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is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
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RISK FACTORS
An investment in our securities involves a
high degree of risk. This prospectus contains a discussion of the risks applicable to an investment in our securities. Prior to
making a decision about investing in our securities, you should carefully consider the specific factors discussed below, together
with all of the other information contained or incorporated by reference in this prospectus. You should also consider the risks,
uncertainties and assumptions discussed under Item 1A, “Risk Factors,” in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2015 and any updates described in our Quarterly Reports on Form 10-Q, all of which
are incorporated herein by reference, and may be amended, supplemented or superseded from time to time by other reports we file
with the SEC in the future. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known
or unknown risks might cause you to lose all or part of your investment in our securities.
Our operations and
financial results are subject to various risks and uncertainties, including those described below, which could adversely affect
our business, financial condition, results of operations, cash flows, and the trading price of our Common Stock. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial also may materially affect our business operations.
Risks Relating to our Financial Position
and Need for Additional Capital
We are an early
stage corporation. Our limited operating history makes it difficult to evaluate our current business and future prospects, and
our profitability in the future is uncertain.
We commenced operations
in 2010 and are a new, early stage company. We face the problems, expenses, difficulties, complications and delays, many of which
are beyond our control, associated with any business in its early stages and has no operating history on which an evaluation of
our prospects can be made. Such prospects should be considered in light of the risks, expenses and difficulties frequently encountered
in the establishment of a business in a new industry, characterized by a number of market entrants and intense competition, and
in the shift from development to commercialization of new products based on innovative technologies.
We expect to experience
significant growth in the number of our employees and the scope of our operations. To manage our anticipated future growth, we
must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to
recruit and train additional qualified personnel. Due to our limited resources, we may not be able to effectively manage the expansion
of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant
costs and may divert our management and business development resources. Any inability on the part of our management to manage growth
could delay the execution of our business plans or disrupt our operations.
Factors that may inhibit
our efforts to commercialize our products without strategic partners or licensees include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or
persuade adequate numbers of physicians to prescribe our products;
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the lack of complementary products to be offered by our
sales personnel, which may put us at a competitive disadvantage against companies with broader product lines;
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unforeseen costs associated with expanding our own sales and
marketing team for new products or with entering into a partnering agreement with an independent sales and marketing
organization; and
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efforts by our competitors to commercialize competitive products.
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Moreover, we may incur
significant operating losses over the next several years. Our ability to achieve profitable operations in the future will depend
in large part upon successful in-licensing of products approved by the FDA, selling and manufacturing these products, completing
development of our products, obtaining regulatory approvals for these products, and bringing these products to market. The likelihood
of the long-term success of our company must be considered in light of the expenses, difficulties and delays frequently encountered
in the development and commercialization of new drug products, competitive factors in the marketplace, as well as the regulatory
environment in which we operate.
In addition, as a new business,
we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
Our management has
identified internal control deficiencies, which our management believes constitute material weaknesses. Any future material weaknesses
or deficiencies in our internal control over financial reporting could harm stockholder and business confidence in our financial
reporting, our ability to obtain financing and other aspects of our business.
In connection with the
preparation of our audited financial statements for the year ended December 31, 2015 we concluded that a material weakness existed
in internal control over financial reporting. As of December 31, 2015, we carried out an assessment of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013), updated and reissued
by the Committee of Sponsoring Organizations (2013) (“COSO Framework”). Based on our evaluation under the COSO
Framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2015.
In connection with the above assessment, Immune management identified a material weakness in the control environment relating to
segregation of duties due to lack of sufficient accounting and finance personnel and lack of a sufficient technology infrastructure
to support the financial reporting function.
A material weakness is
a significant deficiency, or combination of significant deficiencies, that results in there being more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis
by management or employees in the normal course of performing their assigned functions. Although the Company has attempted to address
the identified material weaknesses by hiring a new controller and is in process of implementing a new general ledger system, management
concluded that the Company's internal controls over financial reporting were not effective at December 31, 2015. Management is
in the process of taking the steps as outlined in Item 9A to remediate the December 31, 2015 material weaknesses. Therefore, we
cannot be certain that, in the future, additional material weaknesses or significant deficiencies will not exist or otherwise be
discovered. If our efforts to address the weakness identified are not successful, or if other deficiencies occur, these weaknesses
or deficiencies could result in misstatements of our results of operations, restatements of our financial statements, a decline
in our stock price and investor confidence or other material effects on our business, reputation, financial condition or liquidity.
Our auditors have
expressed doubt about our ability to continue as a going concern. We have a limited operating history, expect to continue to incur
substantial operating losses and may be unable to obtain additional financing, causing substantial doubt about our ability to continue
as a going concern.
The Independent Registered
Public Accounting Firm’s Reports issued in connection with our audited financial statements for the year ended December 31,
2015 stated that there is “substantial doubt about the Company’s ability to continue as a going concern”. Because
we have been issued an opinion by our auditors that substantial doubt exists as to whether it can continue as a going concern,
it may be more difficult to attract investors. If we are not able to continue our business as a going concern, we may have to liquidate
our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely
that investors will lose part or all of their investment. Our ability to continue as a going concern is dependent on a combination
of several of the following factors: our ability to generate revenues and raise capital, the “cash” exercise of warrants
by holders and access to an established credit line. We have limited capital resources and our operations, since inception, have
been funded by the proceeds of equity and debt financings.
We have incurred
operating losses since our inception. We expect to incur operating losses for the foreseeable future and may never achieve or maintain
profitability.
We believe that our available
cash and short-term investments as of the date of this filing may not be sufficient to fund our anticipated level of operations
for at least the next 12 months. Management believes the Company’s ability to continue its operations depends on its ability
to generate and grow revenue, results of operations and its ability to access capital markets when necessary to accomplish its
strategic objectives. Management believes that we will continue to incur losses for the immediate future. The Company expects to
finance its cash needs from additional equity or debt financing, or need to enter into strategic alliances on products in development
to sustain our operations until we can achieve profitability and positive cash flows from operating activities, if ever.
At September 30, 2016
and December 31, 2015, we had working capital deficit of $6.6 million and $1.4 million, respectively. Our accumulated deficit amounted
to $84.0 million, $63.0 million and $45.8 million, at September 30, 2016, December 31, 2015 and December 31, 2014, respectively.
Our net loss for the years ended December 31, 2015 and 2014 was $17.2 million and $23.6 million, respectively. Net cash used in
operating activities for both the years ended December 31, 2015 and 2014 was $13.9 million. Operations since inception have been
funded primarily with the proceeds from equity and debt financings. As of September 30, 2016 and December 31, 2015, we had cash,
and cash equivalents of $0.3 million and $4.5 million, respectively. We will continue to fund operations from cash on hand, and
through the similar sources of capital previously described. We can give no assurance that such capital will be available to us
on favorable terms or at all. If we are unable to raise additional funds in the future on acceptable terms, or at all, we may be
forced to curtail our development activities. In addition we could be forced to delay or discontinue product development, and forego
attractive business opportunities. Any additional sources of financing will likely involve the sale of our equity securities, which
will have a dilutive effect on existing stockholders.
The Company expects that
a large percentage of its future research and development expenses to be incurred in support of current and future preclinical
and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. The
Company tests its product candidates in numerous preclinical studies for toxicology, safety and efficacy. The Company then conducts
early stage clinical trials for each drug candidate. As the Company obtains results from clinical trials, it may elect to discontinue
or delay clinical trials for certain product candidates or programs in order to focus resources on more promising product candidates
or programs. Completion of clinical trials may take several years but the length of time generally varies according to the type,
complexity, novelty and intended use of a drug candidate. The cost of clinical trials may vary significantly over the life of a
project as a result of differences arising during clinical development, including:
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the number of sites included in the trials;
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the length of time required to enroll suitable patients;
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the number of patients that participate in and complete the trials;
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the number of doses that patients receive;
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the duration of follow-up with the patient;
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the product candidate’s phase of development; and
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the efficacy and safety profile of the product.
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Expenses related to clinical
trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions
and clinical research organizations that conduct clinical trials on the Company’s behalf. The financial terms of these agreements
are subject to negotiation and vary from contract to contract and may result in uneven payment flows. If timelines or contracts
are modified based upon changes in the clinical trial protocol or scope of work to be performed, estimates of expenses are modified
accordingly on a prospective basis.
None of the Company’s
drug candidates has received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign
regulatory agencies must conclude that its clinical data and that of its collaborators establish the safety and efficacy of the
Company’s drug candidates. Furthermore, the Company’s strategy includes entering into collaborations with third parties
to participate in the development and commercialization of its products. In the event that third parties have control over the
preclinical development or clinical trial process for a product candidate, the estimated completion date would largely be under
control of that third party rather than under the Company’s control. The Company cannot forecast with any degree of certainty
which of its drug candidates will be subject to future collaborations or how such arrangements would affect its development plan
or capital requirements.
To become and remain profitable,
we must succeed in developing and commercializing drugs with significant market potential. This will require us to be successful
in a range of challenging activities, including the discovery of product candidates, successful completion of preclinical testing
and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing
and selling those products for which we may obtain regulatory approval. We are only in the preliminary stages of these activities.
We may not be successful enough in these activities to generate revenues that are substantial enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our
failure to become or remain profitable could depress the market price of our Common Stock and could impair our ability to raise
capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our
Common Stock may also cause a loss of a part or all of your investment.
We have limited
liquidity and, as a result, may not be able to meet our obligations.
We have incurred significant
losses since our inception. We expect to incur additional losses for the foreseeable future and may never achieve or maintain profitability.
Since our inception on July 11, 2010 (“Inception”), we have incurred significant losses and expect to continue to operate
at a net loss in the foreseeable future. For the fiscal year ended December 31, 2015, we incurred net losses of $17.2 million and
a total accumulated deficit of $63.0 million. To date, we have financed our operations primarily through private placements of
Common Stock and preferred stock, public offering, convertible debt securities and borrowings under secured loans. Our revenue
to date has consisted of royalties on licensed patents. We have devoted substantially all of our financial resources and efforts
to developing bertilimumab, our Phase II drug for the treatment of inflammatory diseases and NanomAbs, our platform for the targeted
delivery of cancer drugs, manufacturing bertilimumab under cGMPs, conducting preclinical studies and clinical trials. We are still
in the early stages of development of our product candidates, and we have not completed development of bertilimumab, NanomAbs or
other drugs. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Our net losses
may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially
as we continue the research and development of our product candidates.
To become and remain profitable,
we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to
be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product
candidates, discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing,
marketing and selling any products for which we may obtain regulatory approval, and establishing and managing our collaborations
at various stages of each candidate’s development. We are only in the preliminary stages of most of these activities. We
may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.
Because of the numerous
risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount
of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the FDA or EMA to perform
studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development
of any of our product candidates, our expenses could increase and revenue could be further delayed.
Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and
remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain
our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of
our company could also cause you to lose part or all of your investment.
We will require
substantial additional funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary
additional capital, we may be unable to complete the development and commercialization of our product candidates, or continue our
development programs.
Our operations have
consumed substantial amounts of cash since Inception. We will require additional capital for the further development and commercialization
of our product candidates, as well as to fund our other operating expenses and capital expenditures.
We cannot be certain that
additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient
amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization
of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates
at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any
of these events could significantly harm our business, financial condition and results of operations.
In order to carry out
our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time
and may choose to raise additional funds through strategic collaborations, licensing arrangements, public or private equity or
debt financing, bank lines of credit, asset sales, government grants, or other arrangements. We cannot be sure that any additional
funding, if needed, will be available on terms favorable to us, or at all. Furthermore, any additional equity or equity-related
financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants
and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required
to relinquish our rights to certain of our product candidates or marketing territories.
In addition, certain investors,
including institutional investors, may be unwilling to invest in our securities if we are unable to maintain the listing of our
Common Stock on a U.S. national securities exchange. Our inability to raise capital when needed would harm our business, financial
condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.
The terms of our
loan and security agreement place restrictions on our operating and financial flexibility. If we raise additional capital through
this facility, the terms of any new debt could further restrict our ability to operate our business.
As of November 30, 2016,
the outstanding principal balance of our loan and security agreement with Hercules Capital was $3.4 million. The loan and security
agreement contains customary affirmative and negative covenants and events of default applicable to us and our subsidiaries. The
negative covenants include, among others, restrictions on transferring collateral, incurring additional indebtedness, engaging
in mergers or acquisitions, paying dividends or making other distributions, making certain investments, incurring liens and selling
certain assets in each case subject to certain exceptions. If we default under the facility, the lender may accelerate all of our
repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less
favorable to us or to immediately cease operations. Further, if we are liquidated, the lenders right to repayment would be senior
to the rights of the holders of our Common Stock to receive any proceeds from the liquidation. Any declaration by the lender of
an event of default could significantly harm our business and prospects and could cause the price of our Common Stock to decline.
If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial
flexibility.
We may be unable
to license our product candidate AmiKet on terms that reflect the current carrying value of the asset, or at all, which would negatively
affect our business, financial condition and results of operations.
We periodically perform
an analysis to determine whether an impairment of our assets has occurred. As of September 30, 2016 and December 31, 2015,
$27.5 million was allocated to acquired, in-process, research and development related to the AmiKet license agreement. Our most
recent impairment analysis determined that no change in the carrying value of AmiKet was required. However, there is no assurance
that future analysis would not result in the impairment of the fair value attributable to AmiKet. In addition, if the assumptions
we used in connection with the merger to value our in-process research and development directly related to the AmiKet license agreement
turn out to be incorrect, the carrying value of AmiKet may ultimately be impaired which would negatively affect our business, financial
condition and results of operations. Furthermore, if we are unable to license AmiKet or to license AmiKet on terms materially less
favorable than the assumptions used to value the asset in the merger, the carrying value of the assets would be impaired, which
could materially adversely affect our business, financial condition and results of operations.
AmiKet
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successful partnering and commercialization may be affected by regulations on orphan drug status, patent restoration and data exclusivity.
AmiKet primary patents
are expiring in 2021 and are essentially limited to the U.S.. We are is assuming that a marketing exclusivity of up to five years
will be available under the Patent Term Restoration in the United States and under other forms in Europe and Japan to compensate
for the extended development time. This marketing exclusivity may not be deemed to be applicable to AmiKet or may be reduced to
less than five years in one or multiple jurisdiction. AmiKet has been granted orphan drug status for Post Herpetic Neuralgia (“PHN”),
which confers a seven-year marketing exclusivity in the U.S. for that indication. Orphan drug exclusivity may be reduced or eliminated
by regulators before AmiKet enjoys all or part of this protection.
The use of FDA-approved
therapeutics in AmiKet could require us to conduct additional preclinical studies and clinical trials, which could increase development
costs and lengthen the regulatory approval process.
AmiKet utilizes proprietary
formulations and topical delivery technologies to administer FDA-approved pain management therapeutics. We may still be required
to conduct preclinical trials and clinical trials to determine if our product candidates are safe and effective. In addition, we
may also be required to conduct additional preclinical trials and Phase I clinical trials to establish the safety of the topical
delivery of these therapeutics and the level of absorption of the therapeutics into the bloodstream. The FDA may also require us
to conduct clinical trials to establish that our delivery mechanisms are safer or more effective than the existing methods for
delivering these therapeutics. As a result, we may be required to conduct complex clinical trials, which could be expensive and
time-consuming and lengthen the anticipated regulatory approval process. In addition, the cost of clinical trials may vary significantly
over the life of a project as a result of differences in the design of the clinical trials arising during clinical development.
We may be exposed
to market risk and interest rate risk that may adversely impact our financial position, results of operations or cash flows.
We may be exposed to market
risk, i.e
.
the risk of loss related to changes in market prices, including foreign exchange rates, of financial instruments
that may adversely impact our financial position, results of operations or cash flows. In addition, our investments may be exposed
to market risk due to fluctuation in interest rates, which may affect its interest income and the fair market value of investments,
if any. At present, our investments consist primarily of cash and cash equivalents. We may invest in investment-grade marketable
securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government
debt securities. The primary objective of our investment activities is to preserve principal while maximizing the income that we
receive from our investments without significantly increasing risk of loss.
We are exposed to
fluctuations in currency exchange rates, which could have a material adverse effect on us.
Our foreign currency exposures
gives rise to market risk associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, mainly
against the New Israeli Shekel, (“NIS”), the Euro and the British pound sterling. A significant portion of our expenses
are denominated in U.S. dollars (with certain expenses payable to Lonza, if any, in the British pound sterling and to Israeli personnel,
including sub-contractors and consultants, in the NIS). Our U.S. dollar expenses consist principally of payments made to personnel
in the U.S., including sub-contractors and consultants for preclinical studies, clinical trials and other research and development
activities. We anticipate that the bulk of our expenses will continue to be denominated in U.S. dollars, the NIS or the British
pound sterling. If the U.S. dollar fluctuates significantly against the NIS or the British pound sterling (to the extent we must
make payments to Lonza) it may have a negative impact on our results of operations. In addition, non-U.S. dollar linked balance
sheet items may create foreign exchange gains or losses, depending upon the relative dollar values of the non-U.S. currencies at
the beginning and end of the reporting period, affecting our net income and earnings per share.
To date, we have not engaged
in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure
from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect
us from the material adverse effects of such fluctuations. Exchange rate fluctuations resulting in a devaluation of the NIS or
the British pound sterling compared with the U.S. dollar could have a material adverse impact on our results of operations and
share price.
Risks Related to Regulatory Development,
Approval and other Legal Compliance
If we are not able
to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to develop and then commercialize
our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially
impaired.
Our product candidates
and the activities associated with their development, applications for regulatory approval, and commercialization, including their
design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution,
are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the EMA and similar
regulatory authorities outside the U.S. and Europe. Failure to obtain approval of clinical trial applications, CTAs, in EU countries
may delay or prevent us from developing our drugs in one or more jurisdictions. Similarly, failure to obtain marketing approval
for a product candidate (NDA, BLA, or MAA) will prevent us from commercializing our product candidate. While our executives have
experience with the IND, NDA, BLA, CTA and MAA processes, we expect to rely on third parties to assist us in this process. Securing
marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing development
and later marketing approval also requires the submission of information about the product manufacturing process to, and inspection
of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately
effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our
obtaining marketing approval or prevent or limit commercial use. For example, new drugs frequently are indicated only for patient
populations that have not responded to an existing therapy or have relapsed. If any of our product candidates with such an indication
receives marketing approval, the accompanying label may limit the approved use of our drug in this way, which could limit sales
of the product.
The process of obtaining
marketing approvals, both in the United States and abroad, is expensive and may take many years. If additional clinical trials
are required for certain jurisdictions, these trials can vary substantially based upon a variety of factors, including the type,
complexity and novelty of the product candidates involved, and may ultimately be unsuccessful. Changes in marketing approval policies
during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review
process for each submitted product application, may cause delays in the review and approval of an application. Regulatory authorities
have substantial discretion in the approval process and may reject a marketing application as deficient or may decide that our
data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations
of the data obtained from preclinical studies and clinical trials could delay, limit or prevent marketing approval of a product
candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that
render the approved product not commercially viable.
Although we have already
met with the FDA regarding the development of bertilimumab, it is possible that the FDA may change its requirements or require
us to conduct additional preclinical studies and/or clinical trials that may delay the development and approval of this drug. Unfavorable
data from our clinical trials may restrict the potential development and commercialization of bertilimumab or lead to the termination
of its development.
Ceplene is approved by
the EMA and registered in over 30 countries in Europe and Israel. It also has Orphan Drug status in both the EU and US for AML.
The FDA however, refused to file the Ceplene NDA submission due to the lack of an Overall Survival primary endpoint in the study
and the lack of an IL-2 treatment alone control arm. Based on new biologic and clinical findings that have been studied and analyzed
since the last communication with the FDA, we are planning further formal discussions with the FDA regarding a path forward for
registration in the U.S., including the reaching an agreement with the agency on a Special Protocol Assessment (SPA).
Azixa and crolibulin are
still in early-mid-stage clinical development and the next steps are being considered. Once those are determined, discussions will
ensue with the FDA regarding the developmental pathways for these drugs. Azixa has Orphan Drug status in the US for glioblastoma
multiforme (GBM).
AmiKet has received Fast
Track designation from the FDA for the treatment of chemotherapy-induced peripheral neuropathy (“CIPN”), which allows
for guidance, rolling submission of NDA components and a shorter review cycle than with standard applications. However there is
no guarantee that the FDA will not change its requirements or that the studies reviewed by FDA will be adequate for marketing approval.
NanomAbs are novel nano-therapeutics.
Although the FDA and other regulatory authorities have approved nano-therapeutics in the past, the agency is monitoring whether
nanotechnology-based therapeutics pose any specific health and human safety risks. While they have not issued any regulations to
date, it is possible that the FDA and other regulatory authorities could issue regulations or establish policy positions in the
future regarding nano-therapeutics that could adversely affect our product candidates.
With the recent approval
of Blincyto (blinatumomab), a novel constructed bispecific T-cell engager monoclonal antibodies (BiTEs), the clinical and regulatory
pathway for bispecifics drugs is now validated. However, as with all therapeutic antibodies, issues such as immunogenicity and
possible inhibition of critical non-redundant biologic pathways must be considered regulatory risks.
If we experience delays
in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates
may be harmed and our ability to generate revenues will be materially impaired.
We and other drug
development companies have suffered setbacks in late-stage clinical trials even after achieving promising results in early stage
development. Accordingly, the results from completed preclinical studies and early stage clinical trials may not be predictive
of results in later stage trials and may not be predictive of the likelihood of regulatory approval.
Clinical trial designs
that were discussed with regulatory authorities prior to their commencement may subsequently be considered insufficient for approval
at the time of application for regulatory approval.
We or our partners discuss
with and obtain guidance from regulatory authorities on clinical trial protocols. Over the course of conducting clinical trials,
circumstances may change, such as standards of safety, efficacy or medical practice, which could affect regulatory authorities’
perception of the adequacy of any of our clinical trial designs or the data we develop from our clinical trials. Changes in circumstances
could affect our ability to conduct clinical trials as planned. Even with successful clinical safety and efficacy data, we may
be required to conduct additional, expensive trials to obtain regulatory approval. Any failure or significant delay in completing
clinical trials for our product candidates, or in receiving regulatory approval for the commercialization of our product candidates,
may severely harm our business and delay or prevent us from being able to generate revenue and our stock price will likely decline.
If we receive regulatory
approval, our marketed products will also be subject to ongoing FDA and/or foreign regulatory agency obligations and continued
regulatory review, and if we fail to comply with these regulations, we could lose approvals to market any products, and our business
would be seriously harmed.
Following initial regulatory
approval of any of our product candidates, we will be subject to continuing regulatory review, including review of adverse experiences
and clinical results that are reported after our products become commercially available. This would include results from any post-marketing
tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our
product candidates will also be subject to periodic review and inspection by the FDA or foreign regulatory agencies. If a previously
unknown problem or problems with a product, manufacturing or laboratory facility used by us is discovered, the FDA or foreign regulatory
agency may impose restrictions on that product or on the manufacturing facility, including requiring us to withdraw the product
from the market. Any changes to an approved product, including the way it is manufactured or promoted, often require FDA approval
before the product, as modified, can be marketed. Our manufacturers and we will be subject to ongoing FDA requirements for submission
of safety and other post-market information. If we or our manufacturers fail to comply with applicable regulatory requirements,
a regulatory agency may:
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impose civil or criminal penalties;
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suspend or withdraw regulatory approval;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications;
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impose restrictions on operations;
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close the facilities of manufacturers; or
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seize or detain products or require a product recall.
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In addition, the policies
of the FDA or other applicable regulatory agencies may change and additional government regulations may be enacted that could prevent
or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature, or extent of adverse government
regulation that may arise from future legislation or administrative action, either in the U.S. or abroad.
Any regulatory approval
we receive for our product candidates will be limited to those indications and conditions for which we are able to show clinical
safety and efficacy.
Any regulatory approval
that we may receive for our current or future product candidates will be limited to those diseases and indications for which such
product candidates are clinically demonstrated to be safe and effective. For example, in addition to the FDA approval required
for new formulations, any new indication to an approved product also requires FDA approval. If we are not able to obtain regulatory
approval for a broad range of indications for our product candidates, our ability to effectively market and sell our product candidates
may be greatly reduced and may harm our ability to generate revenue.
While physicians may choose
to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in
clinical studies and approved by regulatory authorities, our regulatory approvals will be limited to those indications that are
specifically submitted to the regulatory agency for review. These “off-label” uses are common across medical specialties
and may constitute the best treatment for many patients in varied circumstances. Regulatory authorities in the U.S. generally do
not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications
by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations
or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow
regulatory rules and guidelines relating to promotion and advertising may cause the regulatory agency to delay its approval or
refuse to approve a product, the suspension or withdrawal of an approved product from the market, recalls, fines, disgorgement
of money, operating restrictions, injunctions or criminal prosecutions, any of which could harm our business.
The results of our
clinical trials are uncertain, which could substantially delay or prevent us from bringing our product candidates to market.
Before we can obtain regulatory
approval for a product candidate, we must undertake extensive clinical testing in humans to demonstrate safety and efficacy to
the satisfaction of the FDA or other regulatory agencies. Clinical trials are very expensive and difficult to design and implement.
The clinical trial process is also time consuming. The commencement and completion of our clinical trials could be delayed or prevented
by several factors, including:
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delays in obtaining regulatory approvals to commence or continue a study;
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delays in reaching agreement on acceptable clinical trial parameters;
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slower than expected rates of patient recruitment and enrollment;
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inability to demonstrate effectiveness or statistically significant results in our clinical trials;
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unforeseen safety issues;
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uncertain dosing issues;
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inability to monitor patients adequately during or after treatment; and
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inability or unwillingness of medical investigators to follow our clinical protocols.
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We cannot assure you that
our planned clinical trials will begin or be completed on time or at all, or that they will not need to be restructured prior to
completion. Significant delays in clinical testing will impede our ability to commercialize our product candidates and generate
revenue from product sales and could materially increase our development costs. Completion of clinical trials may take several
years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product
candidate.
In some instances, we rely
on third parties, over which we have little or no control, to conduct clinical trials for our product candidates and their failure
to perform their obligations in a timely or competent manner may delay development and commercialization of our product candidates.
The nature of clinical
trials and our business strategy requires us to rely on clinical research centers and other third parties to assist us with clinical
testing and certain research and development activities, such as the agreement we had with Myrexis, Inc. related to the MX90745
series of apoptosis-inducer anti-cancer compounds. As a result, our success is dependent upon the success of these third parties
in performing their responsibilities. We cannot directly control the adequacy and timeliness of the resources and expertise applied
to these activities by such third parties. If such contractors do not perform their activities in an adequate or timely manner,
the development and commercialization of our product candidates could be delayed. We may enter into agreements, similar to the
agreement we had with Myrexis, Inc., from time to time with additional third parties for our other product candidates whereby these
third parties undertake significant responsibility for research, clinical trials or other aspects of obtaining FDA approval. As
a result, we may face delays if these additional third parties do not conduct clinical studies and trials, or prepare or file regulatory
related documents, in a timely or competent fashion. The conduct of the clinical studies by, and the regulatory strategies of,
these additional third parties, over which we have limited or no control, may delay or prevent regulatory approval of our product
candidates, which would delay or limit our ability to generate revenue from product sales.
Our therapeutic
product candidates for which we intend to seek approval are primarily biological products and may face competition sooner than
expected. This is particularly relevant for our lead product candidate, bertilimumab.
With the enactment of
the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) as part of the Health Care Reform Law, an abbreviated
pathway for the approval of bio-similar and interchangeable biological products was created. The new abbreviated regulatory pathway
establishes legal authority for the FDA to review and approve bio-similar biologics, including the possible designation of a bio-similar
as “interchangeable.” The FDA defines an interchangeable bio-similar as a product that, in terms of safety or diminished
efficacy, presents no greater risk when switching between the bio-similar and its reference product than the risk of using the
reference product alone. Under the BPCIA, an application for a bio-similar product cannot be submitted to the FDA until four years,
or approved by the FDA until 12 years, after the original brand product identified as the reference product was approved under
a BLA. The new law is complex and is only beginning to be interpreted by the FDA. As a result, its ultimate impact, implementation
and meaning are subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such
processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that if any
of our product candidates were to be approved as biological products under a BLA, such approved products should qualify for the
12-year period of exclusivity. However, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten this
exclusivity period as proposed by President Obama, potentially creating the opportunity for generic competition sooner than anticipated.
Moreover, the extent to which a bio-similar, once approved, will be substituted for any one of our reference products in a way
that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of
marketplace and regulatory factors that are still developing. In addition, a competitor could decide to forego the bio-similar
route and submit a full BLA after completing its own preclinical studies and clinical trials. In such cases, any exclusivity to
which we may be eligible under the BPCIA would not prevent the competitor from marketing its product as soon as it is approved.
We may not be able
to obtain orphan drug exclusivity for our product candidates, particularly for bertilimumab in bullous pemphigoid or for NanomAbs
in certain less frequent cancer indications.
Regulatory authorities
in some jurisdictions, including the U.S. and Europe, may designate drugs for relatively small patient populations as orphan drugs.
Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or
condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States.
One of our strategic assumptions is that we can obtain Orphan Drug Designation for bertilimumab in bullous pemphigoid, a disease
with a patient population of less than 15,000 individuals in the U.S. and for certain formulations of NanomAbs in various cancer
indications.
Generally, if a product
with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation,
the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing
application for the same drug for that time period. The applicable period is seven years in the U.S. and ten years in Europe. The
European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if
the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the
FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan
drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs
can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for
the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective
or makes a major contribution to patient care.
Risks Related to Our
Dependence on Third Parties
Any collaborations
that we enter into could be important to our business. If we are unable to maintain any of these collaborations, or if these collaborations
are not successful, our business could be adversely affected.
We intend to enter into
collaborations with other biopharmaceutical companies to develop NanomAbs based on therapeutic payloads and/ or ligands or antibodies
from their product pipelines. We also intend to partner AmiKet for Phase III development and commercialization and bertilimumab
after we achieve Phase II Proof of Concept although we currently have no agreement with any commercial partner and may never secure
a commercial partner. If entered into, these collaborations are expected to generate funding for our research programs and may
pose a number of risks, including the following:
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collaborators may have significant
discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not perform their obligations as expected;
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collaborators may not pursue development
and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development
or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available
funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
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collaborators may delay clinical trials,
provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct
new clinical trials or require a new formulation of a product candidate for clinical testing;
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collaborators could
independently develop, or develop with third parties, products that compete directly or indirectly with our products or
product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can
be commercialized under terms that are more economically attractive than ours, which may cause collaborators to cease to
devote resources to the commercialization of our product candidates;
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a collaborator with marketing and
distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources
to the marketing and distribution of such product or products;
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disagreements with
collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of
development, might cause delays or termination of the research development or commercialization of product candidates, might
lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration,
any of which would be time-consuming and expensive;
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collaborators may not properly
maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite
litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential
litigation;
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collaborators may infringe the intellectual
property rights of third parties, which may expose us to litigation and potential liability;
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collaborations may be terminated for
the convenience of the collaborator and, if terminated, we would potentially lose the right to pursue further development or commercialization
of the applicable product candidates;
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collaborators may learn about our technology and use this knowledge to compete with us in the future;
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results of collaborators’ preclinical
or clinical trials could produce results that harm or impair other products using our technology;
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there may be conflicts between different
collaborators that could negatively affect those collaborations and potentially others; and
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the number and type of our collaborations
could adversely affect our attractiveness to future collaborators or acquirers.
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If any collaborations
we enter into do not result in the successful development and commercialization of our products or if one of our collaborators
terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty payments
under the collaboration. If we do not receive the funding we expect under these agreements, our continued development of our product
candidates could be delayed and we may need additional resources to develop additional product candidates. All of the risks relating
to our product development, regulatory approval and commercialization also apply to the activities of our collaborators and there
can be no assurance that our collaborations will produce positive results or successful products on a timely basis or at all.
Additionally, subject
to its contractual obligations to us, if a collaborator of ours is involved in a business combination or otherwise changes its
business priorities, the collaborator might deemphasize or terminate the development or commercialization of any product candidate
licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new
collaborators and our perception in the business and financial communities and our stock price could be adversely affected.
We may in the future determine
to collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of therapeutic
products. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for
collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms
and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are
unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may not be able to
access therapeutic payloads that would be suitable to development with our platform, have to curtail the development of a product
candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may
need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If
we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization
activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product
platform and our business may be materially and adversely affected.
We rely, and expect
to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including
failing to meet deadlines for the completion of such trials.
We currently rely on third-party
CROs to conduct our ongoing Phase II clinical trials of bertilimumab and do not plan to independently conduct clinical trials of
our other product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations,
medical institutions and clinical investigators, to conduct and manage our clinical trials. These agreements might terminate for
a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that
would delay our product development activities.
Our reliance on these
third parties for research and development activities will reduce our control over these activities but will not relieve us of
our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance
with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards,
commonly referred to as good clinical practices (“GCPs”), for conducting, recording and reporting the results of clinical
trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of
trial participants are protected. Other countries’ regulatory agencies also have requirements for clinical trials with which
we must comply. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a
government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity
and civil and criminal sanctions. Furthermore, these third parties may also have relationships with other entities, some of which
may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines
or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain,
or may be delayed in obtaining marketing approvals for our product candidates and will not be able to, or may be delayed in our
efforts to, successfully commercialize our product candidates.
We also expect to rely
on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our
distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products,
producing additional losses and depriving us of potential product revenue.
We contract with
third parties for the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so
for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our
product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or
commercialization efforts.
We do not have any manufacturing
facilities that meet the FDA’s current cGMP requirements for the production of any product candidates used in humans. We
rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical
testing, as well as for the commercial manufacture if any of our product candidates once they receive marketing approval. This
reliance on third parties increases the risk that we may not have sufficient quantities of our product candidates on a timely basis
or at all or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development
or commercialization efforts.
We may be unable to establish
any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with
third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
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failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance;
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breach of the manufacturing agreement by the third party;
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failure to manufacture our product according to our specifications;
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failure to manufacture our product according to our schedule or at all;
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misappropriation of our proprietary information, including our trade secrets and know-how; and
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termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
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Third-party manufacturers
may not be able to comply with cGMP regulations or similar regulatory requirements outside the U.S.. Our failure, or the failure
of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including
clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures
or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect supplies of our products.
Our product candidates
and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities.
There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for
us.
Any performance failure
on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently
have arrangements in place for redundant supply or a second source for required raw materials used in the manufacture of our product
candidates, including our lead product candidate bertilimumab. If our current contract manufacturer, Lonza, cannot perform as agreed,
we may be required to replace such manufacturer and we may be unable to replace them on a timely basis or at all. Our contract
with Lonza imposes restrictions, including additional payments if we elect to work with another contract manufacturer. Additionally,
we have not yet secured cGMP manufacturers for NanomAbs, which may delay regulatory development toward an IND authorization and
initial of clinical trials.
Our current and anticipated
future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit
margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
Risks Related to Our
Intellectual Property
Our ability to protect
our intellectual property rights will be critically important to the success of our business, and we may not be able to protect
or enforce these rights in the U.S. or abroad.
We own or hold licenses
to a number of issued U.S. patents and U.S. pending patent applications, as well as foreign patents and patent applications. Our
success depends in part on our ability to obtain patent protection both in the U.S. and in other countries for our product candidates,
as well as the methods for treating patients in the product indications using these product candidates. Our ability to protect
our product candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain
and maintain valid and enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability
of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to obtain, maintain
and enforce patents is uncertain and involves complex legal and factual questions. Even if our product candidates, as well as methods
for treating patients for prescribed indications using these product candidates are covered by valid and enforceable patents and
have claims with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a
limited amount of time. Accordingly, rights under any issued patents may not provide us with sufficient protection for our product
candidates or provide sufficient protection to afford us a commercial advantage against competitive products or processes.
In addition, we cannot
guarantee that any patents issued from any pending or future patent applications owned by or licensed to us. Even if patents have
issued or will issue, we cannot guarantee that the claims of these patents are or will be valid or enforceable or will provide
us with any significant protection against competitive products or otherwise be commercially valuable to us. The laws of some foreign
jurisdictions do not protect intellectual property rights to the same extent as in the U.S. and many companies have encountered
significant difficulties in protecting and defending such rights in foreign jurisdictions. Furthermore, different countries have
different procedures for obtaining patents, and patents issued in different countries offer different degrees of protection against
use of the patented invention by others. If we encounter such difficulties in protecting or are otherwise precluded from effectively
protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed.
The patent positions of
biotechnology companies, including our patent position, involve complex legal and factual questions, and, therefore, validity and
enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated, or circumvented.
Our patents can be challenged by our competitors who can argue that our patents are invalid, unenforceable, lack utility, or sufficient
written description or enablement, or that the claims of the issued patents should be limited or narrowly construed. Patents also
will not protect our product candidates if competitors devise ways of making or using these product candidates without legally
infringing our patents. The Federal Food, Drug, and Cosmetic Act and FDA regulations and policies create a regulatory environment
that encourages companies to challenge branded drug patents or to create non-infringing versions of a patented product in order
to facilitate the approval of abbreviated new drug applications for generic substitutes. These same types of incentives encourage
competitors to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor,
providing a less burdensome pathway to approval.
The degree of future protection
afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately
protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
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We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
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We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing on our intellectual property rights.
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It is possible that our pending patent applications will not lead to issued patents.
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Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
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Our competitors might conduct research
and development activities in countries where we do not have patent rights and then use the information learned from such activities
to develop competitive products for sale in our major commercial markets.
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We may not develop additional proprietary technologies that are patentable.
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The patents of others may have an adverse effect on our business.
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Should any of these events
occur, they could significantly harm our business, results of operations and prospects.
We will be able to protect
our proprietary rights from unauthorized use by third parties only to the extent that our technologies, product candidates, and
any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets and we have the
funds to enforce our rights, if necessary.
The expiration of our
owned or licensed patents before completing the research and development of our product candidates and receiving all required approvals
in order to sell and distribute the products on a commercial scale can adversely affect our business and results of operations.
In addition, the laws
of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the U.S.. If
we fail to apply for intellectual property protection or if we cannot adequately protect our intellectual property rights in these
foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive
position, as well as our business, financial condition and results of operations.
Filing, prosecuting and
defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our
technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in
the U.S.. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent
claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Litigation regarding
patents, patent applications and other proprietary rights may be expensive and time consuming. If we are involved in such litigation,
it could cause delays in bringing product candidates to market and harm our ability to operate.
Our success will depend
in part on our ability to operate without infringing the proprietary rights of third parties. The pharmaceutical industry is characterized
by extensive litigation regarding patents and other intellectual property rights. Other parties may obtain patents in the future
and allege that the use of our technologies infringes these patent claims or that we are employing their proprietary technology
without authorization.
Litigation relating to
the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated
by very large companies may cause us to be at a significant disadvantage in defending our intellectual property rights and in defending
against claims that our technology infringes or misappropriates third party intellectual property rights. However, we may seek
to use various post- grant administrative proceedings, including new procedures created under the America Invents Act, to invalidate
potentially overly-broad third party rights. Even if we are able to defend our position, the cost of doing so may adversely affect
our ability to grow, generate revenue or become profitable. Although we have not yet experienced any patent litigation, we may
in the future be subject to such litigation and may not be able to protect our intellectual property at a reasonable cost, or at
all, if such litigation is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments
against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights,
which could have a significant adverse effect on our business.
In addition, third parties
may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications or those
of others could result in adverse decisions regarding:
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the patentability of our inventions relating to our product candidates; and/or
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the enforceability, validity or scope of protection offered by our patents relating to our product candidates.
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Even if we are successful
in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which
could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required
to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly
and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we
do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have
infringed patents declared invalid, we may:
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incur substantial monetary damages;
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encounter significant delays in bringing our product candidates to market; and/or
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be precluded from participating in the manufacture, use or sale of our product candidates or methods of treatment requiring licenses.
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Our commercial success
depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount
of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including
Patent Office administrative proceedings, such as inter-party reviews, and reexamination proceedings before the USPTO or oppositions
and revocations and other comparable proceedings in foreign jurisdictions. Numerous United States and foreign issued patents and
pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates.
As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates
may give rise to claims of infringement of the patent rights of others.
Despite safe harbor provisions,
third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents,
of which we are currently unaware, with claims to materials, formulations, methods of doing research or library screening, methods
of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications
can take many years to issue, there may be published patent applications, which may later result in issued patents that our product
candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes
upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process
of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders
of any such patents may be able to block our ability to commercialize such product candidate unless we obtain a license under the
applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly,
if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture
or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block
our ability to develop and commercialize the applicable product candidate unless we obtain a license, limit our use, or until such
patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available
to us on commercially reasonable terms or at all.
Parties making claims
against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize
one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation
expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement
against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement,
obtain one or more licenses from third parties, limit our use, pay royalties or redesign our infringing product candidates, which
may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available
at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may
need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may
fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable
to further develop and commercialize one or more of our product candidates, which could harm our business significantly.
Many companies have encountered
significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents
or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in
foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
Third-party claims
of intellectual property infringement may prevent or delay our drug discovery and development efforts.
Confidentiality agreements
with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may
not adequately protect our intellectual property, which could limit our ability to compete. Because we operate in a highly technical
field of research and development of small molecule drugs, we rely in part on trade secret protection in order to protect our proprietary
trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others will
not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality agreements
with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors, to protect our trade
secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to
third parties all confidential information developed by the party or made known to the party by us during the course of the party’s
relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may
not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade
secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the
U.S. may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could
adversely affect our competitive position
We license patent
rights from third-party owners. Such licenses may be subject to early termination if we fail to comply with our obligations in
our licenses with third parties, which could result in the loss of rights or technology that are material to our business.
We are a party to licenses
that give us rights to third-party intellectual property that is necessary or useful for our business, and we may enter into additional
licenses in the future. Under these license agreements we are obligated to pay the licensor fees, which may include annual license
fees, milestone payments, royalties, a percentage of revenues associated with the licensed technology and a percentage of sublicensing
revenue. In addition, under certain of such agreements, we are required to diligently pursue the development of products using
the licensed technology. If we fail to comply with these obligations and fail to cure our breach within a specified period of time,
the licensor may have the right to terminate the applicable license, in which event we could lose valuable rights and technology
that are material to our business. If the licensor retains control of prosecution of the patents and patent applications licensed
to us, we may have limited or no control over the manner in which the licensor chooses to prosecute or maintain its patents and
patent applications and have limited or no right to continue to prosecute any patents or patent applications that the licensor
elects to abandon. The loss of any such rights provided under our license agreements could materially harm our financial condition
and operating results.
We may be unable
to adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets
to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside
scientific collaborators, sponsored researchers, and other advisors to protect our trade secrets and other proprietary information.
These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the
event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets
and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our
proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
If we are unable
to obtain licenses needed for the development of our product candidates, or if we breach any of the agreements under which we license
rights to patents or other intellectual property from third parties, we could lose licensing rights that are important to our business.
If we are unable to maintain
and/or obtain licenses needed for the development of our product candidates in the future, we may have to develop alternatives
to avoid infringing on the patents of others, potentially causing increased costs and delays in drug development and introduction
or precluding the development, manufacture, or sale of planned products. Some of our licenses provide for limited periods of exclusivity
that require minimum license fees and payments and/or may be extended only with the consent of the licensor. We can provide no
assurance that we will be able to meet these minimum license fees in the future or that these third parties will grant extensions
on any or all such licenses. This same restriction may be contained in licenses obtained in the future.
Additionally, we can provide
no assurance that the patents underlying any licenses will be valid and enforceable. To the extent any products developed by us
are based on licensed technology, royalty payments on the licenses will reduce our gross profit from such product sales and may
render the sales of such products uneconomical. In addition, the loss of any current or future licenses or the exclusivity rights
provided therein could materially harm our business financial condition and our operations.
If any of our trade
secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary
rights would be significantly impaired and our business and competitive position would suffer.
Our success also depends
upon the skills, knowledge and experience of our scientific and technical personnel and our consultants and advisors, as well as
our licensors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to
obtain, we rely on trade secret protection and confidentiality agreements. Unlike some of our competitors, we maintain our proprietary
libraries for ourselves as we believe they have proven to be superior in obtaining strong binder product candidates. To this end,
we require all of our employees, consultants, advisors and contractors to enter into agreements, which prohibit the disclosure
of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business. These agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such
information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets,
know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.
From time to time
we may need to license patents, intellectual property and proprietary technologies from third parties, which may be difficult or
expensive to obtain.
We may need to obtain
licenses to patents and other proprietary rights held by third parties to successfully develop, manufacture and market our drug
products. As an example, it may be necessary to use a third party’s proprietary technology to reformulate one of our drug
products in order to improve upon the capabilities of the drug product. If we are unable to timely obtain these licenses on reasonable
terms, our ability to commercially exploit such drug products may be inhibited or prevented.
Risks Related to Our
Business and Industry
We have a limited
operating history and are heavily dependent on the success of our technologies and product candidates, and we cannot give any assurance
that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
To date, we have invested
a significant portion of our efforts and financial resources in the acquisition and development of our product candidates. We have
not demonstrated our ability to perform the functions necessary for the successful acquisition, development or commercialization
of the technologies we are seeking to develop. Because we only recently commenced operations, we have a limited operating history
upon which you can evaluate our business and prospects. Also, as an early stage company, we have limited experience and have not
yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in
new and rapidly evolving fields, particularly in the biopharmaceutical area. Our future success is substantially dependent on our
ability to successfully develop, obtain regulatory approval for, and then successfully commercialize such product candidates. Our
product candidates are currently in preclinical development or in clinical trials. Our business depends entirely on the successful
development and commercialization of our product candidates, which may never occur. We currently generate no revenues from the
sale of any drugs, and we may never be able to develop or commercialize a marketable drug.
The successful development,
and any commercialization, of our technologies and any product candidates would require us to successfully perform a variety of
functions, including:
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developing our technology platform;
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identifying, developing, manufacturing and commercializing product candidates;
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entering into successful licensing and other arrangements with product development partners;
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participating in regulatory approval processes;
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formulating and manufacturing products; and
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conducting sales and marketing activities.
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Our operations have been
limited to organizing our company, acquiring, developing and securing our proprietary technology and identifying and obtaining
early preclinical data or clinical data for various product candidates. These operations provide a limited basis for you to assess
our ability to continue to develop our technology, identify product candidates, develop and commercialize any product candidates
we are able to identify and enter into successful collaborative arrangements with other companies, as well as for you to assess
the advisability of investing in our securities. Each of these requirements will require substantial time, effort and financial
resources.
Each of our product candidates
will require additional preclinical or clinical development, management of preclinical, clinical and manufacturing activities,
regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, and significant
marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote any of our product
candidates before we receive regulatory approval from the FDA, or comparable foreign regulatory authorities, and we may never receive
such regulatory approval for any of our product candidates. In addition, our product development programs contemplate the development
of companion diagnostics by our third-party collaborators. Companion diagnostics are subject to regulation as medical devices and
must themselves be cleared or approved for marketing by the FDA or certain other foreign regulatory agencies before we may commercialize
our product candidates.
Clinical drug development
involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive
of future trial results.
Clinical testing is expensive
and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical
trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of
the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired
safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. It is not uncommon
for companies in the biopharmaceutical industry to suffer significant setbacks in advanced clinical trials due to lack of efficacy
or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.
This product candidate
development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product
candidates are developed through preclinical to early and late stage clinical trials towards approval and commercialization, it
is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered
along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize
the product candidates for late stage clinical trials, approval and commercialization, such changes do carry the risk that they
will not achieve these intended objectives.
We have not previously
initiated or completed a corporate-sponsored clinical trial. Consequently, we may not have the necessary capabilities, including
adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate, in a way that leads
to our obtaining marketing approval for our product candidates in a timely manner, or at all.
In the event we are able
to conduct a pivotal clinical trial of a product candidate, the results of such trial may not be adequate to support marketing
approval. Because our product candidates are intended for use in life- threatening diseases, in some cases we ultimately intend
to seek marketing approval for each product candidate based on the results of a single pivotal clinical trial. As a result, these
trials may receive enhanced scrutiny from the FDA. For any such pivotal trial, if the FDA disagrees with our choice of primary
endpoint or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding
factors, or are not adequately supported by other study endpoints, including possibly overall survival or complete response rate,
the FDA may refuse to approve a BLA or an NDA based on such pivotal trial. The FDA may require additional clinical trials as a
condition for approving our product candidates.
Delays in clinical
testing could result in increased costs to us and delay our ability to generate revenue.
Although we are planning
for certain clinical trials relating to bertilimumab and AmiKet, we may experience delays in our clinical trials and we do not
know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule,
if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
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reaching agreement on acceptable terms with prospective CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining IRB, approval at each site;
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recruiting suitable patients to participate in a trial;
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clinical sites deviating from trial protocol or dropping out of a trial;
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having patients complete a trial or return for post-treatment follow-up;
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developing and validating companion diagnostics on a timely basis, if required;
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adding new clinical trial sites;
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manufacturing sufficient quantities of product candidate for use in clinical trials; or
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Patient enrollment, a significant factor
in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the
proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial,
competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug
being studied in relation to other available therapies, including any new drugs that may be approved for the indications we
are investigating.
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Furthermore, we intend
to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we intend to have agreements
governing their committed activities, for which we will have limited influence over their actual performance.
We could encounter delays
if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted,
by the Data Safety Monitoring Board (“DSMB”), for such trial or by the FDA or other regulatory authorities. Such authorities
may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance
with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or
other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects,
failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate
funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of
our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product
revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase
our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales
and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition,
many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead
to the denial of regulatory approval of our product candidates.
We may expand our
business through the acquisition of companies or businesses or by entering into collaborations or in-licensing product candidates
that could disrupt our business and harm our financial condition.
We may in the future seek
to expand our pipeline and capabilities by acquiring one or more companies or businesses, entering into collaborations or in-licensing
one or more product candidates. Acquisitions, collaborations and in-licenses involve numerous risks, including:
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potentially dilutive issuance of equity securities;
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substantial cash expenditures;
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incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
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difficulties in assimilating the operations and technology of the acquired companies;
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potential disputes regarding contingent consideration;
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the assumption of unknown liabilities of the acquired businesses;
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diverting our management’s attention away from other business concerns;
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entering markets in which we have limited or no direct experience; and
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potential loss of our key employees or key employees of the acquired companies or businesses.
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Our experience in making
acquisitions, entering collaborations and in-licensing product candidates is limited. We cannot assure you that any acquisition,
collaboration or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth
of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our
ability to manage the rapid growth associated with some of these acquisitions, collaborations and in-licenses. We cannot assure
you that we would be able to successfully combine our business with that of acquired businesses, manage a collaboration or integrate
in-licensed product candidates or that such efforts would be successful. Furthermore, the development or expansion of our business
or any acquired business or company or any collaboration or in-licensed product candidate may require a substantial capital investment
by us. We may use our securities as payment for all or a portion of the purchase price or acquisitions. If we issue significant
amounts of our equity securities for such acquisitions, this would result in substantial dilution of the equity interests of our
stockholders.
Competition for
patients in conducting clinical trials may prevent or delay product development and strain our limited financial resources.
Many pharmaceutical companies
are conducting clinical trials in patients with the disease indications that our potential drug products target. As a result, we
must compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent requirements
for participation in clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible
patients may be enrolled in competing studies and who are consequently not available to us for our clinical trials. Our clinical
trials may be delayed or terminated due to the inability to enroll enough patients. Patient enrollment depends on many factors,
including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites and
the eligibility criteria for the study. The delay or inability to meet planned patient enrollment may result in increased costs
and delays or termination of the trial, which could have a harmful effect on our ability to develop products.
The regulatory review
and approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable,
and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain
approval from the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement
of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition,
review and approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during
the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory
approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we
may seek to develop in the future will ever obtain regulatory approval.
Our product candidates
could fail to receive regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the U.S. or elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
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the FDA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we contemplate developing with partners; and
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the approval policies or regulations of
the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data
insufficient for approval. This lengthy approval process as well as the unpredictability of future clinical trial results may
result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our
business, results of operations and prospects.
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In addition, even
if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications
than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance
of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims
necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially
harm the commercial prospects for our product candidates.
We have not previously
submitted a BLA or an NDA to the FDA or similar drug approval filings to comparable foreign authorities for any product candidate,
and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval.
Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not
receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully
obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon our
collaborators’ ability to obtain regulatory approval of the companion diagnostics to be used with our product candidates,
as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the
markets for patients that we are targeting for our product candidates are not as significant as we estimate, we may not generate
significant revenues from sales of such products, if approved.
We plan to seek regulatory
approval to commercialize our product candidates both in the United States, the European Union and in additional foreign countries.
While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries
we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing,
among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict
success in these jurisdictions.
Our most rapid and
cost effective access to market approval for NanomAbs depends on meeting the conditions for approval under Section 505(b)(2) of
the Federal Food, Drug and Cosmetic Act, (“FFDCA”).
We will be seeking approval
for NanomAbs under Section 505(b)(2) of the FFDCA, enacted as part of the Drug Price Competition and Patent Restoration Act of
1984, otherwise known as the Hatch-Waxman Act, which permits applicants to rely in part on preclinical and clinical data generated
by third parties. For instance, FDA currently does not know which data will be sufficient to support various cancer indications.
Sufficiency of the data for approval will be a review issue after an NDA filing.
Healthcare reform
measures could hinder or prevent our product candidates’ commercial success.
In both the U.S. and certain
foreign jurisdictions, there have been and we expect there will continue to be a number of legislative and regulatory changes to
the health care system that could impact our ability to sell our products profitably. The U.S. government and other governments
have shown significant interest in pursuing healthcare reform. In particular, the Medicare Modernization Act of 2003 revised the
payment methodology for many products under the Medicare program in the United States. This has resulted in lower rates of reimbursement.
In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively,
the Healthcare Reform Law, was enacted. The Healthcare Reform Law substantially changes the way healthcare is financed by both
governmental and private insurers. Such government-adopted reform measures may adversely impact the pricing of healthcare products
and services in the U.S. or internationally and the amount of reimbursement available from governmental agencies or other third-party
payors.
There have been, and likely
will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability
of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services
to contain or reduce costs of healthcare may adversely affect the demand for any drug products for which we may obtain regulatory
approval, as well as our ability to set satisfactory prices for our products, to generate revenues, and to achieve and maintain
profitability.
Risks Related to the
Commercialization of Our Product Candidates
Even if any of our
product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients,
third-party payors and others in the medical community necessary for commercial success.
If any of our product
candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party
payors and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are
well established in the medical community, and physicians may continue to rely on these treatments. In addition, many new drugs
have been recently approved and many more are in the pipeline for the same diseases for which we are developing our product candidates.
If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and
we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will
depend on a number of factors, including:
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their efficacy, safety and other potential advantages compared to alternative treatments;
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our ability to offer them for sale at competitive prices;
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their convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of marketing and distribution support;
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the availability of third-party coverage and adequate reimbursement for our product candidates
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the prevalence and severity of their side effects;
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any restrictions on the use of our products together with other medications;
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interactions of our products with other medicines patients are taking; and
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inability of certain types of patients to take our product.
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If we are unable to establish effective
sales, marketing and distribution capabilities or enter into agreements with third parties with such capabilities, we may not be
successful in commercializing our product candidates if and when they are approved.
We do not have a sales
or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve
commercial success for any product for which we obtain marketing approval, we will need to establish a sales and marketing organization
or make arrangements with third parties to perform sales and marketing functions.
In the future, we expect
to build a focused specialty sales and marketing infrastructure to market or co-promote some of our product candidates in the U.S.
and potentially elsewhere, if and when they are approved. There are risks involved with establishing our own sales, marketing and
distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any
product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities
is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses.
This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit
our efforts to commercialize our products on our own include:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or educate physicians on the benefits of our products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
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inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.
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Outside the U.S.,
we expect to rely on third parties to sell, market and distribute our product candidates. We may not be successful in entering
into arrangements with such third parties or may be unable to do so on terms that are favorable to us. In addition, our product
revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market,
sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any
of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish
sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will
not be successful in commercializing our product candidates.
We face substantial
competition, which may result in others discovering, developing or commercializing competing products before or more successfully
than we do.
The development and commercialization
of new drug products is highly competitive. We face competition with respect to our current product candidates, and will face competition
with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology
companies that currently market and sell products or are pursuing the development of products for the treatment of the disease
indications for which we are developing our product candidates. Some of these competitive products and therapies are based on scientific
approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors
also include academic institutions, government agencies and other public and private research organizations that conduct research,
seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Many of the companies
against which we are competing or against which we may compete in the future have significantly greater financial resources, established
presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology
industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller and other early
stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less
severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may
obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result
in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete
may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. Major competing
products to our lead drug, bertilimumab, such as Remicade and Humira are expected to become available on a generic basis over the
coming years. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium
over competitive generic products. Multiple other new drugs will be launched prior to bertilimumab in its various target indications
but may limit its potential market acceptance. NanomAbs are competing with other Ligand Nanoparticle Conjugates developed by well-funded
companies such as BIND Therapeutics and Merrimack. They are also competing with other types of Bio-Conjugates including Antibody
Drug Conjugates developed by Seattle Genetics and Immunogen. Insufficient funding or inability to secure timely corporate partnerships
will prevent Immune Pharmaceuticals from successfully developing the commercial opportunity with NanomAbs.
Even if we are able
to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement
practices or healthcare reform initiatives, which would harm our business.
The regulations that govern
marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and
future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays
in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries,
the pricing review period begins after marketing or product-licensing approval is granted. In some foreign markets, prescription
pharmaceutical pricing remains subject to continuing governmental control, including possible price reductions, even after initial
approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject
to price regulations that delay our commercial launch of the product, possibly for lengthy period of time, and negatively impact
the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability
to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize
any product candidates successfully also will depend in part on the extent to which coverage and reimbursement for these products
and related treatments will be available from government health administration authorities, private health insurers and other organizations.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which
medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere
is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the
amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide
them with predetermined discounts from list prices and are challenging the prices charged for drugs. Coverage and reimbursement
may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not
be sufficient to generate a profit. Reimbursement may affect the demand for, or the price of, any product candidate for which we
obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required
to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other
therapies. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be
able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant
delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug
is approved for by the FDA or similar regulatory authorities outside the U.S.. Moreover, eligibility for reimbursement does not
imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture,
sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs
and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which
it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments
for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs
or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be
sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations
in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from both
government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize products and our overall financial condition.
Product liability
lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may
develop.
We face an inherent risk
of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater
risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our
product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome,
liability claims may result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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loss of revenue;
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reduced resources of our management to pursue our business strategy; and
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the inability to commercialize any products that we may develop.
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We currently hold $3.0
million in clinical trial liability insurance coverage in the aggregate and per incident, which may not be adequate to cover all
liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence
commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance
coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Our
Common Stock
The price of our
Common Stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our stockholders.
Our stock price is likely
to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our
Common Stock may be influenced by many factors, including:
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the success of competitive products or technologies;
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results of clinical trials of our product candidates or those of our competitors;
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developments related to our existing or any future collaboration;
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regulatory or legal developments in the U.S. and other countries;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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If securities or industry analysts do
not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our
stock price and trading volume could decline.
The trading market for
our Common Stock will be influenced by the research and reports that industry or securities analysts publish about our business
or us. Three analysts in the U.S. and one in Sweden currently cover our stock. If any of the analysts who cover us issue an adverse
or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our target animal
studies and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of
these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
Provisions in our
restated certificate of incorporation and amended and restated by-laws and under Delaware law could make an acquisition of our
company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or
remove our current management.
Provisions in our certificate
of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger, acquisition or other change in
control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a
premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares
of our Common Stock, thereby depressing the market price of our Common Stock. In addition, because our Board of Directors is responsible
for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to
replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors.
Among other things, these provisions include those establishing:
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a classified board of directors
with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our
Board of Directors;
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no cumulative voting in the election
of directors, which limits the ability of minority stockholders to elect director candidates;
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the exclusive right of our Board of
Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or
removal of a director, which prevents stockholders from filling vacancies on our Board of Directors;
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the ability of our Board of Directors to
authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and
voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile
acquirer;
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the ability of our Board of Directors to alter our bylaws without obtaining stockholder approval;
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the required approval of the holders
of at least three-quarters (75%) of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws
or repeal the provisions of our certificate of incorporation regarding the election and removal of directors;
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a prohibition on stockholder action by
written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of
stockholders may be called only by the Chairman of the Board of Directors, the chief executive officer, the president or
the Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take
action, including the removal of directors; and
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advance notice procedures that
stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to be acted
upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of
proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
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Moreover, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware,
which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period
of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock,
unless the merger or combination is approved in a prescribed manner.
Because we do not
anticipate paying any cash dividends on our Common Stock in the foreseeable future, capital appreciation, if any, will be your
sole source of gain.
We have never declared
or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth
and development of our business. In addition, our credit facility currently prohibits us from paying dividends on our equity securities,
and any future debt agreements may likewise preclude us from paying dividends. As a result, capital appreciation, if any, of our
Common Stock will be your sole source of gain for the foreseeable future.
The Series D Preferred
Stock bears an accrued annual dividend rate of 8.0% per annum, based on the stated value of $10,000 per share, which may range
from 0% to 15% payable in cash or, at our option and subject to the satisfaction of certain conditions, in shares of Common Stock,
based on certain adjustments and conditions, including changes in the volume weighted average price of the Company’s Common
Stock. Upon conversion, we shall pay the holders of the Series D Preferred Stock being converted a conversion premium equal to
the amount of dividends that such shares would have otherwise issued if they had been held through the 6 and one half-year maturity
date of the Series D Agreement. Dividends on the Preferred Stock will accrue from the date of issuance until maturity and be paid
on the date of conversion thereof.
We could be subject
to securities class action litigation.
In the past, securities
class action litigation has often been brought against a company following a decline in the market price of its securities. This
risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent
years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources,
which could harm our business.
If we fail to comply
with the continued minimum closing bid requirements of the NASDAQ Capital Market LLC (“NASDAQ”), our Common Stock may
be delisted and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.
Our Common Stock is listed
for trading on the NASDAQ. We must satisfy NASDAQ’s continued listing requirements, including, among other things, a minimum
closing bid price requirement of $1.00 per share for 30 consecutive business days. If a company’s Common Stock trades for
30 consecutive business days below the $1.00 minimum closing bid price requirement, NASDAQ will send a deficiency notice to the
company, advising that it has been afforded a "compliance period" of 180 calendar days to regain compliance with the
applicable requirements. Thereafter, if such a company does not regain compliance with the bid price requirement, a second 180-day
compliance period may be available.
A delisting of our Common
Stock from NASDAQ could materially reduce the liquidity of our Common Stock and result in a corresponding material reduction in
the price of our Common Stock. In addition, delisting could harm our ability to raise capital through alternative financing sources
on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business
development opportunities.
On July 6, 2016, we received
a notification from the Listing Qualifications Department of The NASDAQ Stock Market LLC indicating that the Company had been granted
an additional 180 calendar day extension, or until January 3, 2017, to regain compliance with the requirements under NASDAQ Listing
Rule 5810(c)(3) (the “Rule”). The notification stated that extension determination was based on the Company meeting
the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing
on the Capital Market, with the exception of the bid price requirement. The notification has no immediate effect on the NASDAQ
listing or trading of the Company’s Common Stock.
As previously reported
on a Current Report on Form 8-K dated January 11, 2016, we had received a prior notification from NASDAQ, dated January 5, 2016,
indicating that we were not in compliance with the Rule because the minimum bid price of the Company’s Common Stock on the
NASDAQ Capital Market had closed below $1.00 per share for 30 consecutive business days.
In the event we do not
regain compliance with the Rule by January 3, 2017, NASDAQ will notify us that our Common Stock will be delisted from the NASDAQ
Capital Market, unless we request a hearing before a NASDAQ Hearings Panel.
If we fail to comply
with the shareholder approval requirements of the NASDAQ Capital Market LLC (“NASDAQ”), our Common Stock may be delisted
and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.
On November 2, 2016, we
received a notification from the Listing Qualifications Department of The NASDAQ Stock Market LLC indicating that we had failed
to comply with NASDAQ’s shareholder approval requirement set forth in Listing Rule 5635(d). The notification stated that
determination was based on the Staff’s determination to aggregate the discounted share issuances in transactions that had
been completed in April, June and July of 2016 for purposes of determining whether the threshold for shareholder approval had been
triggered.
The letter received from
NASDAQ has no immediate effect on the listing of the Company’s Common Stock. Under NASDAQ Rules, we have until December 17,
2016 (45 calendar days from November 2, 2016) to submit a plan to regain compliance. If our plan is accepted, NASDAQ can grant
us an extension of up to 180 calendar days from November 2, 2016 to evidence compliance. If NASDAQ does not accept our plan, we
will have the opportunity to appeal that decision to a NASDAQ Hearings Panel.
We intend to take the appropriate
steps to address the issues raised by NASDAQ as quickly as possible and are is currently considering and evaluating all available
options to resolve our noncompliance with respect to the share issuances as may be necessary. We intend to submit a remediation
plan to NASDAQ promptly for its approval. There can be no assurance that we will be able to regain compliance with the NASDAQ shareholder
approval requirements or will otherwise be in compliance with other NASDAQ listing criteria.
Risks Related to Employee
Matters and Managing Growth and Other Risks Related to Our Business
Our future success
depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent
on Dr. Daniel G. Teper, our Chief Executive Officer, as well as the other principal members of our management, scientific and clinical
team. Although we have entered into employment letter agreements with our executive officers, each of them may terminate their
employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.
Recruiting and retaining
qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss
of the services of our executive officers or other key employees could impede the achievement of our research, development and
commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing
executive officers and key employees may be difficult and may take an extended period of time because of the limited number of
individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval
of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain
or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies
for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and
research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist
us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by
employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their
availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth
strategy will be limited.
We expect to expand
our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a
result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience
significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development,
regulatory affairs, manufacturing and, if any of our product candidates receives marketing approval, sales, marketing and distribution.
To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems,
expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources
and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively
manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may
lead to significant costs and may divert our management and business development resources. Any inability to manage growth could
delay the execution of our business plans or disrupt our operations.
A variety of risks
associated with operating internationally could materially adversely affect our business.
In addition to our U.S.
operations, we have operations in Israel through our wholly owned subsidiary, Immune Pharmaceuticals Ltd., and may have other such
international operations in the future. We face risks associated with our operations in Israel, including possible unfavorable
regulatory, pricing and reimbursement, legal, political, tax and labor conditions, which could harm our business. We are also conducting
and in the future plan to continue to conduct clinical trials of product candidates in Israel. We are subject to numerous risks
associated with international business activities in Israel and elsewhere, including:
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compliance with differing or unexpected regulatory requirements for our products;
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compliance with Israeli laws with respect to our wholly owned subsidiary, Immune Ltd.;
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difficulties in staffing and managing foreign operations;
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foreign government taxes, regulations and permit requirements;
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U.S. and foreign government tariffs,
trade restrictions, price and exchange controls and other regulatory requirements;
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economic weakness, including inflation,
natural disasters, war, events of terrorism or political instability in particular foreign countries;
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fluctuations in currency exchange
rates, which could result in increased operating expenses and reduced revenues;
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compliance with tax, employment, immigration
and labor laws, regulations and restrictions for employees living or traveling abroad;
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changes in diplomatic and trade relationships; and
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challenges in enforcing our
contractual and intellectual property rights, especially in those foreign countries that do not respect and protect
intellectual property rights to the same extent as the United States.
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These and other risks
associated with our international operations in Israel and elsewhere may materially adversely affect our business, financial condition
and results of operations.
Our business and
operations would suffer in the event of system failures.
Despite the implementation
of security measures, our internal computer systems and those of our current and future contractors and consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
While we are not aware of any such material system failure, accident or security breach to date, if such an event were to occur
and cause interruptions in our operations, it could result in a material disruption of our development programs and our business
operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties
to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could
also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss
of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur
liability and the further development and commercialization of our product candidates could be delayed.