Item 1A. Risk Factors
Summary of Risk Factors
● Our product candidates are novel and still in development.
● Successful development of our products is uncertain.
● We are subject to extensive and costly government regulation.
● Even if approved, our products may not be accepted by the market.
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● Our product candidates may face competition sooner than expected.
● There may not be market interest in TNX-801.
● An active trading market for our common stock may not be sustained.
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RISKS RELATED TO OUR BUSINESS
We have a history of operating losses
and expect to incur losses for the foreseeable future. We may never generate revenues or, if we are able to generate revenues,
achieve profitability.
We are focused on product
development, and we have not generated any revenues to date. We have incurred losses in each year of our operations, and we expect
to continue to incur operating losses for the foreseeable future. These operating losses have adversely affected and are likely
to continue to adversely affect our working capital, total assets and shareholders’ equity.
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We and our prospects should be examined
in light of the risks and difficulties frequently encountered by new and early-stage companies in new and rapidly evolving markets.
These risks include, among other things, the speed at which we can scale up operations, our complete dependence upon development
of our product candidates that currently have no market acceptance, our ability to establish and expand our brand name, our ability
to expand our operations to meet the commercial demand of our clients, our development of and reliance on strategic and customer
relationships and our ability to minimize fraud and other security risks.
The process of developing
our products requires significant clinical, nonclinical and CMC development, laboratory testing and clinical studies. In addition,
commercialization of our product candidates will require that we obtain necessary regulatory approvals and establish sales, marketing
and manufacturing capabilities, either through internal hiring or through contractual relationships with others. We expect to incur
substantial losses for the foreseeable future as a result of anticipated increases in our research and development costs, including
costs associated with conducting preclinical and nonclinical testing and clinical studies, and regulatory compliance activities.
We expect to incur
substantial additional operating expenses over the next several years as our research, development, preclinical and nonclinical
testing, and clinical study activities increase, and if and when we acquire rights to additional product candidates. The
amount of future losses and when, if ever, we will achieve profitability are uncertain. We have no products that have generated
any commercial revenue, do not expect to generate revenues from the commercial sale of products in the near future, and might never
generate revenues from the sale of products. Our ability to generate revenue and achieve profitability will depend on, among other
things, successful completion of the development of our product candidates; obtaining necessary regulatory approvals from the FDA;
establishing manufacturing, sales, and marketing arrangements with third parties; successfully commercializing our products; establishing
a favorable competitive position; and raising sufficient funds to finance our activities. Many of these factors will depend on
circumstances beyond our control. We might not succeed at any of these undertakings. If we are unsuccessful at some or all of these
undertakings, our business, prospects, and results of operations may be materially adversely affected.
We expect a number of factors to
cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
We are a development-stage
biopharmaceutical and our operations to date have been primarily limited to developing our technology and undertaking preclinical
and nonclinical testing and clinical studies of our clinical-stage product candidate, TNX-102 SL for FM and PTSD. We have not yet
obtained regulatory approvals for TNX-102 SL or any of our other product candidates. Consequently, any predictions made about our
future success or viability may not be as accurate as they could be if we had a longer operating history or commercialized products.
Our financial condition has varied significantly in the past and will continue to fluctuate from quarter-to-quarter or year-to-year
due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these
fluctuations include other factors described elsewhere in this annual report and also include, among other things:
● our ability to obtain additional funding to develop our product candidates;
● delays in the commencement, enrollment and timing of clinical studies;
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● market acceptance of our product candidates;
● competition from existing products or new products that may emerge;
● potential product liability claims;
Accordingly,
the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
RISKS RELATED TO PRODUCT DEVELOPMENT,
REGULATORY APPROVAL, MANUFACTURING AND COMMERCILAIZATION
Our product candidates are novel
and still in development.
We are a clinical-stage
pharmaceutical company focused on the development of drug product candidates, all of which are still in development. Our drug development
methods may not lead to commercially viable drugs for any of several reasons. For example, we may fail to identify appropriate
targets or compounds, our drug candidates may fail to be safe and effective in clinical studies, or we may have inadequate financial
or other resources to pursue development efforts for our drug candidates. Our drug candidates will require significant additional
development, clinical studies, regulatory clearances and additional investment by us or our collaborators before they can be commercialized.
Further, we and our
product candidates are subject to extensive regulation by the FDA and comparable regulatory authorities in other countries governing,
among other things, research, testing, clinical studies, manufacturing, labeling, promotion, selling, adverse event reporting and
recordkeeping. We are not permitted to market any of our product candidates in the United States until we receive approval of an
NDA for a product candidate from the FDA or the equivalent approval from a foreign regulatory authority. Obtaining FDA approval
is a lengthy, expensive and uncertain process. We currently have one product candidate, TNX-102 SL, in Phase 3 development for
the treatment of PTSD and FM. The success of our business currently depends on the successful development, approval and commercialization
of TNX-1800, TNX-801 and TNX-102 SL. Any projected sales or future revenue predictions are predicated upon FDA approval and market
acceptance of TNX-102 SL. If projected sales do not materialize for any reason, it would have a material adverse effect on our
business and our ability to continue operations.
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As we have no approved products on
the market, we do not expect to generate any revenues from product sales in the foreseeable future, if at all.
To date, we have no
approved product on the market and have generated no product revenues. We have funded our operations primarily from sales of our
securities. We have not received, and do not expect to receive for at least the next couple of years, if at all, any revenues from
the commercialization of our product candidates. To obtain revenues from sales of our product candidates, we must succeed, either
alone or with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing drugs with commercial
potential. We may never succeed in these activities, and we may not generate sufficient revenues to continue our business operations
or achieve profitability.
We are largely dependent on the success
of our clinical-stage product candidate, TNX-102 SL for FM and PTSD, and we cannot be certain that this product candidate will
receive regulatory approval or be successfully commercialized.
TNX-102 SL has not
completed the clinical development process; therefore, we have not yet submitted an NDA or foreign equivalent or received marketing
approval for this product candidate anywhere in the world. The clinical development program for TNX-102 SL for FM and PTSD may
not lead to commercial products for a number of reasons, including if we fail to obtain necessary approvals from the FDA or foreign
regulatory authorities because our clinical studies fail to demonstrate to their satisfaction that this product candidate is safe
and effective or a clinical program may be put on hold due to unexpected safety issues. We may also fail to obtain the necessary
approvals if we have inadequate financial or other resources to advance our product candidates through the clinical study process.
Any failure or delay in completing clinical studies or obtaining regulatory approvals for TNX-102 SL for FM and PTSD in a timely
manner would have a material adverse impact on our business and our stock price.
We may not commence or advance clinical
trials for TNX-1800 if the COVID-19 disease outbreak subsides.
Disease outbreaks are
unpredictable. For example, the SARS virus disappeared just four months after it caused a global panic. In the event that COVID-19
has a similar disease cycle, we may be forced to abandon or delay the development of TNX-1800 due to a lack of patients or government
funding.
Successful development of our products
is uncertain.
Our development of
current and future product candidates is subject to the risks of failure and delay inherent in the development of new pharmaceutical
products, including: delays in product development, clinical testing, or manufacturing; unplanned expenditures in product development,
clinical testing, or manufacturing; failure to receive regulatory approvals; emergence of superior or equivalent products; inability
to manufacture on its own, or through any others, product candidates on a commercial scale; and failure to achieve market acceptance.
Because of these risks,
our research and development efforts may not result in any commercially viable products. If a significant portion of these development
efforts are not successfully completed, required regulatory approvals are not obtained or any approved products are not commercially
successfully, our business, financial condition, and results of operations may be materially harmed.
Clinical studies required for our
product candidates are expensive and time-consuming, and their outcome is uncertain.
In order to obtain
FDA approval to market a new pharmaceutical product, we must demonstrate proof of safety and effectiveness in humans. To meet these
requirements, we must conduct “adequate and well controlled” clinical studies. Conducting clinical studies is a lengthy,
time-consuming, and expensive process. The length of time may vary substantially according to the type, complexity, novelty, and
intended use of the product candidate, and often can be several years or more per study. Delays associated with products for which
we are directly conducting clinical studies may cause us to incur additional operating expenses. The commencement and rate of completion
of clinical studies may be delayed by many factors, including, for example: inability to manufacture sufficient quantities of stable
and qualified materials under cGMP, for use in clinical studies; slower than expected rates of patient recruitment; failure to
recruit a sufficient number of patients; modification of clinical study protocols; changes in regulatory requirements for clinical
studies; the lack of effectiveness during clinical studies; the emergence of unforeseen safety issues; delays, suspension, or termination
of the clinical studies due to the ITB responsible for overseeing the study at a particular study site; and government or regulatory
delays or “clinical holds” requiring suspension or termination of the studies.
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The results from early
clinical studies are not necessarily predictive of results obtained in later clinical studies. Accordingly, even if we obtain positive
results from early clinical studies, we may not be able to confirm the results in future clinical studies. In addition, clinical
studies may not demonstrate sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates.
Our clinical studies
may be conducted in patients with CNS conditions, and in some cases, our product candidates are expected to be used in combination
with approved therapies that themselves have significant adverse event profiles. During the course of treatment, these patients
could suffer adverse medical events or die for reasons that may or may not be related to our product candidates. We cannot ensure
that safety issues will not arise with respect to our product candidates in clinical development.
The failure of clinical
studies to demonstrate safety and effectiveness for the desired indications could harm the development of that product candidate
and other product candidates. This failure could cause us to abandon a product candidate and could delay development of other product
candidates. Any delay in, or termination of, our clinical studies would delay the filing of our NDAs with the FDA and, ultimately,
our ability to commercialize our product candidates and generate product revenues. Any change in, or termination of, our clinical
studies could materially harm our business, financial condition, and results of operations.
We are subject to extensive and costly
government regulation.
Product candidates
employing our technology are subject to extensive and rigorous domestic government regulation including regulation by the FDA,
the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services, the
United States Department of Justice, state and local governments, and their respective foreign equivalents. The FDA regulates the
research, development, preclinical and nonclinical testing and clinical studies, manufacture, safety, effectiveness, record-keeping,
reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of biopharmaceutical products.
The FDA regulates small molecule chemical entities as drugs, subject to an NDA under the FDCA. The FDA applies the same standards
for biologics, requiring an IND application, followed by a Biologic License Application, or BLA, prior to licensure. Other products,
such as vaccines, are also regulated under the Public Health Service Act. FDA has conflated the standards for approval of NDAs
and BLAs so that they require the same types of information on safety, effectiveness, and CMCs. If products employing our technologies
are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained
FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding United
States regulation.
Government regulation
substantially increases the cost and risk of researching, developing, manufacturing, and selling our products. The regulatory
review and approval process, which includes preclinical and nonclinical testing and clinical studies of each product candidate,
is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct clinical
studies. We or our collaborators must obtain regulatory approval for each product we intend to market, and the manufacturing facilities
used for the products must be inspected and meet legal requirements. Securing regulatory approval requires the submission of extensive
preclinical, nonclinical and clinical data and other supporting information for each proposed therapeutic indication in order
to establish the product’s safety and efficacy, and in the case of biologics also potency and purity, for each intended
use. The development and approval process takes many years, requires substantial resources, and may never lead to the approval
of a product.
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Even if we are
able to obtain regulatory approval for a particular product, the approval may limit the indicated medical uses for the product,
may otherwise limit our ability to promote, sell, and distribute the product, may require that we conduct costly post-marketing
surveillance, and/or may require that we conduct ongoing post-marketing studies. Material changes to an approved product, such
as, for example, manufacturing changes or revised labeling, may require further regulatory review and approval. Once obtained,
any approvals may be withdrawn, including, for example, if there is a later discovery of previously unknown problems with the product,
such as a previously unknown safety issue.
If we, our collaborators,
or our CMOs fail to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance
could result in, among other things delays in the approval of applications or supplements to approved applications; refusal of
a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved applications;
warning letters; fines; import and/or export restrictions; product recalls or seizures; injunctions; total or partial suspension
of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations by the FDA
or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
We do not have, and may never obtain,
the regulatory approvals we need to market our product candidates.
Following completion
of clinical studies, the results are evaluated and, depending on the outcome, submitted to the FDA in the form of an NDA or BLA
in order to obtain FDA approval of the product and authorization to commence commercial marketing. In responding to an NDA, the
FDA may require additional testing or information, may require that the product labeling be modified, may impose post-approval
study and other commitments or reporting requirements or other restrictions on product distribution, or may deny the application.
The FDA has established performance goals for review of NDAs or BLAs: six months for priority applications and ten months for standard
applications. However, the FDA is not required to complete its review within these time periods. The timing of final FDA review
and action varies greatly but can take years in some cases and may involve the input of an FDA advisory committee of outside experts.
Product sales in the United States may commence only when an NDA or BLA is approved.
To date, we have not
applied for or received the regulatory approvals required for the commercial sale of any of our products in the United States or
in any foreign jurisdiction. None of our product candidates have been determined to be safe and effective, and we have not submitted
an NDA or BLA to the FDA or an equivalent application to any foreign regulatory authorities for any of our product candidates.
It is possible that
none of our product candidates will be approved for marketing. Failure to obtain regulatory approvals, or delays in obtaining regulatory
approvals, may adversely affect the successful commercialization of any drugs or biologics that we or our partners develop, may
impose additional costs on us or our collaborators, may diminish any competitive advantages that we or our partners may attain,
and/or may adversely affect our receipt of revenues or royalties.
We have never submitted an NDA before,
and may be unable to do so for TNX-102 SL or other product candidates we are developing.
We completed a successful
Phase 3 study in FM in the fourth quarter of 2019. We initiated a second Phase 3 study in FM in the third quarter of 2020. As this
study is intended to provide efficacy and safety evidence to support marketing approval by the FDA, it is considered a pivotal,
confirmatory or registration studies. We initiated a Phase 3 study in civilian and military-related PTSD in the first quarter of
2019 and stopped new enrollment in February 2020 after the IDMC recommended stopping the study for futility after reviewing the
IA results. Topline results for this study were reported in December 2020.
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The conduct of pivotal clinical studies and the submission of a
successful NDA is a complicated process. Although members of our management team have extensive industry experience, including
in the development and clinical testing of drug candidates and the commercialization of drug, have limited experience in preparing,
submitting and prosecuting regulatory filings, and have not submitted an NDA before. Consequently, we may be unable to successfully
and efficiently execute and complete this planned clinical study in a way that leads to NDA submission and approval of TNX-102
SL and other product candidates we are developing. We may require more time and incur greater costs than our competitors and may
not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays
in, our planned clinical studies would prevent or delay commercialization of TNX-102 SL and other product candidates we are developing.
Our product candidates may cause
serious adverse events, or SAEs, or undesirable side effects which may delay or prevent marketing approval, or, if approval is
received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
SAEs or undesirable
side effects from any of our other product candidates could arise either during clinical development or, if approved, after the
approved product has been marketed. The results of future clinical studies may show that our product candidates cause SAEs or undesirable
side effects, which could interrupt, delay or halt clinical studies, resulting in delay of, or failure to obtain, marketing approval
from the FDA and other regulatory authorities.
If any of our other
product candidates cause SAEs or undesirable side effects or suffer from quality control issues:
● we may be required to limit the participants who can receive the product;
● we may be subject to limitations on how we promote the product;
● sales of the product may decrease significantly;
● we may be subject to litigation or product liability claims; and
● our reputation may suffer.
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Any of these events
could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization
costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.
If we are unable to file for approval
of TNX-102 SL under Section 505(b)(2) of the FDCA or if we are required to generate additional data related to safety and efficacy
in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated development and commercialization
timelines.
Our current plans for
filing NDAs for our most advanced product candidate, TNX-102 SL, include efforts to minimize the data we will be required to generate
in order to obtain marketing approval and therefore reduce the development time. We intend to file Section 505(b)(2) NDAs for TNX-102
SL for FM, PTSD, and for other proposed indications, that might, if accepted by the FDA, save time and expense in the development
and testing of TNX-102 SL.
TNX-102 SL for FM and PTSD are our most advanced development programs
which are in the Phase 3 stages. For the FM program, we held an End-of-Phase 2 meeting with the FDA in February 2013 to discuss
the development and NDA submissions of TNX-102 SL for the management of FM. In late 2014, following the results of the Phase 2
BESTFIT study, we corresponded with the FDA to discuss the results and the development of the first Phase 3 study (AFFIRM) and
our registration program. In September 2016, following the results of the AFFIRM study, we temporarily discontinued the FM
program to focus on the development of the PTSD program. In March 2019, we resumed the clinical development of the FM program and
held a Clinical Guidance Meeting with the FDA to discuss the study design of the now-completed Phase 3 study (RELIEF) and the currently
ongoing Phase 3 study (RALLY).
In December 2018, the FDA issued an Intent-to-Rescind letter for BTD status for TNX-102 SL for the treatment
of PTSD because the IA results of the HONOR study did not meet the criteria for the BTD. In March 2019, the FDA rescinded the BTD,
but subsequently withdrew the BTD rescission in April 2019 and granted a meeting in August 2019 to discuss the continuation of
BTD. In August 2019, we held a Breakthrough Therapy Type B Meeting for continuing BT designation with the FDA. FDA agreed to consider
the Phase 3 HONOR study additional data and information we presented at the meeting. In May 2020, the FDA rescinded the Breakthrough
Therapy Designation for TNX-102 SL because the criteria for designation are no longer met.
Our interactions with
the FDA have encouraged our efforts to continue to develop TNX-102 SL for FM and PTSD, however, based on interim analysis results
of the first 50% of enrolled participants, an Independent Data Monitoring Committee recommended stopping the Phase 3 RECOVERY trial
in PTSD for futility as TNX-102 SL was unlikely to demonstrate a statistically significant improvement in the primary endpoint
of overall change from baseline in the severity of PTSD symptoms. While we studied those participants enrolled until completion
and then proceeded with a full analysis of the unblinded data in December 2020 to determine the next steps in this program, there
is no assurance that we will satisfy the FDA’s requirements for approval in this indication. The timeline for filing and
review of our NDA for TNX-102 SL for FM and PTSD is based on our plan to submit this NDA under Section 505(b)(2) of the FDCA, which
would enable us to rely in part on data in the public domain or elsewhere. We have not yet filed an NDA under Section 505(b)(2)
for any of our product candidates. Depending on the data that may be required by the FDA for approval, some of the data may be
related to products already approved by the FDA. If the data relied upon is related to products already approved by the FDA and
covered by third-party patents, we would be required to certify that we do not infringe the listed patents or that such patents
are invalid or unenforceable. As a result of the certification, the third-party would have 45 days from notification of our certification
to initiate an action against us. In the event that an action is brought in response to such a certification, the approval
of our NDA could be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidates
under Section 505(b)(2) may therefore be delayed until patent exclusivity expires or until we successfully challenge the applicability
of those patents to our product candidates. Alternatively, we may elect to generate sufficient Alternatively, we may elect
to generate sufficient additional clinical data so that we no longer rely on data which triggers a potential stay of the approval
of our product candidates. Even if no exclusivity periods apply to our applications under Section 505(b)(2), the FDA has broad
discretion to require us to generate additional data on the safety and efficacy of our product candidates to supplement third-party
data on which we may be permitted to rely. In either event, we could be required, before obtaining marketing approval for any of
our product candidates, to conduct substantial new research and development activities beyond those we currently plan to engage
in order to obtain approval of our product candidates. Such additional new research and development activities would be costly
and time consuming.
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We may not be able
to realize a shortened development timeline for TNX-102 SL for FM or PTSD (or other proposed indications under TNX-102 SL), and
the FDA may not approve our NDA based on their review of the submitted data. If cyclobenzaprine-containing products are withdrawn
from the market by the FDA for any safety reason, we may not be able to reference such products to support a 505(b)(2) NDA for
TNX-102 SL, and we may need to fulfill the more extensive requirements of Section 505(b)(1). If we are required to generate additional
data to support approval, we may be unable to meet our anticipated development and commercialization timelines, may be unable to
generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of our lead product
candidate.
Any fast track designation or grant
of priority review status by the FDA may not actually lead to a faster development or regulatory review or approval process, nor
will it assure FDA approval of our product candidates. Additionally, our product candidates may treat indications that do not qualify
for priority review vouchers.
We have received fast
track designation for TNX-102 SL for the treatment of agitation in Alzheimer’s disease and may seek fast track designation
for other product candidates or priority review of applications for approval of our product candidates for certain indications.
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, the drug sponsor may apply for FDA fast track designation. If a product candidate offers
major advances in treatment, the FDA may designate it eligible for priority review. The FDA has broad discretion whether or not
to grant these designations, so even if we believe a particular product candidate is eligible for these designations, we cannot
assure you that the FDA would decide to grant them. Even if we do receive fast track designation or priority review, we may not
experience 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.
Even if approved, our products will
be subject to extensive post-approval regulation.
Once a product is approved,
numerous post-approval requirements apply. Among other things, the holder of an approved NDA is subject to periodic and other FDA
monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of the failure of
a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications and obtain FDA
approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must also
submit advertising and other promotional material to the FDA and report on ongoing clinical studies.
Depending on the circumstances,
failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products,
total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter
into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information
regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
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Even if we obtain regulatory approval
to market our product candidates, our product candidates may not be accepted by the market.
Even if the FDA approves
one or more of our product candidates, physicians and patients may not accept it or use it. Even if physicians and patients would
like to use our products, our products may not gain market acceptance among healthcare payors such as managed care formularies,
insurance companies or government programs such as Medicare or Medicaid. Acceptance and use of our products will depend upon a
number of factors including: perceptions by members of the health care community, including physicians, about the safety and effectiveness
of our drug or device product; cost-effectiveness of our product relative to competing products; availability of reimbursement
for our product from government or other healthcare payors; and effectiveness of marketing and distribution efforts by us and our
licensees and distributors, if any.
The degree of market
acceptance of any pharmaceutical product that we develop will depend on a number of factors, including:
● cost-effectiveness;
● the timing of market entry as compared to competitive products;
● the rate of adoption of our products by doctors and nurses;
● reimbursement policies of government and third-party payors;
● unfavorable publicity concerning our products or any similar products.
Because we expect sales
of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future,
the failure of these products to find market acceptance would harm our business and could require us to seek additional financing.
We may use our financial and human
resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates
that may be more profitable or for which there is a greater likelihood of success.
Because we have limited
financial and human resources, we are currently focusing on the development of TNX-1800 to protect against COVID-19, TNX-801 to
protect against smallpox and monkeypox, and TNX-102 SL for the management of FM and the treatment of PTSD. As a result, we may
forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable
market opportunities. Our spending on existing and future product candidates for specific indications may not yield any commercially
viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate,
we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other royalty arrangements
in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product
candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more
advantageous to enter into a partnering arrangement.
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RISKS RELATED TO OUR FINANCIAL CONDITION AND CAPITAL
REQUIREMENTS; COMPETITION
Our independent registered public
accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our
audited financial statements. We may be unable to continue to operate without the threat of liquidation for the foreseeable future.
In connection with our management’s assessment, our report
from our independent registered public accounting firm for the fiscal year ended December 31, 2020 includes an explanatory
paragraph stating that our recurring losses from operations and net capital deficiency raise substantial doubt about our ability
to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and
results of operations will be materially and adversely affected and we may be unable to continue as a going concern. For example,
we anticipate that our existing cash and cash equivalents will enable us to maintain our current operations through March 31, 2022,
but not beyond. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than
the value at which those assets are carried on our consolidated financial statements, and investors will likely lose all or a part
of their investment. Future reports from our independent registered public accounting firm may also contain statements expressing
substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities
in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing
sources may be unwilling to provide additional funding on commercially reasonable terms or at all.
We will need additional capital.
If additional capital is not available or is available at unattractive terms, we may be forced to delay, reduce the scope of or
eliminate our research and development programs, reduce our commercialization efforts or curtail our operations.
In order to develop and bring our product candidates to market, we must commit substantial resources to
costly and time-consuming research, preclinical and nonclinical testing, clinical studies and marketing activities and the buildout
of our research and development and manufacturing facilities. We anticipate that our existing cash and cash equivalents will enable
us to maintain our current operations through March 31, 2022, but not beyond. We anticipate using our cash and cash equivalents
to fund further research and development with respect to our lead product candidate. We will, however, need to raise additional
funding sooner if our business or operations change in a manner that consumes available resources more rapidly than we anticipate.
Our requirements for additional capital will depend on many factors, including:
● successful commercialization of our product candidates;
● costs associated with protecting our intellectual property rights;
● development of marketing and sales capabilities;
● payments received under future collaborative agreements, if any; and
● market acceptance of our products.
To the extent we raise
additional capital through the sale of equity securities, the issuance of those securities could result in dilution to our shareholders.
In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal
and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available,
we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization
efforts or curtail our operations. In addition, we may be required to obtain funds through arrangements with collaborative partners
or others that may require us to relinquish rights to technologies, product candidates or products that we would otherwise seek
to develop or commercialize ourselves or license rights to technologies, product candidates or products on terms that are less
favorable to us than might otherwise be available.
We will require substantial
additional funds to support our research and development activities, and the anticipated costs of preclinical and nonclinical testing
and clinical studies, regulatory approvals and eventual commercialization. Such additional sources of financing may not be available
on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to commence
or complete clinical studies or obtain approval of any product candidates from the FDA and other regulatory authorities. In addition,
we could be forced to discontinue product development, forego sales and marketing efforts and forego attractive business opportunities.
Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect
on our shareholders.
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There is no assurance
that we will be successful in raising the additional funds needed to fund our business plan. If we are not able to raise sufficient
capital in the near future, our continued operations will be in jeopardy and we may be forced to cease operations and sell or otherwise
transfer all or substantially all of our remaining assets.
Outbreaks of communicable diseases
may materially and adversely affect our business, financial condition and results of operations.
We may face risks related
to health epidemics or outbreaks of communicable diseases. The outbreak of such communicable diseases, such as COVID-19, has and
may result in future widespread health crisis that adversely affect general commercial activity and the economies and financial
markets of many countries. An outbreak of communicable diseases, or the perception that such an outbreak could occur, and the measures
taken by the governments of countries affected could adversely affect our business, financial condition or results of operations.
For example, an outbreak could significantly disrupt our business by limiting our ability to travel or ship materials within or
outside of an affected country and forcing temporary closure of facilities or service providers that we rely upon. An outbreak
could also impact our ability to conduct our ongoing multicenter clinical trials if trial participant attendance at requisite study
visits is substantially reduced and if a significant percentage of study participants and study staff are adversely affected by
coronavirus or other infections and the resulting disease course. Moreover, government or community shutdowns such as those caused
by the COVID-19 pandemic, may impair our ability to analyze and submit the results from our clinical and preclinical trials, leading
to further delays in the development and approval of our product candidates.
Competition and technological change
may make our product candidates and technologies less attractive or obsolete.
We compete with established
pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same or similar indications we are
pursuing and that have greater financial and other resources. Other companies may succeed in developing products earlier than us,
obtaining FDA approval for products more rapidly, or developing products that are more effective than our product candidates. Research
and development by others may render our technology or product candidates obsolete or noncompetitive, or result in treatments or
cures superior to any therapy we develop. We face competition from companies that internally develop competing technology or acquire
competing technology from universities and other research institutions. As these companies develop their technologies, they may
develop competitive positions that may prevent, make futile, or limit our product commercialization efforts, which would result
in a decrease in the revenue we would be able to derive from the sale of any products.
There can be no assurance
that any of our product candidates will be accepted by the marketplace as readily as these or other competing treatments. Furthermore,
if our competitors’ products are approved before ours, it could be more difficult for us to obtain approval from the FDA.
For example, at least three vaccines for the prevention of COVID-19 have been approved to date, and we expect that other vaccines
will be approved prior to the approval of our CVOID-19 vaccine candidate, if it is approved at all. Even if our products are successfully
developed and approved for use by all governing regulatory bodies, there can be no assurance that physicians and patients will
accept our product(s) as a treatment of choice.
Additionally, if a
competitor receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for our
product candidate may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by the competitor
of patents covering its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing drugs such
as our current drug product candidate, TNX-102 SL, can extend up to three and one-half years.
Furthermore, the pharmaceutical
research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith are numerous
and significant. The effects of competition, intellectual property disputes, market acceptance, and FDA regulations preclude us
from forecasting revenues or income with certainty or even confidence.
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RISKS RELATED TO OUR INTELLECTUAL
PROPERTY RIGHTS AND REGULATORY EXCLUSIVITY
If we fail to protect our intellectual
property rights, our ability to pursue the development of our technologies and products would be negatively affected.
Our success will depend
in part on our ability to obtain patents and maintain adequate protection of our technologies and products. If we do not adequately
protect our intellectual property, competitors may be able to use our technologies to produce and market drugs using our technologies
and patents in direct competition with us and erode our competitive advantage. Some foreign countries lack rules and methods for
defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. Many companies
have had difficulty protecting their proprietary rights in these foreign countries. We may not be able to prevent misappropriation
of our proprietary rights and intellectual property rights in these and other countries.
We have received, and
are currently seeking, patent protection for numerous compounds and methods of treating diseases. However, the patent process is
subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products
by obtaining and defending patents related to them. These risks and uncertainties include the following: patents that may be issued
or licensed may be challenged, invalidated, or circumvented, or otherwise may not provide us any competitive advantage; our competitors,
many of which have substantially greater resources than we and many of which have made significant investments in competing technologies,
may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell
our potential products either in the United States or in international markets; there may be significant pressure on the United
States government and other international governmental bodies to limit the scope of patent protection both inside and outside the
United States for treatments that prove successful as a matter of public policy regarding worldwide health concerns; and countries
other than the United States may have less robust patent laws than those upheld by United States courts, allowing foreign competitors
the ability to exploit these laws to create, develop, and market competing products using our technologies and patents.
Moreover, any patents
issued to us may not provide us with meaningful protection, or others may challenge, circumvent or narrow our patents. Third parties
may also independently develop products similar to our products, duplicate our unpatented products or design around any patents
or propriety technologies on products we develop. Additionally, extensive time is required for development, testing and regulatory
review of a potential product. While extensions of patent term due to regulatory delays may be available, it is possible that,
before any of our product candidates can be commercialized, any related patent, even with an extension, may expire or remain in
force for only a short period following commercialization, thereby reducing any advantages to us of the patent.
In addition, the PTO
and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related
inventions be limited or narrowed substantially to cover only the innovations specifically exemplified in the patent application,
thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents,
the patents may be substantially narrower than anticipated.
Our success depends
on our patents and patent applications that may be licensed exclusively to us and other patents and patent applications to which
we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications or published literature
that may affect our business either by blocking our ability to commercialize our product candidates, by preventing the patentability
of our product candidates to us or our licensors, or by covering the same or similar technologies. These patents, patent applications,
and published literature may limit the scope of our future patent claims or adversely affect our ability to market our product
candidates.
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In addition to patents,
we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions, and security measures
to protect our confidential and proprietary information. These measures may not adequately protect our trade secrets or other proprietary
information. If they do not adequately protect our rights, third parties could use our technology, and we could lose any competitive
advantage we may have. In addition, others may independently develop similar proprietary information or techniques or otherwise
gain access to our trade secrets, which could impair any competitive advantage we may have.
Patent protection and
other intellectual property protection is crucial to the success of our business and prospects, and there is a substantial risk
that such protections will prove inadequate.
We may be involved in lawsuits to
protect or enforce our patents, which could be expensive and time consuming.
The pharmaceutical
industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies
have employed intellectual property litigation to gain a competitive advantage. We may become subject to infringement claims or
litigation arising out of present and future patents and other proceedings of our competitors. The defense and prosecution of intellectual
property suits are costly and time-consuming to pursue, and their outcome is uncertain. Litigation may be necessary to determine
the enforceability, scope, and validity of the proprietary rights of others. An adverse determination in litigation to which we
may become a party could subject us to significant liabilities, require us to obtain licenses from third parties, or restrict or
prevent us from selling our products in certain markets. Although patent and intellectual property disputes might be settled through
licensing or similar arrangements, the costs associated with such arrangements may be substantial and could include our paying
large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory terms or at
all.
Competitors may infringe
our patents, and we may file infringement claims to counter infringement or unauthorized use. Third parties may assert that our
patents are invalid and/or unenforceable in these proceedings. Such litigation can be expensive, particularly for a company of
our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid
or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover its technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated or interpreted narrowly.
Third parties may also
assert that our patents are invalid in patent office administrative proceedings. These proceedings include oppositions in the European
Patent Office and inter partes review and post-grant review proceedings in the PTO. The success rate of these
administrative challenges to patent validity in the United States is higher than it is for validity challenges in litigation.
Interference or derivation
proceedings brought before the PTO may be necessary to determine priority of invention with respect to innovations disclosed in
our patents or patent applications. During these proceedings, it may be determined that we do not have priority of invention for
one or more aspects in our patents or patent applications and could result in the invalidation in part or whole of a patent or
could put a patent application at risk of not issuing. Even if successful, an interference or derivation proceeding may result
in substantial costs and distraction to our management.
Furthermore, because
of the substantial amount of discovery required in connection with intellectual property litigation or interference or derivation
proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive
these results to be negative, the price of our common stock could be adversely affected.
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There are no unresolved
communications, allegations, complaints or threats of litigation related to the possibility that our patents are invalid or unenforceable.
Any litigation or claims against us, whether or not merited, may result in substantial costs, place a significant strain on our
financial resources, divert the attention of management and harm our reputation. An adverse decision in litigation or administrative
proceedings could result in inadequate protection for our product candidates and/or reduce the value of any license agreements
we have with third parties.
If we infringe the rights of third
parties we could be prevented from selling products, forced to pay damages, and defend against litigation.
If our products, methods,
processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may
have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an infringing product
candidate; redesign our products or processes to avoid infringement; stop using the subject matter claimed in the patents held
by others; pay damages; and/or defend litigation or administrative proceedings which may be costly whether we win or lose, and
which could result in a substantial diversion of our financial and management resources.
There are risks to our intellectual
property based on our international business initiatives.
We may face risks to
our technology and intellectual property as a result of our conducting strategic business discussions outside of the United States,
and particularly in jurisdictions that do not have comparable levels of protection of corporate proprietary information and assets
such as intellectual property, trademarks, trade secrets, know-how and customer information and records. While these risks are
common to many companies, conducting business in certain foreign jurisdictions, housing technology, data and intellectual property
abroad, or licensing technology to joint ventures with foreign partners may have more significant exposure. For example, we have
shared intellectual properties with entities in China pursuant to confidentiality agreements in connection with discussions on
potential strategic collaborations, which may expose us to material risks of theft of our proprietary information and other intellectual
property, including technical data, manufacturing processes, data sets or other sensitive information. For example, our technology
may be reverse engineered by the parties or other parties, which could result in our patents being infringed or our know-how or
trade secrets stolen. The risk can be by direct intrusion wherein technology and intellectual property is stolen or compromised
through cyber intrusions or physical theft through corporate espionage, including with the assistance of insiders, or via more
indirect routes.
GENERAL COMPANY-RELATED RISKS
If preclinical and nonclinical testing
or clinical studies for our product candidates are unsuccessful or delayed, we will be unable to meet our anticipated development
and commercialization timelines.
We rely and expect
to continue to rely on third parties, including contract research organizations, or CROs, and outside consultants, to conduct,
supervise or monitor some or all aspects of preclinical and nonclinical testing and clinical studies involving our product candidates.
We have less control over the timing and other aspects of these preclinical and nonclinical testing activities and clinical studies
than if we performed the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for
our preclinical and nonclinical testing and clinical studies on our anticipated schedule or, for clinical studies, consistent with
a clinical study protocol. Delays in preclinical and nonclinical testing, and clinical studies could significantly increase our
product development costs and delay product commercialization. In addition, many of the factors that may cause, or lead to, a delay
in the clinical studies may also ultimately lead to denial of regulatory approval of a product candidate.
The commencement of
clinical studies can be delayed for a variety of reasons, including delays in:
● reaching agreement on acceptable terms with prospective CROs and study sites;
● developing a stable formulation of a product candidate;
● manufacturing sufficient quantities of a product candidate; and
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Once a clinical study
has begun, it may be delayed, suspended or terminated by us or the FDA or other regulatory authorities due to a number of factors,
including: