Item 1. Business
ITEM 1.
BUSINESS
 
 
Overview
 
We are a clinical-stage biopharmaceutical company seeking to develop proprietary innovative medicines in areas of significant unmet medical need in oncology and infectious diseases, with a current focus on breast cancer, other breast conditions and COVID-19. Our drug under development for breast cancer and other breast conditions is Endoxifen which is being developed primarily in two settings: one to reduce tumor cell activity in breast cancer patients in the neoadjuvant setting, meaning prior to surgery; and another to reduce dense breast tissue in women. Our two COVID-19 drugs under development are AT-H201, an inhalation therapy to improve lung function of moderate to severely ill, hospitalized COVID-19 patients; and AT-301, a nasal spray for COVID-19 patients for at-home use. A key feature of the original SARS-CoV-2 virus that is retained in both the Delta and Omicron variants, is the furin cleavage site found on the spike protein which facilitates viral infection. Our COVID-19 programs under development are designed to interact with this cleavage site so they are expected to be effective against both current and future COVID-19 variants that continue to contain a furin cleavage site.
 
Our business strategy is to advance our programs through clinical studies including with partners, and opportunistically add programs in areas of high unmet medical need through acquisition, collaboration, or internal development.
 
Summary of Leading Programs
 
Endoxifen. Endoxifen is an active metabolite of tamoxifen which is an FDA-approved drug to treat and prevent breast cancer in high-risk women. We are developing a proprietary form of Endoxifen which is administered orally for the potential treatment of breast cancer and women with breast density. We have successfully completed three Phase 1 clinical studies (including a study in men) and two Phase 2 clinical studies with our proprietary Endoxifen (one with our oral Endoxifen and one with our topical Endoxifen). We have also completed significant pre-clinical development and have developed clinical manufacturing capabilities through qualified third parties.
 
Endoxifen for Women with Breast Density.  Mammographic breast density (MBD) is an emerging public health issue affecting over 10 million women in the U.S. Studies conducted by others have shown that MBD increases the risk of developing breast cancer and that reducing MBD can reduce the incidence of breast cancer.
 
 In December 2021, we commenced a Phase 2 study of our proprietary oral Endoxifen. The study, known as the Karisma-Endoxifen study, is a Phase 2, randomized, double-blind, placebo-controlled, dose-response study of our proprietary oral Endoxifen in healthy premenopausal women with measurable breast density. The primary objective of the study is to determine the dose-response relationship of daily Endoxifen on breast density reduction. Secondary endpoints will assess safety and tolerability, and the trial includes an exploratory endpoint to assess durability of the breast density changes. The study is being conducted at the South General Hospital in Stockholm and will include approximately 240 participants who will receive daily doses of Endoxifen or placebo for six months. The study is being led by principal investigator Per Hall, M.D., Ph.D., Department of Medical Epidemiology and Biostatistics at Karolinska Institutet.
 
 Based on input from the FDA and Swedish Medical Products Agency, reduction in MBD may not be an approvable indication unless we can demonstrate that our Endoxifen also reduces the incidence of breast cancer. We may therefore conduct additional studies of Endoxifen to assess its correlation with the risk of breast cancer and/or reduction in the incidence of new breast cancers.
 
     Endoxifen for Neoadjuvant Treatment of Breast Cancer.     We are also developing Endoxifen to treat breast cancer in the neoadjuvant setting, which is the administration of a therapy before the surgical treatment, with a current focus on breast cancers that are classified as estrogen receptor positive (ER+). Although there are numerous neoadjuvant treatments for breast cancers that are not ER+, there are few neoadjuvant treatments for ER+ breast cancer which comprises about 78% of all breast cancers. We believe there is a compelling need for therapy with our Endoxifen in this setting.
 
    In December 2021, we completed a pre-investigational new drug (PIND) meeting with the FDA. The purpose of the meeting was to obtain input from the FDA on pre-clinical, clinical, manufacturing and regulatory matters in the U.S. for our proprietary Endoxifen to treat breast cancer. Based in part on the feedback from the FDA, we plan to open an investigational new drug (IND) application for a multi-center Phase 2 study to further advance our Endoxifen in the neoadjuvant setting. We plan to focus our development on pre-menopausal women with ER+, human epidermal growth factor receptor negative (HER2-) breast cancer for whom the current treatment options typically includes drugs that suppress ovarian function and essentially force the patient into menopause.
 
   We recently completed a Phase 2 study in Australia which enrolled 7 newly diagnosed patients with ER+ and stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. In February 2021, we concluded that the study produced positive results and that continuing enrollment in the study would not be necessary in advancing the program. We therefore discontinued the study based in part on results from the first six patients. In June 2021, we reported final results from the study of all 7 patients which showed that tumor cell proliferation in study participants was reduced by an average of 65%, as measured by Ki-67 expression, which is a common measure of tumor cell activity in breast cancer. 
 
 
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 AT-301 for COVID-19 .  AT-301 is our proprietary drug formulation candidate intended for nasal administration in patients immediately following diagnosis of COVID-19 but who have not yet exhibited symptoms severe enough to require hospitalization. It is intended for at-home use to reduce symptoms of COVID-19 and to slow the infection rate so that a person’s immune system can more effectively fight COVID-19.
 
AT-301 is being developed with a nasal spray delivery mechanism because many COVID-19 patients are infected via the nasal passage. Our nasal spray formulation AT-301 is being designed to contain ingredients that can potentially block SARS-CoV-2 viral entry gene proteins in nasal epithelial cells by interfering with spike protein activation by host proteases, by masking receptor binding domains via electrostatic mechanisms, and by providing a generalized mucoadhesive epithelial barrier.
 
In October 2020, we completed enrollment in a Phase 1 study of AT-301 which was a double-blinded, randomized, and placebo-controlled safety study of AT-301 nasal spray in 32 healthy adult subjects. An evaluation of the data indicated that there were no serious adverse events, no discontinuations, and only one of the subjects in the study experienced adverse events that were considered related to the study drug and moderate in severity. We concluded that our AT-301 nasal spray was safe and well tolerated in this study. We received input from the FDA on this program in 2021 and based in part on that input, we are now preparing to conduct additional pre-clinical studies. Following that, we expect to apply to the FDA to commence a Phase 2 study in the United States.
 
We may also seek to develop our AT-301 nasal spray to potentially help prevent COVID-19 infection — particularly for people in high-risk environments, such as people living with an infected patient, people living and working in healthcare facilities, emergency responders or teachers.
 
    AT-H201 for COVID-19 . AT-H201 is a proprietary combination of two drugs previously approved by the FDA to treat other diseases. It is intended to improve compromised lung function for moderate to severely ill, hospitalized COVID-19 patients by inhalation.  We received input from the FDA on potential pathways to develop AT-H201 and the FDA requested that we provide, among other things, additional pre-clinical results and other information on AT-H201. 
 
    In September 2021 we began enrollment in Australia in a Phase 1/2a study of AT-H201 and in February 2022, we began enrollment in the second of four parts of the study. The study plans to enroll 60 healthy participants and moderately ill hospitalized COVID-19 patients. The Australian regulatory authority will review data after each part of the study before we may proceed with subsequent parts of the study. Because the final part of the study in COVID-19 infected patients may require that we use additional study sites, approval of that part of the study, and additional sites will depend on COVID-19 infections and may therefore be delayed.
 
Impact of the Novel Coronavirus
 
The continued spread of the COVID-19 pandemic is affecting the U.S. and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including causing possible disruptions in the supply of the Company’s Endoxifen, AT-H201, AT-301, the pace of enrollment in our clinical trials and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the U.S. FDA and other health authorities including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy; however, we have not experienced a significant delay in the enrollment or the drug supply for our ongoing and planned clinical studies, including studies of Endoxifen, AT-301 and AT-H201. In recent weeks the number of reported cases of COVID-19 has declined in many countries. If this trend continues it may be difficult to enroll in our COVID-19 clinical studies. We will continue to monitor future enrollment in studies for potential restrictions on site visits, mammograms or the impositions of new restrictions on trials as a result of the COVID-19 pandemic. 
 
We were incorporated in 2009 and our common stock is currently quoted on The Nasdaq Capital Market under the symbol “ATOS.”
 
 
 
 
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Our Programs Under Development
 
Endoxifen Programs
 
  Background
 
Endoxifen is one of the metabolites of an FDA-approved drug called tamoxifen, which has been FDA-approved and widely used for over 40 years to both treat and prevent breast cancer. Tamoxifen is a “pro-drug”, in that it must be metabolized into active components (“metabolites”) in order to be effective.  Despite the success of tamoxifen in treating ER+ breast cancer, its systemic side effects have led to generally low acceptance as a therapy to reduce the risk of breast cancer. These systemic side effects relate to estrogen agonist activity on the endometrium and the activation of coagulation pathways, leading to an increased risk of uterine events and thromboembolism. Hot flashes and vaginal symptoms are additional barriers to tamoxifen being accepted in the prevention setting.
 
Other limiting aspects of tamoxifen are that some people lack liver enzymes to adequately metabolize it and it can take a long time for many patients to reach therapeutic levels. Up to 50% of breast cancer survivors who are taking tamoxifen do not produce therapeutic Endoxifen levels (meaning they are “refractory”) for a number of reasons including that they, due to their genotype, do not have the requisite liver enzymes. We believe our proprietary oral Endoxifen, in part because it is not a pro-drug and does not need to be metabolized by the liver, may overcome some of the shortcomings of tamoxifen.
 
We estimate that approximately ten million women in the U.S. have MBD, for which there is no FDA-approved treatment. MBD is an emerging public health issue and studies conducted by others have shown that MBD increases the risk of developing breast cancer and that reducing MBD can reduce the incidence of breast cancer. Although oral tamoxifen is approved to prevent breast cancer in “high-risk” women (typically based on responses to a questionnaire), it is used by less than 5% of women with an increased risk of developing breast cancer because of the actual or perceived side effects and risks of tamoxifen. We believe our Endoxifen may provide an option for women to proactively reduce the density of their breasts. Moreover, our Endoxifen may improve mammography accuracy and patient care by unmasking cancerous tumors that are otherwise hidden by breast density.
 
U.S. federal and state legislation requires that women be notified if they have MBD. These notifications typically state that women with MBD have a higher risk of developing breast cancer, and that mammography may not be as effective in detecting breast cancer because the MBD can “mask” the detection of cancers.
 
Our Phase 1 Studies
 
   In September 2019, we completed additional Phase 1 work using our capsule Endoxifen and a new modified-release tablet form of our oral Endoxifen. Study results showed that the capsule and tablet were safe and well-tolerated. Because the pharmacokinetic profile of the tablet did not meet the desired pharmacokinetic profile, we do not expect to further develop the tablet. 
 
In 2017 we completed a comprehensive Phase 1 study in 48 healthy women in Australia using both the topical and oral forms of our proprietary Endoxifen. The objectives of this double-blinded, placebo-controlled, Phase 1 study were to assess the pharmacokinetics of our proprietary Endoxifen dosage forms as single (oral) and repeat (oral and topical) doses, as well as to assess safety and tolerability. The study was conducted in two parts based on route of administration.
 
  There were no clinically significant safety signals and no clinically significant adverse events: both the oral and topical Endoxifen were well tolerated. In the topical arm of the study, there were low but detectable Endoxifen levels in the blood in a dose-dependent fashion and in the oral arm of the study participants exhibited dose-dependent Endoxifen levels consistent with published reports of the therapeutic range. The median time for patients in the study to reach the steady-state serum levels of Endoxifen while taking daily doses of oral Endoxifen was approximately seven days. Published literature indicates that it takes approximately 50-200 days for patients to reach steady-state Endoxifen levels when taking daily doses of oral tamoxifen. Finally, the median time for patients in the study to reach the maximum serum level of Endoxifen after taking Atossa’s oral Endoxifen ranged from 4 to 8 hours (depending on dose). The 4 mg dose of Endoxifen produced a maximum serum level of Endoxifen in 4 to 8 hours at levels above the generally accepted threshold for a therapeutic effect on estrogen-dependent breast cancer.
 
We have also completed a double-blinded, placebo controlled, three arm Phase 1 study of our topical Endoxifen in men which showed that various dose levels of our topical Endoxifen were safe and well tolerated by the 24 study participants over 28 days of dosing.
 
 
 
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Our Phase 2 Studies
 
In December 2021, we completed a pre-investigational new drug meeting with the FDA. The purpose of the meeting was to obtain input from the FDA on pre-clinical, clinical, manufacturing and regulatory matters in the U.S. for our proprietary Endoxifen to treat breast cancer. Based in part on the feedback from the FDA, we plan to open an IND for a multi-center Phase 2 study to further advance our proprietary oral proprietary Endoxifen in the neoadjuvant setting. We plan to focus our development on pre-menopausal women with ER+, HER2- breast cancer for whom the current treatment options typically include aromatase inhibitors combined with drugs that suppress ovarian function and essentially force the patient into menopause.
 
In December 2021, we began to enroll participants in a Phase 2 clinical study of oral Endoxifen in women with increased MBD. The study, known as the Karisma-Endoxifen study, is a Phase 2, randomized, double-blind, placebo-controlled, dose-response study of our proprietary Endoxifen in healthy pre-menopausal women with increased breast density. The primary objective of the study is to determine the dose-response relationship of daily oral Endoxifen on MBD reduction, with secondary endpoints to assess safety and tolerability, and an exploratory endpoint to assess durability of the MBD changes after the study drug has been discontinued. It is being conducted by South General Hospital in Stockholm and includes approximately 240 participants who will receive daily doses of oral Endoxifen or placebo for six months. The study is being led by principal investigator Per Hall, M.D., Ph.D., Department of Medical Epidemiology and Biostatistics at Karolinska Institutet.
 
In February 2021, we concluded a Phase 2 study of our oral Endoxifen in Australia. The study enrolled patients newly-diagnosed with ER+ and HER2- stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. Patients received our proprietary oral Endoxifen for at least 14 days from the time of diagnosis up to the day of surgery. The primary endpoint was to determine if the administration of oral Endoxifen reduces the tumor activity as measured by Ki-67 (a measure of cellular proliferation that correlates with tumor growth). The secondary endpoints were safety and tolerability and assessment of the study drug on expression levels of both estrogen and progesterone receptors. In June 2021, we concluded that the study produced substantially positive results and that continuing enrollment in the study would not be useful in advancing the program. The final results from the 7 women in the study indicated that six of the 7 patients had 65% reduction in Ki-67 and 7/7 had Ki-67<25% at the time of surgery.  There were no adverse safety signals or laboratory findings.  
 
In April 2019, Stockholm South General Hospital in Sweden completed a randomized, double-blinded placebo-controlled Phase 2 study of our topical Endoxifen in women with measurable MBD. The study was led by principal investigator Dr. Per Hall, MD, Ph.D., Department of Medical Epidemiology and Biostatistics at Karolinska Institutet. The primary endpoint of this pilot study was to determine if topical Endoxifen reduces individual MBD as measured by mammography. Secondary endpoints included demonstrating safety and tolerability. The primary objective was to determine if topical Endoxifen reduces MBD, and if so by how much, in order to calculate the sample size for statistical significance in a future trial. The study enrolled 90 participants who were equally randomized to three different groups (30 per group): placebo; 10 mg topical Endoxifen; and 20 mg topical Endoxifen. Participants applied the study drug to each breast daily for a maximum of six months. Each participant received a baseline (pre-treatment) mammogram, and additional mammograms at month 3 and 6, or at the time of study exit. Once the study was completed, all mammograms were interpreted and MBD determined and any changes that occurred per participant recorded. 
 
In June 2019, we reported preliminary analysis from our Phase 2 study of proprietary daily topical Endoxifen to reduce MBD, showing significant (p=0.02) and rapid reduction in MBD at the 20 mg daily dose level. MBD was reduced by an average of 14.3% in the group applying 20 mg daily topical Endoxifen, which was statistically significant (p = 0.02). In the 10 mg dose group, MBD was reduced by an average of 9.0%, but was not statistically significant. Approximately 70% of participants receiving 20 mg topical Endoxifen experienced a reduction in MBD, and of those, the mean reduction in MBD was 27%. There were no differences in systemic endocrine or vascular side effects (for example, hot flashes) in the placebo versus active groups. Systemic side effects were measured using a modified validated symptom questionnaire. Approximately 72 participants eventually developed skin rashes and local irritation and did not complete a full six months of dosing. However, these results which are based on MBD measurements at the time of enrollment in the study and again at the time dosing ended, show that even in those participants who dropped out of the study due to skin reactions, Endoxifen reduced MBD in a mean of 55 and 88 days for the 20 mg and 10 mg groups, respectively. Our initial evaluation indicates that the skin reactions are due to the active pharmaceutical ingredient. We are not currently planning to further develop our topical Endoxifen.
 
 
 
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AT-H201 Inhalation Therapy for COVID-19
 
AT-H201 uses a novel combination of two drugs that have been previously approved by the FDA for other diseases. It is intended to improve compromised lung function for moderate to severely ill, hospitalized COVID-19 patients by inhalation. We also intend to study AT-H201 to potentially treat long haul COVID-19 survivors.
 
In May 2020, we completed in vitro testing of AT-H201 that showed that the components of AT-H201 inhibit SARS-CoV-2 infectivity of VERO cells, which is a standard cell type being used to study infectivity of the coronavirus. The AT-H201 components were found to be at least four times more potent than Remdesivir and at least 20 times more potent than Hydroxychloroquine. Potency was measured by microscopic examination of the cytopathic effect caused by SARS-CoV-2 in VERO cells. We received input from the FDA on potential pathways to develop AT-H201 and the FDA requested that we provide, among other things, additional pre-clinical and other information on AT-H201.
 
In September 2021 we began enrollment in Australia in a Phase 1/2a study of AT-H201. In December 2021 we completed enrollment in the first of four parts of the study and in February 2022 we started enrollment in the second part. The study plans to enroll 60 healthy participants and moderately ill hospitalized COVID-19 patients. The Australian regulatory authority will review data after each part of the study before we proceed to subsequent parts of the study. Because the final part of the study in COVID-19 infected patients may require that we use additional study sites, approval of that part of the study, and additional sites may be at a later date depending on COVID-19 infections.
 
AT-301 Nasal Spray for COVID-19
 
AT-301 is our proprietary drug candidate intended for nasal administration in patients immediately following diagnosis of COVID-19 but who have not yet exhibited symptoms severe enough to require hospitalization. It is intended for at-home use to reduce symptoms of COVID-19 and to slow the infection rate so that a person’s immune system can more effectively fight COVID-19.
 
AT-301 is being developed with a nasal spray delivery mechanism because many COVID-19 patients are infected via the nasal passage. Our nasal spray formulation AT-301 is being designed to contain ingredients that can potentially block SARS-CoV-2 viral entry gene proteins in nasal epithelial cells by interfering with spike protein activation by host proteases, by masking receptor binding domains via electrostatic mechanisms, and by providing a generalized mucoadhesive epithelial barrier. In July 2020, we completed in vitro testing of AT-301 which showed that AT-301 inhibits SARS-CoV-2 infectivity of VERO cells in a laboratory culture. 
 
We may also develop our AT-301 nasal spray to potentially help prevent COVID-19 infection — particularly for people in high-risk environments, such as people living with an infected patient, people living and working in healthcare facilities, emergency responders or teachers.
 
   While the traditional vaccines have reduced the spread of COVID-19 infections, it is also clear to us that therapies such as AT-301 nasal spray will also play an important role, particularly as the COVID-19 virus variants have necessitated booster vaccines and potentially the development of vaccines that are variant-specific. Deadlier and/or more transmissible variants of COVID-19 continue to develop and reach the U.S. and in many other countries, questions continue to remain regarding how effective current and future vaccines may be against these and future variants. Additionally, none of the currently available vaccines are 100% effective, they may have side effects in selected populations and effectiveness is expected to diminish over time. For these reasons, we believe therapies like ours will provide valuable protection even as vaccines continue to be developed and deployed.
 
   We have completed a Phase 1, double-blinded, randomized, and placebo-controlled safety study of AT-301 nasal spray in 32 healthy adult subjects who were divided into two study groups. Part A consisted of two single-dose cohorts receiving either active therapy, AT-301B, or the placebo comparator AT-301, at two different doses. Part B was a multiple dose arm with cohorts receiving either AT-301A or AT-301B for 14 days at two different doses. The primary objectives of the study were to evaluate the safety and tolerability of single and multiple doses of AT-301 administered via nasal instillation to healthy volunteers. Secondary objectives were to assess the incidence and severity of local irritation and bronchospasm following administration of AT-301 via nasal instillation. The study was conducted in Australia.
 
Final analysis of the data from the study indicates that there were no serious adverse events, no discontinuations, no bronchospasms, and only one subject of the 32 subjects in the study experienced adverse events that were considered moderate in severity and all other adverse events were considered mild. Our assessment is that AT-301 nasal spray was safe and well tolerated in this study. The most common treatment-related adverse events observed with AT-301 treatment with either single or multiple doses were nasal discomfort and sneezing.
 
In January 2021, we received input from the FDA on the AT-301 program and based in part on that input, we are now preparing to conduct an additional pre-clinical study, and following that, we expect to apply to the FDA to commence a Phase 2 study in the United States.
 
 
 
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Other Programs; Immunotherapy/CAR-T Programs
 
Our immunotherapy/CAR-T programs are in early stage of development. On November 26, 2020, we entered into a sponsored research agreement with Dana-Farber Cancer Institute, Inc. The agreement provides that Atossa will support research of cytokine-coated nanoparticles for the potential treatment of breast cancer in research being conducted by Carl Novina, MD, Ph.D.
 
Much of the recent success in the field of chimeric antigen receptor therapy, or CAR-T, has relied on the systemic delivery (for example a needle injection into the blood stream) of the CAR-T which is intended to treat various non-solid tumor cancers, such as blood cancers. One concern with this systemic approach is that it does not target the location of the cancer and it can have adverse effects, including deadly “cytokine storms.” Moreover, CAR-T treatments delivered systemically can be as high as $500,000 per patient.
 
We have filed patent applications on a novel method to deliver CAR-T cells or other types of immunotherapy into the milk ducts of the breast, the location where most breast cancers originate for the potential targeted treatment of breast cancer. This approach uses targeted intraductal delivery of either T-cells that have been genetically modified to attack breast cancer cells or various other immune-therapies. We believe this intraductal method has several potential advantages including the reduction of toxicity by limiting systemic exposure of the T-cells or immunotherapy; improved efficacy by placing the T-cells or immunotherapy in direct contact with the target ductal epithelial cells that are undergoing or have undergone malignant transformation; and, lymphatic migration of the CAR-T cells or immunotherapy potentially extending their cytotoxic actions into the regional lymph system, which could limit tumor cell dissemination or metastasis. Moreover, our approach may be more cost effective if lower doses of therapy can be delivered compared to systemic CAR-T. We have not begun, and may not be successful in completing, pre-clinical and clinical studies of our CAR-T technology.
 
We paid a fee of $1,000,000 in June 2021 to a U.S. leading research institution for the exclusive right to negotiate for the period of six months for the acquisition of the world-wide rights to two oncology R&D programs. This agreement was amended on December 3, 2021, which extended the negotiation term through April 18, 2022. Those negotiations concluded in February 2022 without reaching a definitive agreement and the research institution agreed to return the $1,000,000 million fee as they did not honor their obligation and cancelled the agreement. 
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Markets
 
Potential Breast Cancer Market Opportunities
 
We believe that, based in part on a January 2017 study by Defined Health Inc. (now called Cello Health Bioconsulting), a leading market research firm, the potential U.S. market for our Endoxifen in the breast cancer treatment and prevention settings is up to $1 billion annually.  The American Cancer Society (ACS) estimates that in the U.S. in 2022, 287,850 women will be diagnosed with breast cancer, 47,550 of which will be under the age of 50 and 43,250 of which will die from the disease. Approximately 80% of breast cancers are ER+.
 
Although about 100 times less common than in women, breast cancer also affects men. The ACS estimates that in the U.S. in 2022, 2,710 new cases of invasive breast cancer will be diagnosed in men, and 530 men will die from breast cancer.
 
Potential COVID-19 Market Opportunities
 
According to the COVID-19 Dashboard by the Center for Systems Science and Engineering at Johns Hopkins University, as of the date of this report, more than 390 million cases of COVID-19 have been reported world-wide and over 5.7 million people have died from the disease. We believe the potential market for an at-home therapy like AT-301 is large given that most COVID-19 patients are not hospitalized and instead recover at home. Furthermore, our products could provide benefit to those who are infected with new variants that may escape vaccine protection or individuals who are vaccinated with break-through infections.
 
  Vaccines have been approved for the prevention of COVID-19; however, their effectiveness may decrease over time and may not be effective against all variants of the novel coronavirus. Currently, the only FDA approved treatment for COVID-19 is Remdesivir for certain COVID-19 patients. In addition, emergency use authorization has been granted for two new oral antiviral agents, several monoclonal antibodies, and the use of convalescent plasma for certain COVID-19 patients. The impact of these on the development of our COVID-19 programs is unknown. There remains a significant unmet medical need for therapies to be approved for the treatment of all individuals infected with the virus.
 
 A key feature of the original SARS-CoV-2 virus, and that is retained in both the Delta and Omicron variants, is the furin cleavage site found on the spike protein which facilitates viral infection. Our COVID-19 programs under development are designed to interact with this cleavage site so they are expected to be effective against both current and future COVID-19 variants that continue to contain a furin cleavage site.
 
 
 
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Our Capital Resources
 
We have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We plan to obtain additional capital resources by selling our equity securities and borrowing from stockholders or others when needed. However, we cannot assure you that we will be successful in accomplishing any of these plans and, if we are unable to obtain adequate capital, we could be forced to cease operations. We do not anticipate any revenue until our pharmaceutical programs are developed, including receiving all necessary regulatory approvals, and until we successfully commercialize these programs.
 
As of December 31, 2021, we had cash and cash equivalents of $136,377,000. Our capital raising activity in the past fiscal year consisted of the following:
 
On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 23,850,000 shares of Company common stock, par value $0.18 per share and warrants to purchase 17,887,500 shares of common stock. The combined purchase price for one share of common stock and a warrant to purchase 0.75 shares of common stock was $1.055. Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5-year anniversary of the date of issuance and have an exercise price of $1.055 per share. The common stock and warrants have been registered under the Securities Act of 1933, as amended. The offering closed on January 8, 2021, with net proceeds to the Company from the offering of approximately $23.3 million, after deducting fees and expenses.
 
On March 22, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 17,361,100 shares of our common stock, par value $0.18 per share. Concurrently with the offering, and pursuant to the purchase agreement, the Company also commenced a private placement whereby it issued and sold warrants exercisable for an aggregate of up to 13,020,825 shares of common stock. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock is $2.88. Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5-year anniversary of the date of issuance. Subsequent to the issuance of the warrants, the Company filed a registration statement on Form S-3 (File No. 333-255411) to cover the sale of an aggregate of 13,020,825 shares of common stock issuable upon exercise of the warrants which was declared effective by the SEC on April 29, 2021. The net proceeds to the Company from the offering and the private placement are approximately $46.4 million, after deducting fees and expenses.
 
Warrant Activity  
 
During 2021, the Company received $43.8 million from the exercises of warrants. The 2021 warrant exercises resulted in the reduction of approximately 37.5 million warrants, and the issuance of approximately 37.5 million shares of common stock. There were no warrant exercises during 2020.
 
 
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Potential Uses of Capital Resources
 
We intend to use our capital resources to execute on our business plan, which may include acquiring or in-licensing additional programs. We may also use our capital resources to invest directly or indirectly in business opportunities in healthcare or other industries including through purchases of equity in other companies. These investments may be in special purpose acquisition companies either as a sponsor or as an equity investor. Our business plan may evolve to require more capital resources than currently contemplated either because our existing programs progress more quickly or at a greater expense than currently anticipated or because we add additional programs. 
 
Research and Development Phase
 
Research and development (R&D) costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for our drugs under development, expenses associated with clinical trials and associated salaries and benefits. We have entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses. We accrue for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued expenses, we analyze progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from our estimates.
 
R&D expenses also include an allocation of the CEO's salary and related benefits including bonus and non-cash stock-based compensation expense based on an estimate of total hours expended on research and development activities.  Our CEO is involved in the development of the Company's drug candidates and oversight of the related clinical trial activity.
 
Research and development expenses for the years ended December 31, 2021 and 2020 were approximately $9,210,000 and $6,608,000, respectively. 
 
Intellectual Property 
 
We own patent applications directed to Endoxifen, treatments for COVID-19, and immunotherapies such as CAR-T therapies. We commonly seek patent claims directed to compositions of matter to therapeutics, including Endoxifen as well as methods of using such compositions. For each of our products, we have filed and expect to file multiple additional patent applications. As of January 15, 2022, based on a review of our patent estate, we own and are pursuing 83 pending patent applications (11 U.S. applications, including 1 allowed U.S. application, and 72 international applications) directed to our Endoxifen, immunotherapies such as CAR-T therapeutics and COVID-19 therapeutics programs.  As a company focused on therapies in oncology and infectious diseases, we are not developing or commercializing any of our medical devices, including our breast aspirator devices, transportation kits, tools for breast surgeons, and nipple aspirate fluid (NAF) cytology tests or methods of using such devices, kits or tests – nor do we maintain an inventory of our medical devices. We continue to evaluate our patent portfolio on an ongoing basis and, as a clinical-stage pharmaceutical company, no longer file, prosecute, maintain, or defend our patents and patent applications directed to any of our medical devices, kits, tests, and compositions not core to our business or to methods of using the foregoing due to short patent terms remaining on them and changed business goals.
 
 As of January 15, 2022, the following are the estimated number of patents (2) related to our programs that we are currently pursuing.
 
 
 
Pending Applications (1, 2, 4)
 
 
Approximate Expiry Date (3)
 
 
 
U.S.
 
 
International
 
 
 
 
 
Endoxifen Programs
 
 
6
 
 
 
45
 
 
 2038
-
2043
 
COVID-19 Programs
 
 
2
 
 
 
4
 
 
 2041
-
2042
 
Immunotherapy/CAR-T Program
 
 
3
 
 
 
23
 
 
 2037
-
2039
 
 
1. Each patent application includes at least one claim or disclosure directed to a listed therapeutic/program.
 
2. The patent counts in the table above may differ from the total numbers of the patent applications in the Atossa portfolio as the patent counts in the table above reflect that a patent application may have claims directed to more than one type of therapeutic/program.
 
3. The patent counts and the approximate expiry dates disclosed herein and in our patent estate are subject to change, for example, in the event of changes in the law, post-grant patent challenges, or legal rulings affecting our patents and applications or if we become aware of new information or amend our business goals. The standards that the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that will be adequate to conduct our business as planned. Additionally, any issued patents we currently own or obtain in the future may have a shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our products.
 
4. The standards that the USPTO, and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the scope, type and extent of patent claims that will be adequate to conduct our business as planned. Additionally, any issued patents we currently own or obtain in the future may have a shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our product.
 
 
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Manufacturing, Clinical Studies and Associated Operations
 
Our drug development strategy utilizes third party contractors for the procurement and manufacture, as applicable, of raw materials, active pharmaceutical ingredients and finished drug products, as well as for storage, and distribution of our products and associated supply chain operations. We also plan to rely on third parties to conduct nonclinical and clinical studies of our drugs under development. As our development programs advance, we expect that our manufacturing, pre-clinical and clinical studies, and related operational requirements will correspondingly increase. Each third-party contractor undergoes a qualification process by Atossa subject matter experts prior to signing any service agreement and initiating any third-party work.
 
Integral to our development strategy is our quality program, which includes standard operating procedures and specifications with the goal that our work complies with Good Clinical (GCP), Good Laboratory (GLP) and Good Manufacturing Practices (cGMP), and other applicable global regulations. We expect and confirm that selected service providers meet or exceed our expectations for compliance with these standards in providing services and products that meet our requirements.
 
We believe our operational strategy of utilizing qualified contractors and suppliers in the foregoing manner allows us to direct our financial and managerial resources to development and commercialization activities, rather than to the establishment and maintenance of manufacturing and clinical infrastructure.
  
 
Government Regulation
 
Drug Regulations
 
    We are subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations set forth, among other things, regulations for the execution of clinical studies, and the requirements for the testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. Our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be important differences. Additionally, some significant aspects of regulation in the E.U. are addressed in a centralized procedure through the Europe Medicines Agency (EMA) and the European Commission, but country-specific regulation by the competent authorities of the E.U. member states remain essential in many respects.
 
U.S. Regulations
 
   In the U.S., the FDA regulates drugs under the FDCA and its implementing regulations, through review and ultimately approval of the New Drug Applications (NDAs). NDAs require extensive studies and submission of a large amount of data by the applicant, which is an amalgamation of data obtained under Investigational New Drug Applications (INDs) and other supporting available information.
 
Drug Development
 
Nonclinical Testing: Before testing any compound in human subjects in the U.S., extensive nonclinical data are required. Nonclinical testing generally consists of toxicological and pharmacological studies in animals. Studies must be performed in compliance with the FDA’s GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act.
 
IND Application: In nearly all cases, human clinical trials in the U.S. cannot commence until an IND is submitted to the FDA for review and a “Safe to Proceed” letter has been provided to the sponsor. The sponsor must prepare a dossier of information that includes the results of nonclinical studies; detailed drug manufacturing information and test results; and proposed clinical studies, design and development strategy. The FDA then evaluates if there is an adequate basis for testing the drug in an initial (human) clinical study. Unless the FDA raises concerns, the IND application becomes effective 30 days following its receipt by the FDA at which time written notification is provided. Once human clinical trials have commenced, the sponsor is obligated to report serious side and unexpected effects to the FDA. The FDA may suspend a clinical trial by placing it on “clinical hold” if the FDA has concerns about the safety of the product being tested, subject risks, investigator actions, related product information or for other reasons.
 
Clinical Trials: Clinical trials involve the administration of the drug to healthy human volunteers or to patients, under the supervision of a qualified investigator according to a vetted and approved protocol.
 
    The conduct of clinical trials is subject to extensive regulation, including compliance with the FDA’s bioresearch monitoring regulations and GCP requirements, which establish standards for conducting, recording data from and reporting the results of, clinical trials, and are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected. Clinical trials must be conducted under written and approved protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is reviewed by the FDA as part of the IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an institutional review board, or IRB, at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial and timely reporting adverse events. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the U.S. Data from a foreign study not conducted under an IND application may be submitted in support of an NDA if the study was conducted in accordance with GCP and the FDA is able to validate the data.
 
 
 
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A study sponsor is required to submit certain details about active clinical trials and clinical trial results to the National Institutes of Health for public posting on http://clinicaltrials.gov. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another:
 
 
●
Phase 1 clinical trials include the initial administration of the investigational drug to humans, typically to a small group of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase 1 clinical trials generally are intended to determine the metabolism and pharmacologic actions of the drug, the side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.
 
 
●
Phase 2 clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects.
 
 
●
Phase 3 clinical trials are conducted after preliminary evidence of effectiveness has been obtained and are intended to gather the additional information about safety and effectiveness necessary to evaluate the drug’s overall risk-benefit profile, and to provide a basis for physician labeling. Generally, Phase 3 clinical development programs consist of expanded, large-scale studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug, or the safety, purity, and potency of a biological product, at the proposed dosing regimen.
 
The sponsoring company, the FDA or the IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Further, success in early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or prevent regulatory approval.
 
There are regulatory pathways that can accelerate the speed with which a product can be developed, including a Special Protocol Assessment (SPA), break-through therapy designation, etc. The designations are obtained from the FDA on a case-by-case basis and do not guarantee the ultimate approval of a product for commercialization.
 
Drug Approval
 
Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical trials, together with other detailed information, including information on the manufacture and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort and financial resources. Submission of an NDA requires payment of a review user fee to the FDA, which will be $3,177,218 for fiscal year 2022. The FDA will review the application and may deem it to be inadequate to support commercial marketing, and there can be no assurance that any product approval will be granted on a timely basis, if at all. The FDA may also seek the advice of an advisory committee, typically a panel of clinicians practicing in the field for which the product is intended, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee.
 
The FDA has various programs, including break-through therapy, fast track, priority review and accelerated approval that are intended to expedite or simplify the process for reviewing drugs and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that provide meaningful benefit over existing treatments. We cannot be sure that any of our drugs will qualify for any of these programs, or that, if a drug does qualify, the review time will be reduced, or the product will be approved.
 
Before approving an NDA, the FDA usually inspects the clinical sites with the greatest accrual to confirm the veracity of the clinical data, execution of the clinical study and protection of patient safety. The FDA will inspect the facility or the facilities where the product is manufactured, tested and distributed. Approval is not granted if these inspections raise concerns about the execution of the clinical studies or there is a lack of cGMP compliance. If the FDA evaluates the NDA and determines the clinical trial execution and manufacturing facilities as acceptable, the FDA may issue an approval letter. If the NDA is not approved, the FDA issues a complete response letter which is only issued for applications that are not approved. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or efficacy or impose other post-approval commitment conditions.
 
In some circumstances, post-marketing testing may include post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, which are used primarily to gain additional experience from the treatment of patients in the intended population, particularly for long-term safety follow-up. In addition, the FDA may require a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits outweigh the risks. A REMS can include medication guides, physician communication plans and elements to assure safe use, such as restricted distribution methods, patient registries or other risk mitigation tools.
 
After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical trials be conducted.
 
 
 
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Post-Approval Requirements
 
Holders of an approved NDA are required to: (i) report certain adverse reactions to the FDA; (ii) comply with certain requirements concerning advertising and promotional labeling for their products; and (iii) continue to have cGMP compliance and all aspects of product manufacturing in a “state of control.” The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. Future FDA inspections may identify compliance issues at manufacturing facilities that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market.
 
Marketing of prescription drugs is also subject to significant regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse. After approval in the U.S., we must comply with FDA’s regulation of drug promotion and advertising, including restrictions on off-label promotion, and we comply with federal anti-kickback statutes, limitations on gifts and payments to physicians and reporting of payments to certain third parties, among other requirements.
 
Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as clinical holds, FDA refusal to approve pending NDAs or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.
 
Non-U.S. Regulation
 
Before our products can be marketed outside of the U.S., they are subject to regulatory approval similar to that required in the U.S., although the requirements governing the conduct of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product.
 
In the E.U., marketing authorizations for medicinal products can be obtained through several different procedures founded on the same basic regulatory process. The centralized procedure is mandatory for certain medicinal products, including orphan medicinal products, medicinal products derived from certain biotechnological processes, advanced therapy medicinal products and certain other new medicinal products containing a new active substance for the treatment of certain diseases. It is optional for certain other products, including medicinal products that are significant therapeutic, scientific or technical innovations, or whose authorization would be in the interest of public or animal health. The centralized procedure allows a company to submit a single application to the EMA which will provide a positive opinion regarding the application if it meets certain quality, safety, and efficacy requirements. Based on the opinion of the EMA, the European Commission makes a final decision to grant a centralized marketing authorization which is valid in all 27 E.U. Member States and three of the four European Free Trade Association states (Iceland, Liechtenstein and Norway). Cancer products are usually required to go through the centralized procedure.
 
Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and leads to separate approval by, the competent authorities of each E.U. Member State in which the product is to be marketed. One national competent authority selected by the applicant, the Reference Member State, assesses the application for marketing authorization. Following a positive opinion by the competent authority of the Reference Member State the competent authorities of the other E.U. Member States, Concerned Member States are subsequently required to grant marketing authorization for their territory on the basis of this assessment except where grounds of potential serious risk to public health require this authorization to be refused. The mutual recognition procedure is similarly based on the acceptance by the competent authorities of the Concerned Member States of the marketing authorization of a medicinal product by the competent authorities of other Reference Member States. The holder of a national marketing authorization granted by a Reference Member State may submit an application to the competent authority of a Concerned Member State requesting that this authority mutually recognize the marketing authorization delivered by the competent authority of the Reference Member State.
 
Similar to accelerated approval regulations in the U.S., conditional marketing authorizations can be granted in the E.U. by the European Commission in exceptional circumstances. A conditional marketing authorization can be granted for medicinal products where a number of criteria are fulfilled: i) although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, the benefit/risk balance of the product is positive, ii) it is likely that the applicant will be in a position to provide the comprehensive clinical data, iii) unmet medical needs will be fulfilled and iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization must be renewed annually.
 
Even if a product receives authorization in the E.U., there can be no assurance that reimbursement for such product will be secured on a timely basis or at all. Individual countries comprising the E.U. member states, rather than the E.U., have jurisdiction across the region over patient reimbursement or pricing matters. Therefore, we will need to expend significant effort and expense to establish and maintain reimbursement arrangements in the various countries comprising the E.U. and may never succeed in obtaining widespread reimbursement arrangements therein.
 
 
 
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The national authorities of the individual E.U. Member States are free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. Some E.U. Member States adopt policies according to which a specific price or level of reimbursement is approved for the medicinal product. Other E.U. Member States adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market, including volume-based arrangements and reference pricing mechanisms.
 
Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some E.U. Member States. These E.U. Member States include the U.K, France, Germany and Sweden. The HTA process, which is governed by the national laws of these countries, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product vary between E.U. Member States.
 
Post-Approval Regulation
 
Similarly, to the U.S., both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual E.U. Member States both before and after grant of the manufacturing and marketing authorizations. Failure by us or by any of our third-party partners, including suppliers, manufacturers and distributors to comply with E.U. laws and the related national laws of individual E.U. Member States governing the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products and marketing of such products, both before and after grant of marketing authorization, may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.
 
The holder of an E.U. marketing authorization for a medicinal product must also comply with E.U. pharmacovigilance legislation and its related regulations and guidelines, which entail many requirements for conducting pharmacovigilance, or the assessment and monitoring of the safety of medicinal products. These rules can impose on central marketing authorization holders for medicinal products the obligation to conduct a labor-intensive collection of data regarding the risks and benefits of marketed products and to engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical studies, which may be time consuming and expensive and could impact our profitability. Non-compliance with such obligations can lead to the variation, suspension, or withdrawal of the marketing authorization for the product or imposition of financial penalties or other enforcement measures.
 
The manufacturing process for medicinal products in the E.U., is highly regulated: regulators may shut down manufacturing facilities that they believe do not comply with regulations. Manufacturing requires a manufacturing authorization, and the manufacturing authorization holder must comply with various requirements set out in the applicable E.U. laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with E.U. cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the E.U. with the intention to import the active pharmaceutical ingredients into the E.U. Similarly, the distribution of medicinal products into and within the E.U. is subject to compliance with the applicable E.U. laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the E.U. Member States.
 
We and our third-party manufacturers are subject to cGMP, which are extensive regulations governing manufacturing processes, stability testing, record keeping, and quality standards as defined by the EMA, the competent authorities of E.U. Member States and other regulatory authorities. The EMA reviews Periodic Safety Update Reports for medicinal products authorized in the E.U. If the EMA has concerns that the risk benefit profile of a product has varied, it can adopt an opinion advising that the existing marketing authorization for the product be suspended or varied and can advise that the marketing authorization holder be obliged to conduct post-authorization safety studies. The EMA opinion is submitted for approval by the European Commission. Failure by the marketing authorization holder to fulfill the obligations for which the approved opinion provides can undermine the on-going validity of the marketing authorization.
 
Sales and Marketing Regulations
 
In the E.U., the advertising and promotion of our products are subject to E.U. Member States’ laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other legislation adopted by individual E.U. Member States may apply to the advertising and promotion of medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off-label promotion. The off-label promotion of medicinal products is prohibited in the E.U. The applicable laws at E.U. level and in the individual E.U. Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the E.U. 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.
 
 
 
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Anti-Corruption Legislation
 
Our business activities outside of the U.S. are subject to anti-bribery or anti-corruption laws, regulations, industry self-regulation codes of conduct, and physicians’ codes of professional conduct or rules of other countries in which we operate, including the U.K. Bribery Act of 2010.
 
Interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct developed at both E.U. level and in the individual E.U. Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited in the E.U. Violation of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain E.U. Member States also must be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, his/her competent professional organization, and/or the competent authorities of the individual E.U. Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
 
Data Privacy and Protection
 
Data protection laws and regulations have been adopted at E.U. level with related implementing laws in individual E.U. Member States which impose significant compliance obligations. For example, the E.U. Data Protection Directive, as implemented into national laws by the E.U. Member States, imposes strict obligations and restrictions on the ability to collect, analyze, and transfer personal data, including health data from clinical trials and adverse event reporting. Furthermore, there is a growth towards the public disclosure of clinical trial data in the E.U. which also adds to the complexity of processing health data from clinical trials. Such public disclosure obligations are provided in the new E.U. Clinical Trials Regulation, EMA disclosure initiatives, and voluntary commitments by industry. Data protection authorities from the different E.U. Member States may interpret the E.U. Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the E.U., and guidance on implementation and compliance practices are often updated or otherwise revised. Apart from exceptional circumstances, the E.U. Data Protection Directive prohibits the transfer of personal data to countries outside of the European Economic Area that are not considered by the European Commission to provide an adequate level of data protection including the U.S.
 
Further, the E.U. has recently adopted a comprehensive overhaul of its data protection regime from the current national legislative approach to a single European Economic Area Privacy Regulation, the General Data Protection Regulation 2016/679/EU (GDPR), which came into effect on May 25, 2018. The GDPR extends the scope of the E.U. data protection law to all foreign companies controlling, processing, and/or using data of E.U. residents. It imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide turnover and €20 million and includes new rights such as the “right to be forgotten” and “portability” of personal data, with more onerous requirements related to pseudo-anonymization and anonymization of personal data. Further, the scope of “personal data” has been expanded to include genetic data, and data concerning health and adverse event reporting from clinical trials.
 
Privacy and Security of Health Information and Personal Information; Standard Transactions
 
We are subject to state and federal laws and implementing regulations relating to the privacy and security of the medical information of the patients it treats. The principal federal legislation is part of HIPAA. Pursuant to HIPAA, the Secretary of the Department of Health and Human Services, or HHS, has issued final regulations designed to improve the efficiency and effectiveness of the healthcare system by facilitating the electronic exchange of information in certain financial and administrative transactions, while protecting the privacy and security of the patient information exchanged. International regulations (such as the current Directive 95/46/EC and the GDPR and their implementing regulations) also provide privacy protection to clinical trial participants of their personal health care information. We take appropriate steps to protect the privacy of our clinical study participants.
 
Federal and State Fraud and Abuse Laws
 
The federal healthcare Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce referrals or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any healthcare item or service reimbursable under a governmental payor program. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests, opportunity to earn income, and providing anything at less than its fair market value. The Anti-Kickback Statute is broad, and it prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, HHS has issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain provisions that, if met, will provide healthcare providers and other parties with an affirmative defense against prosecution under the federal Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued.
 
From time to time, the Office of Inspector General, or OIG, issues alerts and other guidance on certain practices in the healthcare industry. In October 1994, the OIG issued a Special Fraud Alert on arrangements for the provision of clinical laboratory services. The Fraud Alert set forth a number of practices allegedly engaged in by some clinical laboratories and healthcare providers that raise issues under the “fraud and abuse” laws, including the Anti-Kickback Statute.
 
 
 
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Compliance Program
 
Compliance with government rules and regulations is a significant concern throughout the industry, in part due to evolving interpretations of these rules and regulations. We seek to conduct our business in compliance with all statutes and regulations applicable to our operations. To this end, we have established a compliance program that reviews for regulatory compliance procedures, policies, and facilities throughout our business. Failure to comply with applicable requirements may subject us to administrative or judicial sanctions, such as clinical holds, refusal of regulatory authorities to approve or authorize pending product applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, monetary penalties, injunctions and/or criminal prosecution.
 
Employees
 
As of the date of filing this report, we employ two executive officers, four full-time employees and two part-time employees. We expect that we will hire more employees as we develop our current and future programs. 
 
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, and incentivizing our management team and our clinical, scientific and other employees and consultants. The principal purposes of our equity and bonus plans are to attract, retain and motivate personnel through the granting of stock-based and cash-based compensation awards, to align our interests and the interests of our stockholders with those of our employees and consultants. Our compensation committee approves associated merit increases and annual incentive bonus payments during the first quarter annually. When needed, we augment our employee base with outside consultants who specialize in various fields.
 
On March 29, 2021, the Board of Directors approved an amendment to the 2020 Stock Incentive Plan to increase the plan by 15 million shares. This amendment was approved by the stockholders on May 14, 2021.  
 
Executive officers
 
The names of our executive officers and their ages as of December 31, 2021, are as follows:
 
Name
 
Age
 
Position
Executive Officers:
 
 
 
 
Steven C. Quay, M.D., Ph.D.
 
71
 
Chairman of the Board, President and Chief Executive Officer
Kyle Guse, Esq., CPA (inactive)
 
58
 
Chief Financial Officer, General Counsel and Secretary
 
Steven C. Quay, M.D., Ph.D.  Dr. Quay has served as Chief Executive Officer, President and Chairman of the Board of Directors of the Company since the Company was incorporated in April 2009. Dr. Quay is certified in Anatomic Pathology with the American Board of Pathology and completed both an internship and residency in anatomic pathology at Massachusetts General Hospital, a Harvard Medical School teaching hospital. He is a former faculty member of the Department of Pathology, Stanford University School of Medicine. Dr. Quay is an inventor, with 87 U.S. patents, 139 pending patent applications and is a named inventor on patents covering five pharmaceutical products that have been approved by the U.S. Food and Drug Administration. Dr. Quay received an M.D. in 1977 and a Ph.D. in 1975 from the University of Michigan Medical School. He also received his B.A. degree in biology, chemistry and mathematics from Western Michigan University in 1971.
 
Kyle Guse, Esq., CPA (inactive).   Mr. Guse has served as Chief Financial Officer, General Counsel and Secretary since January 2013. His experience includes more than 25 years of counseling life sciences and other rapid growth companies through all aspects of finance, corporate governance, securities laws and commercialization. Mr. Guse has practiced law at several of the largest international law firms, including from January 2012 through January 2013 as a partner at Baker Botts LLP and, prior to that, from October 2007 to January 2012, as a partner at McDermott Will & Emery LLP. Before working at McDermott Will & Emery, Mr. Guse previously served as a partner at Heller Ehrman LLP. Mr. Guse began his career as an accountant at Deloitte & Touche and he is a licensed Certified Public Accountant (inactive) and member of the Bar in the State of California. Mr. Guse earned a B.S. in business administration and an M.B.A. from California State University, Sacramento, and a J.D. from Santa Clara University School of Law.
 
Insurance
 
We currently maintain director’s and officer’s insurance, key-man life insurance for our Chief Executive Officer, commercial general and office premises liability insurance, insurance on our clinical studies, and product errors and omissions liability insurance for our products and services.
 
Research and Development Phase
 
We are in the research and development phase and are not currently marketing any products or services. We do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs.
 
 
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.