Item 1a. Risk Factors
Summary of Risk Factors
Below is a summary of the
principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that
we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under
the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other
filings with the SEC, before making an investment decision regarding our common stock.
● We must comply with significant government regulations.
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● The price of our common stock may be volatile.
You should carefully consider
the risks described below as well as other information provided to you in this document, including information in the section of this
document entitled “Information Regarding Forward Looking Statements.” If any of the following risks actually occur, the Company’s
business, financial condition or results of operations could be materially adversely affected, the value of the Company’s Common
Stock could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
There is doubt about our ability to continue
as a going concern.
As of December 31, 2024, the
Company had an accumulated deficit of $163,104,000. Losses have principally occurred as a result of the substantial resources required
for research and development of the Company’s product candidates which included the general and administrative expenses associated
with its organization and product development as well as the lack of sources of revenues until such time as the Company’s products
are commercialized. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the 12
months from the issuance date of these financial statements. These financial statements do not include any adjustments to reflect the
possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
from the outcome of these uncertainties. Management intends to pursue additional funding and implement its strategic plan to allow the
opportunity for the Company to continue as a going concern, however, there cannot be any assurance that we will be successful in doing
so. The opinion of our independent registered public accounts on our audited financial statements for the year ended December 31, 2024,
contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
There is no assurance that
we will be successful in raising the additional funds needed to fund our business plan. If we are not able to raise sufficient capital
in the near future, our continued operations will be in jeopardy and we may be forced to cease operations and sell or otherwise transfer
all or substantially all of our remaining assets.
We face intense competition in the markets
targeted by our lead product candidates. Many of our competitors have substantially greater resources than we do, and we expect that all
of our product candidates under development will face intense competition from existing or future drugs.
We expect that our product
candidates under development, if approved, will face intense competition from existing and future drugs marketed by large companies. These
competitors may successfully market products that compete with our products, successfully identify drug candidates or develop products
earlier than we do, or develop products that are more effective, have fewer side effects or cost less than our products, if any.
Additionally, if a competitor
receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for our product candidate
may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by the competitor of patents covering
its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing drugs such as our current product candidates
can extend up to three and one-half years. See the section entitled “Government Regulation.”
These competitive factors
could require us to conduct substantial new research and development activities to establish new product targets, which would be costly
and time-consuming. These activities would adversely affect our ability to commercialize products and achieve revenue and profits.
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Competition and technological change may
make our product candidates and technologies less attractive or obsolete.
We compete with established
pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same indications we are pursuing and that
have greater financial and other resources. Other companies may succeed in developing products earlier than us, obtaining FDA approval
for products more rapidly, or developing products that are more effective than our product candidates. Research and development by others
may render our technology or product candidates obsolete or noncompetitive or result in treatments or cures superior to any therapy we
develop. We face competition from companies that internally develop competing technology or acquire competing technology from universities
and other research institutions. As these companies develop their technologies, they may develop competitive positions that may prevent,
make futile, or limit our product commercialization efforts, which would result in a decrease in the revenue we would be able to derive
from the sale of any products.
There can be no assurance
that any of our product candidates will be accepted by the marketplace as readily as these or other competing treatments. Furthermore,
if our competitors’ products are approved before ours, it could be more difficult for us to obtain approval from the FDA. Even if
our products are successfully developed and approved for use by all governing regulatory bodies, there can be no assurance that physicians
and patients will accept our product(s) as a treatment of choice.
Furthermore, the pharmaceutical
research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith are numerous and significant.
The effects of competition, intellectual property disputes, market acceptance, and FDA regulations preclude us from forecasting revenues
or income with certainty or even confidence.
We
have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We are not currently
profitable, and we may never achieve or sustain profitability.
We were formed in September
2015 and have only a limited operating history and have incurred losses since our formation. We continue to incur significant development
and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses
in each period since our inception, resulting in substantial doubt in our ability to continue as a going concern. We reported a net loss
of $42.1 million and $30.0 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, we
had cash and cash equivalents of $20.9 million and $35.8 million, respectively.
We expect to continue to incur significant losses for the foreseeable
future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our
product candidates and now that we are no longer an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933,
as amended. As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank
Act, as well as rules adopted, and to be adopted, by the SEC and The Nasdaq Stock Market LLC. We also expect that compliance with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and increased disclosure requirements will increase our legal
and financial compliance costs. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and
our ability to generate revenues, if any. The costs of advancing product candidates into each clinical phase tend to increase substantially
over the duration of the clinical development process. Therefore, the total costs to advance any of our product candidates to marketing
approval in even a single jurisdiction will be substantial. Because of the numerous risks and uncertainties associated with pharmaceutical
product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to
begin generating revenue from the commercialization of any products or achieve or maintain profitability.
The costs of advancing product
candidates into each clinical phase tend to increase substantially over the duration of the clinical development process. Therefore, the
total costs to advance any of our product candidates to marketing approval in even a single jurisdiction will be substantial. Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing
or amount of increased expenses or when, or if, we will be able to begin generating revenue from the commercialization of any products
or achieve or maintain profitability.
Furthermore,
our ability to successfully develop, commercialize and license any product candidates and generate product revenue is subject to substantial
additional risks and uncertainties. As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable
future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity
and working capital. The amount of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability
to generate revenues. If we are unable to develop and commercialize one or more product candidates, either alone or through collaborations,
or if revenues from any product that receives marketing approval are insufficient, we will not achieve profitability. Even if we do achieve
profitability, we may not be able to sustain profitability or meet outside expectations for our profitability. If we are unable to achieve
or sustain profitability or to meet outside expectations for our profitability, the value of our common stock will be materially and adversely
affected.
Even if we are able to commercialize any
product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party payor reimbursement
practices or healthcare reform initiatives that could harm our business.
The commercial success of
our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates
will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government
health administration authorities (such as Medicare and Medicaid), private health coverage insurers and other third-party payors. If reimbursement
is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even
if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish and maintain pricing sufficient
to realize a meaningful return on our investment.
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There is significant uncertainty
related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new
drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed.
In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some non-U.S. markets,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result,
we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial
launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale
of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates,
even if our product candidates obtain marketing approval.
We are subject to various government regulations.
The manufacture and sale of
human therapeutic products in the U.S. and foreign jurisdictions are governed by a variety of statutes and regulations. These laws require
approval of manufacturing facilities, controlled research and testing of products and government review and approval of a submission containing
manufacturing, preclinical and clinical data in order to obtain marketing approval based on establishing the safety and efficacy of the
product for each use sought, including adherence to current cGMP during production and storage, and control of marketing activities, including
advertising and labeling.
The products we are currently
developing will require significant development, preclinical and clinical testing and investment of substantial funds prior to its commercialization.
The process of obtaining required approvals can be costly and time-consuming, and there can be no assurance that we develop successfully
this product or any future products, or that this product or any future products we develop will prove to be safe and effective in clinical
trials or receive applicable regulatory approvals. Potential investors and shareholders should be aware of the risks, problems, delays,
expenses and difficulties which we may encounter in view of the extensive regulatory environment which controls our business.
If we are unable to keep up with rapid technological
changes in our field or compete effectively, we will be unable to operate profitably.
We are engaged in a rapidly
changing field. Other products and therapies that will compete directly with the products that we are seeking to develop and market currently
exist or are being developed. Competition from fully integrated pharmaceutical companies and more established biotechnology companies
is intense and is expected to increase. Most of these companies have significantly greater financial resources and expertise in discovery
and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing than us. Smaller companies
may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established
biopharmaceutical or biotechnology companies. Many of these competitors have significant products that have been approved or are in development
and operate large, well-funded discovery and development programs. Academic institutions, governmental agencies and other public and private
research organizations also conduct research, seek patent protection and establish collaborative arrangements for therapeutic products
and clinical development and marketing. These companies and institutions compete with us in recruiting and retaining highly qualified
scientific and management personnel. In addition to the above factors, we will face competition based on product efficacy and safety,
the timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and
patent position. There is no assurance that our competitors will not develop more effective or more affordable products, or achieve earlier
patent protection or product commercialization, than our own.
Other companies may succeed
in developing products earlier than ourselves, obtaining FDA and European Medicines Agency (“EMA”) approvals for such products
more rapidly than we will, or in developing products that are more effective than products we propose to develop. While we will seek to
expand our technological capabilities in order to remain competitive, there can be no assurance that research and development by others
will not render our technology or products obsolete or non-competitive or result in treatments or cures superior to any therapy we develop,
or that any therapy we develop will be preferred to any existing or newly developed technologies.
We may request priority review for our product
candidate in the future. The FDA may not grant priority review for our product candidate. Moreover, even if the FDA designates such product
for priority review, that designation may not lead to a faster regulatory review or approval process and, in any event, would not assure
FDA approval.
We may be eligible for priority
review designation for our product candidate if the FDA determines such product candidate offers major advances in treatment or provides
a treatment where no adequate therapy exists. A priority review designation means that the goal for the FDA is to take action on an application
in six months, rather than the standard review period of ten months. The FDA has broad discretion with respect to whether or not to grant
priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or
status, the FDA may decide not to grant it. Thus, while the FDA has granted priority review to other oncology disease products, our product
candidate, should we determine to seek priority review, may not receive similar designation. Moreover, even if our product candidate is
designated for priority review, such a designation does not necessarily mean a faster regulatory review process or necessarily confer
any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee
approval within an accelerated timeline or thereafter.
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We believe we may in some instances be able
to secure approval from the FDA or comparable non-U.S. regulatory authorities to use accelerated development pathways. If we are unable
to obtain such approval, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate,
which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals.
We anticipate that we may
seek an accelerated approval pathway for our product candidates. Under the accelerated approval provisions in the Federal Food, Drug,
and Cosmetic Act, or FDCA, and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product designed
to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination
that the product has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical
benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given
disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such
as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not
itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect
on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other
clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may
not be a direct therapeutic advantage but is a clinically important improvement from a patient and public health perspective. If granted,
accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval
confirmatory studies to verify and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s
clinical benefit, the FDA may withdraw its approval of the drug.
Prior to seeking such accelerated
approval, we will seek feedback from the FDA and will otherwise evaluate our ability to seek and receive such accelerated approval. There
can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit a New Drug Application,
or NDA, for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance
that after subsequent FDA feedback we will continue to pursue or apply for accelerated approval or any other form of expedited development,
review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval
or under another expedited regulatory designation (e.g., breakthrough therapy designation), there can be no assurance that such submission
or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The
FDA or other non-U.S. authorities could also require us to conduct further studies prior to considering our application or granting approval
of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate
would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product
candidate and could harm our competitive position in the marketplace.
Clinical drug development involves a lengthy
and expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable
to complete the development and commercialization of our product candidate.
Our product candidates are
in early clinical development. Therefore, the risk of failure of our product candidates is high. It is impossible to predict when or if
our product candidates will prove effective or safe in humans or will receive regulatory approval. Before obtaining marketing approval
from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive
clinical trials to demonstrate the safety and efficacy of our product candidate in humans. Clinical testing is expensive, difficult to
design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur
at any stage of testing. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage
of drug development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence
of severe or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements
and determination by the FDA or any comparable non-U.S. regulatory authority that a drug product is not safe or effective for its intended
uses. It is possible that even if our product candidate has a beneficial effect, that effect will not be detected during clinical evaluation
as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical
trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate
that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of, or intolerability
caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in
fact the case.
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Success in early development
does not mean that later development will be successful because, for example, drug candidates in later-stage clinical trials may fail
to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.
The design of a clinical trial
can determine whether its results will support approval of a product; however, flaws in the design of a clinical trial may not become
apparent until the clinical trial is well advanced or completed. In addition, preclinical and clinical data are often susceptible to varying
interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and
clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of
clinical trials for our product candidate warrant marketing approval, the FDA or comparable non-U.S. regulatory authorities may disagree
and may not grant marketing approval of our product candidate.
In some instances, there can
be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous
factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes
in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Any clinical trials that we
may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidate.
The results of
preclinical studies and early-stage clinical trials may not be predictive of future results. Initial success in clinical trials may not
be indicative of results obtained when these trials are completed or in later-stage trials.
The results of preclinical
studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials we commence may not
be predictive of the results of the later-stage clinical trials. In addition, initial success in clinical trials may not be indicative
of results obtained when such trials are completed. In particular, the small number of patients in our planned early clinical trials may
make the results of these trials less predictive of the outcome of later clinical trials. For example, even if successful, the results
of our initial clinical trials for XPro may not be predictive of the results of further clinical trials of this drug candidate or any
of our other drug candidates. Moreover, preclinical and clinical data often are susceptible to varying interpretations and analyses, and
many companies that have believed their drug candidates performed satisfactorily in preclinical studies and clinical trials nonetheless
have failed to obtain marketing approval of their products. Our future clinical trials may not ultimately be successful or support further
clinical development of any of our drug candidates. There is a high failure rate for drug candidates proceeding through clinical trials.
A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even
after achieving encouraging results in earlier studies. Any such setbacks in our clinical development could materially harm our business,
results of operations, financial condition and prospects.
Interim top-line
and preliminary data from our planned 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.
From time to time, we may
publish interim top-line or preliminary data from our planned clinical trials. Interim data from clinical trials that we may complete
are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient
data becomes available. Preliminary or top-line 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, interim and preliminary data should be
viewed with caution until the final data is available. Adverse differences between preliminary or interim data and final data could significantly
harm our reputation and business prospects.
If clinical trials of our product candidates
fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable non-U.S. regulators, we may incur additional costs
or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
We are not permitted to commercialize,
market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable non-U.S.
regulatory authorities, such as the EMA, impose similar restrictions. We may never receive such approvals. We must complete extensive
preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidate in humans before we will be
able to obtain these approvals.
Clinical testing is expensive,
difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted
an NDA to the FDA or similar drug approval filings to comparable non-U.S. regulatory authorities for any product candidate.
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Any inability to successfully
complete preclinical and clinical development could result in additional costs to us and impair our ability to generate revenues from
product sales, regulatory and commercialization milestones and royalties. In addition, if (1) we are required to conduct additional clinical
trials or other testing of our product candidate beyond the trials and testing than we contemplate, (2) we are unable to successfully
complete clinical trials of our product candidate or other testing, (3) the results of these trials or tests are unfavorable, uncertain
or are only modestly favorable, or (4) there are unacceptable safety concerns associated with our product candidate, we, in addition to
incurring additional costs, may:
● be delayed in obtaining marketing approval for our product candidate;
● not obtain marketing approval at all;
● be subject to additional post-marketing testing or other requirements; or
If we experience any of a number of possible
unforeseen events in connection with clinical trials of any of our product candidates, potential marketing approval or commercialization
of that product candidate could be delayed or prevented.
We may experience numerous
unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval of any of our product candidates,
including:
● participating patients may be subject to unacceptable health risks;
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Product development costs
for us will increase if we experience delays in testing or pursuing marketing approvals and we may be required to obtain additional funds
to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical
tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant
preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our
product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize
our product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical
trial delays may ultimately lead to the denial of marketing approval of our product candidates.
If we experience delays or difficulties
in the enrollment of patients in clinical trials, we may not achieve our clinical development on our anticipated timeline, or at all,
and our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate
or continue clinical trials for CORDStrom, INKmune our DN-TNF product platform or any other product candidate if we are unable to locate
and enroll a sufficient number of eligible patients to participate in clinical trials. Patient enrollment is a significant factor in the
timing of clinical trials, and is affected by many factors, including:
● the size and nature of the patient population;
● the severity of the disease under investigation;
● the proximity of patients to clinical sites;
● the eligibility criteria for the trial;
● the design of the clinical trial;
● efforts to facilitate timely enrollment;
● competing clinical trials; and
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Our inability to enroll a
sufficient number of patients for our clinical trials could result in significant delays or may require us to abandon one or more clinical
trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, delay
or halt the development of and approval processes for our product candidates and jeopardize our ability to achieve our clinical development
timeline and goals, including the dates by which we will commence, complete and receive results from clinical trials. Enrollment delays
may also delay or jeopardize our ability to commence sales and generate revenues from our product candidates. Any of the foregoing could
cause the value of the Company to decline and limit our ability to obtain additional financing, if needed.
We will need to obtain FDA approval of any
proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.
A pharmaceutical product cannot
be marketed in the U.S. or other countries until we have completed rigorous and extensive regulatory review processes, including approval
of a brand name. Any brand names we intend to use for our product candidates will require approval from the FDA regardless of whether
we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or the USPTO. The FDA typically conducts a
review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also
object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed
product brand names, we may be required to adopt an alternative brand name for our product candidates. If we adopt an alternative brand
name, we will lose the benefit of our existing trademark applications for such product candidate and may be required to expend significant
additional resources in an effort to identify a suitable product brand name that would qualify under applicable trademark laws, not infringe
the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark
in a timely manner or at all, which would limit our ability to commercialize our product candidates.
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We may fail to comply with regulatory requirements.
Our success will be dependent
upon our ability, and our collaborative partners’ abilities, to maintain compliance with regulatory requirements, including cGMP,
and safety reporting obligations. The failure to comply with applicable regulatory requirements can result in, among other things, fines,
injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve pending applications, recalls or
seizures of products, operating and production restrictions and criminal prosecutions.
Even if our product candidates receive marketing
approval, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical
community necessary for commercial success and the market opportunity for the product candidates may be smaller than we estimate.
We have never commercialized
a product. Even if CORDStrom, INKmune, our DN-TNF product platform (INB03 or XPro), or any other product candidate we develop is approved
by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians,
patients, third-party payors and others in the medical community. For example, physicians are often reluctant to switch their patients
from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often
acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products
or they are required to switch therapies due to lack of reimbursement for existing therapies.
Efforts to educate the medical
community and third-party payors on the benefits of our product candidate may require significant resources and may not be successful.
If our product candidate is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues
and we may not become profitable. The degree of market acceptance of INmune or any other product candidate we develop, if approved for
commercial sale, will depend on a number of factors, including:
● the efficacy and safety of the product;
● the potential advantages of the product compared to alternative treatments;
● the prevalence and severity of any side effects;
● the clinical indications for which the product is approved;
● our ability to offer the product for sale at competitive prices;
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● the strength of sales, marketing and distribution support;
● the approval of other new products for the same indications;
● changes in the standard of care for the targeted indications for the product;
● potential product liability claims.
The potential market opportunities
for our product candidate are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated on many
assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our
internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are
inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions
prove to be inaccurate, the actual markets for our product candidate could be smaller than our estimates of the potential market opportunities.
Even if we obtain regulatory approvals for
CORDStrom, INKmune and/or any product from our DN-TNF platform those approvals and ongoing regulation of our products may limit how we
manufacture and market our products, which could prevent us from realizing the full benefit of our efforts.
If we obtain regulatory approvals,
CORDStrom, INKmune and/or the DN-TNF product platform, and the manufacturing facilities used for its production will be subject to continual
review, including periodic inspections, by the FDA and other United States and foreign regulatory authorities. In addition, regulatory
authorities may impose significant restrictions on the indicated uses or marketing of INKmune or other products that we may develop. These
and other factors may significantly restrict our ability to successfully commercialize INKmune.
We and many of our vendors
and suppliers will be required to comply with current Good Manufacturing Practices, or GMP, which include requirements relating to quality
control and quality assurance as well as to the corresponding maintenance of records and documentation. Furthermore, any manufacturing
facilities will need to be approved by regulatory agencies before these facilities can be used to manufacture, and they will also be subject
to additional regulatory inspections. Any material changes we may make to our manufacturing process may require approval by the FDA and
state or foreign regulatory authorities. Failure to comply with FDA or other applicable regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, partial or total suspension of production or withdrawal of a product from
the market.
We must also report adverse
events that occur when our products are used. The discovery of previously unknown problems with CORDStrom, INKmune, the DN-TNF product
platform or manufacturing facilities used to manufacture CORDStrom, INKmune, or the DN-TNF product platform may result in restrictions
or sanctions on our products or manufacturing facilities, including withdrawal of our products from the market. Regulatory agencies may
also require us to reformulate our products, conduct additional clinical trials, make changes in the labeling of our product or obtain
re-approvals. This may cause our reputation in the marketplace to suffer or subject us to lawsuits, including class action suits.
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If our product candidates receive marketing
approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects
that were not previously identified, our ability to market the drugs could be compromised.
Clinical trials of our product
candidates will be conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it
is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive
effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of our product candidate, we, or others,
discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified,
any of the following adverse events could occur:
● we could be sued and held liable for harm caused to patients;
● the drug may become less competitive; and
● our reputation may suffer.
Any of these events could
have a material and adverse effect on our operations and business.
Any product candidate for which we obtain
marketing approval, along with the manufacturing processes, qualification testing, post-approval clinical data, labeling and promotional
activities for such product, will be subject to continual and additional requirements of the FDA and other regulatory authorities.
These requirements include
submissions of safety and other post-marketing information, reports, registration and listing requirements, good manufacturing practices,
or GMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and recordkeeping.
Even if marketing approval of our product candidate is granted, the approval may be subject to limitations on the indicated uses for which
the product may be marketed or to conditions of approval or contain requirements for costly post-marketing testing and surveillance to
monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of pharmaceutical products
to ensure such products are marketed only for the approved indications and in accordance with the provisions of the approved labeling.
In addition, later discovery
of previously unknown problems with our products, manufacturing processes, or failure to comply with regulatory requirements, may lead
to various adverse results, including:
● restrictions on such products, manufacturers or manufacturing processes;
● restrictions on the labeling or marketing of a product;
● restrictions on product distribution or use;
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● requirements to conduct post-marketing clinical trials;
● warning letters issued by the FDA or other regulatory authorities;
● withdrawal of the products from the market;
● recall of products, fines, restitution or disgorgement of profits or revenue;
● suspension, revocation or withdrawal of marketing approvals;
● refusal to permit the import or export of our products; and
● injunctions or the imposition of civil or criminal penalties.
We currently have no marketing and sales
organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into
agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.
We currently have no sales,
marketing or distribution capabilities and have no experience as a company in marketing products. If we develop internal sales, marketing
and distribution organization, this will require significant capital expenditures, management resources and time, and we would have to
compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide
not to establish internal sales, marketing and distribution capabilities, we expect to pursue collaborative arrangements regarding the
sales, marketing and distribution of our products. However, we may not be able to establish or maintain such collaborative arrangements,
or if we are able to do so, their sales forces may not be successful in marketing our products. Any revenue we receive would depend upon
the efforts of such third parties, which may not be successful. We may have little or no control over the sales, marketing and distribution
efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves.
We also face competition in our search for third parties to assist us with the sales, marketing and distribution efforts of our product
candidates. There can be no assurance that we will be able to develop internal sales, marketing distribution capabilities or establish
or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.
We face substantial competition from other
pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.
The development and commercialization
of new drug products is highly competitive. We expect that we will face significant competition from major pharmaceutical companies, specialty
pharmaceutical companies and biotechnology companies worldwide with respect to our DN-TNF product platform, INKmune and any other of our
product candidates that we may seek to develop or commercialize in the future. Specifically, due to the large unmet medical need, global
demographics and relatively attractive reimbursement dynamics, the oncology market is fiercely competitive and there are a number of large
pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates
for the treatment of cancer. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are
more effective, have fewer or more tolerable side effects or are less costly than any product candidates that we are currently developing
or that we may develop, which could render our product candidates obsolete and noncompetitive.
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We rely on key personnel and, if we are
unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.
We are dependent on certain
members of our management, the loss of services of one or more of whom could materially adversely affect us. In particular, our success
depends to a significant extent upon the continued services of Dr. Raymond J. Tesi, our President and CEO. Dr. Tesi has overseen INmune
Bio since inception and provides leadership for our growth and operations strategy as well as being an inventor of our patents. Although
we have entered into an employment agreement with Dr. Tesi, if he were to nevertheless terminate his employment with us, the loss of the
services of Dr. Tesi, would have a material adverse effect on our growth, revenues, and prospective business. We are also highly dependent
on the other principal members of our management and scientific team. We are not aware of any present intention of any of our key personnel
to leave our company or to retire. The loss of any of our key personnel, or the inability to attract and retain qualified personnel, may
significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely affect
our business, financial condition and results of operations.
Our ability to manage growth
effectively will require us to continue to implement and improve our management systems and to recruit and train new employees. There
can be no assurance that we will be able to successfully attract and retain skilled and experienced personnel.
Product liability lawsuits against us could
divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
We face an inherent risk of
product liability claims as a result of the clinical testing of our product candidate despite obtaining appropriate informed consent from
our clinical trial participants. We will face an even greater risk if we commercially sell any product that we may develop. For example,
we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing,
marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure
to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under
state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities or be required to limit commercialization of our product candidate. Regardless of the merits or eventual outcome, liability
claims may result in:
● decreased demand for our product candidate or products that we may develop;
● injury to our reputation and significant negative media attention;
● withdrawal of clinical trial participants;
● significant costs to defend resulting litigation;
● substantial monetary awards to trial participants or patients;
● loss of revenue;
● reduced resources of our management to pursue our business strategy; and
● the inability to commercialize any products that we may develop.
Although we plan to maintain
general liability insurance, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability
litigation or other proceeding, even if resolved in our favor, could be substantial. In addition, insurance coverage is becoming increasingly
expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against
potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidate,
which could adversely affect our business, financial condition, results of operations and prospects.
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We will need to increase the size and capabilities
of our organization, and we may experience difficulties in managing this growth.
To execute our business plan,
we will need to rapidly add other management, accounting, regulatory, manufacturing and scientific staff. We currently have 13 full-time
employees in the United States, 9 full-time employees in the United Kingdom and retain the services of additional personnel on an independent
contractor basis. We will need to attract, retain and motivate a significant number of new additional managerial, operational, sales,
marketing, financial, and other personnel, as well as highly skilled scientific and medical personnel, and to expand our capabilities
to successfully pursue our research, development, manufacturing and commercialization efforts and secure collaborations to market and
distribute our products. This growth may strain our existing managerial, operational, financial and other resources. We also intend to
add personnel in our research and development and manufacturing departments as we expand our clinical trial and research capabilities.
Any inability to attract and retain qualified employees to enable our planned growth and establish additional capabilities or our failure
to manage our growth effectively could delay or curtail our product development and commercialization efforts and harm our business.
We are subject to a multitude of manufacturing risks, any of which
could substantially increase our costs and limit supply of our drug candidates.
The process of manufacturing
our drug candidates is complex, highly regulated and subject to several risks. For example, the process of manufacturing our drug candidates
is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or
vendor or operator error. Even minor deviations from normal manufacturing processes for any of our drug candidates could result in reduced
production yields, product defects and other supply disruptions. If microbial, viral, or other contaminations are discovered in our drug
candidates or in the manufacturing facilities in which our drug candidates are made, such manufacturing facilities may need to be closed
for an extended period of time to investigate and remedy the contamination. In addition, the manufacturing facilities in which our drug
candidates are made could be adversely affected by equipment failures, labor shortages, natural disasters, epidemics, pandemics, power
failures and numerous other factors.
In addition, any adverse developments
affecting manufacturing operations of our drug candidates may result in shipment delays, inventory shortages, lot failures, withdrawals
or recalls, or other interruptions in the supply of our drug candidates. We also may need to take inventory write-offs and incur other
charges and expenses for drug candidates that fail to meet specifications, undertake costly remediation efforts, or seek costlier manufacturing
alternatives.
We and our contract manufacturers are subject to significant regulation
with respect to manufacturing our drug candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements.
All entities involved in the
preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our drug candidates,
are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical
trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation
and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control
of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our drug
candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation
in support of an NDA or marketing authorization application, or MAA, on a timely basis and must adhere to GLP and cGMP regulations enforced
by the FDA, EMA or comparable foreign authorities through their facilities inspection program. Some of our contract manufacturers may
not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority
approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection
for compliance with the applicable regulations as a condition of regulatory approval of our drug candidates or any of our other potential
products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation
of our drug candidates or any of our other potential products or the associated quality systems for compliance with the regulations applicable
to the activities being conducted. Although we oversee the contract manufacturers, we cannot control the manufacturing process of, and
are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities
do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until
any violations are corrected to the satisfaction of the regulatory authority, if ever.
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The regulatory authorities
also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If
any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications
or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial
measures that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension
of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us
or third parties with whom we contract could materially harm our business, financial condition and results of operations.
If we or any of our third-party manufacturers fail
to maintain regulatory compliance, the FDA, EMA or comparable foreign authorities can impose regulatory sanctions including, among other
things, refusal to approve a pending application for a drug candidate, withdrawal of an approval, or suspension of production. As a result,
our business, financial condition and results of operations may be materially and adversely affected.
Additionally, if supply from one manufacturer is
interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign
regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new
manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in
a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs
and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our drug
candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers
capable of production at a substantially equivalent cost, our clinical trials may be delayed, or we could lose potential revenue.
If we or our third-party manufacturers use
hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.
Our research and development
activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by us and any
third-party manufacturers. We and such manufacturers will be subject to federal, state and local laws and regulations in the United States
governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we will seek to ensure that
our procedures for using, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate
the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we
may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations.
In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources.
We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws
and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts,
which could harm our business, prospects, financial condition or results of operations.
We plan to rely on third parties to conduct
clinical trials for our product candidates. Any failure by a third party to meet its obligations with respect to the clinical development
of our product candidate may delay or impair our ability to obtain regulatory approval for our product candidates.
We plan to rely on contract
research organizations to conduct clinical trials relating to our product candidates. Our reliance on third parties to conduct clinical
trials could, depending on the actions of such third parties, jeopardize the validity of the clinical data generated and adversely affect
our ability to obtain marketing approval from the FDA or other applicable regulatory authorities.
Such clinical trial arrangements
will provide us with information rights with respect to the clinical data, including access to and the ability to use and reference the