UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission File
ARS Pharmaceuticals, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware | 81-1489190 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
11682 El Camino Real, Suite San Diego, California | 92130 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (206)456-2900
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, par value $0.0001 per share | SPRY | The Nasdaq |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated | ☒ | 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
As of May 10, 2021November 6, 2023 there were 34,905,51195,997,252 shares of registrant’s common stock, $0.0001 par value per share, outstanding.
Page | ||||||
PART I | FINANCIAL INFORMATION | |||||
Item 1. | 6 | |||||
6 | ||||||
7 | ||||||
8 | ||||||
9 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 10 | |||||
Item 2. | 26 | |||||
Item 3. | 37 | |||||
Item 4. | 37 | |||||
PART II | ||||||
Item 1. | 38 | |||||
Item 1A. | 38 | |||||
Item 2. | 93 | |||||
Item | 93 | |||||
Item 6. | 94 |
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form(this (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
• | any statements regarding future economic conditions or performance; |
• | research and development plans, including planned clinical trials, for neffy, including for additional indications; |
• | the expected timing for reporting data; |
• | the design and potential benefits of neffy; |
• | our plans to complete a pharmacokinetic/pharmacodynamic study assessing repeat doses of neffy compared to repeat doses of epinephrine injection product under allergen-induced rhinitis conditions to support approval of our New Drug Application (“NDA”) resubmission for neffy with the U.S. Food and Drug Administration (“FDA”) for the treatment of allergic reactions (Type 1), including anaphylaxis for adults and children ≥30 kg; |
• | the timing for the FDA’s review of, and the potential outcome from, our Formal Dispute Resolution Request, if any, to appeal the FDA’s Complete Response Letter (“CRL”) regarding our initial NDA for neffy; |
• | our expectations regarding the timing for resubmitting an NDA for neffy with the FDA for the treatment of allergic reactions (Type 1), including anaphylaxis for adults and children ≥30 kg, the FDA’s review of our NDA for neffy, including the classification of our NDA submission as Class 2 and the anticipated Prescription Drug User Fee Act (“PDUFA”) target action date; |
• | our belief that additional testing for nitrosamine impurities based on new draft guidance issued after our NDA submission will not be a rate-limiting step for the resubmission to the FDA; |
• | Our plans to submit a supplemental NDA to the FDA and a post approval variation to the European Medicines Agency (“EMA”) for 1.0 mg neffy and the timing thereof; |
• | our plans to submit regulatory filings for neffy in Japan and China in collaboration with our partners and the timing thereof; |
• | the expected timing for regulatory review decisions for neffy; |
• | the timing of the commercial launch of neffy, if approved; |
• | the commercial potential of and commercialization strategy for neffy; |
• | the size of the markets for neffy and any other product candidates, the projected growth thereof, and our ability to capture and grow those markets; |
• | the rate and degree of market acceptance of neffy and any other product candidates; |
• | our expected competitive position; |
• | our expectations regarding our ability to achieve gross profit margins similar to small molecule drugs; |
• | our potential to become the standard in treatment and transform the treatment of allergic reactions; |
• | the likelihood of neffy attaining favorable coverage; |
• | the expected intellectual property protection for neffy; |
• | legislative and regulatory developments in the United States and foreign countries; |
• | estimates regarding anticipated operating losses, capital requirements and needs for additional funds; |
• | our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection for neffy or any future product candidate; |
• | our expected use of the remaining net proceeds of our initial public offering; and |
3
• | statements of belief and any statement of assumptions underlying any of the foregoing. |
Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and 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, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. 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.
Unless the context otherwise indicates, references in this Quarterly Report to the terms “Silverback”“ARS”, “the Company”, “we,” “our,“we”, “our” and “us” refer to Silverback Therapeutics,ARS Pharmaceuticals, Inc., and its consolidated subsidiaries, and references to our “common stock” refers to our voting common stock.
4
SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS
An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part I,II, Item 1A, “Risk Factors” in this Quarterly Report.
• | We are a clinical-stage biopharmaceutical company and have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated revenue from product sales and may never be profitable. |
• | We have a limited operating history and only one current product candidate, neffy, which is in the clinical stage of development and has no commercial sales, which may make it difficult to evaluate the prospects for our future viability. We may need additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development activities or commercialization efforts. Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidate. |
• | We currently depend on the success of neffy, which is our only current product candidate. If we are unable to obtain regulatory approval for, and successfully commercialize, neffy, or experience significant delays in doing so, our business will be materially harmed. |
• | If the FDA does not conclude that neffy or any future product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful. |
• | If we fail to develop and commercialize neffy for additional indications or fail to discover, develop and commercialize other product candidates, we may be unable to grow our business and our ability to achieve our strategic objectives would be impaired. |
• | Competitive products may reduce or eliminate the commercial opportunity for neffy for its current or future indications. If our competitors develop technologies or product candidates more rapidly than us, or their technologies or product candidates are more effective or safer than ours, our ability to develop and successfully commercialize neffy may be adversely affected. |
• | We are dependent on international third-party licensees and assignees for the development and commercialization of neffy in several countries outside the United States. The failure of these third parties to meet their contractual, regulatory or other obligations could adversely affect our business. |
• | We may seek to enter into additional collaborations, licenses and other similar arrangements for neffy or any future product candidate and may not be successful in doing so, and even if we are, we may relinquish valuable rights and may not realize the benefits of such relationships. |
• | We currently have limited marketing, sales or distribution infrastructure. If we are unable to fully develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we may not be successful in commercializing our product candidates. |
• | The market for neffy and any future product candidates we may develop may be smaller than we expect. |
• | Any of our current and future product candidates for which we, or any current or future licensing and collaboration partners, obtain regulatory approval in the future will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If approved, neffy and any future product candidates could be subject to post-marketing restrictions or withdrawal from the market and we, or any current or future licensing and collaboration partners, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval. |
• | Even if neffy or any future product candidate of ours receives regulatory approval, it may fail to achieve the degree of market acceptance by allergists, pediatricians and other physicians, patients, caregivers, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become profitable. |
• | Our commercial success depends on our ability to obtain and maintain sufficient intellectual property protection for our product candidates and other proprietary technologies. |
• | Our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees. |
5
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ARS Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and par value data)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 374,205 | $ | 386,569 | ||||
Prepaid expenses and other current assets | 4,141 | 4,087 | ||||||
Total current assets | 378,346 | 390,656 | ||||||
Property and equipment, net | 1,603 | 1,618 | ||||||
Restricted cash | 350 | 350 | ||||||
Right-of-use | 1,900 | 2,180 | ||||||
Total assets | $ | 382,199 | $ | 394,804 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,374 | $ | 2,583 | ||||
Accrued expenses | 5,799 | 5,278 | ||||||
Term loan payable, net | 495 | 844 | ||||||
Current portion of lease liability | 927 | 896 | ||||||
Total current liabilities | 11,595 | 9,601 | ||||||
Lease liability, net of current portion | 2,055 | 2,326 | ||||||
Total liabilities | 13,650 | 11,927 | ||||||
Commitments and contingencies (Note 1 0 ) | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Preferred Stock, $0.0001 par value per share; 10,000,000 shares authorized at March 31, 2021 and December 31, 2020; 0 shares issued and outstanding at March 31, 2021 and December 31, 2020 | — | 0— | ||||||
Common stock, $0.0001 par value per share; 200,000,000 shares authorized at March 31, 2021 and December 31, 2020, 34,903,497 and 34,801,537 shares issued, and 34,827,204 and 34,701,274 shares outstanding at | 3 | 3 | ||||||
Additional paid-in capital | 484,147 | 479,608 | ||||||
Accumulated deficit | (115,601 | ) | (96,734 | ) | ||||
Total stockholders’ equity | 368,549 | 382,877 | ||||||
Total liabilities, and stockholders’ equity | $ | 382,199 | $ | 394,804 | ||||
|
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
| (unaudited) |
|
|
|
| ||
Assets |
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| $ | 60,532 |
|
| $ | 210,518 |
|
Short-term investments |
|
|
| 181,370 |
|
|
| 63,863 |
|
Prepaid expenses and other current assets |
|
|
| 2,564 |
|
|
| 3,319 |
|
Total current assets |
|
|
| 244,466 |
|
|
| 277,700 |
|
Right-of-use asset |
|
|
| 300 |
|
|
| 445 |
|
Fixed assets, net |
|
|
| 617 |
|
|
| 329 |
|
Other assets |
|
|
| 3,173 |
|
|
| 2,961 |
|
Total assets |
|
| $ | 248,556 |
|
| $ | 281,435 |
|
Liabilities, convertible preferred stock and stockholders’ equity |
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
|
| ||
Accounts payable and accrued liabilities (including related party amounts of $208 and $16, respectively) |
|
| $ | 10,945 |
|
| $ | 4,931 |
|
Lease liability, current |
|
|
| 235 |
|
|
| 230 |
|
Contract liability, current |
|
|
| — |
|
|
| 283 |
|
Total current liabilities |
|
|
| 11,180 |
|
|
| 5,444 |
|
Lease liability, net of current portion |
|
|
| 92 |
|
|
| 251 |
|
Contract liability, net of current portion |
|
|
| — |
|
|
| 2,854 |
|
Total liabilities |
|
|
| 11,272 |
|
|
| 8,549 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
|
|
| ||
Preferred stock, $0.0001 par value per share; 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; no shares issued and outstanding at September 30, 2023 and December 31, 2022 |
|
|
| — |
|
|
| — |
|
Common stock, $0.0001 par value per share; 200,000,000 shares authorized at September 30, 2023 and December 31, 2022; 95,796,254 and 93,943,316 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively |
|
|
| 9 |
|
|
| 9 |
|
Additional paid-in capital |
|
|
| 361,571 |
|
|
| 349,408 |
|
Accumulated other comprehensive (loss) gain, net |
|
|
| (161 | ) |
|
| 407 |
|
Accumulated deficit |
|
|
| (124,135 | ) |
|
| (76,938 | ) |
Total stockholders’ equity |
|
|
| 237,284 |
|
|
| 272,886 |
|
Total liabilities, convertible preferred stock and stockholders’ equity |
|
| $ | 248,556 |
|
| $ | 281,435 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ARS Pharmaceuticals, Inc.
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, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenue under collaboration agreements |
| $ | — |
|
| $ | 189 |
|
| $ | 30 |
|
| $ | 1,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development (including related party amounts of $307, $776, $1,382 and $1,888, respectively) |
|
| 3,002 |
|
|
| 3,893 |
|
|
| 16,862 |
|
|
| 13,666 |
|
General and administrative (including related party amounts of $322, $73, $840 and $344, respectively) |
|
| 14,976 |
|
|
| 2,926 |
|
|
| 40,462 |
|
|
| 7,723 |
|
Total operating expenses |
|
| 17,978 |
|
|
| 6,819 |
|
|
| 57,324 |
|
|
| 21,389 |
|
Loss from operations |
|
| (17,978 | ) |
|
| (6,630 | ) |
|
| (57,294 | ) |
|
| (20,073 | ) |
Other income (expense), net |
|
| 3,112 |
|
|
| 47 |
|
|
| 10,097 |
|
|
| (180 | ) |
Net loss |
| $ | (14,866 | ) |
| $ | (6,583 | ) |
| $ | (47,197 | ) |
| $ | (20,253 | ) |
Change in unrealized gains and losses on available-for-sale securities |
|
| 19 |
|
|
| — |
|
|
| (568 | ) |
|
| — |
|
Comprehensive loss |
| $ | (14,847 | ) |
| $ | (6,583 | ) |
| $ | (47,765 | ) |
| $ | (20,253 | ) |
Net loss per share, basic and diluted |
| $ | (0.16 | ) |
| $ | (0.21 | ) |
| $ | (0.50 | ) |
| $ | (0.66 | ) |
Weighted-average shares outstanding used in computing net loss per share, basic and diluted |
|
| 95,576,627 |
|
|
| 30,755,123 |
|
|
| 94,910,012 |
|
|
| 30,578,516 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
ARS Pharmaceuticals, Inc.
Condensed Consolidated Statements of OperationsConvertible Preferred Stock and Comprehensive Loss
(in thousands, except share and per share data)
(unaudited)
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating expenses: | ||||||||
Research and development | $ | 12,239 | $ | 4,414 | ||||
General and administrative | 6,646 | 828 | ||||||
Total operating expenses | 18,885 | 5,242 | ||||||
Loss from operations | (18,885 | ) | (5,242 | ) | ||||
Interest income (expense), net | 18 | (37 | ) | |||||
Net loss and comprehensive loss | $ | (18,867 | ) | $ | (5,279 | ) | ||
Net loss per share applicable to common stockholders, basic and diluted | $ | (0.54 | ) | $ | (7.89 | ) | ||
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 34,773,950 | 669,033 | ||||||
|
| Common Stock |
|
|
|
|
|
|
|
| |||||||||
|
| Shares |
| Amount |
| Additional Paid-in Capital |
| Accumulated Other Comprehensive (Loss) Gain, Net |
| Accumulated Deficit |
| Total Stockholders’ Equity |
| ||||||
Balance at December 31, 2022 |
|
| 93,943,316 |
| $ | 9 |
| $ | 349,408 |
| $ | 407 |
| $ | (76,938 | ) | $ | 272,886 |
|
Exercise of common stock options |
|
| 502,687 |
|
| — |
|
| 1,319 |
|
| — |
|
| — |
|
| 1,319 |
|
Restricted stock units released |
|
| 2,025 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Stock-based compensation |
|
| — |
|
| — |
|
| 2,250 |
|
| — |
|
| — |
|
| 2,250 |
|
Net loss and comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| (339 | ) |
| (14,961 | ) |
| (15,300 | ) |
Balance at March 31, 2023 |
|
| 94,448,028 |
| $ | 9 |
| $ | 352,977 |
| $ | 68 |
| $ | (91,899 | ) | $ | 261,155 |
|
Exercise of common stock options |
|
| 851,001 |
|
| — |
|
| 2,739 |
|
| — |
|
| — |
|
| 2,739 |
|
Restricted stock units released |
|
| 2,025 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Shares issued under the employee stock purchase plan |
|
| 21,899 |
|
| — |
|
| 115 |
|
| — |
|
| — |
|
| 115 |
|
Stock-based compensation |
|
| — |
|
| — |
|
| 2,161 |
|
| — |
|
| — |
|
| 2,161 |
|
Net loss and comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| (248 | ) |
| (17,370 | ) |
| (17,618 | ) |
Balance at June 30, 2023 |
|
| 95,322,953 |
| $ | 9 |
| $ | 357,992 |
| $ | (180 | ) | $ | (109,269 | ) | $ | 248,552 |
|
Exercise of common stock options |
|
| 473,301 |
|
| — |
|
| 922 |
|
| — |
|
| — |
|
| 922 |
|
Stock-based compensation |
|
| — |
|
| — |
|
| 2,657 |
|
| — |
|
| — |
|
| 2,657 |
|
Net loss and comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| 19 |
|
| (14,866 | ) |
| (14,847 | ) |
Balance at September 30, 2023 |
|
| 95,796,254 |
| $ | 9 |
| $ | 361,571 |
| $ | (161 | ) | $ | (124,135 | ) | $ | 237,284 |
|
| Series A |
|
| Series B |
|
| Series C |
|
| Series D |
|
| Common Stock |
| Additional |
| Accumulated |
| Total |
| |||||||||||||||||||||||
| Shares |
| Amount |
|
| Shares |
| Amount |
|
| Shares |
| Amount |
|
| Shares |
| Amount |
|
| Shares |
| Amount |
| Capital |
| Deficit |
| (Deficit) |
| |||||||||||||
Balance at December 31, 2021 |
| 4,764,000 |
| $ | 365 |
|
|
| 606,060 |
| $ | 1,000 |
|
|
| 7,692,309 |
| $ | 19,868 |
|
|
| 9,337,066 |
| $ | 54,806 |
|
|
| 30,369,413 |
| $ | 3 |
| $ | 10,984 |
| $ | (42,256 | ) | $ | (31,269 | ) |
Stock-based compensation |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| 264 |
|
| — |
|
| 264 |
|
Net loss and comprehensive loss |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| (7,250 | ) |
| (7,250 | ) |
Balance at March 31, 2022 |
| 4,764,000 |
| $ | 365 |
|
|
| 606,060 |
| $ | 1,000 |
|
|
| 7,692,309 |
| $ | 19,868 |
|
|
| 9,337,066 |
| $ | 54,806 |
|
|
| 30,369,413 |
| $ | 3 |
| $ | 11,248 |
| $ | (49,506 | ) | $ | (38,255 | ) |
Exercise of stock options |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| 385,710 |
|
| — |
|
| 287 |
|
| — |
|
| 287 |
|
Stock-based compensation |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| 356 |
|
| — |
|
| 356 |
|
Net loss and comprehensive loss |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| (6,420 | ) |
| (6,420 | ) |
Balance at June 30, 2022 |
| 4,764,000 |
| $ | 365 |
|
|
| 606,060 |
| $ | 1,000 |
|
|
| 7,692,309 |
| $ | 19,868 |
|
|
| 9,337,066 |
| $ | 54,806 |
|
|
| 30,755,123 |
| $ | 3 |
| $ | 11,891 |
| $ | (55,926 | ) | $ | (44,032 | ) |
Stock-based compensation |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| 460 |
|
| — |
|
| 460 |
|
Net loss and comprehensive loss |
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| — |
|
| (6,583 | ) |
| (6,583 | ) |
Balance at September 30, 2022 |
| 4,764,000 |
| $ | 365 |
|
|
| 606,060 |
| $ | 1,000 |
|
|
| 7,692,309 |
| $ | 19,868 |
|
|
| 9,337,066 |
| $ | 54,806 |
|
|
| 30,755,123 |
| $ | 3 |
| $ | 12,351 |
| $ | (62,509 | ) | $ | (50,155 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
ARS Pharmaceuticals, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)
Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance as of December 31, 2020 | — | $ | — | 34,701,274 | $ | 3 | $ | 479,608 | $ | (96,734 | ) | $ | 382,877 | |||||||||||||||
Exercise of common stock options and vesting of early exercised common stock options | — | — | 125,930 | — | 254 | — | 254 | |||||||||||||||||||||
Stock-based compensation | — | — | — | — | 4,285 | — | 4,285 | |||||||||||||||||||||
Net loss and comprehensive loss | — | — | — | — | — | (18,867 | ) | (18,867 | ) | |||||||||||||||||||
Balance as of March 31, 2021 | — | $ | — | 34,827,204 | $ | 3 | $ | 484,147 | $ | (115,601 | ) | $ | 368,549 | |||||||||||||||
Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance as of December 31, 2019 | 15,714,283 | $ | 53,174 | 664,431 | $ | — | $ | 5,010 | $ | (63,787 | ) | $ | (58,777 | ) | ||||||||||||||
Issuance of Series B redeemable convertible preferred stock for cash, net of $76 in issuance costs | 10,027,666 | 21,458 | — | — | — | — | — | |||||||||||||||||||||
Issuance of Series B redeemable convertible preferred stock upon conversion of convertible notes | 4,673,388 | 10,095 | — | — | — | — | — | |||||||||||||||||||||
Exercise of common stock options and vesting of early exercised common stock options | — | — | 5,350 | — | 6 | — | 6 | |||||||||||||||||||||
Stock-based compensation | — | — | — | — | 47 | — | 47 | |||||||||||||||||||||
Net loss and comprehensive loss | — | — | — | — | — | (5,279 | ) | (5,279 | ) | |||||||||||||||||||
Balance as of March 31, 2020 | 30,415,337 | $ | 84,727 | 669,781 | $ | — | $ | 5,063 | $ | (69,066 | ) | $ | (64,003 | ) | ||||||||||||||
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (47,197 | ) |
| $ | (20,253 | ) |
Non-cash adjustments to reconcile net loss to net cash provided by (used) in operating activities: |
|
|
|
|
|
| ||
Stock-based compensation expense |
|
| 6,957 |
|
|
| 1,080 |
|
Non-cash interest expense |
|
| — |
|
|
| 125 |
|
Depreciation |
|
| 61 |
|
|
| 20 |
|
Amortization and accretion of short-term investments, net |
|
| (5,121 | ) |
|
| — |
|
Change in fair value of warrant liability |
|
| — |
|
|
| (3 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Other receivables |
|
| — |
|
|
| (328 | ) |
Prepaid and other assets |
|
| 481 |
|
|
| 6 |
|
Accounts payable and accrued liabilities (including related party amounts of $192 and $220, respectively) |
|
| 6,104 |
|
|
| 1,138 |
|
Operating right-of-use assets and lease liabilities, net |
|
| (9 | ) |
|
| (50 | ) |
Contract liability |
|
| (3,137 | ) |
|
| (1,316 | ) |
Net cash used in operating activities |
|
| (41,861 | ) |
|
| (19,581 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of short-term investments, available-for-sale |
|
| (237,953 | ) |
|
| — |
|
Maturities of short-term investments, available-for-sale |
|
| 125,000 |
|
|
| — |
|
Purchase of property and equipment |
|
| (266 | ) |
|
| (73 | ) |
Net cash used in investing activities |
|
| (113,219 | ) |
|
| (73 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from exercise of common stock options and employee stock purchase plan |
|
| 5,094 |
|
|
| 287 |
|
Cash paid for transaction costs |
|
| — |
|
|
| (647 | ) |
Repayment of bank note payable |
|
| — |
|
|
| (2,727 | ) |
Net cash provided by (used in) financing activities |
|
| 5,094 |
|
|
| (3,087 | ) |
Net change in cash and cash equivalents |
|
| (149,986 | ) |
|
| (22,741 | ) |
Cash and cash equivalents at beginning of period |
|
| 210,518 |
|
|
| 60,063 |
|
Cash and cash equivalents at end of period |
| $ | 60,532 |
|
| $ | 37,322 |
|
Supplemental cash flow information: |
|
|
|
|
|
| ||
Purchases of property and equipment included in accounts payable |
| $ | 91 |
|
| $ | — |
|
Purchases of property and equipment reclassed from prepaid expenses and other current assets |
| $ | 174 |
|
| $ | — |
|
Unpaid transaction costs included in accounts payable and accrued expenses |
| $ | — |
|
| $ | 137 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements
Three | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (18,867 | ) | $ | (5,279 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 186 | 139 | ||||||
Amortization of debt issuance costs | 1 | 20 | ||||||
Stock-based compensation expense | 4,285 | 47 | ||||||
Non-cash lease expense | 280 | 262 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (54 | ) | 92 | |||||
Accounts payable and accrued expenses | 2,208 | (2,697 | ) | |||||
Lease liability | (240 | ) | (212 | ) | ||||
Net cash used in operating activities | (12,201 | ) | (7,628 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (35 | ) | (33 | ) | ||||
Net cash used in investing activities | (35 | ) | (33 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs | — | 21,659 | ||||||
Principal payments on term loan payable | (350 | ) | (350 | ) | ||||
Proceeds from exercise of common stock options | 222 | 6 | ||||||
Net cash (used in) provided by financing activities | (128 | ) | 21,315 | |||||
Change in cash, cash equivalents, and restricted cash | (12,364 | ) | 13,654 | |||||
Cash, cash equivalents, and restricted cash at beginning of period | 386,919 | 10,526 | ||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 374,555 | $ | 24,180 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 136 | $ | — | ||||
Change in early exercise liability included in accounts payable and accrued expenses | $ | 32 | $ | — | ||||
Issuance of Series B redeemable convertible preferred stock upon conversion of convertible notes | $ | — | $ | 10,095 | ||||
Unpaid issuance costs and amounts payable to investors for redeemable converteible preferred stock included in accounts payable and accrued liabilities | $ | — | $ | 201 | ||||
9
ARS Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Nature of Business
Description of Business
ARS Pharmaceuticals, Inc. (“ARS” or the “Company”) is focused on the development of ARS-1 (brand name neffy®), a proprietary product candidate for the needle-free intranasal delivery of epinephrine for the emergency treatment of Type I allergic reactions including anaphylaxis. The Company incorporated in Delaware in January 2016 and is located in San Diego, California. The Company has a wholly owned subsidiary, ARS Pharmaceuticals Operations, Inc., incorporated in Delaware in August 2015, through which it conducts substantially all its operations. ARS Pharmaceuticals Operations, Inc. has a wholly owned subsidiary in Ireland, ARS Pharmaceuticals IRL, Limited, to facilitate the filing of regulatory approval for neffy in European countries.
Merger Transaction
On November 8, 2022 (the “Closing Date”), Silverback Therapeutics, Inc., a Delaware corporation (“Silverback” or “the Company”), now known as ARS Pharmaceuticals, Inc., completed its reverse merger (the “Merger”) iswith privately-held ARS Pharmaceuticals, Inc. (“ARS Pharma”), in accordance with the terms of the agreement and plan of merger and reorganization, dated July 21, 2022, as amended on August 11, 2022 and October 25, 2022 (the “Merger Agreement”), whereby Sabre Merger Sub, Inc. (“Merger Sub”), a clinical-stage biopharmaceutical company focused on leveraging its proprietary ImmunoTAC technology platform to develop systemically deliveredDelaware corporation and tissue targeted therapeutics forwholly-owned subsidiary of Silverback, merged into ARS Pharma, with ARS Pharma surviving as Silverback’s wholly-owned subsidiary. ARS Pharma was renamed ARS Subsidiary, Inc., and then subsequently renamed ARS Pharmaceuticals Operations, Inc.
At the treatmenteffective time of cancer, chronic viral infections, and other serious diseases. The Company’s platform enables us to strategically pair proprietary linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed at specific disease sites. The Company was formed in Seattle, Washington and incorporated in the stateMerger (the “Effective Time”), each share of Delaware on January 4, 2016.
The Merger was accounted for as a public offering pricereverse recapitalization, with ARS Pharma being treated as the acquirer for accounting purposes. Pursuant to the Merger Agreement, Silverback changed its name to ARS Pharmaceuticals, Inc., and changed its corporate ticker symbol on the Nasdaq Global Market to “SPRY”. See discussions of $21.00 per share, resultingthe transactions in net proceeds of $255.3 million after deducting underwriting discounts and commissions and offering expenses paid by the Company.
Reduction in Force
On September 19, 2023, the FDA issued a CRL regarding our NDA for neffy. On September 29, 2023, we initiated a 20% reduction in force (“RIF”) in order to conserve our cash resources and manage operating expenses until the anticipated PDUFA target action date in the second half of redeemable convertible preferred stock outstanding at the time2024. We provided severance payments, continuation of the IPO converted into 20,758,098 shares of the Company’s common stock.
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of From August 5, 2015 (inception) through September 30, 2023, the Company has devoted substantially all of its efforts to developing intellectual property, conducting product development and clinical trials, raising capital, and building infrastructure. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are $115.6$124.1 million as of March 31, 2021.September 30, 2023. The Company had cash, and cash equivalents, and short-term investments of $374.2 March 31, 2021September 30, 2023 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily throughwith proceeds from the Merger, the issuance of redeemable convertible preferred stock, convertible notes,payments earned under collaboration agreements and the sale of common stock in connection with the IPO.bank debt. The Company’s currently available cash, and cash equivalents, and short-term investments as of March 31, 2021September 30, 2023 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date thethese financial statements are issued. Management considers that thereno conditionsunproven. If the Company does not successfully commercialize any product candidates for which it receives regulatory approval, it will be unable to generate recurring product revenue or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least 12 months from the date the financial statements are issued.
10
The Company’s products, if approved, will require significantability to raise additional financing. The Companycapital may be unableadversely impacted should the global economic conditions worsen or as a result of further disruptions to, secureand volatility in, the credit and financial markets in the United States, including bank failures, future health epidemics or pandemics, geopolitical actions or other macroeconomic factors. If such financing when needed, or if available, such financings may be under terms that are unfavorable tofurther disruption occurs, the Company or the current stockholders.could experience an inability to access additional capital. If the Company is unablenot able to raisesecure adequate additional funds when needed,funding, it may be requiredforced to delay, reducemake reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the scopeCompany’s business, results of or eliminate development programs, which may adversely affect its businessoperations, and operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”).
Since ARS Pharma was determined to be the accounting acquirer in connection with the Merger, for periods prior to the Merger the condensed consolidated financial statements were prepared on a stand-alone basis for ARS Pharma and did not include the combined entities activity or financial position. For periods subsequent to the Merger, the condensed consolidated financial statements include Silverback’s activity and Silverback’s assets and liabilities at their acquisition date fair value. Historical share and per share figures of ARS Pharma have been retroactively restated based on the exchange ratio in the Merger of 1.1819.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of March 31, 2021, andSeptember 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of cash flows, and condensed statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the threenine months ended March 31, 2021September 30, 2023 and 2020,2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, are unaudited. The balance sheet as of December 31, 20202022 was derived from the audited financial statements as of and for the year ended December 31, 2020.2022. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2020,2022, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2021, andSeptember 30, 2023, the condensed consolidated results of its operations for the three and nine months ended September 30, 2023 and 2022, and its cash flows for the threenine months ended March 31, 2021September 30, 2023 and 2020.2022. The financial data and other information disclosed in these notes related to the three and nine months ended March 31, 2021September 30, 2023 and 20202022 are also unaudited. The condensed consolidated results of operations for the three and nine months ended March 31, 2021September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 20212023 or any other period.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s condensed consolidated financial statements relate to revenue recognized for its collaboration agreements, accruals for research and development expenses and valuation of equity awards, and valuation allowances for deferred tax assets.awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.
11
Cash and financial condition, including expenses, clinical trialsCash Equivalents
Cash and researchcash equivalents include cash readily available in checking and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emergeconcerning COVID-19 andthe actions taken to contain ortreat COVID-19, aswell as the economic impact on local, regional, national and international markets.money market mutual funds. The Company has considered potential impacts arising fromconsiders all highly liquid investments with remaining maturities when purchased of 90 days or less to be cash equivalents.
Investments
The Company invests excess cash in investment grade fixed income securities. These investments are included in short-term investments on the COVID-19 pandemic
Fair Value of Financial Instruments
Cash, and cash equivalents, and restricted cashshort-term investments are carried at fair value. The carrying amounts of all prepaid expenses and other current assets, accounts payable, accrued liabilities, and contract liability, are considered to be representative of their respective fair values because of the short-term nature of those instruments.
Concentrations of Credit Risk
Financial instruments including accounts payable and accrued expenses are carried at cost, which approximates fair value given their short-term nature. Term loan payable is carried at cost, which approximates fair value as its effective interest rate approximates current market rates.
March 31, 202 1 | December 31, 2020 | |||||||
Cash and cash equivalents | $ | 374,205 | $ | 386,569 | ||||
Restricted cash | 350 | 350 | ||||||
Total cash and cash equivalents and restricted cash | $ | 374,555 | $ | 386,919 | ||||
The Company reviews its financial instruments portfolio on a quarterly basis to determine if any unrealized losses have resulted from a credit loss or other factors. As part of deposits held with banksthe review, management considers factors such as historical experience, market data, issuer-specific factors, and current economic conditions. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may at times exceed federally insured limits, however, exposurebe related to credit riskissues.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years. Repair and maintenance costs are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the eventcarrying value of defaultan asset may not be recoverable. Recoverability is measured by comparison of the financial institution is limitedcarrying amount to the extentfuture undiscounted net cash flows which the asset or asset group are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of amounts recorded on the balance sheets.assets exceeds its fair value. The Company has not experiencedrecognized any impairment losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Leases
The Company determines if an arrangement is a lease at inceptionthe initial classification and evaluates each lease agreement to determine whether the lease is an operating or finance lease. For leases where the Company is the lessee,assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based onand thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The lease liability is calculated by using the present value of all lease payments, overwith the lease term. The Company uses itspresent value determined by using the incremental borrowing rate based onfor operating leases determined by using the information available at the commencement date in determining the present valueincremental borrowing rate of lease payments. The operating lease ROU asset also includes any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease. The Company’s lease includes options to extend or terminate the lease. Periods covered by an option to extend the lease are included in the lease term when it is reasonably certaininterest that the Company will exercise that option. Periods covered bywould pay to borrow on a collateralized basis an optionamount equal to terminate the lease payments in a similar economic environment as well as a review of peer companies. Variable charges for common area maintenance and other variable costs are included in the lease term when it is reasonably certain that the Company will not exercise that option. At the inception of the lease andrecognized as of March 31, 2021, the Company was not reasonably certain that it will exercise its option to extend the lease and was not reasonably certain that it will not exercise its option to terminate the lease, therefore, the periods covered by the options are not included within the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company does not have material short-term lease costs. Leaseexpense as incurred. Rent expense for minimum lease paymentsoperating leases is recognized on a straight-line basis over the reasonably assured lease term. For real estate leases,term based on the Company does not separatetotal lease payments and is included in research and development and general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.
12
Revenue Recognition
Our revenues generally consist of licenses and research services under license and collaboration agreements. We recognize revenue when we transfer promised goods or material restrictive covenants.services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation(s). At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Research and Development Expenses
Research and development costs are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses consist primarily of directfor personnel, stock-based compensation expense, external research and indirectdevelopment costs incurred in connection with the development of the Company’s ImmunoTAC technology platform, discovery efforts, and preclinical study and clinical trial activities related to the Company’s program pipeline, including the Company’s lead product candidate, SBT6050, and other pipeline programs, including SBT6290 and SBT8230. Direct costs include expenses incurred under agreements with contract research organizations, (“CROs”)investigative sites and other vendors thatconsultants to conduct the Company’s preclinical andour clinical activities, expenses associatedstudies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates including under agreements with contract development and manufacturing organizations (“CDMOs”)for clinical trials and other vendors, and consulting fees. Indirect costs include personnel-related expenses, consisting of employee salaries, bonuses, benefits, and stock-based compensation expense and recruiting costsallocated expenses.
Payments for personnel engaged in research and development activities, facility and equipment related expenses, consisting of indirect and allocated expenses for rent, depreciation, and equipment maintenance, and other unallocated research and development expenses incurred in connection with the Company’s research and development programs, including laboratory materials and supplies and license fees. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to the Company’s research and development efforts and have no alternative future uses.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statements of operations and expensed as incurred since recoverability of such expenditures is uncertain.
License Fees
Costs incurred to acquire technology licenses and milestone payments made on existing agreements are charged to research and development expense or capitalized until such goodsbased upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use.
Acquired in-process research and development expense
Acquired in-process research and development expense (“IPR&D”), is expensed on the acquisition date if there is no alternative future use. Contingent consideration payments in asset acquisitions are delivered orrecognized when the contingency is resolved and the consideration becomes payable. Milestone payments made to third parties subsequent to regulatory approval will be capitalized as intangible assets and amortized over the estimated remaining useful life of the related services are performed, or such time whenproduct.
Stock-Based Compensation
Stock-based compensation expense represents the Company does not expect the goods to be delivered or services to be performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, the Company will adjust the amounts recorded accordingly. Since inception, the Company has not experienced any material differences between accrued or prepaid costs and actual costs.
13
Comprehensive Loss
Comprehensive loss is defined as athe change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was equal to net losstypically consists of the change in unrealized gains and losses on available-for-sale securities.
Segment Reporting
Operating segments are components of an enterprise about which separate discrete financial information is available for evaluation by the three months ended March 31, 2021chief operating decision-maker for purposes of making decisions regarding resource allocation and 2020.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. For purposes of this calculation, redeemable convertible preferred stock, stock options, employee stock purchase rights, and unvested common stock subject to repurchasewarrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive.
The following securities are excluded from the calculation of weighted-average dilutive common shares because their inclusion would have been anti-dilutive. Historical share figures have been retroactively restated based on the exchange ratio of 1.1819.
|
| As of September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Convertible preferred stock |
|
| — |
|
|
| 26,473,899 |
|
Warrants to purchase convertible preferred stock |
|
| — |
|
|
| 45,456 |
|
Warrants to purchase common stock |
|
| 45,456 |
|
|
| — |
|
Common stock options granted and outstanding |
|
| 14,906,885 |
|
|
| 5,634,900 |
|
Total |
|
| 14,952,341 |
|
|
| 32,154,255 |
|
Recently IssuedAdopted Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued. The objective which changes the accounting for recognizing impairments of financial assets. Under the standard is to provide information about expectednew guidance, credit losses onfor certain types of financial instruments at each reporting datewill be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and to change how other-than temporary impairments on investment securities are recorded. The guidance isfor purchased financial assets with credit deterioration since their origination. This standard was effective for the Company beginning on January 1, 2023,2023. The adoption of this new standard did not have a material impact on the Company's condensed consolidated financial statements.
3. Merger and Related Transactions
As described in Note 1 - Nature of Business, ARS Pharma merged with early adoption permitted.Silverback on November 8, 2022. The Merger was accounted for as a reverse recapitalization under U.S. GAAP. ARS Pharma was considered the accounting acquirer for financial reporting purposes. This determination was based on the facts that, immediately following the Merger: (i) ARS Pharma stockholders own a substantial majority of the voting rights of the combined organization; (ii) ARS Pharma designated a majority (eight of eleven) of the initial members of the board of directors of the combined organization; and (iii) ARS Pharma’s senior management holds all key positions in senior management of the combined organization. The transaction was accounted for as a reverse recapitalization because on the effective date of the Merger, the pre-combination assets of Silverback were primarily cash and other non-operating assets. Additionally, the Company concluded that the in-process research and development (“IPR&D”) assets that remained as of the combination were not significant when compared to the cash and investments obtained through the transaction.
Under reverse recapitalization accounting, the assets and liabilities of Silverback were recorded at their fair value, which approximated book value due to the short-term nature of the instruments. No goodwill or intangible assets were recognized.
Under the terms of the Merger Agreement, immediately prior to the effective time of the Merger, each share of ARS Pharma’s preferred stock was converted into one share of ARS Pharma’s common stock.
14
As the accounting acquirer, ARS Pharma is currently evaluatingdeemed to have assumed all of Silverback’s outstanding and unexercised stock options. The assumed options continue to be governed by the impactterms of the standard may2016 and 2020 Equity Incentive Plans of Silverback (as discussed more in Note 10 - Stock-Based Compensation) under which the options were originally granted.
As part of the reverse recapitalization, ARS Pharma obtained $262.3 million in cash, cash equivalents and short-term investments, net of transaction costs. ARS Pharma also obtained prepaids and other current assets of approximately $4.4 million and assumed payables and accruals of approximately $12.0 million. ARS Pharma also obtained $1.1 million in IPR&D assets that have no alternative future use. The fair value attributable to these IPR&D assets was recorded as research and development expense in the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2022. ARS Pharma also incurred transaction costs of approximately $2.1 million and this amount was recorded as a reduction to additional paid-in capital in the consolidated statement of convertible preferred stock and stockholders’ equity (deficit) for the year ended December 31, 2022 in the Company’s Annual Report on its financial statementsForm 10-K filed with the U.S. Securities and related disclosures.
4. Fair Value Measurements
The Company followscategorizes its assets and liabilities measured at fair value in accordance with the authoritative accounting guidance which among other things, defines fair value,that establishes a consistent framework for measuring fair value and expands disclosuredisclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exchangeexit price, representing the amount that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three levels of inputs that may be used to measureparticipants. As such, fair value include:
Level 1- Quoted prices (unadjusted) in active markets for identical assets or liabilities; |
Level 2- Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and |
Level 3- Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
The following table identifies the Company’s assets and liabilities that were measured at fair value on a recurring basis (in thousands):
September 30, 2023 | Level |
|
| Amortized Cost |
|
| Gross unrealized gains |
|
| Gross unrealized losses |
|
| Estimated Fair Value |
| |||||
Cash and cash equivalents - Money market mutual funds |
| 1 |
|
| $ | 59,503 |
|
| $ | — |
|
| $ | — |
|
| $ | 59,503 |
|
Short-term investments - U.S. Treasury securities |
| 2 |
|
|
| 181,531 |
|
|
| — |
|
|
| (161 | ) |
|
| 181,370 |
|
Total |
|
|
| $ | 241,034 |
|
| $ | — |
|
| $ | (161 | ) |
| $ | 240,873 |
| |
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents - Money market mutual funds |
| 1 |
|
| $ | 209,273 |
|
| $ | — |
|
| $ | — |
|
| $ | 209,273 |
|
Short-term investments - U.S. Treasury securities |
| 2 |
|
|
| 63,456 |
|
|
| 407 |
|
|
| — |
|
|
| 63,863 |
|
Total |
|
|
| $ | 272,729 |
|
| $ | 407 |
|
| $ | — |
|
| $ | 273,136 |
|
March 31, 2021 | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market funds | $ | 374,205 | $ | 0 | $ | 0 | ||||||
December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market funds | $ | 386,369 | $ | 0 | $ | 0 | ||||||
There were 0no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented.
The Company’s short-term investments portfolio contains investments in U.S. Treasury securities that have an effective maturity date that is less than one year from the respective balance sheet date. The Company's money market mutual fund holdings are highly liquid and invest primarily in cash and U.S. Treasury securities.
The change in unrealized gains and losses on available-for-sale securities was immaterial and $0.6 million for the three and nine months ended September 30, 2023, respectively. Management determined that the gross unrealized losses on the Company’s available-for-sale securities as of September 30, 2023, were primarily attributable to current economic and market conditions and not credit risk. As of September 30, 2023 and December 31, 2022, no allowance for credit losses was recorded. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell any investments prior to recovery of their amortized cost basis, which may be at maturity.
15
As of September 30, 2023 and December 31, 2022, the Company did not have any liabilities that were measured at fair value on a recurring basis.
5. Balance Sheet Details
Prepaid expenses and other current assets consisted of the following (in thousands):
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Prepaid expenses |
| $ | 1,034 |
|
| $ | 771 |
|
Prepaid insurance |
|
| 716 |
|
|
| 1,539 |
|
Interest receivable |
|
| 691 |
|
|
| 796 |
|
Other receivables |
|
| 123 |
|
|
| 213 |
|
Total |
| $ | 2,564 |
|
| $ | 3,319 |
|
Property and equipment consisted of the following (in thousands):
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Equipment |
| $ | 726 |
|
| $ | 377 |
|
Less accumulated depreciation |
|
| (109 | ) |
|
| (48 | ) |
Total |
| $ | 617 |
|
| $ | 329 |
|
Depreciation expense was immaterial and $0.1 million for the three and nine months ended September 30, 2023, respectively.
Other long-term assets consisted of the following (in thousands):
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Prepaid insurance |
| $ | 2,483 |
|
| $ | 2,940 |
|
Security deposit |
|
| — |
|
|
| 21 |
|
Other |
|
| 690 |
|
|
| — |
|
Total |
| $ | 3,173 |
|
| $ | 2,961 |
|
Accounts payable and accrued liabilities consisted of the following (in thousands):
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Accounts payable |
| $ | 2,966 |
|
| $ | 1,659 |
|
Accrued pre-commercialization marketing related expenses |
|
| 2,622 |
|
|
| — |
|
Accrued compensation |
|
| 2,151 |
|
|
| 447 |
|
Accrued development expenses |
|
| 654 |
|
|
| 133 |
|
Accrued legal and professional fees |
|
| 455 |
|
|
| 908 |
|
Accrued clinical expenses |
|
| 944 |
|
|
| 609 |
|
Accrued tax expenses |
|
| — |
|
|
| 174 |
|
Other |
|
| 1,153 |
|
|
| 1,001 |
|
Total |
| $ | 10,945 |
|
| $ | 4,931 |
|
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Research and development expenses | $ | 3,610 | $ | 2,063 | ||||
Employee compensation and benefits | 1,666 | 2,634 | ||||||
Professional services and other | 523 | 581 | ||||||
Total accrued expenses | $ | 5,799 | $ | 5,278 | ||||
6. Collaboration and Out-Licensing
The Company leases an officehas entered into collaboration and laboratory spacelicensing agreements to license certain rights to neffy to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; clinical, regulatory, and/or commercial milestone payments; payment for clinical and commercial supply and royalties or a transfer price on the net sales of licensed products.
Licenses of Intellectual Property. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in Seattle, Washington.the arrangement, revenue is recognized from non-refundable, up-front payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If the license is not a distinct performance obligation, the Company evaluates the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The componentsCompany evaluates the measure of lease expenseprogress each reporting period and, if necessary, adjusts the measure of performance and related cash flows were as follows (in thousands):
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Lease expense | ||||||||
Operating lease expense | $ | 347 | $ | 347 | ||||
Variable lease expense | 106 | 86 | ||||||
Total lease expense | $ | 453 | $ | 433 | ||||
Operating cash outflows from operating leases | $ | 421 | $ | 397 | ||||
16
Milestone Payments. At the Company’s lease was 1.7 years asinception of March 31, 2021. To computeeach arrangement that includes clinical, regulatory or commercial milestone payments, the presentCompany evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the lease liability,associated milestone is included in the transaction price. Milestone payments that are not within the Company’s control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs. Revenue is recognized when the underlying performance obligation has been transferred to the customer.
Research and Development Revenues. For arrangements that contain research and development commitments, any arrangement consideration allocated to the research and development work is recognized as the underlying services are performed over the research and development term.
Clinical and Commercial Supply. Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. The Company has not earned revenues for clinical or commercial supply sales as of September 30, 2023.
Royalty/Transfer Price Revenues. For arrangements that include sales-based royalties or transfer price, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company used a discount raterecognizes revenue at the later of 8.5%.
Alfresa Agreement
In March 31, 2021 are as follows (in thousands):
Years Ending December 31, | Amount | |||
2021 (remaining 9 months) | $ | 824 | ||
2022 | 2,454 | |||
Thereafter | — | |||
Total undiscounted lease payments | 3,278 | |||
Present value adjustment | (297 | ) | ||
Total present value of lease payments | $ | 2,981 | ||
In addition to the $2.0 million received under the LOI, the Company is eligible to receive up to $13.0 million of milestone payments upon achievement of certain clinical and regulatory milestones. Further, the Company is eligible to receive a negotiable transfer price expected to be in the low double-digit percentage on net sales subject to the regulatory approval to commercialize neffy in Japan. In July 2020, the Company earned a $5.0 million milestone payment upon the completion of a clinical milestone in Japan.
At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy and research and development services. The Company determined the initial transaction price to be $7.0 million, which includes a clinical milestone as it was deemed not probable of significant reversal at the inception of the agreement. Due to the uncertainty in the achievement of the regulatory and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be re-assessed at each reporting period. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. The Company recognized no revenue and less than $0.1 million in revenue for the three and nine months ended September 30, 2023, respectively, and less than $0.1 million in revenue for each of the three and nine months ended September 30, 2022. There was no contract liability as of September 30, 2023.
17
Recordati Agreement
In September 2020, the Company entered into a License and Supply Agreement (the “Recordati Agreement”) with Recordati Ireland, Ltd. (“Recordati”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in Europe and certain European Free Trade Association, Russia/the Commonwealth of Independent States, Middle East and African countries (the “Recordati Territory”). Under the Recordati Agreement, the Company is responsible for completion of any clinical studies for neffy required by the EMA before granting European Union Marketing Authorization, and by the Medicines and Healthcare products Regulatory Agency (“MHRA”) prior to granting United Kingdom Marketing Authorization. The Company filed the initial regulatory submissions with the EMA in the fourth quarter of 2022 and will file the initial regulatory submissions with the MHRA for neffy and is responsible for the manufacturing of commercial supply. Recordati is solely responsible for all regulatory activities in the region after the Company’s initial regulatory submissions to the EMA and MHRA, for any post-approval clinical studies and commercialization activities. Either party may terminate the Recordati Agreement for certain breaches. Unless terminated earlier by either or both parties, the term of the Recordati Agreement will continue as long as Recordati has commercial sales of neffy in the region.
Under the terms of the Recordati Agreement, the Company received an upfront payment of $11.8 million and a regulatory milestone payment of $6.0 million during 2020. In addition, the Company is eligible to receive up to 90.0 million euros of milestone payments upon achievement of certain regulatory and commercial sales milestones. Subject to regulatory approval, the Company will earn tiered royalties in the low double-digits on annual net sales in the region and will receive a per unit supply price for the sale of commercial supply to Recordati. The per unit commercial supply costs are subject to a cap. The combined tiered royalty and supply price have a low double-digit cap.
At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy in the defined territory and the research and development services. The Company determined the initial transaction price to be the $11.8 million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, at inception of the contract, the variable consideration associated with future milestone payments was fully constrained and excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be re-assessed at each reporting period. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. In November 2020, the Company earned a regulatory milestone of $6.0 million.
On February 22, 2023, the Company and Recordati entered into a termination agreement (the “Termination Agreement”), pursuant to which, among other things, the Company and Recordati agreed to terminate the Recordati Agreement. Pursuant to the Termination Agreement, the Company reacquired all of the Recordati Rights, paid Recordati a one-time upfront payment of €3.0 million, and has agreed to pay additional payments upon achievement of certain milestones including: (i) an EMA regulatory milestone payment of €2.0 million, (ii) a milestone payment of €5.0 million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) royalty payments of up to €5.0 million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory.
The Company determined that the Recordati Rights had no alternative future use and therefore recorded the €3.0 million upfront payment to Recordati as an IPR&D expense presented within research and development in the Company's condensed consolidated statements of operations and comprehensive loss. The Termination Agreement ended the Company’s performance obligations pursuant to the Recordati Agreement and consequently the existing contract liability of $3.1 million previously received from Recordati was recorded against IPR&D expense presented within research and development in the Company’s condensed consolidated statements of operations and comprehensive loss. Accordingly, no revenue was recognized in the three and nine months ended September 30, 2023. The Company recognized revenue of $0.1 million and $1.2 million for the three and nine months ended September 30, 2022, respectively.
18
Pediatrix Agreement
In March 2021, the Company entered into a Collaboration and Distribution Agreement with Pediatrix Therapeutics, Inc. (“Pediatrix”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in the People’s Republic of China, Taiwan, Macau, and Hong Kong. Under the agreement, Pediatrix is responsible, at its sole cost and expense, for all ongoing development work that is necessary for or otherwise supports regulatory approval in the defined territory, including all clinical trials, and activities related to post approval commitments and commercialization tests. In addition, Pediatrix is responsible for commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use. The Company is responsible for the manufacturing of product for clinical studies as well as commercial supply, all at a negotiated transfer price. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue as long as Pediatrix has commercial sales of neffy in the region, or 10 years after the first commercial sale.
Under the terms of the agreement, the Company received an upfront payment of $3.0 million. In addition, the Company is eligible to receive up to $84.0 million of milestone payments upon achievement of certain regulatory and commercial sales milestones. Subject to regulatory approval, the Company will earn tiered royalties in the low double-digits on annual net sales in the region and will receive a per unit supply price for the sale of commercial supply to Pediatrix.
At the commencement of this collaboration, the Company identified performance obligations related to the delivery of the license for neffy in the defined territory and manufacturing of product for clinical studies and commercial supply. The Company concluded that the license was distinct from potential supply obligation. The supply provisions are effectively options granted to Pediatrix to purchase future goods and would only constitute a performance obligation if they contain a material right. The Company determined the option to purchase the clinical and commercial supply was not at a significantly discounted price and does not represent a material right, therefore does not constitute a performance obligation. The Company determined the initial transaction price to be the $3.0 million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be re-assessed at each reporting period. The Company recognized revenue of the full $3.0 million during the year ended December 31, 2021.
A reconciliation of contract liability from collaboration agreements was as follows (in thousands):
Balance at December 31, 2022 |
| $ | 3,137 |
|
IPR&D expense related to the Termination Agreement |
|
| (3,107 | ) |
Revenue recognized |
|
| (30 | ) |
Balance at September 30, 2023 |
| $ | — |
|
7. Commitments and Contingencies
Note Payable
In September 2019, the Company entered into a Loan and Security Agreement with Silicon Valley Bank for working capital in the principal amount, as amended, of $10.0 million (the “Note”). The Note required interest only payments through June 30, 2021 and had a maturity date of March 1, 2024. In addition, there was a final payment (“SVB”Balloon Payment”) of $0.3 million at maturity.
In connection with the Note, the lender received warrants to purchase 38,460 shares of Series C convertible preferred stock at $2.60 per share. The warrants were immediately exercisable and borrowed $3.5 millionwill expire on September 30, 2029. The estimated fair value of the warrants at issuance was $86,000, which was recorded as a term loan. The outstanding principal amount of the term loan accrues interest at an annual rate of 1.75% per annum. At closing,debt discount. In addition, the Company incurred de minimisrecorded debt issuance costs totaling $47,000. The debt discount, debt issuance costs and owed a final payment fee of $0.3 million, both of which areBalloon Payment were amortized to interest expense using the effective interest rate method over the loan term. In November 2022, as a result of the Merger, the warrants converted to warrants to purchase 45,456 shares of the Company’s common stock at $2.20 per share.
On November 7, 2022, the Company paid off the remaining balance of $5.4 million on its loans with Silicon Valley Bank, including all principal and interest and the Balloon Payment. The warrants issued to Silicon Valley Bank in connection with the loans continue to be outstanding.
19
Leases
In October 2021, the Company entered into a 38-month noncancelable lease for its current headquarters location consisting of 4,047 rentable square feet of office space in San Diego, California. Under the terms of the agreement, there is no option to extend the lease, and the Company is subject to additional charges for common area maintenance and other costs. Monthly rental payments due under the lease commenced on December 6, 2021 and escalate through the lease term. The Company prepaid the first month’s rent upon execution of the lease, and the lease agreement provided full rent abatement for the second and third months of the rental term. As of September 30, 2023, the remaining lease term of the debt underCompany’s operating lease was 17 months, and the effective interest method. The effective interestdiscount rate ofon the Company’s term loan is 5.14%operating lease was 8%. InterestAs there was not an implicit rate within the lease, the discount rate was determined by using a set of peer companies incremental borrowing rates. The Company's operating lease expense under the term loan totaled less than $0.1was $0.1 million and $0.2 million for each of the three and nine months ended March 31,September 30, 2023 and 2022, respectively. The Company's variable lease expense was immaterial for each of the three and nine months ended September 30, 2023 and 2022. Cash paid for amounts included in the measurement of lease liabilities was $0.1 million and $0.2 million for the three and nine months ended September 30, 2023, respectively, and $0.1 million for each of the three and nine months ended September 30, 2022.
As of September 30, 2023, future minimum noncancelable operating lease payments are as follows (in thousands):
Year ended December 31, |
| Amount |
| |
2023 |
| $ | 60 |
|
2024 |
|
| 245 |
|
2025 |
|
| 42 |
|
Total lease payments |
|
| 347 |
|
Less imputed interest |
|
| (20 | ) |
Lease liability |
|
| 327 |
|
Less current portion of lease liability |
|
| (235 | ) |
Lease liability, net of current portion |
| $ | 92 |
|
Contingencies
From time to time, the Company may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business.
On August 12, 2021, Amphastar Pharmaceuticals, Inc. (“Amphastar”) filed a Petition for Inter Partes Review with the United States Patent and 2020.
On July 28, 2023, Aera A/S, an IP consultancy firm in Denmark representing an unidentified opponent, filed a notice of opposition with the European Patent Office (the “EPO”) in respect of EP 3678649 (the “EP ‘649” Patent), which is a patent directed to a nasal spray formulation of epinephrine. The deadline to respond is December 17, 2023 and we expect to vigorously defend the ’649 Patent. The results of any notice of opposition are inherently unpredictable and uncertain, and could result in the EPO finding the patent to be invalid or unenforceable.
Regardless of the outcome, involvement in legal proceedings may have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. The Company cannot predict the outcome of these suits, and failure by the Company to obtain favorable resolutions could have a material adverse effect on its business, results of operations, and financial condition. The Company’s tangiblechances of success on the merits of these suits are still uncertain and intangible assets, excluding intellectual property.any possible loss or range of loss cannot be reasonably estimated and as such the Company has not recorded a liability as of September 30, 2023.
20
Except as described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or other body pending or, to the knowledge of the Company’s executive officers, threatened against or affecting the Company, the Company’s common stock, any of its subsidiaries or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
8. In-Licensing and Supply
License Agreement with Aegis
In June 2018, the Company entered into a License Agreement (the “Aegis Agreement”) with Aegis Therapeutics, LLC (“Aegis”). Under the Aegis Agreement, the Company licensed the exclusive, worldwide, royalty-bearing, sublicensable, rights to certain proprietary Aegis technology, patent rights and know-how to develop and commercialize epinephrine products. The proceedsCompany utilizes this technology for the development of its lead product candidate, neffy. As consideration for the license, the Company paid an upfront license fee of $50,000, which was recorded in research and development expenses in the condensed consolidated statement of operations.
The Company is required to make aggregate milestone payments of up to $20.0 million upon achievement of certain regulatory and commercial milestones. The regulatory milestone payments under the Aegis Agreement will be recognized as research and development expense upon completion of the required events, as the triggering events are not considered to be used as working capital and to fund general business requirements. The agreement includes customary nonfinancial covenants and events of default that include, among otherthings, non-payment, inaccuracyof representations and warranties, covenant breaches, cross default to material indebtedness or material agreements, bankruptcy and insolvency, material judgments, a change of control, or any material adverse event.probable until they are achieved. The Company made a $0.5 million milestone payment to Aegis upon the achievement of a regulatory milestone during 2019, and a $1.0 million payment to Aegis upon the FDA’s acceptance of the Company’s NDA submission for neffy, which occurred in the third quarter of 2022. The Company may be required to pay royalties based on annual net product sales in the low to mid-single digits on its or its sublicensees’ net sales of the Licensed Products (as defined in the Aegis Agreement) on a country-by-country and product-by-product basis.
The Company is responsible for reimbursing Aegis for patent costs incurred in connection with prosecuting and maintaining patent rights that are specific to epinephrine or epinephrine products. There were no expenses recognized in connection with legal patent fees for the nine months ended September 30, 2023 and 2022.
The Company may terminate the Aegis Agreement with 30 days written notice or either party may terminate the Aegis Agreement for certain breaches of the Aegis Agreement. Unless terminated earlier by either or both parties, the term of the Aegis Agreement will continue until the final expiration of all royalty obligations under the Aegis Agreement.
In conjunction with the Aegis Agreement, the Company also entered into a Supply Agreement (the “Supply Agreement”) with Aegis that allows the Company to purchase materials for preclinical, development and commercial use at predetermined prices. The Company may elect to have Aegis supply minimum quantities but there are no minimum or maximum purchase obligations under the Supply Agreement unless this election is made. The parties may terminate the Supply Agreement at any time by mutual agreement. In addition, the parties may terminate the Supply Agreement in the event of certain breaches of the Supply Agreement or upon the earlier of the expiration or termination of the Aegis Agreement or June 2028. The Supply Agreement term may be extended by mutual written agreement. Under the Supply Agreement, no expense and $0.3 million in expense was recognized in compliancethe three and nine months ended September 30, 2023, respectively. No expense was recognized in each of the three and nine months ended September 30, 2022.
Manufacturing Agreement with all related covenants as of March 31, 2021.
In September 2020, the Company amendedentered into a manufacturing agreement (the “Renaissance Agreement”) with Renaissance Lakewood, LLC (“Renaissance”). Pursuant to the loanRenaissance Agreement, Renaissance agreed to manufacture for, and security agreementprovide to defer principal paymentsthe Company, neffy nasal unit dose sprays (“Renaissance Products”). The Company is obligated to provide Renaissance with certain supplies to manufacture the Renaissance Products and to purchase from Renaissance a mid double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the E.U., and a high double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the U.S. The Renaissance Agreement contains conventional commercial pharmaceutical manufacturing provisions including certain minimum purchase amounts to be determined in the future based on forecast needs and minimum batch size projections. The Company may also request Renaissance to perform certain services related to the Renaissance Product, for which the Company will pay reasonable compensation to Renaissance.
21
The initial term of the Renaissance Agreement commenced on September 9, 2020 and continues (a) for Renaissance Product designated for commercial sale in the U.S. until the earlier of the fifth anniversary of the (i) target U.S. launch date and (ii) the initial U.S. launch date (“U.S. Initial Term”), and (b) for Renaissance Product designated for commercial sale in the E.U. and other countries, the earlier of the fifth anniversary of (i) the target E.U. launch date and (ii) the initial E.U. launch date (“E.U. Initial Term”), in each case unless earlier terminated by one of the parties. The U.S. Initial Term and E.U. Initial Term automatically renew for successive two-year terms (“Renewal Term”). Either party may elect not to renew the U.S. Renewal Term and/or the E.U. Renewal Term by providing the requisite prior notice to the other party. Either party may terminate the Renaissance Agreement (1) for uncured material breach of the other party, (2) upon notice for insolvency-related events of the other party that are not discharged within a defined time period, (3) on a product-by-product basis if the manufacture, distribution or sale would materially contravene any applicable law, (4) by providing the requisite notice if (a) the Company has not submitted a regulatory filing for any Renaissance Product in the U.S. on or before June 30, 2022, (b) the authorization and approval to distribute or sell Renaissance Product in the U.S. is not granted on or before the target U.S. launch date, (c) the authorization and approval representing more than a targeted number of units of Renaissance Product sold in the U.S. during the last calendar year is withdrawn by the FDA, or (d) the Company decided in its sole discretion to cease commercializing the Renaissance Product in the U.S., (5) in the case of a force majeure event that continues for six months or more, or (6) a violation by the other party of trade control or anti-corruption laws.
9. Convertible Preferred Stock and extend the maturity date to May 1, 2021. There were no costs or additional warrant issuances in connection with this amendment. The Company accounted for the amendment as a debt modificationCommon Stock and is amortizing the remaining debt discount over the remaining term.
Authorized Shares
The Company’s redeemable convertible preferred stock was classified as mezzanine equity on the Company’s balance sheets as the shares are contingently redeemable upon a deemed liquidation such as a change in controlcurrent Amended and in that event, there is no guarantee that all stockholders would be entitled to receive the same formRestated Certificate of consideration. NaN accretion to redemption value was recorded during the three months ended March 31, 2020 as a deemed liquidation event was not considered probable.
Convertible Preferred Stock
In November 2022, ARS Pharma completed the Merger with Silverback in accordance with the Merger Agreement. Under the terms of the Merger Agreement, immediately prior to the effective time of the Merger, 22,399,435 shares of ARS Pharma’s convertible preferred stock were converted into 26,473,899 shares of ARS Pharma’s common stock.
Common Stock
In November 2022, upon completion of the Merger and as the accounting acquirer, ARS Pharma is deemed to have issued 36,535,541 shares of its common stock to Silverback stockholders.
Common stock reserved for future issuance consisted of the following potential future issuances:following:
| September 30, |
|
| December 31, |
| ||
Common stock options granted and outstanding |
| 14,906,885 |
|
|
| 12,063,560 |
|
Restricted stock units granted and outstanding |
| 5,082 |
|
|
| 10,651 |
|
Common stock reserved for future awards or option grants |
| 3,402,171 |
|
|
| 3,373,801 |
|
Warrants to purchase common stock |
| 45,456 |
|
|
| — |
|
Total |
| 18,359,594 |
|
|
| 15,448,012 |
|
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Shares underlying outstanding equity awards | 6,308,582 | 6,316,569 | ||||||
Shares available for future equity award grants | 3,152,910 | 1,506,806 | ||||||
Shares underlying early exercised equity awards | 76,293 | 100,263 | ||||||
Shares underlying ESPP withholdings | 19,126 | 4,393 | ||||||
Total | 9,556,911 | 7,928,031 | ||||||
10. Stock-Based Compensation
Stock-based compensation expense recognized for all equity awards has been reported in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Research and development expense |
| $ | 656 |
|
| $ | 56 |
|
| $ | 1,916 |
|
| $ | 165 |
|
General and administrative expense |
|
| 1,953 |
|
|
| 404 |
|
|
| 5,041 |
|
|
| 915 |
|
Total stock-based compensation expense |
| $ | 2,609 |
|
| $ | 460 |
|
| $ | 6,957 |
|
| $ | 1,080 |
|
22
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Research and development expense | $ | 1,925 | $ | 31 | ||||
General and administrative expense | 2,360 | 16 | ||||||
Total stock-based compensation expense | $ | 4,285 | $ | 47 | ||||
As of March 31, 2021,September 30, 2023, the total unrecognized stock-based compensation expense related to outstanding employee options was $59.6$27.6 million, which is expected to be recognized over a remaining weighted-average period of approximately 3.162.72 years.
In November 2022, in connection with the Merger, the Company assumed restricted stock units granted by Silverback, of which 10,651 were outstanding as of December 31, 2022 and 5,082 are outstanding as of September 30, 2023.
Equity Incentive Plans
In September 2018, ARS Pharma adopted the 2018 Equity Incentive Plan. As a result of the Merger, on November 8, 2022 ARS Pharma, as the accounting acquirer, is deemed to have assumed Silverback’s 2016 and 2020 Equity Incentive Plans, and Employee Stock Option Awards
As of March 31, 2021,September 30, 2023, the Company’s equity incentive plans2016 and 2020 Equity Incentive Plans authorized a total of
Stock Options
Stock options granted under the Company’s equity incentive plans expire no later than 10 years from the date of March 31, 2021.
A summary of the Company’s stock option activity for the threenine months ended March 31, 2021September 30, 2023 is as follows (in thousands, except sharefollows:
|
| Shares |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
| ||||
Outstanding at December 31, 2022 |
|
| 12,063,560 |
|
| $ | 6.07 |
|
|
|
|
|
|
| ||
Granted |
|
| 4,749,600 |
|
| $ | 8.03 |
|
|
|
|
|
|
| ||
Exercised |
|
| (1,826,989 | ) |
| $ | 2.73 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (79,286 | ) |
| $ | 20.48 |
|
|
|
|
|
|
| ||
Outstanding at September 30, 2023 |
|
| 14,906,885 |
|
| $ | 7.03 |
|
|
| 6.32 |
|
| $ | 15,442,425 |
|
Exercisable at September 30, 2023 |
|
| 10,157,035 |
|
| $ | 6.56 |
|
|
| 5.34 |
|
| $ | 15,442,425 |
|
The exercisable shares subject to options outstanding at September 30, 2023 in the table above include vested and per share data and years):
Stock Options Outstanding | ||||||||||||||||
Shares Subject to Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
Balance at December 31, 2020 | 6,316,569 | $ | 10.93 | 9.5 | $ | 223,647 | ||||||||||
Granted | 93,973 | $ | 48.03 | |||||||||||||
Exercised | (101,960 | ) | $ | 2.18 | $ | 4,227 | ||||||||||
Cance l led | — | $ | — | |||||||||||||
Balance at March 31, 2021 | 6,308,582 | $ | 11.63 | 9.3 | $ | 202,325 | ||||||||||
Vested at March 31, 2021 | 708,833 | $ | 6.97 | 8.7 | $ | 25,956 | ||||||||||
The weighted-average grant date fair value per share of option grants for the threenine months endedMarch 31, 2021 September 30, 2023 and 2022 was $33.32. There were 0 grants$6.31 and $2.31, respectively. The total fair value of shares vested during the threenine months ended March 31, 2020.
The grant date fair value of stock options granted was estimated using a Black-Scholes option pricingoption-pricing model (“Black-Scholes”) with the following weighted-average assumptions:
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Expected term (in years) |
|
| 6.0 |
|
|
| 6.1 |
|
Expected volatility |
|
| 95.3 | % |
|
| 91.3 | % |
Risk-free interest rate |
|
| 3.9 | % |
|
| 2.1 | % |
Expected dividend yield |
|
| — |
|
|
| — |
|
23
Ended | ||
The fair value of stock options was determined using the Black-Scholes option-pricing model and the assumptions below. Each of these inputs is subjective and generally requires significant judgement.judgment.
Fair Value of Common Stock. Prior to the Merger on November 8, 2022, grant date fair market value of the shares of common stock underlying stock options was determined by ARS Pharma’s Board of Directors. Prior to the Merger, there was no public market for the ARS Pharma’s common stock, therefore the ARS Pharma Board of Directors determined the fair value of common stock at the time of grant of the option by considering a number of objective and subjective factors including independent third-party valuations of the ARS Pharma common stock, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors. Following the Merger, the fair market value of the Company's common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded. |
Expected Term. The expected term represents the period that the options granted are expected to be outstanding. The expected term of stock options issued is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term. |
Expected Volatility. Given the Company’s limited historical stock price volatility data, the Company derived the expected volatility from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Company has limited trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. |
Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options. |
Expected Dividend Yield. The Company has never paid dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. Therefore, the Company uses an expected dividend yield of zero. |
11. Employee Benefit Plans
In June 2022, the Company sold shares of its redeemable convertible preferred stock to outside investors in arms-length transactions, the rights, preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock, the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry, the likelihood of achieving a liquidity event for the Company’s securityholders, such as an IPO or a sale of the company, given prevailing market conditions, the hiring of key personnel and the experience of management, trends and developments in the Company’s industry and external market conditions affecting the life sciences and biotechnology industry sectors.
12. Related-Party Transactions
In September 2015, the Company entered into a consulting agreement, superseded in July 2022, for regulatory and development services with Pacific-Link Consulting, LLC, an entity owned by employees.
In September 2018, the Company entered into a consulting agreement with Marlinspike Group, LLC (“Marlinspike Group”) to provide management, business consulting services and business development support. The managing member of Marlinspike Group is the Chair of the Board of Directors of the Company and one of its stockholders. The Company incurred expenses related to this agreement totaling $0.1 million and $0.2 million during the three and nine months ended September 30, 2023 and 2022, respectively.
In November 2018, the Company entered into a consulting agreement for commercial and marketing consulting services with Red Team Associates, LLC (“Red Team”), an entity controlled by the Executive Vice President of Commercial Strategy of the Company. The Company incurred consulting expenses related to this agreement totaling $0.1 million and $0.4 million during the three and nine months ended September 30, 2023, respectively, and less than $0.1 million and $0.2 million during the three and nine months ended September 30, 2022, respectively.
24
In April 2021, the Company entered into a consulting agreement, as amended in April 2022, with a member of the Board of Directors of the Company for general advice and assistance with the development of its current and future product candidates. As compensation for the periods presented because their effect would have been anti-dilutive:consulting services the Company granted the member of the Board of Directors 590,950 stock options that vest over a four-year period. The Company incurred less than $0.1 million and $0.1 million in stock-based compensation expense related to this agreement for the three and nine months ended September 30, 2023 and 2022, respectively.
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Redeemable convertible preferred stock | — | 8,191,580 | ||||||
Common stock options | 6,308,582 | 550,176 | ||||||
Unvested common stock | 76,293 | 5,095 | ||||||
Common stock warrants | — | 9,154 | ||||||
ESPP withholdings | 19,126 | — | ||||||
Total potentially dilutive shares | 6,404,001 | 8,756,005 | ||||||
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and related notes thereto included in “Item 1. Financial Statements (Unaudited)” of this Quarterly Report on Form20202022 included in theour Annual Report on Form(SEC)(“SEC”), on March 29, 2021.23, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, and related financing, includes forward-looking statements that involve risks and uncertainties. For a complete discussion of forward-looking statements, see the section above entitled “Forward Looking Statements.” As a result of many factors, including those factors set forth in the “Riskunder the caption “Item 1A. Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this Quarterly Report to gain an understanding of the importantvarious factors that could cause actual results to differ materially from our forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company with onefocused on the development of ARS-1 (brand name neffy®), a proprietary product candidate in a Phase 1/1b clinical trial, and we are focused on leveraging our proprietary ImmunoTAC technology platform to develop systemically delivered, tissue targeted therapeutics for the needle-free intranasal delivery of epinephrine for the emergency treatment of cancer, chronic viral infections,Type I allergic reactions, including anaphylaxis. neffy is a proprietary composition of epinephrine with an innovative absorption enhancer called Intravail®, which allows neffy to provide intranasal delivery of epinephrine.
We believe neffy’s “no needle, no injection” approach will address a significant unmet need in the use of epinephrine, which is currently approved only in injectable formulations for the emergency treatment of Type I allergic reactions. There are approximately 40 million people in the United States who experience Type I allergic reactions. Of this group, approximately 16 million people have been diagnosed and other serious diseases. Our platform enables usexperienced severe Type I allergic reactions that may lead to strategically pair proprietary linker-payloads that modulate key disease-modifying pathwaysanaphylaxis, but only 3.3 million currently have an active epinephrine autoinjector prescription, and of those, only half consistently carry their prescribed autoinjector with monoclonal antibodies directed to specific disease sites. Initially, we are applying our platform to create a new class of targeted immuno-oncology agents that direct a myeloid cell activatorthem due to the tumor microenvironmentmany drawbacks of these devices. In aggregate, we estimate that 90% of patients prescribed an epinephrine device are not achieving an optimal treatment outcome today. These drawbacks include the use of needles in solid tumorsthe devices, which can result in patient and caregiver injury as well as hesitation and delays in administration due principally to promote cancer cell killing. Ourapprehension and pain of needles, allowing the allergic reaction to progress in severity leading to symptoms that seriously impact patient quality of life, to potential need for emergency services and/or hospitalizations, and to life-threatening symptoms or events. Intra-muscular injections also are subject to dosing errors and risk of accidental blood vessel injections, which can cause a significant spike in the intravascular delivery of epinephrine potentially leading to serious cardiovascular complications or events. We believe neffy’s “no needle, no injection” delivery that eliminates apprehension, pain and safety concerns, small size allowing for ease of portability, ease of use, and high reliability provide it with a user-friendly profile that will increase prescriptions for epinephrine and make it more likely for patients and caregivers to administer epinephrine sooner, achieve more rapid symptom relief and prevent the allergic reaction from progressing to a level of severity that could lead product candidate, SBT6050,to hospitalization or even death.
Data from our studies of neffy demonstrated nasally delivered epinephrine reached blood levels comparable to those of already approved epinephrine injectable products, and produced statistically significant responses compared to injection on pharmacodynamic surrogates for efficacy even one minute after dosing with neffy.
Following the acceptance of our NDA in October 2022 for review by the FDA, on May 11, 2023, the FDA held a virtual meeting of its Pulmonary-Allergy Drugs Advisory Committee, or the Advisory Committee. At that meeting, on the question of whether the data from our neffy PK/PD results support a favorable benefit-risk assessment in adults for the emergency treatment of Type I allergic reactions including anaphylaxis, the Advisory Committee voted 16 (yes) and 6 (no). On the question of whether the neffy PK/PD results support a favorable benefit-risk assessment in children ≥30 kg for the emergency treatment of Type I allergic reactions including anaphylaxis, the Advisory Committee voted 17 (yes) and 5 (no). Although the FDA considers the recommendations of its advisory committees, the recommendation by the Advisory Committee is comprisednon-binding.
On September 19, 2023, the FDA issued a Complete Response Letter (“CRL”) for our NDA requesting completion of a TLR8 agonist linker-payload conjugatedpharmacokinetic/pharmacodynamic study assessing repeat doses of neffy compared to a HER2-directed monoclonal antibody that targets tumors such as certain breast, gastricrepeat doses of epinephrine injection product under allergen-induced allergic rhinitis. This request came after the favorable benefit-risk assessment of the Advisory Committee to approve neffy without need for additional studies. In addition, we had aligned with the FDA in May 2023, andnon-smallcell lung cancers. SBT6050 is currently re-confirmed in a Phase 1/1b clinical trialAugust 2023 to conduct this repeat-dose study under allergen-induced allergic rhinitis study as a monotherapypost-marketing requirement as informative for labeling. The Complete Response Letter also requested additional information on nitrosamine impurities to be tested based on new draft guidance issued in August 2023 after the neffy NDA submission. Our testing, based on methods in the older guidance, did not detect any nitrosamines above or close to the recommended acceptable daily intake limit for chronic exposure. neffy is for acute use.
26
We held a type A meeting with the FDA to discuss the contents of the CRL on October 24, 2023. The FDA reiterated that no other information is required beyond the contents of the CRL. The FDA also confirmed that the previously agreed design for the repeat-dose clinical study to evaluate the similarity of twice dosing injection and in combinationtwice dosing neffy under allergen-induced allergic rhinitis will generate the necessary data to answer its outstanding questions regarding neffy. In addition, the neffy resubmission will be classified as Class 2, with pembrolizumab, in patients with advanced or metastatic HER2-expressing solid tumors. In this trial, we have observed changes in pharmacodynamic markersan action expected within six months of receipt date.
We plan to complete the repeat dose study of neffy under allergen-induced allergic rhinitis and file our NDA resubmission to the FDA in the first dose cohort, and we anticipate providinghalf of 2024, with an update on interim data from the Phase 1 single agent dose-escalation cohortsanticipated launch of neffy, if approved, in the second half of 2021. SBT6290 2024. If approved, we believe neffy will be the first “no needle, no injection” marketed epinephrine product for the emergency treatment of type I allergic reactions.
Our marketing authorization application for neffy is ouralso under review by the European Medicines Agency with a decision expected in the second product candidate, expanding onquarter of 2024 following a grant of an extension to respond to additional requests for data and analysis.
A randomized, placebo-controlled proof of concept clinical study evaluating the potentialsafety and efficacy of a TLR8 agonist as a payload. SBT6290neffy in subjects with frequent urticaria flares is a TLR8 linker-payload conjugated to a monoclonal antibody that targets Nectin4, which is expressed in certain bladder, triple negative breast, head and neck, andnon-smallcell lung cancers.ongoing. We anticipate submitting an investigational new drug application for SBT6290 intopline results from this urticaria clinical study by the fourthfirst quarter of 2021. Our third TLR8 program, SBT8230, is comprised2024.
Since our inception in 2015 as ARS Pharmaceuticals, Inc., we have devoted substantially all of a TLR8 linker-payload conjugatedour efforts and financial resources to an ASGR1 monoclonal antibody that is under development for the treatment of cHBV. We are also developing agents that localize therapies to modulate important pathways in additional oncologyorganizing and fibrosis indications using TLR8 and other linker-payloads.
We expecthave incurred net losses from operations since our expenses will increase substantially and that we will continue to incur significant lossesinception. Our net loss was $34.7 million for the foreseeable future asyear ended December 31, 2022 and $47.2 million for the nine months ended September 30, 2023. As of September 30, 2023 we continuehad an accumulated deficit of $124.1 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, our expenditures on other development of,activities, the cost for regulatory filings, expenses for pre-commercial activities to establish sales, marketing and seek regulatory approvalsdistribution capabilities for our product candidates, and beginour ability to commercializeearn potential regulatory and commercial milestones under our collaboration arrangements. We expect our expenses and operating losses will increase substantially as our product candidate, neffy potentially is approved by the FDA and we commence commercialization efforts, any approved products, seek tofuture product candidates advance through clinical trials, we expand our product pipeline, invest in our organizationclinical, regulatory, quality, manufacturing and technology platform,pre-commercial sales and marketing capabilities, and, as well asa result of the Merger, continue to incur expensescosts associated with operating as a public company. Our net losses may fluctuate significantly fromquarter-to-quarterandyear-to-year,depending on a variety of factors including the timing and scopeIf we obtain marketing approval for any of our preclinical studiesproduct candidates, we will incur significant commercialization expenses for marketing, sales, manufacturing and clinical trials. Accordingly,distribution activities, and added expenditures to expand our operational, financial and management systems and increase personnel to support these operations.
We do not expect to generate any revenues from product sales unless and until we successfully obtain regulatory approval for one or more product candidates, if ever. Until such time, if ever, as we can generate significantsubstantial product revenue, from sales of our product candidates, if ever, we expect tomay finance our operations through our existing cash, needs through public or privatecash equivalents, short-term investments, equity offerings, debt financings and other capital sources which may include collaborations, andstrategic alliances, marketing, distribution or licensing arrangements or other arrangements with third parties. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. In addition, any future debt agreements may limit our ability to enter into certain debt financings without the consent of the lenders thereunder. Our failure to raise capital sources.
We do not own or operate manufacturing facilities. We currently rely on third-party manufacturers and suppliers for neffy, and we expect to continue to do so to meet our nonclinical, clinical and any commercial activities. Our third-party manufacturers are required to manufacture our product candidates under cGMP requirements and other applicable laws and regulations.
27
Merger
On November 8, 2022 (the “Closing Date”), privately-held ARS Pharmaceuticals, Inc. (“ARS Pharma”) merged with Silverback Therapeutics, Inc., a Delaware corporation (“Silverback” and the transaction, the “Merger”), a publicly traded company. In December 2020, we completed our initial public offeringaccordance with the terms of the agreement and plan of merger and reorganization, dated July 21, 2022, as amended on August 11, 2022 and October 25, 2022 (the “Merger Agreement”), Sabre Merger Sub, Inc. (“Merger Sub”), a wholly-owned subsidiary of Silverback, merged into ARS Pharma, with ARS Pharma surviving as Silverback’s wholly-owned subsidiary. At the completion of the Merger, the prior ARS Pharma equityholders owned 62% and the prior Silverback equityholders owned 38% of the combined company, in which we sold 13,225,000each case on a fully diluted basis using the treasury stock method and excluding out-of-money options of Silverback. Upon completion of the Merger, Silverback changed its name to ARS Pharmaceuticals, Inc. As, among other facts, the stockholders of ARS Pharma owned a majority of the combined company, the Merger was treated for accounting purposes as if ARS Pharma had acquired Silverback. As a result of the Merger being accounted for as if ARS Pharma had acquired Silverback, all financial statements prior to the Merger are of ARS Pharma.
At the effective time of the Merger (the “Effective Time”), each share of ARS Pharma common stock outstanding immediately prior to the Effective Time, after giving effect to the automatic conversion of all shares of ourpreferred stock of ARS Pharma into shares of ARS Pharma common stock at $21.00 per shareimmediately prior to the Effective Time, (excluding shares held as treasury stock by ARS Pharma or held or owned by Silverback, Merger Sub or any subsidiary of Silverback or ARS Pharma and received net proceeds, after underwriting discountsdissenting shares) were automatically converted into the right to receive shares of Silverback common stock equal to the exchange ratio of 1.1819. Outstanding and offering costs,unexercised options and warrants to purchase shares of $255.3 million. Further, in March, July,ARS Pharma common stock were converted into options and warrants to purchase shares of Silverback common stock.
Recordati Termination Agreement
In September 2020, we raised net proceedsentered into a license and supply agreement (the “Recordati License and Supply Agreement”) with Recordati Ireland, Ltd (“Recordati”). Pursuant to the Recordati License and Supply Agreement, we granted Recordati an exclusive, royalty-bearing, sublicensable license under our patents relating to neffy to (i) perform Recordati’s development activities on the epinephrine compositions (“Recordati Licensed Compositions”) and related products (“Recordati Licensed Products”) for commercialization in the EU, United Kingdom, and certain countries in the Middle East, Africa and Eurasia (the “Recordati Territory”), (ii) manufacture (or have manufactured) the Recordati Licensed Products for commercialization in the Recordati Territory, (iii) file and hold regulatory approvals for the Licensed Products in the Recordati Territory, and (iv) commercialize the Recordati Licensed Products in the Recordati Territory (collectively, the “Recordati Rights”).
On February 22, 2023, we entered into the Termination Agreement with Recordati, pursuant to which, among other things, we and Recordati agreed to terminate the Recordati License and Supply Agreement. Pursuant to the Termination Agreement, we reacquired all of $153.3the Recordati Rights, paid Recordati a one-time upfront payment of €3.0 million, and have agreed to pay additional payments upon achievement of certain milestones including: (i) an EMA regulatory milestone payment of €2.0 million, (ii) a milestone payment of €5.0 million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) royalty payments of up to €5.0 million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory.
Reduction in Force
On September 19, 2023, the FDA issued a Complete Response Letter regarding our NDA for neffy. On September 29, 2023, we initiated a 20% reduction in force (“RIF”) in order to conserve our cash resources and manage operating expenses until the anticipated PDUFA target action date in the second half of 2024. We provided severance payments, continuation of group health insurance coverage, and other benefits for a specified period to the affected employees. We will incur costs of $0.6 million for termination benefits resulting from the RIF.
28
Financial Overview
Revenues
To date, we have not generated any revenues from the commercial sale of any products, and we may not generate revenues from the commercial sale of any products. We have signed collaboration and license agreements including supply and distribution for neffy with Alfresa Pharma in Japan and Pediatrix in China. The terms of these agreements may include payment to us of one or more of the following: non-refundable, up-front license fees; clinical, regulatory, and/or commercial milestone payments; clinical development fees; and royalties or a transfer price on net sales of licensed products if neffy receives marketing approval in these regions. In addition, we previously entered into the Recordati License and Supply Agreement, which was terminated in February 2023. We expect revenues to fluctuate in future periods based on our redeemable convertible preferred stock.
Research and Development Expenses
To date, our research and development expenses have been related primarily to clinical development, process development and (ii) general and administrative expenses.
Research and development expenses include:
• | salaries, payroll taxes, benefits and stock-based compensation charges for personnel engaged in research and development efforts; |
• | external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants and other third-party organizations to conduct our clinical studies and development activities; |
• | costs related to manufacturing our product candidates for clinical trials and process validation studies, including fees paid to third-party manufacturers; |
• | costs related to compliance with regulatory requirements and regulatory filings; and |
• | indirect expenses including insurance and facility-related expenses. |
Our external research and development expenses consistfor our clinical stage product candidate consists primarily of directfees, materials and other costs paid to CROs, CMOs, consultant and contractors. Our clinical trials and manufacturing costs for the periods presented below reflect an allocation of expenses associated with personnel costs, equity-based compensation expense, and indirect costs incurred in connection with the developmentsupport of our ImmunoTAC technology platform, product candidates, discovery efforts and preclinical studies and clinical trial activities related to our program pipeline, including our lead product candidate, SBT6050.
We expect that our research and development expenses will substantially increaselikely decrease for the foreseeable futureremainder of 2023 based on our planned clinical development and manufacturing activities, as we continueplan to transition to commercialization efforts for the clinical development of SBT6050 and discovery and developmentpotential launch of our other development candidatesfirst product in the second half of 2024. However, the timing for regulatory approvals is outside our control, may be delayed and discovery programs and development, particularly as our product candidates move into later stages of development which increases costs considerably.is uncertain. We cannot reasonably determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and preclinical studiesthe manufacturing costs of IND and developmentour product candidates due to the inherently unpredictable nature of preclinicalclinical development and clinical development.manufacturing activities. Clinical development and preclinical developmentmanufacturing timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which developmentproduct candidates and discovery programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential.
29
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include:
• | per patient trial costs; |
• | the number of patients that participate in the trials; |
• | the number of sites included in the trials; |
• | the countries in which the trials are conducted; |
• | the length of time required to enroll eligible patients; |
• | the number of doses that patients receive; |
• | the drop-out or discontinuation rates of patients; |
• | potential additional safety monitoring or other studies requested by regulatory agencies; |
• | the efficacy and safety profile of our product candidates; |
• | the cost to seek regulatory approvals for any product candidates that successfully complete clinical trials; |
• | the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S. regulators; |
• | maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates; |
• | establishing or maintaining commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully; |
• | significant and changing government regulation and regulatory guidance; |
• | the impact of any business interruptions to our operations or to those of the third parties with whom we work; and |
• | the extent to which we establish additional strategic collaborations or other arrangements. |
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. The process of conducting the necessary clinical research and manufacturing to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates or any future candidates may be affected by a variety of factors. We may never succeed in achieving regulatory approval for our product candidates or any future candidates. Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates’ or any future candidates’ development, which could increase our research and development expenses.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and stock-basedequity-based compensation and recruiting costs for personnel in executive, finance, business development, sales and marketing and other corporate administrative functions. Other significant generalGeneral and administrative expenses also include pre-commercial launch activities, legal fees incurred relating to intellectual propertycorporate and corporatepatent matters, professional fees incurred for accounting, auditing, tax and administrative consulting services, market research costs, and insurance costs, travel expenses and facility related expenses.
30
We expect that our general and administrative expenses will substantially increasedecrease for the foreseeable futureremainder of 2023 as we continue to increaseconserve our cash resources and manage operating expenses until the anticipated PDUFA target action date in the second half of 2024. In the second half of 2024 we expect that our general and administrative headcountexpenses will increase substantially as we add sales and marketing personnel, infrastructure and programs to support our continued research and developmentpre-commercial activities, and if anyour product candidates receive marketing approval, commercialization activities, as well asactivities. We expect to support our operations generally. We also expectcontinue to incur increased expenses associated with operating as a public company, including costs related to accounting, audit, legal, regulatoryinvestordefense, and public relations costs.
Results of Operations
Comparison of the Three Months Ended March 31, 2021September 30, 2023 and 2020
The following table summarizes our results of operations for the three months ended March 31, 2021September 30, 2023 and 2020:
Three Months Ended March 31, | Dollar | % | ||||||||||||||
2021 | 2020 | Change | Change | |||||||||||||
(in thousands) | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 12,239 | $ | 4,414 | $ | 7,825 | 177 | % | ||||||||
General and administrative | 6,646 | 828 | 5,818 | * | ||||||||||||
Total operating expenses | 18,885 | 5,242 | 13,643 | 260 | ||||||||||||
Loss from operations | (18,885 | ) | (5,242 | ) | (13,643 | ) | 260 | |||||||||
Interest income (expense), net | 18 | (37 | ) | 55 | 149 | |||||||||||
Net loss and comprehensive loss | $ | (18,867 | ) | $ | (5,279 | ) | $ | (13,588 | ) | 257 | % | |||||
|
| Three Months Ended September 30, |
|
| Dollar |
|
| % |
| |||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| Change |
| ||||
Revenue under collaboration agreements |
| $ | — |
|
| $ | 189 |
|
| $ | (189 | ) |
|
| (100 | %) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development(1) |
|
| 3,002 |
|
|
| 3,893 |
|
|
| (891 | ) |
|
| (23 | ) |
General and administrative(1) |
|
| 14,976 |
|
|
| 2,926 |
|
|
| 12,050 |
|
|
| 412 |
|
Total operating expenses |
|
| 17,978 |
|
|
| 6,819 |
|
|
| 11,159 |
|
|
| 164 |
|
Loss from operations |
|
| (17,978 | ) |
|
| (6,630 | ) |
|
| (11,348 | ) |
|
| 171 |
|
Other income (expense), net |
|
| 3,112 |
|
|
| 47 |
|
|
| 3,065 |
|
| * |
| |
Net loss |
|
| (14,866 | ) |
|
| (6,583 | ) |
|
| (8,283 | ) |
|
| 126 |
|
Change in unrealized gains and losses on available-for-sale securities |
|
| 19 |
|
|
| — |
|
|
| 19 |
|
|
| 100 |
|
Comprehensive loss |
| $ | (14,847 | ) |
| $ | (6,583 | ) |
| $ | (8,264 | ) |
|
| 126 | % |
______________
(1) Includes stock-based compensation expense as follows (in thousands):
* Not meaningful
|
| Three Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Research and development |
| $ | 656 |
|
| $ | 56 |
|
General and administrative |
|
| 1,953 |
|
|
| 404 |
|
Total |
| $ | 2,609 |
|
| $ | 460 |
|
Revenues. There was no revenue under collaboration agreements for the three months ended March 31, 2021September 30, 2023, and 2020:
Three Months Ended March 31, | Dollar | % | ||||||||||||||
2021 | 2020 | Change | Change | |||||||||||||
(in thousands) | ||||||||||||||||
Direct costs: | ||||||||||||||||
SBT6050 | $ | 2,226 | $ | 1,147 | $ | 1,079 | 94 | % | ||||||||
Preclinical programs | 3,704 | 532 | 3,172 | * | ||||||||||||
Total direct costs | 5,930 | 1,679 | 4,251 | 253 | ||||||||||||
Indirect costs: | ||||||||||||||||
Personnel-related expenses, including stock-based compensation | 4,695 | 1,826 | 2,869 | 157 | ||||||||||||
Facility and equipment related expenses | 872 | 562 | 310 | 55 | ||||||||||||
Other unallocated research and development expenses | 742 | 347 | 395 | 114 | ||||||||||||
Total research and development expenses | $ | 12,239 | $ | 4,414 | $ | 7,825 | 177 | % | ||||||||
31
Research and Development Expenses. Research and development expenses were $12.2$3.0 million and $4.4$3.9 million for the three months ended March 31, 2021September 30, 2023 and 2020,2022, respectively. The increasedecrease of $7.8$0.9 million was primarily due primarily to ana $1.7 million decrease in device component purchases and a $0.4 million decrease in consulting fees. These aggregated decreases were partially offset by a $0.6 million increase in preclinical programs of $3.2stock-based compensation, a $0.3 million as we continued to advance certain pipeline programs, including SBT6290 increase in product materials associated with neffy, and SBT8230, through preclinical development. Thea $0.3 million increase was also due to an increase of $1.1 million in direct costs related to the development of SBT6050. The increase was also due to increases in personnel-related expenses of $2.9 million, and facility and equipment related expenses and other unallocated research and development expenses of $0.7 million.
|
| Three Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Clinical and regulatory |
| $ | 1,513 |
|
| $ | 1,874 |
|
Manufacturing and non-clinical development |
|
| 1,489 |
|
|
| 2,019 |
|
Total research and development expenses |
| $ | 3,002 |
|
| $ | 3,893 |
|
General and Administrative Expenses
Other Income (Expense), Net
Comparison of the Nine Months Ended September 30, 2023 and 2022:
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands, except percentages):
|
| Nine Months Ended September 30, |
|
| Dollar |
|
| % |
| |||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| Change |
| ||||
Revenue under collaboration agreements |
| $ | 30 |
|
| $ | 1,316 |
|
| $ | (1,286 | ) |
|
| (98 | %) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development(1) |
|
| 16,862 |
|
|
| 13,666 |
|
|
| 3,196 |
|
|
| 23 |
|
General and administrative(1) |
|
| 40,462 |
|
|
| 7,723 |
|
|
| 32,739 |
|
|
| 424 |
|
Total operating expenses |
|
| 57,324 |
|
|
| 21,389 |
|
|
| 35,935 |
|
|
| 168 |
|
Loss from operations |
|
| (57,294 | ) |
|
| (20,073 | ) |
|
| (37,221 | ) |
|
| 185 |
|
Other income (expense), net |
|
| 10,097 |
|
|
| (180 | ) |
|
| 10,277 |
|
| * |
| |
Net loss |
|
| (47,197 | ) |
|
| (20,253 | ) |
|
| (26,944 | ) |
|
| 133 |
|
Change in unrealized gains and losses on available-for-sale securities |
|
| (568 | ) |
|
| — |
|
|
| (568 | ) |
|
| (100 | ) |
Comprehensive loss |
| $ | (47,765 | ) |
| $ | (20,253 | ) |
| $ | (27,512 | ) |
|
| 136 | % |
______________
(1) Includes stock-based compensation expense as follows (in thousands):
* Not meaningful
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Research and development |
| $ | 1,916 |
|
| $ | 165 |
|
General and administrative |
|
| 5,041 |
|
|
| 915 |
|
Total |
| $ | 6,957 |
|
| $ | 1,080 |
|
32
Revenues. Revenues under collaboration agreements were less than $0.1 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. The revenues for the nine months ended September 30, 2023 and 2022 include the recognition of revenue for the portion of upfront and clinical and regulatory milestone payments under our collaborations with Alfresa that have been allocated to research and development services provided for during these periods. The revenues for the nine months ended September 30, 2022, also included similar revenues under our collaboration with Recordati. We expect revenues to fluctuate in future periods based on our ability to meet various regulatory milestones, and contingent on successfully obtaining regulatory approval for neffy in the licensed regions, commercial milestones, royalties or transfer price earned from our partner’s net sales and the supply of commercial product as set forth in these agreements.
Research and Development Expenses. Research and development expenses were $16.9 million and $13.7 million for the nine months ended September 30, 2023 and 2022, respectively. The increase of $3.2 million was primarily due to a $3.1 million increase in product materials associated with neffy, a $1.8 million increase in stock-based compensation, a $0.9 million increase in development expenses, a $1.0 million increase in payroll-related expenses, a $0.9 million increase in consulting fees, and a $0.7 million increase in other operating expenses. These aggregated increases were partially offset by a $3.6 million decrease in principal on our notes payable device component purchases, a $1.2 million decrease in clinical trial costs associated with neffy, and ana $0.4 million decrease in stability study costs.
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Clinical and regulatory |
| $ | 6,721 |
|
| $ | 6,134 |
|
Manufacturing and non-clinical development |
|
| 10,141 |
|
|
| 7,532 |
|
Total research and development expenses |
| $ | 16,862 |
|
| $ | 13,666 |
|
General and Administrative Expenses. General and administrative expenses were $40.5 million and $7.7 million for the nine months ended September 30, 2023 and 2022, respectively. The increase of $32.7 million was primarily due to a $14.9 million increase in pre-commercial launch activities related to neffy, a $5.7 million increase in payroll-related expenses, a $4.1 million increase in stock-based compensation, a $2.5 million increase in consulting fees, a $1.5 million increase in legal expenses, a $1.3 million increase in insurance costs, a $0.7 million increase in general overhead, $0.6 million increase in recruiting fees, a $0.5 million increase in conference expenses, and a $0.9 million increase in other operating expenses.
Other Income (Expense), Net. Other income, net was $10.1 million for the nine months ended September 30, 2023 and other expense, net was $0.2 million for the nine months ended September 30, 2022. The difference of $10.3 million was primarily due to a $5.9 million increase in net amortization and accretion associated with our short-term investments, a $4.1 million increase in interest income from our cash, balance.
Liquidity and Capital Resources
Sources of Liquidity and Capital
Since our inception, we have not generated any revenue from any product sale and have incurred netsignificant operating losses and negative cash flows from operations since our inceptionoperations. We have not yet commercialized any of our product candidates and anticipate we will continuedo not expect to incur net losses forgenerate revenue from sales of any product candidates until the foreseeable future. Since our inception, wesecond half of 2024 or after, if at all. We have funded our operations almost exclusivelyto date primarily with proceeds from the Merger, the sale of preferred and issuance of shares of our redeemable convertible preferredcommon stock, revenue earned under collaboration, licensing, supply and debt financings. We will needdistribution agreements and bank debt. From inception to raise substantial additional capital in the future.
Cash flows
The following table sets forth a summary of the netsummarizes our cash flow activityflows for the yearsnine months ended March 31, 2021September 30, 2023 and 2020:
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | (12,201 | ) | $ | (7,628 | ) | ||
Investing activities | (35 | ) | (33 | ) | ||||
Financing activities | (128 | ) | 21,315 | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (12,364 | ) | $ | 13,654 | |||
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash and cash equivalents used in operating activities |
| $ | (41,861 | ) |
| $ | (19,581 | ) |
Net cash and cash equivalents used in investing activities |
|
| (113,219 | ) |
|
| (73 | ) |
Net cash and cash equivalents provided by (used in) financing activities |
|
| 5,094 |
|
|
| (3,087 | ) |
Net decrease in cash and cash equivalents |
| $ | (149,986 | ) |
| $ | (22,741 | ) |
33
Operating Activities
During the threenine months ended March 31, 2021,September 30, 2023, net cash used in operating activities was $12.2$41.9 million. This consisted primarily of a net loss of $18.9$47.2 million, partially offset bynon-cashcharges of $4.8 million and a decrease in our operating assets and liabilities of $1.9 million. Thenon-cashcharges primarily consisted of stock-based compensation expense of $4.3 million,non-cashlease expense of $0.3$3.4 million, and depreciation expensenon-cash charges of $0.2$1.9 million. The decrease in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expensesliabilities of $2.2 million. This$6.1 million and a decrease wasin prepaid and other assets of $0.5 million, partially offset by a decrease in our leasecontract liability of $0.2$3.1 million. The non-cash charges consisted of non-cash stock-based compensation of $7.0 million, partially offset by $5.1 million in net amortization and an increase in prepaid expenses and other assetsaccretion of $0.1 million after adjusting fornon-cashitems.
During the threenine months ended March 31, 2020,September 30, 2022, net cash used in operating activities was $7.6$19.6 million. This consisted primarily of a net loss of $5.3$20.3 million, and an increase in our operating assets and liabilities of $2.8$0.6 million, partially offset by$0.5 million. Thenon-cashcharges primarily consisted ofnon-cashlease expense of $0.3 million and depreciation expense of $0.1$1.2 million. The increase in our operating assets and liabilities was primarily due to a decrease in contract liability of $1.3 million and an increase in other receivables of $0.3 million, partially offset by an increase in accounts payable and accrued expensesliabilities of $2.7 million and a decrease in our lease liability$1.1 million. The non-cash charges consisted primarily of $0.2 million, partially offset by a decrease in prepaid expenses and other assetsnon-cash stock-based compensation of $0.1$1.1 million.
Investing Activities
During the threenine months ended March 31, 2021,September 30, 2023, the cash and cash equivalents used in investing activities was less than $0.1$113.2 million. This consisted primarily of purchases of short-term investments of $238.0 million, due tomaturities of short-term investments of $125.0 million, and purchases of property and equipment.
Financing Activities
During the threenine months ended March 31, 2021,September 30, 2023, the cash and cash equivalents provided by financing activities was $5.1 million, which consisted of proceeds from stock option exercises and the employee stock purchase plan. During the nine months ended September 30, 2022, the cash and cash equivalents used in financing activities was $0.1 million. This was primarily driven by $0.4 million of principal payments on the term loan payable, which was partially offset by $0.2 million in proceeds from exercises of common stock options.
Future Funding Requirements
Based on our current operating plan, we believe that our existing cash and cash equivalents of $374.2 million at March 31, 2021 will be sufficient to fundmeet our operating expenses and capital expenditureanticipated cash requirements through at least the next 24 months.three years. In particular, we expect our cash, cash equivalents, and short-term investments will allow us to fund our expenses related to the FDA’s review of our NDA for neffy, fund proof of concept clinical trials of neffy for additional indications, fund pre-commercial manufacturing and sales and marketing activities, and if and when neffy is approved by the FDA, fund our commercial launch. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
34
Our future capitalfunding requirements will depend on many factors, including:
• | the scope, progress, results and costs of researching and developing our current product candidates, as well as other additional product candidates we may develop and pursue in the future; |
• | the scope and costs of manufacturing our product candidates and commercial manufacturing activities; |
• | the timing of, and the costs involved in, obtaining marketing approvals for our product candidates; |
• | the number of future product candidates that we may pursue and their development requirements; |
• | subject to receipt of regulatory approval, the costs of commercialization activities for our product candidates, to the extent such costs are not the responsibility of any collaborators, including the costs • subject to receipt of regulatory approval, revenue, if any, • the timing and amount of any milestone and royalty payments under the Aegis License Agreement and the Termination Agreement; • the extent to • our headcount growth and associated costs as we expand our employee headcount and establish a commercial infrastructure; • the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and • the costs of operating as a public company. Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the Material Cash Requirements There have been no material changes 35 Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, stock-based compensation, and valuation allowances for deferred tax assets. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. During the Recent Accounting Pronouncements See Note 2 - Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements appearing in Part I, Item 1 of this Quarterly Report on Form Emerging Growth Company and Smaller Reporting Company Status We are an emerging growth company, as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to 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 any golden parachute payments not previously approved. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have at least 36 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company” as defined under Item 10(f)(1) of Regulation Act, we are not required to provide the information contemplated by this item. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As required by Rules Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended 37 PART II – OTHER INFORMATION Item 1. Legal Proceedings From time to time, we may required disclosure. Item 1A. Risk Factors We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form The risk factors set forth below that are marked with an asterisk (*) did not appear as separate risk factors in, or contain changes to the similarly titled risk factor included in Item 1A. of our Annual Report on Form 10-K, filed with the SEC on March 23, 2023. Risks Related to Our Need for Capital We Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. Our only product candidate, neffy, is in the clinical stage of development. We 38 We anticipate that our expenses will increase substantially if and as we: • continue to develop and • seek regulatory approvals in the United States, the EU and other geographic regions for neffy for the emergency treatment of Type I allergic reactions and other indications that successfully complete clinical development; • seek to identify additional product candidates; • initiate and continue research, preclinical and clinical development efforts for any future product candidates; • experience any delays or encounter any issues with any of the above, including but not limited to failed studies, negative or mixed clinical trial results, safety issues or other regulatory challenges, the risk of which in each case may be exacerbated by health epidemic or pandemic; • add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product • maintain, expand and protect our intellectual property portfolio; • establish or expand our sales, marketing, • acquire or in-license other product candidates and technologies. Our expenses could increase beyond our expectations if we are required by the FDA, the EMA or other regulatory authorities to perform clinical trials or conduct nonclinical studies in addition to those that we currently expect, or if there are any delays in completing our clinical trials or the development of neffy, or if we choose to develop any future product candidates. We have never generated revenue from product sales and may never be profitable. Our ability to become and remain profitable depends on our ability to generate significant revenue from product sales. We do not expect to generate significant revenue, if any, unless and until we, either alone or with a collaborator, are able to obtain regulatory approval for, and successfully commercialize, neffy for its initial indication and potential additional indications. Successful commercialization of neffy will require achievement of many key milestones, which vary by jurisdiction and may include demonstrating safety and efficacy in clinical trials, and obtaining regulatory approval for neffy. If neffy is approved, we, or any of our current or future licensing and collaboration partners must also comply with post-approval requirements, such as those relating to marketing Our failure to become and remain profitable We have a limited operating history and only one current product candidate, neffy, which is in the We are a biopharmaceutical company founded in 2015 as ARS Pharmaceuticals, Inc., and our operations to date have been limited to organizing, staffing and financing our company, raising capital, and conducting research and development activities, including preclinical and nonclinical studies and clinical trials, for our only product candidate, neffy. We have not yet demonstrated an ability to generate product revenues, obtain regulatory approvals, manufacture a commercial product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in clinical development, especially clinical-stage biopharmaceutical companies such as us. Any predictions you make about our future success or viability may not be as accurate as they could 39 We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We are preparing to We may need additional funding, and if we are unable to raise Our operations have Our future capital requirements depend on many factors, including: • the scope, progress, results and costs of researching and developing neffy for the emergency treatment of Type I allergic reactions and potential additional indications, as well as any future product candidates we may develop; • • the number of future product candidates that we may pursue and their development requirements, if any; • if approved, the costs of commercialization activities for neffy for any approved indications, or the similar cost of any other product candidate that receives regulatory approval to the extent such costs are not the responsibility of any current or future licensing and collaboration partners, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; • subject to receipt of regulatory approval, revenue received from commercial sales of neffy for any approved indications or from future product candidates, if any; • the amount and timing of potential royalty and milestone payments to our current or future licensing and collaboration partners; • the receipt of licensing fees, royalties and potential milestone payments under our current or future out-licensing arrangements; • the extent to which we in-licenses or acquire rights to other products, product candidates or technologies; • our headcount growth and associated costs as we expand our personnel, including personnel to support our product candidate development and potential future commercialization efforts and help us comply with our obligations as a public company; • the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and • the ongoing costs of operating We cannot be certain that additional funding will be available on acceptable terms, or at all. The global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, inflation, bank failures and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly or more dilutive. 40 We believe that our existing cash and cash equivalents will be sufficient to fund our We have no committed source of additional results of operations. Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product We expect our expenses to increase in connection with our planned operations. Based upon our current operating plan, we believe that our cash and cash equivalents will fund our operating and capital expenses for at least three years. However, unless and until we can generate a substantial To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect their ability to oversee the development and potential future commercialization of neffy. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams Changes in tax law could adversely affect our business and financial condition. The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition, realization of tax assets or results of operations. 41 Risks Related to the Development of neffy or Any Future Product Candidates We have never commercialized a product and may experience delays or unexpected costs or difficulties in obtaining regulatory approval for neffy for its initial indication or potential additional indications.* We have never obtained regulatory approval for, or commercialized, a pharmaceutical product. It is possible that the FDA and the EMA may refuse to accept any or all of our submitted or planned NDAs and MAAs for substantive review or may conclude after review of our data that an application is insufficient to obtain regulatory approval for neffy or any future product candidates. As we announced on September 19, 2023, the FDA issued a Complete Response Letter, or CRL, for our NDA for neffy for the treatment of allergic reactions (Type I) including anaphylaxis for adults and children ≥ 30 kg. In the CRL, the FDA requested completion of a pharmacokinetic/pharmacodynamic study assessing repeat dosing of neffy compared to repeat doses of an epinephrine injection product under allergen-induced allergic rhinitis condition in order to support approval. We are considering the submission of a formal dispute resolution request to appeal the CRL, but there can be no assurance that our appeal will be successful. If our appeal is not successful, we will need to resubmit our NDA which will delay the timeline for the potential commercialization of neffy should our NDA be approved. In October 2023, we held a Type A meeting with the FDA to discuss the CRL, during which the FDA reiterated that no other information is required beyond the contents of the CRL and that the resubmission of our NDA will be classified as Class 2, with an action expected within six months of receipt date. There can be no assurances that the FDA will not late require other information that was not contemplated by the CRL, including follow up requests based on the information provided in response to the CRL. Additionally, there can be no assurances that our resubmission will be classified as Class 2 and that an action will occur within six months of the receipt date. If we resubmit our NDA, further material delays in the approval of our resubmitted NDA or the issuance by the FDA of another Complete Response Letter, would likely cause a material adverse effect to our business. Additionally, the EMA required us to submit our preclinical animal anaphylaxis study results during the review process of our prior 1.0 mg dose of neffy MAA submission. If the FDA and the EMA do not initially approve any of our submitted or planned NDAs or MAAs, such regulatory authorities may require that we conduct additional clinical, nonclinical or manufacturing validation studies before they will reconsider future applications. Such additional clinical, nonclinical or manufacturing validation studies may impact our cash runway and require us to raise additional capital. Depending on the extent of these or any other required studies, approval of any NDA, MAA or other application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any failure or delay in obtaining regulatory approvals would prevent us from commercializing neffy for any indication or any other product candidate, generating revenues and achieving and sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA or EMA to approve any NDA, MAA or other application that we submit. For example, the FDA has indicated that the ongoing pediatric clinical trial, EPI-10, would be sufficient to support a submission of our NDA for pediatric approval of a 2.0 mg dose of neffy for children weighing more than 30 kg, and to support a separate submission for pediatric approval of a 1mg dose of neffy for children weighing between 15 and 30 kg; however, the FDA has not reviewed our complete clinical data, to date, and therefore there is no guarantee that the FDA will determine that any future NDA is sufficient for issuing a marketing approval of neffy for the emergency treatment of Type I allergic reactions in children. If any of these outcomes occur, we may be forced to abandon the development of neffy or any future product candidates, which would materially adversely affect our business and could potentially cause us to cease operations. We face similar risks for applications in other foreign jurisdictions. In addition, difficulties in obtaining approval of neffy for the emergency treatment of Type I allergic reactions, could adversely affect our efforts to seek approval from regulatory authorities for neffy for use in other potential indications. We currently depend on the success of neffy, which is our only current product candidate. If we are unable to materially harmed. We active development that may be able to better sustain failure of a lead product candidate. 42 We currently have no products approved for marketing and are • successful completion of nonclinical studies and clinical trials;successful patient enrollment in clinical trials; • • satisfaction of applicable regulatory requirements, including to satisfy applicable rules governing combination products;potential unforeseen safety issues or adverse side effects; • receipt and maintenance of marketing approvals from applicable regulatory authorities; remaining in compliance with post-marketing regulatory requirements; • obtaining and maintaining patent and trade secret protection and regulatory exclusivity for neffy or any future product candidates; making arrangements or maintaining existing arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical supplies of neffy or any future product candidates;entry into collaborations to further the development of neffy or any future product candidates; • establishing sales, marketing and distribution capabilities and launching commercial sales of successfully launching commercial sales of neffy or any future product candidates, if and when approved; • acceptance of • obtaining and maintaining third-party coverage and adequate reimbursement; maintaining a continued acceptable safety • effectively competing with other therapies; • ensuring that we promote and distribute our products consistent with all applicable healthcare laws; and • enforcing and defending intellectual property rights and claims. Many of these risks are beyond our control, including the risks related to clinical development, the regulatory submission and review process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any current or future collaboration partner. If we In addition, of the large number of products in 43 The denial of regulatory approval for neffy could mean that we need to delay or even cease operations, and a delay in obtaining such approval would delay commercialization of neffy and adversely impact our ability to generate revenue, business and results of If we are not successful in commercializing neffy, or are significantly delayed in doing so, our business will be materially harmed, and • our inability to demonstrate • our inability to gain agreement from • the FDA’s, the EMA’s or any other applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical and clinical studies and trials; • our inability to demonstrate that the clinical and other benefits of neffy outweigh any safety or other perceived risks; • our inability to enroll an adequate number of patients in and successfully complete our ongoing and any future clinical trials, • the • • the FDA’s, the EMA’s or any other applicable foreign regulatory agency’s non-approval of the formulation, labeling and/or the specifications of neffy; • the FDA’s, the EMA’s or any other applicable foreign regulatory agency’s failure to accept the manufacturing processes or third-party manufacturers with which we contract; or • the potential for approval policies or regulations of the FDA, the EMA or any other applicable foreign regulatory agencies to significantly change in Of the large number of pharmaceutical products in development, only a small percentage successfully complete the FDA, the EMA or Even if we eventually complete clinical testing and 44 The regulatory approval processes of the FDA, the EMA and other comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for neffy or any future product candidates, our business will be substantially harmed.* We, and any current and future licensing and collaboration partners, are not permitted to commercialize, market, promote or sell any product candidate in the United States or the EU without obtaining regulatory approval from the FDA or the EMA, respectively. Regulatory authorities in other jurisdictions may have similar requirements. The time required to obtain approval by the FDA, the EMA and other comparable foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including substantial discretion of such regulatory authorities. In addition, approval policies, regulations, or the type and amount of preclinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. To date, other than the NDA for neffy that we submitted to the FDA in the third quarter of 2022 and our MAA for neffy that was filed and validated for review by the EMA in the fourth quarter of 2022, we have not submitted any product approval submissions for neffy or any other product candidate to the FDA, EMA or other comparable foreign regulatory authorities for neffy and there can be no assurance that we will receive such approval from such regulatory authorities after submitting any product approval application. The FDA issued a Complete Response Letter to our NDA on September 19, 2023 and there can be no assurance that following our resubmission of our NDA for neffy that we will not receive another Complete Response Letter rather than approval. 45 Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of neffy or any future product candidates is susceptible to the risk of failure inherent at any stage of development, including failure to demonstrate safety or efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA, the EMA or any other comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. For example, the repeat-dose pk/pd trial requested in the FDA’s CRL, if conducted, may not yield results that are expected or consistent with the prior product profile of neffy, which may have the effect of further delaying or preventing our approval pathway. Additionally, our expenses could increase if it is required by the FDA, the EMA or any other comparable foreign regulatory authority to perform clinical trials or studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of neffy for additional indications. It is possible that even if neffy or any future product candidate has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of neffy or any future product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by neffy or any future product candidate, or mistakenly believe that neffy or any future product candidates are toxic or not well-tolerated when that is not in fact the case. neffy and any future product candidates could fail to receive regulatory approval for many reasons, including the following: • the FDA, the EMA or other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials; • we may be unable to demonstrate to the satisfaction of the FDA, the EMA or other comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication and, if necessary, that a product candidate and any active components thereof are safe and effective for the proposed indication; • the FDA, the EMA or other comparable foreign regulatory authorities may find deficiencies with regards to the formulation components or specifications of neffy, including, without limitation, with respect to appearance, identity, impurities, or particle size; • the results of clinical trials may not meet the level of evidence or criteria required by the FDA, the EMA or other comparable foreign regulatory authorities for approval; • we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; • the FDA, the EMA and comparable authorities in other countries may disagree with our interpretation of data from clinical trials or nonclinical studies and may require additional trials or studies to support marketing approval; • the data collected from clinical trials of neffy or any future product candidates may not be sufficient to support the submission of an NDA or other submission to the FDA or to obtain regulatory approval in the United States, the EU or elsewhere; • the FDA, the EMA or other comparable foreign regulatory authorities may find deficiencies with clinical trial sites or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and • the approval policies or regulations of the FDA, the EMA or other comparable foreign regulatory authorities may significantly change This lengthy approval process as well as the unpredictability of clinical trial results may result in us failing to obtain regulatory approval to market neffy or There can be no assurance that the FDA and other regulatory agencies, including the EMA, will not require additional clinical trials or studies to support an application for the marketing of neffy in the emergency treatment of Type I allergic reactions or any other indication. This may be the case particularly as these regulatory authorities may consult with one another or as we may be required to apprise the respective agencies of studies we are conducting of neffy in conjunction with our requests for marketing approval or in response to requests and updates from the respective agency. 46 With respect to new sites or facilities in the European Economic Area (“EEA”), which have never had a current Good Manufacturing Practices (“cGMP”) inspection or authorization, the EMA has stated that a distant assessment may be conducted in order to evaluate if the site could be authorized without an on-site pre-approval inspection. If an approval is granted, it should be indicated that the certificate has been granted on the basis of a distant assessment and an on-site inspection should be conducted when circumstances permit. If a cGMP certificate cannot be granted as a result of the distant assessment, a clock-stop in the regulatory approval process will be imposed until an on-site inspection is possible. In addition, even if we were to obtain approval, regulatory authorities may approve neffy or any future product candidates for fewer or more limited indications, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for neffy or any future product candidates. If the FDA does not conclude that neffy or any future product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.* While we believe that we will have the necessary supporting data to submit a marketing application under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (“Section 505(b)(2)”) regulatory pathway to the FDA for neffy for the emergency treatment of Type I allergic reactions upon completion of our ongoing pediatric study, EPI-10, for children between 15 and 30 kg in weight, there can be no assurance that the FDA will agree that the Section 505(b)(2) pathway is appropriate or will approve any such application or any future application for additional indication or future product candidates. The Hatch Waxman Act added Section 505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), if available to us, would allow an NDA we submit to the FDA to rely in part on data in the public domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development program for our future product candidates by potentially decreasing the amount of nonclinical and/or clinical data that we would need to generate in order to obtain FDA approval. This pathway does not, however, expedite the FDA review process timelines. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional nonclinical studies and/or clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for neffy or any future product candidate, and complications and risks associated with such product candidates, would likely substantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than any product candidates we develop, which could adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that neffy or any future product candidates we develop will receive the requisite approval for commercialization. In addition, notwithstanding the approval of a number of products by the FDA under 47 We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of neffy or any future product candidates.* To obtain the requisite regulatory approvals We may • regulators, or • we may • a delay in receiving study or clinical trial material from outside the United States; • the number of subjects or patients required for clinical trials of neffy in an indication or any future product candidate may be larger than we • our third-party contractors, including those manufacturing neffy or any future product candidates or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • we may have to amend clinical trial protocol(s) submitted to regulatory authorities or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to resubmit to an IRB and regulatory authorities for re-examination; • unforeseen safety events may occur during the course of a clinical trial and these events may result in the temporary suspension or termination of a clinical trial, or require urgent safety measures or restrictions to protect human subjects during the conduct of a clinical trial; • regulators, IRBs or other reviewing bodies may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we have entered and may enter into agreement for clinical and commercial supplies, or the supply or quality of neffy or any future product candidate or other materials necessary to conduct • the potential for approval policies or regulations of the FDA, the EMA or any other applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval. Regulators, IRBs of the institutions in which clinical trials are being conducted, or data monitoring committees may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to appear to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. 48 Negative or inconclusive impressions of the results from our earlier clinical trials of neffy for the emergency treatment of Type I allergic reactions or any other clinical trial or nonclinical studies in animals that we have conducted, could mandate repeated or additional nonclinical studies or clinical trials and could delay marketing approvals or result in changes to or delays in nonclinical studies or clinical trials of neffy for other indications. While data from our studies of neffy demonstrated nasally delivered epinephrine reached blood levels comparable to those of already approved epinephrine injectable products, we do not know whether any future clinical trials or studies that we may conduct will demonstrate adequate efficacy and safety necessary to result in obtaining regulatory approval to market neffy for its initial indication or potential additional indications, or any future product candidate. If later stage clinical trials, including our ongoing pediatric clinical study, EPI-10, and the pharmacokinetic/pharmacodynamic study we plan to conduct to assess repeat dosing of neffy compared to repeat doses of an epinephrine injection product under allergen-induced allergic rhinitis condition, do not produce favorable results that meet regulatory authority criteria, our ability to obtain regulatory approval for neffy for the emergency treatment of Type I allergic reactions or potential additional indications, or any future product candidate, may be adversely impacted. Our failure to successfully initiate and complete clinical trials of neffy for the emergency treatment of Type I allergic reactions or potential additional indications and to demonstrate the efficacy and safety of neffy, necessary to obtain regulatory approval to market neffy would significantly harm our business. Our product candidate development costs will also increase if we experience delays in testing or regulatory approvals and we may be required to obtain additional funds to complete clinical trials. We cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at The results of The results of preclinical studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials we commence may not be predictive of the results of the later-stage clinical trials. In addition, initial data in clinical trials may not be indicative of results obtained when such trials are completed. There can be no assurance that any of our ongoing, planned or operating results. Interim topline and preliminary data from our clinical trials that we announce or publish from time to time 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 49 neffy or any future product candidate may cause undesirable side effects, adverse events, or have other properties that could delay or prevent its regulatory Undesirable side effects or adverse events caused by neffy, or any future product candidate, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or comparable foreign regulatory authorities. Although our clinical studies to date have demonstrated that neffy is well-tolerated by patients with no serious treatment-related adverse events, and reported adverse events generally no more severe than grade 1 and comparable with injection products, and with no meaningful pain or irritation based on formal scoring, results of our If unacceptable side effects or adverse events arise in the future product candidates by other parties. Any In addition, clinical trials of neffy are Finally, neffy is comprised of 50 The increasing use of social media platforms presents new risks and Social media is increasingly being used to communicate about our clinical development activities and the indications neffy is being developed to treat, and we intend to utilize appropriate social media in connection with our commercialization efforts following regulatory approval of neffy, if any. Social media practices in the biotechnology and biopharmaceutical industries continue to evolve and regulations and regulatory guidance relating to such use are evolving and not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business, resulting in potential regulatory actions against us, along with the potential for litigation related to off-label marketing or other prohibited activities and heightened scrutiny by the FDA, the Federal Trade Commission (“FTC”), the SEC and other regulators. For example, patients may use social media channels to comment on their experience in an ongoing clinical trial or to report an alleged management, neffy or future product candidates. If any of these events If we fail to develop and commercialize neffy for additional indications or fail to discover, develop and commercialize other product candidates, we may be unable to grow our business and our ability to Although the development and commercialization of neffy for the emergency treatment of Type I allergic reactions is our current primary focus, as part of our longer-term growth strategy, we plan to evaluate neffy for use in other indications and may develop other product candidates. We intend to evaluate internal opportunities from neffy and may Research activities to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research activities may initially show promise in identifying potential product candidates, yet • the research • competitors may develop alternatives that render our potential product candidates obsolete; • product candidates that we develop may nevertheless be covered by third parties’ patents or other exclusive rights; • a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; • a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and • a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors. If we are unsuccessful in identifying and developing neffy for additional indications or other product candidates, its potential for growth and achieving its strategic objectives may be impaired. 51 Even if neffy is approved for As part of our longer-term growth strategy, we plan to evaluate and potentially develop neffy for other indications, including urticaria. Our programs for such other indications are at a very early stage and there remains significant uncertainty as to whether neffy will be successfully developed and ultimately approved for any other indication we are exploring or pursuing. Even if neffy is approved for the emergency treatment of Type I allergic reactions, there We may not be successful in our efforts to expand our pipeline by identifying additional indications for which to investigate neffy in the future. We may expend our limited resources to pursue a particular * Because we have limited financial and managerial resources, we Additionally, we may For example, if we are unable to identify programs that ultimately result in approved products, we may spend material amounts of our capital and other resources evaluating, acquiring and developing products that ultimately do not provide a return on our investment. 52 Competitive products may reduce or eliminate the commercial opportunity for neffy for its current or future indications. If our competitors develop technologies or product candidates more rapidly than us, or their technologies or product candidates are more effective or safer than ours, our ability to develop and successfully commercialize neffy may be adversely affected.* The clinical and commercial landscape for the emergency treatment of Type I allergic reactions is highly competitive and subject to significant technological change. We face competition with respect to our current indications for neffy and will face competition with respect to any future indications of neffy or other product candidates that we may seek to develop or commercialize in the future from large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. If approved, we anticipate that neffy will compete primarily against epinephrine intra-muscular injectable products, for the emergency treatment of Type I allergic reactions including EpiPen® and its generics, which is marketed by Viatris, Inc. and Teva Pharmaceuticals, Inc.; Adrenaclick®, which is marketed by Amneal Pharmaceuticals, Inc.; Auvi-Q®, which is marketed by Kaleo, Inc.; and Symjepi®, which is marketed by Sandoz, Inc., a Novartis division. Several other companies are also clinically developing larger dose intranasal epinephrine product candidates that may compete with neffy, including Bryn Pharma, Nasus Pharma and Hikma Pharmaceuticals, Inc. (previously INSYS Therapeutics, Inc.), Amphastar Pharmaceuticals and Orexo are each developing an intranasal candidate with an undisclosed dose, and Aquestive Therapeutics is developing a sublingual candidate based on a prodrug of epinephrine. If neffy is approved for other indications, it would also compete with a range of other therapeutic treatments that are well established such as antihistamines or in development. Many of our potential competitors have substantially greater financial, technical, commercial and human resources than we do and significantly more experience in the discovery, development and regulatory approval of product candidates and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining regulatory approval for therapies and achieving widespread market acceptance. Our competitors’ products may be more effective, safer, or more effectively marketed and sold, than any product candidate we may commercialize and may render neffy or any future product candidates obsolete or non-competitive before we can recover development and commercialization expenses. In addition, our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than neffy or any future product candidates that we may develop, which could render such product candidates obsolete and noncompetitive. If we obtain approval for neffy or any other future product candidate, we may face competition based on many different factors, including the efficacy, safety and tolerability of our products, the ease with which our products can be administered, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan. In addition, our competitors may obtain patent protection, regulatory exclusivities or regulatory approval and commercialize products more rapidly than we do, which may impact future approvals or sales of any of our product candidates that receive regulatory approval. If the FDA or the EMA approves the marketing and commercial sale of neffy or any future product candidate, we will also be competing with respect to marketing capabilities and manufacturing efficiency. We expect competition among products will be based on product efficacy and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capabilities, product price, reimbursement coverage by government and private third-party payors, regulatory exclusivities and patent position. Our profitability and financial position will suffer if our product candidates receive regulatory approval but cannot compete effectively in the marketplace. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites, as well as in acquiring technologies complementary to, or necessary for, our activities. 53 If the FDA, the EMA or other comparable foreign regulatory authorities approve generic versions of neffy or any future product candidate of ours that receives regulatory approval, or such authorities do not grant our products appropriate periods of non-patent exclusivity before approving generic versions of such products, the sales of such products could be adversely affected. In the United States, once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” or the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through submission of ANDAs in the United States. In support of an ANDA, a generic manufacturer generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration, and adequate labeling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning, in part, that it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Moreover, third-party insurers require, and many states allow or require, substitution of therapeutically equivalent generic drugs at the pharmacy level even if the branded drug is prescribed. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug may be lost to the generic product. The FDA may not finally approve an ANDA for a generic product or a Section 505(b)(2) NDA of a competitor until any applicable period of non-patent exclusivity for the reference listed drug has expired. The FDCA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical entity (“NCE”). For the purposes of this provision, an NCE is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological action of the drug substance. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the listed drug is invalid, unenforceable or will not be infringed by the generic product. In that case, the applicant may submit its application four years following approval of the listed drug and seek to launch its generic product even if we still have patent protection for our product unless an infringement suit is timely filed by the NDA or patent holder in which case the FDA cannot approve the ANDA or a Section 505(b)(2) NDA for 30 months unless a court decision in favor of the generic manufacturer is issued earlier. Competition that neffy or any future products, if approved, may face from competitor versions of such products could negatively impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on our investments in those product candidates. Obtaining and maintaining regulatory approval of neffy or any future product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of those product candidates in other jurisdictions. Obtaining and maintaining regulatory approval of neffy and any future product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if a regulatory authority, such as the EMA, grants marketing approval of neffy, comparable regulatory authorities in the United States and other foreign jurisdictions must also approve the manufacturing, marketing and promotion of neffy 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 or the EU including additional nonclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States including certain jurisdictions in the EU, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval. We have submitted and plan to submit additional marketing applications in the United States and in the EU. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions and such regulatory requirements can vary widely from country to country. Obtaining other regulatory approvals and compliance with other regulatory requirements could result in significant delays, difficulties and costs for us and could require additional nonclinical studies or clinical trials, which could be costly and time-consuming and could delay or prevent the introduction of our products in certain countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in either domestic or international markets. If we fail to comply with the regulatory requirements in international markets and/or obtain and maintain applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of neffy or any future product candidates will be harmed. 54 We received Fast Track designation for neffy in the United States and may in the future pursue Fast Track designation for other product candidates that we may develop, but we might not receive such future designations, and Fast Track designations may not lead to a faster development or regulatory review or approval process. If the FDA determines that a product candidate is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition, the FDA may grant a product candidate Fast Track designation. Fast Track designation is intended to expedite or facilitate the process for reviewing new drug products meeting the specified criteria and gives the sponsor of a Fast Track product opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. We were granted Fast Track designation for neffy for the treatment of Type I allergic reactions and may in the future request Fast Track designation for additional indications for neffy or for any future product candidates, however, we cannot assume that any such applications will meet the criteria for that designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may rescind the Fast Track designation if it believes that the designation is no longer supported by data from our clinical development activities. We may seek priority review by the FDA for neffy or a future product candidate, and we may be unsuccessful. If we are successful, the designation may not actually lead to a faster development or regulatory review or approval process. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may in the future request priority review designation for neffy and any future product candidates, however, we cannot assume that any application for priority review will meet the criteria for that designation. A product is eligible for priority review if it is designed to treat a serious condition, and if approved, would provide a significant improvement in the treatment, diagnosis or prevention of a serious condition compared to marketed products. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily mean a faster development or regulatory review or approval process or necessarily confer any advantage with respect to approval compared to standard FDA review and approval. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all. Product liability lawsuits against us or any of our current and future licensing and collaboration partners could divert our resources and attention, cause us to incur substantial liabilities and limit commercialization of neffy or any future product candidates. We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the use of neffy by us and any current and future licensing and collaboration partners in clinical trials, and the sale of neffy, if approved, in the future, may expose us to liability claims. Product liability claims may be brought against us or our partners by participants enrolled in our clinical trials, patients, health care providers, pharmaceutical companies, our current and future licensing and collaboration partners or others using, administering or selling any of our future approved products. If we cannot successfully defend ourself against any such claims, we may incur substantial liabilities or be required to limit commercialization of neffy or any future product candidates. Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for any of our future approved products; • injury to our reputation; • withdrawal of clinical trial participants; • termination of clinical trial sites or entire trial programs; • significant litigation costs, including with respect to potential class action lawsuits; • substantial monetary awards to, or costly settlements with, patients or other claimants; • product recalls or a change in the indications for which they may be used; • loss of revenue; • diversion of management and scientific resources from our business operations; and • the inability to commercialize neffy or any future product candidates. 55 Although the clinical trial process is designed to identify and assess potential side effects and adverse events, clinical development does not always fully characterize the safety and efficacy profile of a new drug, and it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If neffy was to cause adverse events or side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects, side effects, and patients who should not use neffy or any of our future product candidates. If any of our current or future product candidates, including neffy, are approved for marketing and commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies. Although we maintain product liability insurance coverage in the amount of up to $5.0 million in the aggregate, including clinical trial liability, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if we commercialize neffy or any future product candidate that receives regulatory approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business. We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions. Our business activities may be subject to the FCPA and similar anti-bribery and anti-corruption laws of other countries in which we may operate, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these legal requirements could limit our ability to compete in foreign markets and subject us to liability if we violate them. If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. Our business activities may be subject to the Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits companies and their employees and third-party intermediaries from offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, hospitals owned and operated by the government, and doctors and other hospital employees would be considered foreign officials under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or employees, disgorgement, and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer neffy or any future product candidates in one or more countries and could materially damage our reputation, brand, international activities, ability to attract and retain employees, and business, prospects, operating results and financial condition. 56 In addition, neffy and any of our future product candidates and activities may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations. Governmental regulation of the import or export of neffy or any future product candidates, or our failure to obtain any required import or export authorization for Cyber-attacks or other failures in our telecommunications or information technology systems, or those of our licensing and collaboration partners, CROs, third-party logistics providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption of our business operations. We, our licensing and collaboration partners, our CROs, third-party logistics providers, distributors and other contractors and consultants utilize information technology (“IT”) systems and networks to process, transmit and store electronic information in connection with our business activities. As use of digital technologies has increased, cyber incidents, including third parties gaining access to employee accounts using stolen or inferred credentials, computer malware, viruses, spamming or other means, and deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. Cyber-attacks also could include phishing attempts or e-mail fraud to cause payments or information to be transmitted to an unintended recipient. These threats pose a risk to the security of our, our licensing and collaboration partners’, our CROs’, third-party logistics providers’, distributors’ and other contractors’ and consultants’ systems and networks, and the confidentiality, availability and integrity of our data. There can be no assurance that we will be data could result in a violation of applicable U.S. and international privacy, data protection and other laws, and subject us to litigation and governmental investigations and proceedings by federal, state and local regulatory entities in the United States and by international regulatory entities, resulting in exposure to material civil and/or criminal liability. Further, our general liability insurance and corporate risk program may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that maybe imposed; and could have a material adverse effect on our business and prospects. For example, the loss of clinical trial data from completed, ongoing or future clinical trials for neffy or any of our future product candidates could result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-attacks or other data security breaches and may incur significant additional expense to implement further data protection measures. Risks Related to We intend to rely completely on third parties to manufacture and distribute our supply of neffy and intend to rely on third parties to manufacture and distribute any future product candidates. We do not currently have, nor do we plan to acquire, the infrastructure or capability to manufacture or distribute commercial quantities of neffy. Our ability to commercially supply neffy, if approved, depends, in part, on the ability of third-party manufacturers to supply and manufacture neffy, the raw materials, API and other important components related to the manufacture of neffy, including Intravail® and our nasal sprayer apparatus. We also intend to rely on third parties to label and package the finished product. These third-party manufacturers may have limited experience manufacturing neffy, the raw materials and API for neffy to be supplied to patients in the United States. While we will work with our third-party suppliers and manufacturers to optimize the manufacturing process for neffy and any future product candidates, if approved, we cannot guarantee that such efforts will be successful. If we fail to develop and maintain supply relationships with these third parties, we may be unable to successfully commercialize neffy or any future product candidate, if approved. We have entered into a commercial supply agreement with Renaissance Lakewood LLC (“Renaissance”), which has been actively involved in supporting the manufacture of neffy in our clinical development, and we intend to rely on Renaissance as the primary source for drug product manufacturing and final packaging. Unless and until we can secure an alternative source for drug product manufacturing and final packaging, our dependence on Renaissance will subject us to the possible risks of shortages, interruptions and price fluctuations if neffy is approved for commercialization. 57 We may be unable to maintain or establish required agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: • the failure of the third party to manufacture neffy or any future product candidates according to our schedule, or at all, including if our third-party contractors give greater priority to the supply of other products over our products or product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between us and them; • the reduction or termination of production or deliveries by suppliers, or the raising of prices or renegotiation of terms; • the termination or nonrenewal of arrangements or agreements by our third-party contractors at a time that is costly or inconvenient for us; • the breach by the third-party contractors of our agreements with them; • the failure of third-party contractors to comply with applicable regulatory requirements, whether related to neffy or another product; • the failure of the third party to manufacture our product candidates according to our specifications; • the mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or study drug or placebo not being properly identified; • clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and • the misappropriation of our proprietary information, including our trade secrets and know-how. We do not have complete control over all aspects of the manufacturing process of, and are dependent on, our contract manufacturing partners for compliance with cGMP regulations for manufacturing both active drug substances and finished drug products. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA and other foreign regulatory authorities, this could affect the review of the NDA submitted for neffy or post-approval sales. In addition, other than to conduct audits, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of neffy or any future product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approvals for or commercialize neffy or any future product candidate. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, application review delays, suspension or withdrawal of approvals, license revocation, import alerts, seizures or recalls of product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of neffy or any of our future product candidates or drugs and harm our business and results of operations. Our current and anticipated future dependence upon others for the manufacture of neffy or any future product candidates or drugs may adversely affect our future profit margins and our ability to commercialize neffy or any future product candidate that receives marketing approval on a timely and competitive basis. 58 We rely on third parties to conduct delayed. We There is no guarantee that any Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated. If any of our relationships with these third parties We are dependent on international third-party licensees and assignees for the development and commercialization of neffy in several countries outside the United States. The failure of these third parties to meet their contractual, regulatory or other obligations could adversely affect our business. We have entered into exclusive licensing and collaboration agreements for the development and commercialization of neffy with Alfresa Pharma in Japan and Pediatrix Therapeutics in China, Macau, Hong Kong and Taiwan. As a result, we are dependent on these parties to achieve regulatory approval of neffy for marketing in these countries and for the commercialization of neffy, if approved. The timing and amount of any milestone and royalty payments we may receive under these agreements, as well as the commercial success of neffy in those regions outside of the comply with all applicable laws relative to the development and commercialization of neffy in those countries. They may take actions or fail to take actions that result in safety issues with neffy in their licensed territory, and such safety issues could negatively impact neffy in countries outside of the licensed territory. We do not control the individual efforts of our licensing and collaboration partners and have limited ability to 59 The failure of our adequately respond to the reputational harm or other negative outcomes, including possible legal consequences and liabilities. We may not be We may seek to enter into additional collaborations, licenses and other similar arrangements for neffy or any future product candidate We may seek to enter into collaborations, joint ventures, licenses and other similar arrangements for the Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, the development or approval of neffy or any future product candidate is delayed, the safety of neffy or any future product candidate is questioned or the sales of an approved product candidate are unsatisfactory. In addition, any potential future collaborations may be terminable by our operations. 60 Our reliance on third parties requires us to share our trade secrets, know-how and other proprietary information, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. Because we currently rely on third parties to Risks Related to Commercialization of We currently have limited distribution infrastructure. If We are currently building our marketing, sales or distribution capabilities. As a company we have not commercialized or marketed any products to date. If neffy is approved for the emergency treatment of Type I allergic reactions or other future indications or any future product candidate is approved, we will candidate. There are risks involved with both establishing our own sales, marketing and Any failure or delay in the development of our or third parties’ internal sales, marketing and distribution capabilities would adversely impact the commercialization of neffy and any future product candidates. Factors that may inhibit our efforts to commercialize neffy or any future • our inability to recruit and retain adequate numbers of effective sales and marketing personnel; • the inability of sales personnel to obtain access to • the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product • the availability of adequate coverage by and reimbursement from third-party payors; and • unforeseen costs and expenses associated with We entered into exclusive licensing and collaboration agreements for the development and commercialization of neffy with Alfresa Pharma in Japan and Pediatrix Therapeutics in China, Macau, Hong Kong and Taiwan. These licensing and collaboration partners have direct sales forces and established distribution systems to serve as an alternative to our own sales force and distribution systems. We may enter into 61 We also compete with many companies that If we do not If we are not successful in commercializing any approved products, our future product revenue will suffer and we may incur significant additional losses. Furthermore, our efforts to educate patients, caregivers, allergists, pediatricians and other physicians, and payors on the benefits of neffy or any future product candidates may require more resources than we anticipate and may never be successful. Even if neffy or any future product candidates are approved, if we The market for neffy and any We have focused our development of neffy for the emergency treatment of Type I allergic reactions. We base our market opportunity estimates on a variety of factors, including our estimates of the Any of our neffy or any future product candidates for which we, or any current or future licensing and collaboration partners, obtain regulatory approval, as well as the manufacturing processes, post-approval studies, labeling, post-approval pharmacovigilance monitoring, advertising and promotional activities for such product, among other things, will be subject to ongoing requirements of and review by the FDA, the EMA and other applicable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, 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. For certain commercial prescription drug products, manufacturers and other parties involved in 62 The FDA, the EMA and other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. For example, the FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. Regulatory authorities impose stringent restrictions on manufacturers’ communications regarding off-label use. However, companies generally may share truthful and not misleading information that is otherwise consistent with a product’s approved labeling. If we, or any current or future licensing and collaboration partners, do not market neffy or any of our future product candidates for which we, or they, receive regulatory approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing if it is alleged that we are doing so. Violation of laws and regulations relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws, including the False Claims Act and any comparable foreign laws. In the EU, the direct-to-consumer advertising of prescription-only medicinal products is prohibited. Violations of the rules governing the promotion of medicinal products in the EU could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public, and may also impose limitations on our promotional activities with health care professionals. In addition, later discovery of previously unknown side effects, adverse events or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including: • restrictions on the manufacturing of such products; • restrictions on the labeling or marketing of such products; • restrictions on product distribution or use; • requirements to conduct post-marketing studies or clinical trials; • warning letters or untitled letters; • withdrawal of the products from the market; • refusal to approve pending applications or supplements to approved applications that we submit; • recall of products; • restrictions on coverage by third-party payors; • fines, restitution or disgorgement of profits or revenues; • exclusion from federal health care programs such as Medicare and Medicaid; • suspension or withdrawal of regulatory approvals; • refusal to permit the import or export of products; • product seizure; or • injunctions or the imposition of civil or criminal penalties. Even if we, or any current or future licensing and collaboration partners, obtains regulatory approvals for neffy or any future product candidate, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our products, which could impair our ability to Once regulatory approval has been granted, an approved product and its manufacturer and distributor are subject to ongoing review and extensive regulation. We, and any current and future licensing and collaboration partners, must therefore comply with requirements concerning advertising and promotion for neffy or any future product candidate for which we or they obtain regulatory approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the 63 In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA, EMA and other foreign regulatory requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the Accordingly, assuming we, or any current or future licensing and collaboration partners, receive regulatory approval for neffy or one or more future product candidates, we, and any current and future licensing and collaboration partners, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we, and any current and future licensing and collaboration partners, are not able to comply with post-approval regulatory requirements, we, and any current and future licensing and collaboration partners, could have the Even if neffy or any We have never commercialized a product, and even if neffy for the treatment of any indication, or any future product candidate of ours, is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to Efforts to • • the potential advantages of • the prevalence and • our ability, or the ability of any current or future licensing or collaboration partners, to • the product’s convenience and ease of administration compared to alternative treatments; • • limitations or • the strength of • changes in the • 64 Any failure by neffy or any future product Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize In the United States and For example, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), was signed into law. The ACA was intended, among other things, to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA and subsequent regulations increased the Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program for both branded and generic drugs and revised the definition of “average manufacturer price” for reporting purposes, which could further increase the amount of Medicaid drug rebates to states. However, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap for single source and innovator multiple source drugs, beginning January 1, 2024. Further, the ACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products, increased the number of entities eligible for discounts under the 340B program and included a discount on brand name drugs for Medicare Part D beneficiaries in the coverage gap, or “donut hole.” Substantial provisions affecting compliance have also been enacted, which Since its enactment, there have been judicial, executive In addition, other legislative changes have been proposed and adopted in the United States since the 65 Recently there has also been At the state level, legislatures have become increasingly These laws and the regulations and policies implementing them, as well as other healthcare Governments outside the United States may impose strict price controls, which may adversely affect our revenues, if any. In some countries, including certain Member States of the EU, the pricing of prescription drugs is, in 66 The successful commercialization of neffy or any future product candidates, if approved, will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels and favorable pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our products could limit our ability to market those products and decrease our ability to generate revenue.* The availability of coverage and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as neffy or any future product candidates, if approved. Our ability to achieve coverage and acceptable levels of reimbursement for our products by third-party payors will have an effect on our ability to successfully commercialize those products. Accordingly, we Third-party payors increasingly are challenging prices charged for biopharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider neffy or any future product candidate as substitutable and only offer to reimburse patients for the less expensive product. Even if we are successful in demonstrating improved efficacy or improved convenience of administration with neffy or any future product candidates, pricing of existing drugs may limit the amount we will be able to charge for neffy or any future product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize or obtain a satisfactory financial return on neffy or any future product candidates that we may develop. There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. Generally, third-party payors limit coverage and reimbursement for new medication prior to a formal review by the payors’ pharmacy and therapeutics committees. As such, several third-party payors have indicated that our products may be subject to denial or limited coverage prior to formal review. There may be significant delays in obtaining reimbursement for newly-approved drugs, and coverage may be more limited than the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities. Additionally, we may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost-effectiveness of our product candidates. There can be no assurance that our product candidates will be considered medically necessary or cost-effective. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for neffy or any future product candidates. Further, coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future. Obtaining and maintaining reimbursement status is time consuming, costly and uncertain. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs. However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely. 67 Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on the pricing and usage of neffy or any future product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for neffy or any future product candidates. We expect to experience pricing pressures in connection with the sale of neffy or any future product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. Ongoing healthcare legislative and regulatory reform measures may have a material adverse effect on our business and results of operations. Our relationships with customers, health care professionals and third-party payors may be subject to applicable healthcare laws, which could expose us to penalties, including administrative, civil or criminal penalties, damages, fines, imprisonment, exclusion from participation in federal healthcare programs such as Medicare and Medicaid, reputational harm, the curtailment or restructuring of our operations and diminished future Healthcare professionals and third-party payors will play a primary role in the recommendation and prescription of neffy or any future product candidates for which we obtain marketing approval. Our current and future arrangements with customers, healthcare professionals and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we conduct research, market, sell and distribute neffy or any future product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following, among others: 68 Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other 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; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.* In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, “process”) personal data and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, data we collect about trial participants in connection with clinical trials, sensitive third-party data, business plans, transactions, and financial information (collectively, “sensitive data”). Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security. 69 In the United States, federal, state, and Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as Outside the United States, an increasing number of laws, regulations, and industry standards may govern data For example, under the Furthermore, we also conduct clinical trials in Asia and have operations in Japan and may be subject to new and emerging data privacy regimes in Asia, including China’s Personal Information Protection Law, Japan’s Act on the Protection of Personal Information, and Singapore’s Personal Data Protection Act. In addition, we may be unable to transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross-border data flows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the EEA and the UK have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, the UK’s International Data Transfer Agreement / Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows for transfers for relevant U.S.-based organizations who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements Obligations related to data privacy and security (and consumers’ data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to 70 We may at times fail (or be perceived to 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; reputational harm; loss of revenue or profits; and other adverse consequences.* In the ordinary course of our business, we and the third parties upon which we rely process sensitive data, and, as a result, we and the third parties upon which we rely face a variety of evolving threats, including but not limited to ransomware attacks, which could cause security incidents. Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive data and information technology systems, and those of the third parties upon which we rely. Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, which could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our services. We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks credential stuffing attacks, credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats. In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, ability to provide our products or services, loss of sensitive data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers, and devices outside our premises or network, including working at home, while in transit and in public locations. Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program. In addition, our reliance on third-party service providers could introduce new cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations. We rely on third-party service providers and technologies to operate critical business systems to process sensitive data in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions. 71 We also rely on third-party service providers to provide other products, services, parts, or otherwise to operate our business. 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. If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised. Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive data or our information technology systems, or those of the third parties upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our services. We may expend significant resources or modify our business activities (including clinical trials) to try to protect against security incidents. Additionally, certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive data. While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a security incident has occurred. Unremediated critical or high risk vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities. Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may prevent or cause customers to stop using our services, deter new customers from using our services, and negatively impact our ability to grow and operate our business. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims. In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position. Risks Related to Our Intellectual Property Our commercial success depends on our ability to obtain and maintain sufficient intellectual property protection for our Our commercial success will depend, in 72 We generally seek to protect our proprietary position by filing or in-licensing patents or patent applications in the United States and abroad related to our The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our potential future collaborators will be successful in protecting our product Although we enter into If the scope of The patent position of Further, we may not be aware of all third-party intellectual property rights potentially relating to our research programs and product candidates, or their intended uses, and as a result the potential impact of such third-party intellectual property rights upon the patentability of our own patents and patent applications, as well as the potential impact of such third-party intellectual property upon our freedom to operate, is highly uncertain. Our patents or pending patent applications, or the patents or pending patent applications that we license, may be challenged in the courts or patent offices in the United States and 73 Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We may not be able to protect our intellectual property rights throughout the Patents are of national or regional Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to Various countries outside the United States Further, the standards applied by the USPTO and 74 Further, geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or Recent patent reform legislation could increase On September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law in the United States. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first inventor to file” system in which, assuming that other requirements of patentability are The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and Changes in As is the 75 Depending on decisions by the Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO, Obtaining and maintaining patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for Periodic maintenance fees, renewal fees, Patent terms may be inadequate to protect our competitive position We Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we The patents we currently co-own or exclusively license for neffy are expected to expire as early as 2038, absent any patent term adjustments. The API in neffy is epinephrine, a generic API that is used in FDA-approved intra-muscular injectables. If neffy is approved by the FDA under the 505(b)(2) regulatory pathway, our U.S. patents for neffy will not be eligible for patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984. While we are planning to seek additional patent coverage for neffy, there can be no assurances that such additional patent protection will be granted, or if granted, that these patents will not be infringed upon or otherwise held enforceable. Even if we are successful in obtaining a patent, patents have a limited lifespan. Without patent protection, we may be open to competition from generic versions of neffy. 76 We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable. We co-own or exclusively license patent applications in our portfolio relating to our product candidates that are pending at We cannot be certain that the claims in our We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our products. As the pharmaceutical industry expands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties. There can be no assurance that our operations do not, or will not in the future, infringe existing or future third-party patents. Identification of third-party patent rights that may be relevant to our operations is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to our operations or necessary for the commercialization of our product candidates in any jurisdiction. 77 Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third parties. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. We do not always conduct independent reviews of pending patent applications and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. patent applications that will not be The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, including our research programs, product candidates, their respective methods of use, and manufacture thereof, and could result in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant. 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 from developing or commercializing our product candidates. Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing the intellectual property and other proprietary rights of third parties. Third parties may allege that we have infringed or misappropriated their intellectual property. Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. There is a substantial amount of intellectual property litigation in the pharmaceutical industry, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The pharmaceutical industry has produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, or of use either do not infringe the patent claims of the relevant patent or that 78 If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain We may become involved in lawsuits to protect or Even if the patent applications we own, co-own or license are issued, third parties may challenge or infringe upon our patents. To counter infringement, we may be required to file infringement claims, which can be expensive and Third parties may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation or cancellation of or amendment to our We are currently a party to an appeal from a Final Written Decision in an Inter Partes Review of U.S. Patent No. 10,682,414 B2 and to an opposition proceeding with the European Patent Office with respect to EP 3678649. We may, in the future, be a party to other intellectual property litigation or administrative proceedings that are very costly and time-consuming and could interfere with our ability to sell and market our products. Some of our In an infringement proceeding, even one initiated by us, there is a risk that a court will decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions they describe. There is also the risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to these patents. An adverse outcome in a litigation or 79 Competitors may infringe our patents, trademarks, copyrights or other intellectual property that relate to our research programs and product candidates, their respective methods of use, manufacture and formulations thereof. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent that we own or have licensed is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of our patents is upheld, the court will construe the claims of our patents narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention at issue. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks. Even if we established infringement by competitors, a court may decide not to grant an injunction against further infringing activity by competitors and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, we cannot assure you that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such infringement claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. Our product candidates may face competition sooner than expected, and our patents may be challenged. Our success will depend in part on our ability to obtain and maintain patent protection for our product candidates and technologies and to prevent third parties from infringing upon our proprietary rights. We must also operate without infringing upon patents and proprietary rights of others, including by obtaining appropriate licenses to patents or other proprietary rights held by third parties, if necessary. However, the patent applications we have filed or may file in the future may never yield patents that protect our inventions and intellectual property assets. Failure to obtain patents that sufficiently cover our formulations and technologies would limit our protection against generic drug manufacturers, pharmaceutical companies and other parties who may seek to copy our products, produce substantially similar products or use technologies substantially similar to those we own, co-own, or exclusively license. We do not expect to receive non-patent regulatory exclusivity for neffy if approved by the FDA under the 505(b)(2) regulatory pathway. Without non-patent marketing exclusivity for neffy, we may face competition by third parties seeking to market generic versions of neffy as early as our approval by the FDA. In seeking approval for a drug product under the 505(b)(2) regulatory pathway, applicants are required to list with the FDA certain patents of the applicant or that are held by third parties whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the Orange Book. Any subsequent applicant who files an ANDA seeking approval of a generic equivalent version of a drug product listed in the Orange Book or an NDA submitted under the 505(b)(2) regulatory pathway referencing a drug listed in the Orange Book must make one of the following certifications to the FDA concerning patents: (1) the patent information concerning the reference listed drug product has not been submitted to the FDA; (2) any such patent that was filed has expired; (3) the date on which such patent will expire; or (4) such patent is invalid or will not be Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties. Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing any one of our issued patents or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such an infringement claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution. 80 Intellectual property litigation may lead to unfavorable publicity that harms our reputation. During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. Such announcements could harm our reputation, the perceived value of our intellectual property or the market for our existing or future products, which could have a material adverse effect on our business. We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property. We may be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an interest in our patents or other intellectual property as an owner, co-owner, inventor or If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. We have registered trademarks in the United States, as well as in foreign jurisdictions, including the United Kingdom, European Union, and Japan. Our 81 Intellectual property rights do not necessarily address all potential threats to our competitive advantage. Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. In addition, the degree of future protection afforded by our intellectual property rights is uncertain because even granted intellectual property rights have limitations, and may not adequately protect our business. The following examples are illustrative: Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patent protection for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Elements of our product candidates, including processes for their preparation and manufacture, may involve proprietary know-how, information, or technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third-party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market. 82 Trade secrets and unpatented know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We and any third parties with whom we share facilities enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how and information. We further seek to protect our potential trade secrets, proprietary know-how and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. With our consultants, contractors and outside scientific collaborators, these agreements typically include invention assignment obligations. Although we have Trade secrets may be We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. We employ individuals who previously worked with other companies, including our competitors or potential competitors. We could in the future be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of current or former employers or competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an individual to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged intellectual property, proprietary information, know-how or trade secrets of a current or former employer or competitor. While we may litigate to defend against these claims, even if we are successful, litigation could result in substantial costs and could be a distraction to management and other employees. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies that are essential to our product In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated. From time to time, we may be required to 83 Any collaboration arrangements that we may enter into in the Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to Risks Related to Our Business Operations, Employee Matters and Managing Growth A pandemic, epidemic, or outbreak of an infectious disease may materially and adversely affect our business, including our nonclinical studies, clinical trials, third parties on whom we rely, our supply chain, our ability to raise capital, our ability to conduct regular business and our financial results.* We are subject to risks related to public health crisis and any efforts to halt the spread of any public health crises. For example, COVID-19 and policies and regulations implemented by governments in response to its outbreak, such as directing businesses and governmental agencies to cease non-essential operations at physical locations, prohibiting certain nonessential gatherings and ceasing non-essential travel had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages occurred, supply chains were disrupted, facilities and production were suspended, and demand for certain goods and services, such as medical services and supplies, spiked, while demand for other goods and services fell. We experienced certain impacts of COVID-19, including inability to conduct clinical trial site monitoring for certain earlier phase clinical trials and delays in completing clinical trials, bioanalytical sample analysis and study reports. There can be no guarantee we will not experience other impacts from other pandemics, epidemics or infectious disease outbreaks, such as being forced to further delay or pause enrollment, experiencing potential interruptions to our supply chain, facing difficulties or additional costs in enrolling patients in future clinical trials or being able to achieve full enrollment of our studies within the timeframes we anticipate, or at all. Additionally, pandemics, epidemics or other infectious disease outbreaks could have extensive impacts in many aspects of society and could result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Other global health concerns could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. 84 While we have been working closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to the production of neffy as a result of pandemics, epidemics or other infectious disease outbreaks, if such a public health crisis were to persist for an extended period of time, there could be COVID-19 affected and other 85 Any negative impact a public health crisis has on patient enrollment or treatment, or the development of neffy and any future product candidates, could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize neffy and any future product candidates, if approved, increase our operating expenses, which could have a material adverse effect on our financial results. COVID-19 caused significant volatility in public equity markets and disruptions to the United States and global economies and any future pandemic, epidemic, infectious disease outbreak or similar public health crisis could lead to market dislocation. Any such volatility and economic dislocation may make it more difficult for us to raise capital on favorable terms, or at all. If we Our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees. Our success depends, and will likely continue to depend, upon our ability to hire and retain the services of our current executive officers and our other highly qualified personnel. We have entered into employment agreements with each of our executive officers but they may terminate their employment or engagement with us at any time. The loss of their services might impede the achievement of our research, development and commercialization objectives. Our ability to compete in Our industry has experienced a high rate of turnover in recent years. Competition to hire from this We rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors, which includes entities owned by our executive officers and directors, may be employed by other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to develop and commercialize neffy or any future product candidates will be limited. We only have a limited number of employees to manage and operate our business.* As of October 31, 2023, we had 24 full-time employees and 3 part-time employees. Our focus on the development of neffy requires us to optimize cash utilization and to manage and operate our business in a highly efficient manner. We cannot assure you that it will be able to hire and/or retain adequate staffing levels to develop neffy or to run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish. 86 Our employees, independent contractors, consultants, current and future licensing and collaboration partners and CROs may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could We are exposed to Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our nonclinical studies or clinical trials or illegal misappropriation of product materials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter 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 be in compliance with such laws, standards or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could have a material adverse effect on our ability to operate our business and our results of operations. We expect to expand our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of regulatory affairs and sales, marketing and distribution, as well as to support our public company operations. To manage these growth activities, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Our management may need to devote a significant amount of our attention to managing these growth activities. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion or relocation of our operations, retain key employees, or identify, recruit and train additional qualified personnel. Our inability to manage the expansion or relocation of our operations effectively may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could also require significant capital expenditures and may divert financial resources from other projects, such as the development of neffy for additional indications or future product candidates. If we are unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our business strategy, including the successful commercialization of neffy or any future product candidates. 87 Risks Related to the Securities Markets and Ownership of Our Common Stock The market The market Moreover, the stock 88 In the past, Additionally, a decrease in the We will incur costs and We will incur significant legal, accounting and other expenses that we did not incur as a private company prior to the Merger, including costs associated with public company reporting requirements. We will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new requirements implemented by the SEC and Nasdaq. These rules and regulations are expected to increase our legal and financial compliance costs and to make some activities more time consuming and costly. For example, our management team consists of the executive officers of ARS Pharma prior to the Merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial 89 Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock. Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law (“DGCL”) may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our • a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the • the requirement for the affirmative vote of holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. In addition, as a Delaware corporation, we These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving 90 Our amended and restated certificate of incorporation designates the state courts the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, and the federal district courts of the United States of America to be the exclusive forums for Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) and any appellate court therefrom shall will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with litigating Securities Act claims in state court, or both state and federal court, which could seriously harm our business, financial condition, results of operations, and prospects. These exclusive forum provisions may make it more expensive for stockholders to bring a claim than if the stockholders were permitted to select another jurisdiction and 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 lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. We We plan to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of Future sales of shares by existing stockholders could cause our stock price to decline. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public 91 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 will be influenced by the research and reports that equity research analysts publish about us and our decline. If we fail to maintain proper and effective We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of 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, We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to We are an “emerging growth company,” as defined under the Jumpstart Our Business Startups Act (the “JOBS Act”). For so long as we are an “emerging growth company,” we plan to take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure We cannot predict if investors will find our common stock less attractive, or us less comparable to certain other public companies 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. Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period under the JOBS Act. 92 Our ability to use net operating loss carryforwards and certain other tax attributes may be limited. We have incurred substantial losses during our history. Unused federal net operating losses (“NOLs”) for the tax years beginning before January 1, 2018, will carry forward to offset future taxable income, if any, until such unused losses expire. Unused federal NOLs generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely, but the deductibility of such federal NOL carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. In addition, both current and future unused losses and other tax attributes may be subject to limitation under Sections 382 and 383 of the Code if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in our equity ownership by certain stockholders over
Use of Proceeds Use of Proceeds On December 3, 2020, we commenced our initial public offering (“IPO”) pursuant to a registration statement on On November 8, 2022, Silverback completed its reverse merger with Private ARS Pharma. On November 9, 2022, the combined company changed its name to ARS Pharmaceuticals, Inc. The net proceeds from There 2020, except as otherwise disclosed in our Annual Report on Form 10-K, filed with the SEC on March 31, 2022, and our Quarterly Report on Form 10-Q, filed with the SEC on August 11, 2022. We continue to intend to use the remaining net proceeds from the IPO, together with our existing cash and cash equivalents, to fund the development and, if approved, commercialization of neffy for the emergency treatment of Type I allergic reactions and other indications, as well as for working capital and other general corporate purposes. We may also use a portion of the net proceeds from the IPO to license, acquire or invest in complementary businesses, technologies, products or assets. However, we have no current commitments or obligations to do so. Item 5. Other Information None. 93 Item 6. Exhibits
Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report on Form 10-Q), unless the Registrant specifically incorporates the foregoing information into those documents by reference. SIGNATURES Pursuant to the requirements 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.
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