Item 1A. Risk
Factors
Investing in our securities includes a high degree of risk. You
should consider carefully the specific factors discussed below,
together with all of the other information contained in this Annual
Report. If any of the following risks actually occurs, our
business, financial condition, results of operations and future
prospects would likely be materially and adversely affected. This
could cause the market price of our securities to decline and could
cause you to lose all or part of your investment.
Risks
Related to Our Financial Condition and Capital
Requirements
We have a limited operating history, have incurred losses, and can
give no assurance of profitability.
We are
a commercial-stage specialty pharmaceutical company with a limited
operating history. Prior to implementing our commercial strategy in
the fourth calendar quarter of 2015, we did not have a focus on
profitability. Since then, we have incurred losses in each year
since our inception. Our net loss for the years ended June 30, 2020
and 2019 was $13.6 million and $27.1 million, respectively. We have
not demonstrated the ability to be a profit-generating enterprise
to date. Even though we expect to have revenue growth in the next
several fiscal years, it is uncertain that the revenue growth will
be significant enough to offset our expenses and generate a profit
in the future. We have a very limited operating history on which
investors can evaluate our potential for future success. Potential
investors should evaluate us in light of the expenses, delays,
uncertainties, and complications typically encountered by
early-stage healthcare businesses, many of which will be beyond our
control. These risks include the following:
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●
uncertain
market acceptance of our products and product
candidates;
●
lack of
sufficient capital;
●
U.S.
regulatory approval of our products and product
candidates;
●
foreign
regulatory approval of our products and product
candidates;
●
unanticipated
problems, delays, and expense relating to product development and
implementation;
●
lack of
sufficient intellectual property;
●
the
ability to attract and retain qualified employees;
●
competition;
and
●
technological
changes.
As a
result of our limited operating history, and the increasingly
competitive nature of the markets in which we compete, our
historical financial data, is of limited value in anticipating
future operating expenses. Our planned expense levels will be based
in part on our expectations concerning future operations, which is
difficult to forecast accurately based on our limited operating
history and the historical experience acquiring products and or
businesses as we continue to strategically develop our product and
business portfolio. We may be unable to adjust spending in a timely
manner to compensate for any unexpected budgetary
shortfall.
To
obtain revenues from our products and product candidates, we must
succeed, either alone or with others, in a range of challenging
activities, including expanding markets for our existing products
and completing clinical trials of our product candidates, obtaining
positive results from those clinical trials, achieving marketing
approval for those product candidates, manufacturing, marketing and
selling our existing products and those products for which we, or
our collaborators, may obtain marketing approval, satisfying any
post-marketing requirements and obtaining reimbursement for our
products from private insurance or government payors. We, and our
collaborators, if any, may never succeed in these activities and,
even if we do, or one of our collaborators does, we may never
generate revenues that are sufficient enough for us to achieve
profitability.
We may need to raise additional funding, which may not be available
on acceptable terms, or at all. Failure to obtain necessary capital
when needed may force us to delay, limit or terminate our product
expansion and development efforts or other operations.
We are
expending resources to expand the market for the Primary Care
Portfolio, Pediatric Portfolio, the Consumer Health segment and
COVID-19 Test Kits and investing in efforts to eventually
commercialize the Healight Platform, none of which might be as
successful as we anticipate or at all and all of which might take
longer and be more expensive to market than we anticipate. As of
June 30, 2020, our cash, cash equivalents and restricted cash
totaling $48.3 million, available to fund our operations, offset by
an aggregate $20.0 million in accounts payable and other and
accrued liabilities. During the twelve months ended June 30, 2020,
the Company raised approximately $87.2 million proceeds, net of
fees from a combination of common stock offerings and common stock
warrant exercises.
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Our operating plan
may change as a result of many factors currently unknown to us, and
we may need to seek additional funds sooner than planned, through
public or private equity or debt financings, government or other
third-party funding, marketing and distribution arrangements and
other collaborations, strategic alliances and licensing
arrangements or a combination of these approaches. In any event, we
may require additional capital to continue the expansion of
commercialization efforts for our pharmaceutical, device and
commercial health products, and to obtain regulatory approval for,
and to commercialize, our current product candidate, the Healight
Platform. Raising funds in the current economic environment, as
well as our limited operating history, may present additional
challenges. Even if we believe we have sufficient funds for our
current or future operating plans, we may seek additional capital
if market conditions are favorable or if we have specific strategic
considerations.
Any
additional fundraising efforts may divert our management from their
day-to-day activities, which may adversely affect our ability to
expand any existing product or develop and commercialize our
product candidates. In addition, we cannot guarantee that future
financing will be available in sufficient amounts or on terms
acceptable to us, if at all. Moreover, the terms of any financing
may adversely affect the holdings or the rights of our stockholders
and the issuance of additional securities, whether equity or debt,
by us, or the possibility of such issuance, may cause the market
price of our shares to decline. The sale of additional equity or
convertible securities could dilute all of our stockholders. The
incurrence of indebtedness would result in increased fixed payment
obligations and we may be required to agree to certain restrictive
covenants, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that
could adversely impact our ability to conduct our business. We
could also be required to seek funds through arrangements with
collaborative partners or otherwise at an earlier stage than
otherwise would be desirable and we may be required to relinquish
rights to some of our technologies or product candidates or
otherwise agree to terms unfavorable to us, any of which may have a
material adverse effect on our business, operating results and
prospects.
If we
are unable to obtain funding on a timely basis, we may be unable to
expand the market for our pharmaceutical, device and consumer
health products, and/or be required to significantly curtail, delay
or discontinue one or more of our research or development programs
for the Healight Platform, or any future product candidate or
expand our operations generally or otherwise capitalize on our
business opportunities, as desired, which could materially affect
our business, financial condition and results of
operations.
We will incur increased costs associated with, and our management
will need to devote substantial time and effort to, compliance with
public company reporting and other requirements.
As a
public company, we incur significant legal, accounting and other
expenses. In addition, the rules and regulations of the SEC and any
national securities exchange to which we may be subject in the
future impose numerous requirements on public companies, including
requirements relating to our corporate governance practices, with
which we will need to comply. Further, we will continue to be
required to, among other things, file annual, quarterly and current
reports with respect to our business and operating results. Based
on currently available information and assumptions, we estimate
that we will incur up to approximately $500,000 in expenses on an
annual basis as a direct result of the requirements of being a
publicly traded company. Our management and other personnel will
need to devote substantial time to gaining expertise regarding
operations as a public company and compliance with applicable laws
and regulations, and our efforts and initiatives to comply with
those requirements could be expensive.
If we fail to establish and maintain proper internal controls, our
ability to produce accurate financial statements or comply with
applicable regulations could be impaired.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Pursuant to Section 404
of the Sarbanes-Oxley Act, our management conducted an assessment
of the effectiveness of our internal controls over financial
reporting for the year ended June 30, 2020 and concluded that such
control was effective.
However, if in the
future we were to conclude that our internal control over financial
reporting were not effective, we cannot be certain as to the timing
of completion of our evaluation, testing and remediation actions or
their effect on our operations because there is presently no
precedent available by which to measure compliance adequacy. As a
consequence, we may not be able to complete any necessary
remediation process in time to meet our deadline for compliance
with Section 404 of the Sarbanes-Oxley Act. Also, there can be no
assurance that we will not identify one or more material weaknesses
in our internal controls in connection with evaluating our
compliance with Section 404 of the Sarbanes-Oxley Act. The presence
of material weaknesses could result in financial statement errors
which, in turn, could require us to restate our operating
results.
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If we
are unable to conclude that we have effective internal control over
financial reporting or if our independent auditors are unwilling or
unable to provide us, when required, with an attestation report on
the effectiveness of internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act, investors may
lose confidence in our operating results, our stock price could
decline and we may be subject to litigation or regulatory
enforcement actions. In addition, if we are unable to meet the
requirements of Section 404 of the Sarbanes-Oxley Act, we may not
be able to maintain listing on the NASDAQ Capital
Market.
Risks Related to Product Development, Regulatory Approval and
Commercialization
Our Pharmaceutical, Device and Consumer Health products may prove
to be difficult to effectively commercialize as
planned.
Various
commercial, regulatory, and manufacturing factors may impact our
ability to maintain or grow revenues from sales of our
pharmaceutical, device and consumer health product offerings.
Specifically, we may encounter difficulty by virtue
of:
●
our
inability to adequately market and increase sales of any of these
products;
●
our
inability to secure continuing prescribing of any of these products
by current or previous users of the product;
●
our
inability to effectively transfer and scale manufacturing as needed
to maintain an adequate commercial supply of these
products;
●
reimbursement
and medical policy changes that may adversely affect the pricing,
profitability or commercial appeal of pharmaceutical products;
and
●
our
inability to effectively identify and align with commercial
partners outside the U.S., or the inability of those selected
partners to gain the required regulatory, reimbursement, and other
approvals needed to enable commercial success of the Healight
Platform.
We have limited experience selling our current products as they
were acquired from other companies or were recently approved for
sale. As a result, we may be unable to successfully commercialize
our products and product candidates.
Despite
our management’s extensive experience in launching and
managing commercial-stage healthcare companies, we have limited
marketing, sales and distribution experience with our current
products. Our ability to achieve profitability depends on
attracting and retaining customers for our current products and
building brand loyalty for our pharmaceuticals and consumer health
product offerings . To successfully perform sales, marketing,
distribution and customer support functions, we will face a number
of risks, including:
●
our
ability to attract and retain skilled support team, marketing staff
and sales force necessary to increase the market for our approved
products and to maintain market acceptance for our product
candidates;
●
the
ability of our sales and marketing team to identify and penetrate
the potential customer base;
●
and the
difficulty of establishing brand recognition and loyalty for our
products.
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In addition,
we may seek to enlist one or more third parties to assist with
sales, distribution and customer support globally or in certain
regions of the world. If we do seek to enter into these
arrangements, we may not be successful in attracting desirable
sales and distribution partners, or we may not be able to enter
into these arrangements on favorable terms, or at all. If our sales
and marketing efforts, or those of any third-party sales and
distribution partners, are not successful, our currently approved
products may not achieve increased market acceptance and our
product candidates may not gain market acceptance, which would
materially impact our business and operations.
We cannot be certain that we will be able to obtain regulatory
approval for, or successfully commercialize, our product
candidates.
We may
not be able to develop our current or future product candidates.
Our product candidates will require substantial additional clinical
development, testing, and regulatory approval before we are
permitted to commence commercialization. The clinical trials of our
product candidates are, and the manufacturing and marketing of our
product candidates will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the
U.S. and in other countries where we intend to test and, if
approved, market any product candidate. Before obtaining regulatory
approvals for the commercial sale of any product candidate, we must
demonstrate through pre-clinical testing and clinical trials that
the product candidate is safe and effective for use in each target
indication. This process can take many years and may include
post-marketing studies and surveillance, which will require the
expenditure of substantial resources. Of the large number of drugs
in development in the U.S., only a small percentage successfully
completes the FDA regulatory approval process and is
commercialized. Accordingly, even if we are able to obtain the
requisite financing to continue to fund our development and
clinical programs, we cannot assure you that any of our product
candidates will be successfully developed or
commercialized.
For our
more strictly regulated pharmaceutical products, such as our
Primary Care Portfolio and Pediatric Portfolio product offerings,
we are not permitted to market a pharmaceutical product in the U.S.
until we receive approval of a New Drug Application, or an NDA, for
that product from the FDA, or in any foreign countries until we
receive the requisite approval from such countries. Obtaining
approval of an NDA is a complex, lengthy, expensive and uncertain
process, and the FDA may delay, limit or deny approval of any
product candidate for many reasons, including, among
others:
●
we may
not be able to demonstrate that a product candidate is safe and
effective to the satisfaction of the FDA;
●
the
results of our clinical trials may not meet the level of
statistical or clinical significance required by the FDA for
marketing approval;
●
the FDA
may disagree with the number, design, size, conduct or
implementation of our clinical trials;
●
the FDA
may require that we conduct additional clinical
trials;
●
the FDA
may not approve the formulation, labeling or specifications of any
product candidate;
●
the
clinical research organizations, or CROs, that we retain to conduct
our clinical trials may take actions outside of our control that
materially adversely impact our clinical trials;
●
the FDA
may find the data from pre-clinical studies and clinical trials
insufficient to demonstrate that a product candidate’s
clinical and other benefits outweigh its safety risks, such as the
risk of drug abuse by patients or the public in
general;
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●
the FDA
may disagree with our interpretation of data from our pre-clinical
studies and clinical trials;
●
the FDA
may not accept data generated at our clinical trial
sites;
●
if an
NDA, if and when submitted, is reviewed by an advisory committee,
the FDA may have difficulties scheduling an advisory committee
meeting in a timely manner or the advisory committee may recommend
against approval of our application or may recommend that the FDA
require, as a condition of approval, additional pre-clinical
studies or clinical trials, limitations on approved labeling or
distribution and use restrictions;
●
the FDA
may require development of a Risk Evaluation and Mitigation
Strategy, or REMS, as a condition of approval or
post-approval;
●
the FDA
may not approve the manufacturing processes or facilities of
third-party manufacturers with which we contract; or
●
the FDA
may change its approval policies or adopt new
regulations.
These
same risks apply to applicable foreign regulatory agencies from
which we may seek approval for any of our product
candidates.
Any of
these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully market any product candidate. Moreover, because a
substantial portion of our business is or may be dependent upon our
product candidates, any such setback in our pursuit of initial or
additional regulatory approval would have a material adverse effect
on our business and prospects.
If we fail to successfully acquire new products, we may lose market
position.
Acquiring new
products is an important factor in our planned sales growth,
including products that already have been developed and found
market acceptance. If we fail to identify existing or emerging
consumer markets and trends and to acquire new products, we will
not develop a strong revenue source to help pay for our development
activities as well as possible acquisitions. This failure would
delay implementation of our business plan, which could have a
negative adverse effect on our business and prospects.
If we do not secure
collaborations with strategic partners to test, commercialize and
manufacture product candidates, we may not be able to successfully
develop products and generate meaningful
revenues.
We may
enter into collaborations with third parties to conduct clinical
testing, as well as to commercialize and manufacture our products
and product candidates. If we are able to identify and reach an
agreement with one or more collaborators, our ability to generate
revenues from these arrangements will depend on our
collaborators’ abilities to successfully perform the
functions assigned to them in these arrangements. Collaboration
agreements typically call for milestone payments that depend on
successful demonstration of efficacy and safety, obtaining
regulatory approvals, and clinical trial results. Collaboration
revenues are not guaranteed, even when efficacy and safety are
demonstrated. Further, the economic environment at any given time
may result in potential collaborators electing to reduce their
external spending, which may prevent us from developing our product
candidates.
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Even if
we succeed in securing collaborators, the collaborators may fail to
develop or effectively commercialize our products or product
candidates. Collaborations involving our product candidates pose a
number of risks, including the following:
●
collaborators
may not have sufficient resources or may decide not to devote the
necessary resources due to internal constraints such as budget
limitations, lack of human resources, or a change in strategic
focus;
●
collaborators
may believe our intellectual property is not valid or is
unenforceable or the product candidate infringes on the
intellectual property rights of others;
●
collaborators
may dispute their responsibility to conduct development and
commercialization activities pursuant to the applicable
collaboration, including the payment of related costs or the
division of any revenues;
●
collaborators
may decide to pursue a competitive product developed outside of the
collaboration arrangement;
●
collaborators
may not be able to obtain, or believe they cannot obtain, the
necessary regulatory approvals;
●
collaborators
may delay the development or commercialization of our product
candidates in favor of developing or commercializing their own or
another party’s product candidate; or
●
collaborators
may decide to terminate or not to renew the collaboration for these
or other reasons.
As a
result, collaboration agreements may not lead to development or
commercialization of our product candidates in the most efficient
manner or at all.
Collaboration
agreements are generally terminable without cause on short notice.
Once a collaboration agreement is signed, it may not lead to
commercialization of a product candidate. We also face competition
in seeking out collaborators. If we are unable to secure
collaborations that achieve the collaborator’s objectives and
meet our expectations, we may be unable to advance our products or
product candidates and may not generate meaningful
revenues.
We or our strategic partners may choose not to continue an existing
product or choose not to develop a product candidate at any time
during development, which would reduce or eliminate our potential
return on investment for that product.
At any
time and for any reason, we or our strategic partners may decide to
discontinue the development or commercialization of a product or
product candidate. If we terminate a program in which we have
invested significant resources, we will reduce the return, or not
receive any return, on our investment and we will have missed the
opportunity to have allocated those resources to potentially more
productive uses. If one of our strategic partners terminates a
program, we will not receive any future milestone payments or
royalties relating to that program under our agreement with that
party. As an example, we sold Primsol in March 2017, and abandoned
Fiera and ProstaScint in June 2018.
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Our pre-commercial product candidates are expected to undergo
clinical trials that are time-consuming and expensive, the outcomes
of which are unpredictable, and for which there is a high risk of
failure. If clinical trials of our product candidates fail to
satisfactorily demonstrate safety and efficacy to the FDA and other
regulators, we or our collaborators may incur additional costs or
experience delays in completing, or ultimately be unable to
complete, the development and commercialization of these product
candidates.
Pre-clinical
testing and clinical trials are long, expensive and unpredictable
processes that can be subject to extensive delays. We cannot
guarantee that any clinical studies will be conducted as planned or
completed on schedule, if at all. It may take several years to
complete the pre-clinical testing and clinical development
necessary to commercialize a drug, and delays or failure can occur
at any stage. Interim results of clinical trials do not necessarily
predict final results, and success in pre-clinical testing and
early clinical trials does not ensure that later clinical trials
will be successful. A number of companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in
advanced clinical trials even after promising results in earlier
trials and we cannot be certain that we will not face similar
setbacks. The design of a clinical trial can determine whether its
results will support approval of a product and flaws in the design
of a clinical trial may not become apparent until the clinical
trial is well advanced. An unfavorable outcome in one or more
trials would be a major set-back for that product candidate and for
us. Due to our limited financial resources, an unfavorable outcome
in one or more trials may require us to delay, reduce the scope of,
or eliminate one or more product development programs, which could
have a material adverse effect on our business, prospects and
financial condition and on the value of our common
stock.
In
connection with clinical testing and trials, we face a number of
risks, including:
●
a
product candidate is ineffective, inferior to existing approved
medicines, unacceptably toxic, or has unacceptable side
effects;
●
patients
may die or suffer other adverse effects for reasons that may or may
not be related to the product candidate being tested;
●
the
results may not confirm the positive results of earlier testing or
trials; and
●
the
results may not meet the level of statistical significance required
by the FDA or other regulatory agencies to establish the safety and
efficacy of the product candidate.
If we
do not successfully complete pre-clinical and clinical development,
we will be unable to market and sell products derived from our
product candidates and generate revenues. Even if we do
successfully complete clinical trials, those results are not
necessarily predictive of results of additional trials that may be
needed before an NDA may be submitted to the FDA. Although there
are a large number of drugs in development in the U.S. and other
countries, only a small percentage result in the submission of an
NDA to the FDA, even fewer are approved for commercialization, and
only a small number achieve widespread physician and consumer
acceptance following regulatory approval. If our clinical trials
are substantially delayed or fail to prove the safety and
effectiveness of our product candidates in development, we may not
receive regulatory approval of any of these product candidates and
our business, prospects and financial condition will be materially
harmed.
Delays, suspensions and terminations in any clinical trial we
undertake could result in increased costs to us and delay or
prevent our ability to generate revenues.
Human
clinical trials are very expensive, time-consuming, and difficult
to design, implement and complete. Should we undertake the
development of a pharmaceutical product candidate, we would expect
the necessary clinical trials to take up to 24 months to complete,
but the completion of trials for any product candidates may be
delayed for a variety of reasons, including delays in:
●
demonstrating
sufficient safety and efficacy to obtain regulatory approval to
commence a clinical trial;
●
reaching