Item 1A. RiskFactors

Our business, financial condition and operating

results are subject to a number of risks and uncertainties, including those that are known to us and identified below and others

that may arise from time to time. The following is a summary of the principal risk factors described in this section:

● changes in pricing regulations could restrict product pricing;

● we rely on third parties, which requires us to share our trade secrets;

These risk factors could cause our actual results

to differ materially from those suggested by forward-looking statements in this Report and elsewhere, and may adversely affect

our business, financial condition or operating results. If any of these risk factors should occur, moreover, the trading price

of our securities could decline, and investors in our securities could lose all or part of their investment in our securities.

These risk factors should be carefully considered in evaluating our prospects.

Risks Related to Our Business

The report of the independent registered

public accounting firm on our 2024 and 2023 financial statements contains a going concern qualification.

The report of the independent registered

public accounting firm covering our financial statements for the years ended December 31, 2024 and December 31, 2023 stated that

certain factors, including that we have suffered recurring losses from operations and have an accumulated deficit at December 31,

2024, raised substantial doubt as to our ability to continue as a going concern. Because we are not yet producing sufficient revenue

to sustain our operating costs, we are dependent upon raising capital to continue our business. If we are unable to raise capital,

we may be unable to continue as a going concern.

We have incurred net losses since

inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

There are numerous risks and uncertainties

associated with pharmaceutical product development, and we are unable to accurately predict the timing or amount of increased expenses

or when, or if, we will be able to achieve profitability.

As of December 31, 2024 we had an accumulated

deficit of approximately $15,340,107, which includes a net loss of approximately $5,016,264 for the year ended December 31, 2024,

as compared to an accumulated deficit of approximately $10,323,843, which includes a net loss of approximately $4,618,965 for the

year ended December 31, 2023. Historically, we have financed our operations through a combination of grant revenue and equity financing,

however our goals for the foreseeable future will likely require significant equity financing. Our ability to achieve significant

profitability depends on our ability to successfully complete the development of, and obtain the regulatory approvals necessary

to commercialize, LP-10 and/or our other product candidates, which may not occur for several years, if ever. The net losses we

incur may fluctuate significantly from quarter to quarter.

If we are required by the FDA, the European

Medicines Agency (“EMA”) or other regulatory authorities to perform studies in addition to those currently expected,

or if there are any delays in completing our clinical trials or the development of LP-10 and/or our other product candidates, our

expenses could increase and revenue could be further delayed. We anticipate that our expenses will increase substantially if, and

as, we:

● ramp-up our in-house commercial-scale cGMP manufacturing facility;

● manufacture material for clinical trials or potential commercial sales;

● further develop our product candidate portfolio;

● acquire or in-license other product candidates and technologies.

To become and remain profitable, we must

develop and eventually commercialize one or more product candidates with significant market potential. This will require us to

be successful in a range of challenging activities, including completing the clinical trials, developing and validating commercial

scale manufacturing processes, obtaining marketing approval for this product candidate, manufacturing, marketing and selling any

future product candidates for which we may obtain marketing approval and satisfying any post-marketing requirements. If we were

required to discontinue development of LP-10 or LP-310, if LP-10 or LP-310 do not receive regulatory approval, if we do not obtain

our targeted indication(s) for LP-10 or LP-310, or if LP-10 or LP-310 fails to achieve sufficient market acceptance for any indication,

we could be delayed by many years in our ability to achieve profitability for such assets. Lipella has additional pipeline assets,

including but not limited to LP-410 and LP-50. As with LP-10 and LP-310, if LP-410 or LP-50 do not receive regulatory approval,

if we do not obtain our targeted indication(s) for such assets, or if such assets fail to achieve sufficient market acceptance

for any indication, we could be delayed by many years in our ability to achieve profitability for such assets. Our failure to become

and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research

and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause

you to lose all or part of your investment.

We will need to raise additional

funding in order to receive approval for LP-10 or any other product candidate. Such funding may not be available on acceptable

terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our

product development efforts or other operations.

To complete the process of obtaining regulatory

approval for LP-10 and our other product candidates and to build the sales, marketing and distribution infrastructure that we believe

will be necessary to commercialize such product candidates, if approved, we will require substantial additional funding. In addition,

if we obtain marketing approval for LP-10 and any of our other product candidates, we expect to incur significant expenses related

to product sales, medical affairs, marketing, manufacturing and distribution. We also anticipate that we will require substantial

additional funding for LP-310, LP-410, LP-50 and product candidates that we decide to develop in the future.

Our future capital requirements will depend on many factors,

including:

● the outcome, timing and costs of seeking regulatory approvals;

Identifying potential product candidates

and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to

complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales.

Our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, will be derived from or

based on sales of product candidates that may not be commercially available for many years, if at all. Accordingly, we will need

to continue to rely on additional financing to achieve our business objectives. Any additional fundraising efforts may divert our

management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional

securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline.

The sale of additional equity or convertible securities would dilute all our stockholders. The incurrence of indebtedness would

result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment

of principal and interest on such indebtedness, and we may be required to agree to certain restrictive covenants, such as limitations

on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and

other operating restrictions that could adversely impact our ability to conduct our business. Furthermore, existing stockholders

may not agree with our financing plans or the terms of such financings. Adequate additional financing may not be available to us

on acceptable terms, or at all. The terms of additional financing may be impacted by, among other things, general market conditions,

and the market’s perception of our product candidates.

We are currently supported partially

by government grant awards, which may not be available to us in the future, and such grant awards are subject to guidelines regulating

our research.

We have received and intend to continue

to seek funding under grant award programs, including a program funded by the National Institutes of Health (“NIH”).

To continue to fund a portion of our future research and development programs, we may also require grant funding from similar

governmental agencies in the future. However, funding by the NIH or other governmental agencies may be significantly reduced or

eliminated in the future for a number of reasons. For example, some programs are subject to a yearly appropriations process overseen

by the U.S. Congress. In addition, we may not receive full funding under current or future grants because of budgeting constraints

of the agency administering the program or unsatisfactory progress on the study being funded. Therefore, we cannot provide any

assurance that we will receive any future grant funding from any government agencies, or, that if received, we will receive the

full amount of the particular grant award. Any such reductions could delay the development of our product candidates and the introduction

of new products.

Any research conducted under such federal

grants will subject us to federal regulation regarding how we conduct our research and we will be obligated to abide by the agreement

terms relating to those grants. There are also ethical guidelines promulgated by various governments and research institutions

that we are required to follow in respect of our research. These guidelines are orientated

towards research and experimentation involving humans and animals. Failure to follow the regulations, agreement terms and accepted

scientific practices would jeopardize our grants and our results and the use of the results in further research and approval circumstances,

which could have a material adverse effect on our results of operations and financial condition. In addition, any failure to comply

with applicable laws or regulations affecting such grant awards could harm our business and divert our management’s attention.

Our ability

to obtain reimbursement or funding for our programs from the federal government may be impacted by possible reductions in federal

spending.

U.S. federal government

agencies currently face potentially significant spending reductions. The U.S. federal budget remains in flux, however, which could,

among other things, result in a cut to Medicare payments to providers and otherwise affect federal spending on clinical and pre-clinical

research and development. The Medicare program is frequently mentioned as a target for spending cuts. The full impact on our business

of any future cuts in Medicare or other programs is uncertain. In addition, we cannot predict any impact which the actions of the

current Presidential administration and the U.S. Congress may have on the federal budget. If federal spending is reduced, anticipated

budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the NIH, to continue to function at current

levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability

of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which

may delay our ability to develop, market and sell any products we may develop.

We are substantially

dependent on the success of our lead product candidates, LP-10 and LP-310. If we are unable to commercialize LP-10 or LP-310, or

experience significant delays in doing so, our business will be materially harmed.

Our ability to

generate product revenues, which may not occur for several years, if ever, currently depends heavily on the successful development

and commercialization of LP-10 and LP-310. The success of LP-10 and LP-310 will depend on a number of factors, including the following:

● successful completion of clinical development;

● receipt of marketing approvals from applicable regulatory authorities;

● protecting our rights in our intellectual property portfolio;

● establishing sales, marketing and distribution capabilities;

● effectively competing with other therapies; and

If we do not achieve one or more of these

factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize LP-10

and LP-310, which would materially harm our business. We have not yet demonstrated our ability to successfully complete development

of any product candidates, 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.

Assuming we obtain marketing approval for

any of our product candidates, we will need to transition our focus from research and development to supporting commercial activities.

We may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.

We are early in our efforts to develop

LP-10, LP-310, and our other product candidates. If we are unable to advance LP-10, LP-310, and such other candidates through clinical

trials, obtain regulatory approval and ultimately commercialize such product candidates, or if we experience significant delays

in doing so, our business will be materially harmed.

We are early in our development of LP-10, which

will begin its phase 2b clinical trial, LP-310, which is expected to complete its multi-center Phase 2a clinical trial in the second

quarter of 2025, and LP-410, which recently received FDA clearance for a Phase 2a clinical trial. The development and commercialization

of LP-10, LP-310 and LP-410 (or any other product candidate that we may develop) is subject to many uncertainties, including the following:

● successful enrollment and completion of clinical trials;

● positive results from our current and planned future clinical trials;

● receipt of regulatory approvals from applicable regulatory authorities;

We must conduct extensive clinical trials

to demonstrate the safety and efficacy of each drug candidate for its intended indications. Clinical trials are expensive, time

consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on

schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful

or timely completion of clinical development include:

● delays in reaching a consensus with regulatory authorities on trial design;

Additionally, if the results of our clinical

trials are inconclusive or if there are safety concerns or serious adverse events associated with our drug candidates, we may:

● be subject to additional post-marketing testing requirements;

● be sued; or

● experience damage to our reputation.

In addition, if we make manufacturing or

formulation changes to any of our other product candidates, we may need to conduct additional studies to bridge our modified product

candidate to earlier versions. If we elect, or are required, to delay, suspend, or terminate any clinical trial of any of our product

candidates at any stage, it could shorten any periods during which we may have the exclusive right to commercialize such product

candidates or allow our competitors to bring products to market before we do, which could limit our potential revenue or impair

our ability to successfully commercialize our current product candidates now, or such other product candidate in the future, and

may harm our business, financial condition, results of operations and prospects. Any such significant changes, delays, setbacks

or failures we experience, including our inability to obtain regulatory approval for or successfully commercialize our product

candidates, particularly LP-10 and LP-310, would materially harm our business, financial condition, results of operations and prospects.

We are heavily

dependent on the success of ourproduct candidates, which are in the early

stages of clinical development. Although we have reported positive results from our phase 2a clinical trials for LP-10 and LP-310,

we cannot give any assurance that our trial results are indicative of success for future trials or commercialization.

We have reported

positive top-line results from our completed phase 2a clinical trial evaluating the safety and efficacy of LP-10 and our recently

completed dosing of the first cohort of our phase 2a clinical trial evaluating the safety and efficacy of LP-310. The top-line

results from such clinical trials does not indicate or guarantee the future success for future clinical trials or for commercialization

for commercialization of LP-10 or any of our other products. There can be no assurance that the data from such trial for LP-10,

LP-310 or any future trial for LP-10, LP-310 or any of our other product candidates in our planned indications will be sufficiently

supportive to rely on Fast Track designation or to obtain regulatory approval for such products. If our data is not supportive

of, or the FDA will not allow us to apply for, Fast Track designation of LP-10, LP-310 or such other products, we cannot predict

when, if ever, we will be able to seek the FDA approval for LP-10, LP-310 or such other products.

In addition, none

of our product candidates have advanced into a pivotal clinical trial for our proposed indications, and it may be years before

any such clinical trial is initiated and completed, if at all. We are not permitted to market or promote any of our product candidates

before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such

regulatory approval for any of our product candidates. If we do not receive regulatory approvals for our product candidates, we

may not be able to continue our operations.

Even if we complete the necessary

clinical trials for LP-10, LP-310 or for any of our other product candidates in the future, such as LP-410 or LP-50, we cannot

predict when, or if, we will obtain regulatory approval to commercialize such other product candidates, and the approval may be

for a narrower indication than we seek.

We cannot commercialize a product candidate

until the appropriate regulatory authorities have reviewed and approved such product candidate. Even if LP-10 and LP-310 meet the

applicable safety and efficacy standards in clinical trials, the regulatory authorities may not complete their review processes

in a timely manner, or we may not be able to obtain regulatory approval for LP-10 and LP-310. Additional delays may result if an

FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval for LP-10 and LP-310.

In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative

action, or changes in regulatory authority policy during the period of LP-10’s or LP-310’s product development, clinical

trials and review process. Similar issues could arise with respect to LP-410 and LP-50 in the event such products enter their planned

clinical trial phases, as well as any of our other product candidates we develop in the future.

Regulatory authorities also may approve

a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow

indications, warnings or a post-approval safety monitoring program. These regulatory authorities may require precautions or contra-indications

with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials.

In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization

of LP-10, LP-310 or another product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for

LP-10, LP-310 or our other product candidates and materially and adversely affect our business, financial condition, results of

operations and prospects.

LP-10 or LP-310 may cause undesirable

side effects or have other properties that could delay or prevent its regulatory approval, limit its commercial potential, or result

in significant negative consequences following any potential marketing approval.

In addition to side effects caused by LP-10

and LP-310, the administration process or related procedures also can cause adverse side effects. If in the future we are unable

to demonstrate that such adverse events were caused by the administration process or related procedures, the FDA, the EMA or other

regulatory authorities could order us to cease further development of, or deny approval of, LP-10 and LP-310, for any or all targeted

indications. Even if we can demonstrate that any serious adverse events are not product-related, such occurrences could affect

patient recruitment or the ability of enrolled patients to complete our clinical trials. Any of these occurrences may harm our

ability to develop other product candidates, and may harm our business, financial condition and prospects significantly.

Additionally, if LP-10 or LP-310 receives

marketing approval, the FDA could require us to adopt a post-approval safety monitoring program to ensure that the benefits outweigh

its risks, which may include, among other things, a medication guide outlining the risks of the product for distribution to patients

and a communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused

by LP-10 and LP-310, several potentially significant negative consequences could result, including:

● regulatory authorities may require additional warnings on the label;

● we could be sued and held liable for harm caused to patients; and

● our reputation may suffer.

Any of these events could prevent us from

achieving or maintaining market acceptance of LP-10 and LP-310 and could significantly harm our business, financial condition,

results of operations and prospects.

Our pipeline of products, including

LP-10, LP-310, LP-410 and LP-50, are each based on novel technology, which makes it difficult to predict the time and cost of

development and of subsequently obtaining regulatory approval.

The regulatory approval process and clinical

trial requirements of the FDA, EMA and other regulatory authorities for novel product candidates such as ours can be more expensive

and take longer than for other, better known or more extensively studied product candidates. It is difficult to determine how long

it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or

the European Union or how long it will take to commercialize our product candidates. Approvals by the European Commission may not

be indicative of what the FDA may require for approval.

Regulatory requirements governing drug

and biologic products have changed frequently and may continue to change in the future. In addition, adverse developments in clinical

trials of similar drug and biologic products conducted by others may cause the FDA or other oversight bodies to change the requirements

for approval of our product candidates. Similarly, the EMA may issue new guidelines concerning the development and marketing authorization

for gene therapy medicinal products and require that we comply with these new guidelines.

These regulatory review committees and

advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional

studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval

and commercialization of any product candidate or lead to significant post-approval limitations or restrictions. As we advance

our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines.

If we fail to do so, we may be required to delay or discontinue development of any product candidate. These additional processes

may result in a review and approval process that is longer than we otherwise would have expected. Delay or failure to obtain, or

unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability

to generate sufficient product revenue, and our business, financial condition, results of operations and prospects would be materially

and adversely affected.

Even if we obtain regulatory approval

for a product candidate, each approved product candidate will remain subject to regulatory oversight.

Even if we obtain regulatory approval for

a product candidate, each approved product candidate will be subject to ongoing regulatory requirements for manufacturing, labeling,

packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information.

Any regulatory approvals that we receive for any product candidate may also be subject to a post-approval safety monitoring program

or limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval or contain

requirements for potentially costly post-marketing testing, including phase 4 clinical trials, and surveillance to monitor the

quality, safety and efficacy of the product.

In addition, product manufacturers and

their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory

authorities for compliance with cGMP requirements and adherence to commitments made in the NDA or foreign marketing application.

If we, or a regulatory authority, discover previously unknown problems with a product, such as adverse events of unanticipated

severity or frequency, or problems with the facility where the product is manufactured or disagrees with the promotion, marketing

or labeling of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility

or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory

requirements following approval of any of our product candidates, a regulatory authority may:

● issue a warning letter asserting that we are in violation of the law;

● suspend or withdraw regulatory approval;

● suspend any ongoing clinical trials;

● restrict the marketing or manufacturing of the product;

● refuse to permit the import or export of product candidates; or

Any government investigation of alleged

violations of law could require us to expend significant time and resources in response and could generate negative publicity.

The occurrence of any event or penalty described above may inhibit our ability to commercialize any of our product candidates and

adversely affect our business, financial condition, results of operations and prospects.

The FDA’s policies, and those of

equivalent foreign regulatory agencies, may change and additional government regulations may be enacted that could prevent, limit

or delay regulatory approval of any of our product candidates. We cannot predict the likelihood, nature or extent of government

regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow

or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to

maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain

profitability, which would materially and adversely affect our business, financial condition, results of operations and prospects.

Even if we obtain and maintain approval

for our product candidates from the FDA, we may never obtain approval for them outside of the United States, which could limit

our market opportunities and adversely affect our business.

Approval of a product candidate in the

United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions,

and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries

or by the FDA. Approval, marketing and sales of any of our product candidates outside of the United States will be subject to the

regulatory requirements governing clinical trials and marketing approval in those countries. Approval procedures vary among jurisdictions

and can involve requirements and administrative review periods different from, and more onerous than, those in the United States,

including additional preclinical studies or clinical trials, as clinical trials in one country may not be accepted by regulatory

authorities in other countries. Regulatory approval for any of our product candidates may be withdrawn. In many countries outside

the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In

some cases, the price that we intend to charge for our product candidates, if approved, is also subject to approval.

For example, we intend to submit a marketing

authorization application to the EMA for approval of LP-10 and LP-310 in the European Union, but obtaining such approval from the

European Commission following the opinion of the EMA is a lengthy and expensive process. Even if LP-10 and LP-310 are approved,

the FDA or the European Commission, as the case may be, may limit the indications for which the product may be marketed, require

extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions

of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant

delays, difficulties and costs for us and could delay or prevent the introduction of our product candidates in certain countries.

If we fail to comply with the regulatory

requirements, our target market will be reduced and our ability to realize the full market potential of any of our product candidates

will be harmed and our business, financial condition, results of operations and prospects will be adversely affected.

While we have obtained “orphan

drug” designations covering LP-10,and LP-410 from the FDA, such designations may not effectively provide

us with exclusive marketing rights for LP-10 or LP-410, and we may be unable to obtain “orphan drug” designation covering

any of our other product candidates. If our competitors are able to obtain “orphan drug” exclusivity before us covering

products that constitute the same drug and treat the same indications as our product candidates, we may not be able to have competing

products approved by the applicable regulatory authority for a significant period of time.

Under the Orphan Drug Act of 1983, the

FDA may designate a product candidate as an “orphan drug” if it is intended to treat a rare disease or condition, which

is generally defined as having a patient population of fewer than 200,000 individuals 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.

Generally, if a product candidate with

an “orphan drug” designation receives the first marketing approval for the indication for which it has such designation,

the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application

for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited

circumstances. If another sponsor receives such approval before we do (regardless of our “orphan drug” designation),

we will be precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period

is seven years in the United States, however even after an orphan drug is approved, the FDA may subsequently approve another drug

for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it is shown

to be safer, more effective or makes a major contribution to patient care. In the EU, marketing authorization may be granted to

a similar medicinal product for the same orphan indication if:

On July 6, 2012, the FDA granted “orphan

drug” designation covering LP-10 (or any other formulation of tacrolimus) for the treatment of HC and we may seek “orphan

drug” designation from the FDA covering our future product candidates. On November 11, 2023 the FDA granted “orphan

drug” designation covering LP-410 for treatment of oral GVHD.

Even though we have obtained such “orphan

drug” designations, providing us with exclusivity for LP-10 and LP-410 for certain indications, such exclusivity

may not effectively protect a product candidate from competition because different drugs can be approved for the same condition.

If the FDA does not conclude that

LP-10, LP-310 or any of our other product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or

if the requirements for approval of such product candidates under Section 505(b)(2) are not as we expect, the approval pathway

for such product candidates will likely take significantly longer, cost significantly more and encounter significantly greater

complications and risks than anticipated, and in any case may not be successful.

We intend to seek FDA approval through

the 505(b)(2) regulatory pathway for LP-10, LP-310 and certain of our other product candidates, although we have not received

any indication from the FDA that the 505(b)(2) regulatory pathway will be available for LP-10, LP-310, or any of our other product

candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section

505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval

comes from studies that were not conducted by or for the applicant. We anticipate referencing relevant publicly available data,

including the publicly disclosed FDA drug approval package for tacrolimus, in the preparation and submission of our aNDA for LP-10

and LP-310.

If the FDA does not allow us to pursue

the 505(b)(2) regulatory pathway for our product candidates as anticipated, we may need to conduct additional clinical trials,

provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time

and financial resources required to obtain FDA approval for our product candidates would likely substantially increase. Moreover,

the inability to pursue the 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than

our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are permitted

to pursue the 505(b)(2) regulatory pathway for a product candidate, we cannot assure you that we will receive the requisite or

timely approvals for commercialization of such product candidate.

In addition, notwithstanding the approval

of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected

to the FDA’s interpretation of Section 505(b)(2). We expect that our competitors could file citizens’ petitions with

the FDA in an attempt to persuade the FDA that our product candidates, or the clinical studies that support their approval, contain

deficiencies. If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change

its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under

Section 505(b)(2).

FDA designations to expedite drug

development and review, including “orphan drug” designation, Breakthrough Therapy designation, and/or Fast Track designation,

even if granted for any of our product candidates, may not lead to a faster development, regulatory review or approval process

and do not increase the likelihood that any of our product candidates will receive marketing approval in the United States.

We have received “orphan drug”

designation covering LP-10 and LP-410 from the FDA, but there is no assurance that any of our other product candidates will receive

a similar designation from the FDA or that we will receive Breakthrough Therapy or Fast Track designations covering any of our

product candidates (including LP-10 and LP-410) from the FDA. Our initial request to obtain Fast Track designation covering LP-10

in July 2021 was denied by the FDA in September 2021; however, we are still seeking to obtain Fast Track designation covering

LP-10. In addition, we anticipate the submission for Breakthrough Designation Request for LP-310 for the treatment of OLP in the

second half of 2025. Further, even if we do receive favorable designations from the FDA, the receipt of any of these designations

covering any of our product candidates may not result in a faster development process, review or approval of such product candidates

compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA.

If we are not successful in discovering,

developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives

would be impaired.

Although we focus a substantial amount

of our efforts on the potential approval of LP-10 and LP-310, a key component of our strategy is to discover, develop and

potentially commercialize a portfolio of other product candidates, including LP-410 and LP-50, to treat orphan diseases and ultimately,

non-orphan diseases. Identifying new product candidates requires substantial technical, financial and human resources, whether

any product candidates are ultimately identified. Even if we identify product candidates that initially show promise, we may fail

to successfully develop and commercialize such product candidates for many reasons, including the following:

As we have limited resources, we may forego

or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater

commercial potential. Our spending on current and future research and development programs may not yield any commercially viable

products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable

rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have

been more advantageous for us to retain sole development and commercialization rights to such product candidate. Alternatively,

we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to

enter into a partnering arrangement.

If any of these events occur, we may be

forced to abandon our development efforts with respect to a particular product candidate or fail to develop a potentially successful

product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We face significant competition in

an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us

or develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our

ability to successfully market or commercialize our product candidates.

Many of our potential competitors, alone

or with their strategic partners, have substantially greater financial, technical and other resources, such as larger research

and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical

industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity

could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or

less severe side effects, are more convenient or are less expensive than any product candidate that we may develop. Also, competitors

may obtain FDA or other regulatory approval for their products more rapidly or earlier than we may obtain approval for ours, which

could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies

developed by our competitors may render our product candidates, including, in particular, LP-10 and LP-310, uneconomical or obsolete,

and we may not be successful in marketing these and our other product candidates against competitors.

In addition, as a result of the expiration

or successful challenge of our patent rights, we could face more competition from our competitors’ products. The availability

of our competitors’ products could limit the demand, and the price we are able to charge, for any product candidate that

we may develop and commercialize.

Risks Related to Manufacturing

Delays in obtaining regulatory approvals

of the process and facilities needed to manufacture any of our product candidates, including LP-10 and LP-310, or disruptions in

our manufacturing process may delay or disrupt our product development and commercialization efforts.

Before we can begin to commercially manufacture

any of our product candidates, including LP-10 or LP-310, in a manufacturing facility, whether in a third-party facility or in

a facility that we maintain and operate, the facility must pass a pre-approval inspection by the FDA, and a manufacturing authorization

must be obtained from the appropriate regulatory authorities. The timeframe required to obtain such approvals is uncertain. In

order to obtain approval, we will need to ensure that all our processes, methods and equipment are compliant with cGMP and perform

extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliers is

found to be out of compliance with cGMP, we may experience delays or disruptions in manufacturing while we work with these third

parties to remedy the violation or while we work to identify suitable replacement vendors. The cGMP requirements govern quality

control of the manufacturing process and documentation policies and procedures. In complying with cGMP, we will be obligated to

expend time, money and effort in production, record keeping and quality control to assure that the product meets applicable specifications

and other requirements. If we fail to comply with these requirements, we would be subject to possible regulatory action and may

not be permitted to sell any product candidate that we may develop.

In addition, the manufacturing process

used to produce our product candidates is complex, novel and has not been validated for commercial use. In order to produce enough

quantities of our product candidates for future clinical trials and initial U.S. commercial demand, we will need to increase the

scale of our manufacturing process. The production of our product candidates requires processing steps that are more complex than

those required for most chemical pharmaceuticals. We employ multiple steps to control our manufacturing process to assure that

the process works and that each of our products candidates will be made strictly and consistently in compliance with the process.

Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing

failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems

achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other applicable standards or specifications

with consistent and acceptable production yields and costs.

Although we have established our

Facility, we may need to utilize third parties to conduct our product manufacturing for the near future. Therefore, we are subject

to the risk that these third parties may not perform satisfactorily.

Even if we obtain the validation from the

FDA of our Facility, we intend to maintain third-party manufacturing capabilities in order to provide multiple sources of supply.

In the event that these third-party manufacturers do not successfully carry out their contractual duties, meet expected deadlines

or manufacture LP-10 or LP-310 in accordance with regulatory requirements, or if there are disagreements between us and these third-party

manufacturers, we will not be able to complete, or may be delayed in completing, the preclinical studies required to support future

IND submissions of other product candidates or the clinical trials required for approval of LP-10 or LP-310. In such instances,

we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on the same economic

terms, which would cause additional delay or increased expense prior to the approval of LP-10 or LP-310 and would thereby have

a material adverse effect on our business, financial condition, results of operations and prospects.

If we or our third-party manufacturer fails

to comply with applicable cGMP regulations, the FDA and foreign regulatory authorities can impose regulatory sanctions including,

among other things, refusal to approve a pending application for a new product candidate or suspension or revocation of a pre-existing

approval. Such an occurrence may cause our business, financial condition, results of operations and prospects to be materially

harmed.

Any contamination in our manufacturing

process, shortages of raw materials or failure of any of our key suppliers to deliver necessary components could result in delays

in our clinical development or marketing schedules.

Given the nature of sterile product manufacturing,

there is a risk of contamination. Any contamination could materially adversely affect our ability to produce any of our product

candidates, including LP-10, on schedule and could, therefore, harm our results of operations and cause reputational damage.

Some of the raw materials required in our

manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination

or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture

of any of our product candidates, including LP-10 and LP-310, could adversely impact or disrupt the commercial manufacturing or

the production of clinical material, which could materially and adversely affect our development timelines and our business, financial

condition, results of operations and prospects.

Risks Related to Commercialization of Our Product Candidates

If we are unable to expand our market

development capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable

to generate any product revenue.

We currently have a small market development

organization. To successfully commercialize LP-10, LP-310, LP-410 or LP-50, if approved, and any other products that may result

from our development programs, we plan to expand our capabilities to promote market access and build awareness, either on our own

or with one or more third parties. The development of our own market development team will be expensive and time-consuming and

could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We

may enter into collaboration agreements regarding any of our product candidates with third parties to utilize their established

marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If any

future collaborators do not commit sufficient resources to commercialize our products, or we are unable to develop the necessary

capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We compete with many

companies that currently have extensive, experienced and well-funded medical affairs, marketing and sales operations to recruit,

hire, train and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with

the sales and marketing efforts of our product candidates. Without an internal team or the support of a third party to perform

marketing and sales functions, we may be unable to compete successfully against these more established companies.

Our efforts to educate the medical community

and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

Such efforts may require more resources than are typically required due to the complexity and uniqueness of our potential products.

If any of our product candidates is approved but fails to achieve market acceptance among physicians, patients or third-party payors,

we will not be able to generate significant revenues from such product, which could have a material adverse effect on our business,

financial condition, results of operations and prospects.

If the market opportunities for LP-10

or LP-310are smaller than we believe they are, our product revenues may be adversely impacted, and our business

may suffer.

We are currently primarily focusing our research

and product development efforts on LP-10 for HC and LP-310 for OLP. Our understanding of both the number of people who have

these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with LP-10

or LP-310, are based on estimates in published literature. These estimates may prove to be incorrect, and new studies may reduce

the estimated incidence or prevalence of this disease. The number of patients in the United States, the EU and elsewhere may turn

out to be lower than expected or these patients may not be otherwise amenable to treatment with LP-10 or LP-310, or may become

increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results

of operations and prospects.

Further, there are several factors that

could contribute to making the actual number of patients who receive LP-10 or LP-310 less than the potentially addressable market.

These include the lack of widespread availability of, and limited reimbursement for, new therapies in many underdeveloped markets.

These risks could similarly apply to LP-410 and LP-50, each of which we are simultaneously developing.

Government price controls or other

changes in pricing regulation could restrict the amount that we are able to charge for any of our product candidates that may be

approved in the future, including LP-10 and LP-310, which would adversely affect our revenue and results of operations.

We expect that coverage and reimbursement

of pharmaceutical costs may be increasingly restricted both in the United States and abroad. The escalating cost of health care

has led to increased pressure on the health care industry to reduce costs. Drug pricing by pharmaceutical companies recently has

come under increased scrutiny and continues to be subject to intense political and public debate in the United States and abroad.

Government and private third-party payors have proposed health care reforms and cost reductions. A number of federal and state

proposals to control the cost of health care, including the cost of drug treatments, have been made in the United States. Specifically,

there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency

to drug pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement

methodologies for drugs. In some international markets, the government controls the pricing, which can affect the profitability

of drugs. Current government regulations and possible future legislation regarding health care may affect coverage and reimbursement

for medical treatment by third-party payors, which may render our product candidates, if approved, not commercially viable or may

adversely affect our anticipated future revenues and gross margins.

We cannot predict the extent to which our

business may be affected by these or other potential future legislative or regulatory developments. However, future price controls

or other changes in pricing regulation or negative publicity related to the pricing of pharmaceutical drugs generally could restrict

the amount that we are able to charge for our future products, which would adversely affect our anticipated revenue and results

of operations.

The insurance coverage and reimbursement

status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our products,

if approved, could limit our ability to market those products and decrease our ability to generate product revenue.

We expect that coverage and reimbursement

by government and private payors will be essential for most patients to be able to afford any of our product candidates that receive

approval. Accordingly, sales 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 will be reimbursed by government authorities, private health coverage insurers and other third-party

payors. Coverage and reimbursement by a third-party payor may depend upon several factors, including the third-party payor’s

determination that use of a product is:

● a covered benefit under its health plan;

● safe, effective and medically necessary;

● appropriate for the specific patient;

● cost-effective; and

● neither experimental nor investigational.

Obtaining coverage and reimbursement for

a product from third-party payors is a time-consuming and costly process that could require us to provide to the payor supporting

scientific, clinical and cost-effectiveness data. We may not be able to provide data sufficient to gain acceptance with respect

to coverage and reimbursement. If coverage and reimbursement are not available, or are available only at 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 adequate to realize a sufficient return on our investment.

There is significant uncertainty related

to third-party coverage and reimbursement of newly approved products. In the United States, third-party payors, including government

payors such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics

will be covered and reimbursed. The Medicare and Medicaid programs increasingly are used as models for how private payors and government

payors develop their coverage and reimbursement policies.

Outside the United States, international

operations generally are subject to extensive government price controls and other market regulations and increasing emphasis on

cost-containment initiatives in the European Union, Canada and other countries may put pricing pressure on us. In many countries,

the prices of medical products are subject to varying price control mechanisms as part of national health systems. It also can

take a significant amount of time after approval of a product to secure pricing and reimbursement for such product in many counties

outside the United States. In general, the prices of medicines under such systems are substantially lower than in the United States.

Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional

foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product

candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with

the United States and may be insufficient to generate commercially reasonable product revenues.

Moreover, increasing efforts by government

and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit

both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate

payment for our product candidates. Payors increasingly are considering new metrics as the basis for reimbursement rates, such

as average sales price, average manufacturer price, and “actual acquisition cost.” Therefore, it may be difficult to

project the impact of these evolving reimbursement metrics on the willingness of payors to cover candidate products that we or

our partners are able to commercialize. We expect to experience pricing pressures in connection with the sale of any of our product

candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional

legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures

and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products

such as ours.

Healthcare legislative reform measures

may have a material adverse effect on our business and results of operations.

In the United States and some foreign jurisdictions,

there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system

that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities, and affect

LIPO US Equity

LIPO · 10-K · period ended 2024-12-31

Item 1A. RiskFactors

LIPO US Equity☆

LIPO · 10-K · period ended 2024-12-31

Item 1A. RiskFactors

LIPO US Equity