ITEM 1A. RISK FACTORS
We
have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results
of operations and future growth prospects. Our business could be harmed by any of these risks. The risks and uncertainties described
below are not the only ones we face. The trading price of our common stock could decline due to any of these risks, and you may lose
all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Annual Report,
including our consolidated financial statements and related notes.
Risk
Factors Summary
Our
business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, that could cause
our actual results to be harmed, including risks regarding the following:
Risks
Relating to Our Business and Industry
● the timelines of our clinical trials;
● the commercial success of our licensed product candidate, TLANDO;
● competition in the TRT market;
● our Licensee’s ability to commercialize TLANDO may be limited;
● the market’s acceptance of our products;
● physicians and patients using other products may not switch to our product;
● any possible failure to comply with federal and state healthcare laws;
● difficulties in managing the growth of the Company;
● any product liability claims;
● any failure to comply with the Controlled Substances Act;
● the defense and resolution of any litigation; and
● cyber security risks.
Risks
Related to Our Dependence on Third Parties
● our ability to establish successful collaborations for our products.
Risks
Related to Ownership of Our Common Stock
● the effectiveness of our internal control over financial reporting;
● the volatility of our share price;
● the possibility of delisting of our securities from the Nasdaq Capital Market;
● our decision not to pay dividends on our common stock;
● our management and directors’ ability to exert influence over our affairs;
● volatility in the trading price of our common stock; and
Risks
Relating to Our Financial Position and Capital Requirements
● our incurrence of significant operating losses; and
● any fluctuation in our operating results.
Risks
Relating to Our Intellectual Property
● our ability to protect our intellectual property;
Risks
Relating to Our Business and Industry
The
timelines and costs of our clinical trials may be impacted by numerous factors and any delays may adversely affect our ability to execute
our current business strategy.
Our
expectations regarding the success of our product candidates, including our clinical candidates and lead compounds, and our business
are based on projections which may not be realized for many scientific, business or other reasons. We therefore cannot assure investors
that we will be able to adhere to our current schedule. We set goals that forecast the accomplishment of objectives material to our success:
selecting clinical candidates, product candidates, failures in research, the inability to identify or advance lead compounds, identifying
target patient groups or clinical candidates, the timing and completion of clinical trials, and anticipated regulatory approval. The
actual timing of these events can vary dramatically due to factors such as available capital resources, slow enrollment of subjects in
studies, uncertainties in scale-up, manufacturing and formulation of our compounds, failures in research, the inability to identify clinical
candidates, failures in our clinical trials, requirements for additional clinical trials and uncertainties inherent in the regulatory
approval process and regulatory submissions. Decisions by our partners or collaborators may also affect our timelines and delays in achieving
manufacturing capacity. The length of time necessary to complete clinical trials and to submit an application for marketing approval
by applicable regulatory authorities may also vary significantly based on the type, complexity and novelty of the product candidate involved,
as well as other factors. In addition, the development of our product candidates will require significant capital resources and we may
not be able to raise sufficient additional capital to fund continued development. Further, we may choose to allocate available capital
resources to the development of product candidates that do not ultimately achieve commercialization.
LPCN
1154 is in development and an NDA submission may not be filed, or if filed, may not be accepted by the FDA.
LPCN
1154 is currently in development. There can be no assurance as to whether the results of the clinical trials in LPCN 1154 for postpartum
depression will support a 505(b)2 NDA submission, whether a paragraph IV patent certification will be required or whether an NDA submission
will be accepted for review, or approved by the FDA, including the oral route related brexanolone or its metabolites exposure profile
relative to injectable brexanolone. Dosing and the last patient-last visit in the Phase 3 safety and efficacy study in the patient population
has been completed, however there can be no assurance that the results from the study will meet the primary endpoint. Further, there
can be no assurance that additional studies will not be required, and if they are required that we will have sufficient resources to
conduct such additional studies to enable an NDA submission.
LPCN
1154 may not achieve planned commercialization or commercialization objectives for a variety of reasons.
We are exploring the possibility
of partnering LPCN 1154 to a third party for commercialization, however we may not be able to identify potential partners or successfully
enter into partnership arrangements on terms favorable to us, if at all. We cannot be certain as to whether label language required by
the FDA will require warnings, blackbox or otherwise, as to the safety or efficacy of LPCN 1154 which could negatively affect the commercialization
of the LPCN 1154, if approved. If we are unable to successfully partner or otherwise commercialize, or develop and get regulatory approval
for LPCN 1154, LPCN 1154 may never be commercialized.
There
can be no assurance there will not be any third-party patent infringement proceedings against us. Such proceedings could delay or prevent
further development of LPCN 1154.
In
addition, we rely on a third-party vendor for our supply of brexanolone, the active pharmaceutical ingredient of LPCN 1154. If our third-party
supplier is not able to supply brexanolone on a timely basis, or if the cost of obtaining brexanolone increases, our ability to successfully
develop and commercialize LPCN 1154 will be adversely affected.
LPCN
2201 is in a very early stage of development and may not be further developed for a variety of reasons.
Our
oral NAS comprising program LPCN 2201 is in a very early stage of development and consequently the risk that we may fail to commercialize
LPCN 2201 and related products is high. We have only completed PK clinical studies of LPCN 2201 and the ultimate regulatory or technical
success of the neuroactive steroid under investigation in this program is uncertain. The current results we have observed may not be
replicated in future PK, Phase 2, larger Phase 3 studies, or pivotal studies.
In
addition, our oral NAS product candidate LPCN 2201 may not be effective in treating MDD or any other indications or may not have differentiation
from competitive products on the market or in development. We may expend significant resources before determining that this program is
not a viable candidate for regulatory approval and commercialization.
LPCN
2101 is in a very early stage of development and may not be further developed for a variety of reasons.
Our
oral NAS comprising program LPCN 2101 is in a very early stage of development and consequently the risk that we may fail to commercialize
LPCN 2101 and related products is high. We have only conducted Phase 1 clinical studies of LPCN 2101 and the ultimate regulatory or technical
success of the neuroactive steroid under investigation in this program is uncertain. The current limited pre-clinical and phase 1 results
we have observed may not be replicated in larger studies, future PK, Phase 2, or pivotal studies with a potential “to be marketed
formulation.” We may not be able to further test in-clinic in a timely manner or at all due to other regulatory hurdles.
In
addition, our oral NAS product candidate LPCN 2101 may not be effective in treating WWE or any other indications or may not have differentiation
from competitive products on the market or in development. We may expend significant resources before determining that this program is
not a viable candidate for regulatory approval and commercialization.
LPCN
2203 is in an early stage of development and may not be further developed for a variety of reasons.
Our
oral NAS comprising program LPCN 2203 is in a very early stage of development and consequently the risk that we may fail to commercialize
LPCN 2203 and related products is high. We have only conducted Phase 1 clinical studies with the active pharmaceutical ingredient in
LPCN 2203 and the ultimate regulatory or technical success of the neuroactive steroid under investigation in this program is uncertain.
The current limited pre-clinical and Phase 1 results we have observed may not be replicated in larger studies, future PK, Phase 2, or
pivotal studies. We may not be able to further test in-clinic in a timely manner or at all due to other regulatory hurdles.
In
addition, our oral NAS product candidate LPCN 2203 may not be effective in treating ET or may not have differentiation from competitive
products on the market or in development. We may expend significant resources before determining that this program is not a viable candidate
for regulatory approval and commercialization.
LPCN
2401 is in a very early stage of development and may not be further developed for a variety of reasons.
LPCN
2401 is in a very early stage of development and consequently the risk that we may fail to develop, commercialize, or partner LPCN 2401
and related products is high. This development program is susceptible to technical failures in future clinical studies and regulatory
hurdles for further testing and/or meeting the FDA’s needs for NDA filing or approval. The result of a possible POC Phase 2 study
may not be indicative of ultimate success in a larger Phase 2 or Phase 3 clinical study and, although we are exploring the possibility
of partnering LPCN 2401 with a third party for further development and commercialization, we may not be able to identify potential partners
or successfully enter into partnership arrangements on terms favorable to us, if at all. We may
not be able to further test in-clinic in a timely manner or at all due to other regulatory hurdles. In addition, LPCN 2401 in combination
with incretin mimetics may not be effective in achieving weight loss and improving functionality and activities of daily life through
improved body composition or may not have differentiation from competitive products on the market or in development. We may expend significant
resources before determining that this program is not a viable candidate for regulatory approval and commercialization.
LPCN
1148 is in a very early stage of development for management of liver cirrhosis in male patients and while there are no therapies specifically
approved by the FDA for secondary sarcopenia or cirrhosis beyond treatment of underlying conditions, there are candidates known to be
under development for cirrhosis related indication(s).
LPCN
1148 is in a very early stage of development and consequently the risk that we may fail to commercialize or partner LPCN 1148 and related
products is high. This development program is susceptible to technical failures in future clinical studies and regulatory hurdles for
further testing and/or meeting the FDA’s needs for NDA filing or approval. The result of the Phase 2 study may not be indicative
of ultimate success in a larger Phase 2/3 clinical study and, although we are exploring the possibility of partnering LPCN 1148 to a
third party for further development and commercialization, we may not be able to identify potential partners or successfully enter into
a partnership arrangement on terms favorable to us, if at all. While we believe there is a potential to gain Orphan Drug Designation
for an indication or condition in male liver cirrhosis, the FDA may not grant such designation which could adversely impact development
or the commercial potential of LPCN 1148.
LPCN
1107 is in a very early stage of development and may not be further developed for a variety of reasons.
LPCN
1107 is in a very early stage of development and consequently, although we are exploring the possibility of partnering LPCN 1107 to a
third party for further development and commercialization, we may not be able to identify potential partners or successfully enter into
a partnership arrangement on terms favorable to us, if at all. If we are unable to successfully partner LPCN 1107, LPCN 1107 may never
be successfully commercialized. In particular, we have only conducted three Phase 1 clinical studies with this product candidate. Our
completed Phase 1 clinical studies may not be predictive of safety concerns that may arise in pregnant women or demonstrate that LPCN
1107 has an adequate safety profile to warrant further development. These factors can impact the timing of and our ability to continue
development or partner LPCN 1107.
In
addition, a number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical
trials, even after achieving positive results in early-stage development. Accordingly, our results from our Phase 1a, our Phase 1b and
our multi-dose PK dose selection studies may not be predictive of the results we may obtain from further studies and trials.
The
FDA has concluded that Makena, based on Makena’s failed definitive PROLONG study, a competing product with the same active ingredient
and similar target indication, is ineffective and Makena has been withdrawn from the market. It is entirely possible that any pivotal
study on LPCN 1107 may require a placebo-controlled trial design. Therefore, we and/or our partner may face significant challenges in
patient recruitment for a placebo-controlled trial, be faced with significant resource investment to conduct additional trials, and face
potential perceived risk of efficacy failure in a pivotal study resulting in no further development of LPCN 1107.
Our
research and development programs and processes are at an early stage of development, which makes it difficult to evaluate our business
and prospects or predict if or when we will successfully commercialize or partner our product candidates.
Our
operations to date have primarily been limited to conducting research and development activities under license and collaboration agreements.
Our current portfolio consists of product candidates at various clinical stages of development in addition to our out-licensed product
TLANDO. We have never marketed or commercialized a drug product. Consequently, any predictions about our future performance may not be
as accurate as they could be if we were further along our commercialization path. In addition, as a pre-commercial stage business, we
may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors.
Our
clinical product candidates are at an early stage of development and will require significant further investment and regulatory approvals
prior to marketing and commercialization. As such, our product development processes for LPCN 1154, LPCN 2201, LPCN 2101, LPCN 2203,
LPCN 2401, LPCN 1148, and LPCN 1107 are very risky and uncertain, and our product candidates may fail to advance beyond the current study.
Even if we obtain required financing, we cannot ensure successful product development or that we will obtain regulatory approval or successfully
commercialize or partner any of our product candidates and generate product revenues.
All
of our clinical candidates will be subject to extensive regulation which can be costly and time consuming, cause delays or prevent approval
of the products for commercialization.
Our
clinical development of LPCN 1154, LPCN 2201, LPCN 2101, LPCN 2203, LPCN 2401, LPCN 1148, and LPCN 1107 and any future product candidates
is subject to extensive regulations by the FDA. Product development is a very lengthy and expensive process and can vary significantly
based upon the product candidate’s novelty and complexity. Regulations are subject to change and regulatory agencies have significant
discretion in the approval process.
Numerous
statutes and regulations govern human testing and the manufacture and sale of human therapeutic products in the United States. Such legislation
and regulation bears upon, among other things, the approval of protocols and human testing, the approval of manufacturing facilities,
safety of the product candidates, testing procedures and controlled research, review and approval of manufacturing, preclinical and clinical
data prior to marketing approval including adherence to cGMP during production and storage as well as regulation of marketing activities
including advertising and labeling.
In
order to obtain regulatory clearance for the commercial sale of any of our product candidates, we must demonstrate through preclinical
studies and clinical trials that the potential product is safe and efficacious for use in humans for each target indication. Obtaining
approval of any of our product candidates is an extensive, lengthy, expensive and uncertain process, and the FDA may delay, limit or
deny approval for many reasons, including:
● the FDA may not accept data generated at our clinical trial sites;
● the FDA may require development of a REMS as a condition of approval;
Preclinical
and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product
candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain FDA approval for their
products.
No
assurance can be given that current regulations relating to regulatory approval will not change or become more stringent. The FDA may
also require that we amend clinical trial protocols and/or run additional trials in order to provide additional information regarding
the safety, efficacy or equivalency of any compound for which we seek regulatory approval. Moreover, any regulatory approval of a drug
which is eventually obtained may entail limitations on the indicated uses for which that drug may be marketed. Furthermore, product approvals
may be withdrawn or limited in some way if problems occur following initial marketing or if compliance with regulatory standards is not
maintained. The FDA could become more risk averse to any side effects or set higher standards of safety and efficacy prior to reviewing
or approving a product. This could result in a product not being approved.
Our business depends, in part, on the commercial success of our licensed product, TLANDO, for royalty revenue and potential milestone payments.
TLANDO
is currently our only product that has completed Phase 3 clinical trials. On February 1, 2024, we transitioned the commercialization
of TLANDO to Verity from our previous licensee Antares. In January 2024, we entered into the Verity License Agreement with Verity, pursuant
to which we granted Verity an exclusive, royalty-bearing, sublicensable right and license to develop and commercialize our TLANDO product
with respect to TRT in the U.S. and Canada. None of our other products have been approved for sale. Therefore, at this stage, our ability
to realize revenue depends on TLANDO’s successful commercialization. The commercial success of TLANDO in the U.S. and Canada depends
almost entirely on Verity’s commercialization efforts and we have very limited ability to influence Verity’s efforts, including
the amount and timing of resources they devote, if any, to the commercialization of TLANDO. On March 29, 2022, the FDA granted approval
to TLANDO for testosterone replacement therapy in adult males indicated for conditions associated with a deficiency or absence of endogenous
testosterone: primary hypogonadism (congenital or acquired) and hypogonadotropic hypogonadism
(congenital or acquired). Our ability to realize royalty revenue, will depend on the commercialization efforts of Verity. If Verity is
not able to successfully commercialize TLANDO, we may not realize any royalty revenue under the Verity License Agreement and our business
could be adversely affected. Additionally, regulatory approval of TLANDO may be withdrawn and the failure to maintain regulatory approvals
would prevent TLANDO from being marketed and could have a material adverse effect on our business.
Under
the PREA, our licensing partner, Verity, will need to address the PREA requirement to assess the safety and effectiveness of TLANDO in
pediatric patients. The FDA required certain post-marketing studies including: (i) conducting an appropriately designed label comprehension
and knowledge study that assesses patient understanding of key risk messages in the Medication Guide for TLANDO and (ii) conducting an
appropriately designed one-year trial to evaluate development of adrenal insufficiency with chronic TLANDO therapy. Verity is responsible
for conducting these post-marketing studies. The ramifications of the results of these studies conducted by Verity, or the ramifications
of Verity’s inability or unwillingness to conduct these studies, are unknown to us and would be between Verity and the FDA.
In
September 2024, we entered into a distribution and license agreement for the development and commercialization of TLANDO in South Korea
with SPC, in October 2024, we entered into a distribution and supply agreement for TLANDO in the GCC countries with Pharmalink, and in
April 2025 we entered into a distribution and license agreement for the development and commercialization of TLANDO in Brazil. These
markets for TLANDO outside the United States, including Canada, South Korea, the GCC countries, and Brazil have requirements for approval
of drug candidates with which our licensee(s) must comply prior to marketing. Obtaining regulatory approval for marketing of TLANDO in
the United States or any other one country does not ensure we will be able to obtain regulatory approval in other countries, but a failure
or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
TLANDO
competes in the T-replacement therapies market, which is competitive and currently dominated by the sale of T-gels and T-injectables.
Receipt of future potential payments under our licensing agreements will depend, in large part, on our licensing partners’ ability
to obtain an adequate share of the market. Potential competitors in North America, Europe and elsewhere include major pharmaceutical
companies, specialty pharmaceutical companies, biotechnology firms, universities and other research institutions and government agencies.
Other pharmaceutical companies may develop oral T-replacement therapies that compete with TLANDO. For example, because TU is not a patented
compound and is commercially available to third parties, it is possible that competitors may design methods of TU administration that
would be outside the scope of the claims of either our issued patents or our patent applications. This would enable their products to
effectively compete with TLANDO, which could have a negative effect on potential payments under our licensing agreements.
If
T-replacement therapies are found, or are perceived, to create health risks, our ability to realize any revenue from TLANDO could be
materially adversely affected, and our business could be harmed. Physicians and patients may be deterred from prescribing and using T-replacement
therapies, which could depress demand for TLANDO and compromise the successful commercialization of TLANDO.
Certain
publications have suggested potential health risks associated with T-replacement therapy, such as increased cardiovascular disease risk,
including increased risk of heart attack or stroke, fluid retention, sleep apnea, breast tenderness or enlargement, increased red blood
cells, development of clinical prostate disease, including prostate cancer, and the suppression of sperm production.
On
March 29, 2022, the FDA approved TLANDO. As part of their approval, the FDA has also required that certain post-marketing studies be
conducted to (i) assess patient understanding of key risks relating to TLANDO and (ii) evaluate development of adrenal insufficiency
with chronic TLANDO therapy. Verity is responsible for conducting these post-marketing studies. Negative outcomes from such studies could
adversely affect the ability of Verity to successfully commercialize TLANDO, which would adversely affect our ability to realize royalty
revenue under the Verity License Agreement.
If
we fail to obtain adequate healthcare reimbursement for our products, our revenue-generating ability will be diminished and there is
no assurance that the anticipated market for our products will be sustained.
We
believe that there could be many different applications for products successfully derived from our technologies and that the anticipated
market for products under development could continue to expand. However, due to competition from existing or new products, potential
changes to the class TRT label by the FDA and the yet to be established commercial viability of our products, no assurance can be given
that these beliefs will prove to be correct. Physicians, patients, formularies, payors or the medical community in general may not accept
or utilize any products that we or our collaborative partners may develop. Other drugs may be approved during our clinical testing which
could change the accepted treatments for the disease targeted and make our compound(s) obsolete.
Our
ability to commercialize our products with success may depend, in part, on the extent to which coverage and adequate reimbursement to
patients for the cost of such products and related treatment will be available from governmental health administration authorities, private
health coverage insurers and other organizations, as well as the ability of private payors to pay for or afford our drugs. Adequate third-party
coverage may not be available to patients to allow us to maintain price levels sufficient for us to realize an appropriate return on
our investment in product development.
Coverage
and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payers can be critical
to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more
established or lower cost therapeutic alternatives are already available or subsequently become available. Additionally, current manufacturers
of drug products may have agreements with payors that may limit the ability of new products to get on formulary or require a step edit
with an existing product before reimbursement of a new product will occur. Even if we obtain coverage for our products, the resulting
reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are less
likely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our
products. Payers may require a more arduous prior authorization process as a condition to payment for TRT therapy. This could adversely
affect the market for TRT products.
In
the United States and in many other countries, pricing and/or profitability of some or all prescription pharmaceuticals and
biopharmaceuticals are subject to varying degrees of government control. Healthcare reform and controls on healthcare spending may
limit the price we charge for any products and the amounts thereof that we can sell. In particular, in the United States, the
federal government and private insurers have changed and have considered ways to change, the manner in which healthcare services are
provided. In March 2010, ACA became law in the United States. ACA substantially changes the way healthcare is financed by both
governmental and private insurers and significantly affects the healthcare industry. The provisions of ACA of importance to our
potential product candidates include the following:
In
addition, other legislative changes have been proposed and adopted since ACA was enacted. On August 2, 2011, the Budget Control Act of
2011, created, among other things, measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked
with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required
goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions
to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. On January 2, 2013, President Obama signed into law
the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years. The Medicare Access and
CHIP Reauthorization Act of 2015 was signed into law on April 16, 2015 and implemented the most significant change in Medicare reimbursement
since the ACA was enacted. This 2015 law authorizes a new Medicare pay-for-performance reimbursement system for physicians, which
will reward physicians for performance on metrics related to quality of care, resource use, meaningful use of electronic medical records,
and clinical practice improvement activities. The Bipartisan Budget Act was enacted on November 2, 2015, and among provisions, restricts
the types of facilities that may receive hospital reimbursement under Medicare. The ACA also initially included premium tax credits that
were designed to lower monthly insurance premiums for individuals and families. These tax credits were initially expanded in 2021 and
extended by the Inflation Reduction Act of 2022. However, these enhanced premium tax credits expired on December 31, 2025, and are expected
to increase monthly health insurance premiums in the future for individuals and families. These laws may result in additional reductions
in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial
operations.
There
is currently a push at the federal level to increase health care pricing transparency. President Trump issued Executive Order 14221,
“Making America Healthy Again by Empowering Patients with Clear, Accurate, and Actionable Healthcare Pricing Information,”
which asks the Secretaries of Treasury, Labor, and Health and Human Services to “require the disclosure of the actual prices of
items and services, not estimates; issue updated guidance or proposed regulatory action ensuring pricing information is standardized
and easily comparable across hospitals and health plans; and issue guidance or proposed regulatory action updating enforcement policies
designed to ensure compliance with the transparent reporting of complete, accurate, and meaningful data.” This effort may affect
reform on the payments systems under which we generate revenue from drug sales.
Any
reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers.
In the future, the U.S. government may institute further controls and different reimbursement schemes and limits on Medicare and Medicaid
spending or reimbursement that may affect the payments we could collect from sales of any products in the United States.
The
Department of Health and Human Services Office of Inspector General issued final regulations on November 30, 2020 to eliminate safe harbor
protection under the anti-kickback statute for drug price reductions that pharmaceutical manufacturers pay to Medicare and Medicaid plan
sponsors and their pharmacy benefit managers. The proposal reflects a clear intent to substantially alter many of the current drug discount
and services compensation practices among pharmaceutical manufacturers and Medicare and Medicaid managed care organizations and their
pharmacy benefit managers. The proposal also reflects a skepticism that current drug discount and compensation practices among manufacturers
and pharmacy benefit managers are sufficiently transparent to health plans to ensure that all appropriate cost reductions and value is
passed through to health plans and reflected in lower health plans costs and lower premiums for beneficiaries. The Infrastructure Investment
and Jobs Act enacted in 2021 delayed the potential effective date of the proposal until January 1, 2026, and the Inflation Reduction
Act of 2022 further delayed potential implementation of the rule until 2032. If the regulation becomes effective, it could result in
lower prices for pharmaceutical products in general.
Furthermore,
the Consolidated Appropriations Act, 2026, enacted in February 2026, introduced landmark federal PBM reforms. These include requirements
for 100% rebate pass-through to certain plan sponsors and a transition toward de-linking PBM compensation from drug list prices in Medicare
Part D. These shifts in PBM incentives may adversely affect our products’ formulary positioning and net pricing. The Centers for
Medicare and Medicaid Services issued an interim final rule on November 20, 2020, that would tie prices for certain drugs under Medicare
Part B to the lowest price for those drugs available in certain countries that are members of the Organization for Economic Co-operation
and Development. This rule was rescinded in December 2021, but a similar rule was reproposed on December 23, 2025. If resurrected, any
similar proposal could result in lower prices for pharmaceutical products in general.
The
Inflation Reduction Act of 2022 (Pub. L. No. 117-169) includes a number of provisions aimed at lowering prescription drug costs and reducing
government spending on drugs. This includes a requirement that the Department of Health and Human Services negotiate a “maximum
fair price” with drug manufacturers for certain single-source brand drugs or biologics without generic or biosimilar competitors
that are covered under Medicare Part D and Part B. This pricing began in 2026 for Medicare Part D and will begin in 2028 for Medicare
Part B. An excise tax is imposed on drug manufacturers that fail to comply with the required negotiation process. In August 2023 the
Biden Administration released the first round of drugs subject to this new Medicare Drug Pricing Negotiation Program. In addition, the
law requires drug manufacturers to pay a rebate to the federal government if the price for almost all drugs covered under Medicare Part
D (starting in 2022), and single-source drug or biologics covered under Medicare B (starting in 2023), increase greater than the inflation
rate. The rebate amount equals the number of drug units sold in Medicare multiplied by the amount the drug’s price exceeds the
inflation-adjusted price. The law also modifies the Medicare Part D benefit structure to cap the amount beneficiaries must spend on drug
costs and increase the discounts manufacturers are required to pay. The Inflation Reduction Act of 2022 signals an increased desire to
control the prices and costs associated with pharmaceutical products. A number of states have adopted drug affordability legislation
which permits a drug affordability board to implement or recommend upper payment limits for drugs identified as posing affordability
challenges. As of January 1, 2026, the first round of ‘maximum fair prices’ negotiated under the Inflation Reduction Act
became effective for ten high-spend Medicare Part D drugs. Additionally, several state-level Prescription Drug Affordability Boards have
transitioned from study to enforcement, with states like Colorado and Maryland implementing their first “Upper Payment Limits”
on specific therapies. The expansion of these federal and state pricing controls could significantly reduce our revenue potential. This
legislation, as well as any future statutes or regulations at the federal or state level, may impact reimbursement for our product candidates
and may challenge our ability to realize an appropriate return on our investment in research and product development. Any further legislative
or administrative action to reduce reimbursement or health benefits to beneficiaries under the Medicare or Medicaid program could affect
the payment we could collect from sale of any product in the United States.
The
One Big Beautiful Bill Act (the “OBBBA”) became law on July 4, 2025 and extended the tax cuts to corporations and individuals
provided by the Tax Cuts and Jobs Act of 2017 which were set to expire at the end of 2025. The OBBBA is expected to be paid for in part
by significant cuts to health care programs such as Medicaid; however, it is not possible to summarize or describe the wide-reaching
impact of the OBBBA at this time. However, it is generally predicted that the OBBBA will lead to higher rates of Medicaid disenrollment
due to tighter eligibility rules. ACA marketplace costs are expected to rise, insurers may exit marketplaces created by the ACA, and
our financial operations may face financial pressure due to declining demand.
Our
Licensees’ ability to commercialize TLANDO may be limited.
Our
Licensee partners’ ability to commercialize TLANDO or obtain marketing approval outside of the United States is uncertain. Our
Licensees’ ability to successfully commercialize TLANDO is contingent upon numerous factors including, among other things, the
completion of post-marketing studies, the availability of supplies, commercial acceptance by patients, the medical community, and third-party
payors, and the resources that our Licensee devotes to the commercialization of TLANDO. In addition, our licensees’ commercialization
activities may be adversely affected by tariffs and other restrictions on international trade, particularly with respect to the import
of TLANDO for sale in the U.S. If our Licensees are unable to successfully commercialize TLANDO at scale, our business and operations
could be adversely affected.
We
will not be able to successfully commercialize our product candidates without establishing sales, marketing and market access capabilities
internally or through collaborators.
We
currently do not have sales, marketing and market access staff. If and when any of our product candidates are commercialized, we may
not be able to find suitable sales and marketing staff and collaborators for our product candidates. The outside collaborators we work
with, including Verity under the Verity License Agreement with respect to TLANDO, may not be adequate or successful and any collaborators
could terminate or materially reduce the effort they direct to our products. The development of collaborations or an internal sales force
and marketing, market access and sales capability will require significant capital, management resources and time. The cost of establishing
such a sales force may exceed any potential product revenues and our marketing, market access and sales efforts may be unsuccessful.
If we are unable to develop an internal marketing, market access and sales capability or if we are unable to enter into a marketing and
sales arrangement with a third party on acceptable terms, we may be unable to successfully commercialize our product candidates.
Even
if we receive marketing approval in the United States, we may never receive regulatory approval to market our products outside the United
States, which could reduce the size of our potential markets and have a material adverse impact on our business.
In
order to market any products outside of the United States including South Korea, the GCC countries, and Brazil, our licensees must establish
and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy.
Approval
procedures vary among countries and can involve additional product candidate testing and additional administrative review periods. The
time required to obtain approvals in other countries might differ from that required to obtain FDA approval. The marketing approval process
in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. In
particular, in many countries outside of the United States, products must receive pricing and reimbursement approval before the product
can be commercialized. This can result in substantial delays in such countries. Marketing approval in one country does not ensure marketing
approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory
process in others. Failure to obtain marketing approval in other countries or any delay or setback in obtaining such approval would impair
our ability to market our products in such foreign markets. Any such impairment would reduce the size of our potential markets, which
could have an adverse impact on our business, results of operations and prospects.
We
are subject to stringent government regulations concerning the clinical testing of our products and will continue to be subject to government
regulation of any product that receives regulatory approval.
Numerous
statutes and regulations govern human testing and the manufacture and sale of human therapeutic products in the United States and other
countries where we intend to market our products. Such legislation and regulation bears upon, among other things, the approval of clinical
study protocols and human testing of our products, the approval of manufacturing facilities, testing procedures and controlled research,
the review and approval of manufacturing, preclinical and clinical data prior to marketing approval, including adherence to cGMP during
production and storage, and marketing activities including advertising and labeling.
Clinical
trials may be delayed or suspended at any time by us or by the FDA or by other similar regulatory authorities if it is determined at
any time that patients may be or are being exposed to unacceptable health risks, including the risk of death, or if compounds are not
manufactured under acceptable cGMP conditions or with acceptable quality. Current regulations relating to regulatory approval may change
or become more stringent. The agencies may also require additional clinical trials to be run in order to provide additional information
regarding the safety, efficacy or equivalency of any compound for which we seek regulatory approval. Moreover, any regulatory approval
of a drug which is eventually obtained may entail limitations on the indicated uses for which that drug may be marketed. Furthermore,
product approvals may be withdrawn or limited in some way if problems occur following initial marketing or if compliance with regulatory
standards is not maintained. Regulatory agencies could become more risk adverse to any side effects or set higher standards of safety
and efficacy prior to reviewing or approving a product. This could result in a product not being approved.
If
we, or any future marketing collaborators or CMOs, fail to comply with applicable regulatory requirements, we may be subject to sanctions
including fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production,
civil penalties, suspension or withdrawals of previously granted regulatory approvals, warning or untitled letters, refusal to approve
pending applications for marketing approval of new products or of supplements to approved applications, import or export bans or restrictions,
and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing or sale of our products.
The
successful commercialization of our product candidates and ability to generate significant revenue will depend on achieving market acceptance.
Even
if our product candidates are successfully developed and receive regulatory approval, they may not gain market acceptance among physicians,
patients, healthcare payers such as private insurers or governments and other funding parties and the medical community. The degree of
market acceptance for our products, if approved, will depend on a number of factors, including:
● the prevalence and severity of any adverse side effects;
● limitations or warnings contained in the labeling approved by the FDA;
● pricing and cost effectiveness;
● our ability to increase awareness of our products through marketing efforts;
● our ability to obtain sufficient third-party coverage or reimbursement; and
If
our product candidates are approved but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients,
we may not generate sufficient revenue from our products and we may never become or remain profitable. In addition, our efforts to educate
the medical community and third-party payors on the benefits of our products may require significant resources and may never be successful.
Even
if we obtain marketing approval for our products, physicians and patients using existing products may choose not to switch to our products.
Physicians
often show a reluctance to switch their patients from existing drug products even when new and potentially more effective and convenient
treatments enter the market. Also, physicians may be reluctant to switch patients if adequate reimbursement for new products is not available.
In addition, patients often acclimate to the brand or type of drug product that they are currently taking and do not want to switch unless
their physicians recommend switching products or they are required to switch drug treatments due to lack of reimbursement for existing
drug treatments and only if the new product has adequate reimbursement. The existence of either or both of physician or patient reluctance
in switching to our products could have an adverse effect on our operating results and financial condition.
The
FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found
to have improperly promoted off-label uses, 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
product candidates. In particular, a 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. The FDA may impose further requirements or restrictions on the distribution or
use of our product candidates as part of a REMS plan, such as limiting prescribing to certain physicians or medical centers that have
undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll
in a registry. If we receive marketing approval for our product candidates, physicians may nevertheless prescribe our products to their
patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become
subject to significant liability, including potential liability under federal civil and criminal false claims acts. The federal government
has levied large civil and criminal fines against companies for alleged improper promotion 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.
If
we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws,
we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
As
a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid
or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by
both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
Because
of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is possible that some of our business
activities could be subject to challenge under one or more such laws. To the extent that any of our product candidates is ultimately
sold in countries other than the United States, we may be subject to similar laws and regulations in those countries. If we or our operations
are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject
to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, exclusion from participating in government
healthcare programs, contractual damages, reputational harm and the curtailment or restructuring of our operations. Any penalties, damages,
fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial
results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks
cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving
and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
The
Department of Health and Human Services Office of Inspector General proposed new regulations on February 6, 2019 to eliminate safe harbor
protection under the anti-kickback statute for drug price reductions that pharmaceutical manufacturers pay to Medicare and Medicaid plan
sponsors and their pharmacy benefit managers. The proposal reflects a clear intent to substantially alter many of the current drug discount
and services compensation practices among pharmaceutical manufacturers and Medicare and Medicaid managed care organizations and their
pharmacy benefit managers. The proposal also reflects a skepticism that current drug discount and compensation practices among manufacturers
and pharmacy benefit managers are sufficiently transparent to health plans to ensure that all appropriate cost reductions and value is
passed through to health plans and reflected in lower health plans costs and lower premiums for beneficiaries. If the proposal is finalized,
it could result in lower prices for pharmaceutical products in general. The Infrastructure Investment and Jobs Act enacted in 2021 delayed
the potential effective date of the proposal until January 1, 2026, and the Inflation Reduction Act of 2022 further delayed potential
implementation of the rule until 2032. If the regulation becomes effective, it could result in lower prices for pharmaceutical products
in general.
Any
further legislative or administrative action to reduce reimbursement or health benefits to beneficiaries under the Medicare or Medicaid
program could affect the payment we could collect from sale of any product in the United States.
Our
future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate
qualified personnel.
We
are highly dependent on Dr. Mahesh V. Patel and the other principal members of our executive team. Employment with our executives and
other employees are “at will,” meaning that there is no mandatory fixed term and their employment with us may be terminated
by us or by them for any or no reason. The loss of the services of any of our executives or other key employees might impede the achievement
of our research, development and commercialization objectives. Recruiting and retaining qualified scientific personnel and accounting
personnel will also be critical to our success. We may not be able to attract and retain qualified personnel on acceptable terms, or
at all, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition
for the hiring of scientific personnel from universities and research institutions. Failure to succeed in clinical trials may make it
more challenging to recruit and retain qualified scientific personnel.
In
addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development
and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under
consulting or advisory contracts with other entities that may limit their availability to us.
Federal
legislation and actions by state and local governments may permit re-importation of drugs from foreign countries into the United States,
including foreign countries where the drugs are sold at lower prices than in the United States, which could materially adversely affect
our operating results.
Our
licensing partner may face competition for TLANDO from lower priced T-replacement therapies from foreign countries that have placed price
controls on pharmaceutical products. The Medicare Prescription Drug Improvement and Modernization Act of 2003 contains provisions that
may change U.S. importation laws and expand pharmacists’ and wholesalers’ ability to import lower priced versions of an approved
drug and competing products from Canada, where there are government price controls. These changes to U.S. importation laws will not take
effect unless and until the Secretary of Health and Human Services certifies that the changes will pose no additional risk to the public’s
health and safety and will result in a significant reduction in the cost of products to consumers. In September 2020, the Secretary of
Health and Human Services made the required certification, and the FDA subsequently issued a final rule to implement these importation
provisions. In January 2024, the FDA authorized the first state-run Section 804 Importation Program (“SIP”) for Florida.
As of 2026, the FDA has authorized or is currently reviewing similar programs for several other states, including Colorado and Maine.
A
number of federal legislative proposals have been made to implement the changes to the U.S. importation laws without any certification
and to broaden permissible imports in other ways. Even if the changes do not take effect, and other changes are not enacted, imports
from Canada and elsewhere may continue to increase due to market and political forces, and the limited enforcement resources of the FDA,
U.S. Customs and Border Protection and other government agencies. For example, Pub. L. No. 111-83, which was signed into law in October
2009, provides appropriations for the Department of Homeland Security for the 2010 fiscal year, expressly prohibits U.S. Customs and
Border Protection from using funds to prevent individuals from importing from Canada less than a 90-day supply of a prescription drug
for personal use, when the drug otherwise complies with the Federal Food, Drug, and Cosmetic Act. Further, several states and local governments
have implemented importation schemes for their citizens, and following the FDA’s formal authorization of state-run programs, we
expect additional states and local governments to seek and launch similar importation efforts. In April 2025, Executive Order 14273 further
directed the FDA to streamline the SIP process to make it easier for states to obtain authorization, which may increase the volume of
imported products entering the U.S. market.
The
importation of foreign products that compete with our products could have an adverse effect on our revenue and profitability.
We
may become subject to the risk of product liability claims.
We
face an inherent risk of product liability as a result of the clinical testing of our product candidates and face an even greater risk
on commercialized products. Human therapeutic products involve the risk of product liability claims and associated adverse publicity.
Currently, the principal risks we face relate to patients in our clinical trials, who may suffer unintended consequences. Claims might
be made by patients, healthcare providers or pharmaceutical companies or others. We may be sued if any product we develop allegedly causes
injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale.
For
example, to our knowledge, HPC has not been administered orally in a published clinical trial in any pregnant woman for the prevention
of PTB. We cannot be certain of the safety profile upon single oral or multiple oral administration of LPCN 1107 to the patient or the
fetus and its long term side effects on the mother as well as the child because (i) oral performance of LPCN 1107 may be substantially
different from efficacy and/or safety standpoint compared to previously commercialized intramuscular HPC, Makena, and (ii) oral delivery
of HPC could have a very different PK and/or pharmacodynamic profile that has never been experienced with non-oral administration of
HPC, thus having its own significant liability exposure independent of known safety of non-oral HPC in humans.
Any
product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent
in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection
acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required
to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management
resources. Regardless of the merits or eventual outcome, liability claims may result in:
● decreased demand for our product candidates;
● injury to our reputation;
● withdrawal of clinical trial participants;
● initiation of investigations by regulators;
● costs to defend the related litigation;
● a diversion of management’s time and our resources;
● substantial monetary awards to trial participants or patients;
● loss of revenues from product sales; and
● the inability to commercialize any of our product candidates, if approved.
We
may not have or be able to obtain or maintain sufficient and affordable insurance coverage, and without sufficient coverage any claim
brought against us could have a materially adverse effect on our business, financial condition or results of operations. We run clinical
trials through investigators that could be negligent through no fault of our own and which could affect patients, cause potential liability
claims against us and result in delayed or stopped clinical trials. We are required in many cases by contractual obligations, to indemnify
collaborators, partners, third party contractors, clinical investigators and institutions. These indemnifications could result in a material