ITEM 1A.
RISK FACTORS
Our
business faces significant risks. You should carefully consider the risks described below, together with all of the other information
included in our filings with the United States Securities and Exchange Commission (SEC) when evaluating our business. If any of
the following risks actually occurs, our business, financial condition or results of operations could be materially adversely
affected and the trading price of shares of our common stock could decline. The occurrence of any of the following risks could
cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and
those we may make from time to time.
Summary of Risks
This section provides a summary of the
risks that may impact our performance in the future. For details of our various risk factors and their impacts, see “Risk
Factors Discussion.”
Our risk factors are organized into the
following categories: 1) Risks related to our business, 2) Risks related to clinical and regulatory matters, 3) Risks related
to our intellectual property, 4) Risks related to government regulations, 5) Risks related to our reliance on third parties, and
6) Risks related to our common stock,
Risks related
to our business
Business risks include risks associated
with our products and regulatory approval, licensing agreements, historical losses, managing growth, acquisitions and the COVID-19
pandemic. In general, the risks related to our business can cause variability in the future profits of the Company.
Risks related
to Clinical and Regulatory Matters
Clinical and regulatory
matters include risks associated with clinical trials and the future ability to commercially market the product. In order for any
of our products to be commercialized and produce future profits, successful trials need to be completed with supporting data to
receive regulatory approval. Failing to complete the trial will significantly increase our cost of doing business. In addition,
the active ingredient in our products is a controlled substance which can affect the supply available for clinical trials, as well
as commercial sales. A limited supply could increase the time needed to complete clinical trials and overall costs including product
liability claims. We could also face potential fines or reputational risk if we do not comply. Developments from competitors and
the ability to obtain market exclusivity could also negatively impact future profits.
Risks related
to our intellectual property
Our products depend
upon securing and protecting critical intellectual property. Patent positions are highly uncertain and involve complex legal and
factual questions. Infringing upon a patents or trade secrets could force us to cease or alter our product development efforts
or obtain a license to continue to develop or sale our products. These risks could not only impact the future profits of the company
but also create adverse publicity for us.
Risks related
to government regulations
We are required
to comply with various federal and state pharmaceutical and healthcare laws and regulations, and to maintain secure systems to
protect sensitive confidential information. Complying with the various regulations can increase our cost of doing business. We
could also face potential fines or reputational risk if we do not comply. Litigation or investigations can increase costs, negatively
affect our operating results and create adverse publicity for us.
Risks related
to our reliance on third parties
The Company relies on third parties to
conduct preclinical and clinical studies, as well as to manufacture our product candidates. Third parties’ failure to perform
the trials as contractually require could impact our ability to obtain regulatory approval. If manufacturers fail to meet our requirements
and strict regulatory requirements, our product development and commercialization efforts may be materially harmed.
Risks related
to our common stock
Common stocks
risks includes risks associated with the limited market for our common stock, a potential issuance of a substantial number of additional
shares, stock price volatility, and reporting requirements of federal securities laws. The net effect of these risks can include
reductions in future profits, additional operating expenses, inability to meet liquidity needs, inability to access capital and
increased cost of capital.
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Risk Factors Discussion
Risk
Related to Our Business
Our business depends on the success
of esmethadone (d-methadone, dextromethadone, REL-1017), our only product candidate currently under clinical development, which
has recently entered into a pivotal clinical trial for the adjunctive treatment of MDD. If we are unable to obtain regulatory approval
for and successfully commercialize REL-1017 or other future product candidates, or we experience significant delays in doing so,
our business will be materially harmed.
To date, the primary focus of our product
development has been esmethadone (d-methadone, dextromethadone, REL-1017) for the adjunctive treatment of patients with MDD. Currently,
esmethadone is our only product candidate under clinical development. This may make an investment in our company riskier than similar
companies that have multiple product candidates in active development and that therefore may be able to better sustain a setback
of a lead candidate. Successful continued development and ultimate regulatory approval of esmethadone for the adjunctive treatment
of MDD, and potentially as a monotherapy for MDD, or other indications is critical to the future success of our business. We have
invested, and will continue to invest, a significant portion of our time and financial resources in the clinical development of
esmethadone. If we cannot successfully develop, obtain regulatory approval for and commercialize esmethadone, we may not be able
to continue our operations. The future regulatory and commercial success of esmethadone is subject to a number of risks, including
the following:
Esmethadone and any future product candidates will be subject to rigorous and extensive clinical
trials and extensive regulatory approval processes implemented by the FDA and comparable foreign regulatory authorities before
obtaining marketing approval from these regulatory authorities, if at all. The drug development and approval process is lengthy
and expensive, and approval is never certain. Investigational new drugs, such as esmethadone, may not prove to be safe and effective
in clinical trials. We have no direct experience as a company in conducting later stage clinical trials required to obtain regulatory
approval. We may be unable to conduct clinical trials at preferred sites, enlist clinical investigators, enroll sufficient numbers
of participants or begin or successfully complete clinical trials in a timely fashion, if at all. In addition, the design of a
clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial
may not become apparent until the clinical trial is well advanced. Because we have limited experience as a company designing clinical
trials, we may be unable to design and execute a clinical trial to support regulatory approval.
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There
is a high failure rate for drugs and biological products proceeding through clinical trials. Failure can occur at any time during
the clinical trial process. The results of preclinical studies and early clinical trials of esmethadone or any future product
candidate may not be predictive of the results of later-stage clinical studies or trials and the results of studies or trials
in one set of patients or line of treatment may not be predictive of those obtained in another. In fact, many companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials even after achieving
promising results in preclinical studies and earlier stage clinical trials. In addition, data obtained from preclinical and clinical
activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. Owing in part to the
complexity of biological pathways, esmethadone or any future product candidate may not demonstrate in patients the biochemical
and pharmacological properties we anticipate based on laboratory studies or earlier stage clinical trials, and they may interact
with human biological systems or other drugs in unforeseen, ineffective or harmful ways. The number of patients exposed to product
candidates and the average exposure time in the clinical development programs may be inadequate to detect rare adverse events
or findings that may only be detected once a product candidate is administered to more patients and for greater periods of time.
To date, our Phase 2 clinical study has involved a small population of subjects with MDD, and, because of the small sample size
in such trial, the results of this clinical trial may be subject to substantial variability and may not be indicative of either
future top-line results or final results. If we are unable to successfully demonstrate the safety and efficacy of esmethadone
or other future product candidates and receive the necessary regulatory approvals, our business will be materially harmed.
Even if we do receive regulatory approval
to market esmethadone, any such approval may be subject to limitations on the indicated uses or patient populations for which
we may market the products. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development
programs, we may be unable to successfully develop or commercialize esmethadone. If we or any of our future development collaborators
are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize esmethadone, we may not
be able to generate sufficient revenue to continue our business.
Top-line results may not accurately
reflect the complete results of the clinical study.
In October 2019, we reported top-line data
from our Phase 2a study of esmethadone in adults with MDD who did not respond to one to three courses of antidepressant treatment
in their current episode. Although the top-line data indicated that subjects experienced statistically significant improvement
of their depression compared to subjects in the placebo group, as well as a favorable safety and tolerability profile, the top-line
data are based on preliminary analysis of key pharmacokinetic, safety and efficacy data, and such data may change following a more
comprehensive review of the data and may not accurately reflect the complete results of the study. Preliminary data also remain
subject to audit and verification procedures that may result in the final data being materially different from the preliminary
data. As a result, preliminary data should be viewed with caution until the final data are available.
Our license
agreement for esmethadone, our only product candidate currently under clinical development, could terminate under certain circumstances,
including if we terminate our chief executive officer except for cause, and we would be unable to conduct our business as planned.
In January 2018,
we entered into an Intellectual Property Assignment Agreement (the “Assignment Agreement”) and License Agreement
(the License Agreement and together with the Assignment Agreement, the Agreements), with Dr. Charles E. Inturrisi and Dr. Paolo
Manfredi (collectively, the “Licensor”). Pursuant to the Assignment Agreement, we assigned our existing rights, including
patents and patent applications, to esmethadone in the context of psychiatric use to Licensor, and pursuant to the License Agreement,
Licensor then granted us an exclusive perpetual, worldwide license under the assigned intellectual property rights as well as patents
and know-how covering certain new inventions developed by Licensor and relating to esmethadone in neurological and other uses,
to develop and commercialize esmethadone in all fields of use. The License Agreement also grants to us rights in all future inventions
developed by Licensor, whether or not in collaboration with us that relate in any way to esmethadone or the use thereof. The License
Agreement was amended in December 2019 to modify certain termination rights relating to the Chief Executive Officer, which are
described further below.
If we develop
any new inventions relating to esmethadone, we are required to do so in collaboration with Licensor, and to file patents covering
such inventions jointly in the name of the Company and Licensor. All such future inventions or patents shall be jointly owned by
us and Licensor and, will be included in and subject to the financial and other terms of the License Agreement.
The License Agreement
includes standard termination rights for Licensor in the event of our insolvency, challenge of the licensed patents and uncured
material breach of our obligations under the License Agreement. In addition, the License Agreement contains certain “Key
Man” provisions such that the Licensor may terminate the License Agreement if we terminate the employment of our Chief Executive
Officer Mr. Sergio Traversa for any reason other than for specified causes determined by a majority of our Board of Directors (including
fraud, gross negligence, unauthorized use of our confidential information, conduct including harassment or discrimination, breach
of fiduciary duty or uncured material breach), or if we (a) substantially modify Mr. Traversa’s job responsibilities or decision-making
rights in connection with the development and commercialization of esmethadone, (b) remove him from the role of Chief Executive
Officer other than in connection with a permitted change-of-control transaction, (c) materially reduce his compensation, or (d)
assign or transfer our rights under the License Agreement or the esmethadone intellectual property without Mr. Traversa’s
consent, in each case (termination or the events in (a) through (d) during the period commencing on the effective date and ending
on the later of five years from the original effective date of the License Agreement on December 31, 2022 (the “Key Man Term”).
The December 2019 amendment to the License Agreement made certain clarifications to the nature of a termination for Cause, including
to clarify that termination due to Mr. Traversa’s death or disability does not give Licensor the right to terminate the License
Agreement.
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As
a result of the provisions described above, we are limited in our ability to terminate, as well as to decrease the salary or authority
of, our Chief Executive Officer until December 31, 2022. In addition, the agreement provides that any assignor that we assign
the agreement to must agree in writing to all terms of the license, including the key man provisions, and as noted above, our
Chief Executive Officer has the right to consent to any such assignment of the agreement unless previously terminated for cause
or due to death. As the license agreement relates to our only product candidate currently under clinical development, these provisions may
be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder
might consider to be in its best interests, including attempts that might result in a premium being paid over the market price
for the shares held by stockholders. If we fail to comply with the terms of the License Agreement, our rights to those patents
may be terminated, and we will be unable to conduct our business.
We
have generated no revenue from commercial sales to date and our future profitability is uncertain.
We
have a limited operating history and our business is subject to all of the risks inherent in the establishment of a new business
enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with this. Since we began our business, we have focused on research, development and clinical
trials of product candidates, and have incurred significant losses since inception and generated no product revenues. If we continue
to incur operating losses and fail to become a profitable company, we may be unable to continue our operations. We expect to continue
to operate at a net loss for at least the next several years as we continue our research and development efforts, continue to
conduct clinical trials and develop manufacturing, sales, marketing and distribution capabilities. There can be no assurance that
the products under development by us will be approved for sales in the US or elsewhere. Furthermore, there can be no assurance
that if such products are approved they will be successfully commercialized, and the extent of our future losses and the timing
of our profitability are highly uncertain.
International
commercialization of our product candidates faces significant obstacles.
We
may plan to commercialize some of our products internationally through collaborative relationships with foreign partners. We have
limited foreign regulatory, clinical and commercial resources. Future partners are critical to our international success. We may
not be able to enter into collaboration agreements with appropriate partners for important foreign markets on acceptable terms,
or at all. Future collaborations with foreign partners may not be effective or profitable for us. We will need to obtain approvals
from the appropriate regulatory, pricing and reimbursement authorities to market any of our proposed products internationally,
and we may be unable to obtain foreign regulatory approvals. Pursuing foreign regulatory approvals will be time-consuming and
expensive. The regulations can vary among countries and foreign regulatory authorities may require different or additional clinical
trials than we conducted to obtain FDA approval for our product candidates. In addition, adverse clinical trial results, such
as death or injury due to side effects, could jeopardize not only regulatory approval, but if approval is granted, may also lead
to marketing restrictions. Our product candidates may also face foreign regulatory requirements applicable to controlled substances.
We
have a history of losses and we may never achieve or sustain profitability.
We have incurred substantial losses since
our inception, and we may not achieve profitability for the foreseeable future, if at all. Since inception, we have an accumulated
deficit of approximately $179.3 million at December 31, 2020. The Company had cash, cash equivalents and short term investments
of approximately $117.1 million at December 31, 2020. Even if we succeed in developing and commercializing one or more of our product
candidates, we expect to incur substantial net losses and negative cash flows for the foreseeable future due in part to increasing
research and development expenses, including clinical trials, and increasing expenses from leasing additional facilities and hiring
additional personnel. As a result, we will need to generate significant revenues in order to achieve and maintain profitability.
We may not be able to generate these revenues or achieve profitability in the future. Even if we do achieve profitability, we may
not be able to sustain or increase profitability.
We
have a limited operating history upon which to base an investment decision.
Our
limited operating history may limit your ability to evaluate our prospects due to our limited historical financial data and our
unproven potential to generate profits. You should evaluate the likelihood of financial and operational success in light of the
risks, uncertainties, expenses and difficulties associated with an early-stage business, many of which may be beyond our control,
including:
● our potential inability to obtain regulatory approvals, and
● our potential inability to manufacture, sell and market our products.
Our
operations have been limited to organizing and staffing, on a limited basis, our company, acquiring, developing and securing our
proprietary technology and undertaking preclinical studies and early stage clinical trials of our principal product candidates.
These operations provide a limited basis for you to assess our ability to commercialize our product candidates and the advisability
of investing in our common stock.
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Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2020, we had Federal, New York State and
New York City net operating loss (NOL) carryforwards of approximately $72,507,000, $68,854,000 and $68,470,000, respectively, which
begin expiring in 2027, 2032 and 2032, respectively. Under U.S. federal tax legislation enacted in 2017, informally titled the
Tax Cuts and Jobs Act, or Tax Act, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, but the
deductibility of such federal NOLs is limited to 80% of taxable income in the year. It is uncertain if and to what extent various
states will conform to the Tax Act. Under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, if a corporation
undergoes an “ownership change” (generally defined as a greater than 50 percentage-point cumulative change (by value)
in the equity ownership of certain stockholders over a rolling three-year period), the corporation’s ability to use its pre-change
NOLs and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. We may also experience
ownership changes as a result of stock offerings or as a result of subsequent shifts in our stock ownership, some of which are
outside our control. We have not completed an analysis to determine whether any such limitations have been triggered. If any were
determined to be triggered, our ability to use our current NOLs and other pre-change tax attributes to offset post-change taxable
income or taxes would be subject to limitation. We will be unable to use our NOLs if we do not attain profitability sufficient
to offset our available NOLs prior to their expiration.
We
may not be successful in hiring and retaining key employees.
Our
future operations and successes depend in large part upon the continued service of key members of our senior management team whom
we are highly dependent upon to manage our business, specifically Dr. Sergio Traversa, our Chief Executive Officer. If he terminates
employment with us, such a departure would have a material adverse effect on our business.
Our future success also depends on our
ability to identify, attract, hire or engage, retain and motivate other well-qualified managerial, technical, clinical and regulatory
personnel. We currently only have 14 full time employees and are likely to hire additional qualified personnel with expertise in
nonclinical pharmacology and toxicology, pharmaceutical development, clinical research, regulatory affairs, manufacturing, sales
and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals, particularly in the United States, is intense, and we may not be able to hire sufficient
personnel to support our efforts. There can be no assurance that these professionals will be available in the market, or that we
will be able to retain existing professionals or to meet or to continue to meet their compensation requirements. Furthermore, the
cost base in relation to such compensation, which may include equity compensation, may increase significantly, which could have
a material adverse effect on us. Failure to establish and maintain an effective management team and work force could adversely
affect our ability to operate, grow and manage our business.
Managing
our growth as we expand operations may strain our resources.
We expect to need to grow rapidly in order
to support additional, larger, and potentially international, pivotal clinical trials of our drug candidates, which will place
a significant strain on our financial, managerial and operational resources. In order to achieve and manage growth effectively,
we must continue to improve and expand our operational and financial management capabilities. Moreover, we will need to increase
staffing and to train, motivate and manage our employees.
We
may expand our business through the acquisition of rights to new drug candidates that could disrupt our business, harm our financial
condition and may also dilute current stockholders’ ownership interests in our company.
Our
business strategy includes expanding our products and capabilities, and we may seek acquisitions of drug candidates or technologies
to do so. Acquisitions involve numerous risks, including substantial cash expenditures; potentially dilutive issuance of equity
securities; incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time
of acquisition; difficulties in assimilating the acquired technologies or the operations of the acquired companies; diverting
our management’s attention away from other business concerns; risks of entering markets in which we have limited or no direct
experience; and the potential loss of our key employees or key employees of the acquired companies.
We
cannot assure you that any acquisition will result in short-term or long-term benefits to us. We may incorrectly judge the value
or worth of an acquired product, company or business. In addition, our future success would depend in part on our ability to manage
the rapid growth associated with some of these acquisitions. We cannot assure you that we will be able to make the combination
of our business with that of acquired products, businesses or companies work or be successful. Furthermore, the development or
expansion of our business or any acquired products, business or companies may require a substantial capital investment by us.
We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to
raise funds by selling shares of our preferred or common stock, which could dilute each current stockholder’s ownership
interest in us.
Business
interruptions could limit our ability to operate our business.
Our
operations as well as those of our collaborators on which we depend are vulnerable to damage or interruption from computer viruses,
human error, natural disasters, electrical and telecommunication failures, international acts of terror and similar events. We
have not established a formal disaster recovery plan and our back-up operations and our business interruption insurance may not
be adequate to compensate us for losses we may suffer. A significant business interruption could result in losses or damages incurred
by us and require us to cease or curtail our operations.
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Our
business could be adversely affected by the effects of health epidemics, including the global COVID-19 pandemic.
In December 2019, a novel strain of COVID-19
was reported in China. Since then, COVID-19 has spread globally, to include the United States. The spread of COVID-19 has resulted
in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of
a new disease, on March 11, 2020. Many countries around the world have imposed quarantines, travel restrictions, limitations on
gatherings, closures of businesses and other social distancing measures.
As
local jurisdictions continue to put restrictions in place, our ability to continue to operate our business may also be limited.
Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially
affect our business, financial condition and results of operations.
The COVID-19 pandemic and efforts to contain
the outbreak have led to economic disruption, including declines in interest rates, extreme volatility in financial markets, fluctuations
in foreign currency exchange rates, reduced economic activity and a sharp increase in unemployment claims. While the potential
economic impact brought by COVID-19 may be difficult to assess or predict, a more protracted pandemic could result in significant
disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our
liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business
and the value of our common shares.
The
continued spread of COVID-19 globally could also adversely affect our planned clinical trial operations, including our ability
to initiate the trials on the expected timelines and recruit and retain patients and principal investigators and site staff who,
as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. Further, the COVID-19
outbreak could result in delays in our clinical trials due to prioritization of hospital resources toward the outbreak, restrictions
in travel, potential unwillingness of patients to enroll in trials at this time, or the inability of patients to comply with clinical
trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services. In addition, we
rely on independent clinical investigators, contract research organizations and other third-party service providers to assist
us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, and the outbreak may affect
their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us.
Additionally,
COVID-19 may also result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions
with local and foreign regulators, ethics committees and other important agencies and contractors due to limitations in employee
resources or forced furlough of government employees.
The global outbreak of COVID-19 continues
to rapidly evolve. The ultimate long-term impact of COVID-19 is highly uncertain and cannot be predicted with confidence. In addition,
since COVID-19 is a pandemic, it could materially affect our operations globally, including at our headquarters in the New York
City area and at our future clinical trial sites throughout the globe.
Our
business could be adversely affected by health epidemics in regions where we have significant manufacturing and distribution facilities,
concentrations of clinical trial sites or other business operations.
The
ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet
know the full extent of potential delays or impacts on our business, our supply chain, clinical trials, healthcare systems or
the global economy as a whole. However, these effects could have a material impact on our operations, and, therefore, we will
continue to monitor the COVID-19 situation closely and implement risk mitigation as needed.
Risks
Related to Clinical and Regulatory Matters
If
we or our potential collaborators fail to obtain the necessary regulatory approvals, or if such approvals are limited, we and
our potential collaborators will not be allowed to commercialize our drug candidates, and we will not generate product revenues.
Satisfaction
of all regulatory requirements for commercialization of a drug candidate typically takes many years, is dependent upon the type,
complexity and novelty of the drug candidate, and requires the expenditure of substantial resources for research and development.
Our research and clinical approaches may not lead to drugs that the FDA considers safe for humans and effective for indicated
uses we are studying. The FDA may require studies in addition to those we plan to conduct, in which case we or our collaborators
would have to expend additional time and resources and would likely delay the date of potentially receiving regulatory approval.
The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes
in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals would:
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Even
if we or our collaborators comply with all FDA regulatory requirements, our drug candidates may never obtain regulatory approval.
If we or our collaborators fail to obtain regulatory approval for any of our drug candidates we will have fewer commercial products,
if any, and corresponding lower product revenues, if any. Even if our drug candidates receive regulatory approval, such approval
may involve limitations on the indications and conditions of use or marketing claims for our products. Further, later discovery
of previously unknown problems or adverse events could result in additional regulatory restrictions, including withdrawal of products.
The FDA may also require us or our collaborators to commit to perform lengthy Phase 4 post-approval clinical efficacy or safety
studies. Our expending additional resources on such trials would have an adverse effect on our operating results and financial
condition.
In
jurisdictions outside the United States, we or our collaborators must receive marketing authorizations from the appropriate regulatory
authorities before commercializing our drugs. Regulatory approval processes outside the United States generally include all of
the aforementioned requirements and risks associated with FDA approval.
If
we or our collaborators are unable to design, conduct and complete successful clinical trials, our drug candidates will not be
able to receive regulatory approval.
Before
obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy,
complex and expensive nonclinical testing and clinical trials that the product is both safe and effective for use in each target
indication.
Results
from early clinical trials may not support moving a drug candidate to later-stage clinical trials. Phase 3 clinical trials may
not demonstrate the safety or efficacy of our drug candidates. Success in preclinical studies and early clinical trials does not
ensure that later clinical trials will be successful. Results of later clinical trials may not replicate the results of prior
clinical trials and preclinical studies. Even if the results of Phase 3 clinical trials are positive, we or our collaborators
may have to commit substantial time and additional resources to conducting further preclinical studies and clinical trials before
obtaining FDA approval for any of our drug candidates.
Clinical trials are very expensive and
difficult to design and implement, in part because they are subject to rigorous requirements. The clinical trial process also consumes
a significant amount of time. Furthermore, if participating patients in clinical trials suffer drug-related adverse reactions during
the course of such clinical trials, or if we, our collaborators or the FDA believe that participating patients are being exposed
to unacceptable health risks, such clinical trials will have to be suspended or terminated. Failure can occur at any stage of the
clinical trials, and we or our collaborators could encounter problems that cause abandonment or repetition of clinical trials.
Our clinical trials and our future clinical
trials for esmethadone measure clinical symptoms, such as depression that are not biologically measurable. The primary measure
of depression is subjective and can be influenced by factors outside of our control, and can vary widely from day to day for a
particular patient, and from patient to patient and site to site within a clinical study. The results we have obtained in completed
animal studies or we have observed in our clinical trials conducted to date may not be predictive of results from our future clinical
trials. In addition, clinical trial results from the study of depression are inherently difficult to predict.
We
have no history of developing drug candidates. We do not know whether any of our planned clinical trials will result in marketable
drugs.
In
addition, completion of clinical trials can be delayed by numerous factors, including:
● slower than expected rates of patient recruitment and enrollment;
● unanticipated patient dropout rates;
Any
of these delays could significantly impact the timing, approval and commercialization of our drug candidates and could significantly
increase our overall costs of drug development.
We
cannot predict whether regulatory agencies will determine that the data from our clinical trials support marketing approval.
The FDA’s and other regulatory agencies’
decision to approve our depression product candidate will depend on our ability to demonstrate with substantial clinical evidence
through adequate well-controlled clinical trials, that the product candidate is effective, as measured statistically by comparing
the overall improvement in depression in actively-treated patients against improvement in depression in the control group (usually
a placebo control). However, there is a possibility that our data may fail to show a statistically significant difference from
the placebo control or the active control (if applicable). Alternatively, there is a possibility that our data may be statistically
significant, but that the actual clinical benefit of the product candidates may not be considered to be clinically significant,
clinically relevant or clinically meaningful. Even if we believe that the data from our trials will support marketing approval
in the United States or in Europe, we cannot predict whether the agencies will agree with our analysis and approve our applications.
Developments
by competitors may establish standards of care that affect our ability to conduct our clinical trials as planned.
Changes
in standards related to clinical trial design could affect our ability to design and conduct clinical trials as planned. In that
case, both the cost and the amount of time required to conduct a clinical trial could increase.
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The
DEA through its quota system limits the availability of the active ingredients in certain of our current drug candidates and,
as a result, the Company’s quotas for these ingredients may not be sufficient to complete clinical trials, or to meet commercial
demand or may result in clinical delays.
The U.S. Drug Enforcement Administration,
or DEA, regulates certain controlled substance chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances
considered to present the highest risk of abuse and Schedule V substances the lowest risk. Esmethadone is the single isomer of
methadone, a Schedule II compound, and its handling (including manufacture, research, shipment, storage, sale and use) is subject
to a high degree of federal and state oversight and regulation. Furthermore, the amount of Schedule II substances that can be obtained
for clinical trials and commercial distribution is limited by the DEA through its quota system. Quotas may not be sufficient to
complete clinical trials or meet commercial demand. There is a risk that federal statutes and DEA regulations concerning applicable
quotas may interfere with the supply of the drugs used in clinical trials for our product candidates, and, in the future, the ability
to manufacture and distribute esmethadone in the volume needed to meet commercial demand.
Conducting
clinical trials of our drug candidates or commercial sales of a drug candidate may expose us to expensive product liability claims
and we may not be able to maintain product liability insurance on reasonable terms or at all.
The
risk of product liability is inherent in the testing of pharmaceutical products. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or be required to limit or terminate testing of one or more of
our drug candidates. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against product
liability claims could prevent or inhibit the commercialization of our drug candidates. We currently carry clinical trial insurance
but do not carry product liability insurance. If we successfully commercialize our drug candidates, we may face product liability
claims, regardless of FDA approval for commercial manufacturing and sale. We may not be able to obtain such insurance at a reasonable
cost, if at all. Even if our agreements with any current or future corporate collaborators entitle us to indemnification against
product liability losses, such indemnification may not be available or adequate should any claim arise.
If our drug candidates receive regulatory
approval, we and our collaborators will also be subject to ongoing FDA obligations and continued regulatory review, such as continued
safety reporting requirements, and we and our collaborators may also be subject to additional FDA post-marketing obligations or
new regulations, all of which may result in significant expense and limit our and our collaborators’ ability to commercialize
our drugs.
Any regulatory approvals that our drug
candidates receive may also be subject to limitations on the indicated uses for which the drug may be marketed or contain requirements
for costly post-marketing follow-up studies. In addition, if the FDA approves any of our drug candidates, the manufacturing processes,
labeling, packaging, distribution, post-approval monitoring and adverse event reporting, storage, import, export, advertising,
promotion and record keeping for the drug will be subject to extensive and ongoing regulatory requirements. The FDA has significant
post-market authority, including the authority to require labeling changes based on new safety information and to require post-market
studies or clinical trials to evaluate safety risks related to the use of a product or to require withdrawal of the product from
the market. The manufacturing facilities used to manufacture our product candidates will also be subject to periodic review and
inspection by the FDA and other regulatory agencies, including for continued compliance with current good manufacturing practices
(cGMPs) requirements. The discovery of any new or previously unknown problems with our third-party manufacturers, manufacturing
processes or facilities may result in restrictions on the product, manufacturer or facility, including withdrawal of the product
from the market. Any product promotion and advertising will also be subject to regulatory requirements and continuing regulatory
review. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products. If we promote
our product candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance with FDA regulations,
we may be subject to enforcement action. If we or our collaborators, manufacturers or service providers fail to comply with applicable
continuing regulatory requirements in the United States or foreign jurisdictions in which we seek to market our products, we or
they may be subject to, among other things, fines, warning or untitled letters, holds on clinical trials, suspension or withdrawal
of regulatory approval, product recalls and seizures, administrative detention of products, refusal to permit the import or export
of products, operating restrictions, injunction, civil penalties and criminal prosecution.
The FDA’s policies may change and
additional government regulations may be enacted that could prevent or delay regulatory approval of our drug candidates. For example,
on July 9, 2012, the FDA approved a risk management program, known as a Risk Evaluation and Mitigation Strategy, or REMS,
for extended-release and long-acting opioid analgesics, or ER/LA opioid analgesics. This REMS will require companies affected by
the REMS to make available training for health care professionals who prescribe ER/LA opioid analgesics on proper prescribing practices
and also to distribute educational materials to prescribers and patients on the safe use of ER/LA opioid analgesics. We cannot
predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative
action, either in the United States or abroad.
Fast Track Designation may not lead to a faster development
or regulatory review or approval process.
We have obtained Fast Track Designation for esmethadone for
the adjunctive treatment of MDD. Fast Track Designation is granted if a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical needs for this condition. Fast Track Designation does
not guarantee a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast
Track Designation if it believes that the designation is no longer supported by data from our clinical development program.
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We may not be able to obtain marketing
exclusivity under the Hatch-Waxman Amendments or equivalent regulatory data exclusivity protection in other jurisdictions for our
products.
We intend to rely, in part, on Hatch-Waxman
exclusivity for the commercialization of our products in the United States, if approved. The Hatch-Waxman Amendments provide marketing
exclusivity to the first applicant to gain approval of an NDA under specific provisions of the Federal Food, Drug, and Cosmetic
Act. For esmethadone, which we intend to elect to have not be considered the same active ingredient as methadone and therefore
an NCE, we anticipate obtaining 5-year exclusivity. If FDA were to determine that we do not meet the requirements to make the election,
we may not be able to obtain 5-year exclusivity for the product. In addition, under the statute, this election currently may only
be made in an NDA submitted before October 1, 2022. If we do not submit an NDA before that date or if the statute is not amended
to extend the election, we may not obtain 5-year exclusivity for esmethadone, if approved. For esmethadone, which is an NCE, we
anticipate obtaining 5-year exclusivity for a product containing an active moiety that the FDA has not previously approved.
There can be no assurance that European
authorities will grant data exclusivity for our products, because it does not contain a new active molecule. Even if European data
exclusivity is granted for esmethadone, this may not protect us from direct competition. A competitor(s) with a generic version
of our products may be able to obtain approval of its product during our product’s period of data exclusivity, by submitting
a marketing authorization application (MAA) with a less than full package of nonclinical and clinical data.
We may need to focus our future efforts
in new therapeutic areas where we have little or no experience.
Although our primary strategic interest
is in the areas of depression, esmethadone has potential benefits in other therapeutic areas. If our drug development efforts in
depression fail, or if the competitive landscape or investment climate for antidepressant drug development is less attractive,
we may need to change the company’s strategic focus to include development of our product candidates, or of newly acquired
product candidates, for therapeutic areas other than depression. We have very limited drug development experience in other therapeutic
areas and we may be unsuccessful in making this change from a depression company to a company with a focus in areas other than
depression or a company with a focus in multiple therapeutic areas including depression.
Our product candidates contain controlled
substances, the supply of which may be limited by U.S. statutes and regulations, and the use of which may generate public controversy.
The active ingredients in esmethadone are
listed by the DEA as controlled substances under the Controlled Substances Act of 1970. The DEA regulates certain drug substances
in Schedule I, II, III, IV or V, with Schedule I substances considered to present the highest risk of substance abuse and Schedule
V substances the lowest risk. These product candidates are also subject to DEA regulations relating to their handling (i.e., manufacturing,
storage, distribution, prescribing and dispensing procedures).
Products containing controlled substances
may generate public controversy. Opponents of these products may seek restrictions on marketing and withdrawal of any regulatory
approvals. In addition, these opponents may seek to generate negative publicity in an effort to persuade the medical community
to reject these products. Political pressures and adverse publicity could lead to delays in, and increased expenses for, and limit
or restrict the introduction and marketing of our product candidates.
Failure to comply with the Controlled
Substances Act or DEA regulations, or the cost of compliance with these regulations, may adversely affect our business.
Esmethadone is subject to extensive regulation
by the DEA. Although esmethadone is substantially devoid of opioid activity, and psychotomimetic effects, the DEA may elect to
designate it as a controlled substance falling under a DEA controlled substance Schedule. Additionally, esmethadone is produced
by separation from racemic methadone, a scheduled drug subject to extensive regulation by the DEA.
The manufacture, shipment, storage, sale
and use of controlled substances are subject to a high degree of regulation, including security, record-keeping and reporting obligations
enforced by the DEA. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist
and may not be refilled. This high degree of regulation can result in significant costs in order to comply with the required regulations,
which may have an adverse effect on the development and commercialization of our product candidates.
The DEA limits the availability and production
of all scheduled substances, including esmethadone, through a quota system. The DEA requires substantial evidence and documentation
of expected legitimate medical and scientific needs before assigning quotas to manufacturers. In future years, we may need greater
amounts of controlled substances to sustain our Phase 3 development program, and we will need significantly greater amounts to
implement our commercialization plans if the FDA approves our proposed formulations. Any delay or refusal by the DEA in establishing
the procurement quota or a reduction in our quota for scheduled controlled substances or a failure to increase it over time as
we anticipate could delay or stop the clinical development or commercial sale of some of our products or product candidates. This
could have a material adverse effect on our business, results of operations, financial condition and prospects.
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If
a supplier of an active pharmaceutical ingredient (API) or a pharmaceutical excipient fails to provide us sufficient quantities,
we may not be able to obtain an alternative supply on a timely or acceptable basis.
Our
pharmaceutical excipients and other APIs are multisource, although not all sources have an active Drug Master File (DMF) with
the FDA. (A DMF is a submission to the FDA used to provide confidential detailed information about facilities, processes, or articles
used in the manufacturing, processing, packaging, and storing of drugs to support drug development and approval). In addition,
some of the countries for our multisource APIs are not the same as our drug manufacturing locations. Thus, any disruption in supply
from our preferred vendor could result in significant delays with our pharmaceutical development, clinical trials, NDA submission,
NDA approval or commercial sale of the finished product due to contract delays, the need to manufacture a new batch of API, out
of specification API, the need for import and export permits, and the failure of the newly sourced API to perform to the standards
of the previously sourced API.
Modifications to our products may
require new NDA approvals.
After a product candidate receives FDA
approval, expanded uses or uses in new indications of our products may require additional clinical trials and new regulatory approvals,
including additional IND submissions before we can begin clinical development and supplemental NDA approval prior to marketing
and sales. If we are required to conduct additional clinical studies, it would require additional expenditures and harm our operating
results. Delays in obtaining required future approvals could adversely affect our ability to introduce new or enhanced products
in a timely manner, which in turn would harm our future growth.
Delays
in the commencement or completion of pharmaceutical development, manufacturing or clinical testing could result in increased costs
to us and delay our ability to generate revenues.
We
do not know whether our pharmaceutical development, manufacturing or clinical testing will begin on time or be completed on schedule,
if at all. For example, we may encounter delays during the manufacture of pilot scale batches including delays with our contract
development or manufacturing organization, sourcing satisfactory quantities of APIs, narcotic import and export permits, sourcing
of excipients, contract disputes with our third party vendors and manufacturers, or failure of the product to meet specification.
Similar delays may occur a during our cGMP manufacture of the product.
The
commencement and completion of clinical trials can be disrupted for a variety of reasons, including difficulties in:
● recruiting and enrolling patients to participate in a clinical trial;
● obtaining regulatory approval to commence a clinical trial;
● manufacturing sufficient quantities of a product candidate;
● investigator fraud, including data fabrication by clinical trial personnel;
● diversion of controlled substances by clinical trial personnel; and
A
clinical trial may also be suspended or terminated by us, the FDA or other regulatory authorities due to a number of factors,
including:
● unforeseen safety issues; or
In
addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect
these changes, which could impact the cost, timing or successful completion of a clinical trial. If we experience delays in the
commencement or completion of our clinical trials, the commercial prospects for our product candidates will be harmed, and our
ability to generate product revenues will be delayed. Many of the factors that cause, or lead to, a delay in the commencement
or completion of clinical trials may also lead to the denial of regulatory approval of a product candidate.
Conducting successful clinical studies
may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Patient
enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size
of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and risks associated with,
the treatments received by enrolled subjects; the availability of appropriate clinical trial investigators; support staff; the
number of ongoing clinical trials in the same indication that compete for the same patients; and proximity of patients to clinical
sites and ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance.
For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo
extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our products or if they determine that
the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. Patients may
also not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products.
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Adverse safety outcomes could affect
our ability to conduct our clinical trials or obtain approval of our product candidates.
Serious injury or death resulting from
a failure of one of our drug candidates during current or future clinical trials could result in the FDA delaying our clinical
trials or denying or delaying clearance or approval of a product. Even though an adverse event may not be the result of the failure
of our drug candidate, FDA or an IRB could delay or halt a clinical trial for an indefinite period of time while an adverse event
is reviewed, and likely would do so in the event of multiple such events. Any delay or termination of our current or future clinical
trials as a result of the risks summarized above, including delays in obtaining or maintaining required approvals from IRBs, delays