Item 1A. Risk Factors.
Risk Factors Summary
We are subject to a number
of risks that could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results
to differ materially from those contained in forward-looking statements we have made in this Form 10-K and those we may make from time
to time. The success of our product candidates will depend on a variety of factors. We do not have complete control over many of these
factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual
property rights and the manufacturing, marketing, distribution and sales efforts of any current or future collaborator. In addition, some
of the factors, events and contingencies discussed below may have occurred in the past, but the disclosures below are not representations
as to whether or not the factors, events or contingencies have occurred in the past and instead reflect our beliefs and opinions as to
the factors, events, or contingencies that could materially and adversely affect us in the future.
The following summary is
not exhaustive and is qualified by reference to the full set of risk factors set forth in Item 1A “Risk Factors” of this Form
10-K. Please carefully consider all the information in this Form 10-K, including the full set of risks set forth in the “Risk Factors”
section and in our other filings with the U.S. Securities and Exchange Commission (“SEC”), before making an investment decision
regarding the Company.
Risks Related to Our
Financial Condition and Capital Requirements
Risks Related to Clinical
Development, Regulatory Approval and Commercialization
Risks Related to Government
Regulations
Risks Related to Our
Intellectual Property
● Our technology licensed from third parties may be subject to retained rights.
Risks Related to Our
Reliance on Third Parties
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Risks Related to Employee
Matters, Managing Growth, Other Risks Related to Our Business, and Risks Related to Owning Our Common Stock
Risk Factors
Risks Related to Our Financial
Condition and Capital Requirements
We are a clinical
stage biopharmaceutical company with a limited operating history on which to assess our business; our clinical trials are ongoing, we
have no products approved for commercial sale, we have historically incurred losses, and we anticipate that we will continue to incur
significant losses for the foreseeable future. Moreover, we have never generated revenue from product sales and may never be profitable.
We are a clinical stage biopharmaceutical
company with a limited operating history. We will need to raise substantial additional capital to continue to fund our operations in the
future. We have based our estimates on assumptions that may prove to be wrong and we could exhaust our available financial resources sooner
than we currently anticipate. We have devoted substantially all of our financial resources to identifying, acquiring, and developing our
product candidates, organizing and staffing our company, and providing general and administrative support for our operations.
Additional capital may not
be available in sufficient amounts or on reasonable terms, if at all. The current market environment for small and midcap biotechnology
companies and broader macroeconomic factors may preclude us from successfully raising additional capital on the timeline we require. For
example, escalating geopolitical tensions, elevated interest rates, and economic and regulatory uncertainty have caused market volatility.
Such volatility can have an adverse effect on the ability to raise capital, particularly in the biotechnology and biopharmaceutical industries.
In addition, it may be difficult for us to raise additional capital if we experience any issues that delay or prevent the regulatory approval
or our ability to commercialize any of our product candidates.
Biopharmaceutical product development is a highly speculative undertaking
and involves a substantial degree of risk. We expect our losses to increase as our product candidates enter advanced clinical trials.
It may be several years, if ever, before we complete pivotal clinical trials or have a product candidate approved for commercialization.
We expect to invest significant funds into the research and development of our programs to determine the potential to advance product
candidates to regulatory approval. If we obtain regulatory approval to market a product candidate, our future revenue will depend upon
the size of approved markets, and our ability to achieve sufficient market acceptance, pricing, coverage and adequate reimbursement from
third-party payors, and adequate market share for our products. However, even if we obtain adequate market share for our products,
we may never become profitable despite obtaining such market share and acceptance of our products.
We expect to continue to
incur significant expenses and increasing operating losses for the foreseeable future and our expenses will increase substantially if
and as we:
● seek to maintain, protect, and expand our intellectual property portfolio; and
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If we are unable to raise
additional capital when required or on acceptable terms, we may be required to curtail our product development activities and other activities
commensurate with the magnitude of the shortfall and our product development activities may cease altogether, which could materially harm
our business, financial condition, and results of operations. To the extent that the costs of our activities exceed our current estimates
and we are unable to raise sufficient additional capital to cover such costs, we will need to reduce operating expenses, sell assets,
enter into strategic transactions, or effect a combination of the above. No assurance can be given that we will be able to enter into
any of such transactions on acceptable terms, if at all. Any of the following events could have a material adverse effect on our business,
operating results, and prospects:
● filing for bankruptcy or ceasing operations altogether.
Even if we are successful
in raising additional capital, the amount of capital we raise may be limited or restricted due to investor demand, market conditions, or other
factors.
Raising additional
capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights.
To the extent that we raise additional capital through the sale of equity securities or convertible debt securities, the ownership interest
of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect
the rights of holders of our common stock. Debt financing and preferred equity financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures,
or declaring dividends. For example, in September 2024, we entered into a Securities Purchase Agreement with certain institutional and
accredited investors, whereby the investors purchased an aggregate of 5,600,000 shares of common stock, 2,439 shares of Series A Preferred
Stock and pre-funded warrants to purchase an aggregate of 680,000 shares of common stock and in November 2024, each outstanding share
of Series A Preferred Stock converted into 1,000 shares of common stock. Furthermore, in September 2025, we entered into a Securities
Purchase Agreement with certain institutional and accredited investors, whereby the investors purchased an aggregate of 10,933,405 shares
of our common stock and pre-funded warrants to purchase 1,066,666 shares of common stock. In addition, in October 2025, we entered into
a sales agreement with TD Securities (USA) LLC acting as our sales agent pursuant to which we may issue and sell shares of our common
stock from time to time through an at-the-market equity offering program, for aggregate gross proceeds of up to $200.0 million, under
which we have sold shares of our common stock resulting in net proceeds of $38.9 million as of March 2026.
Moreover, if we raise additional
funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required
to relinquish valuable rights to our research programs or product candidates or grant licenses on terms that may not be favorable to us.
Risks Related to Clinical
Development, Regulatory Approval and Commercialization
We face competition
from entities that have developed or may develop programs for the diseases addressed by our product candidates.
The development and commercialization
of drugs is highly competitive. If approved, our product candidates will face significant competition and our failure to effectively compete
may prevent us from achieving significant market penetration. Many of the companies with which we are currently competing or will compete
against in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical
testing, clinical trials, regulatory approvals, and marketing than we do. Mergers and acquisitions in the pharmaceutical and biotechnology
industry may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These
competitors also compete with us in establishing clinical trial sites, recruiting participants for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our product candidates.
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Our competitors have developed,
are developing, or may develop programs and processes that compete with ours. Our success will depend partially on our ability to develop
and commercialize products that have a competitive safety, efficacy, dosing and/or presentation profile. Our commercial opportunity and
success may be reduced or eliminated if competing products are safer, more effective, have a more attractive dosing profile or presentation,
or are less expensive than our products, or if biosimilars enter the market and achieve broader or more rapid market acceptance than our
products.
Our product candidates
may fail in development or suffer delays. We depend on the successful initiation and completion of clinical trials for our product candidates
to advance our product development plans.
We expect it will be many years
before we can obtain regulatory approval for and commercialize any product candidate, if ever. Clinical testing is expensive, difficult
to design and implement, and can take years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials
can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of
later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, 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 marketing approval for their products.
We may experience a number
of events affecting our product development timeline, including the following:
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If our clinical trials do not produce favorable results, our ability
to obtain regulatory approval for our product candidates will be adversely impacted. Moreover, the combined data from our trials may be
inconclusive or may not be sufficient to ultimately gain marketing approval from the FDA or other regulatory authorities. There are equivalent
processes and risks applicable to clinical trial applications in other countries outside of the United States, including the European
Union (“EU”).
In addition, in part due to the competitive landscape for immunology
and inflammation (commonly referred to as “I&I”) indications, we may also face increased competition for clinical trial
enrollment. Clinical trial enrollment will depend on many factors, including if potential clinical trial participants choose to undergo
treatment with approved products or enroll in competitors’ clinical trials for programs that are under development for the same
indications as our programs. An increase in the number of approved products for the indications we are targeting with our programs may
further exacerbate this competition. Our inability to enroll a sufficient number of participants could, among other things, delay our
development timeline, which may further harm our competitive position and have an adverse effect on our business and operations.
We are substantially
dependent on the success of our two most advanced programs, ORKA-001 and ORKA-002, and our clinical trials of such programs may not be
successful.
Our future success is substantially
dependent on our ability to develop and timely obtain marketing approval for, and then successfully commercialize, our two most advanced
programs, ORKA-001 and ORKA-002. We are investing the majority of our efforts and financial resources into the research and development
of these programs. Our Phase 1 clinical trial of ORKA-001 in healthy volunteers is fully enrolled and is ongoing for purposes of continued
patient follow-up and data collection, and remains blinded. Our Phase 2a clinical trial of ORKA-001 in patients with moderate-to-severe
psoriasis (“PsO”) remains ongoing and we commenced dosing in a dose-ranging Phase 2b trial of ORKA-001 in moderate-to-severe
PsO in the fourth quarter of 2025.
Our Phase 1 clinical trial
of ORKA-002 in healthy volunteers is fully enrolled and remains ongoing for purposes of continued patient follow-up and data collection,
and remains blinded. In addition, we expect to commence a Phase 2 clinical trial of ORKA-002 in patients with moderate-to-severe PsO in
the first half of 2026 and plan to initiate a Phase 2 clinical trial of ORKA-002 in hidradenitis suppurativa (“HS”) in
the second half of 2026.
Currently, we believe that the success of our programs is dependent
on our product candidates demonstrating a longer half-life in humans than monoclonal antibodies currently marketed and in development
as we believe this longer half-life has the potential to result in a more favorable dosing schedule for our product candidates, assuming
they successfully complete clinical development and obtain marketing approval. To the extent we do not observe this extended half-life,
it would significantly and adversely affect the clinical and commercial potential of our product candidates.
If we do not achieve our projected development goals in the time frames
we announce or expect, the development and potential commercialization of our product candidates may be delayed and our expenses may increase
and, as a result, our business may be materially harmed and our stock price may decline.
From time to time, we announce the timing of the anticipated accomplishment
of various scientific, clinical, regulatory, or other product development goals, which we sometimes refer to as milestones. These milestones
may include the commencement or completion of scientific studies and clinical trials, such as the expected timing of our clinical trials
in our target indications, anticipated data analysis, and the data results from our clinical trials, as well as the submission of regulatory
filings. All of these milestones are and will be based on numerous assumptions. The actual timing of these milestones can vary dramatically
compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones or the timing of the milestones
as publicly announced, the development and potential commercialization of our product candidates may be delayed or never achieved
and, as a result, our business may be materially harmed and our stock price may decline. Additionally, delays relative to our projected
timelines are likely to cause overall expenses to increase, which may require us to raise additional capital sooner than expected and
on terms less than desirable, and prior to achieving targeted development milestones.
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Any drug delivery device
that we may use to deliver our product candidates may have its own regulatory, development, supply and other risks.
We are delivering and expect
to continue to deliver, our product candidates via a drug delivery device, such as pre-filled syringe, an injector, or other delivery
system. We currently expect to utilize drug delivery devices authorized for marketing under clearances of approvals held by third parties.
Where approval of a drug product and device is sought under a single application, the increased complexity of the review process may delay
approval. Our product candidates may not be approved or may be substantially delayed in receiving approval if the devices that we choose
to develop do not gain and/or maintain their own regulatory approvals or clearances. In addition, some drug delivery devices are provided
by single-source third-party companies. We may be dependent on the sustained cooperation and effort of those third-party companies both
to supply the devices and, in some cases, to conduct the studies required for approval or other regulatory clearance of the devices. Even
if approval is obtained for our products, we may also be dependent on those third-party companies continuing to maintain such approvals
or clearances, if required, for their drug delivery devices once they have been received. Moreover, there may be unforeseen technical
complications related to the development activities required to bring such a product to market, including primary container compatibility
and/or dose volume requirements. Failure of third-party companies to supply the devices on time and in accordance with the agreed-upon
specifications, to successfully complete studies on the devices in a timely manner, or to obtain or maintain required approvals or clearances
of the devices could result in increased development costs, delays in or failure to obtain regulatory approval and delays in product candidates
reaching patients.
Our approach to the discovery and development of our lead programs
is unproven, and we may not be successful in our efforts to build a pipeline of programs with commercial value.
We have worked with Paragon
to leverage clinically validated mechanisms of action and incorporate advanced antibody engineering to optimize half-life and other properties
designed to overcome limitations of existing therapies. We have entered into antibody discovery and option agreements (the “Option
Agreements”) with Paragon Therapeutics, Inc. (“Paragon”) and Paruka Holding LLC to facilitate the discovery and development
of certain research programs with respect to which we have signed a license agreement with Paragon. Our two most advanced programs, ORKA-001
and ORKA-002, are licensed from Paragon and are purposefully designed to improve upon existing product candidates and products while maintaining
the same, well-established mechanisms of action. However, the scientific research that forms the basis of our efforts to develop programs
using half-life extension technologies is ongoing and may not result in viable programs. There is limited clinical data available on product
candidates utilizing half-life extension technologies, especially in I&I indications, demonstrating whether they are safe or effective
for long-term treatment in humans. The long-term safety and efficacy of these technologies and the extended half-lives and exposure profiles
of our programs compared to currently approved products are unknown.
We may ultimately discover
that utilizing half-life extension technologies for our specific targets and indications and any programs resulting therefrom does not
possess certain properties required for therapeutic effectiveness. In addition, programs using half-life extension technologies may demonstrate
different chemical and pharmacological properties in human participants than they do in laboratory studies or preclinical studies, including
the inability to demonstrate the same chemical and pharmacological properties in humans or the potential interaction with human biological
systems in unforeseen, ineffective, or harmful ways.
If the products resulting
from the research programs with respect to which we have signed license agreements with Paragon prove to be ineffective, unsafe or commercially
unviable, such programs would have little, if any, value, which would have a material and adverse effect on our business, financial condition,
results of operations, and prospects.
In addition, we may in the future seek to discover and develop programs
that are based on novel targets and in the technologies that are unproven. If our discovery activities fail to identify novel targets
or technologies for drug discovery, or such targets prove to be unsuitable for treating human disease, we may not be able to develop viable
additional programs.
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Preclinical and clinical development involves a lengthy and expensive
process that is subject to delays and uncertain outcomes and results of earlier studies and trials may not be predictive of future clinical
trial results. Further, if our preclinical studies and clinical trials are not sufficient to support regulatory approval of any of our
product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development
of such product candidate.
We do not know whether any
clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any of our product
candidates. Clinical testing can take many years to complete, and its outcome is inherently uncertain. Our clinical trials may not be
conducted as planned or completed on schedule, if at all, and failure can occur at any time during the preclinical study or clinical trial
process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of
later-stage clinical trials and results in one indication may not be predictive of results to be expected for the same product candidate
in another indication. We plan to use the data from our current trials of our ORKA-001 and ORKA-002 programs to support further trials
in PsO, HS, and potentially other I&I indications. However, differences between early-stage clinical trials and later-stage clinical
trials, including differences in trial design, among other things, make it difficult to extrapolate the results of earlier clinical trials
to later clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to lack of efficacy or unfavorable safety profiles, notwithstanding promising results in earlier trials. Moreover, clinical
data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed
satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of such product candidates. In addition, we rely
on clinical trial site staff to measure psoriasis area severity index scores (PASI scores) and participants to provide feedback on measures
such as measures of quality of life, which may involve subjective interpretation and variability, although training and standardized measurements
will be provided to individuals in order to minimize subjectivity. Moreover, these measures can be influenced by factors outside of our
control, and can vary widely within a clinical trial.
We cannot be sure that the FDA, or comparable foreign regulatory authority,
as applicable, will agree with our clinical development plan. We cannot assure that the submission of an Investigational New Drug (IND)
application, clinical trial application, or similar application will result in the FDA or comparable foreign regulatory authorities, as
applicable, allowing clinical trials to begin in a timely manner, if at all. If the FDA and/or comparable foreign regulatory authority
requires us to materially modify our proposed trial designs, conduct additional trials or enroll additional participants, our development
timelines may be delayed. Moreover, even if these trials begin, issues may arise that could suspend or terminate such clinical trials,
including but not limited to delays or difficulties recruiting trial patients, delays or difficulties obtaining required IRB or ethics
committee approval at each clinical trial site, failure by third parties or us to adhere to clinical trial protocols or failure to perform
in accordance with current Good Clinical Practice or applicable regulatory requirements, or delays in reaching a consensus with regulatory
authorities on trial design or implementation of a clinical trial, or our third party vendors not satisfying their obligations to us.
We could also encounter delays if a clinical trial is required to
be materially modified or suspended or terminated by us, the IRBs, by a Data Safety Monitoring Board, if any, or by the FDA or comparable
foreign regulatory authorities. Such authorities may suspend, put on clinical hold, or terminate a clinical trial due to a number of
factors, including not aligning with or supporting our clinical trial designs or our failure to conduct the clinical trial in accordance
with regulatory requirements or our clinical trial protocols, inspection of the clinical trial operations or trial site by the FDA or
comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects,
failure to demonstrate a benefit, changes in governmental regulations or administrative actions or lack of adequate funding to continue
the clinical trial. If we are required to conduct additional clinical trials or other testing of our product candidates beyond those
that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates, if the results of
these trials are not positive or are only moderately positive, or if there are safety concerns, our business and results of operations
may be adversely affected and we may need to adjust or abandon our business plans and we may incur significant additional costs.
Our clinical development activities could be delayed or otherwise adversely
affected if we encounter difficulties enrolling and maintaining participants in our current and future clinical trials. We depend on
the successful completion of clinical trials for our product candidates.
Our inability to enroll and maintain a sufficient number of participants
who remain in a trial until conclusion would result in significant delays in completing clinical trials and increased development costs
or may require us to abandon one or more clinical trials altogether. The enrollment of participants in current or future trials for any
of our programs will depend on many factors, including if participants choose to enroll in our clinical trials, rather than using approved
products, or if our competitors have ongoing clinical trials for programs that are under development for the same indications as our programs
and participants instead enroll in such clinical trials. Even if we are able to enroll a sufficient number of participants for our clinical
trials, we may have difficulty maintaining participants in such clinical trials.
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Preliminary, “topline”, or interim data from our clinical
trials may change and are subject to audit and verification procedures, and should be viewed with caution until the final data are available.
Our interpretation of such data is based on assumptions that may evolve as additional data become available, which could result in changes
to conclusions regarding the safety, efficacy, timing, or likelihood of success of our clinical development programs.
From time to time, we may
publicly disclose preliminary or topline data from our preclinical studies and clinical trials that are based on a preliminary analysis
of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review
of the data. We may also make assumptions, estimations, calculations, and conclusions as part of our analyses of these data without the
opportunity to fully and carefully evaluate complete data. As a result, the preliminary or topline results that we report may differ from
future results of the same studies and our conclusions may change or be qualified as additional data are received, fully evaluated, and
subjected to audit and verification procedures.
We may also publicly disclose
interim data from our preclinical studies and clinical trials. Such interim data are inherently preliminary and subject to the risk that
one or more of the clinical outcomes may change as participant enrollment continues, additional data become available, as participants
from our clinical trials pursue other treatments, or further analyses are conducted. In addition, third parties, including regulatory
agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the
importance of data differently, which could impact the perceived value of the particular product candidate, the approvability or commercialization
of the particular product candidate, and our company and our business in general. In addition, others may not agree with what we determine
is material or otherwise appropriate information to include in our public disclosure of a particular preclinical study or clinical trial.
If the preliminary, topline, or interim data that we report differ
from actual results, or if final data or data from later stage clinical trials do not produce favorable results, our ability to obtain
approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or
financial condition.
Our clinical trials may reveal significant adverse events, undesirable
side effects, or patient intolerance not seen in our preclinical studies or earlier clinical trials, and may result in a safety profile
that could halt clinical development, inhibit regulatory approval, or limit commercial potential or market acceptance of any of our product
candidates. We do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory
approval to market any of our product candidates.
Results of our clinical trials
could reveal an unacceptable severity and prevalence of side effects or patient intolerance, adverse events, or unexpected characteristics,
and any of these occurrences could harm our business, financial condition, results of operations and prospects significantly. If significant
adverse events or other side effects are observed in any of our clinical trials, we may have difficulty recruiting participants to such
trials, participants may drop out of the trials, or we may have to suspend, materially modify or abandon the trials or our development
efforts of one or more programs altogether. We, the FDA or other applicable regulatory authorities, or an IRB, may suspend or require
the material modification of any clinical trials of any program or require that we repeat or conduct additional clinical trials at any
time for various reasons, including safety and health risks or exposure to adverse side effects.
Even if side effects do not
preclude the product candidate from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance
of the approved product due to their tolerability versus other therapies. Potential side effects associated with our product candidates
may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from our product candidates may
not be normally encountered in the general patient population and by medical personnel. In addition, an extended half-life could prolong
the duration of undesirable side effects, which could also affect our clinical trials or inhibit market acceptance.
In addition, even if we successfully
advance our product candidates through clinical trials, such trials will only include a limited number of participants and limited duration
of exposure to our product candidates. As a result, we cannot be assured that adverse effects of our product candidates will not be uncovered
when a significantly larger number of participants are exposed to the product candidate after approval and potentially over an extended
period of use. Further, any clinical trials may not be sufficient to determine the effect and safety consequences of using our product
candidates over a multi-year period or longer.
If any of the foregoing events occur or if one or more of our product
candidates prove to be unsafe, our pipeline could be affected, which would have a material adverse effect on our business, financial condition,
results of operations, and prospects.
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We may expend our limited
resources to pursue a particular program and fail to capitalize on programs that may be more profitable or for which there is a greater
likelihood of success.
We are initially focused on our most advanced programs, ORKA-001 and
ORKA-002, and as a result, we may forgo or delay pursuit of opportunities with other programs that later prove to have greater commercial
potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Our spending on current and future research and development programs for specific indications may not yield any commercially viable product
candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may be in
a position where we may have to relinquish valuable rights to that product candidate through collaboration, licensing or other arrangements
in cases in which we would have been more advantageous for us to retain sole development and commercialization rights to such product
candidate. We may never receive approval to market and commercialize any product candidate.
Any approved products
resulting from our programs may not achieve adequate market acceptance among clinicians, patients, healthcare third-party payors and others
in the medical community necessary for commercial success and we may not generate any future revenue from the sale or licensing of such
products.
Even if regulatory approval is obtained for a product candidate resulting
from one of our current or future programs, it may not gain market acceptance among physicians, patients, third-party payors or others
in the medical community. Market acceptance of our product candidates will depend on many factors, including factors that are not within
our control. Market participants with influence over acceptance of new treatments, such as clinicians and third-party payors,
may not adopt a biologic that incorporates half-life extension for our targeted indications, and we may not be able to convince the
medical community and third-party payors to accept and use, or to provide favorable reimbursement for, any programs developed by
us or our existing or future collaborators. Moreover, an extended half-life may make it more difficult for patients to change treatments
and there may be a perception that half-life extension could exacerbate side effects, each of which may adversely affect our ability
to gain market acceptance. Further, we may not generate or derive sufficient revenue from a product candidate and may not become or remain
profitable if such product candidate is approved, but does not achieve an adequate level of acceptance.
Certain of our programs
may compete with our other programs, which could negatively impact our business and reduce our future revenue.
We are developing product candidates for PsO, HS, and may in the future
develop our programs for other I&I indications. Each such program targets a different mechanism of action. However, developing multiple
programs for a single indication may negatively impact our business if the programs compete with each other. For example, concurrent clinical
trials across multiple programs may compete for the enrollment of participants. In addition, the approval of multiple product candidates
for the same indication could intensify market competition and limit our future revenues.
We are conducting, and may conduct in the future, clinical trials for
programs at sites outside the United States, subjecting us to additional risks that may delay or adversely affect our product development
timelines.
We are currently conducting
clinical trials outside the United States and may continue to do so in the future. Conducting clinical trials outside the United States
may expose us to additional operational and regulatory risks, including differing regulatory standards and review timelines and increased
complexity in ensuring compliance with applicable laws and data protection requirements. Although the FDA may accept data from clinical
trials conducted outside the United States, acceptance of this data is subject to conditions imposed by the FDA. If the FDA does not accept
the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would
be costly and time-consuming and would delay or permanently halt our development of the applicable product candidates. Even if the FDA
accepted such data, it could impose additional conditions, such as requiring us to modify our planned clinical trials to receive clearance
to initiate such trials in the United States or to continue such trials once initiated.
Further, conducting clinical trials outside of the United States presents
additional risks that may delay completion of our clinical trials. These risks include requirements for local ethics approvals, challenges
in monitoring trial conduct and data integrity across jurisdictions, including the potential failure of investigators or enrolled participants
in foreign countries to adhere to clinical protocol that could restrict or limit our ability to conduct our clinical trials, the administrative
burdens of conducting clinical trials under multiple sets of foreign regulations, potential restrictions, such as local privacy restrictions,
on data generated from the clinical trial, and diminished protection of intellectual property in some countries. Operations in foreign
jurisdictions are subject to additional risks, including dependence on third party manufacturers or suppliers outside of the United States,
as well as political and economic risks relevant to foreign countries.
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Risks Related to Government and Regulatory Matters
The regulatory approval
processes of the FDA and other comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable. We may not be
able to commercialize, or may be delayed in commercializing, our product candidates, and our ability to generate revenue may be materially
impaired if we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates.
The lengthy regulatory approval
process as well as the unpredictability of clinical trial results may result in our failing to obtain or be delayed in obtaining approval
to market our product candidates, which would significantly harm our business, results of operations and prospects. Before obtaining regulatory
approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical studies
and clinical trials that our product candidates are both safe and effective for each targeted indication. In addition, securing regulatory
approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities
by, the relevant regulatory authority. Of the large number of drugs in development, only a small percentage successfully complete the
FDA or foreign regulatory approval processes and are commercialized. Approval may never be obtained and the approval process can vary
substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. While there
are several approved products and product candidates in later stages of development for the treatment of PsO and for the treatment of
HS, our programs incorporate advanced antibody engineering to optimize the half-life and formulation of antibodies, and to date, no such
antibody has been approved by the FDA for the treatment of PsO or for HS.
The FDA and comparable foreign
regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that
our data are insufficient for approval and require additional preclinical, clinical, or other data. Our product candidates could be delayed
in receiving, or fail to receive, regulatory approval for many reasons, including: the failure to demonstrate that a product candidate’s
benefits outweigh safety risks; regulatory authorities may disagree with our interpretation of clinical data or the data collected may
not be acceptable or sufficient to support submission; or the results may not meet the level of statistical significance required for
approval by the relevant regulatory authorities or otherwise considered insufficient by the FDA or comparable foreign regulatory authorities.
Regulatory authorities may require the addition of labeling statements, such as a black box warning or other warnings or contraindications
that could diminish the usage of the product or otherwise limit the commercial success of the affected product.
Moreover, regulatory authorities may approve any of our product candidates
for fewer or more limited indications than we request, including failing to approve the most commercially promising indications, may grant
approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that
does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. If we are
not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not be able
to commercialize, or will be delayed in commercializing, our product candidates and our ability to generate revenue may be materially
impaired.
We may not be able
to meet requirements for the chemistry, manufacturing, and control of our programs.
In order to receive approval of our products by the FDA and comparable
foreign regulatory authorities, we must show that we and our CMO partners are able to characterize, control and manufacture our drug products
safely and in accordance with regulatory requirements. This includes, among other things, manufacturing the active ingredient, developing
an acceptable formulation, manufacturing the drug product, performing tests to adequately characterize the formulated product, documenting
a repeatable manufacturing process in larger quantities as we move forward in our development programs, and demonstrating that our drug
products meet stability requirements. As noted above, we may deliver our product candidates via a drug delivery device, which also requires
us to meet certain chemistry, manufacturing and control requirements set forth by the FDA and other foreign regulatory authorities. Meeting
these chemistry, manufacturing and control requirements is a complex task that requires specialized expertise. If we are not able to meet
the chemistry, manufacturing, and control requirements, we may not be successful in our clinical trials or getting our product candidates
approved by regulatory authorities.
Our product candidates
for which we intend to seek approval as biologics may face competition sooner than anticipated.
The Patient Protection and Affordable Care Act, as amended by the Healthcare
and Education Reconciliation Act (the “ACA”), includes a subtitle called the Biologics Price Competition and Innovation Act
(the “BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable
with an FDA-licensed reference biological product. Under the BPCIA, an application for a highly similar or “biosimilar”
product may not be submitted to the FDA until four years following the date that the reference product was first approved by the
FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on
which the reference product was first approved. During this 12-year period of exclusivity, another company may still market
a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own
preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of their
product.
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We believe that any of our
product candidates approved as biologics under a BLA should qualify for the 12-year period of exclusivity. However, there is
a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product
candidates to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated.
Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation.
Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference products in a way that is similar to
traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and
regulatory factors that are still developing.
Even if our product
candidates receive regulatory approval, we will remain subject to extensive ongoing regulatory obligations and continued regulatory review,
which could result in restrictions on the use of the products, significant additional expenses, and penalties if we fail to comply with
regulatory requirements or experience unanticipated issues with our product candidates.
If any of our product candidates
receive regulatory approval, we will remain subject to ongoing regulatory requirements imposed by the FDA and comparable foreign authorities.
These requirements may include post-approval safety and pharmacovigilance reporting, product labeling restrictions or warnings, risk management
requirements such as a Risk Evaluation and Mitigation Strategy (“REMS”), post-marketing commitments or additional studies
to further assess safety, efficacy, or real-world use, as well as compliance with applicable manufacturing and quality system regulations.
Regulatory authorities may also conduct periodic inspections of our
manufacturing facilities or those of our third-party manufacturers and may take enforcement action if we or such third parties fail to
comply with applicable regulatory requirements or if safety, quality, or manufacturing issues arise. Such actions could include labeling
changes, restrictions on use or distribution, clinical holds, recalls or withdrawal of products, warning or untitled letters, fines, penalties,
or other enforcement measures. Failure to comply with these ongoing obligations, or the emergence of unexpected safety or quality issues
after commercialization, could result in significant additional costs, limit our ability to commercialize, and may materially harm our
business.
Disruptions or changes at the FDA, the SEC and other government agencies
and regulatory authorities could hinder their ability to hire and retain key leadership and other personnel, prevent new products and
services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business
functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to
review regulatory filings and our ability to commence clinical trials can be affected by a variety of factors, including government budget
and funding levels, ability to hire and retain key personnel and accept the payment of user fees, statutory, regulatory and policy changes,
disruptions caused by government shutdowns and public health crises. There have been mass layoffs of federal government employees since
the start of the Trump administration in January 2025, the full impact of which is unclear at this time. Average review times at the agency
have fluctuated in recent years as a result. In addition, government funding of the SEC, and other government agencies on which our operations
may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid
and unpredictable. Furthermore, the Trump administration has made and is expected to continue to make changes in the leadership of various
U.S. federal regulatory agencies and changes to U.S. federal government policy that have led to, in some cases, legal challenges and uncertainty
around the funding, functioning and policy priorities of the U.S. federal regulatory agencies, including the FDA.
Disruptions at the FDA and other agencies or comparable foreign regulatory
authorities, may also slow the time necessary for the review and approval of applications for clinical trial or marketing authorization,
which would adversely affect our business. For example, in recent years, the U.S. government has experienced shut downs and funding lapses,
during which time certain regulatory agencies, such as the FDA and the SEC, furloughed critical employees and stopped critical activities.
Additionally, action by the Trump administration to limit federal agency budgets or personnel may result in reductions to the FDA’s
budget, employees, and operations, which may lead to slower response times and longer review periods, potentially affecting our ability
to progress development of our product candidates or obtain regulatory approval for our product candidates. If a prolonged government
shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could
have a material adverse effect on our business. Further, government shutdowns could impact our ability to access the public markets and
obtain necessary capital in order to properly capitalize and continue our operations.
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We are unable to predict
the extent to which the Trump administration may impose or seek to impose leadership or policy changes at the FDA or changes to rules
and policies impacting our business and operations. It is unclear how these executive actions or other potential actions by the federal
government will impact the FDA or other regulatory authorities that oversee our business. Government proposals to reduce or eliminate
budgetary deficits may include reduced allocations to the FDA and other related government agencies. These budgetary pressures may reduce
the FDA’s ability to perform its responsibilities, which could result in delays in our clinical trial timelines. If a significant
reduction in the FDA’s workforce occurs, the FDA’s budget is significantly reduced or a prolonged government shutdown occurs,
it could significantly impact the ability of the FDA to timely review and process our regulatory submissions or take other actions critical
to the development or manufacturing of our product candidates, which could have a material adverse effect on our business.
If a prolonged government
shutdown occurs, or if global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections,
reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely
review and process our regulatory submissions, which could have a material adverse effect on our business.
We may face difficulties
from legislative or regulatory reform measures.
We may be faced with additional
or changing regulatory and governmental regulations that could prevent, limit or delay regulatory approval of our product candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or
executive action, either in the United States or abroad. For example, the Trump administration has discussed several changes to the
reach and oversight of the FDA, which could affect its relationship with the pharmaceutical industry, transparency in decision making
and ultimately the cost and availability of prescription drugs. 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.
The price of pharmaceuticals
has been a topic of considerable public discussion that could lead to price controls or other price-limiting strategies by third-party
payors that have the effect of lowering payment and reimbursement rates for drugs or otherwise making the commercialization of pharmaceuticals
less profitable. Many federal and state legislatures have considered, and adopted, healthcare policies intended to curb rising healthcare
costs, such as the Inflation Reduction Act (“IRA”). These cost-containment measures may include, among other measures: requirements
for pharmaceutical companies to negotiate prescription drug prices with government healthcare programs; controls on government-funded
reimbursement for drugs; new or increased requirements to pay prescription drug rebates to government healthcare programs, including if
drug prices increase at a higher rate than inflation; controls on healthcare providers; challenges to or limits on the pricing of drugs,
including pricing controls or limits or prohibitions on reimbursement for specific products through other means; requirements to try less
expensive products or generics before a more expensive branded product; and public funding for cost effectiveness research, which may
be used by government and private third-party payors to make coverage and payment decisions. Political, economic and regulatory developments
may further complicate developments in healthcare systems and pharmaceutical drug pricing. These developments could, for example, impact
our potential licensing agreements as commercial and collaborative partners may also consider the impact of these pressures on their licensing
strategies.
Any new laws or regulations
that have the effect of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect
the industry, could adversely affect our ability to successfully commercialize our product candidates. The implementation of any price
controls, caps on prescription drugs or price transparency requirements could adversely affect our business, operating results and financial
condition.
Our business operations
and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations
and customers will be subject to applicable healthcare regulatory laws, including conflicts of interest rules, which could expose us to
penalties.
Our business operations and current and future arrangements with investigators,
healthcare professionals, consultants, third-party payors, patient organizations and customers may expose us to broadly applicable
healthcare laws and regulations, including conflict of interest laws. These laws may constrain the business or financial arrangements and
relationships through which we conduct our operations.
Principal investigators for
our clinical trials may serve as scientific advisors or consultants to us or may be affiliated with our other service providers, including
CROs or site management organizations, and from time to time may receive cash compensation in connection with such services. If these
relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at
the applicable clinical trial site or in the applicable trial may be questioned or jeopardized.
Ensuring that our internal operations and future business arrangements
with third parties comply with applicable healthcare laws and regulations will involve costs and management attention. If our operations
are found to be in violation of any of these laws or any other governmental laws and regulations that may apply to it, we may be subject
to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare
programs, integrity oversight, and reporting obligations to resolve allegations of non-compliance, disgorgement, individual
imprisonment, contractual damages, reputational harm, diminished profits, and the curtailment or restructuring of our operations. Further,
defending against any such actions can be costly and time-consuming and may require significant personnel resources. Therefore, even
if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
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Even if we are able
to commercialize any product candidates, we may be subject to unfavorable pricing regulations and/or third-party coverage and reimbursement
policies, and we may not be able to offer such product candidates at competitive prices, which could seriously harm our business.
We intend to seek approval to market our product candidates in the
United States and in selected foreign jurisdictions, and we will be subject to rules and regulations in those jurisdictions where
we obtain approval. Our ability to successfully commercialize any product candidates that we may develop will depend in part on the extent
to which reimbursement for these product candidates and related treatments will be available from government health administration authorities,
private health insurers, and other organizations. In some jurisdictions, government authorities and other third-party payors decide
which medications they will pay for and establish reimbursement levels, and have attempted to control costs by limiting coverage and the
amount of reimbursement for particular medications. These entities may create preferential access policies for a competitor’s product,
including a branded or generic/biosimilar product, over our products in an attempt to reduce their costs, which may reduce our commercial
opportunity. Additionally, if any of our product candidates are approved and we are found to have improperly promoted off-label uses
of those product candidates, we may become subject to significant liability, which could materially adversely affect our business and
financial condition.
We are subject to U.S. and
certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations.
We can face criminal liability and other serious consequences for violations, which can harm our business.
We are subject to export control and import laws and regulations, including
the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered
by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977,
as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the
U.S. Physician Payments Sunshine Act, and other state and national anti-bribery and anti-money laundering laws in the countries
in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents,
contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or
anything else of value to or from recipients in the public or private sector. We may engage third parties to sell our products outside
the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory
approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals,
universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors,
and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws
and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or
import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.
Governments outside
the United States tend to impose strict price controls, which may adversely affect our revenue, if any.
In some countries, particularly member states of the EU (“EU
Member States”), the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations
with governmental authorities can take considerable time after receipt of marketing approval for a therapeutic. In addition, there can
be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment
measures. Political, economic, and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue
after reimbursement has been obtained. Reference pricing used by various EU Member States and parallel distribution, or arbitrage between low-priced and
high-priced EU Member States, can further reduce prices. To obtain coverage and reimbursement or pricing approvals in some countries,
we or current or future collaborators may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of
our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts
by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication
and other countries. If reimbursement of any product candidate approved for marketing is unavailable or limited in scope or amount, or
if pricing is set at unsatisfactory levels, our business, financial condition, results of operations, or prospects could be materially
and adversely affected. If the UK or EU Member States were to significantly alter their regulations affecting the pricing of prescription
pharmaceuticals, we could face significant new costs.
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Risks Related to Our Intellectual
Property
Our ability to obtain,
maintain, and protect our patents and other proprietary rights is uncertain, exposing us to the possible loss of competitive advantage.
We rely upon a combination
of patents, trademarks, trade secret protection, confidentiality agreements, and the Option and License Agreements with Paragon to protect