ITEM 1A. RISK FACTORS
You
should be aware that there are substantial risks for an investment in our common stock. You should carefully consider these risk factors
before you decide to invest in our common stock and should not consider this list to be a complete statement of all risks and uncertainties.
If
any of the following risks were to occur, such as our business, financial condition, results of operations or other prospects, any of
these could materially affect our likelihood of success. If that happens, the market price of our common stock, if any, could decline,
and prospective investors would lose all or part of their investment in our common stock.
Risks
Related to Our Business
We
operate a clinical-stage biopharmaceutical company with a limited operating history, which may make it difficult to evaluate its current
business and predict its future success and viability.
We
hold a clinical-stage biopharmaceutical company with a limited operating history. Scienture LLC was formed in 2019 and its
operations to date have been limited to organizing and staffing its company, business planning, raising capital, identifying and
developing its product candidates for the treatment of central nervous system (“CNS”) and cardiovascular
(“CVS”) diseases, securing intellectual property rights, and planning and undertaking preclinical studies and clinical
trials. Scienture LLC has not yet demonstrated an ongoing ability to generate revenues, obtain regulatory approvals, manufacture any
product on a commercial scale or arrange for a third party to do so on its behalf or conduct sales and marketing activities
necessary for successful product commercialization. Scienture LLC’s limited operating history as a company makes any
assessment of its future success and viability subject to significant uncertainty. Scienture LLC encounters risks and
difficulties frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, and Scienture LLC has not
yet demonstrated an ability to successfully overcome such risks and difficulties. If Scienture LLC does not address these risks and
difficulties successfully, its business will suffer.
The
success of our business depends primarily upon its ability to identify, develop, and commercialize product candidates, including our
existing product candidates: SCN-102, SCN-104, SCN-106, and SCN-107. We only have one product candidate, SCN-102, for which it has conducted
pivotal clinical studies to date, and we will be required to similarly perform pivotal clinical studies for the other products in its
pipeline in order to obtain regulatory approval for these earlier stage candidates. Our business depends heavily on its ability to obtain
FDA approval for SCN-102 and successfully launch this product candidate and do the same for the other products in its pipeline. We do
not know whether it will be able to develop any products of commercial value. We do not have any products approved for commercial sale
and have not generated any revenue from product sales to date. We will continue to incur significant research and development and other
expenses related to its preclinical and clinical development and ongoing operations. As a result, we are not profitable and has incurred
losses in each period since its inception. Net losses and negative cash flows have had, and likely will continue to have, an adverse
effect on our financial condition. We expect to continue to incur significant losses for the foreseeable future, and we expect these
losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates.
We
anticipate that our expenses will increase substantially if, and as, we:
● advance our product candidates through clinical development;
● maintain, expand and protect our intellectual property portfolio; and
Biopharmaceutical
product development entails substantial upfront capital expenditures and significant risk that any potential product candidate will
fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, secure market access and
reimbursement and become commercially viable, and therefore any investment in us is highly speculative. Accordingly, you should
consider our prospects, factoring in the costs, uncertainties, delays and difficulties frequently encountered by companies in
clinical development, especially clinical-stage biopharmaceutical companies such as us. Any predictions you make about our future
success or viability may not be as accurate as they would otherwise be if we had a longer operating history or a history of
successfully developing and commercializing pharmaceutical products. We may encounter unforeseen expenses, difficulties,
complications, delays and other known or unknown factors in achieving our business objectives.
Additionally,
our expenses could increase beyond our expectations if we are required by the FDA or other comparable regulatory authorities to perform
clinical trials in addition to those that we currently expect, or if there are any delays in establishing appropriate manufacturing arrangements
for or in completing our clinical trials or the development of any of our product candidates.
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We
need additional capital which may not be available when needed or on commercially acceptable terms. Raising additional capital may cause
dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.
Developing biopharmaceutical products, including conducting preclinical studies and clinical trials, is a very
time-consuming, expensive and uncertain process that takes years to complete. Moving forward, we expect our expenses to continue to increase
in connection with our ongoing activities, particularly as we conduct clinical trials of, and seek regulatory and marketing approval
for, our product candidates. Even if our current or future product candidates are approved for commercial sale, we anticipate incurring
significant costs associated with commercializing any approved product candidate. Because of the numerous risks and uncertainties associated
with research and development of product candidates, we are unable to predict the timing or amount of our working capital requirements.
Until
such time, if ever, as we can generate substantial product revenue, we expect to finance our operations with existing cash, cash
equivalents, short-term investments, and any future equity or debt financings and upfront and milestone and royalty payments, if
any, received under any future licenses or collaborations. While we believe that our cash as of the date of this Annual Report will
be sufficient to meet our funding requirements during the next 12 months, this belief may prove to be wrong as we could utilize
available capital resources sooner than we expect. We will eventually need to raise additional capital or secure debt funding to
support on-going operations. This may include raising additional financing on an opportunistic basis in the future. For example, we
may seek to raise equity capital or obtain additional capital in the near term due to favorable market conditions or strategic
considerations even if we believe we have sufficient funds for current or future operating plans.
Attempting
to secure additional financing may divert management from day-to-day activities, which may adversely affect our ability to develop product
candidates. Our future capital requirements will depend on many factors, including but not limited to:
● expenses to attract, hire and retain skilled personnel;
● addressing any potential supply chain interruptions or delays;
● the effect of competing technological and market developments; and
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We
anticipate that the sources of capital available to us will be through the sale of equity and debt, which may not be available on favorable
terms, if at all, and may, if sold, cause significant dilution to existing stockholders. Our ability to raise additional funds will depend
on financial, economic, political and market conditions and other factors, over which we may have no or limited control. The issuance
of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our shares to decline.
If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues, our financial
position, and liquidity. Furthermore, we could be forced to delay, limit, reduce or terminate product development programs, future commercialization
efforts or other operations.
If
we raise additional capital through the sale of equity or convertible debt securities or we issue any equity or convertible debt securities
in connection with a collaboration agreement or other contractual arrangement, our stockholders’ ownership interests also will
be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders.
Debt
financing, if available, may result in increased fixed payment obligations and involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends
or acquiring, selling or licensing intellectual property rights or assets, which could adversely impact the ability to conduct our business.
If
we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third
parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams or product candidates
or grant licenses on terms that may not be favorable to us. We could also be required to seek funds through arrangements with collaborators
or others at an earlier stage than otherwise would be desirable. Any of these occurrences may have a material adverse effect on our business,
operating results and prospects.
Market
conditions and changes in financial regulations and policies can impact the viability of financial institutions. In the event of failure
of any of the financial institutions where we maintain cash and cash equivalents, there can be no assurance that we would be able to
access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect
our business and financial position. In addition, changes in regulations governing financial institutions are beyond our control and
difficult to predict; consequently, the impact of such changes on our business and results of operations is difficult to predict and
may have an adverse effect on us.
Due
to the significant resources required to develop our product pipeline, and depending on our ability to access capital, we must prioritize
the development of certain product candidates over others and we may fail to expend our limited resources on product candidates or indications
that may have been more profitable or for which there is a greater likelihood of success.
Due
to the significant resources required for the development of our product candidates, we must decide which product candidates and indications
to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development,
collaboration, management and financial resources toward particular product candidates, therapeutic areas or indications may not lead
to the development of viable commercial products and may divert resources away from better opportunities. If we make incorrect determinations
regarding the viability or market potential of any of our product candidates or misread trends in the pharmaceutical industry, in particular
for CNS and CVS diseases, our business, financial condition and results of operations could be materially and adversely affected. As
a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay
pursuit of opportunities with other product candidates or other diseases and disease pathways that may later prove to have greater commercial
potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or
royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development
and commercialization rights.
Our
acquisitions and investments in new businesses and new products, services, and technologies is inherently risky, and could disrupt our
ongoing businesses.
We
have invested and expect to continue to invest in new businesses, products, services, and technologies. Such endeavors may involve significant
risks and uncertainties, including insufficient revenues from such investments to offset any new liabilities assumed and expenses associated
with these new investments, inadequate return of capital on our investments, distraction of management from current operations, and unidentified
issues not discovered in our due diligence of such strategies and offerings that could cause us to fail to realize the anticipated benefits
of such investments and incur unanticipated liabilities. Because these new ventures are inherently risky, no assurance can be given that
such strategies and offerings will be successful and will not adversely affect our reputation, financial condition, and operating results.
The
use of resources for new businesses and new products, services, and technologies, to the extent such new businesses and new products,
services, and technologies do not generate revenues or profits may take management’s focus and time away from more profitable endeavors,
may require us to take significant write-downs or write-offs, may take funding away from our other operations
or growth opportunities, which may ultimately be more profitable, and may have a material adverse effect on our cash
flows, liquidity and revenues, any or all of which may cause the value of our securities to decline in value or become
worthless.
Our
business is highly dependent on the success of certain product candidates. If we are unable to successfully complete clinical development,
obtain regulatory approval for or commercialize one or more of our product candidates, or if we experience delays in doing so, our business
will be materially harmed.
Scienture
LLC has completed development of SCN-102, which received FDA regulatory approval in March 2025 and commenced commercialization in the
third quarter of 2025. The remaining product candidates — SCN-104, SCN-106, and SCN-107 — remain in clinical or preclinical
development. Management expects SCN-104 and SCN-106 to achieve regulatory approval in 2027 or 2028, with commercialization projected
to begin in 2028, and SCN-107 to achieve regulatory approval in 2028 or 2029, with commercialization projected to begin in 2029. Our
future success and ability to generate revenue from Scienture LLC’s product candidates is dependent on our ability to successfully develop,
obtain regulatory approval for, and commercialize one or more of our remaining product candidates. If any of Scienture LLC’s product
candidates encounters safety or efficacy problems, development delays, regulatory issues, or other problems, our development plans and
business would be materially harmed.
We
may not have the financial resources to continue development of our product candidates, particularly if we experience any issues
that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:
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● poor effectiveness of our product candidates during clinical trials;
● delays in enrolling subjects in our clinical trials;
● high drop-out rates of subjects from our clinical trials;
● higher than anticipated clinical trial or manufacturing costs;
In
addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval
in one country does not guarantee regulatory approval in any other country. We may in the future conduct one or more clinical trials with one or more trial sites that are located outside the United States. Although the FDA may accept data from clinical
trials conducted outside the United States, acceptance of this data is subject to conditions imposed by the FDA, and there can be no
assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from
any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly
and time-consuming and could delay or permanently halt our development of the applicable product candidates.
We
are dependent upon our current management, who may have conflicts of interest. Our ability to develop product candidates and our future
growth depends on attracting, hiring and retaining key personnel and recruiting additional qualified personnel.
Our
success depends upon the continued contributions of our key management and scientific personnel, many of whom have substantial experience
with developing therapies, identifying potential product candidates and building the technologies related to the clinical development
of our product candidates. However, some of officers and directors have duties and affiliations with other companies. Involvement of
our officers and directors in other businesses may present a conflict of interest regarding decisions they make for us or with
respect to the amount of time available for us.
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Given
the specialized nature of CNS and CVS diseases and our approach, there is an inherent scarcity of experienced personnel in these
fields. As we continue developing product candidates, we will require personnel with medical, scientific, or technical
qualifications specific to each program. The loss of any of our officers or directors, in particular our current management team
consisting of Shankar Hariharan, Narasimhan Mani or Rahul Surana, could have a materially adverse
effect upon our business and future prospects.
Despite
our efforts to retain valuable employees, members of our team may terminate employment on short notice. The competition for qualified
personnel in the biotechnology and biopharmaceutical industries is intense, and our future success depends upon our ability to attract,
retain, and motivate highly skilled scientific, technical and managerial employees. We face competition for personnel from other companies,
universities, public and private research institutions, and other organizations. If our recruitment and retention efforts are unsuccessful
in the future, it may be difficult for us to implement our business strategy, which would have a material adverse effect on our business.
In
addition, our clinical operations and research and development programs depend on our ability to attract and retain highly skilled scientists,
data scientists, and engineers, particularly in New York, New Jersey, Massachusetts and Pennsylvania. There is powerful competition for
skilled personnel in these geographical markets, and we may experience, difficulty in hiring and retaining employees with appropriate
qualifications on acceptable terms, or at all. Many of the companies with which we compete for experienced personnel have greater resources
than we do. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees
have breached legal obligations, resulting in a diversion of our time and resources and, potentially, damages. In addition, job candidates
and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived
benefits of stock awards decline, it may harm our ability to recruit and retain highly skilled employees. If we fail to attract new personnel
or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.
We
may seek to collaborate with third parties and may not be able to implement these collaborations on commercially acceptable terms, if
at all. The success of certain of our product candidates may depend in significant part on the success of such collaborations.
We
plan to opportunistically pursue strategic partnerships if we believe that these partnerships can accelerate the development or maximize
the market potential of our product candidates. Likely collaborators may include large and mid-size pharmaceutical companies, regional
and national pharmaceutical companies and biotechnology companies. In addition, if we are able to obtain regulatory approval for product
candidates from foreign regulatory authorities, we may enter into partnerships or collaborations with international biotechnology or
pharmaceutical companies for the commercialization of such product candidates.
We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a partnership or collaboration
will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of
the proposed partnerships or collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may
include the potential differentiation of our product candidates from competing product candidates, design or results of clinical trials,
the likelihood of approval by the FDA or other comparable regulatory authorities and the regulatory pathway for any such approval, the
potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the
potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications
that may be available for partnership or collaboration and whether such a partnership or collaboration could be more attractive than
the one with us for our product candidate. If we elect to increase expenditures to fund development or commercialization activities
on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have
sufficient funds, we may not be able to further develop product candidates or bring them to market and generate product revenue.
Partnerships
and collaborations are each complex and time-consuming to negotiate and document. Further, business combinations among large pharmaceutical
companies could result in a reduced number of potential future collaborators. Any partnership or collaboration agreement that we enter
into in the future may contain restrictions on our ability to enter into potential partnerships or collaborations or to otherwise develop
specified product candidates. We may not be able to negotiate partnerships or collaborations on a timely basis, on acceptable terms,
or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate,
reduce or delay development programs, delay potential commercialization or reduce the scope of any sales or marketing activities, or
increase expenditures and undertake development or commercialization activities at our own expense.
We
may have limited control over the amount and timing of resources that our collaborators will dedicate to the development or commercialization
of our product candidates. Our ability to generate revenues from these arrangements will depend on any future collaborators’ abilities
to successfully perform the functions assigned to them in these arrangements. In addition, any future collaborators may have the right
to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the
expiration of the agreed upon terms.
Collaborations
involving our product candidates pose a number of risks, including the following:
● collaborators may not perform their obligations as expected;
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Collaboration
agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If any future
collaborator is involved in a business combination, we could decide to delay, diminish or terminate the development or commercialization
of any licensed product candidate.
We
have relied upon and plan to continue to rely on third parties, such as Contract Research Organizations (“CROs”), clinical
data management organizations, medical institutions and clinical investigators, to conduct our clinical trials and expect to rely on
these third parties to conduct clinical trials of any other product candidate that we develop. Our ability to complete clinical trials
in a timely fashion depends on a number of key factors. These factors include protocol design, regulatory and Institutional Review Board
approval, patient enrollment rates and compliance with GCPs. Generally, we rely on our third-party partners to accurately report their
results. Our reliance on third parties for clinical development activities may impact or limit our control over the timing, conduct,
expense and quality of our clinical trials. Moreover, the FDA requires that we to comply with GCPs for conducting, recording and reporting
the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and
confidentiality of trial participants are protected. The FDA enforces these GCPs through periodic inspections of clinical trial sponsors,
principal investigators, clinical trial sites and Institutional Review Boards. For certain commercial prescription drug products, manufacturers
and other parties involved in the supply chain must also meet chain of distribution requirements and build electronic, interoperable
systems for product tracking and tracing and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products
or other products that are otherwise unfit for distribution in the United States.
We
remain responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal and regulatory
requirements and scientific standards. Our failure or the failure of third parties to comply with the applicable protocol, legal and
regulatory requirements and scientific standards can result in rejection of our clinical trial data or other sanctions. If we or our
third-party clinical trial providers or third-party CROs do not successfully carry out these clinical activities, our clinical trials
or the potential regulatory approval of a product candidate may be delayed or be unsuccessful. Additionally, if we or our third-party
contractors fail to comply with applicable GCPs for any reason, the clinical data generated in our clinical trials may be deemed unreliable
and the FDA may require us to perform additional clinical trials before approving our product candidates, which would delay the regulatory
approval process. We cannot be certain that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs.
We are also required to register certain clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal
sanctions.
Furthermore,
the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements
with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs.
These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting
clinical trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs.
If these third parties, including clinical investigators, do not successfully carry out their contractual duties, meet expected deadlines
or conduct its clinical trials in accordance with regulatory requirements or its stated protocols, we may not be able to obtain, or may
be delayed in obtaining, regulatory approvals for our product candidates. If that occurs, we will not be able to, or may be delayed in
our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercial prospects
for any product candidates that we seek to develop could be harmed, our costs could increase and our ability to generate revenues could
be delayed, impaired or foreclosed.
We
also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of
our distributors could delay clinical development or regulatory approval of our product candidates or commercialization of any resulting
products, producing additional losses and depriving us of potential product revenue.
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In
addition, we rely on wholesalers and attempt to structure our agreements with such wholesalers to ensure that we are appropriately and
predictably compensated for the services we provide. We cannot control the frequency or magnitude of pharmaceutical price changes. We
might be unable to renew agreements with wholesalers in a timely and favorable manner. These risks might have a materially adverse impact
on our business operations and our financial positions or results of operations.
Any
of the third-party organizations we utilize may terminate our engagements with us under certain circumstances. The replacement of an
existing CRO or other third party may result in the delay of the affected trials or otherwise adversely affect our efforts to obtain
regulatory approvals and commercialize our product candidates. We may not be able to enter into alternative arrangements or do so on
commercially reasonable terms. In addition, even if there are suitable replacements for one or more of these service providers, there
is a natural transition period when a new service provider begins work. As a result, delays may occur, which could negatively impact
our ability to meet our expected clinical development timelines and harm our business, financial condition and prospects.
Our
third-party manufacturing partners may be unable to increase the scale of production or product yield of our product candidates, resulting
in increased manufacturing costs and delays in commercialization of our products. Furthermore, changes in methods of manufacturing our
product candidates could result in additional costs or delays.
In
order to produce sufficient quantities to meet the demand for clinical trials and, if approved, subsequent commercialization of our product
candidates, our third-party manufacturers will be required to increase production and optimize manufacturing processes while maintaining
the quality of our product candidates. The transition to larger scale production could prove difficult. In addition, if our third-party
manufacturers are not able to optimize their manufacturing processes to increase the product yield for our product candidates, or if
such third party manufacturers are unable to produce increased amounts of our product candidates while maintaining the same quality,
then we may not be able to meet the demands of clinical trials or market demands. This could decrease our ability to generate profits
and have a material adverse impact on our business and results of operations.
Our
growth depends in part on the success of our strategic relationships with third parties. Some of these third parties may be located outside
of the United States.
In
order to grow our business, we anticipate that we will need to continue to depend on our relationships with third parties, including
our technology providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and
resources. Our competitors may be effective in providing incentives to third parties to favor their products or services, or utilization
of, our products and services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number
of our current and potential customers. If we are unsuccessful in establishing or maintaining our relationships with third parties, our
ability to compete in the marketplace or to grow our revenue could be impaired and our results of operations may suffer. Even if we are
successful, we cannot assure you that these relationships will result in increased customer use of our products or increased revenue.
We
do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates,
and we lack the resources and the capabilities to do so. Our current strategy is to outsource all manufacturing of our product
candidates to third parties, including in jurisdictions outside of the United States such as China. As such, we currently rely on
third-party manufacturers to provide all of the Active Pharmaceutical Ingredients (“API”) and the final drug product formulation of all of our product candidates that are
being used in our clinical trials and preclinical studies. If we were to need an alternate manufacturer, we would incur added costs
and delays in identifying and qualifying any such replacement. In addition, we typically order raw materials, API and drug product
and services on a purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements with any
commercial manufacturer. We may not be able to timely secure needed supply arrangements on satisfactory terms, or at all. Our
failure to secure these arrangements as needed could have a material adverse effect on our ability to complete the development of
our product candidates or, to commercialize them, if approved. We may be unable to conclude agreements for commercial supply with
third-party manufacturers or may be unable to do so on acceptable terms. There may be difficulties in scaling up to commercial
quantities and formulation of our product candidates, and the costs of manufacturing could be prohibitive.
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Many
of the third-party manufacturers we rely on have only recently begun working with us and have limited or no experience manufacturing
our API and final drug products. If our manufacturers have difficulty or suffer delays in successfully manufacturing material that meets
our specifications, it may limit supply of our product candidates and could delay our clinical trials.
Even
if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional
risks, including:
If
we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing
capabilities, which could delay or impair our ability to obtain regulatory approval for our product candidates. If we do find replacement
manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us and there could be a substantial
delay before new facilities could be qualified and registered with the FDA and other comparable regulatory authorities.
Additionally,
if any third-party manufacturer with whom we contract fail to perform its obligations, we may be forced to manufacture the materials
ourself, for which we may not have the capabilities or resources, or enter into an agreement with a different manufacturer. In either
scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical
skills required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty,
or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may
be unable to transfer such skills at all. In addition, if we are required to change third-party manufacturers for any reason, we will
be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable
regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will
produce its product candidate according to the specifications previously submitted to the FDA or other comparable regulatory authorities.
We may be unsuccessful in demonstrating the comparability of clinical supplies, which could require the conduct of additional clinical
trials. The delays associated with the verification of a new third-party manufacturer could negatively affect our ability to develop
product candidates or commercialize our products in a timely manner or within budget. Furthermore, a third-party manufacturer may possess
technology related to the manufacture of our product candidates that such third party owns independently. This would increase our reliance
on such third-party manufacturer or require us to obtain a license from such third-party manufacturer in order to have another third
party manufacture our product candidates.
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If
any of our product candidates are approved by any regulatory agency, we intend to utilize arrangements with third-party contract manufacturers
for the commercial production of those products. This process is difficult and time consuming and we may face competition for access
to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing
our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which
could delay commercialization.
Some
of our manufacturers are located outside of the United States, including in China. There is currently significant uncertainty about the
future relationship between the United States and various other countries, including China, with respect to trade policies, treaties,
government regulations and tariffs. Increased tariffs or pending legislation that would impose federal contracting or federal funding
limitations on parties directly using or connected to those using the services or equipment of certain foreign entities with known or
alleged associations with foreign adversaries could potentially disrupt our existing supply chains and impose additional costs on our
business. In particular, certain Chinese biotechnology companies and commercial manufacturing organizations may become subject to trade
restrictions, sanctions, and other regulatory requirements by the U.S. government, which could restrict or even prohibit our ability
to work with such entities, thereby potentially disrupting our supplies and manufacturing. Additionally, it is possible further tariffs
may be imposed that could affect imports of any APIs used in our product candidates
in the future, or our business may be adversely impacted by retaliatory trade measures taken by China or other countries, including restricted
access to such raw materials used in its product candidates. Given the unpredictable regulatory environment in China and the United States
and uncertainty regarding how the U.S. or foreign governments will act with respect to tariffs, international trade agreements and policies,
further governmental action related to tariffs, additional taxes, contracting matters, regulatory changes or other retaliatory trade
measures in the future could occur with a corresponding detrimental impact on our business and financial condition.
Our
failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed
on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or voluntary
recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of
our product candidates. The facilities used by our contract manufacturers to manufacture our product candidates must be evaluated by
the FDA. We do not control the manufacturing process of, and is completely dependent on, its contract manufacturing partners for compliance
with cGMPs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict
regulatory requirements of the FDA or other comparable regulatory authorities, we may not be able to secure and/or maintain regulatory
approval for our product candidates manufactured at these facilities. In addition, we have no control over the ability of our contract
manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA finds deficiencies or a comparable
foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such
approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop,
obtain regulatory approval for or market our approved product candidates. Contract manufacturers may face manufacturing or quality control
problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance
with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA and comparable foreign regulatory requirements
could adversely affect our clinical research activities and our ability to our its product candidates and market our products, if approved.
The
FDA or other comparable regulatory authorities require manufacturers to register manufacturing facilities, and also inspect these facilities
to confirm compliance with cGMPs.
Contract
manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation
where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements
or other FDA and other comparable regulatory requirements could adversely affect our clinical research activities and our ability to
develop our product candidates and market our products following approval, if obtained.
Furthermore,
should we decide to use any APIs in any of our product candidates that are proprietary to one or more third parties, we would need to
maintain licenses to those APIs from those third parties. If we are unable to gain or continue to access rights to such APIs prior to
conducting preclinical toxicology studies intended to support clinical trials, we may need to develop alternate product candidates from
these programs by either accessing or developing alternate APIs, resulting in increased development costs and delays in commercialization
of these product candidates. If we are unable to gain or maintain continued access rights to the desired APIs on commercially reasonable
terms or develop suitable alternate APIs, we may not be able to commercialize product candidates from these programs.
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Changes
in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As
product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization,
it is common that various aspects of the development program, such as the vendors used to manufacture drug product or manufacturing methods
and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will
not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the
results of planned clinical trials or other future clinical trials conducted with the materials manufactured using altered processes.
Such changes may also require additional testing, FDA notification or FDA approval. This could delay or prevent completion of clinical
trials, require conducting bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs,
delay or prevent approval of our product candidates and jeopardize our ability to commence sales and generate revenue.
We
may be subject to lawsuits.
From
time to time, we may be subject to legal proceedings and claims in the ordinary course of business. Such claims, even if lacking merit,
could result in the expenditure of significant financial and managerial resources.
The
successful development of our pharmaceutical products involves a lengthy and expensive process and is highly uncertain.
Successful
development of our pharmaceutical products involves a lengthy and expensive process, is highly uncertain, and is dependent
on numerous factors, many of which are beyond our control. Product candidates that appear promising in the early phases of development
may fail to reach the market for several reasons, including:
● failure to receive the necessary post-marketing approval requirements; or
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Furthermore,
the length of time necessary to complete clinical trials and submit an application for marketing approval for a final decision by a regulatory
authority varies significantly from one product candidate to the next and from one country or jurisdiction to the next and may be difficult
to predict.
Even
if a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the
product labeling or require expensive and time-consuming clinical trials and/or reporting as conditions of approval. Regulators of other
countries and jurisdictions have their own procedures for the approval of product candidates with which we must comply prior to marketing
in those countries or jurisdictions.
Even
if we are successful in obtaining marketing approval, commercial success of any approved products will also depend in large part on the
availability of coverage and adequate reimbursement from third-party payors, including government payors such as the Medicare and Medicaid
programs and managed care organizations in the United States or country-specific governmental organizations in foreign countries, which
may be affected by existing and future healthcare reform measures designed to reduce the cost of healthcare. Third-party payors could
require us to conduct additional studies, including post-marketing studies related to the cost effectiveness of a product, to qualify
for reimbursement, which could be costly and divert our resources. If government and other healthcare payors were not to provide coverage
and adequate reimbursement for our products once approved, market acceptance and commercial success would be reduced. Even if we are
able to obtain coverage and adequate reimbursement for approved products, there may be features or characteristics of our products, such
as dose preparation requirements, that prevent our products from achieving market acceptance by the healthcare or patient communities.
In
addition, if any of our product candidates receive marketing approval, we will be subject to significant regulatory obligations regarding
the submission of safety and other post-marketing information and reports and registration, and will need to continue to comply (or ensure
that our third-party providers comply) with current cGMPs and GCPs for any clinical trials that we conduct post-approval. In addition, there is always the risk that we, a regulatory authority or a third
party might identify previously unknown problems with a product post-approval, such as adverse events of unanticipated severity or frequency.
Compliance with these requirements is costly, and any failure to comply or other issues with our product candidates post-approval could
adversely affect our business, financial condition and results of operations.
Risks
Related to Our Legal and Regulatory Requirements
We
are subject, directly or indirectly, to federal and state healthcare, fraud, abuse false claims, and other laws and regulations as well
as health data privacy and security laws and regulations, contractual obligations and self-regulatory schemes. If we are unable to comply,
or have not fully complied, with such laws, we could face investigations and substantial penalties. Furthermore, it may be difficult
and costly for us to comply with the extensive government regulations to which our business is subject.
Our
operations are subject to extensive regulation by the U.S. federal and state governments. Healthcare providers and third-party payors
in the United States and elsewhere play a primary role in the recommendation and prescription of any product candidates for which we
obtain marketing approval. Our operations and our current and future arrangements with healthcare professionals, principal investigators,
consultants, customers and third-party payors may subject us to various federal and state fraud and abuse laws and other healthcare laws,
including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly
referred to as the Physician Payments Sunshine Act and regulations. These laws will impact, among other things, our clinical research,
as well as our proposed sales and marketing programs.
We
may be subject to health information privacy and security laws by the federal government, the states and other jurisdictions in which
we may conduct our business. In particular, we may be subject to regulations promulgated pursuant to the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”), which establishes privacy and security standards that limit the use and disclosure
of individually identifiable health information, known as “protected health information,” and requires the implementation
of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality,
integrity and availability of electronic protected health information. We are directly subject to certain provisions of the regulations
as a “Business Associate” through our relationships with customers. We are also directly subject to the HIPAA privacy and
security regulations as a “Covered Entity” with respect to our operations as a healthcare clearinghouse, specialty pharmacy
and medical surgical supply business. If we are unable to properly protect the privacy and security of protected health information entrusted
to us, we could be found to have breached our contracts with our customers. Further, if we fail to comply with applicable HIPAA privacy
and security standards, we could face civil and criminal penalties. Although we have implemented and continue to maintain policies and
processes to assist us in complying with these regulations and our contractual obligations, we cannot provide assurances regarding how
these regulations will be interpreted, enforced or applied by the government and regulators to our operations. In addition to the risks
associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations
at the federal and state level might also require us to make costly system purchases /or modifications from time to time.
We
also may be subject to extensive, and frequently changing, local, state and federal laws and regulations relating to healthcare fraud,
waste and abuse. Local, state and federal governments continue to strengthen their position and scrutiny over practices involving fraud,
waste and abuse affecting Medicare, Medicaid and other government healthcare programs. Many of the regulations applicable to us, including
those relating to marketing incentives, are vague or indefinite and have not been interpreted by the courts. The regulations may be interpreted
or applied by a prosecutorial, regulatory, or judicial authority in a manner that could require us to make changes in our operations.
If we fail to comply with applicable laws and regulations, we could become liable for damages and suffer civil and criminal penalties,
including the loss of licenses or our ability to participate in Medicare, Medicaid and other federal and state healthcare programs.
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In
addition, we may be subject to the operating and security standards of the Drug Enforcement Administration, the FDA, various state boards
of pharmacy, state health departments, the HHS, the CMS, and other comparable agencies. We are also subject to certain state laws relating
to price gouging. Although we have enhanced our procedures to ensure compliance, a regulatory agency or tribunal may conclude that our
operations are not compliant with applicable laws and regulations. In addition, we may be unable to maintain or renew existing permits,
licenses or any other regulatory approvals or obtain without significant delay, future permits, licenses or other approvals needed for
the operation of our businesses. Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain
necessary permits and licenses could lead to litigation and have a material adverse impact on our results of operations.
Because
of the breadth of these laws and the limited statutory exceptions and regulatory safe harbors available, it is possible that some of
our business activities could be subject to challenge under one or more of such laws. Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us
for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert
our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain
robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases
the possibility that a healthcare company may run afoul of one or more of the requirements.
If
our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation
in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become
subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment
or restructuring of our operations.
We
may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial or delay
of any such approval would delay commercialization of our product candidates and adversely impact our business and results of operations.
An NDA or other similar regulatory filing requesting approval to market a product candidate must include extensive
preclinical and clinical data and supporting information to establish that the product candidate is safe, effective, pure and potent
for each desired indication. The NDA or other similar regulatory filing must also include significant information regarding the chemistry,
manufacturing and controls for the product.
The
research, testing, manufacturing, labeling, approval, sale, marketing and distribution of pharmaceutical products are subject to extensive
regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country
to country. We are not permitted to market any product candidate in the United States or in any foreign countries until we receive the
requisite approval from the applicable regulatory authorities of such jurisdictions.
The
FDA or any foreign regulatory bodies can delay, limit or deny approval of a product candidate for many reasons, including:
Of
the large number of pharmaceutical products in development, only a small percentage successfully complete the FDA or other regulatory
bodies’ approval processes and are commercialized.
Even
if we eventually complete clinical testing and receive approval from the FDA or applicable foreign agencies for our product candidates,
the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials
which may be required after approval. The FDA or the applicable foreign regulatory agency also may approve a product candidate for a
more limited indication or a narrower patient population than we originally requested, and the FDA, or applicable foreign regulatory
agency, may not approve it with the labeling that we believe is necessary or desirable for the successful commercialization.
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Any
delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of our product candidates
and would materially adversely impact our business and prospects.
Even
if we obtain regulatory approval for any of our product candidates, we will be subject to ongoing regulatory requirements, which may
result in significant additional expenses. Additionally, our product candidates, if approved, could be subject to labeling and other
restrictions, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems
with our product candidates.
If
any of our product candidates are approved by the FDA or a comparable foreign regulatory authority, they will be subject to extensive
and ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping,
conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and
state requirements in the United States and requirements of comparable foreign regulatory authorities. These requirements include submissions
of safety and other post-marketing information and reports, establishment registration and listing, as well as continued compliance with
cGMPs and GMPs for any clinical trials that we conduct post-approval. Any regulatory approvals that we receive for our product candidates
may also be subject to limitations on the approved indicated uses, including the duration of use, for which the product may be marketed
or to the conditions of approval, or contain requirements for potentially costly post-marketing studies, including Phase 4 clinical trials,
and surveillance to monitor the safety and efficacy of the product. The FDA may also require a Risk Evaluation and Mitigation Strategy
in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or
additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.
Manufacturers
and manufacturers’ facilities are required to comply with extensive FDA and comparable foreign regulatory authority requirements,
including ensuring that quality control and manufacturing procedures conform to cGMP regulations and implementing tracking and tracing
requirements for certain prescription pharmaceutical products. As such, we and our contract manufacturers will be subject to continual
review and inspections to assess compliance with cGMPs and adherence to commitments made in any approved marketing application. Accordingly,
we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing,
production, and quality control.
We
will have to comply with requirements concerning advertising and promotion for our product candidates. Promotional communications with
respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information
in the product’s approved label. As such, we may not promote any of our products for indications or uses for which they do not
have approval. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s
FDA approved labeling. We also must submit new or supplemental applications and obtain approval for certain changes to the product labeling
or manufacturing processes for our products, if approved.
If
we discover previously unknown problems with any of our product candidates, such as adverse events of unanticipated severity or frequency,
or problems with the facility where they manufactured, or if the FDA disagrees with the promotion, marketing or labeling of our products,
the FDA may impose restrictions on us, including requiring withdrawal from the market. If we fail to comply with applicable regulatory
requirements, the FDA and other regulatory authorities may, among other things:
● issue warning letters or other regulatory enforcement action;
● impose injunctions, fines or civil or criminal penalties;
● suspend or withdraw regulatory approval;
● suspend any ongoing clinical studies;
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Any
government action or investigation of alleged violations of law could require us to expend significant time and resources in response,