ITEM 1A. RISK FACTORS
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. We urge investors to carefully review and consider the additional discussion of the risks summarized in this risk factor summary, and other risks that we face, which can be found below under the heading “Risk Factors,” together with other information in this report and our other public filings, before making investment decisions regarding our securities.
•We will need to raise additional capital to continue our operations and remain a going concern, and our ability to do so may be limited and more expensive due to low trading volume, price or market capitalization, our lack of revenue, net losses and limited operating history, and/or applicable laws and regulations. If we fail to obtain additional capital, we will be unable to complete development or obtain regulatory approval for commercialization of our product candidates.
•We have a limited operating history, have incurred significant losses since our inception and expect to continue to incur losses for the foreseeable future, which, together with our limited financial resources and substantial capital requirements, make it difficult to assess our prospects.
•The COVID-19 pandemic and efforts to reduce the spread of COVID-19 could negatively impact our business, including by increasing the cost and timelines for our clinical development programs.
•We may not receive any additional payments under our license agreement with Bayer, and Bayer may terminate the agreement at any time without cause upon limited prior notice.
•Due in part to our limited financial resources, we may fail to effectively develop the product candidates in our portfolio and execute our current product development plans, including the commencement and completion of clinical trials and regulatory submissions, in accordance with our current timeline expectations.
•We depend heavily on the success of our lead product candidates, DARE-BV1, Ovaprene and Sildenafil Cream, 3.6%. Clinical development is a lengthy and expensive process with an inherently uncertain outcome. Failure to successfully develop and obtain regulatory approval to market and sell any of these product candidates on our anticipated timelines, or at all, could have a material adverse effect on our business, operating results and financial condition.
•We have a relatively small number of employees and if we fail to attract and retain key personnel, we may not successfully complete development of, obtain regulatory approval for or commercialize our product candidates, or otherwise implement our business plan.
•We rely on, and intend to continue to rely on, third parties for the execution of significant aspects of our product development programs, including the conduct of our clinical and non-clinical studies and the supply and manufacture of our product candidates. Failure of these third parties, including multiple single source suppliers and manufacturers, to successfully carry out their contractual duties, comply with regulatory requirements and applicable law, or meet expected deadlines may cause significant delays in our development timelines and/or failure of our programs.
•Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data, and others, including regulatory authorities, may not agree with our interpretation of study data.
•Our business depends on obtaining the approval of regulatory authorities, and in particular, FDA approval, for our product candidates in a timely manner, and the requirements or pathways for obtaining approval for our product candidates may change over time, requiring more financial resources and development time than we currently anticipate.
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•Our business strategy is to establish and leverage strategic partnerships to achieve commercialization of our product candidates, if approved. We have no internal sales, marketing or distribution capabilities. Under any such collaborations, we may not have control over several key elements relating to the development and commercialization of our product candidates, and any failure by such third parties to adequately perform their obligations under our agreements could negatively impact our business, operating results and financial condition.
•The product candidates we are developing or may develop are likely to face significant competition. If we receive marketing approval for any of our product candidates, their ability to compete and potential to generate revenue will be impacted by the efficacy and safety outcomes of our clinical trials, the label claims that the FDA or other regulatory authorities approve for the product, and the degree of acceptance among the medical community and consumers and their preference of our products over available alternative products.
•Even if we obtain regulatory approval in the United States or elsewhere to market any of our products, the reimbursement environment at the time of approval may hurt our financial prospects. If the out-of-pocket costs for our products are deemed by women to be unaffordable, a commercial market may never develop.
•The loss or impairment of our rights under any license agreement for our lead product candidates could prevent us from developing or commercializing them, which would have a material adverse effect on our business prospects, operations and viability.
•Our failure to adequately protect or enforce our and our licensors’ intellectual property rights could materially harm our proprietary position in the marketplace or prevent or impede the commercialization of our current and potential future products.
•Lack of patent protection for the active ingredients in certain of our product candidates, including DARE-BV1 and Sildenafil Cream, 3.6%, may limit the commercial opportunity for those products if competitors are able to develop and commercialize safe and effective alternative formulations or methods of delivery of the active ingredients.
•The price of our common stock has been and may continue to be highly volatile and such volatility could be unrelated to our performance and operating results. Volatility in our market price may subject us to increased risk of securities litigation, including class-action lawsuits, which could be expensive and divert management attention.
•There is no assurance that we will continue satisfying the listing requirements of the Nasdaq Capital Market, and such failure could result in the suspension or delisting of our common stock, which could, among other things, substantially impair our ability to raise additional capital and have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock.
•Future sales and issuances of our equity, including sales and issuances of our common stock in at the market, or ATM, offerings through a sales agent, under our purchase agreement with Lincoln Park and upon exercise of our stock options and warrants, or the perception that such sales may occur, could adversely affect the market price of our common stock, even if our business is doing well.
•Cyber-attacks, security breaches, loss of data and other disruptions to our information technology systems or those of our third-party service providers could compromise sensitive information related to our business, delay or prevent us from accessing critical information or expose us to liability, any of which could adversely affect our business and our reputation.
Risk Factors
Investment in our securities involves a high degree of risk and uncertainty. Our business, operating results, growth prospects and financial condition are subject to various risks, many of which are not exclusively within our control, that may cause actual performance to differ materially from historical or projected future performance. We urge investors to consider carefully the risks described below, together with all of the information in this report and our other public filings, before making investment decisions regarding our securities. Each of these risk factors, as well as
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additional risks not presently known to us or that we currently deem immaterial, could adversely affect our business, operating results, growth prospects or financial condition, as well as the trading price of our common stock, in which case you may lose all or part of your investment.
Risks Related to Our Business
We will need to raise additional capital to continue our operations and execute our current product development plans.
We expect that our net losses will continue for the foreseeable future as we develop and seek to bring to market our existing product candidates and potentially acquire, license and develop additional product candidates. Advancing our portfolio of innovative investigational products for women’s health through clinical development and pursuing regulatory approval will require substantial additional investment. We currently do not have the capital necessary to advance all of our product candidates through research and clinical development and regulatory approval. Our ability to continue as a going concern depends on our ability to raise additional capital through financings, government or other grant funding, collaborations and strategic alliances or other similar types of arrangements, to successfully execute our current operating plan and to continue the development of our current product candidates. This report includes disclosures and an opinion from our independent registered public accounting firm stating that our recurring losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements as of December 31, 2020 were prepared under the assumption that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Our capital needs have been and will continue to depend highly on the product development programs we choose to pursue, the progress of these programs, including the number, size, timing, rate of patient recruitment, duration of patient treatment and follow-up and the results of our clinical trials and pre-clinical studies, the cost and timing of development and supply of material for our clinical trials and pre-clinical studies, the cost, timing and outcomes of regulatory submissions and decisions regarding a potential approval for any one or more of our current or future product candidates we may choose to develop, and the terms of our contracts with service providers and license partners. In addition, the development of our clinical-stage candidates and the advancement of our pre-clinical product candidates will depend on results of ongoing and upcoming clinical trials and pre-clinical testing and our financial resources at the time of such results. Should we add product candidates to our portfolio, should our existing product candidates require testing or other capital-intensive development activities that we do not anticipate, or should the duration of our planned and ongoing clinical trials be longer than anticipated due to difficulties in patient recruitment or otherwise, our cash resources will be further strained. Should our product development efforts succeed, we will need to develop a commercialization plan for each product developed, which may also require significant resources to develop and implement.
At December 31, 2020, our cash and cash equivalents were approximately $4.7 million and our accumulated deficit was approximately $71.4 million. We incurred a net loss of approximately $27.4 million for the year ended December 31, 2020. We may never become profitable. We expect negative cash flows from our operations to continue for the foreseeable future. Based on our current operating plan estimates, we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over the next 12 months from the date of issuance of the accompanying consolidated financial statements unless we raise additional capital or significantly curtail our operations. We must raise additional capital to finance our operations and remain a going concern.
Additional capital may not be available to us, or even if it is, the cost of such capital may be high. We may be forced to obtain additional capital before reaching clinical and/or regulatory milestones, when our stock price or trading volume or both are low, or when the general market for life sciences companies is weak. Raising capital under any of these or similar scenarios, if we can raise any at all, may lead to significant dilution to our existing stockholders. See also "Our ability to raise capital may be limited by laws and regulations" and “We are heavily reliant on our ability to raise capital through capital market transactions. A low trading volume, price and market capitalization together with our lack of revenue, net losses and limited operating history may make it difficult and expensive for us to raise additional capital” below.
If we raise capital through collaborations, strategic alliances or other similar types of arrangements, we may have to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates we would otherwise seek to develop or commercialize.In addition, we may enter into collaborations, such as our license agreement with Bayer, that do not provide significant near-term or guaranteed funding, thus requiring that we continue to seek to raise additional capital to fund product development through other means.See also “We may not receive any additional payments under our license agreement with Bayer, and Bayer may terminate the agreement at any time without cause upon limited prior notice,” below. Further, the COVID-19 pandemic may adversely affect our ability
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to enter into strategic collaborations for development and/or commercialization of our product candidates. Operational disruptions, resource constraints or shifts in business strategy of potential partners as a result of the COVID-19 pandemic may adversely affect collaboration opportunities for our product candidates. See also “The COVID-19 pandemic and efforts to reduce the spread of COVID-19 could negatively impact our business, including by increasing the cost and timelines for our clinical development programs,” below.
There can be no assurance that we can raise capital when needed or on terms favorable to us and our stockholders. With the potential to significantly affect investor sentiment and increase market volatility, the COVID-19 pandemic and measures taken by federal, state and local governments to reduce the spread of COVID-19, increase uncertainty around our ability to access the capital markets when needed and on acceptable terms. If we cannot raise capital when needed on acceptable terms, or at all, we will not be able to advance our product candidates as currently planned or grow our product portfolio, we will need to reevaluate our planned operations, we may relinquish rights under our license agreements with third parties relating to our product candidates, and we may need to delay, scale back or eliminate some or all of our development programs, reduce expenses or cease operations, any of which would have a significant negative impact on our prospects and financial condition, as well as the trading price of our common stock. Moreover, if we are unable to obtain additional funds on a timely basis, there will be an increased risk of insolvency and up to a total loss of investment by our stockholders.
We have a limited operating history, have incurred significant losses since our inception and expect to continue to incur losses for the foreseeable future, which, together with our limited financial resources and substantial capital requirements, make it difficult to assess our prospects.
We are a clinical-stage biopharmaceutical company with a limited operating history upon which to evaluate our business and prospects. Development of drug and drug/device combination products is a highly speculative, lengthy and expensive undertaking and involves substantial risk. To date, we have not obtained any regulatory approvals for any of our product candidates, commercialized any of our product candidates or generated any product revenue. We have not been profitable since we commenced operations and may never achieve profitability. We have devoted significant resources to acquiring our portfolio of product candidates and to research and development, or R&D, activities for our product candidates. Since inception, we have incurred significant operating losses. As discussed above, we must raise additional capital to finance our operations and remain a going concern.
The COVID-19 pandemic and efforts to reduce the spread of COVID-19 could negatively impact our business, including by increasing the cost and timelines for our clinical development programs.
The COVID-19 pandemic and efforts to reduce the spread of COVID-19 remain a rapidly evolving and uncertain risk to our business, operating results, financial condition and stock price. In large part, the extent to which the pandemic affects us will depend on future developments that are beyond our knowledge or control, including, but not limited to, the duration and severity of the pandemic, governmental and individual organization actions and policies implemented to reduce transmission of the disease, and the speed with which and degree to which normal economic and operating conditions resume.
The longer the pandemic persists, the greater the potential for significant adverse impact to our business operations and those of the contract research organizations (CROs), contract manufacturing organizations (CMOs) and other third-party consultants and vendors on which we depend to, among other things, conduct our clinical and nonclinical studies, supply our clinical trial materials, and assist with regulatory affairs necessary to advance our programs. Employee and family member illness, increased childcare and elder care responsibilities, and quarantines, travel restrictions, prohibitions on non-essential gatherings, shelter-in-place orders and other similar directives and policies intended to reduce the spread of the disease, may reduce our productivity and that of the third parties on which we rely and may disrupt and delay many aspects of our business, including R&D activities, production and supply of clinical trial materials and regulatory affairs activities. As a result of resource constraints, third parties on which we rely may not meet their contractual obligations to us or may allocate constrained resources to projects other than ours, any of which could significantly increase the cost and timelines for our development programs. In addition, the increase in personnel working remotely, both ours and those of the third parties on which we rely, could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could significantly adversely impact our business operations or significantly delay necessary interactions with the FDA and other regulatory agencies, our CROs and CMOs, clinical trial sites, current and potential collaborators, and other third parties.
The COVID-19 pandemic could cause delays in current timelines for our ongoing and planned clinical studies, our regulatory submissions and potential marketing approvals and, ultimately, commercial launch of any approved product. One or more of the clinical and regulatory milestones we anticipate will occur in 2021 or 2022 may be delayed or otherwise adversely impacted as a result of the pandemic. For example, clinical trial site initiation and/or patient enrollment may be significantly delayed or suspended as a result of personnel and other resource constraints
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of healthcare providers, as well as adherence to governmental orders and internal policies intended to reduce the spread of COVID-19. In addition, we may experience lower than anticipated subject enrollment and completion rates, including because individuals may avoid medical settings, particularly for non-critical conditions, due to concerns of contracting COVID-19 or due to shelter-in-place and social distancing orders.
In addition, the pandemic has resulted in disruption and volatility in the global capital markets, and while the longer-term economic impact is difficult to assess and predict at this time, it could negatively impact our ability to access additional capital when needed or on terms favorable to us and our stockholders. If we cannot raise capital when needed on acceptable terms, or at all, we will not be able to continue development of our product candidates as currently planned or at all, will need to reevaluate our planned operations and may need to delay, scale back or eliminate some or all of our development programs, reduce expenses or cease operations, any of which could have a significant negative impact on our prospects and financial condition, as well as the trading price of our common stock.
A key aspect of our business strategy is to seek collaborations with partners, such as large pharmaceutical companies, that are willing to conduct later-stage clinical trials and further develop and commercialize our product candidates. As a result of the pandemic, potential and current partners may experience operational disruptions and financial and other resource constraints and implement new strategic plans that delay or reduce their efforts in the women’s health in general or in our programs in particular, which could adversely affect our ability to enter into or maintain collaborations, strategic alliances or other similar types of arrangements and may result in or contribute to disruption and delays in later-stage clinical development and, if approved, commercial launch of our product candidates. We do not have, and do not currently plan to develop, the internal sales, marketing and distribution infrastructure necessary to independently market and sell our product candidates, if approved.
To help mitigate the impact of the pandemic on our business, we developed a plan with our third-party service providers designed to address the challenges and risks presented by the pandemic on our ongoing clinical trials, and we developed a plan designed to protect the safety, health and well-being of our employees while maintaining employee productivity. However, there can be no assurance that such plans will be effective in mitigating the potential adverse effects of the pandemic on our ongoing and planned clinical trials and nonclinical studies, on the productivity of our employees or on our business, financial condition and results of operations.
The extent to which the pandemic and efforts to reduce its spread impact our business, financial condition and results of operations is uncertain and cannot be predicted with reasonable accuracy at this time and will depend on future developments that are also uncertain and cannot be predicted with reasonable accuracy at this time, including new information that may emerge concerning the degree to which COVID-19 is contagious and virulent, the effect of actions taken in the United States and other countries to contain and treat COVID-19, the rate and efficacy of vaccinations against COVID-19, and further actions implemented to contain and treat the disease and its impact, among others.
The COVID-19 pandemic may also have the effect of heightening many of the other risks and uncertainties described in this “Risk Factors” section.
We may not receive any additional payments under our license agreement with Bayer, and Bayer may terminate the agreement at any time without cause upon limited prior notice.
In January 2020, we entered into an exclusive license agreement with Bayer for the commercialization of Ovaprene in the U.S. Under our agreement, Bayer will have no future payment obligations to us, unless, after reviewing the results of our pivotal clinical trial of Ovaprene, it elects, in its sole discretion, to make the license grant under our agreement effective. Should Bayer elect to do so, it must pay us an additional $20.0 million (the “Clinical Trial and Manufacturing Activities Fee”). If we do not successfully complete clinical development of Ovaprene in a timely manner, the license grant may never become effective, and we may not receive any additional payments from Bayer. Bayer may decide not to pay the Clinical Trial and Manufacturing Activities Fee regardless of the outcome of the pivotal clinical trial. Further, Bayer may elect to terminate the license agreement without cause at any time upon 90 days’ prior notice. If the license grant does not become effective or if Bayer terminates the agreement, our ability to complete development of and commercialize Ovaprene may be significantly impaired and it could have material adverse effect on our business and prospects in general and on our stock price.
If Bayer elects to make the license grant effective, it will obtain exclusive rights to commercialize Ovaprene in the U.S. In this case, Ovaprene's value to us will be generated through royalties on net sales and achievement of commercial milestones. If Bayer is not successful or has limited success in commercializing Ovaprene, Ovaprene’s value to us will be significantly impaired. We may realize only a small fraction of the potential value of the license agreement. Other than the upfront fee, the Clinical Trial and Manufacturing Activities Fee and a milestone payment in the low double-digit millions upon the first commercial sale of Ovaprene in the U.S., Bayer’s milestone and royalty payment obligations are based on annual net sales of Ovaprene. Successful commercialization of a contraceptive product is subject to many risks and uncertainties, including factors outside of our control or Bayer’s. We may never
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receive the full amount of potential milestone payments under the agreement, and royalty and sublicense payments, if any, may be far less than projected. Failure to realize significant value under our license agreement with Bayer could have a material adverse effect on our business, results of operations and financial condition.
Our ability to raise capital may be limited by laws and regulations.
In 2020 and through March 29, 2021, we raised approximately $23.5 million in gross proceeds through the sale of equity securities under a Form S-3 “shelf” registration statement. Using a shelf registration statement to raise capital generally takes less time and is less expensive than other means, such as conducting an offering under a Form S-1 registration statement. We currently have a shelf registration statement effective, however, our ability to raise capital under this registration statement was in the past, and may again be in the future, limited by, among other things, current and future SEC rules and regulations impacting the eligibility of smaller companies to use Form S-3 for primary offerings of securities. For example, in fiscal year 2020, we were subject to the "baby shelf rule" because the market value of our outstanding shares of common stock held by non-affiliates, or public float, was less than $75.0 million at the time we filed our shelf registration statement on Form S-3 and remained below $75.0 million during the year. This means that we were able to use our shelf registration statement to raise additional funds only to the extent that the aggregate market value of securities sold by us or on our behalf pursuant to Instruction I.B.6. of Form S-3 during the 12 calendar months immediately prior to, and including, any intended sale did not exceed one-third of the aggregate market value of our public float, calculated in accordance with the instructions to Form S-3. If our ability to offer securities under an effective shelf registration statement is limited, including by the baby shelf rule, we may choose to conduct an offering of our securities under an exemption from registration under the Securities Act or under a Form S-1 registration statement. We would expect either alternative to increase the cost of raising additional capital relative to using our shelf registration statement.
In addition, under SEC rules and regulations, our common stock must be listed and registered on a national securities exchange in order to use a Form S-3 registration statement (1) for a primary offering, if our public float is not at least $75.0 million as of a date within 60 days prior to the date of filing the Form S-3 or a re-evaluation date, whichever is later, and (2) to register the resale of our securities by persons other than us (i.e., a resale offering). While our common stock is currently listed on the Nasdaq Capital Market, there can be no assurance that we can maintain such listing. See, “Risks Related to Our Securities-There is no assurance that we will continue satisfying the listing requirements of the Nasdaq Capital Market,” below.
Our ability to raise capital on a timely basis through the issuance and sale of equity securities may also be limited by Nasdaq’s stockholder approval requirement for any transaction that is not a public offering (as defined in Nasdaq listing rules). For transactions other than public offerings, Nasdaq requires stockholder approval prior to the issuance or potential issuance of common stock (or securities convertible into or exercisable for common stock) at a price per share that is less than the "Minimum Price" if the issuance (together with sales by our officers, directors and substantial shareholders (as defined in Nasdaq listing rules)) would equal 20% or more of our common stock outstanding before the issuance. Under Nasdaq rules, the "Minimum Price" means a price that is the lower of (i) the Nasdaq official closing price immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq official closing price of the common stock for the five trading days immediately preceding the signing of the binding agreement. In addition, certain prior sales of securities by us may be aggregated with any offering we may propose at a price that is less than the Minimum Price and which is not considered a public offering by Nasdaq, further limiting the amount we could raise in the offering. Under Nasdaq rules, stockholder approval is also required prior to the issuance of securities when the issuance or potential issuance will result in a change of control of our company.
Obtaining stockholder approval is a costly and time-consuming process. If we must obtain stockholder approval for a potential transaction, we would expect to spend substantial additional money and resources. In addition, seeking stockholder approval would delay our receipt of otherwise available capital, which may materially and adversely affect our ability to execute our business plan, and there is no guarantee our stockholders ultimately would approve a proposed transaction.
In addition, although a public offering under Nasdaq rules is not subject to the 20% limitation described above, it may involve publicly announcing the proposed transaction before it is completed, which often has the effect of depressing a company's stock price. Accordingly, our existing investors may suffer greater dilution if we seek to raise additional capital through such a public offering of our securities.
Due in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates, we may be unable to pursue and complete the clinical trials we would like to pursue and complete, and we may be unable to commence or complete clinical trials and pursue regulatory approvals in accordance with our current timeline expectations.
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Our current financial and technical resources are limited and not sufficient to develop all of the product candidates to which we hold licenses or options to license. This may affect our efforts to develop and bring to market our key portfolio candidates and any future candidates we may choose to develop. Due to our limited resources, we may be required to curtail clinical development programs and activities that might otherwise have led to more rapid progress of our product candidates, or product candidates that we may in the future choose to develop, through the regulatory and development processes. We may make determinations with regard to the indications and clinical trials on which to focus our resources that result in our realization of less than the full potential value of a product candidate. The decisions to allocate our research, management and financial resources toward particular indications may not lead to positive clinical milestones or to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate development programs may also cause us to miss valuable opportunities, including the potential for some of our product candidates to be first-in-category products.
As a result of financial and other resource constraints, we may be unable to commence or complete our planned clinical trials or prepare and submit applications for marketing approval of our product candidates in accordance with our currently anticipated timelines. See also “Risks Related to Clinical Development, Manufacturing and Commercialization– Delays in the commencement or completion of clinical testing of product candidates we are developing or may develop in the future may occur due to any of a number of factors and could result in significantly increased costs and longer timelines and could impact our ability to ever become profitable” below.
We are heavily reliant on our ability to raise capital through capital market transactions. A low trading volume, price and market capitalization together with our lack of revenue, net losses and limited operating history may make it difficult and expensive for us to raise additional capital.
We are heavily reliant on our ability to raise additional capital by selling shares of our common stock or securities linked to our common stock. Our ability to raise capital through capital market transactions will depend on several factors, many of which may not be in our favor, including the trading volume and volatile trading price of our common stock, our relatively low public float and market capitalization, our potential inability to continue to satisfy the listing requirements of the Nasdaq Capital Market, unfavorable market conditions or other market factors outside of our control, and the risk factors described elsewhere in this report, including those related to warrants we issued in February 2018. See “Our ability to raise capital may be limited by laws and regulations,” above, and the risk factors under “-Risks Related to Our Securities,” below. Even if we are able to raise additional capital, it will likely be dilutive to existing stockholders and the cost of such capital may be substantial and may be more expensive than the cost of capital for larger public companies. The terms of any funding we obtain may not be favorable to us and may be highly dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants, operational restrictions and security interests in our assets that may have negative consequences for us, including, among other things, by increasing our vulnerability to adverse economic and industry conditions, limiting our ability to obtain additional funding and enter into partnership and other strategic agreements, and requiring the dedication of a portion of our cash flow to service our indebtedness. There can be no assurance that we can raise additional capital when needed. Failing to raise additional capital when needed would have a material adverse effect on our business.
We intend to seek collaborations with partners to develop and commercialize our product candidates and, if we enter into such collaborations, we may not have control over several key elements relating to the development and commercialization of our product candidates.
A key aspect of our strategy is to seek collaborations with partners, such as large pharmaceutical companies and other third parties with the relevant R&D and/or commercial expertise and infrastructure to help bring our product candidates to market. We face significant competition in seeking these types of partners. Collaborations can be complex and time-consuming arrangements to negotiate and document. In 2020, we entered into a license agreement with Bayer for the commercialization of Ovaprene in the U.S., if it is approved, as well as agreements with contract research organizations Health Decisions, Inc. and Avomeen to help accelerate development of key programs in a capital-efficient manner. We may not be able to enter into other collaborations on acceptable terms, or at all.
We have no internal sales, marketing or distribution capabilities and our model is to partner with companies with existing sales and marketing capabilities to sell and distribute our products, if approved. If we fail to secure third-party collaborators for commercialization of our product candidates on a timely basis, even if they receive regulatory approval on our anticipated timelines, the commercial launch of our products may be significantly delayed, which could have a material adverse effect on our financial condition and results of operations. If we enter into definitive agreements with third parties to commercialize our product candidates, if approved, our revenues from the sale of such products will depend, in whole or in part, on the ability of such third parties to successfully market, sell and distribute our products and to perform their contractual obligations to us and there is no assurance these third parties will be effective or successful. In addition, if a partnered product is viewed by other potential collaborators as underperforming after commercial launch, our ability to partner other product candidates we are developing may be negatively impacted.
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By entering into a strategic collaboration with a partner, we may rely on the partner for financial resources and for development, regulatory and commercialization expertise and we may agree that the partner will control elements of product development and commercialization that are important to the product’s success. Even if we are successful in entering into a strategic collaboration for one of our product candidates, our partner may fail to develop or effectively commercialize the product candidate because that partner:
•does not have sufficient resources or decides not to devote adequate resources to our collaboration due to internal constraints such as limited cash or human resources;
•decides to pursue a competitive potential product developed outside of the collaboration;
•cannot obtain the necessary regulatory approvals;
•changes its business strategy and areas of focus;
•determines that the market opportunity is not attractive;
•cannot obtain sufficient quantities of our products or product candidates at a reasonable cost; or
•elects to terminate our strategic collaboration for any reason.
Our success in entering into a definitive agreement for any collaboration will depend upon, among other things, our assessment of the prospective collaborator’s resources and expertise, the terms of the proposed collaboration and the proposed collaborator’s evaluation of several factors. Those factors may include the design and outcomes of our clinical studies, the likelihood of approval by regulatory authorities, the potential market for the product, the costs and complexities of manufacturing and delivering such product to customers, the potential of competing products, the strength of the intellectual property, other potential sources of market exclusivity for such product, and industry and market conditions generally. The collaborator may also consider alternative products or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our products or product candidates.
We also face competition in our search for collaborators from other biotechnology and pharmaceutical companies worldwide, many of which are larger and able to offer more attractive deals in terms of financial commitments, contribution of human resources, or development, manufacturing, regulatory or commercial expertise and support. Inadequate capitalization of our company, or the perception thereof, could negatively affect our negotiating leverage in transactions.
Any potential collaboration agreement into which we might enter may call for licensing or cross-licensing of potentially blocking patents, know-how or other intellectual property. Due to the potential overlap of data, know-how and intellectual property rights, there can be no assurance that a collaborator will not dispute its right to use, license or distribute such data, know-how or other intellectual property rights, and this may lead to disputes, liability or termination of the collaboration.
If we elect to fund development or commercialization activities on our own or to co-promote a product with a third party, we will need to obtain significant additional capital, which may not be available to us when needed on acceptable terms or at all. If we elect to commercialize a product on our own or to co-promote a product with a third party, we may also need to rapidly grow and reorganize our company and develop and implement new systems and processes to support marketing, sale and distribution of the product, none of which we currently have in place as a clinical-stage biopharmaceutical company.
If we are not successful in attracting collaborators and entering into collaborations on acceptable terms for our product candidates or otherwise monetizing our product candidates, we may not complete development of or obtain regulatory approval for such product candidates, or if we obtain regulatory approval, commercial launch may be delayed and market penetration could be limited. In such event, our ability to generate revenues from such products and achieve or sustain profitability would be significantly hindered which would materially harm our business and financial condition.
The product candidates we are developing or may develop are likely to face significant competition and our business and operating results will suffer if we fail to compete effectively.
The biopharmaceutical industry is intensely competitive and characterized by rapid technological developments. Our competitors and potential competitors include large, well-established pharmaceutical and biotechnology companies, many of which have robust product portfolios and strong franchises in women’s health. These companies include Merck & Co., Inc. (and its intended spinoff, Organon & Co.), AMAG, Inc., TherapeuticsMD, Inc., Cooper Surgical, Inc., AbbVie, Inc., Bayer AG, Johnson & Johnson, and Pfizer Inc. Additionally, several generic manufacturers currently market and continue to introduce new contraceptive and other products in women's health, including Sandoz International GmbH, Glenmark Pharmaceuticals Ltd., Lupin Pharmaceuticals, Inc., Mylan, Inc.,
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Perrigo Company, PLC and Amneal Pharmaceuticals LLC. Many of our competitors or potential competitors, either alone or with strategic partners, have:
•much greater financial, research, technical and human resources than we have at every stage of the product development and commercialization life cycle;
•more extensive experience in designing and conducting clinical trials, nonclinical studies, obtaining regulatory approvals, and in manufacturing, marketing and selling prescription products; and
•approved products or product candidates in late stages of development for one or more of our target indications.
We will face intense competition from products that have already been approved and accepted by the medical community for contraception and the treatment of some of the conditions for which we are developing or may develop product candidates. If our product candidates fail to generate compelling clinical results or if patients and physicians fail to appreciate the convenience that our product candidates may offer, our commercial opportunity could be reduced or eliminated. We also expect to face competition from new products that enter the market. We believe there are a significant number of products currently under development intended to prevent pregnancy or to treat the same conditions for which our product candidates are in development. These competitive product candidates may prove safer, more tolerable and more effective and may be less expensive, introduced to market earlier, or produced, marketed and sold more effectively or on a more cost-effective basis, than our product candidates. The success of competitive products may render potential application of our product candidates noncompetitive or obsolete, even prior to completion of their development.
Our ability to compete effectively will be impacted by the efficacy and safety outcomes of our clinical trials, the label claims that the FDA or other regulatory authorities approve for our product candidates, the degree of acceptance of products we develop among the medical community and patients, and their preference for those products over available alternative products. It is possible that the potential advantages of our product candidates do not materialize. Our competitors may also obtain FDA or other regulatory approval for their competing products more rapidly than we may obtain approval for any of our product candidates, which could result in our competitors establishing a strong market position before we are able to enter the market.
See also the discussion of risks and uncertainties related to commercial success of specific product candidates we are developing under “Risks Related to Clinical Development, Manufacturing and Commercialization” below.
We have a relatively small number of employees to manage and operate our business.
As of March 29, 2021, we had 23 employees, of which 16 were full-time and seven were part-time. Our focus on limiting cash utilization requires us to manage and operate our business in a highly efficient manner, relying on external consultants for needed product development and operational expertise, and to limit full-time personnel resources. With a small number of employees, our ability to supervise the external consultants and vendors we engage may be constrained, which may impact the timing and quality of services we receive. No assurance can be given that we will be able to run our operations or accomplish all of the objectives we otherwise would seek to accomplish with the limited personnel resources we currently have.
In response to the COVID-19 pandemic, in March 2020, we implemented work-from-home and restricted travel policies. Since March 2020, the governors of California and Massachusetts, states in which we have operations, have issued, rescinded and reinstated statewide or regional stay-at-home orders to help combat the spread of COVID-19 that have impacted our ability to require or allow our employees to work in our facilities. In addition, many, if not all, of our consultants, partners and vendors on which we rely heavily have implemented similar policies, are or may be subject to similar orders, and/or may re-allocate resources otherwise intended for our activities to activities intended to address the COVID-19 pandemic. While we have modified, and we may further modify, our work-from-home and restricted travel policies to allow some of our personnel to return to working in our facilities for a portion of their working time as the pandemic and state and local stay-at-home orders evolve, the duration of these policies and the extent and duration of various state and local stay-at-home orders currently is indeterminable. We have systems and technologies in place that enable our employees to work from home; however, state and local stay-at-home orders, work-from-home policies and travel restrictions may adversely affect our ability to effectively manage and operate our business, materially increase our expenses and may result in delays in our anticipated development program timelines.
In addition, we and our consultants, partners and vendors may experience high rates of employee leave during the COVID-19 pandemic due to increased rates of worker or family member illness, school and childcare center closures and federal and state family and medical leave laws that may allow workers to take up to 12 weeks of job-protected leave if unable to work or telework due to their own health condition or need to care for children or other
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family members. Due to our small workforce, extended employee leaves of absence may adversely affect our ability to effectively manage and operate our business, materially increase our expenses, including by requiring us to hire new employees or engage additional consultants to perform the job responsibilities of the employees on leave, and may result in delays in our anticipated development program timelines.
If we fail to attract and retain management and other key personnel, we may not successfully complete development of, obtain regulatory approval for or commercialize our product candidates, or otherwise implement our business plan.
Our ability to compete in the highly competitive pharmaceutical, biotechnology and medical device industries depends upon our ability to attract and retain highly qualified managerial and key personnel. We depend highly on our senior management. Losing the services of our senior management employees could impede, delay or prevent the development and commercialization of our product candidates, hurt our ability to raise additional funds and negatively impact our ability to implement our business plan. If we lose the services of any of our senior management employees, we might not find suitable replacements on a timely basis or at all, and our business could be materially harmed. We do not maintain “key man” insurance policies on the lives of any of our senior management employees.
We might not attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biopharmaceutical and biotechnology companies and other life sciences R&D organizations, particularly in the San Diego area where we are headquartered. In addition, our limited personnel and financial resources may result in greater workloads for our employees compared to those at companies with which we compete for personnel, which may lead to higher levels of employee burnout and turnover. As a result, we may have to expend significant financial resources in our employee recruitment and retention efforts. Many of the other companies within the women’s health products industry with whom we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better opportunities for career advancement. If we cannot attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will harm our ability to implement our business strategy and achieve our business objectives.
New legal precedent, laws and regulations could make it costlier or more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to our current coverage. The impact of these events could also make it more difficult for us to attract or retain qualified persons to serve as our senior management or on our board of directors.
Our business development strategy has included, and will likely continue to include, strategic transactions to assemble the portfolio of product candidates we develop. We may not successfully manage the integration of new assets or businesses, and the costs of these transactions may not be outweighed by the benefits we realize from them.
We may engage in strategic transactions that could cause us to incur additional liabilities, commitments or significant expense. We assembled our current portfolio of product candidates through the acquisition of companies and assets and licensing transactions beginning in 2017. We expect to expand our portfolio from time to time through similar transactions. These transactions could subject us to several risks, including, but not limited to:
•our inability to appropriately evaluate the potential risks and uncertainties associated with a transaction;
•our inability to effectively integrate a new technology, product and/or business, personnel, intellectual property or business relationships; and
•our inability to generate milestones or revenues from a strategic transaction sufficient to meet our objectives in undertaking the transaction.
If we underestimate development costs, timelines, regulatory approval challenges and commercial market opportunity for a strategic transaction, we may fail to realize the anticipated value of the transaction. Any strategic transaction we may pursue may not produce the outcomes and benefits we originally anticipated, may result in costs that outweigh the benefits, and may adversely impact our financial condition and be detrimental to our company in general.
Cyber-attacks, security breaches, loss of data and other disruptions to our information technology systems or those of our third-party service providers could compromise sensitive information related to our business, delay or prevent us from accessing critical information or expose us to liability, any of which could adversely affect our business and our reputation.
We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As the use of digital technologies has increased, cyber incidents, including
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deliberate attacks, the deployment of harmful malware or ransomware, denial of service, and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and those of our third-party service providers, and could compromise the confidentiality, availability and integrity of our data, confidential information, or other intellectual property, all of which are vital to our operations and business strategy. Organizations and governmental bodies with far greater resources than ours dedicated to cyber security have proven vulnerable to cyber-attacks. There can be no assurance we will succeed in preventing cyber security breaches or successfully mitigate their effects.
Despite implementing security measures, any of the internal computer systems belonging to us or our third-party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failure. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches. Any system failure, accident, security breach or data breach that causes interruptions in our own or in third-party service vendors’ operations could result in a material disruption of our product development programs. For example, losing clinical study data from future clinical studies could result in delays in our or our partners’ regulatory approval efforts and significantly increase our costs in order to recover or reproduce the lost data. In addition, a security breach or privacy violation that leads to disclosure of personally identifiable information or protected health information could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and subject us to litigation or other liability under laws and regulations that protect personal data. Further, our information technology and other internal infrastructure systems, including firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure, which could disrupt our operations. If any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur resulting liability, our product development programs and competitive position may be adversely affected, and the further development of our products may be delayed. Furthermore, we may incur additional costs to remedy the damage caused by these disruptions or security breaches.
Our current or future employees, clinical investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards.
We may become exposed to the risk of employees, independent contractors, clinical investigators, consultants, suppliers, commercial partners or vendors engaging in fraud or other misconduct. Misconduct by employees, independent contractors, clinical investigators, consultants, suppliers, commercial partners and vendors could include intentional failures, such as failures to: (1) comply with FDA or other regulators’ requirements, (2) provide accurate information to such regulators, (3) comply with clinical and nonclinical research standards and manufacturing standards established by us and/or required by law, or (4) comply with SEC rules and regulations. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws, regulations and industry guidance intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by current or future employees, independent contractors, clinical investigators, consultants, suppliers, commercial partners and vendors could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory or civil sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by employees, independent contractors, clinical investigators, consultants, suppliers, commercial partners and vendors, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending or asserting our rights, those actions could have a significant adverse effect on our business, including the imposition of significant fines or other sanctions, and our reputation.
We expect to continue to incur increased costs as a result of operating as a public company, and our management will have to devote substantial time to compliance initiatives and corporate governance practices.
We incur and expect to continue to incur significant legal, accounting and other expenses as a public reporting company. We expect that these expenses will increase if and when we become an “accelerated filer,” as defined in rules adopted by the SEC under the Securities Exchange Act of 1934. Under recently adopted SEC rules, generally, we will become an accelerated filer if our public float as of the last business day of June is $75 million or more and we reported annual revenues of $100 million or more for our most recently completed fiscal year. Regardless of whether we become an accelerated filer, we may need to hire additional accounting, finance and other personnel in connection with our continuing efforts to comply with the requirements of being a public company. Even while we have non-accelerated filer status, our management and other personnel will need to continue to devote
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substantial time towards maintaining compliance with the requirements of being a public company. The Sarbanes-Oxley Act of 2002 and rules and regulations subsequently implemented by the SEC and Nasdaq imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel, of whom we have a small number, devote substantial time to these compliance initiatives. Moreover, if and when we become an accelerated filer, our compliance costs will increase.
For example, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must furnish a report annually by our management on the effectiveness of our internal control over financial reporting, and performing the system and process documentation and evaluation necessary to issue that report requires us to incur substantial expense and expend significant management time. If and when we are an accelerated filer, we will also have to obtain an attestation report on our internal control over financial reporting by our independent registered public accounting firm, which may substantially increase compliance costs.
Risks Related to Clinical Development, Manufacturing and Commercialization
We depend heavily on the success of our lead product candidates, DARE-BV1, Ovaprene and Sildenafil Cream, 3.6%. Clinical development is a lengthy and expensive process with an inherently uncertain outcome. Failure to successfully develop and obtain regulatory approval to market and sell any of these product candidates would likely adversely affect our business.
Our business depends on the successful clinical development and regulatory approval of our lead product candidates, which may never occur. The product candidates we develop require substantial clinical testing to demonstrate that they are safe and effective for their proposed uses. Clinical testing is expensive, difficult to design and implement, can take many years to complete and its outcome is inherently uncertain. A failure of one or more clinical trials could occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of success of later clinical trials, and interim results of a particular clinical trial do not necessarily predict final results of that trial. Accordingly, while some of our product candidates have undergone clinical trials and demonstrated positive results, including DARE-BV1, Ovaprene and Sildenafil Cream, 3.6%, there is no guarantee of successful outcomes in future clinical studies of these product candidates or of obtaining marketing approval for any of them. The fact that the active pharmaceutical ingredients in certain of our product candidates, including DARE-BV1 and Sildenafil Cream, 3.6%, have received regulatory approval in other formulations and/or for other indications does not guarantee successful development of our product candidates. Clinical trials may never demonstrate sufficient safety and effectiveness to obtain the requisite regulatory approvals for our product candidates.
We have never received a regulatory approval for any product. Even if we can conduct and complete clinical trials for these product candidates, we may not obtain regulatory approval to market and sell any of them, which would have a material adverse effect on our business and operations.
The loss or impairment of our rights under any license agreement for our lead product candidates could prevent us from developing or commercializing them, which would have a material adverse effect on our business prospects, operations and viability.
Our rights to some of our product candidates, including our lead product candidates, arise from license agreements with third parties. The loss or impairment of our licensed rights to develop and commercialize these product candidates, including as a result of our inability or other failure to meet our obligations under any one of such license agreements, including, without limitation, our payment obligations, could have a substantial negative effect on our company’s prospects.
We entered into a license agreement with ADVA-Tec for the exclusive worldwide rights to develop and commercialize Ovaprene that became effective in July 2017. In addition to standard termination rights, ADVA-Tec may terminate the license agreement if we (1) fail to make significant scheduled investments in product development activities over the course of the agreement, (2) fail to commercialize Ovaprene within six months of obtaining a pre-market approval from the FDA, (3) with respect to the license in any particular country, fail to commercialize Ovaprene in that particular country within three years of the first commercial sale, (4) develop or commercialize a non-hormonal ring-based vaginal contraceptive device other than Ovaprene, (5) fail to conduct certain clinical trials, or (6) fail to make certain milestone, sublicense and/or royalty payments to ADVA-Tec, including a milestone payment due upon the FDA's approval to commence a pivotal human clinical trial of Ovaprene. See ITEM 1. "BUSINESS-Overview-License Agreements-ADVA-Tec License Agreement," above.
In February 2018, we entered into a world-wide license and collaboration agreement with SST for the exclusive worldwide rights to develop and commercialize Sildenafil Cream, 3.6% for all indications for women related to female sexual dysfunction and/or female reproductive health, including treatment of the female sexual arousal disorder FSAD. The SST license agreement provides that each party will have customary rights to terminate the
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agreement in the event of material uncured breach by the other party and under certain other circumstances. The SST license agreement provides SST with the right to terminate it with respect to the applicable SST licensed products in specified countries upon 30 days’ notice if we fail to use commercially reasonable efforts to perform development activities in substantial accordance with the development plan contained in the SST license agreement, or any updated development plan approved by the joint development committee, and do not cure such failure within 60 days of receipt of SST’s notice thereof. See ITEM 1. "BUSINESS-Overview-License Agreements-SST License and Collaboration Agreement,” above.
In April 2018, we entered into the Catalent license agreement under which we acquired exclusive global rights to Catalent's IVR technology platform, including the product candidates we now call DARE-HRT1, DARE-FRT1 and DARE-OAB1. Under this agreement, we must use commercially reasonable efforts to develop and make at least one product or process available to the public, which efforts include achieving specific diligence requirements by specific dates specified in the agreement, and Catalent may terminate the agreement upon 60 days’ notice for any uncured material breach by us of any of our other obligations under the agreement. See ITEM 1. "BUSINESS-Overview-License Agreements-Catalent JNP License Agreement,” above.
In December 2018, we entered into definitive agreements with Hammock Pharmaceuticals, Inc., TriLogic Pharma LLC and MilanaPharm LLC under which we acquired exclusive global rights to DARE-BV1 for the treatment of bacterial vaginosis, as well as the rights to utilize the underlying proprietary hydrogel drug delivery technology for any vaginal or urological application in humans. Under the license agreement with TriLogic Pharma and MilanaPharm, we must use commercially reasonable efforts and resources consistent with those we undertake in pursuing development and commercialization of other pharmaceutical products, taking into account program-specific factors, (a) to develop and commercialize at least one licensed product or process in the United States and at least one licensed product or process in at least one of Canada, the United Kingdom, France, Germany, Italy or Spain, and (b) following the first commercial sale of a licensed product or process in any jurisdiction, to continue to commercialize that product or process in that jurisdiction. MilanaPharm may terminate our license if, after having launched such product or process in such country, we, or our affiliates or sublicensees, as applicable, discontinue the sale of, or commercially reasonable marketing efforts to sell, such product or process in such country, and fail to resume such efforts or to reasonably demonstrate a strategic justification for the discontinuation and failure. See ITEM 1. "BUSINESS-Overview-License Agreements-Hammock/MilanaPharm Assignment and License Agreement,” above.
If any of our agreements with ADVA-Tec, SST, Catalent, or Hammock Pharmaceuticals/MilanaPharm are terminated, impaired, or limited, we could lose the ability to develop and commercialize Ovaprene, Sildenafil Cream, 3.6%, DARE-BV1, or any of our IVR product candidates, including DARE-HRT1, as applicable. The termination of our rights under these agreements to develop and commercialize any of our lead product candidates could have a material adverse effect on our business prospects and operations.
We may seek to license the product and technology rights to additional product candidates in accordance with our business strategy, but there can be no assurance we will be able to do so on favorable terms or at all. There are risks, uncertainties and costs associated with identifying, licensing and advancing product candidates through successful clinical development. Even if we obtained the rights to additional product candidates, there can be no assurance these candidates will ever be advanced successfully through clinical development.
Delays in the commencement or completion of clinical testing of product candidates we are developing or may develop in the future may occur due to any of a number of factors and could result in significantly increased costs and longer timelines and could impact our ability to ever become profitable.
The tests and clinical trials of product candidates we develop may not commence, progress or be completed as expected, and delays could significantly impact our product development costs and timelines, as well as a product candidate’s market potential, if ultimately approved. The timing of initiation, conduct and completion of clinical trials and other testing of our product candidates may vary dramatically due to factors within and outside of our control and is difficult to predict accurately. We may make statements regarding anticipated timing for commencement, completion of enrollment, and/or availability of results from our clinical studies, but those statements are predictions based on a number of significant assumptions and the actual timing of achievement of development milestones may differ materially from our predictions for a variety of reasons.
We currently do not have adequate capital to conduct all of the clinical studies that we plan to conduct in 2021 and 2022. Commencement of planned clinical studies may be delayed if we do not secure adequate capital. In addition to lack of adequate capital, commencement and/or completion of these studies may be delayed, terminated or suspended as a result of the occurrence of any of a number of other factors, including the need to obtain authorizations from the FDA and the institutional review boards, or IRBs, of prospective clinical study sites, delayed or inadequate supply of our product candidates or other clinical trial material, slower than expected rates of patient recruitment or enrollment, other factors described below, and unforeseen events. In addition, among other factors, our
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ability to commence our planned pivotal clinical study of Ovaprene is subject to the FDA’s review and clearance of an IDE.
The commencement of clinical trials of our product candidates can be delayed for many reasons, including delays in:
•obtaining required funding;
•obtaining guidance or authorizations from the FDA or foreign regulatory authorities;
•finalizing the trial design as a result of discussions with the FDA, other regulatory authorities or prospective clinical trial investigators or sites;
•reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
•obtaining sufficient quantities of our product candidates and other clinical trial material; or
•obtaining IRB approval to conduct a clinical trial at a prospective site.
In addition, once a clinical trial has begun, it may experience unanticipated delays or be suspended or terminated by us, an IRB, the FDA or other regulatory authorities due to several factors, all of which could impact our ability to complete our clinical trials in a timely and cost-efficient manner, including:
•lack of adequate funding;
•failure to conduct the clinical trial in accordance with regulatory or IRB requirements;
•slower than expected rates of participant recruitment and enrollment;
•higher than anticipated participant drop-out rates;
•failure of clinical trial participants to use the product as directed or to report data as per trial protocols;
•inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
•failure to achieve certain efficacy and/or safety standards;
•participants experiencing severe side effects or other adverse events related to the investigational treatment;
•delayed or insufficient supply of clinical trial material or inadequate quality of such materials;
•failure of our CROs or other third-party contractors to meet their contractual obligations to us in a timely manner, or at all; or
•delays quality control/quality assurance procedures necessary for study database lock and analysis of unblinded data.
The COVID-19 pandemic remains a rapidly evolving and uncertain additional risk to our timelines for commencement and completion of our clinical trials. Our prospective or contracted clinical trial sites may temporarily suspend activities at their sites to help secure the safety of their employees or to adhere to government recommendations or orders related to social distancing and limiting public gatherings, or they may experience resource constraints stemming from the pandemic and become unable to allocate adequate resources to reach agreements necessary to commence our clinical trials at their facilities or, even if agreements are in place, to conduct our clinical trials. For clinical trials that we are able to initiate, we may experience lower than anticipated subject enrollment and completion rates, including because individuals may avoid medical settings due to concerns related to the pandemic or they may become subject to governmental orders or recommendations that impose curfews or that ask individuals to leave their homes only if essential. In addition, increased rates of worker illness and implementation of work-from-home and restricted travel policies due to the COVID-19 pandemic may delay any regulatory authority and/or IRB approvals necessary for our clinical trials and/or prevent our CROs and other third-party contractors who are necessary for the conduct of our clinical trials from meeting their contractual obligations to us in a timely manner, any of which could delay commencement and completion of our clinical trials.
Significant clinical trial delays also could jeopardize our ability to meet obligations under agreements under which we license our rights to our product candidates, allow other companies to bring competitive products to market before we do, shorten any period of market exclusivity we may otherwise have under our patent rights, and weaken our negotiating position in discussions with potential collaborators, any of which could impair our ability to successfully commercialize our product candidates, if ultimately approved. Any significant delays in commencement or completion of clinical trials of our product candidates, or the suspension or termination of a clinical trial, could materially harm our business, financial condition and results of operations.
We plan to submit an NDA to the FDA for approval of DARE-BV1 based largely on data from our recently completed Phase 3 DARE-BVFREE clinical trial; however, there can be no assurance that the FDA will grant
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marketing approval of DARE-BV1 for the treatment of bacterial vaginosis without additional clinical or nonclinical studies.
DARE-BV1 is a novel thermosetting bioadhesive hydrogel formulation of clindamycin, an antibiotic with FDA approval in other formulations to treat bacterial infections, including bacterial vaginosis. Bacterial vaginosis effects over 20 million women and is known for being a difficult vaginal infection to cure. Our formulation is designed to provide extended release of the drug at the site of infection over multiple days and require no intervention by the patient beyond the initial application, which we believe will improve outcomes. Other pharmaceutical companies have employed a similar approach, with clindamycin and other antibiotics, and have generated only marginally improved outcomes. DARE-BV1 has been studied in 30 women diagnosed with bacterial vaginosis in an investigator-sponsored study and in a randomized, multicenter, double-blind, placebo controlled Phase 3 clinical study that randomized 307 women diagnosed with bacterial vaginosis in 32 study sites across the U.S. In December 2020, we announced positive topline results from the Phase 3 DARE-BVFREE study. DARE-BV1 met the primary endpoint of the study and all of the pre-specified secondary efficacy endpoints, demonstrating significantly greater clinical cure rates compared to placebo.
Drug product candidates must demonstrate substantial evidence of effectiveness, as well as safety, to be approved in the U.S. The FDA has interpreted that statutory standard as generally requiring at least two adequate and well-controlled clinical trials, each convincing on its own, to establish effectiveness. Under certain circumstances the FDA will determine that data from one adequate and well-controlled clinical trial together with confirmatory evidence obtained prior to or after such clinical trial are sufficient to constitute substantial evidence of effectiveness. Based on discussions with the FDA regarding the DARE-BV1 program and, specifically, the DARE-BVFREE study design, we believe that data from the DARE-BVFREE study, together with other existing safety and efficacy data on DARE-BV1 and clindamycin, will be sufficient to demonstrate substantial evidence of effectiveness, as well as safety, of DARE-BV1; provided that, after a comprehensive review of data from the DARE-BVFREE study, complete results are at least as positive as the topline results. However, regardless of our analyses of and conclusions about the DARE-BVFREE study data, the FDA may determine that the data are not sufficiently robust or convincing and may require additional clinical and/or nonclinical studies prior to approval of DARE-BV1 to treat bacterial vaginosis. If additional unplanned development studies or other activities are required for regulatory approval, our R&D expenses and DARE-BV1’s development timeline could increase significantly, DARE-BV1’s value could decrease significantly, and our financial condition and results of operations could be materially adversely affected.
If DARE-BV1 receives FDA approval, it will face significant competition from existing and potentially new therapies. See “The commercial success of DARE-BV1 will depend on its effectiveness in treating bacterial vaginosis compared to available competitive products and on women’s preferences” below.
Ovaprene is a drug/device combination and the process for obtaining regulatory approvalin the United States will require compliance with more complex requirements of the FDA applicable to combination products. A change in the FDA’s prior determination that Ovaprene has a device-primary mode of action and re-assignment of primary oversight responsibility to CDER would adversely impact Ovaprene’s development timeline and significantly raise our costs to complete clinical development and obtain regulatory approval for Ovaprene.
Ovaprene is composed of both device and drug components and is considered a combination product by the FDA. It is an intravaginal contraceptive product that releases a locally acting spermiostatic agent and has a permeable knitted polymer in its center designed to create a partial barrier to sperm. The barrier seeks to block the progression of sperm into the cervical mucus while the agents seek to create an environment inhospitable to sperm. Ovaprene previously underwent a request for designation, or RFD, process with the FDA that determined that the product had a device-primary mode of action and CDRH would lead the review of a PMA for the product. If the designation were to be changed to drug-primary mode of action and assigned to CDER, or if either division were to institute additional requirements for the approval of Ovaprene, we could be required to complete clinical studies with more patients and over longer periods of time than is currently anticipated. This would significantly increase the anticipated cost and timeline to completion of Ovaprene’s development and require us to raise additional funds. Based on discussions with the FDA, we believe that if our planned contraceptive effectiveness and safety study of Ovaprene is successful, the FDA will not require additional clinical studies to support the PMA for Ovaprene. However, the FDA may determine that the results of the study are not sufficiently robust or convincing and require additional clinical and/or nonclinical studies prior to approval of Ovaprene. Because Ovaprene is one of our lead product candidates, the impact of either a change in the lead FDA review center or the imposition of additional, currently unplanned requirements for approval could be significant to us and have a material adverse effect on the prospects for developing Ovaprene, as well as on our business and our financial condition. See also “The commercial success of Ovaprene will depend on market acceptance of a monthly, hormone-free intravaginal product, availability and effectiveness of alternative contraceptive products and women's preferences, as well as the success of Bayer’s marketing and sales efforts” below.
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The factors contributing to female sexual dysfunction disorders, including genital arousal disorders, are complex making the design and implementation of a successful clinical trial of Sildenafil Cream, 3.6% challenging.
Female sexual dysfunction disorders in women vary in nature and may be the result of a variety of physiological and psychological factors. Given the variability of factors contributing to the underlying condition, clinical studies to evaluate effectiveness in any subset of the condition under the umbrella of Sexual Dysfunction, such as female sexual arousal disorder, or FSAD, are complex. Sildenafil Cream, 3.6% is designed to work primarily by increasing blood flow to the genital tissue. Therefore, it will be critical for us to identify and enroll patients in our clinical trials of Sildenafil Cream, 3.6% for whom inadequate blood flow to the genital tissue is the primary contributor to their arousal disorder. If we fail to screen properly, and instead enroll patients with different contributing factors, the results of our clinical trials are unlikely to demonstrate effectiveness of Sildenafil Cream, 3.6%. Even if we can identify women for whom inadequate blood flow to the genital tissue is the primary contributing factor to their sexual arousal difficulties, there is no guaranty that the use of Sildenafil Cream, 3.6% will improve their general feelings of arousal or that we can utilize a patient reported outcome measure that adequately captures their genital arousal response. Given the factors contributing to arousal disorders, we may be required to run clinical trials in large patient populations, extending the timeline and increasing the cost of development for Sildenafil Cream, 3.6%.
Today, there are no FDA-approved treatments for FSAD, and we lack a precedent program to assist in the design of our clinical trials. These factors increase our development risk and the chance of failure. While we have worked with experts to develop novel patient reported outcome, or PRO, instruments for our planned Phase 2b study of Sildenafil Cream, 3.6%, tested the proposed PRO instruments in a content validity study, reviewed the results of that study with the FDA and aligned with the FDA on the Phase 2b study design, the Phase 2b study may nevertheless fail to demonstrate effectiveness of Sildenafil Cream, 3.6% in treating FSAD. Our failure to design and implement a successful clinical trial for Sildenafil Cream, 3.6% could have materially adverse effect on our business and our financial condition.
DARE-HRT1 and DARE-FRT1 utilize a vaginal ring technology that has not completed any human clinical trials.
DARE-HRT1 represents the earliest of our clinical-stage assets and the Phase 1 study in Australia represents the first human testing of this novel intravaginal ring technology. DARE-FRT1 utilizes the same IVR technology as DARE-HRT1. Other than the Phase 1 study of DARE-HRT, to date, all studies of DARE-HRT1 and DARE-FRT1 have been in vitro studies or animal studies. The risks associated with earlier stage technologies tend to be higher and the rate of failure tends to be greater. While the IVR technology has generated promising results in pre-clinical studies, there can be no assurance these results will be replicated when tested in human subjects. Even if successful, many approved therapies exist for treating symptoms of menopause, including vasomotor symptoms, and for pregnancy maintenance. There is no guaranty that women will prefer the convenience of a monthly vaginal ring over pills, patches and creams. Failure of DARE-HRT1 in the ongoing Phase 1 clinical study could have a meaningful adverse effect, not only on the DARE-HRT1 program, but also on the DARE-FRT1 program and the likelihood of the IVR technology being investigated for use in another indication. These developments would materially impact the value of this technology platform to our stockholders.
We rely on, and intend to continue to rely on, third parties for the execution of significant aspects of our product development programs. Failure of these third parties to successfully carry out their contractual duties, comply with regulatory requirements and applicable law, or meet expected deadlines may cause significant delays in our development timelines and/or failure of our programs.
Our business model relies on the outsourcing of important product development functions, tests and services to CROs, medical institutions and other specialist providers, vendors and consultants. We rely on these third parties to conduct our clinical trials and perform related activities, including quality assurance, clinical monitoring and clinical data management, as well as to assist us in preparing, submitting and supporting the applications necessary to gain marketing approvals for our product candidates. For example, we engaged CROs to run all aspects of the PCT clinical trial for Ovaprene and the Phase 3 clinical trial of DARE-BV1. We similarly expect to rely on CROs and other third parties to perform all clinical and nonclinical testing and many other important development and regulatory affairs activities needed to support applications for regulatory approvals of all product candidates we develop. We do not control these third parties and they may not devote sufficient time and resources to our projects, or their performance may be substandard, resulting in clinical trial delays or suspensions or delays in submission of our marketing applications or failure of a regulatory authority to accept our applications for filing. There is no assurance that the third parties we engage will be able to provide the functions, tests or services as agreed upon, including the agreed upon price and timeline, or to our requisite quality standards, including due to geopolitical actions, natural disasters, or public health emergencies or pandemics, such as the COVID-19 pandemic. We rely on the efforts of these third
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parties and if they fail to perform as expected, we could suffer significant delays in, and potentially failure of, the development of one or more of our product candidates.
There is also no assurance these third parties will not make errors in the design, management or retention of our data or data systems. Any failures by such third parties could lead to a loss of data, which in turn could lead to delays in clinical development and obtaining regulatory approval. Third parties may not pass FDA or other regulatory audits, which could delay or prohibit regulatory approval. In addition, the cost of such services could significantly increase over time. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, regulatory approval of current and future product candidates, may be delayed, prevented or cost significantly more than expected, all of which would have a material adverse effect on our business, financial condition, results of operations and prospects.
We rely on third-party suppliers and manufacturers of our product candidates, including multiple single source suppliers and manufacturers and, if approved, we expect to continue to rely on third parties for the manufacture of our products and supply of their component substances and materials.
Our product candidates and, if approved, our products (including their respective components) must be manufactured, packaged, tested, and labeled in conformity with cGMP and other applicable regulatory requirements. We have a small number of employees and no personnel dedicated to marketing, manufacturing or sales and distribution. We rely on third parties to supply and manufacture our product candidates and other materials necessary to commence and complete pre-clinical testing, clinical trials and other activities required for regulatory approval of our product candidates. If we receive the requisite regulatory approvals for one or more products, we expect to rely on third parties for commercial manufacture such products, and as such we will be subject to inherent uncertainties related to product safety, availability and security. In some cases, we may be contractually required to obtain supplies of our product candidates and approved products, if any, from specific third parties. For example, our agreement with ADVA-Tec limits our ability to engage a manufacturing source for Ovaprene other than ADVA-Tec during its development period as well as following regulatory approval. If ADVA-Tec fails to produce sufficient clinical supply of Ovaprene on anticipated timelines, our ability to complete clinical development and seek regulatory approval of Ovaprene could be significantly delayed. If Ovaprene receives marketing approval, failure by ADVA-Tec to produce sufficient quantities of the product to meet commercial demand could have a significant adverse effect on our income and ability to become profitable. To date, ADVA-Tec has only produced a small number of devices for clinical testing. Furthermore, for some of the key raw materials and components of Ovaprene, we have only a single source of supply, and alternate sources of supply may not be readily available.
Under the terms of the SST license agreement, SST will be responsible for obtaining supplies of Sildenafil Cream, 3.6% for the Phase 2 clinical trials expected to be conducted in the United States. Thereafter, we will be responsible for obtaining pre-clinical, clinical and commercial supplies of Sildenafil Cream, 3.6%.
Under the terms of the license arrangements for our other clinical-stage candidates, DARE-BV1 and DARE-HRT1, we will be responsible for sourcing the supply of the active ingredients and arranging for the manufacture of the products. We do not yet have any agreements in place for commercial production of DARE-BV1. We currently plan to obtain commercial supply of DARE-BV1 from the CMO that manufactured DARE-BV1 clinical trial material for the DARE-BVFREE Phase 3 study. However, there can be no assurance that we will enter into any such agreement with that CMO in a timely manner, or at all. If we are unable to do so, we would be forced to seek to engage a new CMO to manufacture commercial supply of DARE-BV1, which could lead to delays in regulatory approval and commercial launch in the U.S., as well as higher manufacturing costs. In addition, future supplies of raw materials required to produce DARE-BV1 and Sildenafil Cream, 3.6% may be more difficult and costly to obtain. For example, our current supplier of clindamycin is located in China, and our current supplier of sildenafil is located in India. Should these suppliers slow production or shut down their factories due to the COVID-19 pandemic, or for any reason, we may not be able to obtain adequate supplies of clindamycin or sildenafil to satisfy our commercial or clinical development supply requirements. In addition, political relations between the U.S. and China could affect our ability to obtain adequate supply of clindamycin from our current supplier at reasonable costs. If these circumstances were to occur, we could be forced to source clindamycin or sildenafil from different suppliers, which could lead to higher costs and delays in clinical development, regulatory approval and commercial launch of DARE-BV1 and Sildenafil Cream, 3.6%.
Because we currently rely, and expect to continue to rely, on third parties to supply and manufacture our product candidates and their respective components (including the active pharmaceutical ingredients) and, if approved, our commercial products, we do not expect to control the manufacturing processes for their production, all of which must be made in accordance with relevant regulations, which include, among other things, quality control, quality assurance, compliance with cGMP and the maintenance of records and documentation. Continuous compliance with cGMP and other applicable requirements, requires significant expenditure of time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging,
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quality control, recordkeeping and other requirements. In the future, it is possible that we or our third-party suppliers or manufacturers may fail to comply with cGMP requirements, other applicable FDA regulations, the requirements of other regulatory bodies or our own requirements, any of which could result in suspension or prevention of commercialization and/or manufacturing of our products or product candidates, delay or suspension of ongoing research, including clinical trials, disqualification of data or other enforcement actions such as product recall, injunctions, civil penalties or criminal prosecutions against us. Furthermore, we may be unable to replace any third-party supplier or manufacturer with an alternate supplier or manufacturer on a commercially reasonable or timely basis, or at all. If we are unable to obtain the product quantities needed for our clinical trials, and if approved, to meet commercial demand, our business will be materially adversely affected.
If we were to experience an unexpected loss of supply, or if any supplier or manufacturer were unable to meet its demand for our product candidates, including due to geopolitical actions, natural disasters or public health emergencies or pandemics, such as the COVID-19 pandemic, we could experience delays in research, planned or ongoing clinical trials or commercialization. We might not find alternative suppliers or manufacturers with FDA approval, of acceptable quality, or able to provide the appropriate volumes and at an acceptable cost. The long transition periods that may be necessary to switch manufacturers and suppliers would significantly delay our timelines, which would materially adversely affect our business, financial conditions, results of operations and prospects.
Third-party suppliers, manufacturers, distributors or regulatory service providers may not perform as agreed or may terminate their agreements with us, including due to the effects related to geopolitical actions, natural disasters, public health emergencies or pandemics, such as the COVID-19 pandemic, or force majeure events that affect their facilities or ability to perform. Any significant problem that our suppliers, manufacturers, distributors or regulatory service providers experience could delay or interrupt our supply of materials or product candidates until the supplier, manufacturer, distributor or regulatory service provider cures the problem, until the event that resulted in the delay or interruption is adequately addressed, or until we locate, negotiate for, validate and receive FDA approval for an alternative provider (when necessary), if one is available, and we may not have recourse against the party who did not perform or terminated their agreement with us if such non-performance or termination is excused under our agreements with such party. Failure to obtain the needed quantities of our products would have a material and adverse effect on our business, financial condition, results from operations and prospects.
Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data, and others, including regulatory authorities, may not agree with our interpretation of study data.
From time to time, we may publicly disclose interim, preliminary or topline data from our clinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analysis of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results of clinical trials we report may differ from final results reported for those studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final, complete data are available.
Interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. There can be no guarantee that a favorable futility analysis will result in a favorable final result at the completion of the clinical trial.
Further, others, including regulatory authorities, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of study data differently than we do, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate, product or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. For example, while we reported
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positive topline data for the Phase 3 DARE-BVFREE study of DARE-BV1, the FDA may nevertheless require additional efficacy or safety trials before it will accept a DARE-BV1 NDA for filing or approve the NDA.
Our business depends on obtaining the approval of regulatory authorities, and in particular, FDA approval, for our product candidates in a timely manner, and the requirements for obtaining approval may change over time, requiring more financial resources and development time than we currently anticipate.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, release, safety, efficacy, regulatory filings, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA, other regulatory authorities in the U.S., and comparable authorities in other countries or jurisdictions where we seek to test or market our product candidates. The process of obtaining marketing approvals in the U.S. and elsewhere is expensive, may take many years and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. In addition, requirements for approval may change over time and our current development plans may not accurately anticipate all applicable requirements for marketing approval by the FDA or comparable regulatory authorities for jurisdictions outside the U.S.
Our success depends on our ability to obtain regulatory approvals for our product candidates in a timely and cost-efficient manner. We have not submitted a marketing application or received approval to market any of our product candidates from any regulatory authority. Even if we successfully complete clinical studies, we may experience delays in our efforts to obtain marketing approvals for any of our product candidates. We cannot assure you that we will ever obtain any marketing approvals in any jurisdiction.
We may change the development plan for a product candidate as a result of changes during the development period in the FDA’s marketing approval policies or the amendment or enactment of additional statutes or regulations, or following our review of outcomes of other similar product candidates under development. This could significantly lengthen our development timelines and cost. Further, the FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional clinical or nonclinical studies or changes in the manufacturing process or facilities, even if we had previously aligned with the FDA on such data and other requirements. In addition, the announcement of new requirements by the FDA, the failure of a competitive product to receive regulatory approval, or the receipt of a CRL from the FDA by another company pursuing the FDA's 505(b)(2) pathway that may have implications for our proposed regulatory approval pathway could impact how investors and potential strategic parties view the development risks associated with our product candidates. Changing testing or manufacturing requirements for product candidates we develop or for product candidates deemed to be comparable to ours may adversely impact our financial resources, our development timelines and may harm the perception held by others of our business.
If the FDA’s Section 505(b)(2) pathway is not an available regulatory pathway for DARE-BV1, Sildenafil Cream, 3.6%, DARE-HRT1, DARE-FRT1, DARE-VVA1 and DARE-LARC1, as we currently expect, or for other product candidates we may develop in the future, the development of these product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than currently anticipated, and in any case may not be successful.
We intend to develop and seek approval for many of our product candidates, including DARE-BV1, Sildenafil Cream, 3.6%, DARE-HRT1, DARE-FRT1, DARE-VVA1, DARE-LARC1 and other candidates we may license or acquire, including ORB-204 and ORB-214, pursuant to the FDA’s 505(b)(2) pathway. If the FDA determines that we may not use that pathway for the development of any of these candidates, then we would have to seek regulatory approval via a “full” or “stand-alone” NDA under Section 505(b)(1) of the FDCA. This would require us to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval including possibly pre-clinical data. If this were to occur, the time and financial resources required to obtain FDA approval for these candidates, and the complications and risks associated with the respective product candidate or candidates, would likely substantially increase and would have a material adverse effect on our business and financial condition.
The Drug Price Competition and Patent Term Restoration Act of 1984, informally known as the Hatch-Waxman Act, added Section 505(b)(2) to the FDCA. As described above, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies and information that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), if applicable to us under the FDCA, would allow an NDA we submit to the FDA to rely in part on data in the public domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development programs for DARE-BV1, Sildenafil Cream, 3.6%, our IVR product candidates, including DARE-HRT1 and DARE-FRT1, DARE-VVA1, DARE-LARC1 ORB-204 and ORB-214.
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Although the FDA’s longstanding position has been that it may rely upon prior findings of safety or effectiveness to support approval of a 505(b)(2) application, this policy has been controversial and subject to challenge. In addition, notwithstanding the approval of an increasing number of products by the FDA under Section 505(b)(2) over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs referenced in a Section 505(b)(2) NDA. Even if we are able to utilize the Section 505(b)(2) regulatory pathway for one or more of our candidates, there is no guarantee this would ultimately lead to faster product development or earlier approval.
Moreover, any delay resulting from our inability to pursue the FDA's 505(b)(2) pathway could result in new competitive products reaching the market more quickly than our product candidates, which would likely materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the FDA's 505(b)(2) pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.
Even if we receive regulatory approvals for our product candidates, they may not gain acceptance among physicians, consumers or the medical community, thereby limiting our potential to generate revenue, which will undermine our growth prospects.
Even if our product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any new product by consumers, physicians, other health care professionals and third-party payors will depend on several factors, including:
•demonstrated evidence of efficacy and safety;
•sufficient third-party insurance coverage or reimbursement;
•effectiveness of our or our collaborators’ sales and marketing strategy;
•the willingness of uninsured consumers to pay for the product;
•the willingness of pharmacy chains to stock the products;
•the prevalence and severity of any adverse side effects;
•availability of alternative products; and
•the convenience and comfort level to consumers provided by our product compared to alternative products.
If our products fail to provide a benefit over then currently available options, we are unlikely to generate sufficient revenues to achieve profitability.
The commercial success of DARE-BV1 will depend on its effectiveness in treating bacterial vaginosis compared to available competitive products and on women’s preferences.
Today, there are many FDA-approved products for treating bacterial vaginosis, and many are generic. If approved, DARE-BV1 will compete with those products. Current therapies for the treatment of bacterial vaginosis primarily consist of oral and vaginal formulations of antibiotics delivered as a single dose or through multiple doses over consecutive days. Two of the most common antibiotics used today are generic clindamycin and metronidazole. In particular, DARE-BV1 will likely be compared with Clindesse® (clindamycin phosphate) Vaginal Cream, 2% as this treatment is a vaginally administered, single dose cream formulation of clindamycin. If physicians do not view the cure rates or continued clinical response rates that DARE-BV1 demonstrates in its clinical studies as significantly superior compared to other products available for the treatment of bacterial vaginosis, physicians may opt to continue to prescribe existing treatments rather than recommend or prescribe our product to their patients. In addition, women may prefer orally delivered options to our vaginally delivered product unless our product is viewed by them as providing significantly superior efficacy, safety and/or convenience.
Should DARE-BV1 receive marketing approval, its commercial success will depend on many factors:
•strength of the efficacy data supporting the cure and clinical cure rates;
•patient satisfaction and willingness to use it again and refer it to others;
•the success or failure of other branded therapies;
•preference by women for a vaginally administered therapy;
•price pressure given today’s high level of generic treatments; and
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•approval of new entrants, including alternative, non-antibiotic treatment options.
Additionally, if we are not successful in attracting an acceptable commercialization partner or entering into an agreement with acceptable terms on a timely basis or at all, commercial launch of DARE-BV1 could be significantly delayed. Further, any future commercialization collaboration may not be successful, in which case our ability to realize the full market potential of our product could be harmed.
Any of these factors could reduce the commercial potential for DARE-BV1 and place pressure on our business, financial condition, results of operation and prospects, particularly if DARE-BV1 is the first product candidate for which we receive regulatory approval.
The commercial success of Ovaprene will depend on market acceptance of a monthly, hormone-free intravaginal product, availability and effectiveness of alternative contraceptive products and women's preferences, as well as the success of Bayer’s marketing and sales efforts.
Today, there are a variety of hormonal and non-hormonal contraceptive options available to women, including oral contraceptive pills and intrauterine devices, newer hormonal contraceptive products including implants, injectables, vaginal rings, patches, and hormonal intrauterine systems, and non-hormonal methods such as female condoms, novel diaphragms, and new methods of female sterilization. In surveys, women have said that the features they consider most important when selecting a contraceptive method are efficacy, ease-of-use and side effects. To have significant revenue potential as a new contraceptive product option, Ovaprene may need to have a typical use efficacy outcome (which is the expected rate of pregnancy protection once the product is used widely under everyday circumstances) comparable to current non-implanted hormonal contraceptive methods (pills, patches and vaginal rings), which is approximately 91% typical use efficacy. Clinical testing will also need to demonstrate that the device can be safely worn for multiple weeks.
If we receive regulatory approval to market Ovaprene, its commercial success, or the success of any other future contraceptive product candidate we may seek to develop, including our current pre-clinical candidates, will depend upon the contraceptive market and market acceptance of an alternative method. Risks related to market acceptance include:
•minimum acceptable contraceptive efficacy rates;
•perceived safety differences of hormonal and/or non-hormonal contraceptive options;
•changes in health care laws and regulations, including the ACA, and its effect on pharmaceutical coverage, reimbursement and pricing, and the birth control mandate;
•competition from new lower dose hormonal contraceptives with more favorable side effect profiles; and
•new generic contraceptive options including a generic version of the hormone-containing intravaginal product NuvaRing®.
If one or more of these risks occur, it could reduce the market potential for Ovaprene, or any future contraceptive product we may seek to develop, and place pressure on our business, financial condition, results of operations and prospects.
Under our license agreement with Bayer, provided the license grant becomes effective, Bayer will have exclusive rights to market and sell Ovaprene in the U.S. Accordingly, the potential value of Ovaprene to our company is highly dependent on the efforts and activities of Bayer. Should Ovaprene fail to generate compelling clinical safety and efficacy data, the license grant under our agreement with Bayer may never become effective. Even if Bayer elects to make the license agreement effective, Bayer has significant discretion in determining the resources that it will allocate to commercialization of Ovaprene and Ovaprene’s commercial success may be limited, in which case our business, financial condition, results of operations and prospects could suffer significantly.
The commercial success of Sildenafil Cream, 3.6% will depend on the availability of alternative products for female sexual dysfunction disorders and women's preferences, in addition to the market's acceptance of our topical cream.
Today, there are no FDA-approved products to treat FSAD. While our goal is for Sildenafil Cream, 3.6% to be the first product to receive such approval, one or more competitive products may be approved before our product. Even if we achieve our goal of being first-to-market for FSAD, the costs associated with introducing a new product into the sexual dysfunctions market would likely be significant, and regardless of the amount spent, there is no guarantee that our new product will be broadly adopted. Women may be hesitant to use Sildenafil Cream, 3.6% for many reasons, including the lack of experience with any product designed to treat FSAD, the lack or perceived lack of clinical evidence supporting its benefits, and the out-of-pocket cost of Sildenafil Cream, 3.6%, particularly if it is not covered by insurance.
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Our commercial success with Sildenafil Cream, 3.6% will depend, in large part, on the ability of the product candidate to demonstrate safety and effectiveness in treating FSAD in clinical trials, as well as our ability to educate doctors and women about the need to diagnose and treat FSAD and the potential benefits of using of Sildenafil Cream, 3.6%, at which we or any third party with which we may collaborate to commercialize Sildenafil Cream, 3.6% may not prove successful. Sexual arousal can be influenced by many emotional and physiological factors. To be successful, our clinical trials of Sildenafil Cream, 3.6% must anticipate such factors. Sildenafil Cream, 3.6% is designed to increase local blood flow to the genital tissue. Even if Sildenafil Cream, 3.6% demonstrates success in increasing blood flow, the product candidate may not demonstrate a significant, or any, increase in arousal or improvement in the overall sexual experience in some women in our clinical trials. If we fail to generate compelling clinical results, we may not receive regulatory approval to market Sildenafil Cream, 3.6%, or, if approved, many physicians may not prescribe and/or many women diagnosed with sexual arousal disorder may opt not to try Sildenafil Cream, 3.6%. If we fail to produce strong clinical outcomes, our ability to build a commercial market for Sildenafil Cream, 3.6% will be materially adversely impacted.
The commercial success of DARE-HRT1 will depend on the availability of alternative products for managing the vasomotor and vaginal symptoms of menopause and women's preferences, in addition to the market's acceptance of our IVR.
Treatments to address the symptoms associated with menopause, including the vasomotor symptoms, also known as hot flashes, include combinations of prescription hormones, some of which are FDA-approved and others which are prepared in compounding pharmacies. Numerous products already exist, and this number is likely to expand with time. In addition, there has been an emerging preference among some women and providers for bio-identical hormones that are chemically identical to those the body produces. DARE-HRT1 is designed to offer a convenient vaginal ring that continuously delivers a combination of bio-identical estradiol and progesterone over 28 days. Until relatively recently, no FDA-approved bio-identical hormone treatments existed. In 2018, Bijuva® estradiol and progesterone capsules, which are to be taken daily, received the first such approval. Studies have failed to demonstrate that bio-identical hormones are safer than other hormones, so DARE-HRT1 will need to compete with many types of hormone therapy options in terms of convenience, safety and efficacy in managing symptoms of menopause.
Risks related to market acceptance of DARE-HRT1, if approved for hormone therapy, include:
•preference for a vaginal ring delivery of hormone therapy over pills, patches and creams by menopausal women;
•data regarding symptom relief of DARE-HRT1 over other hormonal treatments for vasomotor symptoms associated with menopause;
•preference for bio-identical hormones by women and health care providers; positive or negative news and research regarding bio-identicals;
•the success or failure of Bijuva®, the first FDA-approved bio-identical product;
•new information supportive or against the use of hormones in menopause; and
•availability of insurance reimbursement for DARE-HRT1.
Depending upon the direction of the factors above, a commercial market for DARE-HRT1 may develop more slowly than expected, or not at all, and our business, financial condition, results of operation and prospects could be hurt as a result.
If we suffer negative publicity concerning the safety or efficacy of the product candidates we develop, our reputation could be harmed, and we may be forced to cease development of such products.
If concerns should arise about the actual or anticipated clinical outcomes regarding the safety of any of our product candidates, including as a result of safety concerns related to third-party products containing the same or similar active or excipient substances, such concerns could adversely affect the market’s perception of our product candidates, which could lead to a decline in potential opportunities with strategic partners or collaborators as well as investors’ expectations for the product candidate’s or our company’s prospects and a decline in the price of our common stock.
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Our clinical-stage product candidates have only been tested in a small number of women over short periods of use and no data exists regarding a potential increase in fetal abnormalities in pregnant women.
If DARE-BV1, Ovaprene, or Sildenafil Cream, 3.6% are successful in their clinical development, we expect that women of child-bearing age will use them, and potentially for many months or years. To date, human clinical studies of these product candidates have been for relatively short periods of time and these product candidates lack safety data over longer periods of use. For example, while we believe the risk of adverse fetal development from using these product candidates is low, the impact of these product candidates on fetal development has not been studied and there are no adequate or well-controlled studies of these product candidates in pregnant women. Thus, the risk of adverse fetal development from any one or more of these product candidates may be greater than expected. Should any of these product candidates be shown to increase the risk of adverse fetal development, our ability to develop those or other product candidates would be substantially impaired, our business prospects and operations would be materially harmed, and we could also be subject to potential claims and lawsuits.
Our Sildenafil Cream, 3.6% product candidate may pose a greater risk to older or elderly women.
FSAD is a condition that impacts women of many ages, including older and elderly populations. Sildenafil, the active ingredient in Sildenafil Cream, 3.6%, has not been tested over long periods of time in older or elderly women. Older or elderly women may react differently and adversely to Sildenafil Cream, 3.6% and we have not yet thoroughly studied the topical or clinical pharmacology of this drug candidate in different patient populations. Should Sildenafil Cream, 3.6% show increased risk of adverse reactions, or signs thereof, in older or elderly women, the potential market for Sildenafil Cream, 3.6% could be significantly limited and our business prospects could be harmed.
If the product candidates we develop are associated with or cause serious adverse events or other undesirable side effects during clinical testing, we may be required to conduct clinical and nonclinical studies that currently are not part of our development plans, which may delay or prevent marketing approval, or, if approval is received, may require a product to be taken off the market, require product labeling to include safety warnings or result in implementation of other restrictions that could significantly decrease our product sales.
Serious adverse events or other undesirable side effects associated with or caused by any product candidate we develop, could arise during clinical development or, if approved, after product launch. Data from future clinical trials may show that a product candidate causes or may cause serious adverse events or other undesirable side effects, which could interrupt, delay, or cause the termination of clinical trials, resulting in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities. If such serious adverse events or other undesirable side effects occur:
•during the clinical development phase, regulatory authorities may impose a clinical hold which could result in substantial delays and adversely impact our ability to continue development of the product;
•during the commercial or post-marketing phase, regulatory authorities may require the addition of specific warnings or contraindications to product labeling or field alerts to physicians and pharmacies;
•we may have to change the way the product is administered or the labeling of the product;
•we may have to conduct additional clinical trials with more patients or over longer periods of time than anticipated;
•we may have to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on our ability to commercialize the product;
•we may have to limit the patients who can receive the product;
•we may be subject to promotional and marketing limitations on the product;
•sales of the product may decrease significantly;
•regulatory authorities may require us to take an approved product off the market;
•we may be subject to litigation or product liability claims; and
•our reputation may suffer.
Any of these events could prevent us or a commercial partner from achieving or maintaining market acceptance of product candidates we develop, or could substantially increase development and/or commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from product sales or receiving royalties and other payments based on sales by commercial partners.
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The women's health market includes many generic products and the growth in generics is expected to continue, making the successful introduction of branded products for contraception, bacterial vaginosis and hormone therapy difficult and expensive.
The proportion of the U.S. market made up of generic products has been increasing. If this trend continues, it may be more difficult for us or a commercial partner to introduce a new branded product, if approved, at a price that will allow us to achieve acceptable levels of revenue and net income from product sales. Generic competition is particularly strong in the areas in which two of our lead product candidates will compete, contraception and the treatment of bacterial vaginosis. In order for Ovaprene and DARE-BV-1 to develop commercial markets and for insurers to cover these higher cost products, they must demonstrate better patient compliance and clinical benefit in their clinical trials compared to other available products.
Additional marketing and educational efforts may be required to introduce a new branded prescription product in order to overcome the trend towards generics and gain access to reimbursement by payors. If we or a commercial partner cannot introduce a product, if approved, at our desired price or gain reimbursement from payors for an approved product, or if patients opt for a lower cost generic product rather than pay out-of-pocket or a higher co-pay for our product, our revenues or royalties and other license fees, as applicable, will be limited.
Changes in health care laws and regulations may eliminate current requirements that health insurance plans cover and reimburse FDA-cleared or approved contraceptive products without cost sharing, which could reduce demand for branded products and lead to a preference for generic options. If the out-of-pocket costs for Ovaprene or other contraceptive products we develop are deemed by women to be unaffordable, a commercial market may never develop.
If approved, we cannot be certain that third-party reimbursement will be available for Ovaprene, and even if reimbursement is available, the amount of any such reimbursement. The ACA and subsequent regulations enacted by the Department of Health and Human Services, or DHHS, require health plans to provide coverage for women’s preventive care, including all forms of FDA-cleared or approved contraception, without imposing any cost sharing on the plan beneficiary. These regulations ensure that women who wish to use an approved form of contraception may request it from their doctors and their health insurance plan must cover all costs associated with such products. These regulations have been, and may be further, modified, repealed, or otherwise invalidated, in whole or in part. For example, a challenge to the constitutionality of the ACA is currently pending at the Supreme Court, with a decision expected in spring 2021. If the ACA is declared invalid in its entirety, the requirement for health plans to cover women’s preventive care without cost sharing would likely be eliminated. Even if the ACA is not repealed, the DHHS regulations to specifically enforce the preventive health coverage mandate were modified under the Trump Administration, which altered the mandate to allow certain employers and insurers to opt out of birth control coverage for religious or moral reasons, which was partially upheld by the Supreme Court in July 2020 but continues to be the subject of litigation and other challenges. We cannot predict the timing or impact of any future rulemaking, court decisions or other changes in the law, although the Biden Administration has signalled its intent to protect women’s access to contraception and to ensure reproductive rights for women both domestically and abroad, such as with a Presidential Memorandum issued on January 28, 2021 that rescinded several policies that had been implemented during the Trump Administration.
Any repeal or elimination of the preventive care coverage rules would mean that women seeking to use prescribed forms of contraceptives may have to pay some portion of the cost for such products out-of-pocket, which could deter some women from using prescription contraceptive products, such as Ovaprene, at all. As a result, we expect that our success will depend on the willingness of patients to pay out-of-pocket for Ovaprene in the event that either they do not have insurance or their insurance requires payment of a portion of Ovaprene by the patient, thus increasing the patient’s overall cost to use Ovaprene. This could reduce market demand for Ovaprene or any other contraceptive candidates we may seek to develop, such as DARE-LARC1, ORB 204, ORB 214 and DARE-RH1, if and when they receive FDA approval, which would have a material adverse effect on our business, financial condition, and prospects.
As no FDA-approved treatments for FSAD currently exist, there is little precedent to help assess whether health insurance plans will cover Sildenafil Cream, 3.6% if approved.
There is no assurance that third-party reimbursement will be available for Sildenafil Cream, 3.6%, if it receives regulatory approval. Even if reimbursement becomes available, the amount of such reimbursement may not make our product affordable to women and profitable to us. Insurers may deem Sildenafil Cream, 3.6% to be a life-style drug and decide not to provide reimbursement. Today, many health insurance plans provide reimbursement for male sexual arousal medications. However, we cannot predict whether they will continue to do so or whether they will do so for FSAD treatments as well. The safety and efficacy data from our clinical trials may impact whether Sildenafil Cream,
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3.6% will become eligible for insurance coverage, and if it does, the level of such reimbursement. In an environment of rapidly rising health care costs, insurers have been looking for ways to reduce costs, which could make it difficult for new therapies to gain coverage if they are not deemed medically critical or essential. If Sildenafil Cream, 3.6% fails to obtain insurance coverage, or if the patient’s share of the cost is deemed to be expensive, a market may never develop for Sildenafil Cream, 3.6%, which would have a material adverse effect on our financial condition and prospects.
Even if we obtain regulatory approval in the United States or elsewhere to market any of our products, the commercial success of our products and our financial prospects will depend in part on the extent to which the costs of our products will be covered by third-party payors for prescription medical products.
Third-party payors, such as government health care programs, private health insurers, managed health care providers, and other organizations, are increasingly challenging medical product prices and examining the medical necessity and cost-effectiveness of medical products, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approval as a benefit under their plans or, even if they do, the level of payment may not be sufficient to allow us, or a commercial partner, to sell our products on a profitable basis. If third-party payors do not provide adequate coverage and reimbursement, health care providers may not prescribe our products or patients may ask their health care providers to prescribe competing products with more favorable reimbursement.
Significant uncertainty exists as to the reimbursement status for newly approved prescription products, including coding, coverage and payment. There is no uniform policy requirement for coverage and reimbursement for prescription products among third-party payors in the United States; therefore, coverage and reimbursement for our products could differ significantly from payor to payor. In the U.S., third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but they also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. Accordingly, one third-party payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product.
To secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product to third-party payors, which costs would be in addition to those required to obtain FDA or other comparable regulatory approvals. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States.
Accordingly, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate payment will be applied consistently or obtained. The process for determining whether a payor will cover and how much it will reimburse a product may be separate from the process of seeking approval of the product or for setting the price of the product. Even if reimbursement is provided, market acceptance of our products may be adversely affected if the amount of payment for our products proves to be unprofitable for health care providers or less profitable than alternative treatments or if administrative burdens make our products less desirable to use.
Additionally, the containment of health care costs has become a priority of federal and state governments and the prices of drug products have been a focus in this effort. For example, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. We expect that federal, state and local governments in the U.S. will continue to consider legislation directed at lowering the total cost of health care. Individual states in the United States have increasingly passed legislation and implemented 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. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers and other members of the health care and
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pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area.
The Biden Administration has indicated that lowering prescription drug prices is a priority, but we do not yet know what steps the administration will take or whether such steps will be successful. It is uncertain whether and how future legislation or regulatory changes, to the ACA and otherwise, could affect prospects for our product candidates or what actions third-party payors may take in response to any such health care reform proposals or legislation. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures reforms may prevent or limit our ability to generate revenue, attain profitability or commercialize our product candidates.
Failure by us or a commercial partner to obtain timely or adequate coverage and pricing for our products, if approved, or obtaining such coverage and pricing at unfavorable levels, could materially adversely affect our business, financial conditions, results of operations and prospects.
The pharmaceutical and medical device industries are highly regulated and subject to various fraud and abuse laws, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal False Claims Act and the U.S. Foreign Corrupt Practices Act.
Health care fraud and abuse regulations are complex, and even minor irregularities can give rise to claims that a statute or prohibition has been violated. The laws that may affect our operations include:
•the federal Anti-Kickback Statute (and comparable state laws), which prohibits, among other things, any person from knowingly and willfully offering, providing, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The federal Anti-Kickback Statute is subject to evolving interpretations. In the past, the government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare companies based on sham consulting and other financial arrangements with physicians. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;
•federal and state civil and criminal false claims laws, including the civil False Claims Act which prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to the U.S. government, knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim to the U.S. government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government. Actions under these laws may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. The federal government uses these laws, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the U.S., for example, in connection with the promotion of products for unapproved uses and other allegedly unlawful sales and marketing practices;
•federal, civil and criminal statues created under HIPAA (and similar state laws), which prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the Physician Payments Sunshine Act, enacted as part of the ACA, which, among other things, imposes reporting requirements on manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid to report to CMS, on an annual basis, information related to payments and other transfers of value to physicians, certain other health care practitioners and teaching hospitals, as well as
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ownership and investment interests held by physicians and their immediate family members in such manufacturers;
•HIPAA, as amended by HITECH, and their respective implementing regulations, which impose specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities, which include certain healthcare providers, health plans, and healthcare clearinghouses, that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions; and
•the U.S. Foreign Corrupt Practices Act, which prohibits U.S. organizations and their representatives from offering, promising, authorizing or making corrupt payments, gifts or transfers of value to non-U.S. officials, which in many countries, could include interactions with certain healthcare professionals.
The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations.
Although our compliance programs and those of commercial partners, and adherence thereto, may mitigate the risk of violation of and subsequent investigation and prosecution for violations of the laws described above, the risks cannot be eliminated entirely.Ensuring that our current and future business operations and arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal and administrative penalties, including monetary damages, fines, individual imprisonment, disgorgement, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting requirements if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with any of these laws, and/or the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
If regulatory authorities challenge our activities, or those of a commercial partner, under these laws,. any such challenge could have a material adverse effect on our reputation, business, results of operations and financial condition. Any investigation of us or the third parties with whom we contract, including a commercial partner, regardless of the outcome, would be costly and time consuming, and may negatively affect our results of operations and financial condition.
We have no internal sales, marketing or distribution capabilities and our model is to partner with companies with existing sales, marketing and distribution capabilities to commercialize our product candidates, if approved. Any failure by such third parties could negatively impact our business and our ability to develop and market any approved products.
We currently do not intend to directly sell or distribute our products into the market and instead intend to enter into agreements with third parties to market, sell and distribute and provide related support services for any of our product candidates that receive regulatory approval. Failure to timely enter into such agreements could delay commercial launch of any such product. In addition, the terms of such agreements will impact the current and future value of such products to us, including the timing of any potential cash payments, including royalty and milestone payments. This reliance on third parties will also subject us to uncertainties related to these services, including the quality of such services. These third parties may not effectively market, sell or distribute our products. Further, we would depend on these third parties to ensure that the distribution process accords with applicable law and regulations, which include, among other things, compliance with current good documentation practices, the maintenance of records and documentation, and compliance with applicable state laws that govern the licensure of distributors of prescription medical products. Failure to comply with these requirements could result in significant remedial action, including improvement of facilities, suspension of distribution or recall of product. Furthermore, we
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may be unable to replace any commercial partner or distributor with an alternate third party on a commercially reasonable or timely basis, or at all.
Additionally, any failure by us to forecast demand for a finished product, and failure by us to ensure our distributors and marketing partners have appropriate capacity to distribute and sell such quantities of finished product, could result in an interruption in the supply of certain products and a decline in sales of that product.
Should we decide to take a more active role in the commercial distribution of our products, such efforts would require the investment of significant capital, an expansion of our team and additional risk.
The commercial success of product candidates we develop will significantly depend on the label claims that the FDA and comparable regulatory authorities outside the United States approve for the product.