Item 1A. Risk Factors
Item 1A. Risk Factors
This report contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially from those discussed in this report. Factors that could
cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report.
If any of the following risks, or other
risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial
condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our securities
could decline, and stockholders may lose all or part of their investment.
Risks Related to Our Business and our Industry
We have a history of net losses and expect
to incur losses for the foreseeable future. We may never generate revenues or, if we are able to generate revenues, achieve profitability.
We were formed in 2007 and since our inception
have incurred a net loss in each of our previous operating years. Our ability to become profitable depends upon our ability to obtain
marketing approval for and generate revenues from sales of our product candidates. We have been focused on product development, have not
received approval for any of our product candidates, and have not generated any revenues to date. We have incurred losses in each period
of our operations, and we expect to continue to incur losses for the foreseeable future. These losses are likely to continue to adversely
affect our working capital, total assets and stockholders’ equity. The process of developing our product candidates requires significant
clinical development, laboratory testing and clinical trials. In addition, commercialization of our product candidates will require that
we obtain necessary regulatory approvals and establish sales, marketing and manufacturing capabilities, either through internal hiring
or through contractual relationships with others. We expect to incur substantial losses for the foreseeable future as a result of anticipated
increases in our research and development costs, including costs associated with conducting preclinical testing and clinical trials, and
regulatory compliance activities. We incurred net losses of $23,054,434 and $17,548,085 for the years ended September 30, 2021 and 2020,
respectively. At September 30, 2021, we had stockholders’ equity of $132,182,353 and an accumulated deficit of $96,047,821. Our
net cash used in operating activities was $24,250,414 and $16,930,658 for the years ended September 30, 2021 and 2020, respectively.
21
Our ability to generate revenues and achieve profitability
will depend on numerous factors, including success in:
●
developing and testing product candidates;
●
receiving regulatory approvals for our product candidates;
●
commercializing our product candidates that receive regulatory approval;
●
manufacturing commercial quantities of our product candidates at acceptable cost levels;
●
obtaining medical insurance coverage for any approved product candidate; and
●
establishing a favorable competitive position for any approved product candidates.
Many of these factors will depend on circumstances
beyond our control. We cannot assure you that any of our product candidates will be approved by the FDA or any foreign regulatory body
or obtain medical insurance coverage, that we will successfully bring any approved product to market or, if so, that we will ever become
profitable.
Ability to continue as a going concern.
At September 30, 2021, we estimated that we have
sufficient capital to continue our operations through March 2023. You should not rely on our consolidated balance sheet as an indication
of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders,
in the event of liquidation.
The Company has generated no operating revenue
to date and has principally raised capital through the issuance of debt and equity instruments to finance its operations. However, the
Company’s continued operations beyond March 2023, including its development plans for Mino-Lok, Mino-Wrap, Halo-Lido, Novecite and
I/ONTAK, will depend on its ability to obtain regulatory approval to market Mino-Lok and generate substantial revenue from the sale of
Mino-Lok and on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, strategic
relationships, or out-licensing of its product candidates. However, the Company can provide no assurances on the approval, commercialization
or future sales of Mino-Lok or that financing or strategic relationships will be available on acceptable terms, or at all. If the Company
is unable to raise sufficient capital, find strategic partners or generate substantial revenue from the sale of Mino-Lok, there would
be a material adverse effect on its business. Further, the Company expects in the future to incur additional expenses as it continues
to develop its product candidates, including seeking regulatory approval, and protecting its intellectual property.
We need to secure additional financing in
the future to complete the development of our current product candidates and support our operations.
We anticipate that we will incur operating losses
for the foreseeable future as we continue developing our product candidates. The amount and timing of our future funding requirements
will depend on many factors, including, but not limited to:
●
the rate of progress and cost of our trials and other product development programs for our current product candidates;
●
the costs and timing of obtaining licenses for additional product candidates or acquiring other complementary technologies;
●
the timing of any regulatory approvals of any of our product candidates;
●
the costs of establishing or contracting for sales, marketing and distribution capabilities for our product candidates; and
●
the status, terms and timing of any collaborative, licensing, co-promotion or other arrangements.
22
We will need to access the capital markets in
the future for additional capital for research and development and for operations. As of the date of this report, we do not anticipate
seeking additional capital until sometime in 2023. Traditionally, pharmaceutical companies have funded their research and development
expenditures through raising capital in the equity markets. Declines and uncertainties in these markets over the past several years have
severely restricted raising new capital and have affected companies’ abilities to continue to expand or fund existing research and
development efforts. The COVID-19 pandemic could also adversely impact future fundraising activities. If the COVID-19 pandemic and related
and/or other economic conditions continue or become worse, our future cost of equity or debt capital and access to the capital markets
could be adversely affected. If we are not successful in securing additional financing, we may be required to significantly delay, reduce
the scope of or eliminate one or more of our research or development programs, downsize our general and administrative infrastructure,
or seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies or product candidates.
We are primarily a late-stage development
company with an unproven business strategy and may never achieve commercialization of our therapeutic product candidates or profitability.
We have no approved products. All of our current
product candidates are in the pre-clinical or clinical stage. We rely on third parties to conduct the research and development activities
for our product candidates. Further, we have no sales or marketing capability at this time. Even if we decide to use collaborative partners
to assist us in the commercialization of our product candidates, our product commercialization capabilities are unproven. Our success
will depend upon our ability to develop such capabilities on our own or to enter into collaboration agreements on favorable terms and
to select an appropriate commercialization strategy for each product candidate that we choose to pursue and that receive approval, whether
on our own or in collaboration. If we are not successful in implementing our strategy to commercialize our product candidates, we may
never achieve, maintain or increase profitability. Our ability to successfully commercialize any of our product candidates will depend,
among other things, on our ability to:
●
successfully complete pre-clinical and clinical trials for our product candidates;
●
receive marketing approvals from the FDA and similar foreign regulatory authorities for our product candidates;
●
establish commercial manufacturing arrangements with third-party manufacturers for our product candidates;
●
produce, through a validated process, sufficiently large quantities of our drug compound(s) to permit successful commercialization of our product candidates;
●
build and maintain strong sales, distribution and marketing capabilities sufficient to launch commercial sales of any approved products or establish collaborations with third parties for such commercialization;
●
secure acceptance of any approved products from physicians, health care payers, patients and the medical community; and
●
manage our spending as costs and expenses increase due to clinical trials, regulatory applications and development and commercialization activities.
There are no guarantees that we will be successful
in completing these tasks. If we are unable to successfully complete these tasks, we may not be able to commercialize any of our product
candidates in a timely manner, or at all, in which case we may be unable to generate sufficient revenues to sustain and grow our business.
If we experience unanticipated delays or problems, our development costs could substantially increase and our business, financial condition
and results of operations will be adversely affected.
23
We have a limited operating history upon
which to evaluate our ability to successfully commercialize our product candidates.
We are a clinical stage company and our success
is dependent upon our ability to obtain regulatory approval for and commercialize our product candidates and we, as a company, have not
demonstrated an ability to perform the functions necessary for the approval or successful commercialization of any product candidates.
While various members of our executive management and key employees have significant prior experience in pharmaceutical development, as
a company we have to date not successfully completed any late-stage clinical trials nor undertaken any commercialization activities. Our
operations have been limited primarily to business planning, acquiring our proprietary technology, research and development, recruiting
management and technical staff, and raising capital. These operations provide a limited basis for you to assess our ability to successfully
commercialize our product candidates and the advisability of investing in our securities.
The COVID-19 pandemic may materially and
adversely affect our clinical trial operations and our financial results.
The COVID-19 pandemic has adversely impacted hospitals
and medical facilities where we are currently conducting our Mino-Lok phase 3 trial. The full extent to which COVID-19 may impact this
trial is not known at this time, but it has slowed the estimated completion date for the trial, which we now expect to be in 2022. This
same risk applies to planned clinical trials for our other product candidates. The exact duration of the delay and any other impact will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak,
the severity of COVID-19, or the effectiveness of actions to contain and treat for COVID-19. The continued spread of COVID-19 also could
adversely impact our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may
have heightened exposure to COVID-19, which could further negatively impact the Mino-Lok trial. In addition, if the FDA elects to delay
face-to-face meetings for an extended period of time due to COVID-19, it could have a material adverse effect on our Mino-Lok trial and
our other product candidates. Any or all of these events could increase our operating expenses and the length of time to complete the
trial and have a material adverse effect on our financial results.
We may choose not to continue developing
any of our product candidates at any time during development, which would reduce or eliminate our potential return on investment for those
product candidates.
At any time, we may decide to discontinue the
development of any of our product candidates for a variety of reasons, including inadequate financial resources, the appearance of new
technologies that render our product candidates obsolete, competition from a competing product or changes in or failure to comply with
applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any
return on our investment and we will have missed the opportunity to allocate those resources to potentially more productive uses.
As an example, on July 1, 2016, we announced that
we were discontinuing the development of Suprenza, which was our first commercial product candidate, for strategic reasons and not due
to safety or regulatory concerns, in order to focus our management and cash resources on the Phase 3 development of Mino-Lok and the Phase
2b development of Halo-Lido. The resources expended on Suprenza therefore did not provide us any benefit.
We face significant risks in our product
candidate development efforts.
Our business depends on the successful development
and commercialization of our product candidates. We are not permitted to market any of our product candidates in the United States until
we receive approval from the FDA, or in any foreign jurisdiction until we receive the requisite approvals from such jurisdiction. The
process of developing new drugs and/or therapeutic products is inherently complex, unpredictable, time-consuming, expensive and uncertain.
We must make long-term investments and commit significant resources before knowing whether our development programs will result in products
that will receive regulatory approval and achieve market acceptance. Product candidates that appear to be promising at some or all stages
of development may not receive approval or reach the market for a number of reasons that may not be predictable based on results and data
of the clinical program. Product candidates may be found ineffective or may cause harmful side effects during clinical trials, may take
longer to progress through clinical trials than had been anticipated, may not be able to achieve the pre-defined clinical endpoints due
to statistical anomalies even though clinical benefit may have been achieved, may fail to receive necessary regulatory approvals, may
prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality, or may fail to achieve market
acceptance.
24
We cannot predict whether or when we will obtain
regulatory approval to commercialize our product candidates that are under development and we cannot, therefore, predict the timing of
any future revenues from these product candidates, if any. The FDA has substantial discretion in the drug approval process, including
the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the FDA:
●
could determine that we cannot rely on Section 505(b)(2) for Mino-Lok or Halo-Lido or any future product candidate whose composition includes components previously approved by the FDA;
●
could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to demonstrate the safety and effectiveness of any of our product candidates for any indication;
●
may not find the data from clinical trials sufficient to support the submission of an NDA or BLA or to obtain marketing approval in the United States, including any findings that the clinical and other benefits of our product candidates outweigh their safety risks;
●
may disagree with our trial design or our interpretation of data from preclinical studies or clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our trials;
●
may determine that we have identified the wrong reference listed drug or drugs or that approval of a Section 505(b)(2) application for any of our product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or drugs;
●
may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for the manufacture of our product candidates;
●
may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials;
●
may change its approval policies or adopt new regulations that could adversely impact our product candidate development programs; or
●
may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates, or may require labeling claims that impair the potential market acceptance of our product candidates.
These same risks are generally applicable to the
regulatory process in foreign countries. Any failure to obtain regulatory approval of our product candidates would significantly limit
our ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable
could reduce our potential revenues.
While our business strategy generally is
to focus on the development of late-stage product candidates to lessen the development risk, there is still significant risk to successfully
developing a product candidate.
Our goal in generally pursuing late-stage therapeutic
product candidates with what we believe is a promising pre-clinical and early clinical stage track record is to avoid the risk of failure
at the pre-clinical and early clinical stages. However, there is still significant risk to obtaining regulatory approval and successfully
commercializing any late-stage product candidate that we pursue. All of the risks inherent in drug development of initial stage product
candidates also apply to late-stage candidates. We cannot assure you that our business strategy will be successful.
25
The results of pre-clinical studies and
completed clinical trials are not necessarily predictive of future results, and our current product candidates may not have favorable
results in later studies or trials.
Pre-clinical studies and Phase 1 and Phase 2 clinical
trials are not primarily designed to test the efficacy of a product candidate in the general population, but rather to test initial safety,
to study pharmacokinetics and pharmacodynamics, to study limited efficacy in a small number of study patients in a selected disease population,
and to identify and attempt to understand the product candidate’s side effects at various doses and dosing schedules. Success in
pre-clinical studies or completed clinical trials does not ensure that later studies or trials, including continuing pre-clinical studies
and large-scale clinical trials, will be successful nor does it predict future results. Favorable results in early studies or trials may
not be repeated in later studies or trials, and product candidates in later stage trials may fail to show acceptable safety and efficacy
despite having progressed through earlier trials. In addition, the placebo rate in larger studies may be higher than expected.
We may be required to demonstrate through large,
long-term outcome trials that our product candidates are safe and effective for use in a broad population prior to obtaining regulatory
approval. This would increase the duration and cost of any such trial.
There is typically a high rate of attrition from
the failure of product candidates proceeding through clinical trials. In addition, certain subjects in our clinical trials may respond
positively to placebo treatment - these subjects are commonly known as “placebo responders” - making it more difficult to
demonstrate efficacy of the trial drug compared to placebo. This effect is likely to be observed in the treatment of hemorrhoids, which
could negatively impact the development program for Halo-Lido.
If any of our product candidates fail to demonstrate
sufficient safety and efficacy in any clinical trial, we will experience potentially significant delays and cost increases in, or may
decide to abandon development of, that product candidate. If we abandon or are delayed, or experience increased costs, in our development
efforts related to any of our product candidates, we may not have sufficient resources to continue or complete development of that product
candidate or any other product candidates. We may not be able to continue our operations and clinical studies, or generate any revenue
or become profitable. Our reputation in the industry and in the investment community would likely be significantly damaged. Further, it
might not be possible for us to raise funds in the public or private markets, and our stock price would likely decrease significantly.
If we are unable to file for approval of
Mino-Lok or Halo-Lido under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or if we are required to generate additional
data related to safety and efficacy in order to obtain approval of Mino-Lok or Halo-Lido under Section 505(b)(2), we may be unable to
meet our anticipated development and commercialization timelines.
Our current plans for filing NDAs or BLAs for
our product candidates include efforts to minimize the data we will be required to generate in order to obtain marketing approval for
certain of our product candidates and therefore possibly reduce the time and cost of development of a product candidate and obtain a shortened
review period for the application. The timeline for filing and review of our planned NDA for each of Mino-Lok and Halo-Lido is based upon
our plan to submit each such NDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, wherein we will rely in part on data
generated by third parties and that is in the public domain or elsewhere. Depending on the data that may be required by the FDA for approval,
some of the data may be related to products already approved by the FDA. If the data relied upon is related to products already approved
by the FDA and covered by third-party patents, we would be required to certify that we do not infringe the listed patents or that such
patents are invalid or unenforceable. As a result of the certification, the third party would have 45 days from notification of our certification
to initiate an action against us. In the event that an action is brought in response to such a certification, the approval of our NDA
could be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of any product candidate under Section
505(b)(2) may therefore be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents
applicable to our product candidates. Alternatively, we may elect to generate sufficient additional clinical data so that we no longer
rely on data which triggers a potential stay of the approval of any product candidate. Even if no exclusivity periods apply to an application
under Section 505(b)(2), the FDA has broad discretion to require us to generate additional data on the safety and efficacy of our product
candidates to supplement third-party data on which we may be permitted to rely. In either event, we could be required, before obtaining
marketing approval for such product candidate, to conduct substantial new research and development activities beyond those in which we
currently plan to engage in order to obtain approval of that product candidate. Such additional new research and development activities
would be costly and time consuming.
We may not be able to obtain shortened review
of our applications where available, and in any event the FDA may not agree that any of our product candidates qualify for marketing approval.
If we are required to generate additional data to support approval, we may be unable to meet our anticipated development and commercialization
timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval
of that product candidate. In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the
last few years, some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the
FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could
delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit.
26
Two of our product candidates, Mino-Lok
and Halo-Lido, are combination products consisting of components that have each been separately approved by the FDA for other indications
and which are commercially available and marketed by other companies. Our approval under Section 505(b)(2), if received, would not preclude
physicians, pharmacists and patients from obtaining individual drug products and titrating the dosage of these drug products as close
to our approved dose as possible.
Our Mino-Lok solution contains minocycline, disodium
ethylenediaminetetraacetic acid (edetate), and ethyl alcohol, all of which have been separately approved by the FDA for other indications,
or are used as excipients in other parenteral products. Assuming FDA approval as a branded pharmaceutical product, we would need to obtain
hospital formulary acceptance to generate sales of Mino-Lok. Additionally, we may encounter reluctance by the infectious disease physician
community to vary from the existing standard of care to remove and replace an infected catheter. Currently, hospitals are reimbursed for
the treatment of CRBSIs by the Center for Medicare and Medicare Services (“CMS”) through a Diagnosis Related Group (“DRG”)
classification or code. Commercial insurance plans reimburse for CRBSIs in a similar manner. With Mino-Lok being priced as a branded FDA-approved
pharmaceutical product, this could result in the participating hospital retaining a lower share of CMS or commercial reimbursement which
may impact the acceptance and use of Mino-Lok by these institutions.
Our Halo-Lido product candidate for the treatment
of hemorrhoids is a combination product consisting of two drugs, halobetasol propionate, a corticosteroid, and lidocaine, that have each
been separately approved by the FDA for other indications and which are commercially available and marketed by other companies. Halobetasol
propionate cream is available in a 0.05% strength, and lidocaine creams are also available in strengths up to 5%. From our market analysis
and discussions with a limited number of physicians, we know that patients sometimes obtain two separate cream products and co-administer
them as prescribed, giving them a combination treatment which could be very similar to what we intend to study and seek approval for.
As a branded, FDA-approved product with safety and efficacy data, we intend to price our product substantially higher than the generically
available individual creams. We will then have to convince third-party payers and pharmacy benefit managers of the advantages of our product
and justify our premium pricing. We may encounter resistance from these entities and will then be dependent on patients’ willingness
to pay the premium and not seek alternatives. In addition, pharmacists often suggest lower cost prescription treatment alternatives to
both physicians and patients. If approved, our Section 505(b)(2) approval and the market exclusivity we may receive will not guarantee
that such alternatives will not exist, that substitution will not occur, or that there will be immediate or any acceptance to our pricing
by payer formularies .
Any fast track designation or grant of priority
review status by the FDA may not actually lead to a faster development or regulatory review or approval process, nor will it assure FDA
approval of our product candidates. Additionally, our product candidates may treat indications that do not qualify for priority review
vouchers.
We have received fast track designation for Mino-Lok
to treat and salvage infected central venous catheters in patients with CRBSIs. We may seek fast track designation for some of our other
product candidates or priority review of applications for approval of our product candidates for certain indications. If a drug is intended
for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for
this condition, the drug sponsor may apply for the FDA fast track designation. If a product candidate offers major advances in treatment,
the FDA may designate it eligible for priority review. The FDA has broad discretion whether or not to grant these designations, so even
if we believe a particular product candidate is eligible for these designations, we cannot assure you that the FDA would decide to grant
them. Even with the fast track designation for Mino-Lok and if we do receive fast track designation or priority review for any other product
candidate, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may
withdraw fast track designation from Mino-Lok or any other product candidate to be so designated if it believes that the designation is
no longer supported by data from our clinical development program.
27
We do not own NoveCite, Inc. outright and
will share any benefits from the development of its NoveCite product candidate with the other stockholder.
As of November 30, 2021, we owned 75% of the outstanding
common stock of NoveCite. As a result, we will only be entitled to a portion of any benefits that flow from the development by NoveCite
of its NoveCite product candidate or any other product candidates that it might develop. In the event that NoveCite issues additional
equity securities in the future this would likely reduce our percentage ownership, unless we were to increase our investment, which would
further reduce the portion of any benefit that might be derived from the NoveCite drug candidate’s successful development.
Any FDA programs related to the development
and approval of treatments for COVID-19 and its symptoms may not be available to us or actually lead to a faster development or regulatory
review or approval process for NoveCite, our proposed treatment for ARDS, nor will it assure FDA approval of such a treatment.
We intend to develop NoveCite under the FDA’s
Coronavirus Treatment Acceleration Program, or CTAP. The CTAP program was designed to accelerate the development of COVID-19 treatments
via faster communications and regulatory review protocols. In late April 2020, we made a pre-IND submission to the FDA for this treatment
and requested the FDA’s feedback to support the most expeditious pathway for clinical development of the therapy. The CTAP program
has only recently begun and the FDA has broad discretion in administering the CTAP program and therefore we cannot assure you what the
FDA might decide. Even though we believe that the response from the FDA was favorable, we did not specifically request guidance on the
CTAP program we may encounter problems at a later date under the CTAP program, or with the therapy itself, and we may not experience a
faster development process, review or approval compared to conventional FDA procedures.
Because our NoveCite product candidate is
based on novel technologies, it is difficult to predict the regulatory approval process and the time, the cost and our ability to successfully
initiate, conduct and complete clinical development, and obtain the necessary regulatory and reimbursement approvals, required for commercialization
of our NoveCite product candidate.
NoveCite’s cell programming technology and
platform for generating cell therapy products using allogenic mesenchymal stem cells derived from iPSCs represent novel therapeutic approaches,
and to our knowledge there are currently no iPSC-derived cell products approved anywhere in the world for commercial sale. As such, it
is difficult to accurately predict the type and scope of challenges that NoveCite may incur during development of its NoveCite product
candidate, and it faces uncertainties associated with the preclinical and clinical development, manufacture and regulatory requirements
for the initiation and conduct of clinical trials, regulatory approval, and reimbursement required for successful commercialization of
its NoveCite product candidate. In addition, because NoveCite’s iPSC-derived cell product candidate is in the pre-clinical stage,
NoveCite is currently assessing safety in humans and have not yet been able to assess the long-term effects of treatment. Animal models
and assays may not accurately predict the safety and efficacy of our product candidate in our target patient populations, and appropriate
models and assays may not exist for demonstrating the safety and purity of the NoveCite product candidate, as required by the FDA and
other regulatory authorities for ongoing clinical development and regulatory approval.
The pre-clinical and clinical development, manufacture,
and regulatory requirements for approval of the NoveCite product candidate may be more expensive and take longer than for other more well-known
or extensively studied pharmaceutical or biopharmaceutical product candidates due to a lack of prior experiences on the side of both developers
and regulatory agencies. Additionally, due to the uncertainties associated with the pre-clinical and clinical development, manufacture,
and regulatory requirements for approval of the NoveCite product candidate, NoveCite may be required to modify or change its pre-clinical
and clinical development plans or its manufacturing activities and plans, or be required to meet stricter regulatory requirements for
approval. Any such modifications or changes could delay or prevent NoveCite’s ability to develop, manufacture, obtain regulatory
approval or commercialize its NoveCite product candidate, which would adversely affect NoveCite’s and our business, financial condition
and results of operations.
Cellular immunotherapies, and stem cell therapies
and iPSC-derived cell therapies in particular, represent relatively new therapeutic areas, and the FDA has cautioned consumers about potential
safety risks associated with cell therapies. To date, there are relatively few approved cell therapies. As a result, the regulatory approval
process for a product candidate such as NoveCite is uncertain and may be more expensive and take longer than the approval process for
product candidates based on other, better known or more extensively studied technologies and therapeutic approaches. For example, there
are currently no FDA approved products with a label designation that supports the use of a product to treat and reduce the severity of
ARDS in patients with COVID-19, which makes it difficult to determine the clinical endpoints and data required to support an application
or regulatory approval, and the time and cost required to obtain regulatory approval in the United States for our product candidate.
28
Regulatory requirements in the United States governing
cell therapy products have changed frequently and the FDA or other regulatory bodies may change the requirements, or identify different
regulatory pathways, for approval of the NoveCite product candidate. For example, within the FDA, the Center for Biologics Evaluation
and Research, or CBER, restructured and created a new Office of Tissues and Advanced Therapies to better align its oversight activities
with FDA Centers for Drugs and Medical Devices. It is possible that over time new or different divisions may be established or be granted
the responsibility for regulating cell and/or gene therapy products, including iPSC-derived cell products, such as the NoveCite product
candidate. As a result, NoveCite may be required to change its regulatory strategy or to modify its applications for regulatory approval,
which could delay and impair its ability to complete the pre-clinical and clinical development and manufacture of, and obtain regulatory
approval for, its NoveCite product candidate. Changes in regulatory authorities and advisory groups, or any new requirements or guidelines
they promulgate, may lengthen the regulatory review process, require NoveCite to perform additional studies, increase its development
and manufacturing costs, lead to changes in regulatory pathways, positions and interpretations, delay or prevent approval and commercialization
of the NoveCite product candidate or lead to significant post-approval limitations or restrictions. As NoveCite advances its NoveCite
product candidate, NoveCite will be required to consult with the FDA and other regulatory authorities, and its NoveCite product candidate
will likely be reviewed by an FDA advisory committee. NoveCite also must comply with applicable requirements, and if it fails to do so,
it may be required to delay or discontinue development of its NoveCite product candidate. Delays or unexpected costs in obtaining, or
the failure to obtain, the regulatory approval necessary to bring the NoveCite product candidate to market could impair NoveCite’s
and our ability to generate sufficient product revenues to maintain our respective businesses.
NoveCite has assumed that the biological
capabilities of iPSCs and adult-donor derived cells are likely to be comparable. If it is discovered that this assumption is incorrect,
the NoveCite product candidate research and development activities could be harmed.
NoveCite anticipates that its research and development
for its NoveCite product candidate will involve iPSCs, rather than adult-donor derived cells. With respect to iPSCs, NoveCite believes
that scientists are still somewhat uncertain about the clinical utility, life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from adult-donor derived cells. If NoveCite discovers that iPSCs will not be useful for whatever reason
for its NoveCite product candidate program, this would negatively affect NoveCite’s ability to develop a marketable product and
it and we may never become profitable, which would have an adverse effect on our respective businesses, prospects, financial condition
and results of operations.
Even if we receive regulatory approval to
commercialize a product candidate, our ability to generate revenues from any resulting product will be subject to a variety of risks,
many of which are out of our control.
Even if one of our product candidates obtains
regulatory approval, that product may not gain market acceptance among physicians, patients, healthcare payers or the medical community.
The indication may be limited to a subset of the population or we may implement a distribution system and patient access program that
is limited. Coverage and reimbursement of our product candidates by third-party payers, including government payers, generally is also
necessary for commercial success. We believe that the degree of market acceptance and our ability to generate revenues from any approved
product candidate or acquired approved product will depend on a number of factors, including:
●
prevalence and severity of any side effects;
●
results of any post-approval studies of the product;
●
potential or perceived advantages or disadvantages over alternative treatments;
●
availability of coverage and reimbursement from government and other third-party payers;
29
●
the willingness of patients to pay out of pocket in the absence of government or third-party coverage;
●
the relative convenience and ease of administration and dosing schedule;
●
product labeling or product insert requirements of the FDA or other regulatory authorities;
●
strength of sales, marketing and distribution support;
●
price of any future products, if approved, both in absolute terms and relative to alternative treatments;
●
the effectiveness of our or any future collaborators’ sales and marketing strategies;
●
the effect of current and future healthcare laws on any approved products;
●
patient access programs that require patients to provide certain information prior to receiving new and refill prescriptions; and
●
requirements for prescribing physicians to complete certain educational programs for prescribing drugs.
If approved, any product candidate may fail to
achieve market acceptance or generate significant revenue to achieve or sustain profitability. In addition, our efforts to educate the
medical community and third-party payers on the benefits of any product candidate may require significant resources and may never be successful.
Even if approved for marketing by applicable
regulatory bodies, we will not be able to create a market for any of our product candidates if we fail to establish marketing, sales and
distribution capabilities, either on our own or through arrangements with third parties.
Our strategy with our product candidates is to
outsource to third parties all or most aspects of the product development process, and possibly marketing, sales and distribution activities.
Currently, we do not have any sales, marketing or distribution capabilities. In order to generate sales of any product candidate that
receives regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise and with
supporting distribution capabilities or make arrangements with third parties to perform these services for us. The acquisition or development
of a sales and distribution infrastructure would require substantial resources, which may divert the attention of our management and key
personnel and defer our product development efforts. To the extent that we enter into marketing and sales arrangements with other companies,
our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to develop sales, marketing and distribution
channels, or enter into arrangements for such with third parties, we will experience delays in product launch and sales and incur increased
costs.
The markets in which we operate are highly
competitive and we may be unable to compete successfully against new entrants or established companies.
Competition in the pharmaceutical and medical
products industries is intense and is characterized by costly and extensive research efforts and rapid technological progress. We are
aware of several pharmaceutical companies also actively engaged in the development of therapies or products for at least some of the same
conditions we are targeting. Many of these companies have substantially greater research and development capabilities as well as substantially
greater marketing, financial and human resources than we do. In addition, many of these companies have significantly greater experience
than us in undertaking pre-clinical testing, clinical trials and other regulatory approval procedures. Our competitors may develop technologies
and products that are more effective than those we are researching and developing. Such developments could render our product candidates,
if approved, less competitive or possibly obsolete. We are also competing with respect to marketing capabilities and manufacturing efficiency,
areas in which we have no current capabilities and in which we have no experience as a company, although our executive officers do have
commercialization experience. However, that experience might not translate into the successful development and launch of any of our product
candidates. Mergers, acquisitions, joint ventures and similar events may also significantly increase the competition we face. In addition,
new developments, including the development of other drug technologies and methods of preventing the incidence of disease, occur in the
pharmaceutical and medical technology industries at a rapid pace. These developments may render our product candidates obsolete or noncompetitive.
Compared to us, many of our potential competitors have substantially greater as well as access to strategic partners and capital resources.
30
As a result of these factors, our competitors
may obtain regulatory approval of their products more rapidly than we can or may obtain patent protection or other intellectual property
rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop products that are more
effective, more useful and less costly than ours and may also be more successful in manufacturing and marketing their products. In addition,
our competitors may be more effective than us in commercializing their products and as a result, our business and prospects might be materially
harmed.
Physicians and patients might not accept
and use any of our product candidates for which regulatory approval is obtained.
Even if the FDA approves one of our product candidates,
physicians and patients might not accept and use it. Acceptance and use of our approved product candidates will depend upon a number of
factors, including:
●
perceptions by members of the health care community, including physicians, about the safety and effectiveness of any of our product candidates;
●
perceptions by members of the health care community, including physicians, about the use of our product candidates versus the then respective standards of care for the disease or problem that we seek to address with our product candidates;
●
cost-effectiveness of our product candidates relative to competing products or therapies;
●
availability of reimbursement for our product candidates from government or other healthcare payers; and
●
effective marketing and distribution efforts by us and/or our licensees and distributors, if any.
If any of our current product candidates are approved,
we expect their sales to generate substantially all of our revenues for the foreseeable future, and as a result, the failure of any of
these product candidates to find market acceptance would harm our business and would require us to seek additional financing.
Our ability to generate product revenues
will be diminished if any of our product candidates that may be approved sell for inadequate prices or patients are unable to obtain adequate
levels of reimbursement.
Our ability to commercialize our product candidates,
alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:
●
government and health administration authorities;
●
private health maintenance organizations and health insurers; and
●
other healthcare payers.
Significant uncertainty exists as to the reimbursement
status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products
and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the
level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance coverage might not be available, and
reimbursement levels might be inadequate, to cover our products. If government and other healthcare payers do not provide adequate coverage
and reimbursement levels for our products, once approved, market acceptance of such products could be reduced. We cannot predict whether
federal or state legislation will be passed that may impact reimbursement policies nor what the impact of any such legislation would be
on the healthcare industry in general or on our business specifically.
31
Health administration authorities in countries
other than the U.S. may not provide reimbursement for our products at rates sufficient for us to achieve profitability, or at all. Like
the U.S., these countries have considered health care reform proposals and could materially alter their government-sponsored health care
programs by reducing reimbursement rates. Any reduction in reimbursement rates under Medicare or foreign health care programs could negatively
affect the pricing of our product candidates. If we are not able to charge a sufficient amount for our product candidates, then our margins
and our profitability will be adversely affected.
We are and will be dependent on third-party
contract research organizations to conduct all of our clinical trials.
We are and will be dependent on third-party research
organizations to conduct all of our clinical trials with respect to our product candidates, including any candidates that we may develop
in the future. If we are unable to obtain any necessary testing services on acceptable terms, we may not complete our product development
efforts in a timely or cost-effective manner or at all. If we rely on third parties for human trials, we may lose some control over these
activities and become too dependent upon these parties. These third parties may not complete testing activities on schedule or when we
so request. We may not be able to secure and maintain suitable research organizations to conduct our human trials. We are responsible
for confirming that each of our clinical trials is conducted in accordance with the trial’s general plan and protocol. Moreover,
the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices,
for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate
and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities
and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure
to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical
trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for any of our product
candidates.
We rely exclusively on third parties to
formulate and manufacture our product candidates.
We do not have and do not intend to establish
our own manufacturing facilities. Consequently, we lack the physical plant to formulate and manufacture our product candidates, which
are currently being manufactured entirely by commercial third-party manufacturers. If any product candidate we might develop or acquire
in the future receives FDA approval, we will rely on one or more third-party contractors to manufacture our products. If, for any reason,
we become unable to rely on our current source or any future source or sources to manufacture our product candidates, either for pre-clinical
or clinical trials or for commercial quantities, then we would need to identify and contract with additional or replacement third-party
manufacturers to manufacture compounds for preclinical, clinical and commercial purposes. We might not be successful in identifying additional
or replacement third-party manufacturers, or in negotiating acceptable terms with any that we do identify. If we are unable to secure
and maintain third-party manufacturing capacity, the development and sales of our product candidates and our financial performance might
be materially and adversely affected.
In addition, before any of our collaborators can
begin to commercially manufacture our product candidates, each must obtain regulatory approval of the manufacturing facility and process.
Manufacturing of drugs for clinical and commercial purposes must comply with the FDA’s good manufacturing practice, or cGMP, and
applicable non-U.S. regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures. Complying
with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and quality
control to assure that the product meets applicable specifications and other requirements. Our contracted manufacturing facilities must
also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection might significantly delay FDA approval
of our product candidates. If any of our collaborators fails to comply with these requirements, we would be subject to possible regulatory
action which could limit the jurisdictions in which we are permitted to sell our product candidates. As a result, our business, financial
condition, and results of operations might be materially harmed.
32
Our reliance on a limited number of third-party
manufacturers exposes us to the following risks:
●
We might be unable to identify manufacturers for commercial supply on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would generally require compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our product candidates after receipt of FDA approval, if any;
●
Our third-party manufacturers might be unable to formulate and manufacture our product candidates in the volume and of the quality required to meet our clinical and commercial needs, if any;
●
Our contract manufacturers might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our product candidates for commercialization;
●
Currently, our contract manufacturer for our clinical supplies is foreign, which increases the risk of shipping delays, adds the risk of import restrictions and adds the risk of political and environmental uncertainties that might affect those countries;
●
Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards;
●
If any third-party manufacturer makes improvements in the manufacturing process for our product candidates, we might not own, or might have to share, the intellectual property rights to the innovation with our licensors;
●
Operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including a bankruptcy of the manufacturer or supplier or a natural disaster or a pandemic such as COVID-19; and
●
We might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other clients higher priority than us.
Each of these risks could delay our clinical trials
or the approval, if any, of our product candidates by the FDA or any foreign regulatory agency or the commercialization of our product
candidates and could result in higher costs or deprive us of potential product revenues. As a result, our business, financial condition,
and results of operations might be materially harmed.
If we materially breach or default under
any of our license agreements, the licensor party to such agreement will have the right to terminate the license agreement, which termination
may materially harm our business.
Our commercial success will depend in part on
the maintenance of our current and any future license agreements. Our license agreements impose, and we expect that future license agreements
will impose, various diligence, milestone payment, royalty and other obligations on us. For example, under our current license agreements,
we are required to use commercially reasonable diligence to develop and commercialize a product and to satisfy specified payment obligations.
If we fail to comply with our obligations under our current license agreements or any future license agreements with any party, or we
are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products
covered by the license. Each of our license agreements provides the licensor with a right to terminate the license agreement for our material
breach or default under the agreement, including the failure to make any required milestone or other payments. Should the licensor under
any of our license agreements exercise such a termination right, we would lose our right to the intellectual property under the respective
license agreement, which loss may materially harm our business.
33
Any termination, or breach by, or conflict
with our strategic partners could harm our business .
If we or any of our current or future collaborators
fail to renew or terminate any of our collaboration agreements or if either party fails to satisfy its obligations under any of our collaboration
or license agreements or complete them in a timely manner, we could have difficulty completing the development of any of our product candidates
and potentially lose significant sources of revenue, which could result in an adverse impact on our operations and financial condition
as well as volatility in any future revenue. In addition, our agreements with our collaborators may have provisions that give rise to
disputes regarding the rights and obligations of the parties. These and other possible disagreements could lead to termination of the
agreement or delays in collaborative research, development, supply or commercialization of our product candidates, or could require or
result in litigation or arbitration. Any such conflicts with our collaborators could reduce our ability to obtain future collaboration
agreements and could have a negative impact on our relationship with existing collaborators, adversely affecting our business and revenues.
Finally, any of our collaborations may prove to be unsuccessful.
We plan to grow and develop our business
through acquisitions of or investment in new or complementary businesses, products or technologies, and the failure to manage these acquisitions
or investments, or the failure to integrate them with our existing business, could have a material adverse effect on us.
Our business strategy is based on the acquisition
of additional product candidates. This is evidenced by our in-licensing of NoveCite in October 2020 and I/ONTAK in September 2021. We
might consider opportunities to acquire or invest in other technologies, products and businesses that might enhance our capabilities or
complement our current product candidates. Potential and completed acquisitions and strategic investments involve numerous risks, including
potential problems or issues associated with the following:
●
assimilating the acquired technologies, products or business operations, as we are currently engaged in for I/ONTAK;
●
maintaining uniform standards, procedures, controls and policies;
●
unanticipated costs associated with the acquisition or investment;
●
diversion of our management’s attention from our preexisting business;
●
maintaining or obtaining the necessary regulatory approvals or complying with regulatory standards; and
●
adverse effects on existing business operations.
We have no current commitments with respect to
any acquisition or investment in other technologies or businesses. We do not know if we will identify other suitable acquisitions, whether
we will be able to successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired product,
technology or business into our business operations or retain key personnel, suppliers or collaborators.
Our ability to successfully develop our business
through acquisitions including the recent in-licensing of I/ONTAK, will depend on our ability to identify, negotiate, complete and integrate
suitable target businesses or technologies and obtain any necessary financing. These efforts could be expensive and time consuming and
might disrupt our ongoing operations. If we are unable to efficiently integrate any acquired business, technology or product into our
business operations, our business and financial condition might be adversely affected.
We rely on the significant experience and
specialized expertise of our executive management and other key personnel and the loss of any of our executive management or key personnel
or our inability to successfully hire their successors could harm our business.
Our performance is substantially dependent on
the continued services and on the performance of our executive management and other key personnel, who have extensive experience and specialized
expertise in our business. Our President and Chief Executive Officer, Myron Holubiak, our Executive Chairman, Leonard Mazur, and our Chief
Medical Officer and Executive Vice President, Myron Czuczman, in particular have significant experience in the running of pharmaceutical
companies and/or drug development itself. In addition, Matt Angel, a director of NoveCite, is serving as a technical consultant to that
company and was instrumental in the discovery and development to date of NoveCite. This depth of experience is of significant benefit
to us, especially given the small size of our management team and our company, including our subsidiaries. The loss of the services of
any of Mr. Holubiak, Mr. Mazur, Dr. Czuczman or Dr. Angel, as well as any other member of our executive management or any key employees,
including those at NoveCite, could harm our ability to attract capital and develop and commercialize our product candidates. Neither we
nor NoveCite has key man life insurance policies.
34
If we are unable to retain or hire additional
qualified personnel, our ability to grow our business might be harmed.
We utilize the services of a clinical management
team on a part-time basis to assist us in managing our ongoing Phase 2 and Phase 3 trials and intend to do so for future preclinical and
clinical trials. While we believe this will provide us with sufficient staffing for our current and future development efforts, we will
need to hire or contract with additional qualified personnel with expertise in preclinical testing, clinical research and testing, government
regulation, formulation and manufacturing and sales and marketing in connection with the continued development, regulatory approval and
commercialization of our product candidates. We compete for qualified individuals with numerous pharmaceutical and biopharmaceutical companies,
universities and other research institutions.
Competition for these individuals is intense,
and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical
to our success. In addition, we may be unable to attract and retain those qualified officers, directors and members of board committees
required to provide for effective management. If we are unable to attract and retain qualified employees, officers and directors, the
management and operation of our business could be adversely affected.
We expect to need to increase the size of
our organization to further develop our product candidates, and we may experience difficulties in managing growth.
We will need to manage our anticipated growth
and increased operational activity, including as a result of the in-licensing of I/ONTAK in September 2021. Our personnel, systems and
facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy will
require that we:
●
manage our research and development activities and our regulatory trials effectively;
●
attract and motivate sufficient numbers of talented employees or consultants;
●
manage our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors, collaborators and other third parties;
●
develop internal sales and marketing capabilities or establish collaborations with third parties with such capabilities;
●
commercialize our product candidates; and
●
improve our operational, financial and management controls, reporting systems and procedures.
This planned future growth could place a strain
on our administrative and operational infrastructure and may require our management to divert a disproportionate amount of its attention
away from our day-to-day activities. We may not be able to effectively manage the expansion of our operations or recruit and train additional
qualified personnel, which may result in weaknesses in our infrastructure, and give rise to operational mistakes, loss of business opportunities,
loss of employees and consultants and reduced productivity among remaining employees and consultants. We may not be able to make improvements
to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and
controls. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability
to generate or increase our revenues could be reduced and we may not be able to implement our business strategy. Our future financial
performance and our ability to compete effectively will depend, in part, on our ability to effectively manage any future growth.
35
Conflicts of interest may arise from our
relationship with NoveCite.
As of November 30, 2021, we beneficially owned
75% of the voting power of NoveCite’s outstanding common stock; Novellus owns the other 25%. As a result of our partial ownership,
our relationship with NoveCite could give rise to certain conflicts of interest that could have an impact on our and NoveCite’s
respective research and development programs, business opportunities, and operations generally.
●
Even though we utilize different technologies than NoveCite, we could find ourselves in competition with it for research scientists, financing and other resources, licensing, manufacturing, and distribution arrangements.
●
NoveCite will engage for its own business in research and product development programs, investments, and business ventures, and we will not be entitled to participate or to receive an interest in those programs, investments, or business ventures other than to the extent as a stockholder in NoveCite. NoveCite will not be obligated to present any particular research and development, investment, or business opportunity to us, even if the opportunity would be within the scope of our research and development plans or programs, business objectives, or investment policies. These opportunities may include, for example, opportunities to acquire businesses or assets, including but not limited to patents and other intellectual property that could be used by us or by NoveCite.
●
Each conflict of interest will be resolved by our respective boards of directors in keeping with their fiduciary duties and such policies as they may implement from time to time.
●
There is overlap among our board of directors, senior management and research staffs and that of NoveCite. Two of our directors, Myron Holubiak and Leonard Mazur, also serve as directors of NoveCite. In addition, Myron Holubiak serves as Chief Executive Officer and Jaime Bartushak serves as Chief Financial Officer of both Citius and NoveCite. These overlapping positions could interfere with the duties owed by such individuals to Citius.
Risks Related to Our Regulatory and Legal Environment
We might not obtain the necessary
U.S. or foreign regulatory approvals to commercialize any product candidates.
We cannot assure you that we will receive the
approvals necessary to commercialize for sale any product candidates we are currently developing or that we may acquire or seek to develop
in the future. We will need FDA approval to commercialize our product candidates in the U.S. In order to obtain FDA approval of any product
candidate, we must submit to the FDA an NDA or a BLA demonstrating that the product candidate is safe for humans and effective for its
intended use. This demonstration requires significant research, pre-clinical studies, and clinical trials. Satisfaction of the FDA’s
regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires
substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result
in products that the FDA considers safe for humans and effective for their indicated uses. The FDA has substantial discretion in the product
approval process and might require us to conduct additional pre-clinical and clinical testing, perform post-marketing studies or otherwise
limit or impose conditions on any additional approvals we obtain. The approval process might also be delayed by changes in government
regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our product candidate’s
regulatory review. Delays in obtaining regulatory approvals might:
●
delay commercialization of, and our ability to derive product revenues from, our product candidates;
●
impose costly procedures on us; and
●
diminish any competitive advantages that we might otherwise enjoy.
36
Even if we comply with all FDA requests, the FDA
might ultimately reject one or more of our NDAs or BLAs. Even if we are able to obtain regulatory approval for a particular product candidate,
the approval might limit the indicated medical uses for the product, limit our ability to promote, sell, and distribute the product, require
that we conduct costly post-marketing surveillance, and/or require that we conduct ongoing post-marketing studies. We cannot be sure that
we will ever obtain regulatory clearance for any of our product candidates. Failure to obtain FDA approval of one or more of our product
candidates could severely undermine our business by leaving us without saleable products, and therefore without any potential sources
of revenues, until another product candidate could be developed or obtained and successfully developed, approved and commercialized. Foreign
jurisdictions impose similar regulatory approval processes and we will face the same risks if we seek foreign approval for any of our
product candidates. There is no guarantee that we will ever be able to successfully develop or acquire any product candidate.
Following any regulatory approval of any
product candidate, we will be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and
limit our ability to commercialize our other product candidates.
If one of our product candidates is approved by
the FDA or by a foreign regulatory authority, we will be required to comply with extensive regulations for product manufacturing, labeling,
packaging, adverse event reporting, storage, distribution, advertising, promotion and record keeping. Regulatory approvals may also be
subject to significant limitations on the indicated uses or marketing of the products or to whom and how we may distribute an approved
product. Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product’s indicated
uses or marketing or impose ongoing requirements for potentially costly post-approval studies. For example, the label ultimately approved
for any of our product candidates, if any, may include restrictions on use. If so, we may be subject to ongoing regulatory obligations
and restrictions, which may result in significant expense and limit our ability to commercialize that product candidate. The FDA could
also require a registry to track the patients utilizing the product or implement a Risk Evaluation and Mitigation Strategy, or REMS, that
could restrict access to the product, which would reduce our revenues and/or increase our costs. Potentially costly post-marketing clinical
studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest
to the regulatory authority. Similar risks apply in foreign jurisdictions.
Manufacturers of pharmaceutical products and their
facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP
regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of
records and documentation. Similar regulatory programs exist in foreign jurisdictions. Further, regulatory agencies must approve these
manufacturing facilities before they can be used to manufacture our future approved products, if any, and these facilities are subject
to ongoing regulatory inspections. In addition, regulatory agencies subject a pharmaceutical product, its manufacturer and the manufacturer’s
facilities to continual review and inspections. The subsequent discovery of previously unknown problems with a product, including adverse
events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, may result in restrictions
on the marketing of that product, up to and including, withdrawal of the product from the market. If the manufacturing facilities of our
suppliers fail to comply with applicable regulatory requirements, it could result in regulatory action and additional costs to us. Failure
to comply with applicable FDA and other regulatory requirements may, either before or after product approval, if any, subject our company
to administrative or judicially imposed sanctions.
In addition, the law or regulatory policies governing
pharmaceutical products may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent
or delay regulatory approval of our product candidates. Contract manufacturing organizations, or CMOs, and their vendors or suppliers
may also face changes in regulatory requirements from governmental agencies in the U.S. and other countries. We cannot predict the likelihood,
nature, extent or effects of government regulation that may arise from future legislation or administrative action, either in the U.S.
or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market any future approved products and
our business could suffer.
37
We could be forced to pay substantial damage
awards if product liability claims that may be brought against us are successful.
The use of any of our product candidates in pre-clinical
and clinical trials, and the sale of any approved products, may expose us to liability claims and financial losses resulting from the
use or sale of our product candidates. We have obtained limited product liability insurance coverage for our pre-clinical and clinical
trials of $5.0 million per occurrence and in the aggregate, subject to a deductible of $25,000 per bodily injury and property damage occurrence,
and a medical expense per person limit of $25,000. There can be no assurance that our existing insurance coverage will extend to any other
product candidates in the future. Any product liability insurance coverage may not be sufficient to satisfy all liabilities resulting
from product liability claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future on
commercially desirable terms, if at all. Even if a claim is not successful, defending such a claim would be time consuming and expensive,
may damage that product’s and our reputations in the marketplace, and would likely divert management’s attention, any of which
could have a material adverse effect on our Company.
Risks Related to Our Intellectual Property
Our business depends on protecting our intellectual
property.
Without the intellectual property rights we have
already obtained, as well as the further rights we are also pursuing, our competitors would have opportunity to take advantage of our
research and development efforts to develop competing products. Our success, competitive position and future revenues, if any, depend
in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our product candidates, methods,
processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and
to operate without infringing the proprietary rights of third parties. We anticipate filing additional patent applications both in the
U.S. and in other countries, as appropriate. However, the patent process is subject to numerous risks and uncertainties, and there can
be no assurance that we will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties
include the following:
●
Our patent rights might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;
●
Our competitors, many of which have substantially greater resources than we do and many of which might make significant investments in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our product candidates either in the U.S. or in international markets;
●
Countries other than the U.S. might have less restrictive patent laws than those upheld by U.S. courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products; and
●
As a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for product candidates that prove successful.
In addition, the U.S. Patent and Trademark Office
and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related
inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby
limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents
might be substantially narrower than anticipated.
Because the time period from filing a patent application
to the issuance, if ever, of the patent is often more than three years and because any regulatory approval and marketing for a pharmaceutical
product often occurs several years after the related patent application is filed, the resulting market exclusivity afforded by any patent
on our drug candidates and technologies will likely be substantially less than 20 years. For example, the U.S. patent on the original
Mino-Lok composition expires in June 2024, and the U.S. patent on the stabilized Mino-Lok composition expires in November 2036. Since
we anticipate significant additional time before FDA approval could be obtained, the maximum market exclusivity afforded by the statutory
term of the currently issued patents would be less than 17 years. In the United States, the European Union and some other jurisdictions,
patent term extensions are available for certain delays in either patent office proceedings or marketing and regulatory approval processes.
However, due to the specific requirements for obtaining these extensions, there is no assurance that our patents will be granted extensions
even if we encounter significant delays in patent office proceedings or marketing and regulatory approval.
38
Additionally, patent law is subject to change
and varies among the U.S. and foreign countries. Depending on decisions by the United States Congress, the U.S. federal courts, the USPTO
or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may
weaken our and our licensors’ abilities to obtain new patents or to enforce existing patents we and our licensors or partners may
obtain in the future.
Patent and other intellectual property protection
is crucial to the success of our business and prospects, and there is a substantial risk that such protections will prove inadequate.
Our business and prospects will be harmed if these protections prove insufficient.
We rely on trade secret protections through
confidentiality agreements with our employees and other parties, and the breach of these agreements could adversely affect our business
and prospects.
We rely on trade secrets, which we seek to protect,
in part, through confidentiality and non-disclosure agreements with our employees, collaborators, suppliers, and other parties. There
can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade
secrets will not otherwise become known to or independently developed by our competitors. We might be involved from time to time in litigation
to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and
divert management’s attention from our operations.
If we infringe the rights of third parties
we might have to forego developing and/or selling any approved products, pay damages, or defend against litigation.
If our product candidates, methods, processes
and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we might have to:
●
obtain licenses, which might not be available on commercially reasonable terms, if at all;
●
abandon an infringing product candidate;
●
redesign our product candidates or processes to avoid infringement;
●
stop using the subject matter claimed in the patents held by others;
●
pay damages; and/or
●
defend litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
Any of these events could substantially harm our
earnings, financial condition and operations.
The U.S. government could have “march-in
rights” to certain of our intellectual property.
If at any time federal monies are used in support
of the research and development activities at MDACC that resulted or in the future result in certain of our issued pending U.S. patent
applications, the federal government retains what are referred to as “march-in rights” to patents that are granted on these
applications. Our license agreements for Mino-Lok and Mino-Wrap each provide that in the event of such governmental funding, our rights
are subject to the government’s prior rights, if any. In addition, the license agreements provide that we will comply with the requirements
of any agreement between MDACC and the governmental funding entity. If applicable, this could require us to grant the U.S. government
either a nonexclusive, partially exclusive or exclusive license to the patented invention in any field of use, upon terms that are reasonable
for a particular situation. Circumstances that could trigger march-in rights generally would be set out in the agreement between MDACC
and the funding governmental entity and could include, for example, failure to take, within a reasonable time, effective steps to achieve
practical application of the invention in a field of use, failure to satisfy the health and safety needs of the public and failure to
meet requirements of public use specified by federal regulations. A funding governmental entity could elect to exercise these march-in
rights on their own initiative or at the request of a third party; however, the exercise of such march-in rights has been historically
rare when the patent holder (or its licensee) is practicing the patent invention although there can be no assurance that such rights would
not be exercised. This same risk would apply to any other license into which we enter if the licensor receives government funding for
the product candidate that is the subject of the license.
39
Risks Related to Our Securities
If we fail to meet the continued listing
requirements of Nasdaq it could result in a delisting of our common stock and certain warrants.
Our common stock and certain outstanding warrants
are currently listed for trading on The Nasdaq Capital Market, and the continued listing of our common stock on The Nasdaq Capital Market
is subject to our compliance with a number of listing standards. These listing standards include the requirement for avoiding sustained
losses, maintaining a minimum level of stockholders’ equity and maintaining a minimum stock price. The failure to meet any listing
standard would subject us to potential loss of listing.
If our common stock were no longer listed on The
Nasdaq Capital Market, investors might only be able to trade on one of the over-the-counter markets, including the OTC Bulletin Board
® or in the Pink Sheets ® (a quotation medium operated by Pink Sheets LLC). This would impair the liquidity of our common stock
not only in the number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity,
but also through delays in the timing of transactions and reduction in media coverage. In addition, we could face significant material
adverse consequences, including:
●
a limited availability of market quotations for our securities;
●
a limited amount of news and analyst coverage for us; and
●
a decreased ability to issue additional securities or obtain additional financing in the future.
We have twice failed to meet the listing standards
between October 2019 and January 2020 and between April 2020 and July 2020 because the closing bid price for our common stock has fallen
below $1.00 per share for 30 consecutive business days, as a result of which we did not comply with the $1.00 minimum bid price requirement
for continued listing on The Nasdaq Capital Market under Rule 5550(a)(2) of the Nasdaq Listing Rules. Pursuant to Nasdaq Marketplace Rule
5810(c)(3)(A). In each instance, we regained compliance within the time period allowed by Nasdaq.
In the event of a future delisting, we would take
actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken
by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent
our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing
requirements.
If our common stock were delisted and determined
to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more
difficult to acquire or dispose of our common stock in the secondary market.
If our common stock were removed from listing
with The Nasdaq Capital Market, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that
define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain
exceptions, such as any securities listed on a national securities exchange, which is the exception on which we currently rely. For any
transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers,
subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may
find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock
on the secondary market.
40
You may experience dilution of your ownership
interests because of the future issuance of additional shares of our common stock or securities convertible into common stock.
For the foreseeable future, to finance our operations,
including possible acquisitions or strategic transactions, we expect to issue equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 400,000,000 shares of common stock and 10,000,000
shares of preferred stock. As of September 30, 2021, there were 145,979,429 shares of common stock outstanding, 40,208,347 shares underlying
warrants with a weighted average exercise price of $1.695 per share and 5,755,171 shares underlying options with a weighted average exercise
price of $2.13 per share. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable
for common stock in connection with hiring or retaining employees, or for other business purposes. The future issuance of any such additional
shares of common stock or common stock equivalents may create downward pressure on the trading price of our common stock or publicly traded
warrants.
Our Certificate of Incorporation allows
for our Board of Directors to create new series of preferred stock without further approval by our stockholders, which could adversely
affect the rights of the holders of the common stock.
Our Board of Directors has the authority to issue
up to 10,000,000 shares of preferred stock and to fix and determine the relative rights and preferences of any such preferred stock without
further stockholder approval. As a result, our Board of Directors could authorize the issuance of one or more series of preferred stock
that would grant preferential rights to our assets upon liquidation, the right to receive dividend payments before dividends are distributed
to the holders of common stock and the right to the redemption of the preferred shares, together with a premium, prior to the redemption
of the common stock. In addition, our Board of Directors could authorize the issuance of a series of preferred stock that has greater
voting power than the common stock or that is convertible into our common stock, which could decrease the relative voting power of the
common stock or result in dilution to our existing stockholders.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We lease our offices at 11 Commerce Drive, Cranford,
New Jersey 07016. The lease runs until October 31, 2025.