ITEM 1A. RISK FACTORS.
The
following risk factors, together with all of the other information included or incorporated in this Annual Report on Form 10-K,
should be carefully considered. If any of the following risks, either alone or taken together, or other risks not presently known
to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition,
results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock
could decline, and stockholders may lose all or part of their investment.
Risk
Factor Summary
We
are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability
and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this
Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment
in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:
● We have a history of net losses and may experience future losses;
Risks
Related to Our Business
We
have a history of net losses and may experience future losses.
We
have yet to establish any history of profitable operations. We reported a net loss of $19.3 million and $20.6 million for the
fiscal years ended December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020, we had an accumulated deficit
of $234.5 million. We expect to incur additional operating losses for the foreseeable future. There can be no assurance that we
will be able to achieve sufficient revenues throughout the year or be profitable in the future.
We
will need to raise additional capital to meet our business requirements in the future and such capital raises may be costly or
difficult to obtain and could dilute our stockholders’ ownership interests.
Our
current capital will be sufficient to enable us to continue operations for at least 12 months following the filing date of this
Annual Report. In order to continue our operations and to fully realize all of our business objectives, absent any non-dilutive
funding from a strategic partner or some other strategic transactions, we will need to raise additional capital, which may not
be available on reasonable terms, or at all. For instance, we will need to raise additional funds to accomplish the following:
● advancing the research and development of our therapeutic candidates;
● hiring and retaining qualified management and key employees;
● responding to competitive pressures; and
● maintaining compliance with applicable laws.
Any
additional capital raised through the sale of equity or equity backed securities will dilute our stockholders’ ownership
percentages and could also result in a decrease in the market value of our equity securities.
The
terms of any securities issued by us in future financing transactions may be more favorable to new investors, and may include
preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive
effect on the holders of any of our securities then outstanding.
Furthermore,
any additional capital financing that we may need in the future may not be available on terms favorable to us, or at all. If we
are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth
plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business,
financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in
which event it is unlikely that stockholders would receive any distribution on their shares. Further, we may not be able to continue
operating if we do not generate sufficient revenues from operations needed to stay in business.
In
addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees,
accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to
recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may
adversely impact our financial condition and cause further dilution to our stockholders.
We
are a clinical development stage biotechnology company and have never been profitable. We expect to incur additional losses in
the future and may never be profitable.
We
are a clinical development stage biotechnology company. We have not commercialized any product candidates or recognized any revenues
from our product sales. All of our product candidates are still in the preclinical or clinical development stage, and none
have been approved for marketing or are currently being marketed or commercialized. Our product candidates will require significant
additional development, clinical studies, regulatory clearances and additional investments of time and capital before they can
be commercialized. We cannot be certain when or if any of our product candidates will obtain the required regulatory approval.
We
have never been profitable and have incurred net losses each year since our inception. Our losses are principally a result of
research and development and general administrative expenses in support of our operations. We may incur significant additional
losses as we continue to focus our resources on prioritizing, selecting and advancing our product candidates. Our ability to generate
revenue and achieve profitability depends mainly upon our ability, alone or with others, to successfully develop our product candidates,
obtain the required regulatory approvals in various territories and commercialize our product candidates. We may be unable to
achieve any or all of these goals with regard to our product candidates. As a result, we may never be profitable or achieve significant
and/or sustained revenues.
All
of our product candidates are still under development, and there can be no assurance of successful commercialization of any of
our products.
All
of our research and development programs are in developmental stages. One or more of our product candidates may fail to meet safety
and efficacy standards in human testing, even if those product candidates are found to be effective in animal studies. To develop
and commercialize inhaled therapeutic treatment for ABPA, acute migraine, and other iSPERSE-based product candidates, we
must provide the FDA and foreign regulatory authorities with human clinical and non-clinical animal data that demonstrate adequate
safety and effectiveness. To generate these data, we will have to subject our product candidates to significant additional research
and development efforts, including extensive non-clinical studies and clinical testing. Our approach to drug discovery may not
be effective or may not result in the development of any drug. Currently our development efforts are primarily focused on Pulmazole,
PUR1800, and PUR3100. Even if Pulmazole, PUR1800, PUR3100 or our other product candidates are successful when tested in animals,
such success would not be a guarantee of the safety or effectiveness of such product candidates in humans. It can take several
years for a product to be approved and we may not be successful in bringing any therapeutic candidates to the market. A new drug
may appear promising at an early stage of development or after clinical trials and never reach the market, or it may reach the
market and not sell, for a variety of reasons. For example, the drug may:
● fail to receive regulatory approval on a timely basis or at all;
● be difficult to manufacture on a large scale;
● not be economically viable;
● not be prescribed by doctors or accepted by patients;
● infringe on intellectual property rights of any other party.
If
our delivery platform technologies or product development efforts fail to generate product candidates that lead to the successful
development and commercialization of products, our business and financial condition will be materially adversely affected.
On
December 26, 2019, we entered into the Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”) License Agreement.
Under the terms of the JJEI License Agreement, we have granted JJEI an option to acquire (1) JJEI’s rights to an intellectual
property portfolio of materials and technology related to narrow spectrum kinase inhibitor compounds and (2) an exclusive, worldwide,
royalty bearing license to PUR1800. JJEI will have three months from the later of the completion of a Phase 1b clinical study
for PUR1800 and JJEI’s receipt of audited draft reports for a toxicology study of PUR1800 to exercise the option. We will
be conducting the Phase 1b clinical study and the chronic toxicology program. If our Phase 1b clinical study or the chronic toxicology
program is not successful, we may jeopardize the fulfillment of the option to JJEI under the JJEI License Agreement, thereby hurting
our product development efforts and potential to earn royalty payments, which will in turn negatively influence our financial
condition. Furthermore, JJEI may terminate the JJEI License Agreement for any reason upon 90 days advance written notice. We cannot
predict JJEI’s decision to terminate the JJEI License Agreement. The termination of the JJEI License Agreement may negatively
influence our financial condition.
Due
to delays in patient enrollment in the Pulmazole Phase 2 clinical study, exacerbated by the ongoing COVID-19 pandemic, Cipla Technologies,
LLC (“Cipla”), with whom we entered into a development and commercialization agreement (the “Cipla Agreement”)
on April 15, 2019 for the development and commercialization of Pulmazole, informed us that it desired to amend the Cipla Agreement.
In connection with our renegotiation of the Cipla Agreement, on July 10, 2020, the joint steering committee established by us
and Cipla terminated the Phase 2 study in order to facilitate the commencement of a newly designed Phase 2b study that would supersede
the prior Phase 2 study. We have not agreed to any amendments to the Cipla Agreement as of the date of the filing of this Annual
Report. However, we expect that discussions regarding amendments to the Cipla Agreement will continue. No assurance can be given
that we will be able to reach a mutually acceptable arrangement with Cipla for the conduct of any proposed Phase 2b clinical study
in the future. Accordingly, if we are unable to agree with Cipla on such matters such as cost sharing for the new study, we may
be forced to suspend further development of Pulmazole.
Drug
development is a long, expensive and inherently uncertain process with a high risk of failure at every stage of development, and
results of earlier studies and trials may not be predictive of future trial results.
We
have a number of proprietary drug candidates in research and development ranging from the early discovery research phase through
preclinical testing and clinical trials. Preclinical testing and clinical trials are long, expensive and highly uncertain processes.
It will take us several years to complete clinical trials and we may not have the resources to complete the development and commercialization
of any of our proposed drug candidates. The start or end of a clinical trial is often delayed or halted due to changing regulatory
requirements, manufacturing challenges, required clinical trial administrative actions, slower than anticipated patient enrollment,
changing standards of care, availability or prevalence of use of a competitor drug or required prior therapy, clinical outcomes,
or financial constraints of us and our partners.
Drug
development is a highly uncertain scientific and medical endeavor, and failure can unexpectedly occur at any stage of preclinical
and clinical development. Typically, there is a high rate of attrition for drug candidates in preclinical and clinical trials
due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The risk of failure is
heightened for our drug candidates that are based on new technologies, such as the application of our dry powder delivery platform,
iSPERSE, including Pulmazole, PUR1800, PUR3100 and other iSPERSE-based drug candidates currently in discovery research or preclinical
development. The failure of one or more of our iSPERSE-based drug candidates could have a material adverse effect on our business,
financial condition, and results of operations.
In
addition, the results of preclinical studies and clinical trials of previously published iSPERSE-based products may not necessarily
be indicative of the results of our future clinical trials. The design of our clinical trials is based on many assumptions about
the expected effects of inhaled drugs used historically in the industry and if those assumptions are incorrect, the trials may
not produce statistically significant results. Preliminary results may not be confirmed upon full analysis of the detailed results
of an early clinical trial. Product candidates in later stages of clinical trials may fail to show safety and efficacy sufficient
to support intended use claims despite having progressed through initial clinical trials. The data collected from clinical trials
of our product candidates may not be sufficient to obtain regulatory approval in the United States or elsewhere. Because of the
uncertainties associated with drug development and regulatory approval, we cannot determine if, or when, we may have an approved
product for commercialization or whether we will ever achieve sales of or profits on our product candidates or those we may pursue
in the future.
If
our collaborators are not successful, we may not effectively develop and market some of our therapeutic candidates.
We
have entered into co-development agreements regarding two of our therapeutic candidates and, as a result, we no longer have complete
control over the development of these candidates. If our collaborators do not successfully carry out their contractual duties
or meet expected deadlines, we may be delayed or may not obtain regulatory approval for, or commercialize, our product candidates.
If our relationships with these collaborators terminate, we believe that we would be able to enter into arrangements with alternative
third parties. However, replacing any of these collaborators could delay our clinical trials and could jeopardize our ability
to obtain regulatory approvals and commercialize our product candidates on a timely basis, if at all.
We
may not be able to attract, retain, or manage highly qualified personnel, which could adversely impact our business.
Our
future success and ability to compete in the biotechnology industry is substantially dependent on our ability to identify, attract,
and retain highly qualified key managerial, scientific, medical, and operations personnel. The market for key employees in the
pharmaceutical and biotechnology industries is competitive. The loss of the services of any of our principal members of management
or key employees without an adequate replacement or our inability to hire new employees as needed could delay our product development
efforts, harm our ability to sell our products or otherwise negatively impact our business.
The
scientific, research and development personnel upon whom we rely to operate our business have expertise in certain aspects of
drug development and clinical development, and it may be difficult to retain or replace these individuals. We conduct our operations
at our facilities in Lexington, Massachusetts, within the greater Boston area, and this region is headquarters to many other biotechnology,
pharmaceutical, and medical technology companies, as well as many academic and research institutions, and, therefore, we face
increased competition for technical and managerial personnel in this region.
In
addition, we have scientific, medical and clinical advisors who assist us in designing and formulating our products and with development
and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts
with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development
of products that may compete with ours.
Despite
our efforts to retain valuable employees, members of our management and scientific and development teams may terminate their employment
with us at any time. Although we have written employment offer letter agreements with our executive officers, our executive officers
can leave their employment at any time, for any reason, with 30 days’ notice. The loss of the services of any of our executive
officers or our other key employees and our inability to find suitable replacements could potentially harm our business, financial
condition and prospects. We do not maintain “key man” insurance policies on the lives of these individuals or the
lives of any of our other employees.
We
face substantial competition in the development of our product candidates and may not be able to compete successfully, and our
product candidates may be rendered obsolete by rapid technological change.
The
pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical,
biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications
for which we are currently developing therapeutic candidates or for which we may develop product candidates in the future.
Many
of our existing or potential competitors have, or have access to, substantially greater financial, research and development, production,
and sales and marketing resources than we do and have a greater depth and number of experienced managers. As a result, our competitors
may be better equipped than us to develop, manufacture, market and sell competing products. In addition, gaining favorable reimbursement
is critical to the success of our product candidates. We are aware of many established pharmaceutical companies in the United
States and other parts of the world that have or are developing technologies for inhaled drug delivery for the prevention and
treatment of respiratory diseases, including GlaxoSmithKline, Mereo BioPharma, Mylan, Savara, Insmed, Satsuma, Bristol-Meyers,
TFF Pharmaceuticals, Zambon Pharma and Pulmocide, which we consider our potential competitors in this regard. If we are unable
to compete successfully with these and other potential future competitors, we may be unable to grow or generate revenue.
The
rapid rate of scientific discoveries and technological changes could result in one or more of our product candidates becoming
obsolete or noncompetitive. Our competitors may develop or introduce new products that render our iSPERSE delivery technology
and other product candidates less competitive, uneconomical or obsolete. Some of these technologies may have an entirely different
approach or means of accomplishing similar therapeutic effects compared to our drug candidates. Our future success will depend
not only on our ability to develop our product candidates but to improve them and keep pace with emerging industry developments.
We cannot assure you that we will be able to do so.
We
also expect to face increasing competition from universities and other non-profit research organizations. These institutions carry
out a significant amount of research and development in the areas of respiratory diseases. These institutions are becoming increasingly
aware of the commercial value of their findings and are more active in seeking patent and other proprietary rights as well as
licensing revenues.
The
potential acceptance of therapeutics that are alternatives to ours may limit market acceptance of our product candidates, even
if commercialized. Respiratory diseases, including our targeted diseases and conditions, can also be treated by other medication
or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use.
The established use of these competitive drugs may limit the potential for our product candidates to receive widespread acceptance
if commercialized.
If
the third parties on which we rely to conduct our clinical trials and to assist us with preclinical development do not perform
as contractually required or expected, we may not be able to obtain regulatory clearance or approval for, or to commercialize,
our products.
We
do not have the ability to independently conduct our preclinical and clinical trials for our products and we must rely on third
parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct
such trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due
to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development
activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval
for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects
may be adversely affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical
trials for reasons outside of our control.
We
rely on third party contract vendors to manufacture and supply us with high quality active pharmaceutical ingredients and manufacture
our therapeutic candidates in the quantities we require on a timely basis.
We
currently do not manufacture any active pharmaceutical ingredients (“APIs”). Instead, we rely on third-party
vendors for the manufacture and supply of our APIs that are used to formulate our therapeutic candidates. We also do not currently
own or operate manufacturing facilities and therefore rely, and expect to continue to rely, on third parties to manufacture clinical
and commercial quantities of our therapeutic candidates and for quality assurance related to regulatory compliance. If these suppliers
or manufacturers are incapable or unwilling to meet our current or future needs at our standards or on acceptable terms, if at
all, we may be unable to locate alternative suppliers or manufacturers on acceptable terms, if at all, or produce necessary materials
or components on our own.
While
there may be several alternative suppliers of API in the market, changing API suppliers or finding and qualifying new API suppliers
can be costly and can take a significant amount of time. Many APIs require significant lead time to manufacture. There can also
be challenges in maintaining similar quality or technical standards from one manufacturing batch to the next. We place purchase
orders with a single supplier to supply the API, and we could experience a delay in conducting clinical trials of or obtaining
regulatory approval for Pulmazole, PUR1800, PUR3100 or our other drug candidates and incur additional costs if we changed
from this supplier for any reason. Similarly, replacing our manufacturers could cause us to incur added costs and experience delays
in identifying, engaging, qualifying and training any such replacements.
If
we are not able to find stable, affordable, high quality, or reliable supplies of the APIs, or if we are unable to maintain our
existing or future third-party manufacturing arrangements, we may not be able to produce enough supply of our therapeutic
candidates or commercialize any therapeutic candidates on a timely and competitive basis, which could adversely affect our business,
financial condition or results of operations.
We
may not be successful in negotiating for an appropriate price in a future sale or assignment of our rights related to our current
drug candidates.
We
may seek to sell or assign our rights related to our current drug candidates. If completed, any such sale or assignment may be
at a substantial discount, the consideration received may not accurately represent the value of the assets sold or assigned and
our stockholders may not be entitled to participate in the future prospects of such drug candidates.
Our
failure to successfully acquire, develop and market additional drug candidates or approved drug products could impair our ability
to grow.
As
part of our growth strategy, we may evaluate, acquire, license, develop and/or market additional product candidates and technologies,
subject to the availability of adequate financing. However, our internal research capabilities are limited, and we may be dependent
upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology
to us. The success of this strategy depends partly upon our ability to identify, select and acquire promising pharmaceutical product
candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a product candidate
or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and
sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited
resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate
them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities
that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the
rights to additional product candidates on terms that we find acceptable, or at all.
Any
product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical
testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure
typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently
safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we
develop or approved products that we acquire will be manufactured profitably or achieve market acceptance. We cannot guarantee
that we will be able to successfully conduct the preclinical studies of the identified potential product candidates as anticipated.
Our
business strategy may include entry into additional collaborative or license agreements. We may not be able to enter into collaborative
or license agreements or may not be able to negotiate commercially acceptable terms for these agreements.
Our
current business strategy may include the entry into additional collaborative or license agreements for the development and commercialization
of our product candidates and technologies. The negotiation and consummation of these types of agreements typically involve simultaneous
discussions with multiple potential collaborators or licensees and require significant time and resources. In addition, in attracting
the attention of pharmaceutical and biotechnology company collaborators or licensees, we compete with numerous other third parties
with product opportunities as well as the collaborators’ or licensees’ own internal product opportunities. We may
not be able to consummate collaborative or license agreements, or we may not be able to negotiate commercially acceptable terms
for these agreements.
If
we do enter into such arrangements, we could be dependent upon the subsequent success of these other parties in performing their
respective responsibilities and the cooperation of our partners. Our collaborators may not cooperate with us or perform their
obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that
will be devoted to researching our product candidates pursuant to our collaborative agreements with them. Our collaborators may
choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us. If we do
not consummate collaborative or license agreements, we may use our financial resources more rapidly on our product development
efforts, continue to defer certain development activities or forego the exploitation of certain geographic territories, any of
which could have a material adverse effect on our business prospects. Further, we may not be successful in overseeing any such
collaborative arrangements. If we fail to establish and maintain necessary collaborative or license relationships, our business
prospects could suffer.
We
may be subject to claims that our employees, independent consultants or agencies have wrongfully used or inadvertently disclosed
confidential information of third parties.
We
employ individuals and contract with independent consultants and agencies that may have previously worked at or conducted business
with third parties; and, we may be subject to claims that we or our employees, consultants or agencies have inadvertently or otherwise
used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject
to claims that our employees’ former employers or other third parties have an ownership interest in our patents. Litigation
may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we are successful,
litigation could result in substantial cost and be a distraction to our management and other employees.
Market
and economic conditions may negatively impact our business, financial condition and share price.
Concerns
over inflation, low energy prices, geopolitical issues, the U.S. financial markets and a declining real estate market, unstable
global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability,
diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations
for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased
credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile
business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to
deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and
more dilutive. In addition, there is a risk that one or more of our current and future service providers, manufacturers, suppliers,
hospitals and other medical facilities, our third-party payors, and other partners could be negatively affected by difficult economic
times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and
financial objectives.
The
COVID-19 pandemic has caused interruptions or delays of our clinical studies and may have a significant adverse effect on our
business
The
global outbreak of COVID-19 has resulted in, and is likely to result in, substantial disruptions to markets and economies around
the world, including government-imposed quarantines, travel restrictions and other public health safety measures. We terminated
our Phase 2 clinical study for Pulmazole as a result of the disruptions and safety concerns caused by the COVID-19 pandemic.
We
plan to initiate a Phase 2b clinical study for Pulmazole when the conditions related to the COVID-19 pandemic are favorable
with respect to study conduct and patient enrollment, and have commenced a Phase 1b study of PUR1800 in stable moderate-severe
COPD patients in February 2021. The COVID-19 pandemic could delay these studies or impact enrollment generally to the extent we
cannot secure sites to enroll patients, patients remain or become subject to government “stay at home” mandates, patients
feel like they cannot safely visit trial sites or patients drop out due to COVID-19 related issues. The extent to which the COVID-19
pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, but the
enrollment of patients in our study may be delayed or suspended should there be an outbreak of COVID-19 in areas where we are
conducting trials, as hospitals and clinics in those regions may shift resources to patients affected by the disease. Additionally,
if our trial participants are unable to travel to our clinical trial sites as a result of quarantines or other restrictions resulting
from COVID-19, we may experience higher drop-out rates or delays in our clinical trials. Government-imposed quarantines and restrictions
may also require us to temporarily terminate our clinical sites. Furthermore, if we determine that our trial participants may
suffer from exposure to COVID-19 as a result of their participation in our clinical trials, we may voluntarily terminate certain
clinical sites as a safety measure until we reasonably believe that the likelihood of exposure has subsided. As a result, our
expected development timeline for Pulmazole and PUR1800 may be negatively impacted. Moreover, the Covid-19 pandemic has begun
to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations
could be adversely affected to the extent that this Covid-19 pandemic or any other pandemic harms the global economy generally.
We cannot predict the ultimate impact of the COVID-19 outbreak as consequences of such health pandemic is highly uncertain and
subject to change. We do not yet know the full extent of potential delays or impact on our business, our clinical trials or the
global economy as a whole. However, any one or a combination of these events could have an adverse effect on the operation of
and results from our clinical trials and on our other business operations. We will continue to monitor the effects of COVID-19
on an ongoing basis.
If
we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could
be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring
that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial
statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires public companies to conduct an annual review and evaluation
of their internal controls. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements
of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy
and completeness of our financial reports, which could have an adverse effect on the price of our common stock.
Our
ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations
Our
ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations. In
general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) a corporation that
undergoes an “ownership change” is subject to annual limitations on its ability to use its pre-change net operating
loss carryforwards or other tax attributes (“NOLs”), to offset future taxable income or reduce taxes. Our past issuances
of stock and other changes in our stock ownership may have resulted in ownership changes within the meaning of Section 382 of
the Code; accordingly, our pre-change NOLs may be subject to limitation under Section 382. If we determine that we have not undergone
an ownership change, the Internal Revenue Service could challenge our analysis, and our ability to use our NOLs to offset taxable
income could be limited by Section 382 of the Code. Future changes in our stock ownership, including in connection with our initial
public offering, some of which are outside of our control, could result in ownership changes under Section 382 of the Code further
limiting our ability to utilize our NOLs. Furthermore, our ability to use NOLs of companies that we may acquire in the future
may be subject to limitations. For these reasons, we may not be able to use a material portion of the NOLs, even if we attain
profitability.
Risks
Related to Regulatory Matters
Our
product candidates must undergo rigorous nonclinical and clinical testing, and we must obtain regulatory approvals, which could
be costly and time-consuming and subject us to unanticipated delays or prevent us from marketing any products. We cannot be certain
that any of our current and future product candidates will receive regulatory approval, and without regulatory approval we will
not be able to market our product candidates.
Our
ability to generate revenue related to product sales, if ever, will depend on the successful development and regulatory approval
of our product candidates. We currently have no products approved for sale, and we cannot guarantee that we will ever have marketable
products. The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation,
including regulation for safety, efficacy and quality, by the FDA in the United States and comparable regulatory authorities in
other countries, with regulations differing from country to country. The FDA regulations and the regulations of comparable foreign
regulatory authorities are wide-ranging and govern, among other things:
● product design, development, manufacture and testing;
● product labeling;
● product storage and shipping;
● pre-market clearance or approval;
● advertising and promotion; and
● product sales and distribution.
Clinical
testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. We cannot
predict whether our current or future trials and studies will adequately demonstrate the safety and efficacy of any of our product
candidates or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have
conducted to date, including the clinical trials for Pulmazole. The clinical trials of our product candidates may not be completed
on schedule, the FDA or foreign regulatory agencies may order us to stop or modify our research, or these agencies may not ultimately
approve any of our product candidates for commercial sale. The data collected from our clinical trials may not be sufficient to
support regulatory approval of our various product candidates. Even if we believe the data collected from our clinical trials
are sufficient, the FDA has substantial discretion in the approval process and may disagree with our interpretation of the data.
We
are not permitted to market our product candidates in the United States until we receive approval of a new drug application (“NDA”)
from the FDA. Obtaining approval of a NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining
approval. The FDA review processes can take years to complete and approval is never guaranteed. We cannot be certain that any
of our submissions will be accepted for filing and review by the FDA.
The
requirements governing the conduct of clinical trials and manufacturing and marketing of our product candidates outside the United
States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require, among
other things, additional testing and different clinical trial designs. Foreign regulatory approval processes include essentially
all of the risks associated with the FDA approval processes. Some of those agencies also must approve prices of the products.
Approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries, or
vice versa. In addition, changes in regulatory policy in the United States or in foreign countries for product approval during
the period of product development and regulatory agency review of each submitted new application may cause delays or rejections.
If
we are unable to obtain approval from the FDA or other regulatory agencies for our product candidates, or if, subsequent to approval,
we are unable to successfully market and commercialize our product candidates, we will not be able to generate sufficient revenue
to become profitable.
We
have limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may impede our ability
to obtain timely approvals from the FDA or foreign regulatory agencies, if at all.
As
a company, we have no experience in late-stage regulatory filings, such as preparing and submitting NDAs, which may place us at
risk of delays, overspending and human resources inefficiencies. Any delay in obtaining, or inability to obtain, regulatory approval
could harm our business.
Any
failure by us to comply with existing regulations could harm our reputation and operating results.
We
will be subject to extensive regulation by U.S. federal and state and foreign governments in each of the markets where we intend
to sell our product candidates if and after we are approved. If we fail to comply with applicable regulations, including the FDA’s
pre-or post-approval current Good Manufacturing Practices (“cGMP”) requirements, then the FDA or other foreign regulatory
authorities could sanction us. Even if a drug is FDA-approved, regulatory authorities may impose significant restrictions on a
product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of the product, the regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product
from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:
● issue warning letters;
● impose civil or criminal penalties;
● suspend regulatory approval;
● suspend any of our ongoing clinical trials;
● seize or detain products or require a product recall.
Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and
could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely
affect our ability to commercialize and generate revenue from our product candidates. If regulatory sanctions are applied or if
regulatory approval is withdrawn, our value and operating results will be adversely affected. Additionally, if we are unable to
generate revenue from sales of our product candidates, our potential for achieving profitability will be diminished and the capital
necessary to fund our operations will be increased.
Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant
legal expenses, divert management’s attention from the operation of our business and damage our reputation. We expend significant
resources on compliance efforts and such expenses are unpredictable and might adversely affect our results. Changing laws, regulations
and standards might also create uncertainty, higher expenses and increase insurance costs.
We
and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities.
We
and our contract manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDA or other foreign
regulatory authorities setting forth current good manufacturing practices. These laws, regulations and guidelines cover all aspects
of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates. We and our third-party
manufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our contract manufacturers are
and will be subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside
the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable laws, regulations and
guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, refusal of regulatory
authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license
revocation, seizures or recalls of our therapeutic candidates, operating restrictions and criminal prosecutions, any of which
could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates, and materially and adversely
affect our business, financial condition and results of operations.
Even
if we obtain regulatory approvals, our therapeutic candidates will be subject to ongoing regulatory review. If we fail to comply
with continuing U.S. and applicable foreign laws, regulations and guidelines, we could lose those approvals, and our business
would be seriously harmed.
Even
if our therapeutic candidates receive regulatory approval, we or our commercialization partners, as applicable, will be subject
to ongoing reporting obligations, including pharmacovigilance, and the therapeutic candidates and the manufacturing operations
will be subject to continuing regulatory review, including inspections by the FDA or other foreign regulatory authorities. The
results of this ongoing review may result in the withdrawal of a therapeutic candidate from the market, the interruption of the
manufacturing operations and/or the imposition of labeling and/or marketing limitations. Since many more patients are exposed
to drugs following their marketing approval, serious but infrequent adverse reactions that were not observed in clinical trials
may be observed during the commercial marketing of the therapeutic candidate. In addition, the manufacturer and the manufacturing
facilities that we or our commercialization partners use to produce any therapeutic candidate will be subject to periodic review
and inspection by the FDA and other foreign regulatory authorities. Later discovery of previously unknown problems with any therapeutic
candidate, manufacturer or manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions,
including but not limited to the following:
● warning letters from the FDA or other foreign regulatory authorities;
● withdrawal of the therapeutic candidate from the market;
● suspension or withdrawal of regulatory approvals;
● voluntary or mandatory recall;
● fines;
● refusal to permit the import or export of our therapeutic candidates;
● product seizure or detentions;
● injunctions or the imposition of civil or criminal penalties; or
● adverse publicity.
If
we or our commercialization partners, suppliers, third party contractors or clinical investigators are slow to adapt, or are unable
to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies, we or our
commercialization partners may lose marketing approval for any of our therapeutic candidates if any of our therapeutic candidates
are approved, resulting in decreased or lost revenue from milestones, product sales or royalties.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements
and insider trading.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with any regulations applicable to us, to provide accurate information to regulatory authorities, to comply with manufacturing
standards we may have established, to comply with federal and state healthcare fraud and abuse laws and regulations, or to report
financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks,
self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting,
marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could
also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions
and serious harm to our reputation. We have adopted a Code of Business Conduct, but it is not always possible to identify and
deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risk.
If
we fail to comply with federal or state “fraud and abuse” laws, the failure to comply with these laws may adversely
affect our business, financial condition and results of operations.
In
the United States, we will be subject to various federal and state health care “fraud and abuse” laws, including anti-kickback
laws, false claims laws and other laws intended to reduce fraud and abuse the healthcare industry, which could affect us, particularly
upon successful commercialization of our products in the United States. The federal Anti-Kickback Statute makes it illegal for
any person, including a prescription drug manufacturer (or a party acting on our behalf), to knowingly and willfully solicit,
receive, offer or pay any remuneration in exchange for or to induce the referral of an individual for, or the purchase, order
or recommendation of, any good or service, including the purchase, order or prescription of a particular drug for which payment
may be made under a federal health care program, such as Medicare or Medicaid. Under federal government regulations, some arrangements,
known as safe harbors, are deemed not to violate the federal Anti-Kickback Statute. However, these laws are broadly written, and
it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible
that our practices may be challenged under the federal Anti-Kickback Statute. False claims laws prohibit anyone from knowingly
and willfully presenting or causing to be presented for payment to third-party payers, including government payers, claims for
reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or
claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label promotion
of pharmaceutical products or the provision of kickbacks has resulted in the submission of false claims to governmental health
care programs. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully
executing a scheme to defraud any health care benefit program, including private payers, or 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 health care benefits, items or services. Violations of fraud and abuse laws may be punishable by
criminal and/or civil sanctions, including fines, penalties and/or exclusion or suspension from federal and state health care
programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals
have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims
laws of several states.
Many
states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for, or
purchase, order or recommendation of, goods or services reimbursed by any source, not just governmental payers. The scope and
enforcement of these laws are uncertain and subject to change in the current environment of healthcare reform. We cannot predict
the impact on our business, financial condition nor results of operations of any changes in these laws. Any state or federal regulatory
review of us, regardless of the outcome, would be costly and time-consuming. Law enforcement authorities are increasingly focused
on enforcing these laws, and if we are challenged under of one of these laws, we could be required to pay a fine and/or penalty
and could be suspended or excluded from participation in federal or state health care programs, and our business, results of operations
and financial condition may be adversely affected.
Risks
Related to Our Financial Position and Need for Additional Capital
We
will be required to raise additional capital to fund our operations, and we may not be able to continue as a going concern if
we are unable to do so.
Pharmaceutical
product development, which includes research and development, preclinical and clinical studies and human clinical trials, is a
time-consuming and expensive process that takes years to complete. We anticipate that our expenses will increase substantially
to the extent that we advance Pulmazole to a planned new Phase 2b trial and pursue development of PUR1800 and PUR3100
or other iSPERSE-based product candidates, and/or pursue development of iSPERSE-based pharmaceuticals in additional indications.
Based upon our current expectations, we believe that our existing capital resources will enable us to continue planned operations
for at least 12 months following the filing date of this Annual Report. We cannot assure you, however, that our plans will not
change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently
anticipate. We will need to raise additional funds, whether through the sale of equity or debt securities, the entry into strategic
business collaborations, the establishment of other funding facilities, licensing arrangements, or asset sales or other means,
in order to continue our research and development and clinical trial programs for our iSPERSE-based product candidates and to
support our other ongoing activities. However, it may be difficult for us to raise additional funds on reasonable terms or at
all. Since inception, we have incurred losses each year and have an accumulated deficit as of December 31, 2020 of $234.5 million,
which may raise concerns about our solvency and affect our ability to raise additional capital.
The
amount of additional funds we need will depend on a number of factors, including:
● our degree of success in commercializing any of our product candidates;
● the level of our legal expenses; and
● the costs of discontinuing projects and technologies.
We
have raised capital in the past primarily through debt and public offerings and private placements of stock. We may in the future
pursue the sale of additional equity and/or debt securities, or the establishment of other funding facilities including asset-based
borrowings. There can be no assurances, however, that we will be able to raise additional capital through such an offering on
acceptable terms, or at all. Issuances of additional debt or equity securities could impact the rights of the holders of Company
Common Stock and may dilute their ownership percentage. Moreover, the establishment of other funding facilities may impose restrictions
on our operations. These restrictions could include limitations on additional borrowing and specific restrictions on the use of
our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. We also
may seek to raise additional capital by pursuing opportunities for the licensing or sale of certain intellectual property and
other assets. We cannot offer assurances, however, that any strategic collaborations, sales of securities or sales or licenses
of assets will be available to us on a timely basis or on acceptable terms, if at all.
In
the event that sufficient additional funds are not obtained through strategic collaboration opportunities, sales of securities,
funding facilities, licensing arrangements and/or asset sales on a timely basis, we will be required to reduce expenses through