Item 1A. Risk Factors
ITEM 1A. RISK
FACTORS.
An investment in our
securities involves a high degree of risk. You should consider carefully the following information about these risks, together with the
other information contained in this Annual Report on Form 10-K before making an investment decision. Our business, prospects, financial
condition and results of operations may be materially and adversely affected as a result of any of the following risks. The value of our
securities could decline as a result of any of these risks. You could lose all or part of your investment in our securities. Some of the
statements in “Item 1A. Risk Factors” are forward-looking statements. The following risk factors are not the only risk factors
facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect
our business, prospects, financial condition and results of operations.
Risks Related to Our Business
Our strategic review process may
not be successful or timely.
Following the results of the
ORA-D-013-1 Phase 3 trial, we have initiated a comprehensive analysis of the data to understand if there is a path forward for our oral
insulin candidate. Concurrently, we are examining our existing pipeline and have commenced an evaluation process of potential strategic
opportunities, including among others, continuation as a stand-alone business, capital raises, or one or more acquisitions, mergers or
business combinations or other strategic transactions. Potential counterparties in a strategic transaction involving us may place minimal
or no value on our assets. While we are devoting significant efforts to identify and evaluate potential strategic alternatives, there
can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued,
will be completed on attractive terms or at all. Additionally, there can be no assurances that any particular course of action, business
arrangement or transaction, or series of transactions, will be pursued, successfully consummated, or lead to any stockholder value. Any
potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market
conditions, industry trends, the interest of third parties in a potential transaction with us, obtaining stockholder approval and the
availability of financing to third parties in a potential transaction with us on reasonable terms. The process of reviewing alternative
strategic paths may be time consuming, may involve the dedication of significant resources and may require us to incur significant costs
and expenses. It could negatively impact our ability to attract, retain and motivate employees, and expose us to potential litigation
in connection with this process or any resulting transaction. If we are not successful in setting forth a new strategic path for the Company,
or if our plans are not executed in a timely fashion, this may cause reputational harm with our stockholders and other stakeholders and
the value of our securities may be adversely impacted. In addition, speculation regarding any developments related to the review of strategic
alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.
There can be no guarantee that the process of evaluating alternative strategic paths will result in our entering into or completing potential
transactions within the anticipated timing or at all.
If we are successful in
completing a strategic transaction, we may be exposed to other operational and financial risks.
Although there can be no assurance
that a strategic transaction will result from the process we have undertaken to identify and evaluate strategic alternatives, the negotiation
and consummation of any such transaction will require significant time on the part of our management and may disrupt our business. The
negotiation and consummation of any such transaction may also require more time or greater cash resources than we anticipate and expose
us to other operational and financial risks, including:
● increased near-term and long-term expenditures;
● exposure to unknown liabilities;
● higher than expected acquisition or integration
costs;
● incurrence of substantial debt or dilutive issuances
of equity securities to fund future operations;
● write-downs of assets or goodwill or incurrence
of non-recurring, impairment or other charges;
11
● increased amortization expenses;
● impairment of relationships with key suppliers
of any acquired business due to changes in management and ownership;
● inability to retain our key employees ;
and
● possibility of future litigation.
Any of the above risks could
have a material adverse effect on our business, financial condition, and prospects.
Our ability to consummate
a strategic transaction depends on our ability to retain our employees required to consummate such transaction.
Our ability to consummate
a strategic transaction depends upon our ability to retain our employees required to consummate such a transaction, the loss of whose
services may adversely impact the ability to consummate such transaction. Our cash conservation activities may yield unintended consequences,
such as attrition and reduced employee morale, which may cause remaining employees to seek alternative employment. Our ability to successfully
complete a strategic transaction depends in large part on our ability to retain certain of our remaining personnel. If we are unable to
successfully retain our remaining personnel, we are at risk of a disruption to our exploration and consummation of a strategic alternative
as well as business operations.
We may become involved
in securities and stockholder litigation that could divert management’s attention and harm the Company’s business, and insurance
coverage may not be sufficient to cover all costs and damages.
In the past, securities and
stockholder litigation has often followed certain significant business transactions, such as the sale of a company or announcement of
any other strategic transaction, or the announcement of negative events, such as negative results from clinical trials. The market price
of our common stock dropped substantially when we announced the results of the ORA-D-013-1 Phase 3 trial. We may be exposed to such litigation
even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely
affect our business and cash resources and our ability to consummate a potential strategic transaction or the ultimate value our stockholders
receive in any such transaction.
We continue, and in the
future expect, to incur losses .
Successful evaluation and
completion of our remaining development programs and our transition to normal operations are dependent upon obtaining necessary regulatory
approvals from the FDA prior to selling our products within the United States, and foreign regulatory approvals must be obtained to sell
our products internationally. There can be no assurance that we will receive regulatory approval of any of our product candidates, and
a substantial amount of time may pass before we achieve a level of revenues adequate to support our operations. We also expect to incur
substantial expenditures in connection with our strategic evaluation process, as well as the regulatory approval process for each of our
current or future product candidates during their respective developmental periods. Obtaining marketing approval will be directly dependent
on our ability to implement the necessary regulatory steps required to obtain marketing approval in the United States and in other countries.
We cannot predict the outcome of these activities.
Based on our current cash
resources and commitments, we believe we will be able to maintain our current planned activities and the corresponding level of expenditures
for at least the next 12 months, although no assurance can be given that we will not need additional funds prior to such time. If there
are unexpected increases in our operating expenses, we may need to seek additional financing during the next 12 months.
12
We will need substantial
additional capital in order to satisfy our business objectives.
To date, we have financed
our operations principally through offerings of securities and we may require substantial additional financing at various intervals in
order to implement any potential strategic alternative, to continue our remaining or potential future research and development programs,
including significant requirements for operating expenses including intellectual property protection and enforcement, for pursuit of regulatory
approvals, and for commercialization of our remaining or future products. We can provide no assurance that additional funding will be
available on a timely basis, on terms acceptable to us, or at all. In the event that we are unable to obtain such financing, we may not
be able to implement the actions we decide to take as part of our strategic review process, and we will not be able to fully develop and
commercialize our technology or pursue new technology. Our future capital requirements will depend upon many factors, including:
●
the results of our strategic review process and any new strategic direction we decide to take;
●
continued scientific progress in our research and development programs;
●
costs and timing of conducting clinical trials and seeking regulatory approvals and patent prosecutions;
●
competing technological and market developments;
●
our ability to establish additional collaborative relationships; and
●
effects of commercialization activities and facility expansions if and as required.
If we cannot secure adequate
financing when needed, we may be required to delay, scale back or eliminate one or more of our existing or planned courses of action or
research and development programs, or to enter into license or other arrangements with third parties to commercialize products or technologies
that we would otherwise seek to develop ourselves and commercialize ourselves. In such event, our business, prospects, financial condition
and results of operations may be adversely affected as we may be required to scale-back, eliminate, or delay development efforts or product
introductions or enter into royalty, sales or other agreements with third parties in order to commercialize our products.
We have a history of losses
and can provide no assurance as to our future operating results.
We do not have sufficient
revenues from our research and development activities to fully support our operations. Consequently, we have incurred net losses and negative
cash flows since inception. We currently have only licensing revenues and no product revenues, and may not succeed in developing or commercializing
any products which could generate product revenues. We do not expect to have any products on the market for several years. In addition,
development of our product candidates requires a process of pre-clinical and clinical testing, during which our products could fail. For
example, in January 2023, the ORA-D-013-1 Phase 3 trial did not meet its primary and secondary endpoints. We may not be able to enter
into agreements with one or more companies experienced in the manufacturing and marketing of therapeutic drugs and, to the extent that
we are unable to do so, we will not be able to market our product candidates. Eventual profitability will depend on our success in developing,
manufacturing, and marketing our product candidates or in pursuing a successful strategic alternative. As of December 31, 2022 and 2021,
we had working capital of $151,363,000 and $140,569,000, respectively, and stockholders’ equity of $151,812,000 and $166,453,000,
respectively. During the year ended December 31, 2022, the four month period ended December 31, 2021 and the year ended August 31, 2021,
we generated revenues of $2,703,000, $904,000 and $2,703,000, respectively. For the period from our inception on April 12, 2002 through
December 31, 2022, the year ended December 31, 2022, the four month period ended December 31, 2021 and the year ended August 31, 2021,
we incurred net losses of $163,081,000, $126,520,000 and $114,852,000, respectively. We may never achieve profitability and expect to
incur net losses in the foreseeable future. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
We rely upon patents to
protect our technology.
The patent position of biopharmaceutical
and biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our current
or future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented.
Patents may not provide a competitive advantage or afford protection against competitors with similar technology. Competitors or potential
competitors may have filed applications for, or may have received patents and may obtain additional and proprietary rights to compounds
or processes used by or competitive with ours. In addition, laws of certain foreign countries do not protect intellectual property rights
to the same extent as do the laws of the United States.
Patent litigation is widespread
in the biopharmaceutical and biotechnology industry and we cannot predict how this will affect our efforts to form strategic alliances,
conduct clinical testing or manufacture and market any products under development. If challenged, our patents may not be held valid. We
could also become involved in interference proceedings in connection with one or more of our patents or patent applications to determine
priority of invention. If we become involved in any litigation, interference or other administrative proceedings, we will likely incur
substantial expenses and the efforts of our technical and management personnel will be significantly diverted. In addition, an adverse
determination could subject us to significant liabilities or require us to seek licenses that may not be available on favorable terms,
if at all. We may be restricted or prevented from manufacturing and selling our products in the event of an adverse determination in a
judicial or administrative proceeding or if we fail to obtain necessary licenses.
13
We may be unable to protect
our intellectual property rights and we may be liable for infringing the intellectual property rights of others.
Our ability to compete effectively
will depend on our ability to maintain the proprietary nature of our technologies. We currently hold several pending patent applications
in the United States, Canada, Brazil, Europe, India, Hong Kong, Japan and China for our technologies covering oral administration of insulin
and other proteins and oral administration of exenatide and proteins and 112 patents issued by the United States, Swiss, German, French,
U.K., Italian, Netherlands, Swedish, Spanish, Australian, Israeli, Japanese, New Zealand, South African, Russian, Canadian, Hong Kong,
Chinese, European and Indian patent offices that cover a part of our technology, which allows for the oral delivery of proteins; patents
issued by the Australian, Canadian, European, Austrian, Belgian, French, German, Irish, Italian, Luxembourg, Monaco, Netherlands, Norwegian,
Spanish, Swedish, Swiss, U.K., Israeli, New Zealand, South African, Russian, Brazilian and Japanese patent offices that cover part of
our technology for the oral delivery of exenatide; and patents issued by the European, Austrian, Belgian, Denmark, French, German, Irish,
Italian, Luxembourg, Monaco, Netherlands, Norway, Spanish, Swedish, Swiss, U.K. and Japanese patent offices for treating diabetes. Further,
we intend to rely on a combination of trade secrets and non-disclosure and other contractual agreements and technical measures to protect
our rights in our technology. We intend to depend upon confidentiality agreements with our officers, directors, employees, consultants,
and subcontractors, as well as collaborative partners, to maintain the proprietary nature of our technology. These measures may not afford
us sufficient or complete protection, and others may independently develop technology similar to ours, otherwise avoid our confidentiality
agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition and results of
operations. We believe that our technology is not subject to any infringement actions based upon the patents of any third parties; however,
our technology may in the future be found to infringe upon the rights of others. Others may assert infringement claims against us or against
companies to which we have licensed our technology, and if we should be found to infringe upon their patents, or otherwise impermissibly
utilize their intellectual property, our ability to continue to use our technology could be materially restricted or prohibited. If this
event occurs, we may be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements, or
redesign our products so as not to utilize this intellectual property, each of which may prove to be uneconomical or otherwise impossible.
Licenses or royalty agreements required in order for us to use this technology may not be available on terms acceptable to us, or at all.
These claims could result in litigation, which could materially adversely affect our business, prospects, financial condition and results
of operations. Further, we may need to indemnify companies to which we licensed our technology in the event that such technology is found
to infringe upon the rights of others.
Our commercial success will
also depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Patent
applications are, in many cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent
literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications are
filed. In the event of infringement or violation of another party’s patent, we may be prevented from pursuing product development
or commercialization. See “Item 1. Business—Description of Business— Intellectual Property and Patents.”
Our success was primarily
dependent on the successful commercialization of our oral insulin capsule.
The successful commercialization
of our principal product, the oral insulin capsule, was crucial for our success. On January 12, 2023, we announced top-line results from
the phase 3 trial of our oral insulin capsule, which did not meet its primary or secondary endpoints, and indicated that we expect to
discontinue oral insulin clinical activities for T2D. At present, following the results of the ORA-D-013-1 Phase 3 trial, we have initiated
a comprehensive analysis of the data to understand if there is a path forward for our oral insulin candidate. Concurrently, we are examining
our existing pipeline and have commenced an evaluation process of potential strategic opportunities. Even if our analysis results in a
path forward for our oral insulin capsule, there are a variety of risks and uncertainties related to its development. Principally, these
risks include the following:
● Future
clinical trial results may show the same results as the ORA-D-013-1 Phase 3 trial;
14
● Future
clinical trial results may be inconsistent with previous preliminary testing results and data from our earlier trials may be inconsistent
with clinical data;
● Even
if our oral insulin capsule is shown to be safe and effective for its intended purposes in future clinical trials, we may face significant
or unforeseen difficulties in obtaining or manufacturing sufficient quantities or at reasonable prices;
● Our
ability to complete the development and commercialization of the oral insulin capsule for our intended use is significantly dependent
upon our ability to obtain and maintain experienced and committed partners to assist us with obtaining clinical and regulatory approvals
for, and the manufacturing, marketing and distribution of, the oral insulin capsule on a worldwide basis;
● Even
if our oral insulin capsule is successfully developed, commercially produced and receives all necessary regulatory approvals, there is
no guarantee that there will be market acceptance of our product; and
● Our
competitors may develop therapeutics or other treatments which are superior or less costly than our own with the result that our products,
even if they are successfully developed, manufactured and approved, may not generate significant revenues.
Our business may be seriously
harmed if our analysis does not produce positive results, if we are unable to find a path forward to continue development of our oral
insulin capsule, if we are unsuccessful in realizing new strategic opportunities or dealing with any of these risks, or if we are unable
to successfully commercialize our oral insulin capsule for some other reason.
We have limited experience
in conducting clinical trials.
Clinical trials must meet
FDA and foreign regulatory requirements. We have limited experience in designing, conducting and managing the preclinical trials and clinical
trials necessary to obtain regulatory approval for our product candidates in any country. We have entered into agreements with Integrium
LLC and other consultants to assist us in designing, conducting and managing our various clinical trials in the United States, Europe
and Israel. Any failure of Integrium LLC or any other consultant to fulfill their obligations could result in significant additional costs
as well as delays in designing, consulting and completing clinical trials on our products.
Our clinical trials may
encounter delays, suspensions or other problems.
We may encounter problems
in clinical trials that may cause us or the FDA or foreign regulatory agencies to delay, suspend or terminate our clinical trials at any
phase. These problems could include the possibility that we may not be able to conduct clinical trials at our preferred sites, enroll
a sufficient number of patients for our clinical trials at one or more sites or begin or successfully complete clinical trials in a timely
fashion, if at all. For example, the rate of enrollment for our Phase 1 clinical trial for our oral COVID-19 vaccine in South Africa was
slower than anticipated due to several factors, including the fact that many volunteers did not qualify during screening due to prior
asymptomatic COVID-19 infection and other conditions, and as a result we had to add an additional clinical site. Furthermore, we, the
FDA or foreign regulatory agencies may suspend clinical trials at any time if we or they believe the subjects participating in the trials
are being exposed to unacceptable health risks or if we or they find deficiencies in the clinical trial process or conduct of the investigation.
If clinical trials of any of the product candidates fail, we will not be able to market the product candidate which is the subject of
the failed clinical trials. The FDA and foreign regulatory agencies could also require additional clinical trials, which would result
in increased costs and significant development delays. Our failure to adequately demonstrate the safety and effectiveness of a pharmaceutical
product candidate under development could delay or prevent regulatory approval of the product candidate and could have a material adverse
effect on our business, prospects, financial condition and results of operations. For example, see “Item 1. Business—Description
of Business— Research and Development During 2022” regarding the results of the ORA-D-013-1 Phase 3 trial that did not meet
its primary and secondary endpoints. Finally, the COVID-19 pandemic has impacted clinical trials generally. However, we experienced approximately
six months of delays in clinical trials due to slow-downs of recruitment for trials generally related to COVID-19. We may experience further
delays in site initiation and patient enrollment, failures to comply with study protocols, delays in the manufacture of our product candidates
for clinical testing and other difficulties in starting or competing our clinical trials.
15
Initial success in the
completed and ongoing early-stage clinical trials does not ensure success in later stage trials, regulatory approval or commercial viability
of a product.
Positive results in a clinical
trial may not be replicated in subsequent or confirmatory trials. Additionally, success in preclinical work or early stage clinical trials
does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval will be obtained. Any
of our product’s failure to show sufficient efficacy in patients with the targeted indication, or if such studies are discontinued
for any other reason, could negatively impact our development and commercialization goals for these products and our stock price could
decline. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of
efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. As a result, preliminary and interim data should
be viewed with caution until the final data are available. We have invested in clinical studies of medicines that have not met the primary
clinical endpoints in their Phase 3 studies or have been discontinued for other reasons. For example, in January 2023, we reported
that ORA-D-013-1 trial did not meet its primary or secondary endpoint. Even if later stage clinical trials are successful, regulatory
authorities may delay or decline approval of our product candidates.
There are a number of factors
that could cause a clinical study to fail or be delayed, including: (i) the clinical study may produce negative or inconclusive results;
(ii) regulators may require that we hold, suspend or terminate clinical research for noncompliance with regulatory requirements; (iii)
we, our partners, the FDA or foreign regulatory authorities could suspend or terminate a clinical study due to adverse side effects of
a product on subjects or lack of efficacy in the trial; (iv) we, or our partners, may decide, or regulators may require us, to conduct
additional preclinical testing or clinical studies; (v) change in rates of enrollment and dropout among clinical trial participants; (vi)
differences in the size and type of the patient populations; (vii) changes in and adherence to the dosing regimen and other clinical trial
protocols; and (viii) people who enroll in the clinical study may later drop out due to adverse events, a perception they are not benefiting
from participating in the study, fatigue with the clinical study process or personal or other issues. The occurrence of any of these events
could result in significant costs and expense, have an adverse effect on our business, financial condition and results of operations and/or
cause our stock price to decline or experience periods of volatility.
Clinical trials of our
products conducted by third parties may encounter delays, suspensions or other problems and are outside of our control.
Third parties who conduct
clinical trials of our products may encounter problems that may cause delays, suspensions or other problems at any phase. These problems
could include the possibility that they may not be able to conduct clinical trials at their preferred sites, enroll a sufficient number
of patients for their clinical trials at one or more sites or begin or successfully complete clinical trials in a timely fashion, if at
all. For example, the rate of enrollment for our Phase 1 clinical trial for our oral COVID-19 vaccine in South Africa was slower than
anticipated due to several factors, including the fact that many volunteers did not qualify during screening due to prior asymptomatic
COVID-19 infection and other conditions, and as a result we had to add an additional clinical site. In addition, these third parties are
not controlled by us and may conduct these trials in a manner in which we disagree or which may prove to be unsuccessful. Furthermore,
domestic or foreign regulatory agencies may suspend clinical trials at any time if they believe the subjects participating in the trials
are being exposed to unacceptable health risks or if they find deficiencies in the clinical trial process or conduct of the investigation.
If such clinical trials conducted by third parties fail, it could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We can provide no assurance
that our products will obtain regulatory approval or that the results of clinical trials will be favorable.
The testing, marketing and
manufacturing of any of our products will require the approval of the FDA or regulatory agencies of other countries. We cannot predict
with any certainty the amount of time necessary to obtain regulatory approvals, including from the FDA or other foreign regulatory authorities,
and whether any such approvals will ultimately be granted. In any event, review and approval by the regulatory bodies is anticipated to
take a number of years. Preclinical and clinical trials may reveal that one or more of our products are ineffective or unsafe, in which
event further development of such products could be seriously delayed or terminated. For example, in January 2023, we announced that our
ORA-D-013-1 Phase 3 trial did not meet its primary and secondary endpoints. As a result, we decided to terminate our ORA-D-013-2 Phase
3 trial and have initiated a comprehensive analysis of the data to understand if there is a path forward for our oral insulin candidate.
Moreover, obtaining approval for certain products may require the testing on human subjects of substances whose effects on humans are
not fully understood or documented. Delays in obtaining necessary regulatory approvals of any proposed product and failure to receive
such approvals would have an adverse effect on the product’s potential commercial success and on our business, prospects, financial
condition and results of operations. In addition, it is possible that a product may be found to be ineffective or unsafe due to conditions
or facts which arise after development has been completed and regulatory approvals have been obtained. In this event we may be required
to withdraw such product from the market. See “Item 1. Business—Description of Business—Government Regulation.”
16
We are dependent upon third
party suppliers of our raw materials and for other services.
We are dependent on outside
vendors for our entire supply of the oral insulin capsules and do not currently have any long-term agreements in place for the supply
of oral insulin capsules, which is still necessary if we decide to continue development of these projects. While we believe that there
are numerous sources of supply available, if the third party suppliers were to cease production, or otherwise fail to supply us with quality
raw materials in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these services with alternative
suppliers, our ability to produce our products and to conduct testing and clinical trials would be materially adversely affected.
We rely on suppliers, vendors,
outsourcing partners, alliance partners and other third parties to research, develop, manufacture, commercialize, co-promote and sell
our products, manage certain marketing, IT, data and other business unit and functional services and meet their contractual, regulatory
and other obligations. Using these third parties poses a number of risks, such as: (i) they may not perform to our standards or legal
requirements, for example, in relation to the outsourcing of significant clinical development activities for innovative medicines to some
CROs; (ii) they may not produce reliable products; (iii) they may not perform in a timely manner; (iv) they may not maintain confidentiality
of our proprietary information; (v) they may incur a significant cyberattack or business disruption; (vi) they may be subject to government
orders or mandates that require them to give priority to the government and set aside pre-existing commercial orders; (vii) disputes may
arise with respect to ownership of rights to technology developed with our partners; and (viii) disagreements could cause delays in, or
termination of, the research, development or commercialization of the product or result in litigation or arbitration. The failure of any
critical third party to meet its obligations; to adequately deploy business continuity plans in the event of a crisis; and/or to satisfactorily
resolve significant disagreements with us or address other factors, could have a material adverse impact on our operations and results.
In addition, if these third parties violate, or are alleged to have violated, any laws or regulations, including the local pharmaceutical
code, the U.S. Foreign Corrupt Practice Act of 1977, the U.K. Bribery Act of 2010, the EU’s General Data Protection Regulations,
and other similar laws and regulations, during the performance of their obligations for us, we could suffer financial and reputational
harm or other negative outcomes, including possible legal consequences.
Any future revenues from
HTIT are dependent upon third party suppliers and Chinese regulatory approvals.
Any future revenues from HTIT
are dependent upon the achievement of certain milestones and conditions, and the success of HTIT to implement our technology and to manufacture
the oral insulin capsule. Any future revenues from HTIT are also dependent upon the ability of third parties to scale-up one of our oral
capsule ingredients and to scale-up the manufacturing process of our capsules. Our future revenues from royalties from HTIT are further
dependent upon the granting of regulatory approvals in the Territory. Accordingly, if any of the foregoing does not occur, we may not
be successful in receiving future revenues from HTIT and may not succeed with our business plans in China.
If we do not resolve our
dispute with HTIT favorably, we may need to reverse deferred revenue of up to $2 million and may not receive an additional $4 million
in royalties.
On August 21, 2020, we received
a letter from HTIT, disputing certain pending payment obligations of HTIT under the TLA. We estimate this obligation to be between $2
million and $6 million. While we wholly dispute said claims and have been engaged in discussions and exchanges with HTIT in an attempt
to clarify and resolve disagreements between the parties regarding milestone payments and work plan implementation, we may be subsequently
required to repay to HTIT up to $2 million, which has been received and has been included in our deferred revenue in each of the consolidated
balance sheets for the years ended December 31, 2022 and 2021. In addition, we may not receive an additional $4 million in Royalties if
HTIT is entitled to the full disputed amount of $6 million.
17
We may not realize a return
on the ordinary shares of DNA and Entera that we own.
DNA’s ordinary shares
are traded on the Tel Aviv Stock Exchange and Entera’s ordinary shares are traded on the Nasdaq Stock Market, both of which are
subject to market fluctuations, and may, at times, have a price below the value on the date we acquired such shares. In addition, the
ordinary shares of DNA and Entera have historically experienced low trading volume. As a result, there is no guarantee that we will be
able to resell the ordinary shares of DNA or Entera at the prevailing market prices or that we will realize a positive return on such
shares.
We may not realize the
full benefit from our distribution license agreement with Medicox.
Our distribution license agreement
with Medicox provides that Medicox will comply with agreed distribution targets and will purchase ORMD-0801 at an agreed upon transfer
price per capsule and pay us up to $15 million in developmental milestones, $2 million of which have already been received by us. Following
the results of the ORA-D-013-1 Phase 3 trial, we are currently evaluating with Medicox a path forward to continue our collaboration. If
we are not successful in finding a mutually agreed way to continue our collaboration, or if Medicox is not successful in independently
advancing the oral insulin candidate, we may not realize the benefits from this collaboration.
We are highly dependent
upon our ability to enter into agreements with collaborative partners to develop, commercialize and market our products.
Our long-term strategy is
to ultimately seek a strategic commercial partner, or partners, such as large pharmaceutical companies, with extensive experience in the
development, commercialization, and marketing of insulin applications and/or other orally digestible drugs. Such planned strategic partnership,
or partnerships, may provide a marketing and sales infrastructure for our products as well as financial and operational support for global
clinical trials, post marketing trials, label expansions and other regulatory requirements concerning future clinical development in the
United States and elsewhere. We currently lack the resources to manufacture any of our product candidates on a large scale and we have
no sales, marketing or distribution capabilities. In the event we are not able to enter into a collaborative agreement with a partner,
or partners, on commercially reasonable terms, or at all, we may be unable to commercialize our products, which would have a material
adverse effect upon our business, prospects, financial condition and results of operations.
The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high degree of competition. We may be unable to compete with more
substantial enterprises.
The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high degree of competition. As a result, our products could become
obsolete before we recoup any portion of our related research and development and commercialization expenses. These industries are highly
competitive, and this competition comes both from biotechnology firms and from major pharmaceutical and chemical companies. Many of these
companies have substantially greater financial, marketing and human resources than we do (including, in some cases, substantially greater
experience in clinical testing, manufacturing and marketing of pharmaceutical products). We also experience competition in the development
of our products from universities and other research institutions and compete with others in acquiring technology from such universities
and institutions. We face the risk that new market entrants and existing competition may try to replicate our business model or introduce
a more innovative offering that renders our services less competitive or obsolete. In addition, our research and development efforts may
target diseases and conditions for which there are existing therapies or therapies that are being developed by our competitors. Further,
any products resulting from our research and development efforts might not be able to compete successfully with others’ existing
and future products. See “Item 1. Business—Description of Business—Competition.”
18
Our financial position
or results could be negatively affected by product liability claims.
It is possible that we will
be responsible for potential product liability stemming from product research, development or manufacturing and may face an even greater
risk if any product candidate that we develop is commercialized. If we cannot successfully defend ourselves against claims that products
we develop independently or with our partners caused injuries, we could incur substantial liabilities. Regardless of the merit or eventual
outcome of such claims, any liability claims may result in, among other things, decreased demand for any product that we may develop,
loss of revenues, significant time and costs to defend the related litigation, initiation of investigations by regulators and injury to
our reputation and significant negative media attention. On occasion, large judgments have been awarded in class action lawsuits based
on drugs or medical treatments that had unanticipated adverse effects. Our clinical trials are covered by liability insurance, but notwithstanding
such coverage, our financial position or results could be negatively affected by product liability claims.
We have limited senior
management resources and may be required to obtain more resources to manage our growth.
We expect the expansion of
our business, as well as the activities we take as a result of our strategic review process, to place a significant strain on our limited
managerial, operational and financial resources. We will be required to expand our operational and financial systems significantly and
to expand, train and manage our work force in order to manage the expansion of our operations. Our failure to fully integrate our new
employees into our operations could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our ability to attract and retain highly skilled personnel is critical to our operations and expansion. We face competition for these
types of personnel from other technology companies and more established organizations, many of which have significantly larger operations
and greater financial, technical, human and other resources than we have. We may not be successful in attracting and retaining qualified
personnel on a timely basis, on competitive terms or at all. If we are not successful in attracting and retaining these personnel, our
business, prospects, financial condition and results of operations will be materially adversely affected. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” “Item 1. Business—Description of Business—Employees.”
We depend upon our senior
management and skilled personnel and their loss or unavailability could put us at a competitive disadvantage.
We currently depend upon the
efforts and abilities of our senior executives, as well as the services of several key consultants and other key personnel, including
Dr. Miriam Kidron, our Chief Scientific Officer. The loss or unavailability of the services of any of these individuals for any significant
period of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We do not
maintain “key man” life insurance policies for any of our senior executives. In addition, recruiting and retaining qualified
scientific personnel to perform future research and development work will be critical to our success. There is currently a shortage of
employees with expertise in developing, manufacturing and commercialization of products and related clinical and regulatory affairs, and
this shortage is likely to continue. Competition for skilled personnel is intense and turnover rates are high. Our ability to attract
and retain qualified personnel may be limited. Our inability to attract and retain qualified skilled personnel would have a material adverse
effect on our business, prospects, financial condition and results of operations.
Our existing and any future
joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements.
We are currently party to
a joint venture, and we may in the future sell or contribute additional assets or acquire, develop or recapitalize assets to or in this
joint venture or other joint ventures that we may enter.
Our participation in our existing
joint venture is subject to risks, including the following:
● We
share approval rights over certain major decisions affecting the ownership or operation of the joint venture and any assets owned by
the joint venture;
● We
may need to contribute additional capital in order to preserve, maintain or grow the joint venture and its investments;
19
● Our
joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals
and that could affect our ability to fully benefit from the assets owned by the joint venture;
● Our
joint venture investors may be subject to different laws or regulations than us, which could create conflicts of interest;
● Our
joint venture has license and other agreements with other investors, which we are not party to and have no control over;
● Our
ability to sell our interest in, or sell additional assets to, the joint venture or the joint venture’s ability to sell additional
interests of, or assets owned by, the joint venture when we so desire are subject to the approval rights of the other joint venture investors
under the terms of the agreements governing the joint venture; and
● Disagreements
with our joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and
could delay important decisions.
Any of the foregoing risks
could have a material adverse effect on our business, financial condition and results of operations. Further, these, similar, enhanced
or additional risks, including possible risks of the other joint venture investors having licensed assets to the joint venture, may apply
to any future additional or amended joint ventures that we may enter into.
Healthcare policy changes,
including pending legislation recently adopted and further proposals still pending to reform the U.S. healthcare system, may harm our
future business.
Healthcare costs have risen
significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to
keep these costs down. Certain proposals, if passed, would impose limitations on the prices we will be able to charge for the products
that we are developing, or the amounts of reimbursement available for these products from governmental agencies or third-party payors.
These limitations could in turn reduce the amount of revenues that we will be able to generate in the future from sales of our products
and licenses of our technology.
In 2010, the federal government
enacted healthcare reform legislation that has significantly impacted the pharmaceutical industry. In addition to requiring most individuals
to have health insurance and establishing new regulations on health plans, this legislation requires discounts under the Medicare drug
benefit program and increased rebates on drugs covered by Medicaid. In addition, the legislation imposes an annual fee, which has increased
annually, on sales by branded pharmaceutical manufacturers. There can be no assurance that our business will not be materially adversely
affected by these increased rebates, fees and other provisions. In addition, these and other initiatives in the United States may continue
the pressure on drug pricing, especially under the Medicare and Medicaid programs, and may also increase regulatory burdens and operating
costs. The announcement or adoption of any such initiative could have an adverse effect on potential revenues from any product that we
may successfully develop. An expansion in government’s role in the U.S. healthcare industry may lower the future revenues for the
products we are developing and adversely affect our future business, possibly materially.
In September 2017, members
of the U.S. Congress introduced legislation with the announced intention to repeal and replace major provisions of the Patient Protection
and Affordable Care Act, or the ACA. In addition to those efforts, on October 12, 2017, an executive order was issued that modified certain
aspects of the ACA. Following several years of litigation in the federal courts, in June 2021, the U.S. Supreme Court upheld the ACA when
it dismissed a legal challenge to the ACA’s constitutionality. Further attempts to repeal or to repeal and replace the ACA may continue.
In addition, various other healthcare reform proposals have also emerged at the federal and state level. We cannot predict what healthcare
initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on
us.
We are exposed to fluctuations
in currency exchange rates.
A considerable amount of our
expenses are generated in dollars or in dollar-linked currencies, but a significant portion of our expenses such as some clinical trials
and payroll costs are generated in other currencies such as NIS and Euro. Most of the time, our non-dollar assets are not totally offset
by non-dollar liabilities. Due to the foregoing and to the fact that our financial results are measured in dollars, our results could
be adversely affected as a result of a strengthening or weakening of the dollar compared to these other currencies. During the years ended
December 31, 2017, 2019, 2020 and 2021, the dollar depreciated in relation to the NIS, which raised the dollar cost of our Israeli based
operations and adversely affected our financial results, while during the year ended December 31, 2018 and 2022, the dollar increased
in relation to the NIS, which reduced the dollar cost of our Israeli based operations costs. In addition, our results could also be adversely
affected if we are unable to guard against currency fluctuations in the future. Although we may in the future decide to undertake foreign
exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to
foreign currency exchange risks. These transactions, however, may not adequately protect us from future currency fluctuations and, even
if they do protect us, may involve operational or financing costs we would not otherwise incur.
20
The COVID-19 pandemic,
or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect our clinical trial operations,
our business and operations.
The spread of COVID-19 may
result in the inability of our suppliers to deliver supplies to us on a timely basis. In addition, health professionals may reduce staffing
and reduce or postpone meetings with clients in response to the spread of an infectious disease. Though we have not yet experienced such
events, if they would occur, they could result in a period of business disruption, and in reduced operations, any of which could materially
affect our business, financial condition and results of operations.
However, we experienced approximately
six months of delays in clinical trials due to slow-downs of recruitment for trials generally. Although we do not expect any material
impact on our development timeline and our liquidity due to COVID-19, the ongoing development of the COVID-19 pandemic globally could
adversely impact our clinical trial operations in the United States, Israel and in Europe, including our ability to recruit and retain
patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak
occurs in their geography or due to government or institutional quarantines or stay-at-home measures. We continue to assess the effect
on our operations by monitoring the status of COVID-19.
We face uncertainties related
to Oravax’s oral COVID-19 vaccine.
We face uncertainties related
to Oravax’s oral COVID-19 vaccine, including uncertainties related to the risk that our continued development programs may not be
successful, commercially viable or receive approval from regulatory authorities. Other companies may produce superior or competitive oral
or other products that make Oravax’s oral COVID-19 vaccine not commercially worthwhile. Even if we succeed in developing the product,
the demand for any product we may develop may no longer exist, given the fluid nature of the COVID-19 pandemic, including possible decreased
demand for vaccines due to weaker strains, the need for different vaccines for new variants of the virus or an end of the pandemic that
may render Oravax’s vaccine obsolete.
Risks Related to our Common Stock
Future sales of our common
stock by our existing stockholders could adversely affect our stock price.
The market price of our common
stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that these sales
could occur. We experienced a significant decline in the market price of our common stock and a significant increase in trading volume
after announcing the results of our ORA-D-013-1 Phase 3 trial in January 2023. Any strategic decision we make as a result of our strategic
review process may also negatively affect our common stock price or cause volatility in the market price of our common stock. Sales of
large amounts of our securities or large variations in trading volume might make it more difficult for us to sell equity securities in
the future at a time and at a price that we deem appropriate. As of March 6, 2023, we had outstanding 39,783,813 shares of common stock,
a large majority of which are freely tradable. Giving effect to the exercise in full of all of our outstanding warrants, options and restricted
stock units, or RSUs, including those currently unexercisable or unvested, we would have outstanding 43,386,638 shares of common stock.
Our issuance of warrants,
options and RSUs to investors, employees and consultants may have a negative effect on the trading prices of our common stock as well
as a dilutive effect.
We have issued and may continue
to issue warrants, options, RSUs and convertible notes at, above or below the current market price. As of March 6, 2023, we had outstanding
warrants and options exercisable for 1,548,256 shares of common stock at a weighted average exercise price of $4.71. We also had outstanding
RSUs exercisable for 265,302 shares of common stock at a total exercise price of $900. In addition to the dilutive effect of a large number
of shares of common stock and a low exercise price for the warrants and options, there is a potential that a large number of underlying
shares of common stock may be sold in the open market at any given time, which could place downward pressure on the trading of our common
stock.
21
Because we will not pay
cash dividends in the foreseeable future, investors may have to sell shares of our common stock in order to realize their investment.
We have not paid any cash
dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings,
if any, for reinvestment in the development and expansion of our business. Any credit agreements which we may enter into with institutional
lenders or otherwise may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion
of our Board and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that
our Board decides is relevant.
Our failure to maintain
compliance with the Nasdaq Capital Market’s continued listing requirements could result in the delisting of our common stock.
Our common stock is currently
listed on The Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. Nasdaq
Listing Rule 5550(a)(2) requires the minimum bid price of our common stock on the Nasdaq Capital Market to remain above $1.00. If the
bid price of our common stock closes below $1.00 per share for 30 consecutive business days, we would be in violation of Nasdaq Listing
Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we would have 180 calendar days to regain compliance with the minimum
bid requirement to achieve compliance with the minimum bid price requirement.
While we intend to engage
in efforts to maintain compliance, and thus maintain our listing, there can be no assurance that we will continue to meet all applicable
Nasdaq Capital Market requirements in the future, especially in light of any strategic transaction we may choose to undertake. 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.
If our common stock is delisted
and there is no longer an active trading market for our shares, it may, among other things:
● cause stockholders difficulty in selling our
shares without depressing the market price for the shares or selling our shares at all;
● substantially impair our ability to raise additional
funds;
● result in a loss of institutional investor interest
and fewer financing opportunities for us; and/or
● result in costly litigation, significant liabilities
and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business
and results of operations.
A delisting would also reduce
the value of our equity compensation plans, which could negatively impact our ability to retain employees.
As the market price of
our common stock may fluctuate significantly, this may make it difficult for you to sell your shares of common stock when you want or
at prices you find attractive.
The price of our common stock
is currently listed on The Nasdaq Capital Market and on the Tel Aviv Stock Exchange and constantly changes. In recent years, the stock
market in general has experienced extreme price and volume fluctuations. We expect that the market price of our common stock will continue
to fluctuate. These fluctuations may result from a variety of factors, many of which are beyond our control. For example, we experienced
a significant decline in the market price of our common stock after announcing the results of our ORA-D-013-1 Phase 3 trial in January
2023. These factors include:
●
market acceptance of our new strategy, once determined and announced;
22
●
clinical trial results and the timing of the release of such results;
●
the amount of cash resources and our ability to obtain additional funding;
●
announcements of research activities, business developments, technological innovations or new products by us or our competitors;
●
entering into or terminating strategic relationships;
●
changes in government regulation;
●
departure of key personnel;
●
disputes concerning patents or proprietary rights;
●
changes in expense level;
●
future sales of our equity or equity-related securities;
●
public concern regarding the safety, efficacy or other aspects of the products or methodologies being developed;
●
activities of various interest groups or organizations;
●
media coverage; and
●
status of the investment markets.
Future sales of common
stock or the issuance of securities senior to our common stock or convertible into, or exchangeable or exercisable for, our common stock
could materially adversely affect the trading price of our common stock, and our ability to raise funds in new equity offerings.
Future sales of substantial
amounts of our common stock, including pursuant to any strategic opportunity, the Cantor Equity Distribution Agreement (as defined below),
or other equity-related securities in the public market or privately, or the perception that such sales could occur, could adversely affect
prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or other
equity-related securities. We anticipate that we will need to raise capital through offerings of equity and equity related securities.
We can make no prediction as to the effect, if any, that future sales of shares of our common stock or equity-related securities, or the
availability of shares of common stock for future sale, will have on the trading price of our common stock.
Our stockholders may experience
significant dilution as a result of any additional financing using our equity securities.
To the extent that we raise
additional funds by issuing equity securities, including in connection with any strategic opportunity or pursuant to the Cantor Equity
Distribution Agreement, our stockholders may experience significant dilution. Additionally, we may, from time to time or in connection
with a strategic alternative, issue additional shares of common stock at a discount from the current trading price of our common stock.
As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount.
In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance
of convertible debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock,
our common stockholders would experience additional dilution and, as a result, our stock price may decline.
Risks Related to Conducting Business in Israel
We are affected by the
political, economic and military risks of having operations in Israel.
We have operations in the
State of Israel, and we are directly affected by political, economic and security conditions in that country. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for Israel. In addition, acts of terrorism, armed conflicts
or political instability in the region could negatively affect local business conditions and harm our results of operations. We cannot
predict the effect on the region of any diplomatic initiatives or political developments involving Israel or the Palestinians or other
countries and territories in the Middle East. Recent political events, including political uprisings, social unrest and regime change,
in various countries in the Middle East and North Africa have weakened the stability of those countries and territories, which could result
in extremists coming to power. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons.
Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon.
This situation has escalated in the past and may potentially escalate in the future to violent events which may affect Israel and us.
Our business, prospects, financial condition and results of operations could be materially adversely affected if major hostilities involving
Israel should occur or if trade between Israel and its current trading partners is interrupted or curtailed.
23
All adult male permanent residents
of Israel, unless exempt, may be required to perform military reserve duty annually. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Some of our officers, directors and employees currently are or in the
future may be obligated to perform annual military reserve duty. We can provide no assurance that such requirements will not have a material
adverse effect on our business, prospects, financial condition and results of operations in the future, particularly if emergency circumstances
occur.
Because we received grants
from the Israel Innovation Authority of the Israeli Ministry of Economy & Industry we are subject to ongoing restrictions.
We received royalty-bearing
grants from the Israel Innovation Authority of the Israeli Ministry of Economy & Industry, or IIA, for research and development programs
that meet specified criteria. We did not recognize any grants in the year ended December 31, 2022, the four month period ended December
31,2021 and the year ended August 31, 2021. We do not expect to receive further grants from the IIA in the future. The terms of the IIA
grants limit our ability to transfer know-how developed under an approved research and development program outside of Israel, regardless
of whether the royalties were fully paid.
It may be difficult to
enforce a U.S. judgment against us or our officers and directors and to assert U.S. securities laws claims in Israel.
Almost all of our directors
and officers are nationals and/or residents of countries other than the United States. As a result, service of process upon us, our Israeli
subsidiary and our directors and officers, may be difficult to obtain within the United States. Furthermore, because the majority of our
assets and investments, and most of our directors and officers are located outside the United States, it may be difficult for investors
to enforce within the United States any judgments obtained against us or any such officers or directors. Additionally, it may be difficult
to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation
of U.S. securities laws because Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli
court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to such claim. If U.S. law is found to
be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain
matters of procedure will also be governed by Israeli law.
Subject to specified time
limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce
a U.S. judgment in a civil matter, including a judgment based upon the civil liability provisions of the U.S. securities laws, as well
as a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
●
subject to limited exceptions, the judgment is final and non-appealable;
●
the judgment was given by a court competent under the laws of the state in which the court is located and is otherwise enforceable in such state;
●
the judgment was rendered by a court competent under the rules of private international law applicable in Israel;
●
the laws of the state in which the judgment was given provides for the enforcement of judgments of Israeli courts;
●
adequate service of process has been effected and the defendant has had a reasonable opportunity to present its arguments and evidence;
●
the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;
24
●
the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and
●
an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.
If any of these conditions are not met,
Israeli courts will likely not enforce the applicable U.S. judgment.
General Risk Factors
Changes to tax laws could
have a negative effect on us or our stockholders.
At any time, the U.S. federal
or state income tax laws, or the administrative interpretations of those laws, may be amended. Federal and state tax laws are constantly
under review by persons involved in the legislative process, the U.S. Internal Revenue Service, the U.S. Department of the Treasury and
state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application,
could adversely affect us. Our stockholders are encouraged to consult with their tax advisors about the potential effects that changes
in law may have on them and their ownership of our securities.
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
Despite
the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to
damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or
cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our
organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer
hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks
and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could
result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing
or planned clinical trials could result in delays in our clinical trial efforts and significantly increase our costs to recover or reproduce
the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur material legal claims and liability, and damage to our reputation,
and the further development of our product candidates could be delayed.
We
also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material,
nonpublic information generally and in connection with a cyber-security breach. However, a breakdown in existing controls and procedures
around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and
could have a material adverse effect on our financial position and value of our stock.
Our management will have
significant flexibility in using the net proceeds of any offering of securities.
We intend generally to use
the net proceeds from any offerings of our securities for expenses related to our clinical trials, research and product development activities,
and for general corporate purposes, including general working capital purposes. Our management will have significant flexibility in applying
the net proceeds of any such offering and we will necessarily be using our capital when we decide on new strategic initiatives. The actual
amounts and timing of expenditures will vary significantly depending on a number of factors, including the amount of cash used in our
operations and our research and development efforts. Management’s failure to use these funds effectively would have an adverse effect
on the value of our common stock and could make it more difficult and costly to raise funds in the future.
Delaware law could discourage
a change in control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, and thereby adversely
affect existing stockholders.
The Delaware General Corporation
Law contains provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of the Company,
even when these attempts may be in the best interests of stockholders. Delaware law imposes conditions on certain business combination
transactions with “interested stockholders.” These provisions and others that could be adopted in the future could deter unsolicited
takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive
a premium for their shares of common stock over then current market prices. These provisions may also limit the ability of stockholders
to approve transactions that they may deem to be in their best interests.
25
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
We believe that our existing
facilities are suitable and adequate to meet our current business requirements. In the event that we should require additional or alternative
facilities, we believe that such facilities can be obtained on short notice at competitive rates.
ITEM 3. LEGAL PROCEEDINGS.
From time to time we may become
subject to litigation incidental to our business. We are not currently a party to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
26
PART II