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Item 1A. Risk Factors

2021-11-08 compared with 2021-08-16 · 40 added, 113 removed, 663 unchanged (19% of the section changed)

14 unchanged sentences

successful completion of preclinical studies;

receipt of authorization to proceed under investigational new drug applications (“INDs”) and similar filings outside the United States for our planned clinical trials or future clinical trials;

receipt of authorization to proceed under INDs and similar filings outside the United States for our planned clinical trials or future clinical trials;

successful patient enrollment in and completion of clinical trials;

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manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical trials;

i nsufficient or inadequate supply or quality of product candidates or other materials necessary for use in clinical trials;

insufficient or inadequate supply or quality of product candidates or other materials necessary for use in clinical trials;

recruiting , screening and enrolling suitable patients to participate in a clinical trial;

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Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

analogous U.S.

a nalogous U.S.

state laws and regulations, including:

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For example, in preclinical testing of ELX-02, we observed renal toxicities in the animals we tested following administration of this compound at doses in excess of the doses we expect to administer in our clinical trials.

As a result of this or any other side effects, our clinical trials could be suspended or terminated or not even allowed to commence, and the FDA or comparable foreign regulatory authorities could order us to cease further development, or deny approval, of our product candidates for any or all targeted indications.

The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the

trial or result in potential product liability claims.

The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

If we are required to delay, suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated.

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The Patient Protection and Affordable Care Act, or PPACA, was enacted in March 2010.

This law substantially changed the way healthcare is financed by both governmental and private insurers in the Unites States, and significantly

impacts the pharmaceutical industry.

This law substantially changed the way healthcare is financed by both governmental and private insurers in the Unites States, and significantly impacts the pharmaceutical industry.

PPACA contains a number of provisions that are expected to impact our business and operations, in some cases in ways we cannot currently predict.

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We may never achieve or maintain profitability.

We have a history of net losses and negative cash flows from operating activities since inception and, as of June 30, 2021, had an accumulated deficit of $216.3 million.

We have a history of net losses and negative cash flows from operating activities since inception and, as of September 30, 2021, had an accumulated deficit of $226.2 million.

We have financed our operations primarily through equity securities, and to a lesser extent from loans and grants.

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In addition, we may seek additional financing due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our operating plans.

If we are unable to obtain adequate financing, we will evaluate options, which may include reducing or deferring operating expenses, including by downsizing our workforce and curtailing certain development programs, which could have a material adverse effect on our operations and financial results.

If we are unable to obtain adequate financing, we will evaluate options,

which may include reducing or deferring operating expenses, including by downsizing our workforce and curtailing certain development programs, which could have a material adverse effect on our operations and financial results .

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings, as well as entering into new collaborations, strategic alliances and licensing

arrangements.

We do not have any committed external source of funds.

To the extent that we raise additional capital through the sale of equity , such as our public offering of shares in May 2021, or convertible debt securities, an investor’s ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that may adversely affect an investor’s rights as a common stockholder.

To the extent that we raise additional capital through the sale of equity, such as our public offering of shares of our common stock in May 2021 or issuances of common stock under our ATM Program, or convertible debt securities, an investor’s ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that may adversely affect an investor’s rights as a common stockholder.

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may be secured by all or a portion of our assets.

Further, the availability of funding under the Hercules Term Loan is conditioned on us meeting certain clinical and equity milestones during defined time periods .

Any debt agreements we may enter into in the future may contain similar restrictions on funding.

If we raise funds by entering into new collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

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We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes.

Further, the terms of the Hercules Loan Agreement limit us from paying dividends or making certain distributions.

Any determination to pay dividends in the future will be at the discretion of our board of directors.

Our indebtedness and debt service obligations may adversely affect our cash flow.

We intend to fulfill our debt service obligations, including repayment of the principal of the Hercules Term Loan, from cash generated from our operations, from our existing cash, and potential additional cash proceeds from our ATM Program or other future equity financings.

Our indebtedness could have significant additional negative consequences, including requiring the dedication of a substantial portion of our expected cash flow to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete.

If we are unable to generate sufficient cash to meet these obligations and need to use existing cash in order to fund our debt service obligations, including repayment of the principal, we may have to delay or curtail research and development programs.

Risks Related to Our Business and Operations

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To manage effectively our current and future potential growth, we must also continue to enhance and develop our global employee base, and our operational and financial processes.

Supporting our growth strategy will require significant

capital expenditures and management resources, including investments in research, development, sales and marketing, manufacturing and other areas of our operations.

Supporting our growth strategy will require significant capital expenditures and management resources, including investments in research, development, sales and marketing, manufacturing and other areas of our operations.

The development or expansion of our business, any acquired business or any acquired or in-licensed products may require a substantial capital investment by us.

We may not have these necessary funds, or they might not be available to us on acceptable terms or at all.

We may also seek to raise funds by selling shares of our capital stock, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest in our C ompany.

We may also seek to raise funds by selling shares of our capital stock, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest in our Company.

Our business could be affected by litigation, government investigations and enforcement actions.

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Public health epidemics or widespread outbreaks of contagious diseases could adversely impact our business.

Any outbreak of contagious diseases, and other adverse public health developments, such as the recent novel strain of COVID-19, could impact our operations depending on future developments, which are highly uncertain, largely beyond our control and cannot be predicted with certainty.

Any outbreak of contagious diseases, and other adverse public health developments, such as the COVID-19 pandemic, could impact our operations depending on future developments, which are highly uncertain, largely beyond our control and cannot be predicted with certainty.

These uncertain factors include the duration of the outbreak, new information which may emerge concerning the severity of the disease and the actions to contain or treat its impact, could adversely impact our operations, including among others, conduct of our clinical trials, employee mobility and productiveness, temporary closure of facilities, including clinical trial sites, our manufacturing capabilities, and third party service providers such as CROs, any of which could have an adverse impact on our business and our financial results.

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We have also implemented information security measures to protect patients’ personal information against the risk of inappropriate and unauthorized external use and disclosure.

The COVID-19 pandemic has caused us to modify our business practices, including permitting our employees to work from home.

The COVID-19 pandemic has

caused us to modify our business practices, including permitting our employees to work from home.

As a result, we are increasingly dependent upon our technology systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data, which includes use of cloud technologies.

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Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites.

If we or any of these third parties fail to

comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.

If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.

We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations.

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Our business is specialized and global and we must attract and retain highly qualified individuals across many geographies.

We may not be able to continue to attract and retain the highly qualified personnel necessary for developing, manufacturing and commercializing our product

We may not be able to continue to attract and retain the highly qualified personnel necessary for developing, manufacturing and commercializing our product candidates.

If we are unsuccessful in our recruitment and retention efforts, or if our recruitment efforts take longer than anticipated, our business may be harmed.

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In addition, new members of management may have different perspectives on programs and opportunities for our business, which may cause us to focus on new business opportunities or reduce or change emphasis on our existing business programs.

Further, if members of our management and other key personnel in critical functions across our organization are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and/or our operations may be negatively impacted.

Further, if members of our management and other key personnel in critical functions across

our organization are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and/or our operations may be negatively impacted.

Risks Related to Intellectual Property

If we fail to adequately protect or enforce our intellectual property rights or secure rights to third party patents, the value of our intellectual property rights would diminish, and our business, competitive position and results of operations would suffer.

As of June 30, 2021, we owned or licensed 41 issued patents and 72 pending patent applications in the U.S.

As of September 30, 2021, we owned or licensed 41 issued patents and 105 pending patent applications in the U.S.

and abroad, not including U.S.

provisional applications.

However, with regard to the pending provisional applications, the filing of a patent application does not mean that we will be issued a patent, or that any patent eventually issued will be as broad as requested in the patent application or sufficient to protect our technology.

However, with regard to the pending applications, the filing of a patent application does not mean that we will be issued a patent, or that any patent eventually issued will be as broad as requested in the patent application or sufficient to protect our technology.

Any modification required to a currently pending patent application may delay the approval of such patent application which could have a material adverse effect on our business, results of operations and financial condition.

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Furthermore, if the U.S.

Patent and Trademark Office or foreign patent offices issue patents to us or our licensors, others may challenge the

patents or circumvent the patents, or the patent office or the courts may invalidate the patents.

Patent and Trademark Office or foreign patent offices issue patents to us or our licensors, others may challenge the patents or circumvent the patents, or the patent office or the courts may invalidate the patents.

Thus, any patents we own or license from or to third parties may not provide any protection against our competitors and those who infringe upon our patents.

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In addition, our business requires using sensitive technology, techniques and proprietary compounds that we protect as trade secrets.

However, we may also rely heavily on collaboration with, or discuss the potential for collaboration with,

suppliers, outside scientists and other biopharmaceutical companies.

However, we may also rely heavily on collaboration with, or discuss the potential for collaboration with, suppliers, outside scientists and other biopharmaceutical companies.

Collaboration and discussion of potential collaboration present a strong risk of exposing our trade secrets.

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Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications.

The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable.

The outcome of proceedings involving assertions of invalidity and unenforceability during

patent litigation is unpredictable.

If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products and product candidates, which may allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or could require us to obtain license rights from the prevailing party in order to be able to manufacture or commercialize our products, product candidates or technologies without infringing third-party patent rights.

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These damages potentially include royalties, increased damages (possibly treble damages) and attorneys’ fees if we are found to have infringed such rights willfully.

Further, if a patent infringement suit is brought against us, our development, manufacturing or sales activities relating to the product, product candidate or technology that is the subject of the suit may be delayed or terminated, as parties

making claims against us may obtain injunctive or other equitable relief.

As a result of patent infringement claims, or in order to avoid potential infringement claims, we may choose to seek, or be required to seek, a license from the third party, which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights.

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With respect to such grants we are obligated to pay royalties at a rate in the low to middle single digit percentage from the revenue generated from the sale of any products or services developed using IIA grants up to a maximum amount equal to repayment of the grant proceeds received plus accrued interest.

We have not commenced the payment obligation of these

royalties since we have not yet generated revenue, and we have a contingent obligation with respect to such future royalty payments including interest, of $2.7 million.

We have not commenced the payment obligation of these royalties since we have not yet generated revenue, and we have a contingent obligation with respect to such future royalty payments including interest, of $2.7 million.

The R&D Law and terms of the prior grants restrict the transfer of certain know-how, and the transfer of manufacturing or manufacturing rights of products developed with grant funds, outside of Israel, without the prior approval of the IIA.

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Furthermore, the consideration available to our stockholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding may be reduced by any amounts that we are required to pay to the IIA.

Our obligations and limitations pursuant to the R&D Law are not limited in time and may not be terminated by us at will.

Our obligations and limitations pursuant to the R&D

Law are not limited in time and may not be terminated by us at will.

As of the date hereof, we have not been required to pay any royalties with respect to the IIA grants.

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As a result, if some or all of them acted together, they would have the ability to exert substantial influence over the election of our board of directors and the outcome of issues requiring approval by our stockholders.

This concentration of ownership may have the effect of delaying or preventing a change in control of our company that may be favored by other

stockholders.

This concentration of ownership may have the effect of delaying or preventing a change in control of our company that may be favored by other stockholders.

This could prevent the consummation of transactions favorable to other stockholders, such as a transaction in which stockholders might otherwise receive a premium for their shares over current market prices.

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Additional capital will be needed in the future to continue our planned operations.

To the extent we raise additional capital by issuing equity securities, such as our public offering of shares in May 2021, our stockholders may experience substantial dilution.

To the extent we raise additional capital by issuing equity securities, such as our public offering of shares of our common stock in May 2021 or our ATM Program pursuant to which we may sell up to $50.0 million of our common stock, our stockholders may experience substantial dilution.

We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time.

1 unchanged sentence

Pursuant to our 2018 Equity Incentive Plan, our management is authorized to grant stock options and other equity-based awards to our employees, directors and consultants.

As of June 30, 2021, individuals held share awards to purchase or receive an aggregate of 8,614,506 shares of our common stock.

As of September 30, 2021 , individuals held share awards to purchase or receive an aggregate of 8, 785,548 shares of our common stock.

If our board of directors elects to increase the number of shares available for future grant by the maximum amount each year, our stockholders may experience additional dilution, which could have a negative effect on our share price.

The following is a list of exhibits filed as part of this Report.

Where so indicated, exhibits that were previously filed are incorporated by reference.

For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.

Incorporated by Reference

Exhibit Description

Agreement and Plan of Merger, dated April 1, 2021, by and among Eloxx Pharmaceuticals, Inc., Delta Merger Sub Acquisition Corporation and Zikani Therapeutics, Inc.

April 1, 2021

Amended and Restated Certificate of Incorporation of Senesco Technologies, Inc.

filed with the State of Delaware on January 22, 2007

February 14, 2007