelihood that it will receive marketing approval. We also re-ordered the endpoints to include co-primary endpoints of secondary patency (time to fistula abandonment) and fistula use for hemodialysis, each of which are required to show a statistically significant benefit (p≤0.05) in order to provide the basis for a BLA submission for vonapanitase as a single pivotal trial. Even though our second Phase 3 trial will evaluate co-primary endpoints for vonapanitase that showed improvements in our first Phase 3 clinical trial, there are risks of failure inherent at any stage of product development, and wemay or may not demonstrate efficacy with regardrealize any benefit from receiving a voucher.
Even if a product candidate obtains regulatory approval, it may fail to achieve the co-primary endpointsbroad degree of our ongoing Phase 3 clinical trial or our reordering of the endpoints could otherwise adversely affect thephysician and patient adoption and use necessary for commercial success.
The commercial success of both TARA-002 and IV Choline Chloride, if approved, will depend significantly on the second Phase 3 trial, or unexpected adverse eventsbroad adoption and use of them by physicians and patients for approved indications, and neither may occur. Further, vonapanitase or any additionalbe commercially successful even though the product candidates may not receive regulatory approval evenis shown to be safe and effective. The degree and rate of physician and patient adoption of a product, if they areapproved, and successful in clinical trials. If approved for marketing by applicable regulatory authorities, our ability to generate revenues from vonapanitasecommercialization will depend on our ability to, among other things:a number of factors, including but not limited to:
| ● | the effectiveness of the product compared to other available therapies; |
| ● | the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors; |
| ● | the cost of treatment in relation to alternative treatments and willingness to pay on the part of patients; |
| ● | in the case of TARA-002 for LMs, overcoming physician or patient biases toward alternative treatments for LMs; |
| ● | insurers’ willingness to see the applicable indication as a disease worth treating; |
| ● | proper administration; |
| ● | patient satisfaction with the results, administration and overall treatment experience; |
| ● | the ability to successfully commercialize TARA-002 and IV Choline Chloride in the United States and internationally, if either is approved for marketing, sale and distribution in such countries and territories, whether alone or in collaboration with others; |
| ● | patient demand for |
| ● | limitations or contraindications, warnings, precautions or approved indications for use different than those sought by us that are contained in the final FDA-approved labeling for the applicable product; |
| ● | any FDA requirement to undertake a Risk Evaluation and Mitigation Strategy; |
| ● | the effectiveness of our |
| ● | new government regulations and |
If we develop vonapanitaseeither TARA-002 or IV Choline Chloride is approved for other indications, including arteriovenous grafts, brachiocephalic fistulause but fails to achieve the broad degree of physician and symptomatic PAD,patient adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or develop additional product candidates, we will face similar riskslimit our ability to generate revenue and challenges.continue our business.
Clinical development is a lengthy and expensive process with an uncertain outcome due to many factors. Because the results of early clinical trials are not necessarily predictive of future results, vonapanitase may not have favorable results in current or future clinical trials or receive regulatory approval.
Clinical development is expensive, difficult to design and implement, takes many years to complete and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and vonapanitase is subject to the risks of failure inherent in drug and biological development, including failure to demonstrate efficacy in a pivotal clinical trial or in the patient population we intend to enroll, the occurrence of severe or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug and biological product is not approvable. Results observed in earlier clinical trials may not be replicated in current or future clinical trials. For example, our first Phase 3 clinical trial of vonapanitase failed to meet its primary endpoint of primary unassisted patency, despite encouraging results from our Phase 2 trial. In addition, as is common with clinical trials, we explored a number of endpoints in our Phase 2 clinical trial of vonapanitase. We also analyzed the data from our Phase 2 and Phase 3 clinical trials of vonapanitase in a number of ways. Product candidates such as vonapanitase in Phase 3 clinical trials may fail to demonstrate sufficient efficacy despite having progressed through earlier clinical trials,Further, even if certain analyses of primary, secondary or tertiary endpoints in those early trials showed statistical significance. Companies may suffer significant setbacks in late-stage clinical trials due to lack of efficacy, site or investigator issues, manufacturing or formulation changes or adverse safety profiles, even after earlier clinical trials have shown promising results. During the course of our clinical development, we modified our vonapanitase drug product formulation for our Phase 3 trials and commercial launch in order to facilitate ease of administration and fill and finish of vials at our 30 microgram dose. Our formulation changes could adversely affect results in our clinical trials, requiring us to make further formulation changes. In addition, following our review of the data from our first Phase 3 clinical trial of vonapanitase and discussions with the FDA, we amended the protocol for our second Phase 3 trial to include co-primary endpoints of secondary patency and fistula use for hemodialysis, each of which was studied in earlier clinical trials. Our reordering of the endpoints could adversely affect the success of the second Phase 3 trial. Additional changes or interactions with the FDA could also cause us to delay or repeat clinical trials, or could cause FDA to request additional studies or data, and we could incur unexpected costs that would have an adverse effect on our business, operating results, financial condition and prospects.
The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. We have limited experience in designing clinical trials andregulatory approvals are obtained, we may never be unableable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of clinical trials for our product candidates warrant marketing approval,successfully commercialize TARA-002 or IV Choline Chloride, or the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of vonapanitase or any additional product candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial visit schedule or protocols, changes in practice patterns outside of the protocols and the rate of dropout among clinical trial participants. Any Phase 3 or other clinical trial that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market vonapanitase or any additional product candidate.
Any delay or failure in our clinical trials would delay our obtaining, or make us unable to obtain, applicable regulatory approvals, which would prevent us from commercializing vonapanitase or any additional product candidates, generating revenues and achieving and sustaining profitability.
If clinical trials of vonapanitase or any additional product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable foreign regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of vonapanitase or any additional product candidates.
We are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulatory authorities, such as the EMA, impose similar restrictions. We may never receive these regulatory approvals. We must have completed extensive preclinical development and clinical trials to demonstrate the safety and efficacy of the product candidate in humans before we will be able to obtain these approvals. Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.
Any inability to successfully complete clinical development could result in additional costs to us and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. If, following submission, our BLA is not accepted for substantive review (i.e., filing) or approved, the FDA may require that we conduct additional clinical or preclinical trials, manufacture additional validation batches or develop additional analytical test methods before it will reconsider our application. If the FDA requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the FDA may not consider any additional required trials that we perform and complete to be sufficient.
In addition, if (1) we are required to conduct additional clinical trials or other testing of or generate data pertaining to vonapanitase beyond the trials and testing that we contemplate, (2) we are unable to successfully complete clinical trials or other testing of vonapanitase or any additional product candidates, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or (4) there are unacceptable safety concerns associated with vonapanitase or any additional product candidates, we, in addition to incurring additional costs, may:
In general, the FDA requires two adequate and well-controlled clinical trials to demonstrate the effectiveness of a product candidate. In December 2016, we announced that our first Phase 3 clinical trial did not meet its primary endpoint of improved primary unassisted patency compared to placebo (p=0.254). Based on our interactions with the FDA, we believe that, if the results for each of the co-primary endpoints of our second Phase 3 clinical trial show statistical significance (p≤0.05), our second Phase 3 trial together with data from previously completed studies will provide the basis for a BLA submission for vonapanitase to the FDA. However, even with robust p-values, there is no guarantee that the results of the second Phase 3 trial will be sufficient for a BLA submission, filing or approval, and the FDA may require that we conduct additional trials.
We may be unable to obtain regulatory approval for vonapanitase or any additional product candidates under applicable regulatory requirements. The denial or delay of any approvals would prevent or delay commercialization and have a material adverse effect on our potential to generate revenue, our business and our results of operations.
Vonapanitase and any additional product candidates are subject to extensive governmental regulations relating to, among other things, research, clinical trials, approval, manufacturing, recordkeeping, labeling, storage, advertising, promotion, distribution, import, export and commercialization. In order to obtain regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. Vonapanitase is still in development and is subject to the risks of failure inherent in drug or biologic development. We have not received approval to market any product candidate from regulatory authorities in any jurisdiction. We have only limited experience in conducting and managing the clinical trials, and in submitting and supporting the applications necessary to gain marketing approvals, and we expect to rely on third-parties, including clinical research organizations, or CROs, to assist us in this process. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the regulatory authorities. Vonapanitase may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. We may gain regulatory approval for vonapanitase or any additional product candidates in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the product, or we may never obtain regulatory approval for vonapanitase or any additional product candidates in any jurisdiction.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and foreign regulatory authorities also have substantial discretion in the drug and biologics approval process. The number and types of preclinical studies and clinical trials that will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. 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, and there may be varying interpretations of data obtained from preclinical studies or clinical trials, either of which may cause delays or limitations in the approval or the decision not to approve an application. Regulatory agencies can delay, limit or deny approval of a product candidate for many reasons, including:
It is possible that neither vonapanitase nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators to commence product sales. We do not know whether any clinical trials will begin as planned, or will be revised prior to or during the conduct of the study, completed on time or conducted at all. Any delay in obtaining, or failure to obtain, required approvals would materially adversely affect our ability to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
We may face difficulty in enrolling patients for clinical trials.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent completion of clinical trials of vonapanitase or any additional product candidates. Identifying and qualifying patients to participate in clinical trials of vonapanitase or any additional product candidates are critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing product candidates. The enrollment timeline for radiocephalic fistula patients is lengthy and there are a limited number of sites from which we can enroll pre-hemodialysis or hemodialysis patients. If patients are unwilling to participate in our trials because of negative publicity from adverse events or for other reasons, including the results of completed or competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products may be delayed or prevented. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by numerous factors including:
We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.
If we experience any of a number of possible unforeseen events in connection with clinical trials of vonapanitase or any additional product candidates, potential marketing approval or commercialization of vonapanitase or any additional product candidates could be delayed or prevented.
If we experience delays in clinical testing, we will be delayed in obtaining regulatory approvals and commercializing our product candidates, our costs may increase and our business may be harmed. We do not know whether any future clinical trials that have not started will begin as planned, whether the design will be revised prior to or during conduct of the study, completed on schedule or conducted at all. Our product development costs may increase if we experience delays in clinical testing or changes to clinical protocols. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations and prospects. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval of vonapanitase or any additional product candidates, including:
Product development costs for us will increase if we experience delays in testing or pursuing marketing approvals, and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of vonapanitase or any additional product candidates. We do not know whether any future clinical trials that have not yet started will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize vonapanitase or any additional product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize vonapanitase or any additional product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of marketing approval of vonapanitase or any additional product candidates.
Any product for which we obtain FDA approval will be subject to extensive ongoing regulatory requirements, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical research, labeling, advertising and promotional activities for the product, will be subject to continual requirements of, and review by, the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, tracking, tracing, investigation, notification, and disposition obligations under the Drug Quality and Security Act, registration and listing requirements, current good manufacturing practices, or cGMPs, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates, they may withdraw approval, require labeling changes or establishment of a REMS or similar risk mitigation strategy, impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
Even if regulatory approval of a product is granted, the approval Accordingly, we cannot assure you that we will be subjectable to limitations ongenerate sufficient revenue through the indicated usessale of TARA-002 or IV Choline Chloride to continue our business.
Before obtaining marketing approvals for which the commercial sale of any product may be marketedcandidate, we must demonstrate through lengthy, complex and may be subject to other conditions of approval. We and our contract manufacturers will be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other regulatory requirements. In addition, approval may contain requirements for costly post-marketingexpensive preclinical testing and surveillanceclinical trials that such product candidate is both safe and effective for use in the applicable indication, and failures can occur at any stage of testing. Clinical trials often fail to monitor thedemonstrate safety or efficacy of the product. Discovery after approval of previously unknown problemsand are associated with any such products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:
Accordingly, assuming we receive marketing approval for vonapanitase or any additional product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, distribution, product surveillance, post-marketing studies and quality control.
Vonapanitase may cause undesirable side effects or have characteristics that are unexpected. Based on the safety profile seen in clinical testing, we may need to abandon development or limit development to more narrow uses in which the side effects or other propertiescharacteristics are less prevalent, less severe or more tolerable from a risk-benefit perspective. The FDA or an institutional review board may also require that we suspend, discontinue, or limit clinical trials based on safety information. Such findings could delayfurther result in regulatory authorities failing to provide marketing authorization for the product candidate. Many pharmaceutical candidates that initially showed promise in early stage testing and which were efficacious have later been found to cause side effects that prevented further development of the drug candidate and, in extreme cases, the side effects were not seen until after the drug was marketed, causing regulators to remove the drug from the market post-approval.
Any adverse developments that occur in patients undergoing treatment with OK-432 / Picibanil or prevent theirin patients participating in clinical trials conducted by third parties may affect our ability to obtain regulatory approval limit the commercial profile of approved labeling, or result in significant negative consequences following any potential marketing approval.commercialize TARA-002.
As with many pharmaceuticalChugai Pharmaceutical, over which we have no control, has the rights to commercialize TARA-002 and biological products, treatment with vonapanitase or any additional product candidates may produce undesirable side effects or adverse reactions or events. These adverse events may occur despite our belief, based on our preclinicalthe originator therapy to TARA-002, OK-432, which is currently marketed under the name Picibanil, in Japan and Taiwan for various indications. In addition, clinical trials to date, that vonapanitase has a favorable safety profile. For instance, vonapanitase shows a high degree of structural similarity with other human serine proteases, whichusing Picibanil are proteins that cut other proteins to activate, inactivate or degrade these other proteins, and it is theoretically possible that if anti-vonapanitase antibodies are developed that they could cross-react with one or more of those other proteases because ofcurrently ongoing in various countries around the structural similarity, and prompt an adverse reaction. However, we have not seen any evidence of such cross-reactivity in our preclinical or clinical trials to date.
Based on our Phase 2 and Phase 3 trials, adverse side effects that could occur with treatment with vonapanitase include fistula surgical incision pain, venous stenosis, procedural pain, fistula thrombosis, steal syndrome and hypoesthesia.world. If any of theseserious adverse events occur in rateswith patients using Picibanil or severity exceeding placebo and unacceptable to regulatory authorities or IRBs, if anti-vonapanitase antibodies develop and are associated with cross-reactivity to other proteases, or unknown serious events emerge, ourduring any clinical trials could be suspended or terminatedof Picibanil conducted by us, IRBs, or the applicable regulatory authorities, andthird parties, the FDA the EMA or other foreign regulatory authorities could order us to cease further development of,may delay, limit or deny approval of vonapanitaseTARA-002 or anyrequire us to conduct additional product candidates for any or all targeted indications. The product-related side effects could affect patient recruitment or the ability of enrolled patientsclinical trials as a condition to complete the trial.marketing approval, which would increase our costs. If we electreceive FDA approval for TARA-002 and a new and serious safety issue is identified in connection with use of Picibanil or are required to delay, suspendin clinical trials of Picibanil conducted by third parties, the FDA may withdraw the approval of the product or terminate any clinical trial of vonapanitase or any additional product candidates, the commercial prospects of these product candidates will be harmed andotherwise restrict our ability to generate product revenues frommarket and sell TARA-002. In addition, treating physicians may be less willing to administer TARA-002 due to concerns over such adverse events, which would limit our ability to commercialize TARA-002.
We may choose not to continue developing or commercializing any of theseour product candidates will be delayedat any time during development or eliminated.after approval, which would reduce or eliminate the potential return on investment for those product candidates.
In addition, even ifAt any time, we weremay decide to obtain approval, regulatory authorities may approvediscontinue the development of any of our product candidates for fewer or more limited indications than we request,a variety of reasons, including more limited patient populations, may requirethe appearance of new technologies that contraindications, warnings or precautions be included in the product labeling, including a boxed warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, or may approve a product candidate with labeling that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of these occurrences may harm our business, financial condition and prospects significantly.
We may not be able to maintain orphan drug designation or obtain or maintain orphan drug exclusivity for vonapanitase.
We have obtained orphan drug designation from the FDA for vonapanitase. In the United States, under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States for a preventive drug. The first NDA or BLA applicant to receive FDA approval for a particular drug or biologic to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug or biologic for the same disease, except in limited circumstances. Orphan drug exclusivity may be lost if the FDA determines, among other reasons, that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for vonapanitase, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve a product containing the same principal molecular structural features for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
In response to a recent court decision regarding the plain meaning of the exclusivity provision of the Orphan Drug Act and increased scrutiny by legislators, the FDA may undertake a reevaluation of aspects of its orphan drug regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be harmed.
A breakthrough therapy, fast track product, priority review, or other designation by the FDA for our product candidates may not lead to faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We have receivedobsolete, competition from a breakthrough therapy and fast track product designation for vonapanitase for improving vascular access and decreasing the need for surgery in patients with CKD who are on hemodialysis or being prepared for hemodialysis. As applicable, we may seek breakthrough therapy, fast track, priority review, or other designations for other uses of vonapanitase. Breakthrough therapy and fast track product designations are designed to facilitate the clinical development and expedite the review of drugs and biologics intended to treat a serious or life-threatening condition which demonstrate the potential to address an unmet medical need. Priority review designation is intended to speed the FDA marketing application review timeframe for drugs and biologics that treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. For drugs and biologics that have been designated as breakthrough therapy or fast track products, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development. Sponsors of drugs and biologics designated as breakthrough therapies or fast track products may also be able to submit marketing applications on a rolling basis, meaning that the FDA may review portions of a marketing application before the sponsor submits the complete application to the FDA, as long as the sponsor pays the user fee upon submission of the first portion of the marketing application. For products that receive a priority review designation, the FDA’s marketing application review goal is shortened to six months, as opposed to ten months under standard review. This review goal is based on the date the FDA accepts the marketing application for review (i.e., filing), which typically occurs two months after the date of submission.
Designation as a breakthrough therapy, fast track product, priority reviewcompeting product or under another program is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, fast track product, priority review product,changes in or other designation, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of any such designation for a product candidate may not result in a faster development process, review or approval compared to drugs and biologics considered for approval under conventional FDA procedures and does not assure ultimate marketing approval by the FDA. In addition, the FDA may later decide that the products no longer meet the conditions for qualification as a breakthrough therapy, fast track product or under another designation program or decide that the time period for FDA review or approval will not be shortened.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we have focused on developing one product candidate, vonapanitase, and have focused on developing this product candidate for specific indications that we identify as most likely to succeed, in terms of both its regulatory approval and commercialization. As such, we are currently primarily focused on the development of vonapanitase for vascular access, and our Phase 3 trials will be limited to the application of vonapanitase in radiocephalic fistulas.
In the future we intend to pursue additional indications such as the application of vonapanitase in brachiocephalic fistula creation and/or patients undergoing placement of an arteriovenous graft and/or patients with symptomatic PAD. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
Even if we obtain and maintain approval for vonapanitase or additional product candidates from the FDA, we may never obtain approval for vonapanitase or additional product candidates outside of the United States, which would limit our market opportunities and adversely affect our business.
Even if we obtain approval of a product candidate in the United States from the FDA, such approval does not ensure approval of that product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of vonapanitase or any additional product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products, if approved for sale, is also subject to approval. Moreover, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval in another jurisdiction.
Based on additional data including the data from our Phase 3 clinical trials and assuming sufficient funds become available, we plan to commence a clinical trial of vonapanitase in Europe for patients undergoing creation of radiocephalic fistulas. Prior to enrolling our first patient in Europe, we plan to formally seek guidance from the EMA regarding its requirements for regulatory approval. If a clinical trial of vonapanitase in Europe is necessary for regulatory approval, we expect results from this trial to be available two to three years after the first patient is enrolled. If results of this European trial successfully meet its primary endpoint and depending on the guidance obtained from the EMA, we would expect to submit a Marketing Authorization Application, or MAA. Obtaining an approval is a lengthy and expensive process and the EMA has its own procedures for approval of product candidates. Even if a product candidate is approved, the EMA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of vonapanitase or any additional product candidates in those countries.
Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public.
While the FDA does not restrict physicians from prescribing approved drugs and biologics for uses outside of the products’ approved labeling, known as off-label use, pharmaceutical manufacturers are prohibited from promoting and marketing their products for such uses. Violations, including promotion of our products for off-label uses, are subject to enforcement letters, inquiries, investigations, civil and criminal sanctions by the government, corporate integrity agreements, debarment from government contracts, debarment and exclusion from participation in federal healthcare programs. Additionally, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States.
In the United States, engaging in the impermissible promotion of our products for off-label uses can also subject us to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines, debarment from government contracts, exclusion from participation in federal healthcare programs and corporate integrity agreements with governmental authorities that materially restrict the manner in which a company promotes or distributes drug and biologic products. These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in any fines or settlement funds. If the government does not intervene, the individual may proceed on his or her own. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements regarding certain sales practices promoting off-label product uses involving fines that are as much as $3.0 billion.
This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid and other federal and state healthcare programs. applicable regulatory requirements.
If we doterminate a program in which we have invested significant resources, we will not lawfully promote our approved products, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effectreceive any return on our business, financial condition, results of operationsinvestment and prospects. The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval, andwe will have missed the sale and promotion of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
If we are found in violation of federal or state “fraud and abuse” laws or other healthcare laws and regulations, we may be required to pay a penalty and/or be suspended from participation in federal or state healthcare programs, which may adversely affect our business, financial condition and results of operation.
We may also be subject to various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug or biologic manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug or biologic. Other laws that we may be subject to include the civil False Claims Act, criminal False Claims Act, the HIPAA fraud and abuse provisions, the Civil Monetary Penalties statute, Section 1927 of the Social Security Act, the Veterans Health Care Act, the Foreign Corrupt Practices Act, federal and state statutes and regulations pertaining to payments made to physicians and other health care providers, the HIPAA privacy and security provisions, and other analogous state laws. Due to the breadth of the statutory provisions, it is possible that our practices might be challenged under anti-kickback, healthcare, or other fraud and abuse laws. Moreover, recent healthcare reform legislation has strengthened these laws. For example, the recently enacted Patient Protection and Affordable Care Act, or ACA, among other things, amends the intent requirement of the federal anti-kickback and certain of the criminal healthcare fraud statutes to clarify that a person or entity does not needopportunity to have actual knowledge of this statute or specific intentallocated those resources to violate it. In addition, the ACA clarifies that the government may assert that a claim that includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. False claims laws prohibit anyone from knowingly presenting, or causing to be presented for payment, to government third-party payors (including Medicare and Medicaid) claims for reimbursed drugs, or biologics or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Liability may also arise from false certification of compliance with laws and regulations that are conditions of payment. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws, and other healthcare statutes are punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. We may further be subject to such other actions as debarment from government contracts and future orders under existing contracts, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our business.potentially more productive uses.
Given the significant penalties and fines that can be imposed on companies and individuals if convicted or found liable, allegations of violations under fraud and abuse laws often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions under the False Claims Act. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Further, an increasing number of state laws require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities.
Similar rigid restrictions are imposed on the promotion and marketing of medicinal products in the European Union and other countries. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have adverse implications for us.
We may not be able to comply with requirements of foreign jurisdictions in conducting trials outside of the United States.
To date, we have not conducted any clinical trials outside of the United States. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country, should we attempt to do so, is subject to numerous risks unique to conducting business in foreign countries, including:
Other Risks Related to Commercialization of Our ProductBusiness
If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, we may be unable to generate product revenues.
We currently do not have a commercial infrastructure for the marketing, sale and distribution of biological products. If approved, in order to commercialize our products, we must build our marketing, sales and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. If vonapanitase is approved by the FDA, we plan to build a specialty sales force in the United States of approximately 75-100 representatives, supported by reimbursement specialists and a medical affairs team. We may seek to further penetrate the United States market in the future by expanding our sales force or through collaborations with other pharmaceutical or biotechnology companies or third party manufacturing and sales organizations. If approved for marketing outside the United States, we may commercialize outside the United States with our own specialty sales force and/or with a commercial partner.
As a company we have no prior experience in the marketing, sale and distribution of biological products, and there are significant risks involved in the building and managing of a commercial infrastructure. The establishment and development of our own sales force and related compliance plans to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We, or our future collaborators, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel. In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize vonapanitase or any additional product candidates, which would limit our ability to generate product revenues. Our ability to generate product revenues would be impaired by:
Although our current plan is to hire most of our sales and marketing personnel only if vonapanitase is approved by the FDA, we will incur expenses prior to product launch in recruiting this sales force and developing a marketing and sales infrastructure. If the commercial launch of vonapanitase is delayed as a result of FDA requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of vonapanitase. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing vonapanitase or any additional product candidates.
In the event we are unable to hire a sales force or collaborate with a third-party marketing and sales organization to commercialize any approved product candidates outside the United States, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts.
Even if vonapanitase or any additional product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary for commercial success.
The commercial success of vonapanitase and any product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community. Even if the FDA approves vonapanitase or one or more of our future product candidates, physicians and patients may not accept and use them. Acceptance and use of any of our products will depend upon a number of factors including:
Because we expect sales of vonapanitase, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of vonapanitase to gain market acceptance would harm our business and would require us to seek additional financing.
Vonapanitase or any additionalOur product candidates, if approved, maywill face significant competition and ourtheir failure to compete effectively compete may prevent usthem from achieving significant market penetration and expansion.penetration.
The biotechnology and pharmaceutical industries areindustry is characterized by rapidly advancing technologies, intense competition, uncertain and complex patent terms, and a strong emphasis on developing newer, fast-to-market proprietary products.therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of healthcare products competitive with those that we are developing, including TARA-002 and IV Choline Chloride. We will face potential competition from a number of sources, such as pharmaceutical companies, biotechnology companies, generic drug companies, consumer products companies and academic and research institutions, many different sources,of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, regulatory expertise, clinical trial expertise, intellectual property portfolios, international reach, experience in obtaining patents and regulatory approvals for product candidates and other resources than we have. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts.
With respect to our lead product candidate, TARA-002, for the treatment of NMIBC and LMs, the active ingredient in TARA-002 is a genetically distinct strain of Streptococcus pyogenes (group A, type 3) Su strain. TARA-002 is produced through a proprietary manufacturing process. We anticipate that, if approved by the FDA, TARA-002 will be protected by 12 years of biologic exclusivity. There are no approved pharmacotherapies currently available for the treatment of LMs and the current treatment options include a high-risk surgical procedure and off-label use of sclerosants, including major pharmaceutical, specialty pharmaceutical, biotechnologydoxycycline, bleomycin, ethanol and medical devicesodium tetradecyl sulfate. There are a number of drug development companies and academic institutions, governmental agenciesresearchers exploring oral formulations of various agents including macrolides, phosphodiesterase inhibitors, and public and private research institutions. While we believe that vonapanitase’s features, safety and efficacy will differentiate it from any competitive products that may become availablecalcineurin/mTOR inhibitors. These are in early development. TARA-002, if approved for the future, we expecttreatment of NMIBC, would be subject to face potential competition from many different sources, including largerexisting treatment methods of surgery, chemotherapy and better-funded pharmaceutical, specialtyimmunomodulatory therapy. For example, the current standard of care for NMIBC includes intravesical BCG TICE (manufactured by Merck & Co. Inc.). Other products approved for the treatment of NMIBC include Merck & Co., Inc.’s Keytruda, Endo International plc’s Valstar, and Ferring B.V.’s Adstiladrin. Additional product candidates in development include Japanese BCG Laboratory’s BCG Tokyo, Pfizer Inc.’s Sasanlimab in combination with BCG, ImmunityBio, Inc.’s VesAnktiva in combination with BCG, CG Oncology Inc.’s CG0070, Carisma Therapeutic Inc.’s Vicineum, enGene Inc.’s, EG-70, Seagen Inc.’s PADCEV, Janssen’s TAR200 combined with gemcitabine plus or minus Cetrelimab, Urogen Pharma Ltd.’s Jelmyto, and Auro BioSciences, Inc.’s Aura-0011. Additional pharmaceutical and biotechnology companies with product candidates in development for the treatment of NMIBC include but may not be limited to Verity, AstraZeneca PLC, Bristol-Myers Squibb Company, Roche Group, Asieris Pharmaceuticals, BeiGene, Ltd, NanOlogy, LLC, Linton Pharm Co., Ltd., Lindis Biotech GmbH, Theralase Technologies Inc., Taizhou Hanzhong biomedical co. Ltd., Shionogi & Co. Ltd., Rapamycin Holdings, Inc., Vaxiion Therapeutics Inc., Incyte Corporation, LiPac Oncology, Inc., Anika Therapeutics Inc., Surge Pharmaceuticals Pvt. Ltd., and medical device companies, as well as from academic institutions and governmental agencies and public and private research institutions that may develop potentially competitive products or technologies.Istari Oncology, Inc..
Some of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, marketing and selling approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
The key competitive factors affectingThere are no treatments currently available for IFALD. With respect to IV Choline Chloride for the successtreatment of vonapanitase,IFALD, IV Choline Chloride is the only sterile injectable form of choline chloride that can be combined with parenteral nutrition. Further, if approved, are likely toIV Choline Chloride will be its efficacy, safety, convenience, price,protected by Orphan Drug Designation exclusivity for seven years.
TARA-002 and the availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.
We are not aware of products approved in the United States or Europe that would compete with vonapanitase for the improvement of secondary patency and fistula use for hemodialysis. We are aware of companies with therapies in development including Vascular Therapies, Enceladus Pharmaceuticals, Symic Biomedical, Aplagon, and Athera Biotechnologies, as well as companies developing vascular access technologies, including BioConnect Systems, Avenu Medical, Phraxis, Brookhaven Medical, Fist Assist, Laminate Medical Technologies, Stent Tek and TVA Medical. Other technologies in development include new synthetic grafts, including those that may be developed by companies that currently compete in the graft market, such as W.L. Gore, C.R. Bard and Maquet, as well as tissue engineered grafts, including those in development by Cytograft and Humacyte. Finally, vonapanitase’s commercial success could be affected by the development of technologies to improve the outcomes of interventions to restore patency, including stents, stent grafts and drug-coated balloons.
Vonapanitase, or any additionalfuture product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA, created an abbreviated approval pathway for the approval ofbiological products that are biosimilar andto or interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity towith an existing brandFDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product cannotmay not be approvedsubmitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years afterfrom the original brandeddate on which the reference product was approved underfirst licensed. During this 12-year period of exclusivity, another company may still market a BLA. Certain changes, however, and supplements to an approvedcompeting version of the reference product if the FDA approves a full BLA and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12-year exclusivity period.
competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIAlaw is complex and is still being interpreted and implemented by the FDA. ACA is also facing increased scrutiny by legislators. As a result, theits ultimate impact, implementation meaning and continued effectiveness of BPCIAmeaning are subject to uncertainty. While it is uncertain when such processes are intended to implementbe implemented, the BPCIA may be fully adopted by the FDA, or whether any aspects of BPCIA may change,and any such processes or changes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that vonapanitase, or any additionalof our product candidates approved as a biological product under a BLA should qualify for the BPCIA’s 12-year period of exclusivity. However, there is a risk that BPCIA willthis exclusivity could be repealedshortened due to congressional action or amended,otherwise, or that the FDA will not consider vonapanitase or any additionalour product candidates to be reference products for competing products, potentially creating the opportunity for genericbiosimilar competition sooner than anticipated.
Additionally, this period Other aspects of regulatorythe BPCIA, some of which may impact the BPCIA exclusivity does not currently apply to companies pursuing regulatory approval via their own traditional BLA, rather than viaprovisions, have also been the abbreviated pathway.subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. It is possible that payers
We currently have limited marketing capabilities and no sales organization. If we are unable to grow our sales and marketing capabilities on our own or through third parties, we will give reimbursement preferencebe unable to biosimilars even over reference biologics absent a determination of interchangeability.
If the government or other third-party payors fail to provide adequate and timely coverage and payment rates for vonapanitase or any additionalsuccessfully commercialize our product candidates, if approved, or if surgeons or hospitals choose not to use vonapanitase, our revenue and prospects for profitability will be limited.generate product revenue.
We currently have limited marketing capabilities and no sales organization. To commercialize our product candidates, if approved, in the United States, Canada, the European Union, Latin America and other jurisdictions we may seek to enter, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. Although our employees have experience in the marketing, sale and distribution of pharmaceutical products, and business development activities involving external alliances, from prior employment at other companies, we, as a company, have no prior experience in the marketing, sale and distribution of pharmaceutical products, and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing, distribution and pricing/reimbursement/access capabilities would impact adversely the commercialization of these products.
We have only received the exclusive rights to the materials required to commercialize TARA-002 in territories other than Japan and Taiwan until June 17, 2030, or an earlier date if Chugai Pharmaceutical terminates the agreement with us for any number of reasons, following which such rights become non-exclusive.
Pursuant to an agreement with Chugai Pharmaceutical dated June 17, 2019, as amended on July 14, 2020 (effective as of June 30, 2020), Chugai Pharmaceutical agreed to provide us with exclusive access to the starting material necessary to manufacture TARA-002 as well as technical support necessary for us to develop and commercialize TARA-002 anywhere in the world other than Japan and Taiwan. However, this agreement does not prevent Chugai from providing such materials and support to any third-party for medical, compassionate use and/or non-commercial research purposes and this agreement is exclusive only through June 17, 2030 or, the earlier termination of the agreement by either party. Once our rights to the materials and technology necessary to manufacture, develop and commercialize TARA-002 are not exclusive, third parties, including those with greater expertise and greater resources, could obtain such materials and technology and develop a competing therapy, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
Even if we obtain regulatory approval to begin commercializing any of our products, we would remain subject to ongoing regulatory review, which could subsequently result in a suspension or termination of sale of these products.
Even after we achieve U.S. regulatory approval for a product candidate, if any, we will be subject to continued regulatory review and compliance obligations. For example, with respect to our product candidates, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, pharmacovigilance and adverse event reporting, storage, advertising, promotion and recordkeeping for our product candidates. In addition, manufacturers of drug and biologic products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP 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 manufacturing, processing, distribution or storage facility where, or processes by which, the product is made, a regulatory agency may impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians or the public, withdrawal of the product from the market, or suspension of manufacturing.
We face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability or similar causes of action as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority and notwithstanding that we comply with applicable laws on promotional activity. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or potentially even death. We cannot offer any assurance that we will not face product liability suits in the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases.
In both domesticaddition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others, and under some circumstances even government agencies. If we cannot successfully defend ourselves against product liability or similar claims, we will incur substantial liabilities, reputational harm and possibly injunctions and punitive actions. In addition, regardless of merit or eventual outcome, product liability claims may result in:
| ● | withdrawal or delay of recruitment or decreased enrollment rates of clinical trial participants; |
| ● | termination or increased government regulation of clinical trial sites or entire trial programs; |
| ● | the inability to commercialize our product candidates; |
| ● | decreased demand for our product candidates; |
| ● | impairment of our business reputation; |
| ● | product recall or withdrawal from the market or labeling, marketing or promotional restrictions; |
| ● | substantial costs of any related litigation or similar disputes; |
| ● | distraction of management’s attention and other resources from our primary business; |
| ● | significant delay in product launch; |
| ● | substantial monetary awards to patients or other claimants against us that may not be covered by insurance; |
| ● | withdrawal of reimbursement or formulary inclusion; or |
| ● | loss of revenue. |
We have obtained product liability insurance coverage for our clinical trials. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. Our insurance coverage may not be sufficient to cover all of our product liability-related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, restrictive and narrow, and, in the future, we may not be able to maintain adequate insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability or other similar legal actions. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will be costly, and we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all and for all geographies in which we wish to launch. A successful product liability claim or series of claims brought against us, if judgments exceed our insurance coverage, could decrease our cash and harm our business, financial condition, operating results and future prospects.
Our employees, independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with whom we may collaborate may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional, reckless, gross or negligent misconduct or unauthorized activity that violates: laws or regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards; federal, state and foreign markets, saleshealthcare fraud and abuse laws and data privacy; anticorruption laws, anti-kickback and Medicare/Medicaid rules, or laws that require the true, complete and accurate reporting of financial information or data, books and records. If any such or similar actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative and punitive penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, debarments, contractual damages, imprisonment, reputational harm, diminished profits and future earnings, injunctions, and curtailment or cessation of our futureoperations, any of which could adversely affect our ability to operate our business and our operating results.
We may be subject to risks related to off-label use of our product candidates, if approved.
The FDA strictly regulates the advertising and promotion of drug products, and drug products may only be marketed or promoted for their FDA approved uses, consistent with the product’s approved labeling. Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Office of Inspector General of the Department of Health and Human Services, state attorneys general, members of Congress and the public. For example, the FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Although physicians may prescribe products for off-label uses as the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. Companies may only share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. Violations, including promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil, criminal and/or administrative sanctions by the FDA. Additionally, advertising and promotion of any product candidate that obtains approval outside of the United States will be heavily scrutinized by relevant foreign regulatory authorities.
In the United States, engaging in impermissible promotion of our product candidates for off-label uses can also subject us to false claims litigation under federal and state statutes, which can lead to significant civil, criminal and/or administrative penalties and fines and agreements, such as a corporate integrity agreement, that materially restrict the manner in which we promote or distribute our product candidates. If we do not lawfully promote our products once they have received regulatory approval, we may become subject to such litigation and, if we are not successful in defending against such actions, those actions could have a material adverse effect on our business, financial condition and operating results and even result in having an independent compliance monitor assigned to audit our ongoing operations for a lengthy period of time.
If we or any partners with which we may collaborate are unable to achieve and maintain coverage and adequate levels of reimbursement for TARA-002 or IV Choline Chloride following regulatory approval, their commercial success may be hindered severely.
If TARA-002 or IV Choline Chloride only becomes available by prescription, successful sales by us or by any partners with which we may collaborate depend substantially uponon the availability of timely coverage and adequate reimbursement from government and other third-party payors. The majorityPatients who are prescribed medicine for the treatment of incident and prevalent hemodialysis patients have Medicare coverage, while other patients have othertheir conditions generally rely on third-party payors including other government healthto reimburse most or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid managed care providers,in the United States, and private health insurers and other organizations.third-party payors is often critical to new product acceptance. Coverage decisions may depend uponon clinical and economic standards that disfavor new drug and biologic products when more established or lower costlower-cost therapeutic alternatives are already available or subsequently become available. Vonapanitaseavailable, or any additional product candidates,may be affected by the budgets and demands on the various entities responsible for providing health insurance to patients who will use TARA-002 or IV Choline Chloride. Even if approved, may face competition from other therapies, biologics, and drugswe obtain coverage for limited financial resources. We may need to conduct post-marketing studies in order to demonstrateour products, the cost-effectiveness of any future products to the satisfaction of outpatient clinics, hospitals, other target customers and their third-party payors. These post-marketing studies might require us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately be considered cost-effective. Adequate third-party coverage andresulting reimbursement payment rates might not be availableadequate or may require co-payments that patients find unacceptably high. Patients are unlikely to enable ususe a product unless coverage is provided, and reimbursement is adequate to maintain price levels sufficient to realize an appropriate return on investment in product development.cover a significant portion of the cost.
In addition, the market for our products will depend significantly on access to third-party payors’ drug formularies or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies and there may be time limitations on when a new drug may even apply for formulary inclusion. Also, third-party payors may refuse to include products in their formularies or otherwise restrict patient access to such products when a less costly biosimilar or generic equivalent or other treatment alternative is available in the discretion of the formulary.
Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate to allow us to establish or maintain a market share sufficient to realize a sufficient return on our investments. If reimbursement is not available, or is available only to limited levels, our product candidates may be competitively disadvantaged, and we, or our collaborators, may not be able to successfully commercialize our product candidates. Alternatively, securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate margin over cost. In addition, in the United States, although private third-party payors tend to follow Medicare practices, no uniform or consistent policy of coverage and reimbursement for drug and biologic products exists among third-party payors. Therefore, coverage and reimbursement for drug and biologic products can differ significantly from payor to payor. payor as well as from state to state. Consequently, the coverage determination process is often a time-consuming and costly process that must be played out across many jurisdictions and different entities and that will require us to provide scientific, clinical and health economics support for the use of our products compared to current alternatives and do so to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained and in what time frame.
Further, we believe that future coverage and reimbursement likely will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects. Further, coverage policies and third-party reimbursement rates may change at any time. Therefore, even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare reform measures could hinder or prevent the commercial success of our product candidates.
Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any future product candidates we may develop. For example, the Trump administration and certain members of the U.S. Congress sought to repeal all or part of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, and implement a replacement program. In another example, the so-called “individual mandate” was repealed as part of tax reform legislation adopted in December 2017, informally titled the Tax Cuts and Jobs Act, or Tax Act, such that the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code was eliminated beginning in 2019. Additionally, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the individual mandate was repealed by Congress. Thus, the Affordable Care Act will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is unclear how such challenges and the healthcare reform measures of the Biden administration will impact the Affordable Care Act and our business.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. For example, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. On July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempted to implement several of the administration’s proposals. The FDA also released a final rule and guidance implementing a portion of the importation executive order providing pathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, the Department of Health and Human Services, or HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. The implementation of the rule has been delayed until January 1, 2026. On November 20, 2020, the Centers for Medicare & Medicaid Services, or CMS, issued an interim final rule implementing former President Trump’s Most Favored Nation, or MFN, executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, and was effective as of January 1, 2021. As a result of litigation challenging the MFN model, on December 27, 2021, CMS published a final rule that rescinded the MFN model interim final rule. Further, in July 2021, the Biden administration released an executive order that included multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform. The plan sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS could take to advance these principles. No legislation or administrative actions have a negativebeen finalized to implement these principles. In addition, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, contains substantial drug pricing reforms that will reduce drug spending by the federal government. For example, the Inflation Reduction Act of 2022 limits the prices paid by Medicare for various prescription drugs and requires drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries. Although the effect of the Inflation Reduction Act of 2022 on our business resultsand the pharmaceutical industry in general is not yet known, the Inflation Reduction Act of operations, financial condition and prospects.
Government programs impose price controls on pharmaceutical and biological products and penalties for increasing commercial2022 could affect the prices at rates that exceed the government inflation index, which may limit the commercial price we can charge and our realization on sales. Further, the net reimbursement we can receive for drug and biologic products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs and biologics from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any our product candidates, if approved, thereby reducing our profitability. We also expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which we obtain marketing approval could have a material adverse effectresult in reduced demand for our product candidates if approved or additional pricing pressures.
There are also calls to place additional restrictions on our operating results,or to ban direct-to-consumer advertising of pharmaceuticals, which would limit our ability to raise capital needed to commercialize products and our overall financial condition.
Risks Related to Dependence on Third Parties
We and our contract manufacturers are subject to significant regulation with respect to manufacturingmarket our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirementsUnited States is in a minority of jurisdictions that allow this kind of advertising and have limited capacity.its removal could limit the potential reach of a marketing campaign.
We currently have a relationship with only one supplier, Lonza, for the manufacturing of the API for vonapanitase for clinical testing purposes, and intend to continue to use Lonza as our sole or primary supplier of the API for vonapanitase in the future. We have used two companies, Jubilant HollisterStier and Patheon Manufacturing Services Inc. (formerly DSM Pharmaceuticals), to vial and make our vonapanitase finished product. We also expect to rely upon third parties to produce materials required for the commercial production of vonapanitase or any additional product candidates if we succeed in obtaining the necessary regulatory approvals. This may increase the risk that we will not have sufficient quantities of our product candidates to conduct our clinical trials or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and commercialization of our product candidates.
All entities involved in the preparation of drugs or biologics for clinical trials or commercial sale, including our existing contract manufacturers, are subject to extensive regulation. Ingredients of a finished therapeutic biologic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMPsstrict healthcare laws, regulation and equivalent foreign standards. These regulations govern manufacturing processesenforcement, 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 adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of product candidate that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s cGMPs regulations enforced by the FDA through its facilities inspection program. Any failure by our third-party manufacturers to comply with cGMPs, or failure to scale-up and validate manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner for the process validation required in connection with a BLA submission, could lead to a delay in, or failure to obtain, regulatory approval of vonapanitase or any additional product candidates. For example, on November 27, 2013, our third-party supplier of finished biological product, Jubilant HollisterStier, received a Warning Letter from the FDA alleging that the company was not complying with cGMPs. We received a letter from the FDA on February 13, 2014, stating that the Warning Letter does not impact the batch of finished product we are using for our Phase 3 clinical trials. However, if Jubilant HollisterStier or any other third-party supplier does not have an acceptable cGMP compliance status at the time of review by the FDA of any BLA we might submit, approval of the BLA would be delayed. This third party supplier or other third parties could encounter similar difficulties that could impede our clinical trials, approval or commercialization.
Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must also pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of vonapanitase or any additional product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidate or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities and quality systems do not pass a pre-approval plant inspection from the FDA or a comparable foreign authority, approval of our product candidate by the FDA or the equivalent approvals in other jurisdictions will not be granted until the regulatory authority is satisfied that the facility complies with applicable regulations.
Regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our 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 trial 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 or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug or biologic product or revocation of a pre-existing approval. If any such event occurs, our business, financial condition and results of operations may be materially harmed.
Currency fluctuations in the Swiss Franc and changes in exchange ratesthose laws could adversely affect our business, by increasing our costsoperations and cause our profitability to decline.financial condition.
Our contract with Lonza forCertain federal and state healthcare laws and regulations pertaining to fraud and abuse, privacy, transparency, and patients’ rights are and will be applicable to our business. We are subject to regulation by both the manufacturing offederal government and the API is denominatedstates in Swiss Francs. Therefore, fluctuations in the exchange rate for Swiss Francswhich we or our partners conduct business. The healthcare laws and regulations that may affect our operating results. On January 15, 2015,ability to operate include but are not limited to: the Swiss National Bank announced an editfederal Anti-Kickback Statute; federal civil and criminal false claims laws and civil monetary penalty laws; the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act; the Prescription Drug Marketing Act (for sampling of drug product among other things); the federal physician sunshine requirements under the Affordable Care Act; the Foreign Corrupt Practices Act as it applies to its policyactivities outside of fixing the Swiss FrancUnited States; the federal Right-to-Try legislation; and Euro exchange rate,similar state laws of such federal laws, which caused volatilitymay be broader in scope.
Because of the currency markets for Swiss Francsbreadth of these laws and an immediate increase in their value, makingthe narrowness of the statutory exceptions and safe harbors available, it is possible that some of our contractual paymentsbusiness activities could be subject to Lonzachallenge under one or more expensive based onof such laws. In addition, recent healthcare reform legislation has strengthened these laws. For example, the current exchange rates. InAffordable Care Act, among other things, amended the second quarterintent requirement of 2015, we entered into forward foreign currency contracts to purchase Swiss Francs to reduce our foreign currency exposure under our contract with Lonza, all of which have been settledthe federal Anti-Kickback Statute and arecertain criminal healthcare fraud statutes. A person or entity no longer outstanding. Weneeds to have purchased Swiss Francsactual knowledge of the statute or specific intent to mitigate our exposure to fluctuations inviolate it. In addition, the U.S. dollar valueAffordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of forecasted transactions denominated in Swiss Francs.the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with these laws may prove costly. In the future we may purchase additional forward foreign currency contracts to hedge certain forecasted transactions, including those with Lonza, and reduce exposures to foreign currency fluctuations. Any useaddition, any action against us for violation of these derivative instruments would be intendedlaws, even if we successfully defend against it, could cause us to mitigate a portion ofincur significant legal expenses and divert management’s attention from the exposure of these risks with the intent to reduce our risk or cost, but generally would not fully offset any change in operating results as a consequence of fluctuations in foreign currencies. Any significant foreign exchange rate fluctuations could adversely affect our financial condition and results of operations and any use of derivative instruments may not offset such fluctuations and could exacerbate their impact on our financial condition and results of operations.
We rely on third parties to conduct some or all aspectsoperation of our product manufacturing, protocol development, research,business and preclinical and clinical testing, and planresult in reputational damage. If our operations are found to continue to rely on such third parties if we receive marketing approvals. These third parties may not perform satisfactorily.
We do not currently, and do not expectbe in the future, to independently conduct all aspects of our product manufacturing, protocol development, research and monitoring and management of our clinical programs. Vonapanitase API is produced by our contract manufacturer, Lonza. Vonapanitase finished product is produced by our contract fill/finish provider, Jubilant HollisterStier. Release testing and stability for API and finished product is performed by PPD, Inc. We currently rely, and expect to continue to rely, on third parties with respect to these items for our continued and future clinical studies as well as for commercialization, if we receive regulatory marketing approval. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible for ensuring that the manufacturing is conducted in accordance with regulatory requirements such as cGMPs. Our reliance on the third parties does not relieve us of our regulatory responsibilities.
Any of these third parties may terminate their engagements with us under the terms of our agreements upon notice to us. If we need to enter into alternative arrangements, our product candidate development and eventual commercialization activities may be delayed. Our reliance on these third parties for research and development activities, and eventual commercial supply, reduces our day-to-day control over these activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards and any applicable trial protocols. For example, for vonapanitase or any additional product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that the product is manufactured in accordance with cGMPs, each of our clinical trials is conducted in accordance with GCPs and its protocol and is analyzed in accordance with its statistical analysis plan for the clinical trial.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our protocols, we may be delayed in completing, or unable to complete, the clinical trials required to support future approval of vonapanitase or any additional product candidates, and, if ultimately approved for marketing, may not be able to produce a sufficient amount of commercial supply.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidate, vonapanitase, for our clinical trials, and eventual commercial supply, if we receive regulatory approval. There are a small number of suppliers for certain raw materials that we use to manufacture vonapanitase. These suppliers may not sell these raw materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although the API and the finished product for each of our Phase 3 trials has already been manufactured and is held in storage, we will need supply of finished product as part of the process validation and for any stability or other tests in connection with a BLA submission and also to conduct additional clinical trials, for example for additional vonapanitase indications. We will further require finished product for commercialization if we receive regulatory approval. Any significant delay in the supply of vonapanitase’s ingredients due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of vonapanitase or any additional product candidate, and commercialization as we believe that replacing Lonza as the manufacturer of our API would take one to two years and replacementviolation of any of our other manufacturers may take a substantial amount of time. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidate, our ability to commercially launch and/or generate revenues from the sale of any approved product would be impaired. Reliance on third-party manufacturers entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves, including:
Any of these events could lead to delays in the development of vonapanitaselaws described above or any additional product candidates, including delays in our clinical trials,other governmental laws or failureregulations that apply to obtain regulatory approval for our product candidates, or it could impact our ability to successfully commercialize vonapanitase or any additional product candidates. Some of these events could be the basis for FDA or other regulatory action, including Warning Letters, injunction, recall, seizure or total or partial suspension of production. Any of these events could have a material adverse effect on our business.
We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for, or commercialize, vonapanitase or any additional product candidates and our business could be substantially harmed.
We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, and legal, regulatory and scientific standards and recognize that our reliance on the CROs does not relieve us, of our regulatory responsibilities.
We and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA and comparable foreign regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. In addition, we are required to report certain financial interests of our third-party investigators if these relationships provide for a financial interest in the outcome of the study because of the way the payment was arranged (e.g., a royalty) or because the investigator has a proprietary interest in the product (e.g., a patent) or because the investigator has an equity interest in the sponsor of the covered study exceeding certain financial thresholds. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted by principal investigators who previously served or currently serve as scientific advisors or consultants to us from time to time and receive cash compensation in connection with such services.’
Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and efficacy of vonapanitase or any additional product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we are therefore unable to monitor on a day-to-day basis whether or not they devote sufficient time and resources to our clinical and preclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, vonapanitase or any additional product candidates. If any such event were to occur, we may be subject to regulatory enforcement actions,significant penalties, including administrative, civil and criminal penalties, damages, including punitive damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, imprisonment, additional oversight and reporting obligations, or the curtailment or restructuring of our financial resultsoperations, and the commercial prospects for vonapanitase orinjunctions, any additional product candidates would be harmed, our costsof which could increase, andadversely affect our ability to generate revenuesoperate our business and financial results.
We may in-license and acquire product candidates and may engage in other strategic transactions, which could be delayed.impact our liquidity, increase our expenses and present significant distractions to our management.
If anyPart of our relationships with these third-party CROs terminates,strategy is to in-license and acquire product candidates and we may not be ableengage in other strategic transactions. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to enter into arrangements with alternate CROsincur non-recurring or to do so on commercially reasonable terms. Further, switchingother charges, may increase our near- and long-term expenditures and may pose significant integration challenges or adding additional CROs involves additional costs and requiresdisrupt our management time and focus. In addition, a transition period may be required when a new CRO commences work. As a result, delays may occur,or business, which could materially impactadversely affect our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs,operations and financial results. Accordingly, there can be no assurance that we will not encounter challengesundertake or delays insuccessfully complete any transactions of the future ornature described above, and any transaction that these delays or challenges will not have a material adverse impact onwe do complete could harm our business, financial condition, operating results and prospects.
We also rely on other third partiesOur failure to storesuccessfully in-license, acquire, develop and distribute our products for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of vonapanitase or anymarket additional product candidates or commercialization ofapproved products would impair our product, if approved, producing additional losses and depriving us of potential product revenue.ability to grow our business.
We may seekin-license, acquire, develop and market additional products and product candidates. Because our internal research and development capabilities are limited, we may be dependent on pharmaceutical and biotechnology companies, academic or government scientists and other researchers to form partnerships insell or license products or technology to us. The success of this strategy depends partly on our ability to identify and select promising pharmaceutical and biologic product candidates and products, negotiate licensing or acquisition agreements with their current owners, and finance these arrangements.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the future with respectlicense or acquisition of product candidates and approved products. We have limited resources to vonapanitaseidentify and execute the acquisition or anyin-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable or at all.
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we may not realize the benefits of such partnerships.cannot provide assurance that any approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.
We may form partnerships, create joint ventures orexpect to rely on collaborations or enter into licensing arrangements with third parties for the development and commercialization of vonapanitase or any additional product candidates. We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Any delays in entering into new strategic partnership agreements related to our product candidates could delay thesuccessful development and commercialization of our product candidatescandidates.
We expect to rely upon the efforts of third parties for the successful development and reduce their competitiveness even if they reach the market. Moreover, we may not be successful incommercialization of our efforts to establish a strategic partnership or other collaborative arrangement for any additionalcurrent and future product candidates. For example, potential partners may consider thatThe clinical and commercial success of our research and development pipeline is insufficiently developed to justify a collaborative effort, or that vonapanitase or any additional product candidates and programs do not havemay depend upon maintaining successful relationships with third-party partners which are subject to a number of significant risks, including the requisite commercial or clinical potential in the target population. Even if we are successful in establishing such a strategic partnership or collaboration, wefollowing:
| ● | our partners’ ability to execute their responsibilities in a timely, cost-efficient and compliant manner; |
| ● | reduced control over delivery and manufacturing schedules; |
| ● | price increases and product reliability; |
| ● | manufacturing deviations from internal or regulatory specifications; |
| ● | quality incidents; |
| ● | the failure of partners to perform their obligations for technical, market or other reasons; |
| ● | misappropriation of our current or future product candidates; and |
| ● | other risks in potentially meeting our current and future anticipated commercialization schedule for product candidates or satisfying the requirements of our end-users. |
We cannot be certainassure you that following such a strategic transaction or license, we will be able to progress the developmentestablish or maintain third-party relationships in order to successfully develop and commercialization of the applicablecommercialize our product candidates.
We rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates, as envisioned,which may include sole-source suppliers and manufacturers; we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval; and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.
We do not currently have, nor do we plan to acquire, the infrastructure or thatcapability to supply, store, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products. Additionally, we have not entered into a long-term commercial supply agreement to provide us with such drug substances or products. As a result, our ability to develop our product candidates is dependent, and our ability to supply our products commercially will achieve the revenues that would justify such transaction.depend, in part, on our ability to obtain active pharmaceutical ingredient, or API, and other substances and materials used in our product candidates successfully from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply and other technical relationships with these third parties, we may be unable to continue to develop or commercialize our products and product candidates.
Risks Related to Our Intellectual Property
We do not have direct control over whether our contract suppliers and manufacturers will maintain current pricing terms, be willing to continue supplying us with API and finished products or maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. We are dependent on our contract suppliers and manufacturers for day-to-day compliance with applicable laws and cGMP for production of both API and finished products. If our effortsthe safety or quality of any product or product candidate or component is compromised due to protect our intellectual property relateda failure to vonapanitaseadhere to applicable laws or any additional product candidates are not adequate,for other reasons, we may not be able to compete effectivelycommercialize or obtain regulatory approval for the affected product or product candidate successfully, and we may be held liable for injuries sustained as a result.
In order to conduct larger or late-stage clinical trials for our product candidates and supply sufficient commercial quantities of any of our products, if approved, our contract manufacturers and suppliers will need to produce our API and other substances and materials used in our market.
We rely uponproduct candidates in larger quantities, more cost-effectively and, in certain cases, at higher yields than they currently achieve. If our third-party contractors are unable to scale up the manufacture of any of our product candidates successfully in sufficient quality and quantity and at commercially reasonable prices, or are shut down or put on clinical hold by government regulators, and we are unable to find one or more replacement suppliers or manufacturers capable of production at a combinationsubstantially equivalent cost in substantially equivalent volumes and quality, and we are unable to transfer the processes successfully on a timely basis, the development of patents, patent applications, know-how and confidentiality agreements to protect the intellectual property related to our onlythat product candidate vonapanitase, and regulatory approval or commercial launch for any resulting products may be delayed, or there may be a shortage in supply, either of which could significantly harm our business, financial condition, operating results and prospects.
We expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future. Our supply and manufacturing agreements, if any, do not guarantee that a contract supplier or manufacturer will useprovide services adequate for our needs. Additionally, any damage to or destruction of our third-party manufacturers’ or suppliers’ facilities or equipment, even by force majeure, may significantly impair our ability to have our products and product candidates manufactured on a similar strategytimely basis. Our reliance on contract manufacturers and suppliers further exposes us to protect any additional product candidates. The patent positionthe possibility that they, or third parties with access to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information. In addition, the manufacturing facilities of biotechnology companies is generally uncertain because it involves complex legal and factual considerations. The standards applied bycertain of our suppliers may be located outside of the United States Patent and Trademark Office,States. This may give rise to difficulties in importing our products or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology patents. The patent applications that we own may fail to result in issued patents with claims that cover vonapanitase or any additional product candidates inor their components into the United States or in other countries. There
The manufacture of biologics is complex and our third-party manufacturers may encounter difficulties in production. If our CDMO encounters such difficulties, the ability to provide supply of TARA-002 for clinical trials, our ability to obtain marketing approval, or our ability to obtain commercial supply of TARA-002, if approved, could be delayed or stopped.
We have no experience in biologic manufacturing and do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. We are completely dependent on CDMOs to fulfill our clinical and commercial supply of TARA-002. The process of manufacturing biologics is complex, highly regulated and subject to multiple risks. Manufacturing biologics is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions and higher costs. If microbial, viral or other contaminations are discovered at the facilities of our manufacturer, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials, result in higher costs of drug product and adversely harm our business. Moreover, if the FDA determines that our manufacturer is not in compliance with FDA laws and regulations, including those governing cGMP, the FDA may deny BLA approval until the deficiencies are corrected or we replace the manufacturer in our BLA with a manufacturer that is in compliance.
In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMP, lot consistency and timely availability of raw materials. Even if we obtain regulatory approval for TARA-002 or any future product candidates, there is no assurance that our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects. Scaling up a biologic manufacturing process is a difficult and uncertain task, and any CDMO we contract may not have the necessary capabilities to complete the implementation and development process of further scaling up production, transferring production to other sites, or managing its production capacity to timely meet product demand.
If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize our product candidates or otherwise implement our business plan.
Our ability to compete in the highly competitive biopharmaceuticals industry depends on our ability to attract and retain highly qualified managerial, scientific, medical, legal, sales and marketing and other personnel. We are highly dependent on our management and scientific personnel. The loss of the services of any of these individuals could impede, delay or prevent the successful development of our product pipeline, completion of our planned clinical trials, commercialization of our product candidates or in-licensing or acquisition of new assets and could impact negatively our ability to implement successfully our business plan. If we lose the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses.
In addition, over the past few years the United States has experienced a decrease in unemployment rates and an increasingly competitive labor market, which may continue to result in difficulties in hiring or retaining sufficient qualified personnel to maintain and grow our business. We are uncertain as to the employment environment in the future, or how that environment will impact our workforce, including our ability to retain qualified management and other key personnel.
We may be adversely affected by natural disasters, pandemics and other catastrophic events and by man-made problems such as terrorism and war that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our office is located in New York, New York. If a disaster, power outage, computer hacking, or other event occurred that prevented us from using all or a significant portion of an office, that damaged critical infrastructure, such as enterprise financial systems, IT systems, manufacturing resource planning or enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. For example, we are expanding our clinical development of TARA-002 in NMBIC to clinical trial sites outside the United States, including potentially relevant prior art relatingin Ukraine and in other countries in Europe and Asia and may expand to other geographies. If political or civil conditions require it, our sites may need to delay or suspend clinical trial activities. In addition, enrollment and retention of patients at such sites could be disrupted by geopolitical events, including civil or political unrest, such as the current ongoing conflict between Russia and Ukraine. All of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our partners’ or manufacturers’ disaster recovery plans prove to be inadequate. To the extent that any of the above should result in delays in the research, development, regulatory approval, manufacture, distribution or commercialization of TARA-002 or IV Choline Chloride, our business, financial condition, operating results and prospects would suffer.
Risks Related to Our Common Stock
We expect our stock price to be highly volatile.
The market price of our shares could be subject to significant fluctuations. Market prices for securities of biotechnology and other life sciences companies historically have been particularly volatile, even subject to large daily price swings. For example, the closing price of our common stock from the period January 1, 2023 to May 1, 2023 has ranged from a low of $2.76 to a high of $3.91. Some of the factors that may cause the market price of our shares to fluctuate include, but are not limited to:
| ● | the results of current and any future clinical trials of TARA-002 or IV Choline Chloride and any clinical trial failure, including any failure resulting from difficulties or delays in identifying patients, enrolling patients, retaining patients, meeting specific trial endpoints or completing and timely reporting the results of any trial; |
| ● | our ability to obtain regulatory approvals for TARA-002, IV Choline Chloride or future product candidates, and delays of, or failures to obtain such approvals; |
| ● | the failure of TARA-002 or IV Choline Chloride or future product candidates, if approved, to achieve commercial success; |
| ● | potential side effects associated with TARA-002 or IV Choline Chloride or future product candidates; |
| ● | issues in manufacturing, or the inability to obtain adequate supply of, TARA-002, IV Choline Chloride or future product candidates; |
| ● | the entry into, or termination of, or breach by partners of key agreements, including key commercial partner agreements; |
| ● | the initiation of, material developments in, or conclusion of, any litigation or other actions to enforce or defend any intellectual property rights or defend against the intellectual property rights of others; |
| ● | announcements of any dilutive equity financings; |
| ● | inability to obtain additional funding; |
| ● | announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments; |
| ● | failure to elicit meaningful stock analyst coverage and downgrades of our stock by analysts; |
| ● | the loss of key employees; |
| ● | changes in laws or regulations application to TARA-002 or IV Choline Chloride or future product candidates; and |
| ● | sales of our common stock by us, our insiders or our other stockholders. |
Moreover, the stock markets in general have experienced substantial volatility in our industry that has often been unrelated to the operating performance of individual companies or a certain industry segment. These broad market fluctuations may also adversely affect the trading price of our shares.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation. In addition, such securities litigation often has ensued after a reverse merger or other merger and acquisition activity. Such litigation if brought could impact negatively our business.
We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
As a public company, we have incurred, and will continue to incur, significant legal, accounting and other expenses, including costs associated with public company reporting and other SEC requirements. We have also incurred, and will continue to incur, costs associated with corporate governance requirements, including requirements under the Exchange Act, the Sarbanes-Oxley Act and other applicable legislation, as well as rules implemented by the SEC and Nasdaq.
We expect the rules and regulations applicable to public companies will continue to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. Our executive officers and other personnel will need to continue to devote substantial time to managing operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it expensive for us to operate our business.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. We may experience difficulty in meeting these reporting requirements in a timely manner.
We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our common stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities or by Nasdaq.
We are able to take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which could result in our common stock being less attractive to investors.
We qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company, we are able to take advantage of reduced disclosure requirements, such as certain simplified executive compensation disclosures and reduced financial statement disclosure requirements in our SEC filings. Comparatively reduced disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for our investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive due to our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of the reporting exemptions applicable to a smaller reporting company until we are no longer a smaller reporting company, which status would end once we have a public float greater than $250 million. In that event, we could still be a smaller reporting company if our annual revenues were below $100 million and we have a public float of less than $700 million.
We do not anticipate paying any dividends in the foreseeable future.
The current expectation is that we will retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of your shares of our stock will be your sole source of gain, if any, for the foreseeable future.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business. Equity research analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which in turn could cause our stock price or trading volume to decline.
Risk Related to Our Ownership Structure and Governance
Certain stockholders have the ability to control or significantly influence certain matters submitted to our stockholders for approval.
Certain stockholders have consent rights over certain significant matters of our business. These include decisions to effect a merger or other similar transaction, changes to our principal business, and the sale or other transfer of TARA-002 or other assets with an aggregate value of more than $2,500,000. As a result, these stockholders have significant influence over certain matters that require approval by our stockholders.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our business more difficult and may prevent attempts by our stockholders to replace or remove management.
Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which prohibits stockholders owning in excess of 15% of the outstanding voting stock from merging or combining with us. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, any action asserting a claim against us arising pursuant to any provisions of the DGCL, our certificate of incorporation or our bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for certain disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in the certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
Risks Related to Intellectual Property Rights
We may not be able to obtain, maintain or enforce global patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
Our success with respect to our product candidates will depend, in part, on our ability to obtain and maintain patent protection in both the United States and other countries, to preserve our trade secrets and to prevent third parties from infringing on our proprietary rights. Our ability to protect our product candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents around the world.
The patent application process, also known as patent prosecution, is expensive and time-consuming, and we and our current or future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner in all the countries that are desirable. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Moreover, our competitors independently may develop equivalent knowledge, methods and know-how or discover workarounds to our patents and patent applications has been found, and prior art that iswould not before the patent examiners, as well as prior art that is before the patent examiners, could be used by a third party to invalidate a patent or could be relied on to prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if these patents cover vonapanitase or any additional product candidates, third parties may challenge their validity, enforceability or scope, which may result in our patents being narrowed or invalidated.
Furthermore, even if they are unchallenged, our patents and patent applications may not adequately provide exclusivity for vonapanitase or any additional product candidates, prevent others from designing around our patents with similar products that are outside the scope of our patents, or prevent others from operating in jurisdictions in which we did not pursue patent protection.constitute infringement. Any of these outcomes could impair our ability to prevent competition from third parties,enforce the exclusivity of our patents effectively, which may have an adverse impact on our business.business, financial condition and operating results.
IfDue to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions especially across countries. Accordingly, rights under any existing patents or any patents we might obtain or license may not cover our product candidates or may not provide us with sufficient protection for our product candidates to afford a sustainable commercial advantage against competitive products or processes, including those from branded, generic and over-the-counter pharmaceutical companies. In addition, we cannot guarantee that any patents or other intellectual property rights will issue from any pending or future patent or other similar applications owned by or licensed to us. Even if patents or other intellectual property rights have issued or will issue, we cannot guarantee that the claims of these patents and other rights are or will be held valid or enforceable by the courts, through injunction or otherwise, or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us in every country of commercial significance that we may target.
Competitors in the field of immunology and oncology therapeutics have created a substantial amount of prior art, including scientific publications, posters, presentations, patents and patent applications and other public disclosures including on the Internet. Our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. We do not have outstanding issued patents covering all of the recent developments in our technology and are unsure of the patent protection that we hold with respect to vonapanitasewill be successful in obtaining, if any. Even if the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of such issued patents or any additional product candidates fail to issue, if theirother issued patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. If the breadth or strength of protection is threatened,provided by the patents we hold or if they failpursue with respect to provide meaningful exclusivity for vonapanitase or any additionalour product candidates is challenged, it could dissuade companies from collaborating with us. Asus to develop or threaten our ability to commercialize or finance our product candidates.
The laws of September 30, 2017 we own 37 issued patents and own 21 pending patent applications, most of which cover aspects of vonapanitasesome foreign jurisdictions do not provide intellectual property rights to the same extent or its use. We cannot offer any assurances about which, if any, of the pending patent applications will issueduration as patents, the breadth of any such patents or any of our currently issued patents, or whether any issued patents will be challenged by third parties or will be found invalid and unenforceable if challenged. Any successful challenge to these patent applications, or patents that may issue from them, or to currently issued patents owned by us, could deprive us of rights necessary for the successful commercialization of vonapanitase or any other product candidate that we may develop. Since patent applications in the United States, and most other countries are confidential for a period of time after filing,many companies have encountered significant difficulties in acquiring, maintaining, protecting, defending and some remain so until issued, we cannot be certain that we were the first to file a patent application relating to any particular aspect of a product candidate. Furthermore, if third parties have filedespecially enforcing such patent applications, an interference proceedingrights in the United States can be initiated by these third parties, or by the USPTO itself, to determine who was the first to invent any of the subject matter covered by the patent claims of our patents and patent applications.
In the United States, for patent applications filed prior to March 16, 2013, assuming the other requirements for patentability are met, the first to invent is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. Our currently pending utility patent applications are examined under the system in place before March 16, 2013. Third parties are allowed to submit prior art prior to the issuance of a patent by the USPTO, and may become involved in reexamination, inter partes review or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position with respect to third parties.
In addition, patents have a limited lifespan. In most countries, the statutory term of a patent is 20 years from the earliest domestic priority date claimed. In the United States, for applications filed after June 7, 1995, the statutory term of a patent is 20 years from earliest non-provisional priority date claimed. Various extensions of patent protection may be available in particular countries; however, in all circumstances, the life of a patent, and the protection it affords, has a limited term.foreign jurisdictions. If we encounter delayssuch difficulties in obtaining regulatory approvals, the period of time during which we could market a product under patent protectionprotecting, or are otherwise precluded from effectively protecting, our intellectual property in foreign jurisdictions, our business prospects could be reduced. We expect to seek extensions of patent protection where thesesubstantially harmed, especially internationally.
Proprietary trade secrets and unpatented know-how are available in any countries where we are prosecuting patents. Such possible extensions include those permitted under the Drug Price Competition and Patent Term Restoration Act of 1984 in the United States, which permits up to five years’ extension of patent protection and no more than fourteen years following product approval for a single patent that covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient that has not previously been marketed. The scope of protection available during an extension of a patent claiming a product is limited to the approved product itself for approved uses, and the scope of protection available during an extension of a patent claiming a method of using a product is limited to the uses claimed in the patent and approved for the product. The actual length of the extension is calculated by adding one half of the time between the IND effective date and a company's initial submission of a marketing application, plus the entire time between the submission of the marketing application and the FDA's approval of the application. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensionsalso very important to our patents, or may grant more limited extensions thanbusiness. Although we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data, and then may be able to launch their product earlier than might otherwise be the case.
Any loss of, or failure to obtain, patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product that is similar to or the same as our products.
Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of proprietary information.
We seektaken steps to protect our proprietary technologytrade secrets and processes, in part,unpatented know-how by entering into confidentiality agreements with ourthird parties, and intellectual property protection agreements with officers, directors, employees, and certain consultants scientificand advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Nonetheless, despite these precautions,there can be no assurance that binding agreements or security measures maywill not be breached andor will be enforced by courts, that we may notwould have adequate remedies for any breach. In addition,breach, including injunctive and other equitable relief, or that our trade secrets and unpatented know-how maywill not otherwise become known, or be independently discoveredinadvertently disclosed by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us disputes may arise as to the rights in related or resulting know-how and inventions.
Enforcing a claim that a third party illegally obtained and is using any of our know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than United States courts to protect know-how. Misappropriation or unauthorized disclosure of our know-how could impair our competitive position and may have a material adverse effect on our business.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful, and which may lead to a finding that our patents are invalid and/or unenforceable.
Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary to enforce or defend our intellectual property rights, to protect our know-how and/or to determine the validity and scope of our own intellectual property rights. Intellectual property litigation can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to litigate intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that our patents are invalid or unenforceable, and may refuse to stop the other party from using the technology at issue, including on the grounds that our patents are invalid or unenforceable or do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. 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.
Third-party claims of intellectual property infringement or misappropriation may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our ability to develop, manufacture, market and sell vonapanitase or any additional product candidates, and to use proprietary technologies without infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation and adversarial proceedings, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, reexamination, and inter partes review proceedings before the USPTO and corresponding foreign patent offices. Third parties own patent rights both within and outside the United States in the fields in which we are developing and may develop vonapanitase or any additional product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that vonapanitase or any additional 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 that may cover vonapanitase or any additional product candidates and/or the use, manufacture, sale and/or offer for sale of vonapanitase or any additional product candidates. We are aware of European Patent No. EP 1 012 307 B1, or the '307 patent, which claims, among other things, autocatalytically cleavable zymogenic precursor of a serine protease wherein a naturally occurring non-autocatalytic cleavage site is replaced in the zymogenic precursor by an autocatalytic cleavage site. The '307 patent expires on August 12, 2018. We currently estimate that the soonest that we will market vonapanitase is after this date.
In some cases, we may have failed to identify relevant third-party patents or patent applications. For example, applications filed before November 29, 2000, and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published but, only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering vonapanitase or future product candidates 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 vonapanitase or any additional product candidates and/or the use, manufacture, sale and/or offer for sale of vonapanitase or any additional product candidates.
If any valid and enforceable third-party patents were held by a court of competent jurisdiction to cover vonapanitase or any additional product candidates and/or their use, manufacture, sale, and/or offer for sale, the holders of any of these patents may be able to block our ability to develop and commercialize the applicable product candidate until the patent expired or unless we obtain a license. Licenses may not be available on acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.
Some of our early research of recombinant expression of vonapanitase, but not the corresponding development work, utilized some technology under license from a third party. The third party may contend that we use the licensed technology for our commercial recombinant expression of vonapanitase. Litigation may be necessary to defend against such a claim. Even if we are successful in defending against such a claim, litigation could result in substantial costs and be a distraction to management. If we are not successful in defending against such a claim, in addition to paying monetary damages, we may have to reconfigure the vonapanitase expression system, which would materially adversely affect our commercial development efforts.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to commercialize vonapanitase or any additional product candidates. We may face a claim of misappropriation if a third party believes that we inappropriately obtained and used trade secrets of that third party. If we are found to have misappropriated a third party’s trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop vonapanitase or any additional product candidates, and we may be required to pay damages.
Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, any litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company 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.
During the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs, or intellectual property could be diminished. Accordingly, the market price of our Common Stock may decline.
If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our current product candidate, vonapanitase, or any additional product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.
We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions, their methods of use and any other inventions that are important to the development of our business. We also rely on know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our current patents and any future patents that may issue, preserve the confidentiality of our know-how and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how and in-licensing opportunities to develop, strengthen and maintain the proprietary position of vonapanitase or any additional product candidates.
We cannot provide any assurances that any of our pending patent applications will mature into issued patents and, if they do, that such patents or our currently issued patents will include claims with a scope sufficient to protect vonapanitase or any additional product candidates or otherwise provide any competitive advantage. For example, one of our patents that may provide coverage for vonapanitase only covers particular formulations. As a result, this patent would not prevent third-party competitors from creating, makingagents and marketing alternative formulations that fall outside the scope of our patent claims. There can be no assurance that any such alternative formulations will not be equally effective.
Moreover, other parties have developed technologies that may be related or competitive to our approach, and may have filed or may file patent applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. These third party patent positions may limit or even eliminate our ability to obtain patent protection for certain inventions.
The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. United States patents and patent applications may also be subject to interference proceedings, ex parte reexamination, or inter partes review proceedings, and challenges in district court. Patents may be subjected to opposition, revocation proceedings, or comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize vonapanitase or any additional product candidates.
Furthermore, though a patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if a patent issues and is held to be valid and enforceable, competitors may be able to design around our patents, such as using pre-existing or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or know-how by consultants, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our sales.
In addition, proceedings to enforce or defend our patents, if and when issued, could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly. These proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents, if and when issued, covering vonapanitase or any additional product candidates, are invalidated or found unenforceable, our financial position and results of operations would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered vonapanitase, or any additional product candidates, our financial position and results of operations would also be materially and adversely impacted.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
We rely upon unpatented know-how to maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and our confidential know-how could become known to others through such breaches or violations. Further, our know-how could otherwise become knownrepresentatives, or be independently discovered by our competitors. Further,If trade secrets are independently discovered, we would not be able to prevent their use and if we and our agents or representatives inadvertently disclose trade secrets and/or unpatented know-how, we may not be allowed to retrieve this and maintain the term of confidentiality requirements for current and terminated agreements with some of our consultants, contract manufacturing or research organizations and other third parties is finite.exclusivity we previously enjoyed.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which the academic advisor is required to assign any inventions developed in connection with providing services to us, the academic advisor may not have the right to assign these inventions to us, as it may conflict with his or her obligations to assign all intellectual property to his or her employing institution.
Litigation may be necessary to defend against these and other claims challenging inventorship or ownership of inventions. If we are unsuccessful in defending against any of these 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.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
Issued patents covering vonapanitase or covering any additional product candidates could be found invalid or unenforceable if challenged in court.
If we initiated legal proceedings against a third party to enforce a patent, if and when issued, covering vonapanitase or any additional product candidate, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These mechanisms include reexamination and inter partes review in the United States and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. These proceedings could result in revocation or amendment of our patents in such a way that they no longer cover, for example, vonapanitase or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, including prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on the applicable product candidate. A loss of patent protection would have a material adverse impact on our business.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world, and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.world.
Filing, prosecuting and defending patents on our product candidates does not guarantee exclusivity. The requirements for patentability differ in allcertain countries, and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States.particularly developing countries. 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 United States.States, especially when it comes to granting use and other kinds of patents and what kind of enforcement rights will be allowed, especially injunctive relief in a civil infringement proceeding. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States or from selling or importing products made usingand even in launching an identical version of our inventionsproduct notwithstanding we have a valid patent in and into the United States or other jurisdictions.
that country. Competitors may use our technologies in jurisdictions where we dohave not pursue and obtainobtained patent protection to develop their own products, or produce copy products, and, further, may export otherwise infringing products to territories where we have patent protection but enforcement on infringing activities is not as strong as that in the United States.inadequate or where we have no patents. 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. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals,pharmaceuticals, 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 could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our global patents at risk of being invalidated or interpreted narrowly could putand our global 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 or infringement actions brought against us, and the damages or other remedies awarded, if any, may not be commercially meaningful.meaningful when we are the plaintiff. When we are the defendant we may be required to post large bonds to stay in the market while we defend ourselves from an infringement action.
In addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties, especially if the patent owner does not enforce or use its patents over a protracted period of time. In some cases, the courts will force compulsory licenses on the patent holder even when finding the patent holder’s patents are valid if the court believes it is in the best interests of the country to have widespread access to an essential product covered by the patent. In these situations, the royalty the court requires to be paid by the license holder receiving the compulsory license is not calculated at fair market value and can be inconsequential, thereby adversely affecting the patent holder’s business. In these countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third-party, which could also materially diminish the value of those patents. This would limit our potential revenue opportunities. 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 developown or license.
Some oflicense, especially in comparison to what we enjoy from enforcing our intellectual property may have been discovered through government funded programs and thus may be subject to federal regulations such as government “march-in” rights certain reporting requirements, and a preference for United States industry. Compliance with these regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limitin the Unites States. Finally, our ability to contract with foreign manufacturers.
Some ofprotect and enforce our intellectual property rights may have been generated throughbe adversely affected by unforeseen changes in both U.S. and foreign intellectual property laws, or changes to the use of United Statespolicies in various government fundingagencies in these countries, including but not limited to the patent office issuing patents and therefore are subject to certain federal regulations.the health agency issuing pharmaceutical product approvals. For example, ourin Brazil, pharmaceutical patents relatingrequire initial approval of the Brazilian health agency (ANVISA). Finally, many countries have large backlogs in patent prosecution, and in some countries in Latin America it can take years, even decades, just to some therapeutic uses of vonapanitase and associated systems and kits that includeget a catheter, which we refer to as the “therapy family,” arose from research funded by the United States government. As a result, the United States government has certain rights to this intellectual property pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These United States government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations, also referred to as “march-in rights.” The United States government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the United States government may acquire title to these inventions in any country in which apharmaceutical patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements,reviewed notwithstanding the merits of the application.
Obtaining and maintaining patent protection depends on compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the United States government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for United States manufacturers may limitvarious procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our ability to contract with foreign product manufacturers for products covered by the applicable intellectual property.
We currently do not plan to apply for additional United States government funding, but if we do, and we discover compounds or drug or biological candidates as a result of such funding, intellectual property rights to these discoveries may be subject to the applicable provisions of the Bayh-Dole Act.
If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent protection could be reduced or eliminated for vonapanitase, our business may be materially harmed.non-compliance with these requirements.
Depending uponPeriodic maintenance and annuity fees on any issued patent are due to be paid to the timing, durationUSPTO and specificsforeign patent agencies in several stages over the lifetime of the first FDA marketing approvalpatent. The USPTO and various foreign governmental patent agencies require compliance with a number of vonapanitaseprocedural, documentary, fee payment and ifother similar provisions during the patent application process. While an inadvertent lapse can, in many cases, be cured by payment of a late fee or by other means in accordance with the applicable any additionalrules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction just for failure to know about and/or timely pay a prosecution fee. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees in prescribed time periods, and failure to properly legalize and submit formal documents in the format and style the country requires. If we or our licensors fail to maintain the patents and patent applications covering our product candidates a United States patent that we own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit extension of one patent that covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient that has not previously been marketed for up to five years and no more than fourteen years after product approval for patent term lost during product development and the FDA regulatory review process. The length of the extension is calculated by adding one half of the time between the IND effective date and a company's initial submission of a marketing application, plus the entire time between the submission of the marketing application and the FDA's approval of the application. During this period of extension, the scope of protection is limited to the approved product for approved uses (for patents claiming a product) and any use claimed by the patent and approved for the product (for patents claiming a method of using a product).
Although we plan on seeking patent term restoration for our products, it may not be granted if, for example, we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term restoration or the term of any such patent restoration is less than we request,reason, our competitors maymight be able to enter the market, which could materially adversely affect our business, financial condition, operating results and compete againstprospects.
If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business. Additionally, these agreements may be subject to disagreement over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.
We have entered into in-license arrangements with respect to certain of our product candidates. These license agreements impose various diligence, milestone, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the respective licensors may have the right to terminate the license, in which event we may not be able to develop or market the affected product candidate. The loss of such rights could materially adversely affect our business, financial condition, operating results and prospects.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us sooner than we anticipate, andfrom developing or commercializing our product candidates.
Our commercial success depends on our ability to generate revenues coulddevelop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We cannot assure that marketing and selling such candidates and using such technologies will not infringe existing or future patents. Numerous U.S.- and foreign-issued patents and pending patent applications owned by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our product candidates, technologies or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents and other intellectual property rights cover various drugs, biologics, drug delivery systems or their methods of use, and which of these patents may be materially adversely affected.
Changes in United States patent law could diminishvalid and enforceable. Thus, because of the valuelarge number of patents issued and patent applications filed in general, thereby impairing our ability to protectfields across many countries, there may be a risk that third parties may allege they have patent rights encompassing our products.product candidates, technologies or methods.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our product candidates or proprietary technologies notwithstanding patents we may possess. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file, patent applications covering our product candidates or technology similar to our technology. Any such patent application may have priority over our own and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies, which may mean paying significant licensing fees or the like. If another party has recently enacted and is currently implementing wide-rangingfiled a U.S. patent reform legislation,application on inventions similar to those owned or in-licensed to us, or, in the Leahy-Smith America Inventscase of in-licensed technology, the licensor may have to participate, in the United States, in an interference proceeding to determine priority of invention.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates or proprietary technologies infringe such third parties’ intellectual property rights, including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act or America Inventsother countries’ laws similar to the Hatch-Waxman Act. The America Invents Act includesThese lawsuits could claim that there are existing patent rights for such drug, and this type of litigation can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents or the patents asserted against us are ultimately established as invalid. There is a number ofrisk that a court would decide that we are infringing the third-party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court would order us to pay the other party significant changesdamages for having violated the other party’s patents.
Because we rely on certain third-party licensors and partners and will continue to United States patent law. These include provisions that affectdo so in the way patent applications will be prosecuted, provides expanded opportunities for post-grant administrative review of patents before the USPTO, and may also affect patent litigation. It is not yet clear what,future, if any, impact the America Invents Act will have on the operationone of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcementlicensors or defense of any patents that may issue from our patent applications, all of which could havepartners is sued for infringing a material adverse effect onthird-party’s intellectual property rights, our business, financial condition, operating results and financial condition.
In addition, recent United States Supreme Court rulings have narrowedprospects could suffer in the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. The full impact of these decisions is not yet known. For example, on March 20, 2012 in Mayo Collaborative Services v. Prometheus Laboratories, Inc., the Court held that several claims drawn to measuring drug metabolite levels from patient samples and correlating them to drug dosessame manner as if we were not patent-eligible subject matter. The decision appears to impact diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain patent protection for certain inventions. Additionally, on June 13, 2013 in Association for Molecular Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic DNA are not patent-eligible, but claims to complementary DNA molecules are patent-eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products is uncertain. However, on March 4, 2014, the USPTO issued a memorandum to patent examiners providing guidance for examining claims that recite laws of nature, natural phenomena or natural products under the Myriad and Prometheus decisions. This guidance did not limit the application of Myriad to DNA, but, rather, applied the decision to other natural products.
sued directly. In addition to increasing uncertaintyfacing litigation risks, we have agreed to indemnify certain third-party licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered or may enter into cost-sharing agreements with regardsome our licensors and partners that could require us to pay some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by our abilityproprietary technologies. In certain instances, these cost-sharing agreements could also require us to obtain future patents, this combinationassume greater responsibility for infringement damages than would be assumed just on the basis of events has created uncertainty with respect to the value of patents, once obtained. Depending on these and other decisions by the United States 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 current or future patents.technology.
The occurrence of any of the foregoing could adversely affect our business, financial condition or operating results.
We may be subject to damages resulting from claims that weour officers, directors, employees, consultants or our employeesindependent contractors have wrongfully used or disclosed to us alleged trade secrets of their former employers.employers or their former or current customers.
OurAs is common in the biotechnology and pharmaceutical industries, certain of our employees have been previouslywere formerly employed atby other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our products and product candidates, many of whom were previously employed at, or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or at universities or academic medical centers.potential competitors. We also engage advisors and consultants who are concurrently employed at universities or who perform services for other entities. Although we are not aware of any claims currently pending against us, we may be subject to claims that wethese employees and consultants or our employees, advisors or consultantswe have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information of atheir former employeremployers or other third party. We may in the future also be subjecttheir former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims that an employee, advisor or consultant performed work for us that conflicts with that person’s obligationswere to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigationarise, litigation may be necessary to defend against theseany such claims. Even if we are successful in defending against theseany such claims, any such litigation could result in substantial costs and be protracted, expensive, a distraction to management. our management team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome.
General Risk Factors
If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including, but not limited to, regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; loss of revenue or profits; interruptions to our operations such as our clinical trials; harm to our reputation; loss of customers or sales; and other adverse consequences.
In the ordinary course of our business, we may Process (as defined above) proprietary, confidential and sensitive information, including personal data (including, key-coded data, health information and other special categories of personal data), intellectual property, trade secrets, and proprietary business information owned or controlled by ourselves or other parties, or collectively, Sensitive Information.
We may use third-party service providers and subprocessors to help us operate critical business systems to Process Sensitive Information on our behalf in a variety of contexts, including without limitation, encryption and authentication technology, employee email, and other functions. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place. We may share or receive Sensitive Information with or from third parties.
If we, are unsuccessfulour service providers, partners or other relevant third parties have experienced, or in defending against such claims,the future experience, any security incident(s) that result in, additionany data loss; deletion or destruction; unauthorized access to; loss, unauthorized acquisition, disclosure, or exposure of, Sensitive Information, or compromise related to paying monetary damages, wethe security, confidentiality, integrity or availability of our (or their) information technology, software, services, communications or data, or collectively, a Security Incident, it may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize vonapanitase or any additional product candidates, which would materially adversely affect our commercialbusiness, financial condition, operating results and prospects, including the diversion of funds to address the breach, and interruptions, delays, or outages in our operations and development efforts.programs. In the first quarter of 2020, our email server was compromised in a cyber-attack. We quickly isolated the incident and have, since, implemented additional risk prevention measures.
Numerous factors
Cyberattacks, malicious internet-based activity and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. These threats come from a variety of sources, including traditional computer “hackers”, threat actors, employee error, theft or misuse, sophisticated nation-states, and nation-state supported actors. We and the third parties upon which we rely may limit anybe subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks); software bugs; malicious code (such as viruses and worms); denial-of-service attacks (such as credential stuffing); malware (including as a result of advanced persistent threat intrusions); supply-chain attacks, server malfunctions, software and hardware failures; loss of data or other information technology assets; adware; natural disasters; terrorism; war; telecommunication and electrical failures; ransomware attacks; and other similar threats.
Ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our operations, loss of data, loss of income, significant extra expenses to restore data or systems, reputational loss and the diversion of funds. To alleviate the financial, operational and reputational impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments).
Similarly, supply chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services. We may also be the subject of server malfunction, software or hardware failures, loss of data or other computer assets, and other similar issues. A significant portion of our workforce and third-party partners work remotely from time to time, and reliance on remote working technologies and the prevalent use of mobile devices that access confidential and personal data information increase the risk of Security Incidents, which could lead to the loss confidential information, personal data, trade secrets or other intellectual property.
We may be required to expend additional, significant resources, fundamentally change our business activities and practices, or modify our operations, including our clinical trial activities, or information technology in an effort to protect against Security Incidents and to mitigate, detect, and remediate actual and potential competitive advantage provided byvulnerabilities. Certain data privacy and security obligations may require us to implement specific security measures or use industry-standard or reasonable measures to protect our intellectual property rights.
The degreeinformation technology systems and Sensitive Information. Even if we were to take and have taken security measures designed to protect against Security Incidents, there can be no assurance that such security measures or those of our service providers, partners and other third parties will be effective in protecting against all Security Incidents and material adverse impacts that may arise from such Security Incidents. We may be unable in the future protection afforded byto detect vulnerabilities in our intellectual property rights is uncertaininformation technology systems because intellectual property rights have limitations,such threats and techniques change frequently, are often sophisticated in nature, and may not adequately protectbe detected until after a Security Incident has occurred. Despite our business, provide a barrierefforts to entry againstidentify and remediate vulnerabilities, if any, in our competitors or potential competitors, or permit us to maintaininformation technology systems, our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, weefforts may not be ablesuccessful. Further, we may experience delays in developing and deploying remedial measures designed to exercise or extract value from our intellectual property rights fully or at all. The following examples are illustrative:address any such identified vulnerabilities.
Should any of these events occur, they could significantly harm our business and results of operations.
Risks Related to Our Business and Industry
If we fail(or a third-party upon whom we rely) experience a Security Incident or are perceived to attract and keep senior management and key scientific personnel,have experienced a Security Incident, we may be unable to successfully developexperience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our products, conductoperations (including availability of data); financial loss; and other similar harms. In addition, our actual or prospective customers, collaborators, partners and/or clinical trials and commercializetrial participants may stop using our product candidates.
Our future growthcandidates or working with us. This discontinuance, or failure to meet the expectations of such third parties, could result in material harm to our operations, financial performance or reputation and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team, in particular, Timothy Noyes, our President and Chief Executive Officer, Steven Burke, our Senior Vice President and Chief Medical Officer, George Eldridge, our Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary, Scott Toner, our Senior Vice President of Commercial, and Daniel Gottlieb, our Vice President, Corporate Development, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to executegrow and operate our business plan and harm our operating results.business.
Because of the specialized scientific and managerial natureFailures or significant downtime of our business, we rely heavily oninformation technology or telecommunication systems or those used by our ability to attractthird-party service providers could cause significant interruptions in our operations and retain qualified scientific, technicaladversely impact the confidentiality, integrity and managerial personnel. We do not currently carry “key person” insurance on the livesavailability of members of executive management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our businessSensitive Information, including preventing us from conducting clinical trials, tests or to recruit suitable replacement personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development activities and commercialization strategy including, F. Nicholas Franano, our scientific founder. Our consultants and advisors may be employed by employers other thanprevent us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We will need to significantly increasefrom managing the sizeadministrative aspects of our organization,business.
Applicable Data Protection Requirements (as defined below) may require us to notify relevant stakeholders of Security Incidents, including affected individuals, partners, collaborators, customers, regulators, law enforcement agencies, credit reporting agencies and we may experience difficulties in managing growth.
Weothers. Such disclosures are currently a small companycostly, and in order to commercialize our potential products, we will need to increase our operations and expand our use of our third-party contractors. We plan to continue to build our compliance, financial and operating infrastructure to ensure the maintenance of a well-managed company including hiring additional staff within our regulatory and clinical groups as we move into later stages of our Phase 3 development. We intend to recruit an in-house commercial organization in the United States focused on promoting vonapanitase, if it is approved. We currently do not have a sales and marketing capability and therefore intend to recruit a specialty sales force of approximately 75-100 representatives in anticipation of vonapanitase's approval. We estimate it will take three to six months to recruit this specialty sales force. We will need to expand our employment base when we are in the full commercial stages of our current potential product's life cycle.
Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our future financial performance and our ability to commercialize our potential products and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:
Product candidates that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Upon completion of our Initial Public Offering, or IPO, we became subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended,disclosures or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.
We face an inherent risk of product liability claims as a result of the clinical testing of vonapanitase or any additional product candidates. We will face an even greater risk if we commercially sell vonapanitase or any additional product candidate that we develop. We maintain primary product liability insurance and excess product liability insurance that cover our clinical trials, and we plan to maintain insurance against product liability lawsuits for commercial sale of our potential products. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use of our potential products, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.
For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs or biologics that had unanticipated adverse effects. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of vonapanitase or any additional product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
We currently have a $5 million product liability insurance coverage in connectioncomply with our clinical trials and we will need to increase our insurance coverage if and when we begin selling vonapanitase or any additional product candidates if and when they receive marketing approval. However, the product liability insurance we will need to obtain in connection with the commercial sales of vonapanitase or any additional product candidates if and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of vonapanitase or any additional product candidates if and when they obtain regulatory approval, whichsuch requirements could materially adversely affect our business, financial condition, operating results of operations, cash flows and prospects.
Additionally,Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that any limitations or exclusions of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we do not carry insurance for all categories of riskfail to comply with Data Protection Requirements related to information security or Security Incidents.
We cannot be sure that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if weinsurance coverage will be ableadequate or otherwise protect us from or adequately mitigate liabilities or damages with respect to maintainclaims, costs, expenses, litigation, fines, penalties, business loss, data loss, regulatory actions or material adverse impacts arising out of our Processing operations, privacy and security practices, or Security Incidents we may experience. The successful assertion of one or more large claims against us that exceeds our available insurance with adequate levelscoverage, or results in changes to our insurance policies (including premium increases or the imposition of coverage. Any significant uninsured liability may require us to pay substantial amounts, which wouldlarge excess or deductible or co-insurance requirements), could materially adversely affect our business, financial position, cash flowscondition, operating results and results of operations.prospects.
If we engage in acquisitions in the future, we will incurWe are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; a varietydisruption of costsour business operations, including our clinical trials; harm to our reputation; and we may never realize the anticipated benefits of such acquisitions.other adverse effects on our business or prospects.
We may attempt to acquire businesses, technologies, services, productsIn the ordinary course of business, we collect, receive, store, process, use, generate, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share, or product candidatescollectively, Process or Processing of, personal data and other sensitive and confidential information, including information we collect about patients in the future that we believe are a strategic fitconnection with our business. We have no present agreement regarding any material acquisitions. If we do undertake any acquisitions, however, the process of integrating an acquired business, technology, service, productsclinical trials, sensitive third-party data or, product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.
We currently have our API produced for us by a contract manufacturer exclusively in one manufacturing facility and if this or any future facility, any facility we use for storage of the finished product or our equipment were damaged or destroyed, our ability to continueas necessary to operate our business, would be materially harmed.for legal and marketing purposes, and for other business-related purposes.
Our executive officesAccordingly, we are, located in Waltham, Massachusetts,or may become, subject to numerous federal, state, local and our API is manufactured at Lonza’s facility located in Visp, Switzerland. We expect that Lonza plans to utilize this facility in the future to support commercial production if our product candidate is approved. We have manufactured our entire finished product for the ongoing Phase 3 clinical trial of vonapanitaseinternational data privacy and currently store the finished product in only one location. Extended delays in our Phase 3 clinical trial causing us to need to manufacture new clinical supply would cause a significant disruption in our operationssecurity laws, regulations, guidance and cause us to incur unexpected costs to manufacture new finished product. We are vulnerable to natural disasters, suchindustry standards as severe stormswell as external and internal privacy and security policies, contracts and other eventsobligations that apply to the Processing of personal data by us and on our behalf, collectively, Data Protection Requirements. The number and scope of Data Protection Requirements are changing, subject to differing applications and interpretations, and may be inconsistent between jurisdictions or in conflict with each other. If we fail, or are perceived to have failed, to address or comply with Data Protection Requirements, we could face significant consequences. These consequences may include, but are not limited to, government enforcement actions against us that could disrupt our operations. We doinclude investigations, fines, penalties, audits and inspections, additional reporting requirements and/or oversight, temporary or permanent bans on all or some Processing of personal data, orders to destroy or not carry insurance for natural disastersuse personal data, and we may not carry sufficient business interruption insurance to compensateimprisonment of company officials (for example, under the Health Insurance Portability and Accountability Act of 1996). Further, individuals or other relevant stakeholders could bring a variety of claims against us for losses that may occur. If the current manufacturing facilityour actual or any future facility, stored product or equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business would be materially harmed.
If supply is interrupted, there could be a significant disruption in our clinical development and commercial supply. If the supply is interrupted after approval of the BLA, an alternative manufacturer would need to be qualified through a BLA supplement 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 would likely result in a delay in our desired clinical and commercial timelines.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of vonapanitase or any additional product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. 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 trials may be delayed or we could lose potential revenue.
Our business and operations would suffer in the event of system failures or security breaches.
Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber attacks, natural disasters, terrorism, war and telecommunication and electrical failures. If issues were to arise and cause interruptions in our operations, it could result in a material disruption of our drug and biologic 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 significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of vonapanitase or any additional product candidates could be delayed. We may also be vulnerable to cyber attacks by hackers, or other malfeasance. This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and detrimentally impact our business or result in legal proceedings.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failuresperceived failure to comply with the regulationsData Protection Requirements. Any of the FDA and foreign regulators, provide accurate information to the FDA and foreign regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, and report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We have broad discretion in our use of our cash and cash equivalents and may not use them effectively.
Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our Common Stock. The failure of our management to apply these funds effectively could result in financial losses thatevents could have a material adverse effect on our reputation, business, cause the priceor financial condition, and could lead to a loss of our Common Stockactual or prospective customers, collaborators or partners; interrupt or stop clinical trials; result in an inability to decline and delay the development of our product candidates. Pending their useProcess personal data or to fund our operations, we may invest our cash and cash equivalentsoperate in a manner that does not produce income or that loses value.
Recent federal legislation may increase the difficulty and cost for us to commercialize vonapanitase and may affect the prices we may obtain, and impaircertain jurisdictions; limit our ability to profitably sell vonapanitase, if approved.develop or commercialize our products; or require us to revise or restructure our operations, or each, a material adverse impact.
We are, or may become, subject to U.S. privacy laws. For example, in the United States, there are a broad variety of data protection laws and regulations that may apply to our activities such as state data breach notification laws, state personal data privacy laws (for example, the California Consumer Privacy Act of 2018, or CCPA), state health information privacy laws, and federal and state consumer protection laws.
The CCPA requires covered businesses that process personal data of California residents to disclose their data collection, use and sharing practices. Further, the CCPA provides California residents with new data privacy rights (including the ability to opt out of the sale of personal data), imposes new operational requirements for covered businesses, provides for civil penalties for violations (up to $7,500 per violation), as well as a private right of action for certain data breaches (that is expected to increase data breach class action litigation and result in significant exposure to costly legal judgements and settlements). Aspects of the CCPA and its interpretation and enforcement remain uncertain. Further, the new California Privacy Rights Act, or CPRA, substantially expands the CCPA’s requirements effective January 1, 2023. The CPRA, among other things, gives California residents the ability to limit use of certain sensitive personal data, establish restrictions on the retention of personal data, expand the types of data breaches subject to the CCPA’s private right of action, and establish a new California Privacy Protection Agency to implement and enforce the new law. Although there are limited exemptions for clinical trial data under the CCPA and the CPRA, the CCPA and the CPRA may increase compliance costs and potential liability with respect to other personal data we maintain about California residents. Other states have enacted data privacy laws as well. For example, Virginia passed its Consumer Data Protection Act, which went into effect on January 1, 2023, and Colorado passed the Colorado Privacy Act, which will go into effect on July 1, 2023, both of which differ from the CPRA. The federal government is also considering comprehensive privacy legislation.
Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s General Data Protection Regulation, or EU GDPR, the United Kingdom’s GDPR, or UK GDPR, and Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or LGPD) (Law No. 13,709/2018) impose strict requirements for processing personal data. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines of up to 20 million euros or 4% of annual global revenue, whichever is greater. Further, individuals may initiate litigation related to processing of their personal data.
European data protection laws (including the EU GDPR and UK GDRP) are wide-ranging in scope and impose numerous, significant and complex compliance burdens in relation to the Processing of personal data, such as: limiting permitted Processing of personal data to only that which is necessary for specified, explicit and legitimate purposes; requiring the establishment of a legal basis for Processing personal data; broadening the definition of personal data; creating obligations for controllers and processors to appoint data protection officers in certain circumstances; increasing transparency obligations to data subjects; introducing the obligation to carry out data protection impact assessments in certain circumstances; establishing limitations on the collection and retention of personal data through “data minimization” and “storage limitation” principles; introducing obligations to honor increased rights for data subjects; formalizing a heightened standard to obtain data subject consent; establishing obligations to implement certain technical and organizational safeguards to protect the security and confidentiality of personal data; introducing the obligation to provide notice of certain significant personal data breaches to the relevant supervisory authority(ies) and affected individuals; and mandating the appointment of representatives in the UK and/or EU in certain circumstances. In particular, the Processing of “special categor[ies] [of] personal data” (such as personal data related to health and genetic information), which could be relevant to our operations in the context of our clinical trials, imposes heightened compliance burdens under European data protection laws and is a topic of active interest among relevant regulators.
Certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws, which could make it more difficult to transfer information across jurisdictions (such as transferring or receiving personal data that originates in the EU or in other foreign jurisdictions). Existing mechanisms that facilitate cross-border personal data transfers may change or be invalidated. For example, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to countries outside of the European Economic Area, or EEA, that the European Commission does not consider to provide an adequate level of data privacy and security, such as the United States. The European Commission released a set of “Standard Contractual Clauses,” or SCCs, that are designed to be a valid mechanism to facilitate personal data transfers out of the EEA to these jurisdictions. Currently, these SCCs are a valid mechanism to transfer personal data outside of the EEA, but there exists some uncertainty regarding whether the SCCs will remain a valid mechanism. Additionally, the SCCs impose additional compliance burdens, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data.
In addition, Switzerland and the UK similarly restrict personal data transfers outside of those jurisdictions to countries that they do not consider to provide an adequate level of personal data protection, such as the United States, and somecertain countries outside Europe (e.g., Brazil) have also passed or are considering laws requiring local data residency or otherwise impeding the transfer of personal data across borders, any of which could increase the cost and complexity of doing business.
If we cannot implement a valid compliance mechanism for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal data from Europe or other foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for vonapanitase, restrict or regulate post-approval activities and affect our abilityjurisdictions. Inability to profitably sell vonapanitase, if approved. Legislative and regulatory proposals have been madeimport personal data to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, targets or interpretations will be changed, or what the impact of such changes on the marketing approvals of vonapanitase, if any, may be. In addition, increased scrutiny by the United States Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the pharmaceutical industry has been significantly affected by legislative initiatives. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug and biologic purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs and biologics. Cost reduction initiatives and other provisions of this legislation could decrease the coverage of, or the reimbursement rate that we receive for, vonapanitase, if approved, and could seriously harm our business. While the MMA applies only to reimbursement of drugs and biologics under the Medicare program, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from non-governmental payors.
In March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 or, collectively, the ACA, which substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. Among the provisions of the ACA of importance tonegatively impact our business operations, including without limitation, our ability to commercialize, and the prices we may obtain for, vonapanitase, if approved for sale, are the following:
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013 the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The full impact on our business of the ACA and other new laws is uncertain but may result in additional reductions in Medicare and other healthcare funding. In addition, with the new Administration and Congress, it is unclear whether there will be additional administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions of, the ACA. Nor is it clear whether other legislative changes will be adopted, if any, or how such changes would affect the demand for vonapanitase, if approved.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In international markets, reimbursement and health care payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. There can be no assurance that our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Risks Related to Our Common Stock
We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our Common Stock may be less attractive to investors.
We are an “emerging growth company,” or EGC, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, including: not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We may take advantage of these reporting exemptions until we are no longer an EGC. We will remain an EGC until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
We cannot predict whether 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. In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not EGCs.
Even after we no longer qualify as an EGC, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our Common Stock less attractive because we will 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.
The market price for our Common Stock may be volatile, which could contribute to the loss of your investment.
Fluctuations in the price of our Common Stock could contribute to the loss of all or part of your investment. Prior to our IPO, there was no public market for our Common Stock. We are now listed on NASDAQ, but we cannot predict the extent to which investor interest in our Company will lead to the development of or sustain an active trading market on NASDAQ or otherwise or how liquid that market might become. If an active trading market for our Common Stock does not develop or is not sustained, the market price and liquidity of our Common Stock will be materially and adversely affected and it may be difficult for stockholders to sell their shares of Common Stock at prices that are attractive to them, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our Common Stock.
If an active market for our Common Stock develops and continues, 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. Any of the factors listed below could have a material adverse effect the price of our Common Stock and stockholders may also be unable to sell their shares of Common Stock at prices that are attractive to them due to fluctuations in the market price of our Common Stock. In such circumstances the trading price of our Common Stock may not recover and may experience a further decline.
Factors affecting the trading price of our Common Stock may include:
Broad market and industry factors may materially harm the market price of our Common Stock irrespective of our operating performance. The stock market in general, and NASDAQ and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for technology or software stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the digital simulation market or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.
Actual or potential sales of our Common Stock by our employees, including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock price to fall or prevent it from increasing for numerous reasons, and actual or potential sales by such persons could be viewed negatively by other investors.
In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number of our employees, including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to sell shares of our Common Stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Actual or potential sales of our Common Stock by such persons could cause the price of our Common Stock to fall or prevent it from increasing for numerous reasons. For example, a substantial number of shares of our Common Stock becoming available (or being perceived to become available) for sale in the public market could cause the market price of our Common Stock to fall or prevent it from increasing. Also, actual or potential sales by such persons could be viewed negatively by other investors.
The issuance of additional sales of our Common Stock, or the perception that such issuances may occur, including through our “At-The-Market” offering, could cause the market price of our Common Stock to fall.
We have entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, for the offer and sale of up to $40 million in aggregate amount of our Common Stock from time to time through Cowen, as our sales agent, pursuant to a Registration Statement on Form S-3 which became effective on January 12, 2016. We filed a prospectus supplement on March 16, 2017 because we are currently subject to General Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the Registration Statement. Cowen is not required to sell any specific number or dollar amount of shares of our Common Stock but will use its reasonable efforts, as our agent and subject to the terms of the Sales Agreement, to sell that number of shares upon our request. Sales of the shares, if any, may be made by any means permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933, as amended, or the Securities Act, and will generally be made by means of brokers' transactions on the NASDAQ Global Market or otherwise at market prices prevailing at the time of sale, or as otherwise agreed with Cowen.
We may terminate the Sales Agreement at any time or it will terminate once proceeds of $40 million have been raised. For the nine months ended September 30, 2017, we sold 896,811 shares of common stock under our At-The-Market, or ATM, program for aggregate net proceeds of $1.3 million. Whether we choose to affect future sales under our ATM program will depend upon a variety of factors, including, among others, market conditions and the trading price of our Common Stock relative to other sources of capital. The issuance from time to time of these new shares of Common Stock through our ATM program or in any other equity offering, or the perception that such sales may occur, could have the effect of depressing the market price of our Common Stock.
Our issuance of Common Stock under our “At-The-Market” offering program may be dilutive, and there may be future dilution of our Common Stock.
After giving effect to the issuance of Common Stock under our ATM offering program and the receipt of the expected net proceeds and the use of those proceeds, there may be a dilutive effect on our estimated earnings per share and funds from operations per share in years during which an offering is ongoing. The actual amount of potential dilution cannot be determined at this time and will be based on numerous factors. Additionally, we are not restricted by our organizational documents, contractual arrangements or otherwise from issuing additional Common Stock or preferred stock, including any securities that are convertible into or exchangeable or exercisable for, or that represent the right to receive, Common Stock or preferred stock or any substantially similar securities in the future. The market price of our Common Stock could decline as a result of issuances of a large number of shares of our Common Stock after this offering or the perception that such issuances could occur.
Our management will have broad discretion with respect to the use of the proceeds resulting from the issuance of Common Stock under our “At-The-Market” offering program.
Our management has significant flexibility in applying the net proceeds we expect to receive from the issuance of Common Stock under our ATM program. We intend to use the net proceeds from this offering for general corporate purposes, which may include repaying debt. However, because the net proceeds are not required to be allocated to any specific investment or transaction, investors cannot determine at the time of issuance the value or propriety of our application of the net proceeds, and investors may not agree with our decisions. In addition, our use of the net proceeds from the offering may not yield a significant return or any return at all. The failure by our management to apply these funds effectively could have an adverse effect on our financial condition, results of operations or the trading price of our Common Stock.
The resale of the shares of Common Stock issuable upon the conversion of our Series A Convertible Preferred Stock could adversely affect the prevailing market price of our Common Stock and cause stockholders to experience dilution.
On August 2, 2017, we issued and sold 22,000 shares of our Series A Convertible Preferred Stock, par value $0.001 per share, for a purchase price of $1,000 per share, or an aggregate purchase price of $22.0 million. Each share of Series A Convertible Preferred Stock is convertible into approximately 1,005 shares of our Common Stock at a conversion price of $0.9949 per share, provided that any conversion of Series A Convertible Preferred Stock by a holder into shares of Common Stock is prohibited if, as a result of such conversion, the holder, together with its affiliates and any other person or entity whose beneficial ownership of our Common Stock would be aggregated with such holder’s for purposes of Section 13(d) of the Exchange Act, would beneficially own more than 9.985% of the total number of shares of our Common Stock issued and outstanding after giving effect to such conversion (the “Blocker”). Pursuant to the registration statement that we filed with the SEC for the resale by holders of our Series A Preferred Convertible Stock, as selling stockholders, of the aggregate 22,112,775 shares of Common Stock that are issuable upon conversion of the Series A Convertible Preferred Stock, the outstanding shares of Series A Convertible Preferred Stock may, at each holder’s election, be converted into our Common Stock, subject to the Blocker. Although we cannot predict if and when the holders of Series A Convertible Preferred Stock may sell such shares in the public market, any converted shares of Common Stock will be available for immediate resale and be able to be freely sold in the open market. The conversion of shares of Series A Convertible Preferred Stock into shares of Common Stock will result in substantial dilution to holders of our Common Stock. Further, the sale of a significant amount of these shares of Common Stock in the open market or the perception that these sales may occur could adversely affect prevailing market prices of our Common Stock, including causing the market price of our Common Stock to decline or become highly volatile.
Raising additional funds through debt or equity financing could be dilutive and may cause the market price of our Common Stock to decline.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings, and potentially through strategic partnerships with third parties. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our Common Stock to decline and existing stockholders may not agree with our financing plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantial portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on our operations, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impactlimiting our ability to conduct clinical trial activities in Europe and elsewhere; limiting our business. Additional fundingability to collaborate with parties subject to European and other data protection laws or requiring us to increase our personal data processing capabilities in Europe and/or elsewhere at significant expense.
These laws exemplify the vulnerability of our business to the evolving regulatory environment related to personal data and may require us to modify our Processing practices at substantial costs and expenses in an effort to comply. Given the breadth and evolving nature of Data Protection Requirements, preparing for and complying with these requirements is rigorous, time-intensive and requires significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that Process personal data on our behalf.
We may publish privacy policies and other documentation regarding our Processing of personal data and/or other confidential, proprietary or sensitive information. Although we endeavor to comply with our published policies and other documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be available to us on acceptable terms,successful in achieving compliance if our employees, third-party collaborators, service providers, contractors or at all.
If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our Common Stock could decline.
The trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our Common Stock, the lack of research coverage may adversely affect the market price of our Common Stock. Furthermore, if one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.
The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.
As of September 30, 2017, our executive officers, directors, current 5% or greater stockholders, and their respective affiliates together beneficially own or control, in aggregate, more than 50% of the shares of our outstanding Common Stock. As a result, these executive officers, directors and principal stockholders, acting together, will have substantial influence over most matters that require approval by our stockholders, including the election of directors, any merger, consolidation or sale of all or substantially all or of our assets or any other significant corporate transaction. Corporate action might be taken even if other stockholders oppose such action. These stockholders may delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of our company, even if such change of control would benefit our other stockholders. This concentration of stock ownership may adversely affect investors’ perception of our corporate governance or delay, prevent or cause a change in control of our company, any of which could adversely affect the market price of our Common Stock.
Future sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We have filed a registration statement permitting shares of Common Stock issued in the future, pursuant to our employee benefit plans, to be freely resold by plan participants in the public market, subject to applicable lock-up agreements, applicable vesting schedules and, for shares held by directors, executive officers and other affiliates, volume limitations under Rule 144 for shares. Our 2014 Employee Incentive Plan and 2014 Employee Stock Purchase Plan also contain a provision for the annual increase of the number of shares reserved for issuance under such plan, which shares we also intend to register in the future as such annual increase occurs. If the shares we may issue from time to time under our employee benefit plans are sold, or if it is perceived that they will be sold, by the award recipient in the public market, the trading price of our Common Stock could decline.
We expect that significant additional capital will be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. 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 may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our Common Stock.
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 newly public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, and rules of the SEC and those of NASDAQ impose various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer an EGC. 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. If we are not ableconsultants fail to comply with the requirementsour policies and documentation. Such failures can subject us to potential regulatory action if they are found to be deceptive, unfair, or misrepresentative of Section 404 in a timely manner, or ifour actual practices. Moreover, subjects about whom we or our independent registered public accounting firm identify deficiencies in our internal control 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 NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and topartners obtain an unqualified report on internal controls from our auditorsinformation, as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our Common Stock, and could adversely affect our ability to access the capital markets.
We do not expect to pay any cash dividends for the foreseeable future.
You should not rely on an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Common Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. Accordingly, investors must rely on sales of their Common Stock after price appreciation, which may never occur,well as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.
Our ability to use our net operating loss carryovers and certain other tax attributesproviders who share this information with us, may be limited.
As described above under “—Risks Related to Our Financial Condition and Need for Additional Capital,” we have incurred net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. Under the Internal Revenue Code, as amended (the “Code”), a corporation is generally allowed a deduction for net operating losses, or NOLs, carried over from a prior taxable year. Under that provision, we can carry forward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits.
If a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, Sections 382 and 383 of the Code, limit the corporation’s ability to use carryovers of its pre-change NOLs, credits and certain other tax attributes to reduce its tax liability for periods after the ownership change. We completed an analysis to determine if there were changes in ownership for tax years through 2015, as defined by Section 382 of the Internal Revenue Code that wouldcontractually limit our ability to utilize certain net operating lossuse and tax credit carryforwardsdisclose the information. Claims that we have violated individuals’ privacy rights or failed to comply with data protection laws or applicable privacy notices even if we are not found liable, could be expensive and it was determined there was no change in ownership. We are in the process of completing an analysistime-consuming to determine if there were changes in ownership for tax years through 2016, as defined by Section 382. To the extent the Company undergoes a change in ownership, as defined by Section 382, utilization of our net operating lossesdefend and tax credits carryforwards may become limited. If this were to occur, this could result in increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also be limited to the extentadverse publicity that we do not generate positive taxable income in future tax periods.
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 biotechnology 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.business or have other material adverse impacts.
Provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law may have anti- takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because we are incorporated in the State of Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision of our amended and restated certificate of incorporation or 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.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and federal court within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware and federal court within the State of Delaware will be exclusive forums for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Use of Proceeds from UnregisteredNone.
Item 3. Defaults Upon Senior Securities
None.
Purchase of Equity SecuritiesItem 4. Mine Safety Disclosures
We did not purchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.None.
Use of Proceeds from Initial Public Offering
On October 27, 2014, we completed the sale of 6,110,000 shares of Common Stock and, on November 21, 2014, we completed the sale of 916,500 shares of Common Stock upon the exercise of an option by our underwriters to purchase additional shares, in each case at a public offering price of $10 per share for aggregate gross proceeds of $70,265,000. The offer and sale of all of the shares in the Initial Public Offering, or IPO, were registered under the Securities Act of 1933, as amended, or the Securities Act, pursuant to a registration statement on Form S-1, as amended (File No. 333-198777), which was declared effective by the SEC on October 21, 2014. The joint book-running managers for the IPO were Stifel, Nicolaus & Company, Incorporated and JMP Securities LLC. The co-managers for the IPO were Robert W. Baird & Co. Incorporated and Oppenheimer & Co. Inc. Following the sale of the shares in connection with the closing of the IPO, the offering terminated.
We received net proceeds from the IPO, including the exercise of the underwriter’s over-allotment, of approximately $62,500,000, after deducting underwriting discounts and commissions of approximately $4,919,000 and offering-related expenses of approximately $2,830,000 payable by us. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of equity securities, or to their associates, or to our affiliates.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act on October 22, 2014. We are holding the balance of the net proceeds from the IPO in investments in U.S. Treasuries, certificates of deposit, and U.S. government-backed and agency securities. As of October, 31, 2017, we estimate that we have used approximately $56.5 million of the net proceeds from the IPO to fund the clinical development of vonapanitase and for other general corporate purposes.
There have been no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors other than as described below.None.
On August 1, 2017, in connection with the closing of the Series A Preferred Stock financing, the Company filed the Certificate of Designation with the Delaware Secretary of State. As set forth in the Certificate of Designation, prior to the first date that the volume-weighted average price per share of Common Stock for each of the trading days during any twenty consecutive trading days ending on or at any time after the one year anniversary of the approval of the Company’s biologics license application for the Company’s product vonapanitase by the United States Food and Drug Administration is greater than 200% of the conversion price, he holders of a majority of the outstanding shares of Series A Preferred Stock are entitled to elect one (1) member of the Company’s Board of Directors.
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
| * | Exhibits filed herewith. |
| ** | Exhibits furnished herewith. |
| † | Indicates management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May 4, 2023 | By: | /s/ | Jesse Shefferman | |
| ||||
| (Principal Executive Officer) | ||||
| Date: May 4, 2023 | |||
| By: | |||
| /s/ | Patrick Fabbio | ||
| |||
| (Principal Financial |
*Exhibits filed herewith
** Exhibits furnished herewith.
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