ITEM 1A. RISK FACTORS
Our future operating results could differ materially from the results
described in this annual report due to the risks and uncertainties described below. You should consider carefully the following information
about risks in evaluating our business. If any of the following risks actually occur, our business, financial condition, results of operations
and future growth prospects would likely be materially and adversely affected. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may affect our business, financial condition, results of operations and future growth
prospects. If any of these risks actually materialize, the market price of our securities would likely decline. In addition, we cannot
assure investors that our assumptions and expectations will prove to be correct. Important factors could cause our actual results to differ
materially from those indicated or implied by forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”
for a discussion of some of the forward-looking statements that are qualified by these risk factors. Factors that could cause or contribute
to such differences include those factors discussed below.
Summary Risk Factors
The following summarizes key
risks and uncertainties that could materially adversely affect us. You should read this summary together with the more detailed description
of each risk factor contained below.
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Risks Related to Our Financial Position and
Need for Additional Capital
We have a limited operating history and
have no products or services approved for commercial sale, which may make it difficult for you to evaluate our current business and predict
our future success and viability.
We have a limited operating
history upon which you can evaluate our business and prospects. We have no products or services approved for commercial sale and have
not generated any material revenue from product sales. To date, we have devoted substantially all of our resources and efforts to organizing
and staffing our company, business planning, and product candidate development. We have not yet demonstrated our ability to obtain marketing
approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing
activities necessary for successful product commercialization. As a result, it may be more difficult for you to accurately predict our
future success or viability than it could be if we had a longer operating history.
Accordingly, you should consider our prospects in light of the costs,
uncertainties, delays and difficulties frequently encountered by companies in the early stages of clinical development. Potential investors
should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential
investors should consider that we cannot assure you that we will be able to, among other things:
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● attract and retain an experienced management and advisory team;
If we cannot successfully
execute any one of the foregoing, our business may fail and your investment will be adversely affected.
We have a history of losses and may not
be able to achieve profitability going forward.
We are a clinical-stage biotechnology company with a limited operating
history and have incurred losses since our formation. We incurred net losses of approximately $20.4 million and $13.9 million for the
years ended December 31, 2025, and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of approximately $70.0 million.
We have not commercialized any product candidates and have never generated revenue from the commercialization of any product. To date,
we have devoted most of our financial resources to research and development, including our preclinical and clinical work, general and
administrative expenses, as well as to intellectual property.
We expect to incur significant additional operating losses for the
next several years, at least, as we advance our product candidates through preclinical and non-clinical development, complete clinical
trials, seek regulatory approval and commercialization, if any our product candidates are approved. 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. Our expenses will also increase substantially if and as we:
● maintain, expand and protect our intellectual property portfolio;
● hire additional clinical, scientific and commercial personnel;
● acquire or in-license or invent other product candidates or technologies.
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 described
below under “–Risks Related to Development, Clinical Testing, Manufacturing, Regulatory Approval and Commercialization.”
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 and Warrants will be materially and adversely affected.
As of December 31, 2025, our
cash and cash equivalents were approximately $55.2 million. We expect our existing cash and cash equivalents to enable us to fund our
operating expenses and capital expenditure requirements through at least the first half of 2028. This estimate is based on assumptions
that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could
cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because
of circumstances beyond our control. Because the length of time and activities associated with successful development of our product candidates
is highly uncertain, we are unable to estimate the actual funds we will require for development and any marketing and commercialization
activities.
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We will require additional capital to fund
our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of
our drugs.
Our operations have consumed
substantial amounts of cash since inception. We expect to continue to spend substantial amounts to advance the clinical development of
and launch and commercialize our product candidates if we receive regulatory approval. We will require additional capital for the further
development and potential commercialization of our product candidates and may also need to raise additional funds sooner to pursue a more
accelerated development of our product candidates, if available to us. If we are unable to raise capital when needed or on attractive
terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
At December 31, 2025, we had cash and cash equivalents of approximately
$55.2 million. We have incurred continuing losses including a net loss of $20.4 million for the year ended December 31, 2025. Our future
funding requirements, both near and long-term, will depend on many factors, including, but not limited to the:
● effects of competing technological and market developments;
● cost associated with being a public company.
If we are unable to expand
our operations or otherwise capitalize on our business opportunities due to a lack of capital, our ability to become profitable will be
compromised.
Raising additional capital may cause dilution
to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever,
as we can generate substantial revenue, we may finance our cash needs through a combination of equity offerings, debt financings, marketing
and distribution arrangements, collaborations, strategic alliances and licensing arrangements, government or private party grants, or
other sources. We do not currently have any committed external source of funds. In addition, we may seek additional capital due to favorable
market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
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To the extent that we raise
additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of
these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing
and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required
to relinquish valuable rights to our technologies, intellectual property, future revenue streams or product candidates or grant licenses
on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we
may be required to delay, limit, reduce or terminate product candidate development or future commercialization efforts.
Changes in U.S. tax law may materially adversely
affect our financial condition, results of operations and cash flows.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security
Act, or the CARES Act, was signed into law to address the COVID-19 crisis. The CARES Act is an approximately $2 trillion emergency economic
stimulus package that includes numerous U.S. federal income tax provisions, including the modification of: (i) net operating loss
rules (as discussed below), (ii) the alternative minimum tax refund and (iii) business interest deduction limitations under
Section 163(j) of the U.S. Internal Revenue Code of 1986, as amended, or the Code.
On December 22, 2017, President
Trump signed into law federal tax legislation commonly referred to as the TCJA (defined below), which also significantly changed the U.S.
federal income taxation of U.S. corporations. TCJA has been, and may continue to be, subject to amendments and technical corrections,
as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service, or the IRS, any of which could lessen
or increase certain adverse impacts of TCJA.
The Tax Cuts and Jobs Act (“TCJA”) (P.L. 115-97) modified
the section 174 rules and beginning in 2022, taxpayers may no longer currently deduct research and development expenditures but instead
must amortize specified research and development expenditures ratably over five years (or 15 years for foreign expenditures).
On August 16, 2022, the Inflation
Reduction Act (“IRA”) was signed into law and, among other things, imposed a 1% U.S. federal excise tax on certain stock repurchases
by publicly traded companies. The 1% excise tax generally applies to any acquisition by the publicly traded company (or certain of its
affiliates) of stock of the publicly traded corporation in exchange for money or other property (other than stock of the company itself),
subject to a de minimis exception. Thus, the excise tax could apply to certain transactions that are not traditional stock repurchases.
The One Big Beautiful Bill
Act, or the OBBBA, was signed into law on July 4, 2025, and includes the permanent extension of certain expiring provisions of the TCJA,
modifications to the international tax framework, changes to the business interest deduction limitation, the restoration of expensing
for domestic research and development expenditures (in contrast to the continued capitalization and amortization of foreign research and
development expenditures over 15 years), and changes to the bonus depreciation deduction rules. The OBBBA has multiple effective dates,
with certain provisions effective in 2025 and others implemented through 2027. We continue to examine the impact this tax reform legislation
may have, including the OBBBA, on our business.
Regulatory guidance under
the TCJA, the CARES Act, the IRA, the OBBBA, and such additional legislation is and continues to be forthcoming, and such guidance could
ultimately increase or lessen the impact of these laws on our business and financial condition.
While some of these U.S. federal income tax changes may adversely affect
us in one or more reporting periods and prospectively, other changes may be beneficial on a going-forward basis. In addition, it is uncertain
if and to what extent various states will conform to the TCJA, the CARES Act, the IRA, the OBBBA, and additional tax legislation. We continue
to work with our tax advisors and auditors to determine the full impact of the TCJA, the CARES Act, the IRA and the OBBBA on us. We urge
our investors to consult with their legal and tax advisors with respect to the TCJA, the CARES Act, the IRA and the OBBBA and the potential
tax consequences of investing in our Common Stock and Warrants.
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Our ability to use our net operating losses
and other tax attributes may be limited.
As of December 31, 2025, we
had approximately $11.0 million of federal and $34.6 million of state net operating loss carryforwards (“NOLs”), available
to offset future taxable income. Under current law, our federal NOLs generated in taxable years beginning after December 31, 2017, may
be carried forward indefinitely, but the deductibility of such federal NOLs is limited to 80% of its taxable income annually for tax years
beginning after December 31, 2020. Under Sections 382 and 383 of the Code, a corporation that undergoes an “ownership change,”
generally defined as a greater than 50% change by value in its equity ownership over a three-year period is subject to limitations on
its ability to utilize its pre-change NOLs and other tax attributes such as research tax credits to offset future taxable income. We have
not performed an analysis to determine whether our past issuances of stock and other changes in our stock ownership may have resulted
in other ownership changes. If it is determined that we have in the past experienced other ownership changes, or if we undergo one or
more ownership changes as a result of future transactions in our stock, which may be outside our control, then our ability to utilize
NOLs and other pre-change tax attributes could be further limited by Sections 382 and 383 of the Code, and certain of our NOLs and other
pre-change tax attributes may expire unused. As a result, if or when we earn net taxable income, our ability to use our pre-change NOLs
or other tax attributes to offset such taxable income or otherwise reduce any liability for income taxes may be subject to limitations,
which could adversely affect our future cash flows. Similar provisions of state tax law may also apply to limit our use of accumulated
state tax attributes.
Unfavorable global economic conditions and
adverse developments with respect to financial institutions and associated liquidity risk could adversely affect our business, financial
condition and stock price.
The global credit and financial markets are currently experiencing,
and have from time-to-time experienced, extreme volatility and disruptions, including severely diminished liquidity and credit availability,
rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and
uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated
impact of military conflict, including the ongoing conflict between Russia and Ukraine, the ongoing conflicts in the Middle East, terrorism
or other geopolitical events. Sanctions imposed by the United States and other countries in response to such conflicts, including the
one in Ukraine, may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected
countries or others could exacerbate market and economic instability.
Actual events involving limited
liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or
other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events
of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Future adverse developments
with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages,
impair our ability to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance
that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general
business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued
unpredictable and unstable market conditions. If the equity and credit markets deteriorate, or if adverse developments are experienced
by financial institutions, it may cause short-term liquidity risk and make any necessary debt or equity financing more difficult, more
costly, more onerous with respect to financial and operating covenants and more dilutive. Failure to secure any necessary financing in
a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price
and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service
providers, financial institutions, manufacturers, and other partners may be adversely affected by the foregoing risks, which could directly
affect our ability to attain our operating goals on schedule and on budget.
In addition, any further deterioration
in the macroeconomic economy or financial services industry, could lead to losses or defaults by our suppliers, which in turn, could have
a material adverse effect on our current and/or projected business operations and results of operations and financial condition.
If our labor costs continue to rise, including
due to shortages, changes in certification requirements and/or higher than normal turnover rates in skilled clinical personnel; or currently
pending or future governmental laws, rules, regulations or initiatives impose additional requirements or limitations on our operations
or profitability; or, if we are unable to attract and retain key leadership talent, we may experience disruptions in our business operations
and increases in operating expenses, among other things, which could have a material adverse effect on our business, results of operations,
financial condition and cash flows.
We have incurred and expect
to continue to incur increased labor costs and experience staffing challenges. Furthermore, changes in certification requirements can
impact our ability to maintain sufficient staff levels, including to the extent our teammates are not able to meet new requirements, among
other things. In addition, if we experience a higher-than-normal turnover rate for our skilled clinical personnel, our operations and
treatment growth may be negatively impacted, which could adversely affect our business, results of operations, financial condition and
cash flows. We also face competition in attracting and retaining talent for key leadership positions. If we are unable to attract and
retain qualified individuals, we may experience disruptions in our business operations, including, without limitation, our ability to
achieve strategic goals, which could have a material adverse effect on our business, results of operations, financial condition and cash
flows.
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Risks Related to Development, Clinical Testing,
Manufacturing, Regulatory Approval and Commercialization
Clinical trials are expensive, time-consuming
and difficult to design and implement, and involve an uncertain outcome.
Clinical testing is expensive
and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial
process. Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, our product
candidates may not have favorable results in later preclinical and clinical studies or receive regulatory approval. We may experience
delays in initiating and completing any clinical trials that we intend to conduct, and we do not know whether planned clinical trials
will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, or at all. Clinical trials can be delayed
for a variety of reasons, including delays related to:
● obtaining regulatory approval to commence a trial;
● having patients complete a trial or return for post-treatment follow-up;
● clinical sites deviating from trial protocol or dropping out of a trial;
● addressing patient safety concerns that arise during the course of a trial;
● adding a sufficient number of clinical trial sites; or
We could also encounter delays
if a clinical trial is suspended or terminated by us, the IRBs or IECs of the institutions in which such trials are being conducted, the
Data Safety Monitoring Board (“DSMB”) for such trial or the FDA or other regulatory authorities. Such authorities may impose
such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from
using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have
agreements governing their committed activities, we have limited influence over their actual performance, as described below in “–Risks
Related to Our Dependence on Third Parties.”
Furthermore, we conduct clinical
trials in various countries outside the United States, including Bulgaria, Romania, Australia and South Korea. The FDA may not accept
data from these trials if they do not comply with U.S. regulatory requirements, including GCP standards. Differences in regulatory standards,
clinical practices, and patient populations between the U.S. and foreign countries may result in the FDA requiring additional data or
information, which could delay our approval process. Moreover, the FDA may conduct inspections of foreign clinical trial sites, and any
findings of non-compliance could compromise the acceptance of our data to support our commercialization efforts. See the risk factor below,
entitled “–We may conduct certain of our clinical trials for our product candidates outside of the U.S. which, among other
risks, exposes us to the possibility that the FDA and other comparable foreign regulatory authorities may not accept data from such trials,
in which case our development plans will be delayed, which could materially harm our business.”
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Our industry is subject to extensive regulatory
obligations and policies that may be subject to change, including due to judicial challenges.
The U.S. pharmaceutical industry
is highly regulated and subject to frequent and substantial changes, including as a result of new judicial or governmental actions. Legislative
and regulatory agendas as they relate to the pharmaceutical industry are currently uncertain. Changes in the regulatory approval process,
or substantial reductions in the personnel who oversee that process, could affect our ability to obtain regulatory approval for our product
candidates or the timeline in which we can obtain that approval. We and/or our current and future third-party collaborators may rely
on government programs or agencies, such as the National Institutes for Health (“NIH”), as a source of grant funding for scientific
research relevant to our product candidates. Funding from government agencies such as the NIH can fluctuate and is subject to the political
process, which is often unpredictable. Reductions in NIH grants to us or our third-party collaborators may adversely impact our ability
to develop our existing product candidates and our ability to identify new product candidates. In addition, on June 28, 2024, the
U.S. Supreme Court issued an opinion holding that courts reviewing agency action pursuant to the Administrative Procedure Act “must
exercise their independent judgment” and “may not defer to an agency interpretation of the law simply because a statute is
ambiguous.” The decision could have a significant impact on how lower courts evaluate challenges to agency interpretations of law,
including those by the FDA and other agencies with significant oversight of the pharmaceutical industry. The new framework may increase
both the frequency of such challenges and their odds of success by eliminating one way in which the government previously prevailed in
such cases. As a result, significant regulatory policies could be subject to increased litigation and judicial scrutiny. We cannot predict
how other future federal or state legislative or administrative changes relating to healthcare reform or the pharmaceutical industry,
or the regulatory agencies that oversee the pharmaceutical industry, will affect our business.
Our choice of product candidates
and our development plans for our product candidates are subject to change based on a variety of factors,
some of which may be out of our control, and if we abandon development of a product candidate we may not be able to develop
or acquire a replacement product candidate.
We have determined and may in the future determine to abandon the development
of one or more of our product candidates, or we may change the prioritization of the development of certain product candidates, or we
may select or acquire and prioritize the development of new product candidates. Our choice and prioritization of product candidates for
development have been and will in the future be influenced by a variety of factors, including but not limited to:
Furthermore, given the nature
of our business, the biopharmaceutical industry in general and the uncertainty and costs associated with developing and commercializing
our product candidates within a complicated and costly regulatory environment, our goals, plans and assumptions with respect to our product
candidates may evolve or change. For example, we may not continue to emphasize, focus our research and development efforts on or direct
resources to certain of our product candidates, and we may shift our focus and resources to our other current or future product candidates.
Any such change in our business strategy could harm our business, cause uncertainty or confusion in the marketplace or harm the clinical
prospects of our product candidates.
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The regulatory approval processes of the
FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain
regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain
approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical
trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies,
regulations or the type and amount of clinical data necessary to gain regulatory approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible
that we will never obtain regulatory approval for our product candidates. We are not permitted to market any of our product candidates
in the United States until we receive regulatory approval of an NDA from the FDA. Our product candidates could fail to receive regulatory
approval for many reasons, including the following:
Prior to obtaining approval
to commercialize a product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective
for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe
the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the
FDA and other regulatory authorities, or we may decide to abandon the development or commercialization of a product
candidate altogether.
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The FDA or any foreign regulatory
bodies can delay, limit or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing
or abandon a program for many reasons, including:
Of the large number of drugs
in development, only a small percentage successfully complete the regulatory approval processes and are commercialized. This lengthy approval
process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to
market our product candidates, which would significantly harm our business, results of operations and prospects.
In addition, the FDA or the
applicable foreign regulatory agency also may approve a product candidate for a more limited indication or patient population than we
originally requested, and the FDA or applicable foreign regulatory agency may approve a product candidate with a label that does not include
the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios
could materially harm the commercial prospects for our product candidates.
Moreover, the development
of our product candidates may be delayed by other events beyond our control. For example, actions by the federal administration to limit
federal agency budgets or personnel, may result in reductions to the FDA’s (or other agencies with which we interact) budget, employees,
and operations, which may lead to slower response times and longer review periods, potentially affecting our ability to progress
development of our product candidates or obtain regulatory approval for our product candidates. See the below risk factor entitled, “–Reductions
in staffing and funding at the FDA and other federal agencies could cause delays in the development and approval of our products.”
Changes in funding for the FDA, the SEC,
other government agencies or comparable foreign regulatory authorities and other disruptions caused by leadership changes, staffing cuts
or other staffing shortages, along with uncertainty regarding the potential for new initiatives, laws, regulations, policies and guidance
affecting our product candidates or other aspects of our business, could hinder their ability to hire and retain key leadership and other
personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent
these agencies or authorities from performing normal business functions on which the operations of our business may rely, which could
negatively impact our business.
The ability of the FDA or
comparable foreign regulatory authorities to review and approve new products, to provide feedback on clinical trials and development programs,
to meet with sponsors and to otherwise review regulatory submissions or take action with respect to other regulatory matters can be affected
by a variety of factors, including government budget and funding levels, leadership changes and the ability to hire and retain key leadership
and other personnel, the sufficiency of user fees, the availability of personnel and other resources, and statutory, regulatory, and policy
changes that affect the FDA’s or comparable foreign regulatory authorities’ ability to perform routine functions. Average
review times at the FDA and comparable foreign regulatory authorities have fluctuated in recent years as a result. In addition, government
funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development
activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA, other government agencies or comparable foreign
regulatory authorities may also slow the time necessary for new products to be reviewed or approved by necessary government agencies,
which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times –
including the most recent shutdown, which began October 1, 2025, and ended November 12, 2025 – and certain regulatory agencies,
such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. In addition, there have recently been
terminations of large numbers of federal employees at various federal agencies, including the FDA. Changes and cuts in FDA staffing could
result in delays in the FDA’s responsiveness or in its ability to review IND submissions or applications, issue regulations or guidance,
or implement or enforce regulatory requirements in a timely fashion, or at all. A prolonged government shutdown and/or employee terminations
or resignations could significantly impact the ability of the FDA or other federal agencies to timely review and process our regulatory
submissions, which could have a material adverse effect on our business. Further, future government shutdowns and/or employee terminations
or resignations at the SEC could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize
and continue our operations.
There is substantial uncertainty
as to whether and how the current administration will seek to modify or revise the requirements and policies of the FDA and other regulatory
agencies with jurisdiction over our product candidates and any products for which we obtain approval, if any. This uncertainty could present
new challenges as we navigate development and approval of our product candidates. Some of these efforts have manifested to date in the
form of personnel cuts and measures that could impact the FDA’s ability to hire and retain key personnel, which could result in
delays or limitations on our ability to obtain guidance from the FDA on our product candidates in development and obtain the requisite
regulatory approvals in the future. There is uncertainty as to whether we will be materially and negatively impacted by governmental orders,
regulations, policies or guidance, or disruptions to the normal operations of government agencies.
Approval may be delayed or denied because we cannot satisfy the FDA’s
Chemistry, Manufacturing and Control Requirements.
Formulation and manufacturing of biologic products such as ours is
complex and expensive. Our BLAs must include information about the chemistry and physical characteristics of our products, and we must
demonstrate that we have a reliable process for manufacturing the products in commercial quantities in accordance with the FDA’s
cGMP requirements. The manufacturing process must consistently produce quality batches of the biologic, and, among other things, the manufacturer
must develop methods for testing the identity, strength, quality and purity of the final product. In addition, appropriate packaging must
be selected and tested, and stability studies must be conducted to demonstrate the effectiveness of the packaging and that the compound
does not undergo unacceptable deterioration over its shelf life. If we are unable to successfully complete any of these complex steps,
approval of our biologic may be delayed or denied.
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We may encounter substantial delays in our
planned clinical trials or may not be able to conduct or complete our clinical trials on the timelines we expect, if at all.
Our planned clinical trials are expected to be expensive, time consuming,
and subject to uncertainty. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at
all. We are currently conducting the FIH Phase 1 Advanced Cancer Study at four clinical sites in the U.S. and three sites in Eastern Europe
and expect to complete the FIH Phase 1 Advanced Cancer Study in 2028. We are currently conducting the Phase 1/1b Adult NF1 Trial at five
clinical sites in the U.S., Australia and South Korea and expect to complete the Phase 1/1b Adult NF1 Trial in 2028. We cannot be sure
that submission of an IND or, in the case of the EMA, a CTA, will result in the FDA or EMA allowing future clinical trials to begin in
a timely manner, if at all. Moreover, even if additional trials begin, issues may arise that could suspend or terminate such clinical
trials, which may also be true for our current clinical trials. A failure of one or more clinical trials can occur at any stage of testing,
and our current or future clinical trials may not be successful. Events that may prevent successful or timely initiation or completion
of clinical trials include:
● delays in reaching a consensus with regulatory agencies on study design;
● delays or difficulties resulting from public health crises;
● difficulty collaborating with patient groups and investigators;
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Any inability to successfully
initiate or complete current or future clinical trials could result in additional costs to us or impair our ability to generate revenue.
In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct
additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays could also shorten any periods
during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair
our ability to successfully commercialize our product candidates and may harm our business and results of operations.
We could also encounter delays if a clinical trial is suspended or
terminated by us, by the data safety monitoring board for such trial or by the FDA, EMA or any other regulatory authority, or if the IRBs
or IECs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators
and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure
to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations
or trial site by the FDA, EMA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues
or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative
actions or lack of adequate funding to continue the clinical trial.
We conduct certain of our clinical trials
for our product candidates outside of the U.S. which, among other risks, exposes us to the possibility that the FDA and other comparable
foreign regulatory authorities may not accept data from such trials, in which case our development plans will be delayed, which could
materially harm our business.
We are currently
conducting clinical trials in Bulgaria, Romania, Australia and South Korea and we may continue to conduct future clinical trials
outside of the United States. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in
the U.S., the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S.
population and U.S. medical practice. Therefore, later stage clinical trials designed to determine that our product candidates are
safe and effective for the purposes of FDA approval will be conducted in part in the U.S. For studies that are conducted only at
sites outside of the U.S. and not subject to an IND, the FDA requires the clinical trial to have been conducted in accordance with
GCPs and the FDA must be able to validate the data from the clinical trial through an on-site inspection if it deems such inspection
necessary. For such studies not subject to an IND, the FDA generally does not provide advance comment on the clinical protocols for
the studies, and therefore there is an additional potential risk that the FDA could determine that the study design or protocol for
a non-U.S. clinical trial was inadequate, which could require us to conduct additional clinical trials. There can be no assurance
the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept data from our
clinical trials of our product candidates conducted outside of the United States, it would likely result in the need for additional
clinical trials, which would be costly and time consuming and delay or permanently halt our development of our product
candidates.
Conducting clinical trials
outside the United States also exposes us to additional risks including risks associated with:
● additional foreign regulatory requirements;
● foreign exchange fluctuations;
● cultural differences in medical practice and clinical research; and
● diminished protection of intellectual property in some countries.
By extension, clinical trials
that are predominantly conducted in the U.S. or primarily based on feedback from the FDA may not result in sufficiently diverse patient
populations to warrant approval in other countries (for example, Japan) or those other comparable foreign regulatory authorities may have
differences of opinion on appropriateness of trial design or differences in interpretation of some data. In those situations, approvals
in other countries outside the U.S. may be delayed or never approved, which would materially detract from the commercial success of any
impacted product candidates.
38
Our preclinical programs may experience
delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize
these programs on a timely basis or at all.
In order to obtain FDA or other regulatory authority approval to market
a new biological product we must demonstrate proof of safety, purity, potency, and efficacy in humans. To meet these requirements, we
will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we
must complete extensive preclinical testing and studies that support our planned INDs in the United States. We cannot be certain
of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA will accept our proposed clinical
programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As
a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines
we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory
authorities allowing clinical trials to begin.
Conducting preclinical testing
is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty
of the program, and often can be several years or more per program. Any delays in preclinical testing and studies conducted by us or potential
future partners may cause us to incur additional operating expenses. The commencement and rate of completion of preclinical studies and
clinical trials for a product candidate may be delayed by many factors, including, for example:
● delays in reaching a consensus with regulatory agencies on study design; and
Moreover, because
standards for preclinical assessment are evolving and may change rapidly, even if we reach an agreement with the FDA on a pre-IND
proposal, the FDA may not accept the IND submission as presented, in which case patient enrollment would be placed on partial or
complete hold and treatment of enrolled patients could be discontinued while the product candidate is re-evaluated. Even if clinical
trials do begin for our preclinical programs, our clinical trials or development efforts may not be successful.
We may attempt to secure approval from the
FDA or comparable foreign regulatory authorities through an expedited review program, and if we are unable to do so, then we could face
increased expense to obtain, and delays in the receipt of necessary marketing approvals.
We may in the future seek
approval for one or more of our future product candidates under one of the FDA’s expedited review programs for serious conditions.
These programs are available to sponsors of therapies that address an unmet medical need to treat a serious condition. The qualifying
criteria and requirements vary for each expedited program. Prior to seeking review under one of these expedited programs for any of our
future product candidates, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive marketing
approval through an expedited review program.
There can be no assurance
that, after our evaluation of the FDA’s feedback and other factors, we will decide to pursue one or more of these expedited review
programs. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue one or more of these expedited
programs, even if we initially decide to do so. Furthermore, FDA could decide not to grant our request to use one or more of the expedited
review programs for a product candidate, even if the FDA’s initial feedback is that the product candidate would qualify for such
program(s). Moreover, FDA can decide to stop reviewing a product candidate under one or more of these expedited review programs if, for
example, the conditions that warranted expedited review no longer apply to that product candidate.
Some of these expedited programs
(e.g., accelerated approval) also require post-marketing clinical trials to be completed and, if any such required trial fails, the FDA
could withdraw the approval of the product. If one of our future product candidates does not qualify for any expedited review program,
then this could result in a longer time period to approval and commercialization of such product candidate, could increase the cost of
development of such product candidate, and could harm our competitive position in the marketplace.
39
We may seek Orphan Drug Designation for
our product candidates, and we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation,
including the potential for market exclusivity.
We have received Orphan Drug
Designation for our PAS-004 product candidate for the treatment of NF1. Regulatory authorities in some jurisdictions, including the
United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the
FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as
a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in
the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United
States. In the United States, Orphan Drug Designation may entitle a party to financial incentives such as grant funding towards clinical
trial costs, tax advantages and user-fee waivers.
Similarly, in Europe, the
European Commission grants Orphan Drug Designation after receiving the opinion of the EMA Committee for Orphan Medicinal Products on an
Orphan Drug Designation application. Orphan Drug Designation is intended to promote the development of drugs that are intended for the
diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons
in Europe and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant
benefit to those affected). Additionally, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening,
seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in Europe
would be sufficient to justify the necessary investment in developing the drug. In Europe, Orphan Drug Designation may entitle a party
to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential
fee reductions depending on the status of the sponsor.
Generally, if a drug with
an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the
drug is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application
for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven years in the United
States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for
Orphan Drug Designation or if the drug is sufficiently profitable such that market exclusivity is no longer justified.
Even if we obtain orphan drug
exclusivity for our product candidates, that exclusivity may not effectively protect those product candidates from competition because
different therapies can be approved for the same condition and the same therapies can be approved for different conditions but used off-label.
Even after an orphan drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that
the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In
addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA
later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity
of the drug to meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development
time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek
Orphan Drug Designation for applicable indications for our product candidates, we may never receive such designations. Even if we do receive
such designations, there is no guarantee that we will enjoy the benefits of those designations.
40
If any of our product candidates are approved
for marketing and commercialization and we have not developed or secured third-party marketing, sales and distribution capabilities, we
will be unable to successfully commercialize such products and may not be able to generate product revenue.
We currently have no sales,
marketing or distribution organizational experience or capabilities. We will need to develop internal sales, marketing and distribution
capabilities to commercialize any product candidate that gains FDA or other regulatory authority approval, which would be expensive and
time-consuming, or enter into partnerships with third parties to perform these services. If we decide to market any approved products
directly, we will need to commit significant financial and managerial resources to develop a marketing and sales force with technical
expertise and supporting distribution, administration and compliance capabilities. If we rely on third parties to market products or decide
to co-promote products with partners, we will need to establish and maintain marketing and distribution arrangements with third parties,
and there can be no assurance that we will be able to enter into such arrangements on acceptable terms or at all.
We will face significant competition
in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Whether we reach a definitive agreement
for other collaborations will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the
terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors
may include the design or results of clinical trials, the progress of our clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with
respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the
challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies
for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one
with us for our product candidate. Further, we may not be successful in our efforts to establish a strategic partnership or other alternative
arrangements for future product candidates because they may be deemed to be at too early of a stage of development for collaborative effort
and third parties may not view them as having the requisite potential to demonstrate safety and efficacy. Any delays in entering into
new collaborations or strategic partnership agreements related to any product candidate we develop could delay the development and commercialization
of our product candidates, which would harm our business prospects, financial condition, and results of operations.
The FDA and other regulatory agencies actively
enforce the laws and regulations prohibiting pre-approval promotion and the promotion of off-label uses.
The FDA prohibits the pre-approval
promotion of drugs as safe and effective for the purposes for which they are under investigation. Similarly, the FDA prohibits the promotion
of approved drugs for new or unapproved indications. If the FDA finds that we have engaged in pre-approval promotion of our future product
candidates, or if any of our future product candidates are approved and we are found to have improperly promoted off-label uses of those
products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims
that may be made about prescription products, such as our future product candidates, if approved. In particular, an approved product may
not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved
labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner
that is inconsistent with the approved label, which is within their purview as part of their practice of medicine. If we are found to
have promoted such off-label uses, however, we may become subject to significant liability. The U.S. federal government has levied large
civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging
in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. The FDA may also issue a public warning letter or untitled letter to the company. If we cannot
successfully manage the promotion of our future approved products, we could become subject to significant liability, which would materially
adversely affect our business and financial condition.
41
Our business activities may be subject to
the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption laws of other countries in which we
operate, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these
legal requirements could limit our ability to compete in foreign markets and subject us to liability if we violate them.
If we further expand our operations
outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction
in which we plan to operate. Our business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations
or rules of other countries in which we operate. The FCPA generally prohibits companies and their employees and third-party intermediaries
from offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a non-U.S. government
official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make
and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate
system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials,
including officials of non-U.S. governments. Additionally, in many other countries, hospitals owned and operated by the government, and
doctors and other hospital employees would be considered foreign officials under the FCPA. Recently the Securities and Exchange Commission
(“SEC”) and Department of Justice (“DOJ”) have increased their FCPA enforcement activities with respect to biotechnology
and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will
comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws
and regulations could result in fines, criminal sanctions against us, our officers or our employees, disgorgement, and other sanctions
and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability
to offer our products in one or more countries and could materially damage our reputation, our brand, our international activities, our
ability to attract and retain employees and our business, prospects, operating results and financial condition.
In addition, our products
and technology may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations. Governmental regulation
of the import or export of our products and technology, or our failure to obtain any required import or export authorization for our products,
when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements
regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases,
prevent the export of our products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit
the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If we fail to comply
with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export
privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing
regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use of our products by,
or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use
of our products or limitation on our ability to export or sell access to our products would likely adversely affect our business.
Our business involves the use of hazardous
materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive
and restrict how we do business.
Our research and development
activities and our third-party manufacturers and suppliers’ activities involve the controlled storage, use and disposal of hazardous
materials owned by us. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage,
handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use
are stored at our manufacturers’ facilities pending their use and disposal.
We cannot eliminate the risk
of contamination, which could cause an interruption of our research and development efforts and business operations, environmental damage
resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of
these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers
and suppliers for handling and disposing these materials generally comply with the standards prescribed by these laws and regulations,
we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an