Item 1A. Risk Factors
Summary Risk Factors
The following is a summary of material risks that could affect
our business. This summary may not contain all of our material risks, and it is qualified in its entirety by the more detailed
risk factors set forth below.
Risks Related to our Financial Position and Need for Additional
Capital
Risks Related to the Development and Commercialization
of Our Product Candidates
8. Physician and patients may not accept and use our products.
Risks Related to Our Business and Industry
5. We may not successfully manage our growth.
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Risks Related to Our Intellectual Property
Risks Related to Dependence on Third Parties
Risks Related to Our Common Stock
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Risks
Related to Our Financial Position and Need for Additional Capital
We
have a history of operating losses, expect to incur additional operating losses in the future and may never be profitable.
Our
prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies
in the early stages of operation. We incurred net losses of approximately $22.0 million and $16.4 million for the years ended
December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of approximately $217.4 million.
We expect to incur substantial additional operating expenses over the next several years as our research, development, pre-clinical
testing, clinical trial and commercialization activities increase as we develop and commercialize DefenCath and our other product
candidates. As a result, we expect to experience negative cash flow as we fund our operating losses and capital expenditures.
The amount of future losses and when, if ever, we will achieve profitability are uncertain. Neutrolin was launched in December
2013 and is currently available for distribution in certain European Union and Middle East countries. We have not generated any
significant commercial revenue and do not expect to generate substantial revenues from DefenCath unless and until it is approved
by the United States Food and Drug Administration (“FDA”) and launched in the United States (“U.S.”) market,
and we might never generate significant revenues from the sale of DefenCath or any other products. Our ability to generate revenue
and achieve profitability will depend on, among other things, the following: obtaining FDA approval of DefenCath for the prevention
of catheter-related bloodstream infections (“CRBSIs”) in patients with kidney failure receiving hemodialysis through
a central venous catheter; successfully launching and marketing DefenCath in the U.S., if approved by the FDA; successfully marketing
Neutrolin in foreign countries in which it is approved for sale; obtaining necessary regulatory approvals for our other product
candidates from the FDA and, if sought, international regulatory agencies; establishing manufacturing, sales, and marketing arrangements,
either alone or with third parties; and raising sufficient funds to finance our activities. We might not succeed at any of these
undertakings. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations
may be materially adversely affected.
Our
cost of operations could increase significantly more than what we expect depending on the costs to complete our development program
for DefenCath.
Our
operations are subject to a number of factors that can affect our operating results and financial condition. Such factors include,
but are not limited to: the results of clinical testing and trial activities of our product candidates; the ability to obtain
regulatory approval to market our products; ability to manufacture successfully; competition from products manufactured and sold
or being developed by other companies; the price of, and demand for, our products; our ability to negotiate favorable licensing
or other manufacturing and marketing agreements for our products; and our ability to raise capital to support our operations.
To date, our commercial operations have not generated sufficient
revenues to enable profitability. As of December 31, 2020, we had an accumulated deficit of $217.4 million, and incurred net losses
of $22.0 million for the year then ended. Based on the current development plans for DefenCath and Neutrolin in both the U.S. and
foreign markets (including the concluded hemodialysis Phase 3 clinical trial in the U.S.) and our other operating requirements,
management believes that the existing cash at December 31, 2020, after taking into consideration the $41.5 million of net proceeds
received in January and February 2021 from the at-the-market program, will be sufficient to fund operations at least into the second
half of 2022. We will need additional funding for the commercialization of DefenCath upon FDA approval and funding for the label
expansion studies for DefenCath into oncology and total parenteral nutrition.
Our
continued operations will ultimately depend on our ability to raise additional capital through various potential sources, such
as equity and/or debt financings, strategic relationships, potential strategic transactions or out-licensing of our products in
order to complete the development of DefenCath and until we achieve profitability, if ever. We can provide no assurances that
such financing or strategic relationships will be available on acceptable terms, or at all. Without this funding, we could be
required to delay, scale back or eliminate some or all of our research and development programs which would likely have a material
adverse effect on our business.
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We
will need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration
and licensing arrangements. Any additional funds that we obtain may not be on terms favorable to us or our stockholders and may
require us to relinquish valuable rights.
We
have launched Neutrolin in certain European Union and Middle East countries, but to date have no other approved product on the
market and have not generated significant product revenue from Neutrolin to date. Unless and until we receive applicable regulatory
approval for DefenCath in the U.S., we cannot sell DefenCath in the U.S. Therefore, for the foreseeable future, we will have to
fund all of our operations and capital expenditures from Neutrolin sales in Europe and other foreign markets, if approved, cash
on hand, additional financings, licensing fees and grants.
We believe that our cash resources as of December 31, 2020,
after taking into consideration the $41.5 million of net proceeds received in January and February 2021 from the at-the-market
program, will be sufficient to fund operations at least into the second half of 2022. Nevertheless, we may need to raise additional
funds through financings or strategic relationships if our costs exceed our expectations, as well as funds for our operations beyond
the second half of 2022. We can provide no assurances that any financing or strategic relationships will be available to us on
acceptable terms, or at all. We expect to continue to use significant cash to fund our operations as we seek FDA approval of DefenCath
in the U.S., commercialize Neutrolin in Europe and other markets, pursue development of our medical devices and other business
development activities, and incur additional legal costs to defend our intellectual property.
To
raise needed capital, we may sell additional equity or debt securities, obtain a bank credit facility, or enter into a corporate
collaboration or licensing arrangement. The sale of additional equity or debt securities, if convertible, could result in dilution
to our stockholders. The incurrence of indebtedness would result in fixed obligations and could also result in covenants that
would restrict our operations. Raising additional funds through collaboration or licensing arrangements with third parties may
require us to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates,
or to grant licenses on terms that may not be favorable to us or our stockholders.
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Risks
Related to the Development and Commercialization of Our Product Candidates
DefenCath,
our lead product candidate, has received Fast Track designation and Qualified Infectious Disease Product designation from FDA,
but we cannot provide assurances that these designations will not be rescinded.
DefenCath
is being developed as a catheter lock solution for the reduction of CRBSIs in patients with kidney failure receiving hemodialysis
through a central venous catheter. The FDA has determined that DefenCath will be regulated as a New Drug, because it contains
the new chemical entity taurolidine as a novel antimicrobial agent. After we filed the Investigational New Drug Application (“IND”),
FDA granted designations as Fast Track and a Qualified Infectious Disease Product (“QIDP”) in January 2015. Fast Track
is designed to facilitate development of a drug that is intended to treat a serious or life-threatening condition and address
an unmet medical need. Fast Track confers eligibility to request priority review of an NDA, with FDA’s decision regarding
potential priority review to be made after receipt of a complete application. QIDP was established pursuant to the Generating
Antibiotic Incentives Now (“GAIN”) Act and creates incentives for the development of antibacterial and antifungal
drug products that treat serious or life-threatening infections. Subject to the specified statutory limitations, a drug that is
designated as QIDP and is approved for the use for which the QIDP designation was granted will receive a 5-year extension to any
exclusivity for which the application qualifies upon approval, such as the 5 year exclusivity for a new chemical entity. We cannot
provide assurances that DefenCath will retain these designations and continue to receive the benefits conferred.
If
the FDA requires a second clinical trial for DefenCath or imposes additional manufacturing requirements to approve the New Drug
Application, the development of DefenCath will take longer and cost more to complete, and we will need significant additional
funds to undertake a second trial, if required.
Although two pivotal
clinical trials to demonstrate safety and effectiveness of DefenCath are generally required by the FDA to secure marketing approval
in the U.S., FDA will in some cases accept one adequate and well-controlled trial, where it is a large multicenter trial with a
broad range of subjects and investigation sites with procedures to include trial quality that has demonstrated a clinically meaningful
and statistically very persuasive effect on prevention of a disease with potentially serious outcome. We discussed submission of
the NDA with the FDA based on the data from LOCK-IT-100 and were granted our request for rolling submission and review of the NDA
for DefenCath as a catheter lock solution for the prevention of CRBSIs in patients with end stage renal disease receiving hemodialysis
through a central venous catheter. In August 2020, the FDA accepted the DefenCath NDA for filing and granted our request for priority
review, with a PDUFA date of February 28, 2021. As we announced in March 2021, the FDA informed us in a Complete Response Letter
that it will not approve the NDA in its present form, because of concerns at the third-party manufacturing facility and a requirement
to conduct a manual extraction study to demonstrate that the labeled volume can be consistently withdrawn from the vials. We plan
to meet with the FDA to obtain agreement on the proposed resolutions of the deficiencies. The FDA did not request additional clinical
data and did not identify any deficiencies related to the data submitted on the efficacy and safety of DefenCath from LOCK-IT-100.
In draft labeling discussed with FDA, the FDA added that the initial approval will be for the limited population of patients with
kidney failure receiving hemodialysis through a central venous catheter. This is consistent with our request for approval of the
NDA pursuant to the Limited Population Pathway for Antibacterial and Antifungal Drugs (“LPAD”) pathway, which was passed
as part of the 21st Century Cures Act. LPAD is intended to expedite the development and approval of certain antibacterial and antifungal
drugs which meet three criteria: intended to treat serious or life-threatening infections; in limited populations of patients;
and with unmet needs. The LPAD pathway provides for a streamlined clinical development program for a limited population that may
involve smaller, shorter or fewer clinical trials. Labeling of an LPAD approved product will specify the use in the limited population.
However, until the NDA is approved, if we experience issues related to the clinical trial results, we may incur additional costs
and delays in the trial, and may not be able to complete the clinical trial in a cost-effective or timely manner, which would have
an adverse effect on our development program for DefenCath as a treatment for catheter-related bloodstream infections.
Our
only product Neutrolin is only approved in Europe and is still in development in the United States.
Neutrolin
currently and for at least the near future is our only current product as well as product candidate. Neutrolin has received CE
Mark approval in Europe, and we started sales in Germany in December 2013. We also are pursuing development of DefenCath in the
U.S. Our product commercialization and development efforts may not lead to commercially viable products for any of several reasons.
For example, our product candidates may fail to be proven safe and effective in clinical trials, or we may have inadequate financial
or other resources to pursue development efforts for our product candidates. Even if approved, our product may not be accepted
in the marketplace. DefenCath will require significant additional development, including the preparation and filing of an NDA,
possibly a second clinical trial, and/or investment by us or our collaborators as we continue its commercialization, as will any
other product candidates.
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In April 2017, we entered
into a commercial collaboration with Hemotech SAS covering France and certain overseas territories. We have an agreement with a
South Korean company to market, sell and distribute Neutrolin in South Korea upon receipt of regulatory approval in that country,
which requires approval by the U.S. FDA. We also have commercial sales in Germany and a distributor agreement for the United Arab
Emirates, which is pursuant to the EU CE Mark. Consequently, we will be dependent on these companies and individuals for the success
of sales in those countries and any other countries in which we receive regulatory approval and in which we contract with third
parties for the marketing, sale and/or distribution of Neutrolin. If these companies or individuals do not perform for whatever
reason, our business, prospects and results of operations will be adversely affected. Finding a suitable replacement organization
or individual for these or any other companies or individuals with whom we might contract could be difficult, which would further
harm our business, prospects and results of operations. The negotiation and consummation of collaboration agreements typically
involve simultaneous discussions with multiple potential collaborators and require significant time and resources. In addition,
in attracting the attention of pharmaceutical and biotechnology company collaborators, we compete with numerous other third parties
with product opportunities as well as the collaborators’ own internal product opportunities. We may not be able to consummate
collaborative agreements, or we may not be able to negotiate commercially acceptable terms for these agreements.
Final approval by regulatory authorities
of our product candidates for commercial use may be delayed, limited or prevented, any of which would adversely affect our ability
to generate operating revenues.
Our ability to generate
operating revenue will be severely limited until we, a licensee, or a potential collaborator successfully commercializes DefenCath
in the United States. We may experience unforeseen events during product development that may substantially delay or prevent product
approval. For example, in the course of conducting a clinical trial, the FDA could order the temporary, or permanent, discontinuation
at any time if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents
an unacceptable risk to the clinical trial patients. An Institutional Review Board (“IRB”) may also require the clinical
trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or if
the trial poses an unexpected serious harm to clinical trial patients. The FDA or an IRB may also impose conditions on the conduct
of a clinical trial. Clinical trial sponsors may also choose to discontinue clinical trials as a result of risks to clinical trial
patients, a lack of favorable results, or changing business priorities.
The clinical development,
manufacturing, labeling, packaging, storage, recordkeeping, export, marketing, promotion and distribution, and other possible activities
relating to our product candidates are subject to extensive regulation by the FDA and other regulatory agencies. Failure to comply
with applicable regulatory requirements may, either before or after product approval, subject us to administrative or judicially
imposed sanctions that may negatively impact the approval of one or more of our product candidates or otherwise negatively impact
our business. Compliance with such regulations may consume substantial financial and management resources and expose us and our
collaborators to the potential for other adverse circumstances. For example, a regulatory authority can place restrictions on the
sale or marketing of a drug in order to manage the risks identified during initial clinical trials or after the drug is on the
market. A regulatory authority can condition the approval for a drug on costly post-marketing follow-up studies. Based on these
studies, if a regulatory authority does not believe that the drug demonstrates a clinical benefit to patients or an acceptable
safety profile, it could limit the indications for which a drug may be sold or revoke the drug’s marketing approval. In addition,
identification of certain side effects either during clinical trials or after a drug is on the market may result in reformulation
of a drug, additional pre-clinical and clinical trials, labeling changes, termination of ongoing clinical trials or withdrawal
of approval. Any of these events could delay or prevent us from generating revenue from the commercialization of these drugs and
cause us to incur significant additional costs.
Neither collaborators,
licensees nor we are permitted to market a product candidate in the United States until the particular product candidate is approved
for marketing by the FDA. Specific pre-clinical data, chemistry, manufacturing and controls data, a proposed clinical trial protocol
and other information must be submitted to the FDA as part of an IND application, and clinical trials may commence only after the
IND application becomes effective. To market a new drug in the United States, we must submit to the FDA and obtain FDA approval
of an NDA. An NDA must be supported by extensive clinical and pre-clinical data, as well as extensive information regarding chemistry,
manufacturing and controls, to demonstrate the safety and effectiveness of the product candidate, and the FDA will also assess
whether the manufacturing processes and facilities are suitable to support the application. Approval of an NDA may be delayed due
to delays in FDA’s review of the manufacturing facility, which may require an onsite inspection.
Obtaining approval
of an NDA can be a lengthy, expensive and uncertain process. Review time can be impacted by the quality of the information included
in the application, FDA’s internal resources such as the availability of reviewers, or requests from the FDA for additional
information. Regulatory approval of an NDA is not guaranteed. The number and types of pre-clinical studies and clinical trials
that will be required for FDA approval varies depending on the product candidate, the disease or condition that the product candidate
is designed to target and the regulations applicable to any particular product candidate. Despite the time and expense exerted
in pre-clinical and clinical studies, failure can occur at any stage, and we could encounter problems that delay our product candidate
development or that cause us to abandon clinical trials or to repeat or perform additional pre-clinical studies and clinical trials.
The FDA can delay, limit or deny approval of a product candidate for many reasons, and product candidate development programs
may be delayed or may not be successful for many reasons including but not limited to, the following:
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● the FDA may change its approval policies or adopt new regulations.
Our pre-clinical and
clinical data, other information and procedures relating to a product candidate may not be sufficient to support approval by the
FDA or any other U.S. or foreign regulatory authority, or regulatory interpretation of these data and procedures may be unfavorable.
Failure to conduct required post-approval studies, or confirm a clinical benefit, will allow the FDA to withdraw the drug from
the market on an expedited basis. Our business and reputation may be harmed by any failure or significant delay in receiving regulatory
approval for the sale of any drugs resulting from our product candidates. As a result, we cannot predict when or whether regulatory
approval will be obtained for any drug we develop.
Additionally, other
factors may serve to delay, limit or prevent the final approval by regulatory authorities of our product candidates for commercial
use, including, but not limited to:
The successful development
of any of these product candidates is uncertain and, accordingly, we may never commercialize any of these product candidates or
generate significant revenue.
Successful
development and commercialization of our products is uncertain.
Our
development and commercialization of current and future product candidates is subject to the risks of failure and delay inherent
in the development of new pharmaceutical products, including but not limited to the following:
● inability to produce positive data in pre-clinical and clinical trials;
● challenges with securing the heparin supply chain;
● failure to receive or maintain regulatory approvals;
● emergence of superior or equivalent products;
● failure to achieve market acceptance.
Because
of these risks, our development efforts may not result in any commercially viable products. If a significant portion of these
development efforts are not successfully completed, required regulatory approvals are not obtained or any approved products are
not commercialized successfully, our business, financial condition, and results of operations will be materially harmed.
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If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
From time to time and
in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials,
and may also produce hazardous waste. Even if we contract with third parties for the disposal of these materials and waste, we
cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or
injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any
liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties
for failure to comply with such laws and regulations.
In addition, we may
incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current
or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to
comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
The successful commercialization
of DefenCath will depend on obtaining coverage and reimbursement for use of DefenCath from third-party payors.
Sales of pharmaceutical
products largely depend on the reimbursement of patients’ medical expenses by government health care programs and/or private
health insurers, both in the U.S. and abroad. Further, significant uncertainty exists as to the reimbursement status of newly approved
health care products. We initially expect to sell DefenCath directly to hospitals and key dialysis center operators, but also plan
to expand its usage into oncology and total parenteral nutrition patients requiring catheters. All of these potential customers
are healthcare providers who depend upon reimbursement by government and commercial insurance payors for dialysis and other treatments.
Depending on the treatment setting, we believe that DefenCath would be eligible for coverage under various reimbursement programs,
such as the End Stage Renal Disease (“ESRD”) Prospective Payment System and ESRD Quality Incentive Program; however,
coverage by any of these reimbursement programs is not assured, and even if coverage is granted, it could later be revoked or modified
under future regulations. Further, the U.S. Centers for Medicare & Medicaid Services (“CMS”), which administers
Medicare, and works with states to administer Medicaid, has adopted and will continue to adopt and/or amend rules governing reimbursement
for specific treatments. We anticipate that CMS and private insurers will increasingly demand that manufacturers demonstrate the
cost effectiveness of their products as part of the reimbursement review and approval process. Rising healthcare costs have also
led many European and other foreign countries to adopt healthcare reform proposals and medical cost containment measures. Similar
legislation could be introduced in the U.S. Any measures affecting the reimbursement programs of these governmental and private
insurance payors, including any uncertainty in the medical community regarding their nature and effect on reimbursement programs,
could have an adverse effect on purchasing decisions regarding DefenCath, as well as limit the prices we may charge for DefenCath.
The failure to obtain or maintain reimbursement coverage for DefenCath or any other products could materially harm our operations.
In anticipation that
the CMS and private payers will demand that we demonstrate the cost effectiveness of DefenCath as part of the reimbursement review
and approval process, we will incorporate health economic evaluations into our clinical studies to support this review in the context
of the prospective use of DefenCath in dialysis, oncology and total parenteral nutrition settings. However, our studies might not
be sufficient to support coverage or reimbursement at levels that allow providers to use DefenCath.
Physicians and patients may not accept and use
our products.
Even with the CE Mark
approval of Neutrolin, and even if we receive FDA or other foreign regulatory approval for DefenCath/Neutrolin or other product
candidates, physicians and patients may not accept and use our products. Acceptance and use of our products will depend upon a
number of factors including the following:
● prevalence of the disease to be treated;
● prevalence and severity of any side effects;
● cost-effectiveness of our product relative to competing products;
● timing of market introduction of our drugs and competitive drugs;
Because we expect sales
of DefenCath to generate substantially all of our product revenues for the foreseeable future, the failure of DefenCath to find
market acceptance would harm our business and would require us to seek additional financing.
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Changes
in funding for the FDA and other government agencies or future government shutdowns or disruptions could cause delays in the submission
and regulatory review of marketing applications, which could negatively impact our business or prospects.
The
ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and
funding levels, ability to hire and retain key personnel and accept submission, applications, and the payment of user fees, and
statutory, regulatory, and policy changes. In addition, government funding of other government agencies that fund research and
development activities is subject to the political process, which is inherently fluid and unpredictable. The impact of global
events, including terrorism, natural disasters and pandemics, including the ongoing COVID-19 pandemic or other health emergencies,
may also cause disruptions in the normal functioning of the FDA or other government agencies.
Disruptions at the
FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies,
which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December
22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, had to furlough critical
FDA employees and stop critical activities. In addition, in March 2020, the FDA announced the postponement of most foreign inspections
due to the global impact of COVID-19, which has continued for more than a year. If a prolonged government shutdown or other disruption
to the normal functioning of government agencies occurs, it could significantly impact the ability of the FDA to timely review
and process our regulatory submissions, which could have a material adverse effect on our business or prospects. At this time,
there is a backlog at FDA in conducting pre-approval inspections of manufacturing facilities, because of travel restrictions imposed
by COVID-19. Such backlog has prevented the FDA from inspecting the facilities of our CMO for the manufacturing of DefenCath, which
is located outside the United States. If FDA deems a pre-approval inspection to be necessary for approval of the DefenCath NDA,
there will be a delay until FDA inspectors can resume travel.
The
outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially
and adversely impact our business, including our preclinical studies and clinical trials.
In December 2019, the
novel coronavirus disease, COVID-19, was identified in Wuhan, China. This virus has been declared a pandemic and has spread to
multiple global regions. The outbreak and government measures taken in response have also had a significant impact, both direct
and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and
production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while
demand for other goods and services, such as travel, has fallen. In response to the COVID-19 outbreak, “shelter in place”
orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including
in the locations of our offices, clinical trial sites, key vendors and partners. Such “shelter in place” orders were
previously lifted, at least partially, in many locations. However, an increase in the spread of COVID-19 and variants, which may
reflect the spread of one or more successive waves of the virus, has led to the re-imposition by many states of quarantine requirements
for out-of-state travelers and may lead to the re-imposition of “shelter-in-place” or other similar orders. Although
several vaccines for prevention or mitigation of the severity of the virus have been granted Emergency Use Authorization by the
FDA and foreign regulatory authorities, the timely distribution and public acceptance thereof in reducing the pandemic remain uncertain.
Our clinical development program timelines may be negatively affected by COVID-19, which could materially and adversely affect
our business, financial condition and results of operations. Further, due to “shelter in place” orders and other public
health guidance measures, we have implemented a work-from-home policy for all staff members excluding those necessary to maintain
minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt,
delay or otherwise adversely impact our business.
As
a result of the COVID-19 outbreak, or similar pandemics, and related travel restrictions and “shelter in place” orders
and other public health guidance measures, we have and may in the future experience disruptions that could materially and adversely
impact our clinical trials, business, financial condition and results of operations. Potential disruptions include but are not
limited to:
● delays or difficulties in enrolling patients in our clinical trials;
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● interruption or delays to our sourced discovery and clinical activities.
The
COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and
clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as
the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the
United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United
States and other countries to contain and treat the disease. If we or any of the third parties with whom we engage were to experience
shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned
could be materially and negatively impacted.
In
addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result
of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales
may be on unfavorable terms.
Clinical
trials required for our product candidates may be expensive and time-consuming, and their outcome is uncertain.
In
order to obtain FDA or foreign approval to market a new drug or device product, we must demonstrate proof of safety and effectiveness
in humans. Foreign regulations and requirements are similar to those of the FDA. To meet FDA requirements, we must conduct “adequate
and well-controlled” clinical trials. Conducting clinical trials is a lengthy, time-consuming, and expensive process. The
length of time may vary substantially according to the type, complexity, novelty, and intended use of the product candidate, and
often can be several years or more per trial. Delays associated with the DefenCath development program or the development plans
for any other product candidates may cause us to incur additional operating expenses. The commencement and rate of completion
of clinical trials may be delayed by many factors, including, for example:
● slower than expected rates of patient recruitment;
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● failure to recruit a sufficient number of patients;
● modification of clinical trial protocols;
● changes in regulatory requirements for clinical trials;
● lack of effectiveness during clinical trials;
● emergence of unforeseen safety issues;
Further,
the results from early pre-clinical and clinical trials are not necessarily predictive of results to be obtained in later clinical
trials. Accordingly, even if we obtain positive results from early pre-clinical or clinical trials, we may not achieve the same
success in later clinical trials. Moreover, comparisons of results across different studies should be viewed with caution as such
comparisons are limited by a number of factors, including differences in study designs and populations. Such comparisons also
will not provide a sufficient basis for any comparative claims following product approval. Clinical results are frequently susceptible
to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Negative or inconclusive
results or adverse medical events during a clinical trial could cause a clinical trial to be delayed, repeated or terminated,
or a clinical program to be abandoned.
Our
clinical trials may be conducted in patients with serious or life-threatening diseases for whom conventional treatments have been
unsuccessful or for whom no conventional treatment exists, and in some cases, our product is expected to be used in combination
with approved therapies that themselves have significant adverse event profiles. During the course of treatment, these patients
could suffer adverse medical events or die for reasons that may or may not be related to our products. We cannot ensure that safety
issues will not arise with respect to our products in clinical development.
Clinical
trials may not demonstrate statistically significant safety and effectiveness to obtain the requisite regulatory approvals for
product candidates. The failure of clinical trials to demonstrate safety and effectiveness for the desired indications could harm
the development of our product candidates. Such a failure could cause us to abandon a product candidate and could delay development
of other product candidates. Any delay in, or termination of, our clinical trials would delay the filing of any NDA or any Premarket
Approval Application, or PMA, with the FDA and, ultimately, our ability to commercialize our product candidates and generate product
revenues. Any change in, or termination of, our clinical trials could materially harm our business, financial condition, and results
of operations.
If
we fail to comply with international regulatory requirements, we could be subject to regulatory delays, fines or other penalties.
Regulatory
requirements in foreign countries for international sales of medical devices often vary from country to country. The occurrence
and related impact of the following factors would harm our business:
● the loss of previously obtained approvals or clearances; or
● the failure to comply with existing or future regulatory requirements.
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The
CE Mark is a mandatory conformity mark for products to be sold in the European Economic Area. Currently, 28 countries in Europe
require products to bear CE Marking. To market in Europe, a product must first obtain the certifications necessary to affix the
CE Mark. The CE Mark is an international symbol of adherence to the Medical Device Regulations, previously the Medical Device
Directives, and the manufacturer’s declaration that the product complies with essential requirements. Compliance with these
requirements is ascertained within a certified Quality Management System (QMS) pursuant to ISO 13485. In order to obtain and to
maintain a CE Mark, a product must be in compliance with the applicable quality assurance provisions of the aforementioned ISO
and obtain certification of its quality assurance systems by a recognized European Union notified body. We received CE Mark approval
for Neutrolin on July 5, 2013. However, certain individual countries within the European Union require further approval by their
national regulatory agencies. Additionally, implementation of the new European Union Medical Device Regulations may pose challenges
in demonstrating continued conformity to the new medical device regulatory paradigm. Failure to receive or maintain these other
requisite approvals could prohibit us from marketing and selling Neutrolin in the entire European Economic Area or elsewhere.
We
do not have, and may never obtain, the regulatory approvals we need to market our product candidates outside of the European Union.
While
we have received the CE Mark approval for Neutrolin in Europe, certain individual countries within the European Union require
further approval by their national regulatory agencies. Failure to receive or maintain these other requisite approvals could prohibit
us from marketing and selling Neutrolin in the entire European Economic Area. In addition, we will need regulatory approval to
market and sell Neutrolin in foreign countries outside of Europe.
In the United States,
we have not received the regulatory approvals required for the commercial sale of any of our product candidates. The NDA for DefenCath
could not be approved by FDA in its present form and resolution of deficiencies at our third-party manufacturing facility is required.
Additionally, the FDA is requiring a manual extraction study to demonstrate that the labeled volume can be consistently withdrawn
from the vials despite an existing in-process control to demonstrate fill volume within specifications. We plan to meet with the
FDA to discuss proposed resolutions to the deficiencies, but we may not be able to obtain regulatory approval for commercial distribution.
We
also are pursuing development of taurolidine-based devices for several indications, including wound closure, surgical meshes,
and wound management. The FDA regards taurolidine as a new chemical entity and therefore an unapproved new drug. Consequently,
there is no appropriate predicate device currently marketed in the U.S. on which a 510(k) approval process for these devices could
be based. As a result, we will be required to submit a premarket approval application for marketing authorization for these indications.
In the event that the NDA for DefenCath is approved by the FDA, the regulatory pathway for these devices can be revisited with
the FDA. Although there will presumably still be no appropriate predicate, de novo Class II designation can be proposed,
based on a risk assessment and a reasonable assurance of safety and effectiveness.
It
is possible that DefenCath will not receive any further approval or that any of our other product candidates will be approved
for marketing. Failure to obtain regulatory approvals, or delays in obtaining regulatory approvals, would adversely affect the
successful commercialization of DefenCath or any other drugs or products that we or our partners develop, impose additional costs
on us or our collaborators, diminish any competitive advantages that we or our partners may attain, and/or adversely affect our
cash flow, financial condition and results of operations.
Even
if approved, our products will be subject to extensive post-approval regulation.
Once
a product is approved, numerous post-approval requirements apply in the United States and abroad. These include, among other things,
requirements related to pharmacovigilance and adverse event and other reporting, supply chain security requirements, suspect and
illegitimate product investigations and notifications, limitations on product advertising and promotion and on the distribution
of product samples, and ongoing adherence to cGMPs, as well as the need to submit appropriate new or supplemental applications
and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Establishing
and maintaining systems and procedures for compliance with these requirements, and for training and monitoring personnel relative
to their compliance, is expensive, time consuming, and an ongoing effort. Depending on the circumstances, failure to meet these
post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products, total or partial
suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into supply
contracts, including government contracts. In addition, even if we comply with FDA, foreign and other requirements, new information
regarding the safety or effectiveness of a product could lead the FDA or a foreign regulatory body to modify or withdraw product
approval.
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Risks
Related to Our Business and Industry
Competition
and technological change may make our product candidates and technologies less attractive or obsolete.
We
compete with established pharmaceutical and medical device companies that are pursuing other forms of prevention or treatment
for the same or similar indications we are pursuing and that have greater financial and other resources. Other companies may succeed
in developing products earlier than we do, obtaining FDA or any other regulatory agency approval for products more rapidly, or
developing products that are more effective than our product candidates. Research and development by others may render our technology
or product candidates obsolete or noncompetitive, or result in processes, treatments or cures superior to any therapy we develop.
We face competition from companies that internally develop competing technology or acquire competing technology from universities
and other research institutions. As these companies develop their technologies, they may develop competitive positions that may
prevent, make futile, or limit our product commercialization efforts, which would result in a decrease in the revenue we would
be able to derive from the sale of any products.
There
can be no assurance that DefenCath or any other product candidate will be accepted by the marketplace as readily as these or other
competing treatments. Furthermore, if our competitors’ products are approved before ours, it could be more difficult for
us to obtain approval from the FDA or any other regulatory agency. Even if our products are successfully developed and approved
for use by all governing regulatory bodies, there can be no assurance that physicians and patients will accept any of our products
as a treatment of choice.
Furthermore,
the pharmaceutical and medical device industry is diverse, complex, and rapidly changing. By its nature, the business risks associated
with the industry are numerous and significant. The effects of competition, intellectual property disputes, market acceptance,
and FDA or other regulatory agency regulations preclude us from forecasting regulatory approval, product acceptance, revenues
or income with certainty or even confidence.
Healthcare
policy changes, including reimbursement policies for drugs and medical devices, may have an adverse effect on our business, financial
condition and results of operations.
Our
future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third-party
payors to manage, contain or reduce the costs of health care through various means, such as capping prices, limiting price increases,
reducing reimbursement, and requiring rebates. Market acceptance and sales of DefenCath or any other product candidates that we
develop will depend on reimbursement policies and may be affected by health care reform measures in the U.S. and abroad. Government
authorities and other third-party payors, such as private health insurers, decide which drugs they will pay for and establish
reimbursement levels. We cannot be sure that reimbursement will be available for DefenCath or any other product candidates that
we develop. Also, we cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or the
price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully
commercialize DefenCath or any other product candidates that we develop.
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 affect our ability to sell our approved 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 “Affordable Care Act”), was enacted. The Affordable Care Act substantially changed
the way healthcare is financed by both governmental and private insurers. Such government-adopted reform measures may adversely
affect 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.
In
recent years, the U.S. Congress has sought to repeal and has significantly amended the Affordable Care Act. We expect that there
will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to keep healthcare
costs down while expanding individual healthcare benefits. Certain of these changes could impose limitations on the prices we
will be able to charge for any products that are approved or the amounts of reimbursement available for these products from governmental
agencies or other third-party payors or may increase the tax requirements for life sciences companies such as ours. Any such legislation
could have an adverse effect on our business, financial condition and results of operations.
29
There
has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which
have resulted in several recent Congressional inquiries and proposed and enacted bills by Congress and the states designed to,
among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for products. In addition, the U.S. government, state legislatures,
and foreign governments have shown significant interest in implementing cost containment programs, including price-controls, restrictions
on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of government
paid health care costs. For example, the U.S. government has passed legislation requiring pharmaceutical manufacturers to provide
rebates and discounts to certain entities and governmental payors to participate in federal healthcare programs. Further, Congress
and the current administration have each indicated that it will continue to seek new legislative and/or administrative measures
to control drug costs, and the current administration recently released a “Blueprint”, or plan, to reduce the cost
of drugs. The current administration’s Blueprint contains certain measures that the U.S. Department of Health and Human
Services is already working to implement. Individual states in the United States have also been increasingly passing legislation
and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
Health
administration authorities in countries other than the U.S. may not provide reimbursement for Neutrolin or any of our other product
candidates at rates sufficient for us to achieve profitability, or at all. Like the U.S., these countries could adopt health care
reform proposals and could materially alter their government-sponsored health care programs by reducing reimbursement rates.
Any
reduction in reimbursement rates under Medicare or private insurers or foreign health care programs could negatively affect the
pricing of our products. If we are not able to charge a sufficient amount for our products, then our margins and our profitability
will be adversely affected.
If
we lose key management or scientific personnel, cannot recruit qualified employees, directors, officers, or other personnel or
experience increases in compensation costs, our business may materially suffer.
We
are highly dependent on the principal members of our management and scientific staff, specifically, Khoso Baluch, a director and
our Chief Executive Officer, Dr. Matthew David, our Executive Vice President and Chief Financial Officer, Phoebe Mounts, our Executive
Vice President and General Counsel, Paul Chew, our Acting Chief Medical Officer, Elizabeth Masson-Hurlburt, our Executive Vice
President and Head of Clinical Operations, and John Armstrong, our Executive Vice President for Technical Operations. Our future
success will depend in part on our ability to identify, hire, and retain current and additional personnel. We experience intense
competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our
business. Moreover, our work force is located in the New York metropolitan area, where competition for personnel with the scientific
and technical skills that we seek is extremely high and is likely to remain high. Because of this competition, our compensation
costs may increase significantly. In addition, we have only limited ability to prevent former employees from competing with us.
If
we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.
Over
time, we expect to hire additional qualified personnel with expertise in government regulation, formulation and manufacturing,
and sales and marketing, among others. We compete for qualified individuals with numerous pharmaceutical companies, universities
and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such
personnel will be successful. Attracting and retaining such qualified personnel will be critical to our success.
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations to commercialize DefenCath and the effective management of any growth,
which could place a significant strain on our management and our administrative, operational and financial resources. To manage
this growth, we may need to expand our facilities, augment our operational, financial and management systems and hire and train
additional qualified personnel. If we are unable to manage our growth effectively, our business may be materially harmed.
30
We
face the risk of product liability claims and the amount of insurance coverage we hold now or in the future may not be adequate
to cover all liabilities we might incur.
Our
business exposes us to the risk of product liability claims that are inherent in the development of drugs. If the use of one or
more of our or our collaborators’ drugs or devices harms people, we may be subject to costly and damaging product liability
claims brought against us by clinical trial participants, consumers, health care providers, pharmaceutical companies or others
selling our products.
We
currently carry product liability insurance. We cannot predict all of the possible harms or side effects that may result and,
therefore, the amount of insurance coverage we hold may not be adequate to cover all liabilities we might incur. Our insurance
covers bodily injury and property damage arising from our clinical trials, subject to industry-standard terms, conditions and
exclusions. Our coverage also includes the sale of commercial products. We have expanded our insurance coverage to include the
sale of commercial products due to the receipt of the CE Mark approval, but we may be unable to maintain such coverage or obtain
commercially reasonable product liability insurance for any other products approved for marketing.
If
we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we may
be exposed to significant liabilities, which may materially and adversely affect our business and financial position. If we are
sued for any injury allegedly caused by our or our collaborators’ products and do not have sufficient insurance coverage,
our liability could exceed our total assets and our ability to pay the liability. A successful product liability claim or series
of claims brought against us would decrease our cash and could cause the value of our capital stock to decrease.
We
may be exposed to liability claims associated with the use of hazardous materials and chemicals.
Our
research, development and manufacturing activities and/or those of our third-party contractors may involve the controlled use
of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing, handling and disposing
of these materials comply with federal, state and local, as well as foreign, laws and regulations, we cannot completely eliminate
the risk of accidental injury or contamination from these materials. In the event of such an accident, we and the third-party
could be held liable for any resulting damages and any liability could materially adversely affect our business, financial condition
and results of operations. In addition, the federal, state and local, as well as foreign, laws and regulations governing the use,
manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require us to incur substantial
compliance costs that could materially adversely affect our business, financial condition and results of operations.
Negative
U.S. and global economic conditions may pose challenges to our business strategy, which relies on funding from the financial markets