Item 1A. Risk Factors
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 $29.7 million and $28.2 million for the years ended December 31, 2022 and 2021, respectively. As of December
31, 2022, we had an accumulated deficit of approximately $275.4 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 commercialize DefenCath and develop 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. 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, 2022, we had an accumulated
deficit of $275.4 million, and incurred net losses of $29.7 million for the year then ended. Based on the current development and commercialization
plans for DefenCath 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, 2022, after taking into consideration the
costs for resubmission of the NDA and initial preparations for the commercial launch for DefenCath, will be sufficient to fund operations
for at least twelve months from the issuance of this Annual Report on Form 10-K. We will likely need additional funding to build out
our commercial infrastructure should we receive FDA approval and to continue our operations should we decide to market and sell DefenCath
in the U.S. on our own. Additional funding may also be required for the planned label expansion studies for DefenCath.
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 and commercialization 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.
We
will likely 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.
Unless and until we receive applicable
regulatory approval for DefenCath in the U.S., we cannot sell DefenCath in the U.S. We have begun the process of winding down our operations
in the EU and discontinued Neutrolin sales in both the EU and the Middle East.
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We
believe that our cash resources as of December 31, 2022, after taking into consideration the costs for resubmission of the NDA and
initial preparations for the commercial launch for DefenCath, will be sufficient to fund operations for at least twelve months from
the issuance of this Annual Report on Form 10-K. Nevertheless, we will likely need to raise additional funds through financings or
strategic relationships if our costs exceed our expectations, as well as funds for our continued operations. 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 DefenCath in
the U.S and other markets, if approved by the FDA, 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.
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 chronic 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 likely 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 (“CRL”) that
it could not approve the NDA for DefenCath 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 despite an existing
in-process control to demonstrate fill volume within specifications. 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 chronic
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. In February 2022, we resubmitted the NDA
after addressing the manufacturing concerns, but we received a second CRL, because the FDA issued a Warning Letter to our heparin API
supplier for manufacturing concerns for an unrelated product and identified deficiencies at our primary CMO during a pre-approval inspection.
Until the NDA is approved, if the FDA raises 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.
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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 successfully commercialize DefenCath in the United States. We
may experience unforeseen events during product development, scale up and/or manufacturing validation 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.
We
are not 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:
● inspection delay given the FDA’s current backlog of foreign inspections.
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.
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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.
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 once those indications can be
secured. 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 Inpatient Prospective Payment System (“IPPS”), 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 may 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.
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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 have submitted posters and abstracts to support our health economic analysis and continue to commission
and develop health economic evaluations to support this review in the context of the prospective use of DefenCath in dialysis. Most importantly,
we are pursuing opportunities to work with healthcare systems pre and post-approval to baseline and continue to demonstrate the products
clinical and economic effectiveness. 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
if we receive FDA or other foreign regulatory approval for DefenCath/Neutrolin or other product candidates, healthcare institutions,
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 or prevented;
● prevalence and severity of any side effects;
● cost-effectiveness of our product relative to current standard of care;
● 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.
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. 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.
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The
resurgence of COVID-19 pandemic, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact
our business, including our preclinical studies and clinical trials.
Global health concerns relating to the COVID-19 pandemic and related
government actions to reduce the spread of the virus have 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, governmental authorities implementing numerous measures to try to contain the virus, including
travel bans and restrictions, quarantines, “shelter-in-place” orders, and business limitations and shutdowns 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. A resurgence of the COVID-19 pandemic, or other
pandemic, may lead to the re-imposition by many nations and the U.S. of quarantine requirements for travelers from other regions and may
lead to the re-imposition of “shelter-in-place” or other similar orders. If an onsite inspection of the third-party manufacturing
facility of our contract manufacturer is required for the satisfactory resolution of issues required for approval of the DefenCath NDA,
the Company may encounter additional delays in obtaining FDA approval because the FDA is currently facing a backlog due to the lingering
effects of the COVID-19 pandemic.
As a result of the lingering effects of the COVID-19 pandemic, or similar
pandemics, 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;
● interruption or delays to our sourced discovery and clinical activities.
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In addition, the trading prices for our common stock and other biopharmaceutical
companies have been highly volatile as a result of the lingering effects 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;
● 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.
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.
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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.
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.
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, Joseph Todisco, our Chief Executive
Officer, Dr. Matthew David, our Chief Financial Officer, Dr. Phoebe Mounts, our Executive Vice President and General Counsel, Elizabeth
Hurlburt, our Executive Vice President and Head of Clinical Operations and Erin Mistry, our Chief Commercial Officer. 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.
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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.
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
or collaborators.
Negative
conditions in the U.S. or global economy, including financial markets, may adversely affect our business and the business of current
and prospective vendors, licensees and collaborators, and others with whom we do or may conduct business. The U.S. or global economy
may experience disruptions as the result of international hostilities, natural disasters, pandemics, other international health emergencies,
or weather-related or similar events (such as fires, hurricanes, earthquakes, floods, landslides and other natural conditions including
the effects of climate change), political instability, labor strikes or turmoil, or terrorist attacks. In particular, countries around
the world have experienced the spread of the COVID-19 pandemic, resulting in quarantines, supply chain disruptions, reduction in travel,
increased demand for medical services and a general decline in economic activity and market confidence. Similar potential disruptions
may occur in the future in any of the locations in which we or our collaborators do business. We continue to assess the potential impact
on our counterparties and customers of such events, and what impact, if any, these events could have on our business.
The
duration and severity of these conditions is uncertain. If negative economic conditions occur, we may be unable to secure funding on
terms satisfactory to us to sustain our operations or to find suitable collaborators to advance our internal programs, even if we achieve
positive results from our drug development programs.
30
Risks
Related to Our Intellectual Property
If
we materially breach or default under any of our license agreements, the licensor party to such agreement will have the right to terminate
the license agreement, which termination may materially harm our business.
Our
commercial success will depend in part on the maintenance of our license agreements. Each of our license agreements provides the licensor
with a right to terminate the license agreement for our material breach or default under the agreement, including the failure to make
any required milestone or other payments. Should the licensor under any of our license agreements exercise such a termination right,
we would lose our right to the intellectual property under the respective license agreement, which loss may materially harm our business.
If
we and our licensors do not obtain protection for and successfully defend our respective intellectual property rights, competitors may
be able to take advantage of our research and development efforts to develop competing products.
Our
commercial success will depend in part on obtaining further patent protection for our products, product candidates and other technologies
and successfully defending any patents that we currently have or will obtain against third-party challenges. The patents which we currently
believe are most material to our business are as follows:
We
are currently seeking further patent protection for our compounds and methods of treating diseases. However, the patent process is subject
to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining
and defending patents. These risks and uncertainties include the following:
In
addition, the United States Patent and Trademark Office (“PTO”), and patent offices in other jurisdictions have often required
that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover
only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges.
Thus, even if we or our licensors are able to obtain patents, the patents may be substantially narrower than anticipated. Additionally,
the breadth of claims allowed in biotechnology and pharmaceutical patents or their enforceability cannot be predicted. We cannot be sure
that, should any patents issue, we will be provided with adequate protection against potentially competitive products. Furthermore, we
cannot be sure that should patents issue, they will be of commercial value to us, or that private parties, including competitors, will
not successfully challenge our patents or circumvent our patent position in the U.S. or abroad.
31
The
above-mentioned patents are exclusively licensed to us. To support our patent strategy, we have engaged in a review of patentability
and certain freedom to operate issues, including performing certain searches. However, patentability and certain freedom to operate issues
are inherently complex, and we cannot provide assurances that a relevant patent office and/or relevant court will agree with our conclusions
regarding patentability issues or with our conclusions regarding freedom to operate issues, which can involve subtle issues of claim
interpretation and/or claim liability. Furthermore, we may not be aware of all patents, published applications or published literature
that may affect our business either by blocking our ability to commercialize our product candidates, preventing the patentability of
our product candidates to us or our licensors, or covering the same or similar technologies that may invalidate our patents, limit the
scope of our future patent claims or adversely affect our ability to market our product candidates. Additionally, it is also possible
that prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, may, nonetheless,
ultimately be found by a court of law or an administration panel to affect the validity or enforceability of a claim. If a third party
were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such loss of patent protection could have a material adverse impact on our business. Additionally,
since patent applications in the United States are maintained in secrecy until published or issued and as publication of discoveries
in the scientific or patent literature often lag behind the actual discoveries, we cannot be certain that we were the first to make the
inventions covered by the pending patent applications or issued patents referred to above or that we were the first to file patent applications
for such inventions.
In
addition to patents, we also rely on trade secrets and proprietary know-how. Although we take measures to protect this information by
entering into confidentiality and inventions agreements with our employees, and some but not all of our scientific advisors, consultants,
and collaborators, we cannot provide any assurances that these agreements will not be breached, that we will be able to protect ourselves
from the harmful effects of disclosure or dispute ownership if they are breached, or that our trade secrets will not otherwise become
known or be independently discovered by competitors. We may also be unsuccessful in executing such an agreement with each party who in
fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of
such intellectual property. If any of these events occurs, or we otherwise lose protection for our trade secrets or proprietary know-how,
the value of our intellectual property may be greatly reduced. Even if we are successful in prosecuting or defending against
such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.
Ongoing
and future intellectual property disputes could require us to spend time and money to address such disputes and could limit our intellectual
property rights.
The
biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual
property rights, and companies have employed intellectual property litigation to gain a competitive advantage. We may initiate or become
subject to infringement claims or litigation arising out of patents and pending applications of our competitors, or we may become subject
to proceedings initiated by our competitors or other third parties or the PTO or applicable foreign bodies to reexamine the patentability
of our licensed or owned patents. In addition, litigation may be necessary to enforce our issued patents, to protect our trade secrets
and know-how, or to determine the enforceability, scope, and validity of the proprietary rights of others. If we are required to defend
patent infringement actions brought by third parties, or if we sue to protect our own patent rights, we may be required to pay substantial
litigation costs and managerial attention may be diverted from business operations even if the outcome is not adverse to us. In addition,
any legal action that seeks damages or an injunction to stop us from carrying on our commercial activities relating to the affected technologies
could subject us to monetary liability and require us or any third party licensors to obtain a license to continue to use the affected
technologies. We cannot predict whether we would prevail in any of these types of actions or that any required license would be made
available on commercially acceptable terms or at all. Furthermore, to the extent that we or our consultants or research collaborators
use intellectual property owned by others in work performed for us, disputes may also arise as to the rights in such intellectual property
or in resulting know-how and inventions. An adverse claim could subject us to significant liabilities to such other parties and/or require
disputed rights to be licensed from such other parties.
We
initiated court proceedings in Germany for patent infringement and unfair use of our proprietary information related to Neutrolin (as
described below). We also have had opposition proceedings brought against the European Patent and the German utility model patent which
are the basis of our infringement proceedings (as described below). The defense and prosecution of these ongoing and any future intellectual
property suits, PTO or foreign proceedings, and related legal and administrative proceedings are costly and time-consuming to pursue,
and their outcome is uncertain. An adverse determination in litigation or PTO or foreign proceedings to which we may become a party could
subject us to significant liabilities, including damages, require us to obtain licenses from third parties, restrict or prevent us from
selling our products in certain markets, or invalidate or render unenforceable our licensed or owned patents. Although patent and intellectual
property disputes might be settled through licensing or similar arrangements, the costs associated with such arrangements may be substantial
and could include our paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on
satisfactory terms or at all.
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On
September 9, 2014, we filed in the District Court of Mannheim, Germany a patent infringement action against TauroPharm GmbH and Tauro-Implant
GmbH as well as their respective CEOs, referred to as the Defendants claiming infringement of ND Partners, LLC.'s European Patent EP
1 814 562 B1, for which we have an exclusive license, and which was granted by the EPO on January 8, 2014 (the “Prosl European
Patent”). The Prosl European Patent covers a low dose heparin catheter lock solution for maintaining patency and preventing infection
in a hemodialysis catheter. In this action, we claim that the Defendants infringe on the Prosl European Patent by offering, putting on
the market, using, importing and possessing for the aforementioned purposes, as well as by offering to supply and supplying catheter
locking solutions to the extent they are covered by the claims of the Prosl European Patent. We are seeking injunctive relief and raising
claims for information, rendering of accounts, calling back, destruction and determination of damages. Separately, TauroPharm has filed
an opposition with the EPO against the Prosl European Patent alleging that it lacks novelty and inventive step and that it is not patentable
but relates to methods for treatment of the human body.
In
the same complaint against the same Defendants, we also alleged an infringement (requesting the same remedies, plus damages for costs
of a warning letter) of ND Partners, LLC’s utility model DE 20 2005 022 124 U1, for which CorMedix, Inc. has an exclusive license,
and which is referred to as the "Utility Model", which we believe is fundamentally identical to the Prosl European Patent in
its main aspects and claims. The Court separated the two proceedings and the Prosl European Patent (docket number 7 O 118/14)
and the Utility Model (docket number 7 O 2/15) claims were tried separately. TauroPharm GmbH has filed a cancellation