Dermata Therapeutics, Inc. 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.” CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to: · our lack of operating history; · the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital; · our current and future capital requirements to support our development and commercialization efforts for our product candidates and our ability to satisfy our capital needs; · our dependence on our product candidates, which are still in various stages of clinical development; · our ability to acquire sufficient quantities of raw material needed to manufacture our drug product; · our, or that of our third-party manufacturers, ability to manufacture cGMP quantities of our product candidates as required for pre-clinical and clinical trials and, subsequently, our ability to manufacture commercial quantities of our product candidates; · our ability to complete required clinical trials for our product candidates and obtain approval from the FDA or other regulatory agencies in different jurisdictions; · our lack of a sales and marketing organization and our ability to commercialize our product candidates if we obtain regulatory approval; · our dependence on third parties to manufacture our product candidates; · our reliance on third-party CROs to conduct our clinical trials; 20 Table of Contents · our ability to maintain or protect the validity of our intellectual property; · our ability to internally develop new inventions and intellectual property; · interpretations of current laws and the passages of future laws; · acceptance of our business model by investors; · the accuracy of our estimates regarding expenses and capital requirements; · our ability to adequately support organizational and business growth; and · other factors discussed in our most recent Annual Report on Form 10-K. The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished. Overview We are a late-stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe represent significant market opportunities. Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), hyperhidrosis, and various aesthetic indications, affect millions of people worldwide each year which may negatively impact their quality of life and emotional well-being. While there are multiple current treatment options for these indications on the market, we believe that most have significant drawbacks, including underwhelming efficacy, cumbersome application regimens and varying negative side effects, all of which we believe lead to decreased patient compliance. A majority of these indications are first treated with topical therapy; however, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction. This is primarily due to slow and modest response rates, early onset of negative side effects, daily application schedules and long duration of therapy. Given the limitations with current topical therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for topical products that satisfy their dermatological and lifestyle needs. Our two product candidates, DMT310 and DMT410, both incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions. Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is mixed with a fluidizing agent immediately prior to application to form an easily applicable paste. Spongilla is a unique freshwater sponge that only grows in commercial quantities in select regions of the world and under specific environmental conditions, all of which give it its distinctive anti-microbial, anti-inflammatory, and mechanical properties. The combination of these environmental conditions, the proprietary harvesting protocols developed with our exclusive supplier, and our post-harvest processing procedures produce a pharmaceutical product candidate that optimizes the mechanical components as well as the chemical components of the sponge to create a product candidate with multiple mechanisms of action for the treatment of medical and aesthetic skin diseases and conditions. 21 Table of Contents We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target the topical delivery of chemical compounds into the dermis for a variety of dermatology indications. We believe the combination of Spongilla’s mechanical and chemical components (which we believe have demonstrated, in-vitro , anti-microbial and anti-inflammatory properties), add to the versatility of our Spongilla technology platform’s effectiveness as a singular product, in the treatment of a wide variety of medical skin diseases like acne and psoriasis. We also believe the mechanical properties of our Spongilla technology allows for the intradermal delivery of a variety of large molecules, like botulinum toxins, monoclonal antibodies, or dermal fillers, to target treatment sites, through topical application without the need for needles. Our lead product candidate, DMT310, is intended to utilize our Spongilla technology for the once weekly treatment of a variety of skin diseases, with our initial focus being the treatment of acne vulgaris, which has a U.S. market size of approximately 30 million diagnosed patients. We recently initiated a Phase 3 program of DMT310 in moderate-to-severe acne. Both studies will be double-blinded, randomized, placebo-controlled, and enroll up to 550 patients, age 9 years or older across sites in the United States and Latin America. The primary endpoints include absolute reduction in inflammatory and noninflammatory lesions and the improvement in investigators global assessment (“IGA”) of acne, which are the same endpoints used in our Phase 2b study of DMT310 for moderate-to-severe acne. Patients will be treated once a week for 12 weeks with either DMT310 or placebo and will be evaluated monthly. The second Phase 3 study will be followed by a long-term extension study. We recently announced enrollment of 50% of the total expected patients in the STAR-1 study and we expect to have top-line results from the first Phase 3 study in the first quarter of 2025. Previously, DMT310 has shown its ability to treat the multiple causes of acne in a Phase 2b study where we initially saw a 45% reduction in inflammatory lesions after four treatments, with DMT310 achieving statistically significant improvements at all time points for all three primary endpoints throughout the study (reduction in inflammatory lesions, reduction in non-inflammatory lesions, and improvement in IGA). In addition, based on the multiple mechanisms of action and anti-inflammatory effect seen with the DMT310 acne trial, we completed a Phase 1b proof of concept, or POC, trial in psoriasis where we saw encouraging results warranting further investigation. DMT310 consists of two grams of powder processed from the naturally grown freshwater sponge, Spongilla lacustris. The patient mixes the powder with a fluidizing agent (3% hydrogen peroxide) immediately prior to application by the patient to form an easy-to-apply paste. The paste is applied like a mud mask and is left on the skin for approximately ten to fifteen minutes, after which time it is washed off with water. Due to the unique combination of DMT310’s mechanical components and chemical components, and based on our Phase 2 acne data, we believe patients will only need to apply DMT310 once weekly to produce the desired treatment effect. The mechanical components of the Spongilla powder consist of many microscopic siliceous, needle-like spicules that, when massaged into the skin, penetrate the stratum corneum (the skin’s outermost protective layer) and create microchannels into the dermis where pro-inflammatory cytokines and bacteria reside. We believe that the penetration of the spicules also leads to the opening of microchannels, which allow oxygen to enter pilosebaceous glands, helping to kill C. acnes , which grow in an anaerobic (without oxygen) environment ( C. acnes is the bacteria that cause inflammatory lesions in acne patients). The spicules also cause rejuvenation of the top layer of dead skin, thereby increasing collagen production. Additionally, we believe the newly created microchannels provide a conduit for DMT310’s naturally occurring chemical compounds to be delivered to the dermis and pilosebaceous glands, helping to kill the C. acnes and fight inflammation . In addition to these anti-microbial compounds, DMT310 also appears to have anti-inflammatory chemical compounds, as demonstrated in in vitro experiments, that inhibit inflammation through the reduction of C.acnes stimulated IL-8 production and by inhibiting IL-17A and IL-17F expression in human cell lines. Also, during in vitro studies of DMT310’s organic compounds, we observed the inhibition of the lipogenesis of sebocytes, which may translate to a reduction in sebum (an oily and waxy substance produced by the human body’s sebaceous glands) production and the oiliness of the skin in patients, which was observed by a number of clinical investigators in our Phase 2 acne studies. We believe the combination of these biological and mechanical effects could be important factors in treating multiple inflammatory skin diseases, as seen in our clinical trials. 22 Table of Contents Our second product candidate utilizing our Spongilla technology is DMT410, our combination treatment. DMT410 is intended to consist of one treatment of our proprietary sponge powder followed by one topical application of botulinum toxin for delivery into the dermis. Currently, BOTOX®, is the only approved botulinum toxin to be delivered to the dermis by intradermal injections, which can be painful for the patient and time-consuming for the physician. However, we believe DMT410’s ability to topically deliver a botulinum toxin into the dermis could have similar levels of efficacy to intradermal injections of botulinum toxin, with fewer tolerability issues, and a quicker application time, possibly replacing the need for intradermal injections. We first tested DMT410 with BOTOX® in a Phase 1 POC trial of axillary hyperhidrosis patients, which saw 80% of patients achieve a reduction in gravimetric sweat production greater than 50% four weeks after a single treatment. With almost 40% of the hyperhidrosis market currently being treated with intradermal injections of BOTOX®, we believe there could be significant opportunity for DMT410 to break into this market and replace intradermal injections of botulinum toxin with a topical delivery option. Based on DMT410’s ability to effectively deliver botulinum toxin to the dermis as observed in the Phase 1 axillary hyperhidrosis trial, we also conducted a Phase 1 POC trial of DMT410 with BOTOX® for the treatment of multiple aesthetic skin conditions, including reduction of pore size, sebum production, and fine lines, among others. In November 2021, we announced top-line results from this trial, where we saw promising data that we believe warrants further investigation of DMT410. Given that BOTOX® is a Type A toxin, and acts through a similar pathway as other Type A botulinum toxins, we are discussing partnering opportunities with multiple companies that have a botulinum toxin type A to move our DMT410 program into additional clinical studies. We have a limited operating history. Since our inception, our operations have focused on developing DMT310 and DMT410, organizing and staffing our company, raising capital, establishing our supply chain and manufacturing processes, further characterizing the multiple mechanisms of action of our Spongilla technology, building an intellectual property portfolio, and conducting non-clinical and clinical trials. We do not have any product candidates approved for marketing and have not generated any revenue from product sales. We have funded our operations primarily through the sale of our equity securities and debt securities. Since inception, we have raised an aggregate of approximately $68.8 million of gross proceeds from the sale of our debt and equity securities. We have not generated any revenue to date and have incurred significant operating losses. Our net losses were $3.2 million and $1.7 million for the three months ended September 30, 2024, and 2023, respectively, and our net losses were $9.1 million and $5.7 million for the nine months ended September 30, 2024, and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $62.5 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: · complete development of DMT310 for the treatment of acne, including non-clinical studies and Phase 3 clinical trials; · prepare and file for regulatory approval of DMT310 for the treatment of moderate-to-severe acne; · identify a botulinum toxin partner for DMT410 for the treatment of medical and aesthetic skin conditions and diseases; · continue development of DMT410 for the treatment of treatment of aesthetic and medical skin conditions, including Phase 1 and Phase 2 clinical trials; · prepare for commercialization of DMT310, if approved, including the hiring of sales and marketing personnel; · manufacture our product candidates for additional Phase 2 and Phase 3 trials and commercial sale; · hire additional research and development and selling, general and administrative personnel; · maintain, expand, and protect our intellectual property portfolio; and · incur additional costs associated with operating as a public company. 23 Table of Contents We will need additional financing to support our operations. We may seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital when needed or on favorable terms would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Recent Developments In July 2024, we reached the 50% patient enrollment milestone in the first of two Phase 3 clinical trials of DMT310 in moderate-to-severe acne. We expect to receive top-line results from the first Phase 3 trial, referred to as STAR-1, in the first quarter of 2025. Both Phase 3 studies will be double-blinded, randomized, placebo-controlled, and enroll up to 550 patients, age 9 years or older across sites in the United States and Latin America. The primary endpoints include absolute reduction in inflammatory and noninflammatory lesions and the improvement in investigators global assessment (IGA) of acne. Patients will be treated once a week for 12 weeks with either DMT310 or placebo and will be evaluated monthly. ATM Agreement In June 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright &Co., LLC (“HCW”), as sales agent, pursuant to which we may offer and sell, from time to time through HCW, shares of our common stock for aggregate proceeds of up to $1,662,761 (upon the terms and subject to the conditions and limitations set forth in the ATM Agreement). In the nine months ended September 30, 2024, we sold 550,024 shares of common stock under the ATM Agreement, for net proceeds of $1.5 million, after deducting $0.1 million of compensation to HCW and other administration fees. Critical Accounting Policies and Use of Estimates We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully discussed in Note 2 - Summary of Significant Accounting Policies to our unaudited financial statements contained within this Form 10-Q, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements. Research and Development Expenses We rely on third parties to conduct our clinical studies and to provide services, including data management, statistical analysis, and electronic compilation. Once our clinical trials begin, at the end of each reporting period, we will compare the payments made to each service provider to the estimated progress towards completion of the related project. Factors that we will consider in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related to the efforts of our vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we will record net prepaid or accrued expenses related to these costs. Fluctuations in Operating Results Our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future. We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the progress and timing of expenditures related to the development of our product candidates. Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance. 24 Table of Contents Results of Operations Three Months Ended September 30, 2024, and 2023 The following table summarizes our results of operations for the periods presented: Three Months Ended September 30, 2024 2023 Difference Operating expenses: Research and development $ 2,401,359 $ 902,977 $ 1,498,382 General and administrative 824,294 909,001 (84,707 ) Total operating expenses 3,225,653 1,811,978 1,413,675 Losses from operations (3,225,653 ) (1,811,978 ) (1,413,675 ) Other income and expenses: Interest income, net 52,497 92,767 40,270 Net loss $ (3,173,156 ) $ (1,719,211 ) $ (1,453,945 ) Research and Development Expenses Research and development expenses increased by $1.5 million from $0.9 million for the three months ended September 30, 2023, to $2.4 million for the three months ended September 30, 2024. The increase in research and development expenses in the third quarter of 2024 as compared to the same period in 2023 resulted from $1.8 million of increased clinical expenses from the DMT310 STAR-1 acne study initiated in late 2023, offset by $0.3 million of decreased chemistry, manufacturing, and controls, or CMC, expenses. General and Administrative Expenses General and administrative expenses decreased by $0.1 million from $0.9 million for the three months ended September 30, 2023, to $0.8 million for the three months ended September 30, 2024. The decrease in general and administrative expenses in the third quarter of 2024 as compared to the same period of 2023 resulted from $0.1 million in decreased insurance costs. Other Income and Expenses Other income and expenses decreased by $40,270 from $92,767 for the three months ended September 30, 2023, to $52,497 for the three months ended September 30, 2024. The decrease in interest income resulted from less cash and cash equivalents available for earning interest income. Nine Months Ended September 30, 2024, and 2023 The following table summarizes our results of operations for the periods presented: Nine Months Ended September 30, 2024 2023 Difference Operating expenses: Research and development $ 6,011,201 $ 2,934,541 $ 3,076,660 General and administrative 3,301,753 2,887,533 414,220 Total operating expenses 9,312,954 5,822,074 3,490,880 Loss from operations (9,312,954 ) (5,822,074 ) (3,490,880 ) Other income and expenses: Interest expense, net 176,431 161,357 15,074 Net loss $ (9,136,523 ) $ (5,660,717 ) $ (3,475,806 ) 25 Table of Contents Research and Development Expenses Research and development expenses increased by $3.1 million from $2.9 million for the nine months ended September 30, 2023, to $6.0 million for the nine months ended September 30, 2024. The increase in research and development expenses resulted from $4.0 million of increased clinical expenses from the DMT310 STAR-1 acne study initiated in late 2023, offset by $0.7 million of decreased chemistry, manufacturing, and controls, or CMC, expenses and $0.2 million of decreased non-clinical expenses. General and Administrative Expenses General and administrative expenses increased by $0.4 million from $2.9 million for the nine months ended September 30, 2023, to $3.3 million for the nine months ended September 30, 2024. This increase resulted from $0.5 million of increased audit fees as well as $0.1 million of increased stock-based compensation, offset by $0.2 million of decreased insurance costs. Other Income and Expenses Other income and expenses increased by $15,074 from $161,357 for the nine months ended September 30, 2023, to $176,431 for the nine months ended September 30, 2024. The increase in interest income resulted from interest rate increases. Cash Flows The following table summarizes our cash flows from operating and financing activities: Nine Months Ended September 30, 2024 2023 Statements of cash flows data: Total net cash provided by (used in): Operating activities $ (8,249,332 ) $ (5,261,626 ) Financing activities $ 6,954,949 $ 5,651,815 Increase (decrease) in cash and cash equivalents $ (1,294,383 ) $ 390,189 Operating activities Cash used in operations of $8.2 million for the nine months ended September 30, 2024, was the result of the net loss of $9.1 million, offset by increases in non-cash stock-based compensation of $0.6 million and increases in accrued expenses of $0.3 million. Cash used in operations of $5.3 million for the nine months ended September 30, 2023, was the result of the net loss of $5.7 million, offset by non-cash stock-based compensation of $0.4 million. Financing activities Cash provided by financing activities of $7.0 million for the nine months ended September 30, 2024, was the result of the September 2024 PIPE financing which raised net proceeds of $3.1 million, sales of the Company’s shares through the ATM Agreement which raised net proceeds of $1.5 million during the third quarter of 2024, and the May 2024 warrant inducement financing which raised net proceeds of $2.3 million. 26 Table of Contents Cash provided by financing activities of $5.7 million for the nine months ended September 30, 2023, was the result of $4.2 million of net proceeds received from the issuance of Common Stock and warrants issued in the March 2023 Offering, as well as $1.5 million of net proceeds received from the May 2023 Offering. Liquidity and Capital Resources Since our inception, we have not generated any revenue or commercialized any products. As of September 30, 2024, our cash and cash equivalents totaled $6.1 million, and we had an accumulated deficit of $62.5 million. For the nine months ended September 30, 2024, and the year ended December 31, 2023, we used cash of $8.2 million and $6.4 million, respectively, in operations. We expect our cash resources to fund operations into the second quarter of 2025. We anticipate that we will continue to incur net losses for the foreseeable future. Historically, our principal sources of cash have included proceeds from the issuance of common and preferred equity and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations (including clinical development of our product candidates and general and administrative expenses) and payments for license rights. We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development, and general working capital requirements. We expect that as research and development expenses continue to grow, we will need to raise additional capital to sustain operations and research and development activities. Funding Requirements We plan to focus in the near term on the development, regulatory approval, and potential commercialization of DMT310 for the treatment of acne. We anticipate we will incur net losses for the next several years as we complete clinical development of DMT310 for the treatment of acne and psoriasis and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions. In addition, we plan to seek opportunities to identify, acquire or in license and develop additional drug candidates, potentially build commercial capabilities, and expand our corporate infrastructure. We may not be able to complete the development and initiate commercialization of these programs if, among other things, our clinical trials are not successful or if the FDA does not approve our drug candidate arising out of our current clinical trials when we expect, or at all. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support the development of our drug candidates. As a publicly traded company, we will incur significant legal, accounting, and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the Securities and Exchange Commission (the “SEC”), and Nasdaq, requires public companies to implement specified corporate governance practices that were not applicable to us as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2025. We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We anticipate that we will continue to incur net losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern for the one-year period following the date that these financial statements were issued. We will require additional capital to complete the Phase 3 studies for DMT310 for the treatment of acne, continue development of DMT310, and to pursue in-licenses or acquisitions of other drug candidates. Therefore, based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and the need to raise additional capital to finance future operations, we are developing plans to mitigate this risk, which may consist of raising additional capital through some combination of equity or debt financings, and/or potentially new collaborations, business transactions, and reducing cash expenditures. If we are not able to secure adequate additional funding, we may be forced to make significant reductions in our operations and the pursuit of our growth strategy. In that event, we may have to delay, scale back, or eliminate some or all of our research and development programs and activities which could adversely affect our business prospects, or we may be unable to continue operations. 27 Table of Contents We may raise additional capital through the sale of equity or convertible debt securities. In such an event, the terms of these securities may include liquidation or other preferences that adversely affect the rights of the holders of our Common Stock. Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical drugs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including: · the number and characteristics of the drug candidates we pursue; · the scope, progress, results, and costs of researching and developing our drug candidates, and conducting preclinical studies and clinical trials; · the timing of, and the costs involved in, obtaining regulatory approvals for our drug candidates; · the cost of manufacturing our drug candidates and any drugs we successfully commercialize; · our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; · the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims, including litigation costs and the outcome of such litigation; and · the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future drug candidates, if any. To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, clinical trials of our product candidates, and other operations and potential product acquisitions and in licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar strategic business transaction. Contractual Obligations and Commitments We do not currently own or lease any office space. We enter into contracts in the normal course of business with contract research organizations for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. 28 Table of Contents JOBS Act Accounting Election We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Recent Accounting Pronouncements See Item 1 of Part I, “Notes to Financial Statements — Note 2 — Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.