10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2021

Commission File Number 001-33672

PALISADE BIO, INC.

(Exact name of Registrant as specified in its Charter)

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (858)704-4900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class TradingSymbol(s) Name of each exchange on which registered

Common Stock, $0.01 par value PALI Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒

The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on June 30, 2021 as reported by the Nasdaq Capital Market on such date, was approximately $39.2 million. Shares of common stock held by each executive officer and director and by each other person who may be deemed to be an affiliate of the registrant, have been excluded from this computation. The determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes.

As of March 16, 2022, the registrant had 18,233,479 shares of common stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to the 2022 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. The proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021.

Table of Contents

Page

PART I

Special Note Regarding Forward Looking Statements 1

Item 1. Business 4

Item 1A. Risk Factors 44

Item 1B. Unresolved Staff Comments 74

Item 2. Properties 74

Item 3. Legal Proceedings 74

Item 4. Mine Safety Disclosures 74

PART II

Item 6. Reserved 75

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84

Item 8. Financial Statements and Supplementary Data 85

Item 9A. Controls and Procedures 118

Item 9B. Other Information 119

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 120

PART III

Item 10. Directors, Executive Officers and Corporate Governance 121

Item 11. Executive Compensation 121

Item 14. Principal Accounting Fees and Services 121

PART IV

Item 15. Exhibits, Financial Statement Schedules 122

PART I

Special Note Regarding Forward Looking Statements

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Some of these factors are more fully discussed, as are other factors, in section 1A of this Annual Report on Form 10-K entitled “Risk Factors”, and elsewhere herein.

Forward-looking statements may include, but are not limited to, statements about:

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estimates about the size and growth potential of the markets for our product candidates, and our ability to serve those markets, including any potential revenue generated;

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the impact of the COVID-19 pandemic on our business, and operations, and supply;

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the rate and degree of market acceptance of our products;

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our ability to build and expand our sales organization to address effectively existing and new markets that we intend to target;

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future regulatory, judicial, and legislative changes or developments in the United States ("U.S.") and foreign countries and the impact of these changes;

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our ability to build a commercial infrastructure in the U.S. and other markets;

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our ability to compete effectively in a competitive industry;

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our ability to identify and qualify additional manufacturers to provide API and manufacture drug product;

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our ability to enter into longer term commercial supply agreements;

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the success of competing technologies that are or may become available;

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our ability to attract and retain key scientific or management personnel;

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the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

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our ability to obtain funding for our operations; and

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our ability to attract collaborators and strategic partnerships.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” "intend," “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. There can be no assurance that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on our business, results of operations and financial condition. You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in Part I, Item 1A Risk Factors and elsewhere in this Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, these forward-looking statements represent our estimates and assumptions only as of the date of the document containing the applicable statement. Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should read this Annual Report on Form 10-K, together with the documents that we have previously filed with the Securities and Exchange Commission ("SEC") completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in the foregoing documents by these cautionary statements.

RISK FACTOR SUMMARY

We face many risks and uncertainties, as more fully described in this Annual Report on Form 10-K under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below. The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.”.

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The Company’s business depends on the successful clinical development, regulatory approval and commercialization of the Company's lead drug candidate, LB1148.

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Some of the initial indications in which the Company plans to pursue development of LB1148 are indications for which there are no U.S. Food and Drug Administration-approved therapies. This makes it difficult to predict the timing and costs of clinical development for LB1148 in these indications, as well as the regulatory approval path.

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The development and commercialization strategy for the Company’s product candidate LB1148 depends, in part, on published scientific literature and prior findings of the U.S. Food and Drug Administration ("FDA") regarding the safety and efficacy of tranexamic acid. If the Company is not able to pursue this strategy, it may be delayed in receiving regulatory authority approval.

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Clinical drug development is very expensive, time-consuming, and uncertain.

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The results of previous clinical trials may not be predictive of future results, and the results of the Company’s current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

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Even if the Company receives marketing approval for LB1148, or any future product candidate, it may not be able to successfully commercialize its product candidates due to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for the Company to sell its product candidates profitably.

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The Company’s product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in post-approval regulatory action.

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The Company may in the future conduct clinical trials for its product candidates outside the United States, and the FDA and applicable foreign regulatory authorities may not accept data from such trials or the data may be insufficient to achieve regulatory approvals.

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The Company expects to rely on third-party Contract Research Organizations ("CROs") and other third parties to conduct and oversee its clinical trials. If these third parties do not meet the Company’s requirements or otherwise conduct the trials as required, the Company may not be able to satisfy its contractual obligations or obtain regulatory approval for, or commercialize, its product candidates.

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The Company will need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all.

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The Company currently has no products approved for sale, and it may never obtain regulatory approval to commercialize any of its product candidate.

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The Company’s or third party’s clinical trials may fail to demonstrate the safety and efficacy of its product candidates, or serious adverse or unacceptable side effects may be identified during their development,

which could prevent or delay marketing approval and commercialization, increase the Company’s costs or necessitate the abandonment or limitation of the development of the product candidate.

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The Company has expressed substantial doubt about its ability to continue as a going concern.

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The Company’s product candidates, if approved, will face significant competition and their failure to compete effectively may prevent them from achieving significant market penetration.

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Any adverse developments that occur during any clinical trials conducted by Newsoara Biopharma Co., Ltd. (“Newsoara”) may affect the Company’s ability to obtain regulatory approval or commercialize LB1148.

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The Company has a very limited operating history and has never generated any revenues from product sales.

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If the Company is not able to comply with the applicable continued listing requirements or standards of The Nasdaq Capital Market, Nasdaq could delist its common stock.

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The Company may not be able to protect its intellectual property rights throughout the world.

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The Company's board of directors (the “Board”) has broad discretion to issue additional securities, which might dilute the net tangible book value per share of our common stock for existing stockholders.

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The Company currently has no marketing capabilities and no sales organization. If the Company is unable to establish sales and marketing capabilities on its own or through third parties, the Company will be unable to successfully commercialize its product candidates, if approved, or generate product revenue.

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Failure to remediate a material weakness in internal accounting controls could result in material misstatements in the Company’s consolidated financial statements.

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The Company may not be able to obtain, maintain or enforce global patent rights or other intellectual property rights that cover its product candidates and technologies that are of sufficient breadth to prevent third parties from competing against the Company.

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Obtaining and maintaining the Company’s patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.

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If the Company fails to comply with its obligations under its intellectual property license agreements, it could lose license rights that are important to its business. Additionally, these agreements may be subject to disagreement over contract interpretation, which could narrow the scope of its rights to the relevant intellectual property or technology or increase its financial or other obligations to its licensors.

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The Company’s business could be adversely affected by the effects of health pandemics or epidemics, including the recent COVID-19 pandemic, especially where overwhelming patient hospitalizations disrupt routine medical practices, clinical studies, and ability for appropriate follow-up of patients enrolled in clinical studies or supply chain constraints associated with such pandemics impact the availability of the components needed to manufacture LB1148.

PART I

As used in this Annual Report on Form 10-K, unless the context indicates or otherwise requires, “Palisade,” “Palisade Bio,” “the Company,” “we,” “us,” and “our” or similar designations in this report refer to Palisade Bio, Inc., a Delaware Corporation, and its subsidiaries. In addition, references to “Seneca” and “Seneca Biopharma, Inc.” are to the Registrant prior to the completion of the Merger.

Item 1. Business.

Overview

We are a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing innovative oral therapies that target serious diseases associated with the breakdown of the mucosal barrier protecting the gastrointestinal (“GI”) tract. Our goal is to be an industry leader in developing therapies to treat these diseases and to improve the lives of patients suffering from such diseases.

On April 27, 2021, Seneca Biopharma, Inc. (“Seneca”) completed its previously announced merger transaction with Leading BioSciences, Inc. (“LBS”) in accordance with the terms of the Agreement and Plan of Merger, dated as of December 16, 2020 (the “Merger Agreement”), by and among Seneca, Townsgate Acquisition Sub 1, Inc., a wholly owned subsidiary of Seneca (“Merger Sub”), and LBS, pursuant to which Merger Sub merged with and into LBS, with LBS surviving as a wholly owned subsidiary of Seneca (the “Merger”). Immediately prior to the effective time of the Merger, LBS merged with and into Merger Sub and LBS continued to exist as the surviving corporation. Concurrent with the closing of the Merger, on April 27, 2021 the Company effected a 1-for-6 reverse stock split (“Reverse Stock Split”) of its common stock. Stockholders’ equity and all references to share and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to reflect the 1-for-6 reverse stock split for all periods presented. Immediately following the Merger, Seneca changed its name to “Palisade Bio, Inc.”

Our approach is founded on the discovery that damage to the intestinal epithelial barrier can result in the leakage of digestive enzymes from the GI tract that can damage tissues and promote inflammation, causing a broad array of acute and chronic conditions.

We are focused on developing a portfolio of oral product candidates to treat conditions driven by protease (intestinal enzymes) leakage through the intestinal epithelial barrier, including by surgical complications and inflammatory conditions. The below graphic illustrates the protease leakage resulting from a compromised intestinal epithelial barrier:

The Intestinal Barrier in Health and Disease

The intestinal mucosal barrier plays a key role in both acute critical-care medical conditions and burdensome chronic diseases. The intestinal epithelium, which forms the inner lining of the intestinal tract, is a highly regulated and semi-permeable barrier that maintains a delicate balance. It helps facilitate nutrient absorption while also protecting the mucosa from the harsh environment of the intestine, whose contents includes corrosive secretions, invasive pathogens, potentially harmful dietary antigens, and proteases. The intestinal epithelium requires proper oxygenation and blood to maintain its integrity and confer protection against damaging events that can compromise mucosal barrier function.

A wide variety of events can cause the breakdown of the intestinal mucosal barrier, including physical injuries resulting from incisions and mechanical manipulations during abdominal surgery, metabolic injuries resulting from prolonged hypoperfusion (low blood flow) and disruption of blood flow during cardiovascular ("CV") surgery, pathological damage resulting from the body’s response to life-threatening infections that could then progress into sepsis, septic shock, multi-organ dysfunction syndrome (“MODS”), and acute respiratory distress syndrome, as well as chronic inflammatory diseases. If compromised, the mucosal barrier can allow proteases to leak into intestinal tissues, damaging the GI tract and triggering widespread pathology throughout the body.

During CV surgery, to repair cardiac defects, the surgeon requires a bloodless, motionless surgery area. To stop the motion of the heart and lungs, blood flow is diverted through a cardiopulmonary bypass pump to allow blood, oxygen, and nutrients to circulate throughout the body while the heart and lungs remain motionless. The cardiopulmonary bypass pump preferentially directs blood to the vital organs, such as the brain, heart, and lungs by diverting blood from the mesenteric organs. This diversion of blood causes a prolonged period of low blood flow to the intestines that can lead to damage to the intestinal epithelium. This initiates a pathological mechanism of diseases called autodigestions whereby digestive enzymes may leak into the intestinal wall and eventually gain access to the lymphatic and circulatory systems, causing local tissue damage, initiating inflammatory cascades and aberrant cell signaling, activating immune cell infiltration, and driving intestinal organ dysfunction. Some CV surgery patients may experience a delayed return to normal bowel function and, the Company believes, may benefit from a therapeutic like LB1148 that helps accelerate the return of GI function.

During GI and abdominal surgeries, surgeons handle, manipulate, and often make incisions in the bowel, which can cause bruising, lesions, and microscopic tears to the mucosal barrier. This tissue trauma and damage may compromise the organ mucosa, the barrier that confines digestive enzymes within the intestine. Leakage of these digestive enzymes across the barrier can initiate autodigestion and exacerbate local tissue and organ damage. Consequently, surgical patients may experience a delayed return of normal GI function, impaired motility in the intestine (ileus), and intestinal scar tissue (adhesion) formation. These complications can lengthen recovery time, increase hospital readmissions, and cause long-term consequences with a high disease burden. Similar to CV patients, many GI surgery patients experience a delayed return to normal bowel function and, the Company believes may benefit from a therapeutic like LB1148 that helps accelerate the return of GI function.

Postoperative Ileus and Return of Bowel Function in Adults

Patients undergoing GI or CV surgery often experience some degree of GI dysfunction, or delayed return of GI function, manifested by a transient cessation of bowel motility, or postoperative ileus (“POI”). Bowel function typically returns three to five days after abdominal surgery. However, about 8.5% of abdominal surgery patients experience severe POI that delays bowel function by six or more days. Some procedures result in ileus incident rates of over 20%.

Prolonged POI is a serious complication of GI or CV surgery, resulting in increased morbidity, longer hospital stays, and higher costs. Patients experience bloating and major abdominal pain and, with extended lengths of stay in the hospital, may be at increased risk of hospital acquired infections. The mechanism of POI is likely multifactorial, involving digestive proteases, the nervous system (specifically the autonomic and enteric nervous systems), inflammation (mast cell inflammatory process), hormones, neuropeptides, anesthesia, and narcotics.

There are key milestones for patients to meet prior to discharge following major surgery, which include return of bowel function, infection source control and pain management. Current antibiotics and analgesics can greatly help achieve two of these milestones, yet there is still unmet need for therapeutics to help improve return of GI function.

Post-Operative Adhesions

Intra-abdominal adhesions are bands of scar tissue that form inside the abdomen. The fibrous bands form between two or more organs and/or surfaces that are not normally connected, causing the surfaces to become adherent or bound together. As a result, intra-abdominal adhesions can kink, twist, pull, or compress the intestines and other organs in the abdomen, causing symptoms and complications, such as pain, bloating, intestinal obstruction or blockage.

Abdominal adhesions are common and often develop after open or laparoscopic abdominal surgery. In surgery with an open approach, the surgeon makes a large incision to open the abdomen or pelvis, whereas in laparoscopic surgery, the surgeon makes small openings in the abdomen and inserts special tools to view, remove, or repair organs and tissues. Adhesions may arise during these abdominal surgeries by a variety of mechanisms. We believe that injuries resulting from incisions, sutures, surgical manipulation, bleeding, and hypoperfusion can lead to leakage of digestive proteases. We believe that digestive enzymes that have escaped from the intestine may create proteolytic damage to the mesothelial surface. The body’s response is to grow new scar tissue to heal the damage. When the new scar tissue grows it can connect these surfaces with adhesions. It is estimated that these postoperative intra-abdominal adhesions may develop in up to 93% of patients undergoing abdominal or pelvic surgery.

Although many patients with intra-abdominal adhesions are asymptomatic, a significant portion of patients will develop “adhesive disease,” a symptomatic state ranging from a variety of chronic, highly distressing, and even life-threatening symptoms. Up to approximately 6% to 10% of cases require follow-up medical care. Abdominal adhesions are the most common cause of obstruction of the small intestine which can lead to the death of intestinal tissues, peritonitis (an infection of the lining of the abdominal cavity) and, in severe cases, death. In fact, although adhesion related bowel obstruction is the number ten cause of emergent surgery, intestinal obstruction from adhesions is one of the top causes of emergency surgery death in the United States. In women, abdominal adhesions in the abdomen and pelvis can compress, deform, or block parts of the reproductive system and leading to infertility.

Our Lead Product Candidate, LB1148

Our lead therapeutic candidate, LB1148, is an oral liquid formulation of the well-characterized digestive enzyme inhibitor, tranexamic acid, intended to inhibit digestive enzyme activity and preserve gut integrity during intestinal stress resulting from, among other things, reduced blood flow to the intestine, infections, or due to surgery. Peer reviewed publications of third-party research suggest that digestive enzyme leakage from the GI tract increases incidents of GI and organ dysfunction following these events.

Our pipeline of LB1148 is illustrated in this chart:

* Commercial rights to LB1148 in Greater China (excluding Taiwan) have been out-licensed to Newsoara.

We are initially developing LB1148 to be administered to patients prior to major surgeries that risk disrupting the intestinal mucosal barrier. As announced in March 2020, a randomized, double-blind, parallel, placebo-controlled Phase 2 investigator-sponsored clinical trial of LB1148 in 120 patients undergoing coronary artery bypass grafting and/or heart valve replacement surgery requiring cardiopulmonary bypass was completed. Patients were randomized to receive LB1148 or placebo in conjunction with surgery. The trial’s primary endpoint was time to return of bowel function. Secondary endpoints include Intensive Care Unit (“ICU”) length of stay, hospital length of stay, organ function changes, inflammatory response and glucose control. LB1148 provided an approximately 30% improvement in the time to normal bowel function following cardiovascular (“CV”) surgery (p<0.001) compared to placebo. The treatment group also had an average 1.0-day shorter length of stay in the ICU and an average 1.1-day shorter hospital stay. Generally, treatment with LB1148 was well tolerated. Adverse events were similar between the treatment groups and not considered unexpected for the subject population. None of the adverse events or serious adverse events reported were considered drug-related by the sponsor-investigator. One of the primary factors in discharging patients from the hospital following surgery is the return of bowel function. LB1148 has been granted Fast Track designation from the FDA for the treatment of postoperative GI dysfunction (which may present as feeding intolerance, ileus, necrotizing enterocolitis (“NEC”), etc.) associated with gut hypoperfusion injury in pediatric patients who have undergone congenital heart disease repair surgery.

On July 20, 2021, we and our co-development partner Newsoara announced topline Phase 2 clinical trial data demonstrating that LB1148 had a statistically significant (p=0.0008) effect in accelerating the return of bowel function in patients undergoing elective bowel resection surgery.

Results from the trial include:

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A 1.1-day improvement in GI recovery in patients receiving LB1148 vs placebo. The median time to return of bowel function was 2.77 days in patients treated with LB1148 and 3.83 days in those receiving placebo (hazard ratio = 1.886; p = 0.0008).

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The difference between groups increased at the 3rd quartile (75th percentile), with LB1148 (3.4 days) demonstrating a 1.5-day faster recovery of bowel function compared to placebo (4.9 days).

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LB1148 was well tolerated with 10.9% and 4.8% of patients in the LB1148 group and placebo group, respectively, experiencing a drug-related adverse event.

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The most common drug-related adverse events were GI disorders (LB1148 4.7% vs. placebo 3.2%).

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No drug-related serious adverse events occurred in the trial.

Results from this trial are expected to be reported at upcoming surgical-focused medical conferences. We and Newsoara intend to advance LB1148 to pivotal Phase 3 clinical trials for accelerating the return of bowel function for major surgical indications. LB1148 has received Fast Track designation from the FDA for reduction of adhesions following abdominal and pelvic surgery.

Adhesion prevalence is reported to be >90% in patients who have abdominal surgery and represents a significant contribution to serious complications such as small bowel obstruction, infertility, chronic abdominal pain, subsequent surgery, and other morbidities. On March 16, 2022 we announced data from a pooled-analysis of studies LBS-IST-POI-101 and LBS-POI-201-CN (PROFILE-CN) at the Society of American Gastrointestinal and Endoscopic Surgeons (SAGES) 2022 Annual Meeting. The results from the pooled analysis showed that 8/9 (89%) of subjects in the placebo group versus 2/8 (25%) in the LB1148 group had adhesions observed during a second follow-up surgery, representing a relative risk reduction of 72% (p = 0.0152). The mean total adhesion score which measures both the extent and severity of adhesions was 1.0 (8/8) for LB1148 and 14.3 (129/9) for placebo, representing relative risk reduction of 93% (p = 0.0162). We believe the reduction in the incidence of post-surgical intra-abdominal adhesions as well as the reduction in the extent and severity of adhesions provides preliminary evidence of the clinically meaningful efficacy of LB1148 to reduce post-surgical adhesions when compared to placebo.

We are also currently conducting a randomized, double-blind, placebo-controlled, proof-of-concept Phase 2 clinical trial of LB1148 in patients undergoing elective bowel resection surgery in the United States. This trial will also evaluate whether or not patients treated with LB1148 experience fewer postoperative intra-abdominal adhesions and quicker return of bowel function following surgery.

LB1148 contains a broad-spectrum serine protease inhibitor, tranexamic acid (“TXA”), and is formulated as an aqueous solution for oral (or enteral) administration. In addition to TXA, the patented LB1148 formulation contains polyethylene glycol, carbohydrates, and electrolytes. The components of LB1148 are provided as dry powders for reconstitution in water prior to administration. Such reconstitution may be carried out in a pharmacy (by a pharmacist), or in an outpatient setting (by a patient).

The potential of LB1148 relies on its formulation as a liquid composition for oral administration, which is designed to stop the downstream effects of a disruption of the intestinal mucosal barrier. We are not aware of any other approved oral TXA-containing liquid compositions in the marketplace suitable for such administration.

We believe that LB1148, if successfully developed and approved, may have the ability to become the standard of care across a broad range of acute and chronic conditions associated with GI barrier dysfunction.

Prior regulatory history of third-party products with TXA active ingredients

The active ingredient in LB1148, TXA, has been evaluated in human clinical trials and in tens of thousands of patients. Supporting these observations is also over 40 years of post-marketing data from approved TXA products. Studies and regulatory bodies have suggested that TXA administration, while accompanied by a potential increased risk of thrombosis and rare hypersensitivity, may be generally safe and well-tolerated. TXA is an over-the-counter medicine for treating heavy menses in multiple countries, including the United Kingdom, Japan, and Sweden.

Reduction of acute complications associated with delayed return of postoperative bowel function

Preliminary data from preclinical and clinical studies provide scientific evidence that LB1148 may protect the mucosal barrier and neutralizes digestive enzyme leakage, and promote return of bowel function after surgery.

By potentially accelerating return of bowel function and thereby reducing length of stay in surgical patients, we believe LB1148 may be able to improve patient outcomes, decrease health care costs, and increase operating margins for providers. Furthermore, we believe that that these benefits may extend to patients undergoing GI/abdominal and CV surgery, expediting bowel recovery and return to normal feedings to improve long-term outcomes.

Reduction postoperative intra-abdominal and pelvic adhesions and associated long-term complications

Data from preclinical and clinical studies suggest that LB1148 administration may prevent postoperative adhesions in surgical patients. Postoperative adhesions are costly for patients and hospitals. Postoperative adhesions are the number one cause of secondary infertility in women; the most common cause of bowel obstruction, accounting for up to 75% of cases; and the tenth most frequent cause of emergency surgeries. They also account for approximately 80% of emergency surgery deaths and more than 400,000 adhesion lysis surgeries annually in the United States.

By preventing or minimizing adhesions in abdominal and pelvic surgery patients, we believe that LB1148 may minimize numerous medical complications and reduce the need for additional surgeries or other treatments, benefiting both patients and providers.

Clinical Development of LB1148

Completed Clinical Trials

CV Surgery Phase 1, LBS-IST-CVS-101

LBS-IST-CVS-101 was a single-blind, investigator-sponsored trial conducted in Taipei City, Taiwan, under the oversight of a local ethics committee. This trial investigated the potential of LB1148-Z (an earlier formulation of TXA that differs in the inactive ingredients from our current LB1148 formulation) to ameliorate systemic inflammatory response syndrome in patients after open heart surgery. This clinical trial enrolled 49 patients. 28 patients received treatment with LB1148-Z and 17 patients were control patients.

The primary endpoints for this trial were mortality, morbidity (assessed from hepatic and renal function), and length of hospital and ICU stay. Although the differences were not statistically significant, patients in the LB1148-Z treatment group spent an average of 0.6 days less in the hospital and 1.0 days less in the ICU than the patients in the control group. Statistical significance is a determination by an analyst that the results in the data are not explainable by chance alone. Statistical hypothesis testing is the method by which the analyst makes this determination. This test provides a p-value, which is the probability of observing results as extreme as those in the data, assuming the results are truly due to chance alone. A p-value of 0.05 or lower is often considered to be statistically significant.

The secondary endpoints for this trial were inflammation (assessed from white blood cell count (“WBC”)), cardiac output, and pancreatic enzyme activity. Mean WBC counts on day 2 were significantly lower in the LB1148-Z treatment group 11.2 ± 3.4×109/L compared to the control group 13.6 ± 3.6×109/L (p=0.02). The absolute reduction from postoperative baseline was also significantly lower in the LB1148 group 1.8 ± 4.9×109/ on day 2 whereas WBC counts (an indicator of inflammation) continued to increase in the placebo group 2.0 ± 2.9×109/L (p=0.01).

Safety evaluation for this trial suggests that LB1148-Z appears to have been well tolerated in this sensitive surgical population. There were no LB1148-related deaths or treatment discontinuations. The only death of a patient in this clinical trial was in the placebo group. The incidence of adverse events (“AEs”) was similar between treatment groups; 52% for LB1148 and 56% for the placebo group. The most frequent AEs were thirst and abdominal fullness. Abdominal fullness was more frequent in the LB1148 treatment group (32%) compared to the placebo group (11%). There were no statistically significant differences between treatment groups in laboratory measures.

The results from this trial suggest that LB1148-Z appears to have been tolerated and safety evaluations showed no meaningful differences compared to the placebo group. On the regulatory front, these data may be used to support the safety of LB1148 in surgical patients as part of an eventual NDA submission to with the FDA.

CV Surgery Phase 2, LBS-IST-CVS-201

LBS-IST-CVS-201 was a Phase 2, single-site, randomized, double-blind, placebo-controlled, investigator-sponsored clinical trial, that enrolled 120 patients at a Heart Center in Taipei City, Taiwan, under the oversight of its local ethics committee. This trial was completed in September 2019. This trial evaluated return of bowel function in patients undergoing coronary artery bypass grafting and/or heart valve replacement surgery requiring cardiopulmonary bypass.

Patients were randomized in a 1:1 ratio between the two treatment arms: LB1148 or placebo. Each patient was administered the first dose via NG/OG tube in conjunction with surgery, and then received the second and third doses daily following the day of surgery. The patients were followed for outcomes for 30 days. The primary endpoint for this clinical trial was improved return to normal bowel function following surgery. Return to normal bowel function was measured as the time from the end of surgery to the first postoperative bowel movement. Secondary endpoints included length of ICU stay, length of hospital stay, organ function, inflammatory response, glucose control and mortality rate.

Generally, treatment with LB1148 was well tolerated. AEs were similar between the treatment groups and not considered unexpected for the subject population. None of the AEs or serious adverse events (“SAEs”) reported were considered drug-related by the sponsor-investigator. Substantially all of the SAEs resolved without lasting consequence with the exception of cardiogenic shock which resulted in death for a patient in the placebo group.

As shown in the figure below, the LB1148-treated group demonstrated a significant improvement of approximately 30% in the median time to return of normal bowel function as compared to the placebo treatment group (p<0.001).

Top line data from this trial demonstrated that patients treated with LB1148 had a mean length of stay in the ICU of 1.0 fewer days than patients in the placebo group and a mean length of hospital stay of 1.1 days fewer than patients in the placebo group. Although these differences did not reach statistical significance because the study was not statistically powered to do so, we believe they potentially demonstrate the merit of continued inclusion and evaluation of length of stay in our ongoing and planned clinical trials of LB1148 in surgical indications.

GI Surgery Phase 1, LBS-IST-POI-101

LBS-IST-POI-101 was a Phase 1, single-site, open-label, investigator-sponsored trial that enrolled 11 and evaluated 10 patients at a hospital in the United States. The trial evaluated the use of LB1148 for safety and preliminary efficacy in subjects undergoing elective bowel resection.

Patients received a 700 mL of LB1148 as a split dose 2 to 12 hours prior to bowel resection surgery. GI function (necessity for postsurgical NG tube placement, presence of postsurgical vomiting, time to first flatus and bowel movement, time to toleration of a liquid and solid diet) was accessed on each hospital day until discharge or day 14 (whichever came first). Hospital length of stay (time to hospital discharge order written) was measured, with a safety follow-up on day 30.

Generally, treatment with LB1148 was well tolerated. AEs were not considered unexpected for the patient population. None of the AEs or SAEs reported were considered drug-related by the sponsor-investigator. Substantially all SAEs resolved without lasting consequences with the exception of cardiogenic shock which resulted in death for a patient in the placebo group.

The mean time for a first bowel movement in LB1148-treated patients in this clinical trial following surgery was 2.43 days, which is 2.27 days shorter than the mean time of 4.70 days for the placebo-treated patients in a third-party clinical trial of the approved-drug, ENTEREG®, which enrolled a similar elective bowel resection surgery patient population. Although this was an open-label study comprising only a single arm (LB1148) with a small number of patients, the mean time for a first bowel movement in patients in this clinical trial following surgery compares favorably to those from the pivotal trials used for regulatory approval of ENTEREG® (17 hour faster return of bowel function and 7 hour shorter length of hospital stay).

Upon admission, a patient is typically admitted under a billing code that is associated with an expected geometric mean length of stay (“GMLOS”). The GMLOS is derived from hundreds of thousands of admissions and, as the title indicates, represents an expected mean length of stay. The actual length of stay of patients treated with LB1148 in this clinical trial was compared to the expected GMLOS. LB1148 treated patients had statistically significant shorter

hospital length of stay, when compared with expected length of stay based on their billing code at admission, as depicted in the following figure.

Moreover, the length of stay improvement in LB1148-treated patients of an average of 1.3 days, compares favorably to length of stay improvements previously reported from clinical trials of ENTEREG® which were between 0.3 days and 0.7 days.

Three of the eleven patients enrolled underwent follow-up surgical procedures. For two of these patients, the patient had no intra-abdominal adhesions at the time of the follow-up surgery. The third patient’s follow-up surgery was conducted on an emergent basis 14 days postoperatively by a surgeon who was not participating as an investigator in the clinical trial, and so the extent and severity of adhesions were not formally assessed. Although an official evaluation of adhesions was not provided, the surgical notes do not describe any adhesions during the surgery.

Although these are early data in a limited number of patients, we believe that they may support our ongoing Phase 2 clinical trial to evaluate the impact of LB1148 on return to bowel function, length of stay, and postoperative intra-abdominal adhesions.

GI Surgery Phase 2, LBS-POI-201-CN (PROFILE-CN)

LBS-POI-201-CN was a multicenter, randomized, double-blind, parallel, placebo-controlled, proof-of-concept Phase 2 study of LB1148 in patients undergoing bowel resection conducted by our co-development partner Newsoara in the People’s Republic of China. The study evaluated 120 subjects. Subjects were randomized into 2 treatment groups (LB1148 or placebo) at a ratio of 1:1. Subjects were stratified by: (1) surgical method (minimally invasive or laparotomy), and 2) whether or not there was a planned stoma. Subjects received a split, oral dose of LB1148 or placebo: 350 mL 6-10 hours before surgery and 350 mL 2-6 hours before surgery. Perioperative care was standardized at all sites per study protocol. The primary outcome was recovery of bowel function measured as the time from the end of surgery to oral food tolerance and passage of stool (GI-2).

For the LB1148 group, the median time to the primary endpoint of recovery of bowel function was 2.77 days for subjects treated with LB1148 and 3.83 days for subjects receiving placebo. The median time difference between the two groups was 25.5 hours, that is, the median time from the LB1148 group to the GI-2 event was 25 hours less than the placebo group (hazard ratio = 1.886; p = 0.0008).

The difference between groups increased at the 3rd quartile (75th percentile), with LB1148 (3.4 days) demonstrating a 1.5-day shorter recovery of bowel function compared to placebo (4.9 days).

LB1148 appeared to be well tolerated in this trial. The most common adverse events were fever, nausea, hypoalbuminemia, vomiting, bloating, constipation, abdominal pain, diarrhea, lowered blood sugar, expectorant cough, cough, hypotension and anemia. There was no significant difference in the distribution of adverse events between LB1148 and placebo groups. A total of 13 subjects had serious adverse events (SAE), including 5 (7.8%) in the LB1148 group and 8 (12.7%) in the placebo group. No SAE related to the drug occurred in the trial, and there was no adverse event that led to drug discontinuation or withdrawal of subjects from the trial.

For AEs of special interest, there were there were 3 (4.7%) cases of POI in the LB1148 group and 2 cases (3.2%) in the placebo group. No subjects in the LB1148 group had postoperative complications compared to 5 (7.9%) in the

placebo group. No subject had a venous thrombotic event. Overall, AEs are balanced between the groups and there are no apparent trends for type or severity of AEs.

Taken together, we believe these data demonstrate that LB1148 may potentially accelerate the time to return of GI function following GI surgery with a favorable safety and tolerability profile. We believe these data lay the groundwork for proceeding to pivotal studies for the return of bowel function indication.

Pooled-Analysis of Post-Surgical Intraabdominal Adhesions LBS-IST-POI-101 and LBS-POI-201-CN

Adhesion prevalence is reported to be >90% in patients who have abdominal surgery and represents a significant contribution to serious complications such as small bowel obstruction, morbidity, and financial cost during subsequent surgery, infertility, and chronic abdominal pain. Traditionally, adhesion formation was thought to result from an interaction of cytokines, growth factors, cell adhesion molecules, and other factors near an area of tissue perturbation during surgery. Recent evidence suggests intestinal injury leads to a breakdown of the intestinal mucosal barrier, and subsequent translocation of digestive proteases into the intestinal tissues and visceral cavity. These digestive enzymes cause proteolytic damage to the mesothelial surface of the viscera, triggering adhesion formation as part of the repair process to heal the damaged tissue surfaces.

Studies LBS-IST-POI-101 and LBS-POI-201-CN assessed the efficacy of LB1148 to reduce the formation of adhesions in subjects undergoing abdominal surgery. Study LBS-IST-POI-101 was a Phase 1, single-center, open-label, study enrolling 11 subjects undergoing GI surgery. Study LBS-POI-201-CN was a Phase 2, randomized, double-blind, placebo-controlled study to evaluate LB1148 for return of gastrointestinal function in subjects undergoing elective bowel resection (PROFILE). In both trials, adhesions were quantified at the time of surgical closure during a first surgery and at the time of opening a second surgery for those subjects who had a second surgical procedure.

A total of 3/11 subjects in LBS-IST-POI-101 and 14/120 subjects in LBS-POI-201-CN underwent a second surgery at which time adhesion formation was assessed. In both studies, study drug was administered as part of the bowel preparation prior to surgery. Data were pooled from the two trials and the incidence, extent and severity of adhesion for subjects treated with LB1148 or placebo were compared. Grading of the adhesions (extent and severity) was performed by the surgeon during the second surgical procedure.

The results from the pooled analysis showed that 8/9 (89%) of subjects in the placebo had one or more adhesions. For subjects treated with LB1148, 2/8 (25%) had adhesions observed during the second follow-up surgery, representing a relative risk reduction of 72% (P-value of 0.0152).

The mean extent and severity adhesion score in subjects who had a second surgery in the pooled analysis was 1.0 (±0.672 SEM) for LB1148 treated subjects and 14.3 1.0 (±9.19 SEM) for placebo subjects, representing reduction in the extent and severity score of 93% (P = 0.0162).

Although this analysis includes a small number of subjects across two studies, the lower incidence of post-surgical intra-abdominal adhesions, and the reduction in the extent and severity of adhesions provide what we believe to be preliminary evidence of LB1148 to potentially clinically reduce post-surgical adhesions when compared to placebo. The overall surgical procedural types between placebo and drug were comparable and reflects the increasing trend toward minimally invasive techniques in abdominal surgery.

Ongoing Clinical Trials

GI Surgery Phase 2, LBS-POI-201-US (PROFILE-US)

LBS-POI-201-US is a multicenter, randomized, double-blind, parallel, placebo-controlled, adaptive design, proof-of-concept Phase 2 study of LB1148 in patients undergoing bowel resection. The study is currently enrolling patients in the United States to evaluate a pre-operative dose of LB1148 as compared to placebo, with the purpose of establishing preliminary evidence of efficacy safety and tolerability of LB1148, for the treatment of POI and prevention of intra-abdominal adhesions in patients undergoing elective bowel resection. Originally the study design was nearly identical to the LBS-POI-201-CN with the primary endpoint being recovery of bowel function measured as the time from the end of surgery to oral food tolerance and passage of stool (GI-2). With the data from LBS-POI-201-CN demonstrating that LB1148 had a statistically significant acceleration in the time to return of GI function and LB1148 proceeding to pivotal studies for the return of GI function indication in the US and China, the PROFILE-US study was amended so that reduction in intraabdominal adhesions is the primary endpoint. Further, the study design was amended to ensure adequate enrollment of patients receiving an adhesions assessment to inform the statistical design of pivotal studies for adhesions indications. Enrollment is ongoing in the trial, with up to 200 anticipated patients.

All randomized patients are divided between two treatment groups (LB1148 or placebo) in a 1:1 ratio stratified by surgical approach (either minimally invasive technique or laparotomy). All patients to be enrolled going forward are expected to have a planned repeat abdominal operation (stoma takedown), are expected to participate in the study until the repeat abdominal operation and intra-abdominal adhesion assessments have been completed. For the planned second surgery, the exploratory endpoints include physician-recorded values for the extent and severity of visible intra-abdominal adhesions using an assessment worksheet recorded at both the first and second surgeries, and physician assessment of the clinical consequences of the visible intra-abdominal adhesions on bowel function and pain.

Patients receive 700 mL of LB1148 (or placebo) administered as a split dose in the two to ten hours prior to surgery. The primary endpoint is the change from baseline in extent and severity of intra-abdominal adhesions. The secondary endpoints include the incidence of intra-abdominal adhesions, time to GI-2, hospital length of stay, time to GI-3 (time to toleration of solid food and first flatus or first bowel movement), time to resolution of POI (if present), and time to resolution or appearance, as appropriate, of one or more of the components common to GI dysfunction following elective bowel surgery with or without a planned stoma.

Planned Clinical Trials - Global Phase 3 to Accelerate the Return of GI Function following Abdominal Surgery, PBI-POI-301

Our future clinical development plans include a phase 3 clinical study of LB1148 as a therapeutic to accelerate the return of GI function in patients undergoing GI surgery. In the second half of 2022, we are planning to initiate a global phase 3, multicenter, randomized, double-blind, placebo-controlled, clinical study to evaluate the safety and efficacy of LB1148 in 400-600 subjects undergoing planned bowel resection. All subjects will receive 700 mL of LB1148 or placebo in a split, oral dose of 350 mL at 6-10 hours and 2-6 hours prior to surgery. Subjects will then undergo surgery. The primary objective is to compare the time to gastrointestinal GI-2, defined as the time from the end of surgery to the time of recovery of the upper GI tract (toleration of solid food) and the lower GI tract (first bowel movement) following surgery. Secondary measures will include safety, measures of bowel movement and hospital length of stay. This study is intended to be a confirmatory trial to provide evidence that LB1148 is safe and effective in accelerating the time to return of bowel function in subjects undergoing abdominal surgery. The population for this study includes adult patients scheduled to undergo a planned (non-emergent) bowel resection via minimally invasive technique or laparotomy. This includes any subject in which a resection of the small intestine, colon, or rectum is performed for any elected indication. The exclusion criteria include underlying conditions that might put a subject at risk (i.e. where treatment with TXA is contraindicated) or has condition such that their inclusion might make either safety or efficacy analyses difficult to interpret. The post-operative follow-up for an individual subject is approximately 90 days after surgery.

Regulatory Considerations for LB1148

LB1148 has been granted Fast Track designation from the FDA for reduction of adhesions following abdominal and pelvic surgery. Furthermore, LB1148 has received Fast Track designation from the FDA for the treatment of postoperative GI dysfunction (which may present as feeding intolerance, ileus, necrotizing enterocolitis, etc.) associated with gut hypoperfusion injury in pediatric patients who underwent congenital heart disease repair surgery. The LB1148 final drug product contains polyethylene glycol 3350 (“PEG”). In certain circumstances, in different countries and across different regulatory authorities, PEG may be regulated as an inactive ingredient, a medical device, or an active ingredient. We believe that there is ambiguity and risk regarding the PEG in LB1148 being classified as an active ingredient. From our communications with regulatory authorities including the FDA about our development of LB1148, there remains uncertainty about (1) whether regulatory agencies will classify LB1148 as a fixed-combination drug product and (2) consequential implications of, for example, FDA’s fixed-combination drug product regulation concerning the evaluation of each active drug component’s individual contribution to the overall treatment effect. The treatment of PEG and any regulatory requirements, if it is considered an active ingredient, may differ across regulatory authorities. If LB1148 is considered a fixed-combination drug product, then this may impact the design and overall number of required clinical trials as well as additional requirements for nonclinical studies. Even though we are proceeding with a Phase 3 trial for LB1148 as a single active ingredient drug product, we may be required to conduct additional trials, which could include the use of a factorial design, and nonclinical studies if, for example, FDA (1) concludes that PEG is an active ingredient in LB1148 and (2) is unwilling to provide a waiver from meeting their fixed-combination drug product regulation/requirements. It is important to note that before GI surgery, most patients undergo a mechanical bowel prep. Traditionally, the standard of care for a bowel prep includes PEG. Therefore, including a treatment arm of a clinical trial that would not allow for a standard bowel prep containing PEG may be impractical. As a result, we believe that it would be impractical, infeasible, and ultimately unethical to exclude the use of PEG as part of the mechanical bowel prep for GI surgery studies.

Preclinical Studies of LB1148

TXA Safety Studies

Consistent with its widespread use in humans over the past several decades, TXA, the active ingredient in LB1148, shows a wide safety margin in preclinical toxicology studies.

As reported, for example, in the Canadian Monograph for Cyklokapron (brand name for TXA), the acute toxicity of TXA was analyzed across multiple time points (24 hours, 48 hours, 7 days) in several animal models (mice, rats, rabbits and dogs), following IV, intraperitoneal (“IP”), subcutaneous and oral administration. The lethal oral doses exceed 5-10 g/kg body weight (“BW”) in all studied species, and the IV LD50 was approximately 1-1.5 g/kg BW in

mice, rats and dogs. In six subacute toxicity studies, daily doses of TXA were administered orally to rats (1-5 g/kg for ten weeks) and dogs (100-500 mg/kg for four months); to dogs (20-500 mg/kg for one month and 1 g/kg for three days) and to rabbits (60-180 mg/kg IV for 13 days); and IP to rats (0-1000 mg/kg for two weeks). Dose-related emesis, loose stools or diarrhea, and decreased BW gain were the main drug-induced findings in the oral and IP studies.

LB1148 in Animal Models of POI and Intra-abdominal Adhesions

A number of preclinical studies have evaluated the use of LB1148 in treating POI and intra-abdominal adhesions. Collectively, we believe these preclinical studies support the hypotheses that LB1148 may improve postoperative GI function and prevent tissue damage linked to luminal digestive enzyme leak and reduce postoperative adhesions. Key supportive studies evaluating the LB1148 are described in detail.

Reduction of Postoperative Intra-abdominal Adhesions with Enteral LB1148

This study tested whether enteral LB1148 would be superior to enteral vehicle in preventing intra-abdominal adhesions in a rat model of surgical adhesions. A total of 20 rats (n=10/group) were randomized to either enteral vehicle or enteral LB1148. Enteral treatment was administered orally two hours prior to abdominal surgery. This timing was utilized because it paralleled a pre-operative oral administration prior to a surgery in man.

Following laparotomy, the latex glove-induced adhesion model was utilized by gently rubbing the intestine with a latex glove ten times. On postoperative day 28 the number and severity of postoperative intra-abdominal adhesions was quantified. The severity (size) of each adhesion was scored from 0 to 4 with a 4 being the most severe.

All animals recovered without consequence. As shown in the figure below, the group that received enteral LB1148 prior to surgery had a significant reduction in the number of adhesions (p<0.01) compared to the enteral vehicle group.

In addition, the group that received enteral LB1148 prior to surgery had a significant reduction in the severity (size) of adhesions (p<0.01) at postoperative day 28 as compared to the group given vehicle, as shown in the figure below.

These results demonstrate that a single enteral administration of LB1148 is sufficient to decrease both the number and severity (size) of adhesions in a model of surgery-induced abdominal adhesions.

Enteral LB1148 Improves Return of Bowel Function and Reduces Intra-abdominal Adhesions Compared to Vehicle in a Model of Laparotomy with Bowel Resection and Anastomosis

The leak of pancreatic digestive enzymes across the compromised GI mucosal barrier can contribute to local and remote injury. This study tested the hypothesis that enteral administration of LB1148, if given prophylactically, improves early recovery of GI function and reduces postoperative intra-abdominal adhesions.

A total of 16 rats (n=8/group) were administered enteral LB1148 or vehicle two hours before a surgical model of small bowel resection and anastomosis designed to mimic the identical surgery in man. A one centimeter bowel resection and primary anastomosis was created. Oral intake, fecal output, water consumption, and a morbidity were monitored daily for five days.

All animals recovered without consequence except one vehicle-treated control, which had anastomotic leak, peritonitis, and death. Enteral blockade of proteases by oral administration of LB1148 significantly improved postoperative GI function as measured by food consumption and bowel recovery (measured by fecal output, depicted in the figure below).

In addition, oral administration of LB1148 significantly improved post-surgery water consumption and morbidity score (measured by activity level, as shown in the figure below).

Taken together, these data show that pre-operative treatment with LB1148 demonstrated uniform and statistically enhanced return of bowel function as measured by food and water consumption, fecal output, and general activity. Notably, differences in bowel function and morbidity were present as of postoperative day 1, suggesting early recovery of function after bowel resection.

LB1148 administration also significantly reduced the number of adhesions (p<0.001) at 28 days, as shown in the following figure.

In summary, these results show that LB1148 significantly enhances early GI recovery in this model of open bowel surgery and significantly reduces the number of intra-abdominal adhesions.

LB1148 in Animal Models of Mesenteric Hypoperfusion

A number of preclinical studies have evaluated the impact of enteral LB1148 on mucosal barrier integrity and function in models of shock/hypoperfusion and ischemia. Collectively, these preclinical studies support the hypotheses that LB1148 can protect the GI tract from the damaging consequences of shock, including shock resulting from hypoperfusion. These observations underscore the potential utility of LB1148 in major surgeries that can impact the mucosal barrier. Key supporting studies evaluating the LB1148 are described in detail:

LB1148 Reduces Intestinal Injury in a Rat Model of Intestinal Hypoperfusion

The objective of this study was to evaluate LB1148 in preserving mucosal barrier integrity and reduce tissue injury in a rat model of intestinal hypoperfusion. LB1148 or control was administered orally two hours prior to intestinal hypoperfusion injury. Bowel injury was initiated by occluding the superior mesenteric artery for a period of 30 minutes. After the hypoperfusion period, perfusion was resumed for a period of two hours, followed by necropsy. The number and percent of intestinal villi that were undamaged and damaged were quantified.

As shown in the following figure, the percentage of intact villi was significantly higher (p<0.05) in animals treated with LB1148 versus the control.

Representative histological micrographs of LB1148-treated and control-treated villi are shown below:

These data demonstrate that LB1148 preserved the mucosal barrier and reduced villi tip damage following hemorrhagic shock.

We are progressing a complementary strategy for PB101 for treatment of semi-acute flares associated with inflammatory bowel disease (“IBD”). PB101 is a recombinant biologic protein that is a broad spectrum digestive protease inhibitor. This protein is stable in the intestinal track and active against multiple proteases in the small and large intestines. PB101 is a preclinical development program to induce remission in IBD patients experiencing an active flare. We are working on a proprietary formulation of PB101 for future clinical studies and cannot predict when we will be in a position to file an IND with the FDA for this indication.

Semi-Active Chronic Conditions: Inflammatory Bowel Disease

IBD covers two principal conditions, Crohn’s disease (“CD”) and ulcerative colitis (“UC”). A hallmark of these conditions is chronic inflammation of the GI tract that can lead to long-term damage. Consequently, loss of integrity of the mucosal barrier plays a central role in IBD pathology.

CD and UC also have distinguishing features. First, CD can affect any part of the GI tract, although it frequently targets the end of the small intestine (ileum), whereas UC occurs in the large intestine (colon) and rectum. Second, the damaged areas in CD appear in patches next to area of health tissue, but they are continuous in UC, usually starting at the rectum and extending further into the colon. Third, inflammation in CD can penetrate through multiple layers of the GI wall in CD, but in UC is typically observed only in the innermost layer of the colon wall.

The symptoms of IBD vary among individual patients and may change over time. The most common symptoms of CD and UC are frequent or urgent bowel movements, diarrhea, bloody stool, abdominal pain, nausea and vomiting, and weight loss. IBD is a chronic illness, so most patients experience symptoms on and off throughout their life. Periods when little or no symptoms are present are called remissions and can last anywhere from a few months to several years.

Periods where symptoms are present or reappear are called relapses or flares. Symptom flare-ups can last from weeks to months, and they may include the same or different types of digestive problems that were present upon initial diagnosis. Typical symptoms during a flare include diarrhea, frequent bowel movements, abdominal pain, nausea and vomiting, and weight loss.

Current Treatments

Current IBD treatments include medications and surgery. Medications are meant to reduce inflammation, with some used to treat flares and some used to prolong remission once symptoms have gone away. These include aminosalicylates, corticosteroids, immunomodulators, biologic drugs, and antibiotics. Surgery is typically reserved for patients who fail to respond (or no longer respond) to medications. Up to 75% of CD patients will eventually need surgery.

CD and UC remain chronic inflammatory diseases that are not medically curable.

Protease Activity and IBD

Proteases are observed throughout the GI tract and are tightly regulated by proteolytic activation and endogenous protease inhibition. An imbalance in proteolytic homeostasis has been associated with IBD. Protein and mRNA expression of proteases from immune cells (neutrophil elastase, proteinase-3, cathepsin G, tryptase, chymase or granzymes) are increased in inflamed tissues from patients with IBD. Matrix metalloproteinases known to drive tissue remodeling are significantly increased in IBD. Proteases associated with inappropriate induction of cell death through apoptosis or autophagy are also involved and upregulated in IBD. In a third-party scientific publication, protease and protease inhibitors genes have associated with IBD. Seven genes coding for protease inhibitors were associated in increased incidence for CD; and fourteen proteases and four endogenous protease inhibitor genes were associated with UC. We believe the increase in protease activity observed in IBD may make protease inhibition by synthetic inhibitors a potential route for therapeutic intervention.

We are pursuing the evaluation of selective protease inhibitors, including PB101 as a treatment for IBD. PB101 is a recombinant biologic protein with broad-spectrum serine protease inhibitory activity, that was originally developed to reduce bleeding during complex surgery. PB101 is stable in an aqueous solution for potential GI delivery and action. The protein functions as a competitive inhibitor of serine proteases and therefore can block the action of some luminal enzymes. It inhibits several serine proteases, specifically trypsin, chymotrypsin, plasmin and kallikrein. It forms reversible enzyme-inhibitor complexes between the active serine residue of the protease and the inhibitor. We believe that oral delivery may expose to the intraluminal space of the GI tract to proteolytic inhibition while avoiding potential absorption issues and thereby deliver PB101 directly to the site of therapeutic need, the lumen of the intestinal tract.

Previously published third-party studies of this protein highlight numerous properties supporting its proposed use as a liquid formulation to treat IBD (and related GI-related disorders):

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It is freely soluble in water and in aqueous buffers of low ionic strength.

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It is stable in solutions at a pH range of 1-12.

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It is stable as a dry or liquid formulation when refrigerated.

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It is a highly potent inhibitor of trypsin (Ki = 0.06 picomolar), chymotrypsin, elastase, kallikrein, and other intestinal proteases believed to drive IBD.

Peer reviewed published data from an independent laboratory suggests that intraluminal protease inhibition might improve inflammation in animal models, and we believe PB101 may demonstrate improvements in clinical studies of IBD. The supernatant from colonic biopsies from IBS patients loses its capacity to induce visceral hypersensitivity in mice if the supernatant is pretreated in vitro with a broad-spectrum serine protease inhibitor. In addition, intraluminal serine protease inhibition reduces visceral pain animal models of stress-induced visceral hypersensitivity. Further, treatment with serine protease inhibitors reversed the visceral pain response to colonic distension in rats with post-inflammatory visceral hypersensitivity and significantly decreased visceral hypersensitivity in a dose-dependent fashion.

Loss of integrity of the intestinal epithelium plays a key pathogenic role in IBD. As published recently in a peer reviewed publication, a third party studied the PB101 compound for its ability to protect intestinal tissues from proteolytic damage in an animal model of intestinal injury. The compound was given to rats before they were subjected to mesenteric ischemia-reperfusion which blocks blood flow to the intestines for a period of time before resuming normal circulation. Using a histopathological scoring system for intestinal damage, the compound was shown to reduce intestinal injury relative to the control (untreated) animals. These results are summarized in the following figure:

Our Strategy

Beyond our initial therapeutic focus on GI-related pathology triggered by major surgeries, we believe that protease-based therapeutics hold promise in meeting a number of unmet needs resulting from chronic protease leak. By leveraging our expertise in protease-mediated diseases and dysregulation of the intestinal epithelia barrier, our strategy is to create a broad portfolio of innovative oral therapeutics that target serious diseases associated with the breakdown of this barrier. The key components of our strategy are to:

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Pursue approval of our lead drug candidate LB1148 for its first indication to accelerate the return of bowel function following GI surgery and, if approved, commercialize LB1148 for this indication in the United

States. The FDA and the Company have agreed to the protocol for a phase 3 clinical trial. GI hypomotility and delayed return of bowel function is expected after major surgery. This is associated with significant discomfort, nausea, vomiting, and the inability to advance the diet in the post-operative setting. If unresolved, this can predispose patients to nosocomial complications, infections, malnutrition, electrolyte derangements, and poor wound healing. Delayed return of bowel function is associated with a prolonged hospital length of stay, increased resource utilization, and risk for readmission due to GI dysmotility or bowel obstruction. In a retrospective study of colon resections, prolonged postoperative ileus was significantly associated with the serious complications of intra-abdominal infections, anastomotic leak and a significantly higher mortality risk. We believe treating the root cause of GI hypomotility caused by abdominal surgery has the potential to lower the risk of morbidity and mortality for the over six million patients undergoing abdominal surgeries each year in the U.S.

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Pursue approval of LB1148 for the reduction of postoperative adhesions following major surgeries. Some studies have shown that postoperative intra-abdominal adhesions develop in up to 93% of surgery patients. Adhesions are a costly postoperative consequence of surgery for patients. They can cause bowel obstruction and can require hospitalization or even corrective surgery. Due to its oral route of administration and results from our preclinical and early-stage clinical trials, we believe LB1148 has the potential to be an oral agent for reducing postoperative surgical adhesions. To our knowledge there are no other oral drugs approved or pending approval for this indication. Results from animal studies demonstrated that LB1148 may reduce the number of postoperative adhesions. In addition, a pooled analysis of clinical trial results showed a reduction in the incidence of post-surgical intra-abdominal adhesions as well as the reduction in the extent and severity of adhesions. We believe this provides preliminary evidence of LB1148 to potentially reduce post-surgical adhesions when compared to placebo. We have amended the study design of the PROFILE-US clinical trial to ensure adequate enrollment of patients receiving an adhesions assessment to inform the design of future pivotal studies in this indication.

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Build sales and marketing capabilities to commercialize our product candidates in the United States and European Union. If approved, we intend to develop and commercialize our product candidates in major markets and establish distributor networks or strategic partnerships in smaller markets.

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Leverage our expertise in protease-mediated diseases and the GI tract to efficiently expand our product candidate pipeline to address chronic conditions. Many chronic endocrine and inflammatory diseases are associated with chronic proteolytic enzyme leak from the GI tract. Using our understanding of digestive protease biology of the GI tract, we have developed a proprietary whole-blood assay to measure the activity of specific proteases. In conjunction with the development of this whole-blood assay, we have acquired an exclusive license to synthetic protease substrates and methodologies for analyzing human clinical samples associated with a broad spectrum of conditions and disorders. Together, we believe these assets form a platform for novel drug discovery and highly efficient patient selection and measurement of ex vivo clinical response during drug development.

Pipeline Development

Many chronic endocrine and inflammatory diseases are associated with chronic proteolytic enzyme leak from the GI tract. We have a unique understanding of the protease biology of GI tract and have developed a proprietary whole-blood assay to identify the specific activities of different proteases. In conjunction, we have acquired an exclusive license to synthetic protease substrates and methodologies for use in analyzing animal samples and human clinical samples, including whole blood, associated with a broad spectrum of conditions and disorders. Together, we believe these assets form a platform for novel drug discovery and highly efficient patient selection and measurement of clinical response during drug development.

We have correlated circulating protease activity with specific pathologies such as heart disease and IBD. To deepen our insights into these diseases, we developed a proprietary assay that currently identifies the specific activity of proteases in whole blood. We believe that this assay can be greatly expanded to identify specific proteases.

Detection of systemic protease activity is important for:

Target Identification: The biomarker assay will allow us to identify diseases driven by specific digestive enzymes in plasma samples from different patient groups and allow for a better understanding of disease processes. This will allow for improved diagnostics and the discovery of specific enzymes driving disease pathology.

Drug Development: The biomarker assay will allow us to screen drugs for specificity and potency against key digestive enzymes, with a focus on identifying drugs to repair the mucosal barrier and prevent proteolytic enzyme leak.

Treatment Design: The biomarker assay will allow us to identify patients with digestive enzyme leak for inclusion in clinical studies, as well as measure response of activity and optimize therapeutic dosing/response.

We have created fluorescent charge-changing peptide substrates for several proteases which allows for detection of specific protease activity. The substrate is combined with a sample and, in the presence of the substrate specific protease, cleavage of the substrate occurs creating charged fragments. The charged fragments are tagged with a fluorescent molecule, and the fragments are separated in an electric field. In the figure below, activity of the pancreatic enzymes trypsin and chymotrypsin was measured in lymph fluid of rats in shock at different time points (0, 1, 2, 3 hours after reperfusion). Elevated pancreatic enzyme activities were found in rats subjected to shock.

We plan to develop an assay to measure protease activity directly in whole blood that:

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Requires minimal sample preparation;

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Uses blood sample; and

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Produces rapid measurement and activity readings.

We hope our biomarker assay platform will help drive pipeline efforts to discover and develop new therapeutics for chronic inflammatory conditions impacting the GI barrier. Pilot programs under exploration are as follows.

Chronic Conditions: Glucose Control and Inflammatory Autoimmune Disease Programs

Multiple peer-reviewed publications from the laboratory of Geert Schmid-Schönbein, Professor, Bioengineering, UC San Diego provide support for aberrant protease activity in endocrine and inflammatory diseases. As depicted in the following schematic, for example, extracellular protease activity is linked with cleavage of receptors linked to cardiovascular, metabolic, and other physiological processes.

For example, peer-reviewed published studies in rodents suggest that aberrant protease activity may be partially responsible in diabetes and insulin regulation. First, as shown in the following figure, the diabetic rats show elevated levels of protease activity, which are reduced to levels below control upon administering a protease inhibitor.

In conjunction, diabetic rats show elevated levels of glucose and glycosylated hemoglobin (HbA1c), which are restored to normal ranges upon administering a protease inhibitor, as shown in the following figure.

Third, ex vivo protease inhibition also prevents insulin receptor degradation in the SHR model, as shown in the following figure.

Fourth, type 2 diabetes patients have elevated protease activity. Blood protease activity was measured with our proprietary protease biomarker assay. The following figure is a snapshot of baseline protease activity in the blood of control, pre-diabetic, and diabetic patients, showing that protease activity increased with disease severity.

These observations, coupled with our clinical data, support our view that chronic endocrine and autoimmune diseases reflect an underlying pathology driven by chronic proteolytic enzyme leak from the GI tract.

Manufacturing

We do not own or operate any manufacturing facilities. We rely on third-party contract manufacturing organizations (“CMOs”) to manufacture and supply our preclinical and clinical materials to be used during the development of our drug candidates, including our lead drug product. As our product candidates advance through development, we expect to enter into longer-term commercial supply agreements with key suppliers and manufacturers to fulfill and secure our production needs.

To that end, we have entered into an umbrella services agreement with a manufacturing company who we expect to lead our drug manufacturing efforts and under which we plan to enter into individual project agreements to meet our future drug manufacturing needs. Although we rely on CMOs, we have personnel and third-party consultants with extensive drug manufacturing experience to oversee the relationships with our CMOs. It is also our intent to identify and qualify additional manufacturers to provide API and drug product manufacturing.

Supply chain constraints associated with the COVID-19 pandemic have impacted the availability of the components needed in the manufacture of LB1148 and, depending on the duration and extent of the pandemic or new strains, could impact the components and production capacity required for a commercial scale-up of LB1148. We believe we have sufficient supply or plans for supply to meet our clinical and nonclinical development needs through 2022. However, depending on the duration and impact of the ongoing COVID-19 pandemic on local and global supply chains, our suppliers could be adversely impacted, which may result in delays or disruptions in our current or future supply chain.

LB1148 is a dry powder for reconstitution, consisting of the previously approved API (tranexamic acid) as well as other components. Drug product manufacturing is a relatively straightforward operation, involving the blending of dry components. To date, controlled stability experiments indicate that the active ingredient is highly stable and that the drug product has a long shelf life.

Sales and Marketing

We do not currently have any approved drugs. However, we intend to build a commercial infrastructure in the United States and potentially in other markets, that we believe will be necessary to effectively support the commercialization of LB1148, if approved, and any other products that we develop in the future, with a focus on high treating physicians and hospitals. In the U.S. we estimate that cardiovascular and abdominal surgeries collectively represent close to seven million addressable patients, which we believe, based on certain assumptions, could translate into over $2 billion in annual sales for LB1148. We believe that we may be able to address the market using our own targeted, specialty sales and marketing organization supported by internal sales personnel, an internal marketing group, and distribution support.

We plan to utilize a variety of marketing programs to promote LB1148, if approved, including sales promotional materials, speaker programs, journal advertising, industry publications, medical conferences, electronic media, and product sampling. Additional capabilities important to commercialization of LB1148, if approved, and any other products that we may develop in the future, include the management of key accounts, such as managed care organizations, hospital and specialty pharmacies, and government accounts – where formulary acceptance is necessary for product adoption and reimbursement.

Outside of the U.S., where we believe it is appropriate, we may utilize strategic partners, distributors, or contract sales forces to expand the commercial availability of LB1148, if approved, and other products, if approved. In addition, we believe the other indications that we may pursue with our product candidates can be addressed with a small, dedicated sales force. We currently do not expect that we will require large pharmaceutical partners for the commercialization of our product candidates, although we may consider partnering in certain territories or indications or for other strategic purposes. We intend to continuously evaluate our commercialization strategy as we advance our clinical and preclinical programs.

Competition

Drug development is highly competitive and subject to rapid and significant technological advancements. Our ability to compete will greatly depend upon our ability to complete necessary clinical trials and the related regulatory approval processes, and successfully market any product that we may successfully develop. The key competitive factors that will affect the commercial success of any product candidate for which we may receive marketing approval include efficacy, safety, tolerability, dosing convenience, price, coverage and reimbursement.

Our current and potential future competitors are diverse. There are many public and private biopharmaceutical companies, universities, governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to our product candidates or address similar markets. In addition, the number of companies seeking to develop and commercialize products and therapies similar to our product candidates is likely to increase.

With regard to postoperative improvement of bowel function, we expect to face competition in the pharmacological therapy space from alvimopan, marketed as a branded product, ENTEREG®, by Merck, as well as in generic form. Alvimopan is currently the only approved therapeutic indicated to accelerate return for bowel function. However, the alvimopan label is restricted to those surgeries that include partial bowel resection with primary anastomosis. Other companies may be developing product candidates for postoperative improvement of bowel function that could pose future competition if approved for sale in overlapping territories.

With regard to the reduction or elimination of postoperative intra-abdominal adhesions, to our knowledge, there are no approved therapeutics for treating or preventing postoperative intra-abdominal adhesions. The only potential oral therapeutic in clinical development we are aware of is TTX 333 EvitarTM being developed by Temple Therapeutics based in the Netherlands. However, we face general competition from other medical interventions for adhesions, namely surgical procedures and adhesion barrier products. Adhesion barrier products approved for abdominal or pelvic surgery in the United States consist of SEPRAFILM, INTERCEED®, and ADEPT®. In addition, several products are used off-label for adhesion prevention in the United States, including EVICEL®, SURGIWRAP®, COSEALTM, and PRECLUDETM. Adhesion barrier products available outside the United States include HYALOBARRIER®, SPRAYSHIELDTM, PREVADHTM, and INTERCOATTM. Such products are used as adjunctive

interventions, have variable efficacy, and are not easily used with laparoscopic procedures, which are becoming increasingly common.

Intellectual Property

Our commercial success depends in part on our ability to (i) obtain and maintain proprietary protection to protect our current and future product candidates, novel discoveries, product development technologies, improvements, and know-how; (ii) preserve the confidentiality of our trade secrets and confidential information; (iii) maintain our co-development agreements and licenses for exclusive commercial rights to intellectual property, including patent rights co-owned with third parties; (iv) defend and enforce our proprietary rights, including our patents; and (v) operate without infringing valid and enforceable patents and other proprietary rights of third parties.

We seek to protect our proprietary position by, among other methods, filing or in-licensing U.S. and foreign patents and patent applications related to technology, inventions and improvements that are important to the development and implementation of our business. As for the product candidates we develop and plan to commercialize, as a normal course of business, we generally have pursued, or intend to pursue, composition and therapeutic use patents, as well as patents directed to dosing regimens and additional prospective indications. We also rely, as needed, on trademarks, trade secrets, copyright protection, know-how, continuing technological innovation and confidential information to develop and maintain our proprietary position. We also will pursue data exclusivity, market exclusivity, and other regulatory exclusivities, as applicable and available.

Regardless of the coverage we seek under our existing patent families, there is always a risk that an alteration to our products, methods, or processes may provide sufficient basis for a competitor to avoid infringement claims. In addition, the coverage claimed in a patent application can be significantly reduced before a patent is issued, and courts can reinterpret patent scope after issuance. Moreover, many jurisdictions, including the United States, permit third parties to challenge issued patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. Moreover, we cannot provide any assurance that any patents will be issued from our pending or any future applications or that any current or future issued patents will adequately protect our intellectual property.

While we seek broad coverage under our existing patent applications, there is always a risk that an alteration to the products or processes may provide sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire and we cannot provide any assurance that any patents will be issued from our pending or any future applications or that any potentially issued patents will adequately protect our products or product candidates.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a period due to delay by the United States Patent and Trademark Office ("USPTO") in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non-provisional filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies for our products, if approved, or processes, or to obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products may have an adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation.

LB1148 Patent Portfolio

Currently, we solely own (or co-own with exclusive commercial rights) four patent families with claims directed to compositions covering components of LB1148, including the protease inhibitor tranexamic acid, or their therapeutic uses and dosing regimens:

The First Family is directed to compositions comprising four components of LB1148 and their therapeutic use in treating shock and other indications. As of March 9, 2022, this patent family includes a recent patent in Europe (EP 3122349) that granted on December 22, 2021, three granted patents in the United States (including a recent grant, US 11,123,317, on September 21, 2021), two granted patents in Taiwan, granted patents in Australia, India, Japan, and Mexico, and pending applications in Canada, Korea, and the U.S., all of which we solely own. In addition, this family includes a granted patent in China that we previously assigned to Newsoara to support our co-development agreement with Newsoara, as discussed below. The expected expiration date of the issued patents (or any patents that may issue from pending applications) is 2035, excluding any adjustments or extensions of patent term that may be available.

The Second Family, which we jointly own with the University of California, is directed to compositions comprising three (or fewer) components of LB1148 and their therapeutic use in treating shock and other indications. Under our 2015 License with the University of California (as discussed in the section entitled "License Agreements and Collaborations"), we have exclusive commercial rights to this family. As of March 17, 2022, this patent family includes three granted patents in the U.S., granted patents in China, Canada, and Korea, and pending applications in Europe and the U.S. The expected expiration date of the issued patents (or any patents that may issue from pending applications) is 2031, excluding any adjustments or extensions of patent term that may apply.

The Third Family covers the use of LB1148 (or its active ingredient, tranexamic acid) in certain therapeutic indications, including POI and adhesions, which align with our current clinical and commercial strategy. This family also covers specific split-dose regimens of LB1148 that can apply to the current therapies. As of March 9, 2022, this patent family includes a recent patent in the United States (US 11,202,768) that was granted on December 21, 2021, as well as pending applications in Australia, Europe, Canada, Hong Kong, all of which we solely own. In addition, this family includes a recent patent in China (CN 108883086) that was granted on October 26, 2021 and that we previously assigned to Newsoara to support our co‐development agreement with Newsoara (as discussed in the section entitled "License Agreements and Collaborations"). The expected expiration date of any patents (or patents that may issue from pending applications) is 2037, excluding any adjustments or any extensions of patent term that may apply.

The Fourth Family, which we solely own, consists of a U.S. patent application with claims covering the use of LB1148 in methods of controlling glucose levels in diabetic patients in hospital and non-hospital settings. The expected expiration date of any patents that may issue from pending applications is 2038, excluding any adjustments or any extensions of patent term that may apply.

License Agreements and Collaborations

2015 License Agreement with the Regents of the University of California

In August 2015, LBS entered into a license agreement with the Regents of the University of California (the “Regents”), as amended in December 2019 (the “2015 UC License”). Pursuant to the 2015 UC License, we have an exclusive, sublicensable, worldwide license under certain patent rights to make, use, sell, offer for sale and import products and practice methods covered by the claims of the licensed patent rights in the field of protease inhibitor administration in therapeutic indications including, among others, uses in surgery generally, and treatment of shock, sepsis, inflammatory disease and post-surgical ileus and adhesions. We utilize these licensed patent rights in certain compositions comprising components of LB1148, including the active ingredient, tranexamic acid.

Upon the execution of the 2015 UC License, LBS paid a one-time license issue fee of $3,500 and are obligated to pay an annual license maintenance fee in the mid four-digit dollar range until such time that we are commercially selling a licensed product. We are also obligated to make: (i) payments up to $250,000 in the aggregate upon achievement of certain regulatory milestones and (ii) tiered royalty payments in the low single-digit percentage range on annual net sales of licensed products, subject to a minimum annual royalty in the low five-digit dollar range and adjustments to the royalty percentage in certain events. Further, we are obligated to pay a percentage of non-royalty licensing revenue we receive from our sublicensees under the 2015 UC License to the Regents.

Under the 2015 UC License, we are required to diligently proceed with the development, manufacture, regulatory approval, and sale of licensed products and is subject to a number of diligence obligations relating to developmental, regulatory and commercialization milestones for the licensed products, as well as a minimum annual spend requirement in the low six-digit dollar range.

The 2015 UC License will expire upon the later of the expiration date of the longest-lived patent right licensed under the 2015 UC License. The Regents may terminate the 2015 UC License if: (i) a material breach by us is not cured within 60 days, (ii) we file a claim asserting the Regents licensed patent rights are invalid or unenforceable, or (iii) we file for bankruptcy. We also have the right to terminate the 2015 UC License at any time upon at least 90 days’ written notice.

2020 License Agreement with the Regents of the University of California

In April 2020, LBS entered into another license agreement with the Regents (the “2020 UC License”). Pursuant to the 2020 UC License Agreement, we have an exclusive, sublicensable, worldwide license under certain patent rights to make, use, sell, offer for sale and import products and practice methods covered by the claims of the licensed patent rights as directed to synthetic charge-changing substrates and methods for detecting protease activity in animal and human clinical samples. Under the 2020 UC License, the exclusive rights include analysis of animal samples and human clinical samples (including microbial samples from an animal or human), including detecting and measuring proteases, enzymes, and biomolecules in bodily fluids, breath, and other sources but excluding analysis of human clinical samples associated with blood cancers, solid tumors, and other samples related to oncology conditions and diseases. We expect these licensed patent rights to support our pipeline activities, including those focused on identifying new drug targets and diagnostics.

Upon the execution of the 2020 UC License, LBS paid a one-time license issue fee of $5,000, agreed to reimburse the Regents for past patent costs and are obligated to pay an annual license maintenance fee in the mid four-digit dollar range until such time that it is commercially selling a licensed product. We are also obligated to make: (i) payments up to approximately $1.9 million in the aggregate upon achievement of certain development, regulatory and commercial milestones and (ii) royalty payments in the low- to mid-single-digit percentage range on annual net sales of licensed products, subject to a minimum annual royalty in the low five-digit dollar range and adjustments the royalty percentage in certain events. Further, we are obligated to pay to the Regents a percentage of non-royalty licensing revenue we receive from our sublicensees under the 2020 UC License.

Under the 2020 UC License, we are subject to a number of diligence obligations relating to developmental, regulatory and commercialization milestones for the licensed products, as well as a minimum annual spend requirement in the low six-digit dollar range.

The 2020 UC License will expire upon the later of the expiration date of the longest-lived patent right licensed under the 2020 UC License. The Regents may terminate the 2020 UC License if: (i) a material breach by us is not cured within 60 days, (ii) we file a claim asserting the Regents licensed patent rights are invalid or unenforceable, or (iii) we file for bankruptcy or becomes insolvent. We also have the right to terminate the 2020 UC License at any time upon at least 90 days’ written notice.

2021 License Agreement with the Regents of the University of California

In July 2021, we entered into another license agreement with the Regents (the “2021 UC License”) to obtain exclusive rights to the cancer-related indications and uses that had been excluded under the 2020 UC License. Pursuant to the 2021 UC License Agreement, we have an exclusive, sublicensable, worldwide license under certain patent rights that now include cancer to make, use, sell, offer for sale and import products and practice methods covered by the claims of the licensed patent rights as directed to synthetic charge-changing substrates and methods for detecting protease activity in animal and human clinical samples. In conjunction with the 2020 UC License, we expect these licensed patent rights to further enhance pipeline activities, including those focused on identifying new drug targets and diagnostics.

Upon execution of the 2021 UC License, we paid a one-time license issue fee of $10,000 and are obligated to pay an annual license maintenance fee in the mid four-digit dollar range until such time that it is commercially selling a licensed product. We are also obligated to make: (i) payments up to approximately $1.9 million in the aggregate upon achievement of certain development, regulatory and commercial milestones and (ii) royalty payments in the low- to

mid-single-digit percentage range on annual net sales of licensed products, subject to a minimum annual royalty in the low five-digit dollar range and adjustments to the royalty percentage in certain events. Further, we are obligated to pay the Regents a percentage of non-royalty licensing revenue we receives from any sublicensees under the 2021 UC License.

Under the 2021 UC License, we are subject to a number of diligence obligations relating to developmental, regulatory and commercialization milestones for the licensed products, as well as a minimum annual spend requirement in the low six-digit dollar range.

The 2021 UC License will expire upon the later of the expiration date of the longest-lived patent right licensed under the 2021 UC License. The Regents may terminate the 2021 UC License if: (i) a material breach by us is not cured within 60 days, (ii) we file a claim asserting the Regents licensed patent rights are invalid or unenforceable, or (iii) we file for bankruptcy or become insolvent. We also have the right to terminate the 2021 UC License at any time upon at least 90 days’ written notice.

Co-Development and Distribution Agreement with Newsoara

In February 2018, we entered into a co-development and distribution agreement with Newsoara, a joint venture established with Biolead Medical Technology Limited, as amended in November 2018 (the “Co-Development Agreement”). Pursuant to the Co-Development Agreement, we granted Newsoara an exclusive co-development right under certain patents and know-how owned or controlled by us to develop, use, sell, offer to sell, import, and otherwise commercialize licensed products (the “Licensed Products”) for any and all indications in the People’s Republic of China, including the regions of Hong Kong and Macao, but excluding Taiwan (the “Territory”). The Licensed Products only include LB1148. The Co-Development Agreement obligates Newsoara to initially use us as the exclusive supplier for all of Newsoara’s requirements for Licensed Products in the Territory.

Under the Co-Development Agreement, Newsoara is responsible for meeting certain regulatory milestones and is required to share with us the preclinical and clinical data it generates that pertains to the Licensed Products. The Company also obtained from Newsoara (i) an exclusive license under certain patents and know-how owned or controlled by Newsoara (“Newsoara Technology”) to make, have made, use, sell, offer to sell, import, and otherwise develop and commercialize Licensed Products in any and all indications outside of the Territory, and (ii) a non-exclusive license under the Newsoara Technology to make, have made, use, sell, offer to sell, and import Licensed Product inside the Territory to the extent necessary to comply with certain of our obligations under the Co-Development Agreement.

In consideration of the rights granted to Newsoara under the Co-Development Agreement, Newsoara paid us a one-time upfront fee of $1.0 million. In addition, Newsoara is obligated to make (i) payments up to $6.75 million in the aggregate upon achievement of certain regulatory and commercial milestones, (ii) payments in the low six-digit range per licensed product upon achievement of a regulatory milestone and (iii) tiered royalty payments ranging from the mid-single-digit to low-double-digit percentage range on annual net sales of Licensed Products, subject to adjustment to the royalty percentage in certain events.

The Co-Development Agreement will expire upon the later of the expiration date of the last valid claim of any licensed patent covering the Licensed Products in the Territory. In addition, the Co-Development Agreement can be terminated (i) by either party for the other party’s material breach that remains uncured for a specified time period after written notice or for events related to the other party’s insolvency, (ii) by us if Newsoara challenges or attempts to interfere with any licensed patent rights and, (iii) by Newsoara for any reason upon specified prior written notice.

Trade Secrets and Confidentiality

We rely, in some circumstances, on trade secrets and other confidential information to protect our unpatented technology. However, trade secrets can be difficult to protect. We seek to protect our trade secrets and proprietary technology and processes, in part, by entering into non-disclosure and confidentiality agreements with our employees, consultants, collaborators, scientific advisors, suppliers, contractors and other third parties. In addition, we enter into employment agreements that require employees to assign to us any inventions, trade secrets or know-how that they develop while employed by us.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and our trade secrets and other proprietary information may be disclosed. We may not have adequate remedies for any breach and could lose our trade secrets and other proprietary information through such a breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting trade secrets, know-how and inventions.

Government Regulation and Product Approval

The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs and biologics such as those we are developing.

Small molecule drugs are subject to regulation under the Food, Drug, and Cosmetic Act (“FDCA”) and biological products are additionally subject to regulation under the Public Health Service Act (“PHSA”) and both are subject to additional federal, state, local and foreign statutes and regulations. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

U.S. Biopharmaceuticals Regulation

The process required by the FDA before drug and biologic product candidates may be marketed in the United States generally involves the following:

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completion of extensive preclinical laboratory tests and animal studies performed in accordance with applicable regulations, including the FDA’s Good Laboratory Practice (“GLP”) regulations;

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submission to the FDA of an investigational new drug application (“IND”) which must become effective before clinical trials may begin;

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approval by an independent institutional review board or ethics committee at each clinical site before the trial is commenced;

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performance of adequate and well-controlled human clinical trials in accordance with FDA’s Good Clinical Practice (“GCP”) regulations to establish the safety and efficacy of a drug candidate and safety, purity and potency of a proposed biologic product candidate for its intended purpose;

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preparation of and submission to the FDA of a new drug application (“NDA”) or biologics license application (“BLA”), as applicable, after completion of all pivotal clinical trials;

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satisfactory completion of an FDA Advisory Committee review, if applicable;

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a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review;

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satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with current Good Manufacturing Practice requirements ("cGMPs"), and of selected clinical investigation sites to assess compliance with GCPs; and

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FDA review and approval of an NDA, or licensure of a BLA, to permit commercial marketing of the product for particular indications for use in the United States.

Preclinical and Clinical Development

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls information, and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent institutional review board for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.

For purposes of biopharmaceutical development, human clinical trials are typically conducted in three sequential phases that may overlap or be combined;

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Phase 1. The investigational product is initially introduced into patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early indications of effectiveness.

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Phase 2. The investigational product is administered to a limited patient population to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.

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Phase 3. The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the application. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. The FDA or the sponsor or its data safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research patients or patients are being exposed to an unacceptable health risk. Similarly, an institutional review board can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with the institutional review board’s requirements or if the biological product candidate has been associated with unexpected serious harm to patients. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov.

NDA/BLA Submission and Review

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of an NDA or BLA, as applicable, requesting approval to market the product for one or more indications. The application must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of an application requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies. The FDA has sixty days from the applicant’s submission to either issue a refusal to file letter or accept the application for filing, indicating that it is sufficiently complete to permit substantive review.

Once an NDA or BLA has been accepted for filing, the FDA’s goal is to review standard applications within 10 months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews an NDA to determine whether a drug is safe and effective for its intended use and a BLA to determine whether a biologic is safe, pure and potent. FDA also reviews whether the facility in which the product is manufactured, processed, packed or held meets standards designed to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving an NDA or BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an application, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates an application and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be manufactured, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the application, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the application in condition for approval, including requests for additional information or clarification, which may include the potential requirement for additional clinical studies. The FDA may delay or refuse approval of an application if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the application with a risk evaluation and mitigation strategy (“REMS”), to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to

enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates. The Fast Track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a Fast Track product has opportunities for frequent interactions with the review team during product development and, once an NDA or BLA is submitted, the product may be eligible for priority review. A Fast Track product may also be eligible for rolling review, where the FDA may consider for review sections of the NDA or BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.

A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.

Any marketing application for a drug or biologic submitted to the FDA for approval, including a product with a Fast Track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition. Priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date.

Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Fast Track designation, breakthrough therapy designation and priority review do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which the FDA assesses an annual program fee for each product identified in an approved NDA or BLA. Biopharmaceutical manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

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restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls;

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fines, warning or untitled letters or holds on post-approval clinical studies;

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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals;

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product seizure or detention, or refusal of the FDA to permit the import or export of products;

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consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

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mandated modification of promotional materials and labeling and the issuance of corrective information;

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the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or

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injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biopharmaceutical products. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

The FDA also cannot approve an ANDA or 505(b)(2) application until all applicable non-patent exclusivities listed in the Orange Book for the branded reference drug have expired. For example, a pharmaceutical manufacturer may

obtain five years of non-patent exclusivity upon NDA approval of a new chemical entity, or NCE, which is a drug containing an active moiety that has not been approved by FDA in any other NDA. An “active moiety” is defined as the molecule responsible for the drug substance’s physiological or pharmacologic action. During that five-year exclusivity period, the FDA cannot accept for filing (and therefore cannot approve) any ANDA seeking approval of a generic version of that drug or any 505(b)(2) NDA that relies on the FDA’s approval of the drug, provided that that the FDA may accept an ANDA four years into the NCE exclusivity period if the ANDA applicant also files a paragraph IV certification.

Drugs and biologics can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.

Hatch-Waxman Amendments and Exclusivity

Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for an existing product, or published literature, in support of its application. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application (“ANDA”). An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics and intended use, among other things, to a previously approved product. ANDAs are termed “abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo or other testing. The generic version must deliver the same amount of active ingredient(s) in the same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug. In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that cover the applicant’s drug or a method of using the drug. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA.

Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA that (i) no patent information on the drug product that is the subject of the application has been submitted to the FDA; (ii) such patent has expired; (iii) the date on which such patent expires; or (iv) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through the last type of certification, also known as a paragraph IV certification. If the applicant does not challenge the listed patents, or indicates that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until all of the listed patents claiming the referenced product have expired.

Federal and State Fraud and Abuse, Data Privacy and Security, and Transparency Laws and Regulations

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws and regulations restrict business practices in the biopharmaceutical industry. These laws may impact, among other things, our current and future business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers and other parties through which we market, sell and distribute our products for which we obtain marketing approval. These laws include anti-kickback and false claims laws and regulations, data privacy and security, and transparency laws and regulations, including, without limitation, those laws described below.

The U.S. federal Anti-Kickback Statute prohibits any person or entity from, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The U.S. federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated.

A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act or the civil monetary penalties laws.

Federal civil and criminal false claims laws, including the federal civil False Claims Act, which can be enforced by individuals through civil whistleblower and qui tam actions, and civil monetary penalties laws, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses.

The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, impose specified requirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities, which include certain healthcare providers, healthcare clearinghouses and health plans, that create, receive, maintain or transmit individually identifiable health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which are not pre-empted by HIPAA, differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”), information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) other healthcare professionals (such as physician assistants and nurse practitioners),

and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members.

We may also be subject to state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing, and state and local laws that require the registration of pharmaceutical sales representatives.

Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant criminal, civil and administrative penalties including damages, fines, imprisonment, disgorgement, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, implementation of corporate compliance programs, reporting of payments or transfers of value to healthcare professionals, and additional data privacy and security requirements.

Coverage and Reimbursement

The future commercial success of our product candidates, if approved, will depend in part on the extent to which third-party payors, such as governmental payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers and other third-party payors, provide coverage of and establish adequate reimbursement levels for our product candidates. Third-party payors generally decide which products they will pay for and establish reimbursement levels for those products. In particular, in the United States, no uniform policy for coverage and reimbursement exists. Private health insurers and other third-party payors often provide coverage and reimbursement for products based on the level at which the government, through the Medicare program, provides coverage and reimbursement for such products, but also on their own methods and approval process apart from Medicare determinations. Therefore, coverage and reimbursement can differ significantly from payor to payor.

In the United States, the European Union (“EU”), and other potentially significant markets for our product candidates, government authorities and third-party payors are increasingly attempting to limit or regulate the price of products, particularly for new and innovative products, which often has resulted in average selling prices lower than they would otherwise be. Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the EU will put additional pressure on product pricing, reimbursement and usage. These pressures can arise from rules and practices of managed care groups, judicial decisions and laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical coverage and reimbursement policies and pricing in general.

Third-party payors are increasingly imposing additional requirements and restrictions on coverage and limiting reimbursement levels for products. For example, federal and state governments reimburse products at varying rates generally below average wholesale price. These restrictions and limitations influence the purchase of products. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Similarly, because certain of our product candidates are physician-administered, separate reimbursement for the product itself may or may not be available. Instead, the administering physician may only be reimbursed for providing the treatment or procedure in which our product is used. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of products, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our product candidates, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a product does not imply

that an adequate reimbursement rate will be approved. Adequate third-party payor reimbursement may not be available to enable us to realize an appropriate return on our investment in product development. Legislative proposals to reform healthcare or reduce costs under government insurance programs may result in lower reimbursement for our product candidates, if approved, or exclusion of our product candidates from coverage and reimbursement. The cost containment measures that third-party payors and providers are instituting and any healthcare reform could significantly reduce our revenue from the sale of any approved product candidates.

Healthcare Reform

The United States and some foreign jurisdictions are considering enacting or have enacted a number of additional legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidates profitably, if approved. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts, which include major legislative initiatives to reduce the cost of care through changes in the healthcare system, including limits on the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded healthcare programs, and increased governmental control of drug pricing.

There have been several U.S. government initiatives over the past few years to fund and incentivize certain comparative effectiveness research, including creation of the Patient-Centered Outcomes Research Institute under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act"). It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates.

PALI US Equity

PALI · 10-K · period ended 2021-12-31

Item 1. Business.

PALI US Equity☆

PALI · 10-K · period ended 2021-12-31

Item 1. Business.

PALI US Equity