Item 1A. Risk factors
Investing in our common stock involves a high
degree of risk. You should carefully consider the following risk factors, together with all of the information included in this 2023
10-K Report and our other filings with the SEC, before you decide to purchase shares of our common stock. We believe the risks and uncertainties
described below are the most significant we face. Additional risks and uncertainties of which we are unaware, or that we currently deem
immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition,
or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline,
and you may lose all or part of your investment.
Our business is subject to a number of risks
and uncertainties. The following is a summary of the principal risk factors described in this section:
● There is substantial doubt about our ability to continue as a going concern.
● We could be affected by transitions in our senior management team.
● Our products and our licensees are subject to extensive government regulation.
● Our success is tied to the distribution channels of our licensees.
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Risks related to our business
We currently derive
all revenue from royalties related to sales of our licensed women’s healthcare products, and the failure of our licensees to maintain
or increase sales of these products could have an adverse effect on our business, financial condition, results of operations, and growth
prospects.
Following the Mayne Transaction,
we derive all revenue from royalties related to sales of our women’s healthcare products, including patient-controlled, long-acting
contraceptive, hormone therapy pharmaceutical products, prenatal and women’s multi-vitamins, and iron supplements. We cannot assure
you that our licensees will be able to sustain such sales or that such sales will grow. In addition to other risks described herein,
the ability of our licensees to maintain or increase existing product sales is subject to several risks and uncertainties, including
the following:
● changed or increased regulatory restrictions or regulatory actions by the FDA;
● acceptance of our products as safe and effective by physicians and patients.
If revenue from royalties
related to sales of our products does not increase, we may be required to seek to raise additional funds, which could have an adverse
effect on our business, financial condition, results of operations, and growth prospects. In addition, our revenue from royalties is
based on information compiled by, and received from, our licensees. If the sales information provided by our licensees is erroneous,
it could have an adverse effect on our business, financial condition and results of operations.
We have incurred net
losses in the past and there are no assurances we will be able to maintain or increase profitability in the future.
In the past, we have incurred recurring net losses, including net losses
of $10.3 million and $172.4 million for 2023 and 2021, respectively. In 2022, we recognized net income of $112.0 million due to the net
proceeds from the Mayne Transaction and vitaCare divestiture exceeding our costs and expenses. We utilized most of the net proceeds
to repay borrowings and redeem our preferred stock. As of December 31, 2023, our stockholders’ equity was $29.3 million. We have
funded our operations to date primarily from public and private sales of equity and private sales of debt securities. We may incur substantial
additional losses over the next few years because of costs associated with the winddown of our historical business as well as the ongoing
costs of being a public company. As a result, we may not maintain or increase profitability. If we continue to incur substantial losses,
because the royalties of our products are insufficient or otherwise, and are unable to secure additional financing, we could be forced
to discontinue or curtail our business operations, merge, consolidate, or combine with a company with greater financial resources in a
transaction that might be unfavorable to us.
There is substantial
doubt about our ability to continue as a going concern.
Our current liquidity position raises substantial doubt about our
ability to continue as a going concern and Berkowitz Pollack Brant, Advisors + CPAs, our independent registered public accounting
firm for the fiscal year ended December 31, 2023, has included an explanatory paragraph in their opinion that accompanies our
audited consolidated financial statements as of and for the year ended December 31, 2023, indicating such. If Mayne Pharma’s
sales of IMVEXXY, BIJUVA, or ANNOVERA grow more slowly than expected or decline, if the net working capital settlement with Mayne
Pharma under the Transaction Agreement is greater than our current estimates, if we are unsuccessful with future financings or if
the supply chains related to the third-party contract manufacturers are worse than we anticipate, our existing cash reserves may be
insufficient to satisfy our liquidity requirements. Our ability to continue as a going concern may depend on our ability to obtain
additional capital as well as our ability to minimize operational expenses, including any potential net working capital adjustments
relating to the Mayne Transaction. As substantial doubt about our ability to continue as a going concern exists, our ability to
finance our operations through the sale and issuance of debt or equity securities or through bank or other financing could be
impaired. Our ability to obtain financing on reasonable terms is subject to factors beyond the Company’s control, including
general economic, political, and financial market conditions. The capital markets have in the past experienced, are currently
experiencing, and may in the future experience, periods of upheaval that could impact the availability and cost of equity and debt
financing and there can be no assurance that such financing will be available on terms commercially acceptable to the Company, or at
all. If we sell equity securities, convertible securities or other securities current investors may be materially diluted by
subsequent sales. If we are unable to improve our liquidity position, we may not be able to continue as a going concern.
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We have experienced
significant turnover in our top executives, and our business could be adversely affected by these and other transitions in our senior
management team.
We have experienced turnover
in our top executives and the replacement of these positions with new officers. In December 2022, following the Mayne Transaction, all
our top executives, except for our former General Counsel, were terminated, and our former General Counsel was appointed as Chief Executive
Officer.
Management transition is often
difficult and inherently causes some loss of institutional knowledge, which could negatively affect the results of operations and financial
condition. Our ability to execute our business strategies may be adversely affected by the uncertainty associated with these transitions
and the time and attention of the board and management dedicated to management transitions could disrupt our business. Further, we cannot
guarantee that we will not face similar turnover in the future. Although we generally enter into employment agreements with our executives,
our executive officers may terminate their employment relationship with us at any time, and we cannot ensure that we will be able to
retain the services of any of them. Our senior management’s knowledge of our business and industry could be difficult to replace,
and management turnover could negatively affect our business, growth, financial conditions, results of operations and cash flows.
Our dependence upon
third parties for the manufacture and supply of our existing women’s healthcare products may cause delays in or prevent our licensees
from successfully commercializing and marketing our products.
We do not currently have,
nor do we currently plan to build or acquire, the infrastructure or capability to internally manufacture our existing women’s healthcare
products, IMVEXXY, BIJUVA, and ANNOVERA. We have relied, and will continue to rely, on third parties to manufacture these products in
accordance with specifications and in compliance with applicable regulatory requirements, including the FDA’s current Good Manufacturing
Practice (“cGMPs”). We entered into long-term supply agreements with Catalent Pharma Solutions, LLC for the commercial supply
of IMVEXXY and BIJUVA which have been assigned to Mayne Pharma. We also entered into a long-term supply contract with QPharma AB, now
known as Sever Pharma Solutions, for ANNOVERA, which contract was also assigned to Mayne Pharma. We depended on Lang, a full-service,
private label and corporate brand manufacturer, to supply our vitaMedMD and BocaGreen products. We do not have long-term contracts for
the commercial supply of our vitaMedMD and BocaGreen products. We believe that our licensees evolved these relationships based on the
products they licensed from us. We continue to provide support for the third party manufacturers and our licensees as needed.
Regulatory requirements could
pose barriers to the manufacture of our women’s healthcare products. All of our existing products are manufactured by third-party
contract manufacturing organizations (“CMOs”). These CMOs are required to manufacture our products in compliance with the
applicable regulatory requirements. The CMO that manufactures IMVEXXY and BIJUVA has previously been inspected by the FDA and received
Form 483 observations with respect to its softgel manufacturing plant that is used for the manufacture of the commercial supply of IMVEXXY
and BIJUVA. The CMO that manufactures ANNOVERA has previously been inspected by the FDA and received Form 483 observations with respect
to its facility that is used for the commercial supply of ANNOVERA. We believe that corrective actions to address the compliance issues
identified in the referenced Forms 483 have been implemented by the CMOs and that the CMOs continue to have the right to manufacture
under current regulations.
If the manufacturers of our
products cannot successfully manufacture material that conforms to specifications and the strict regulatory requirements of the FDA and
any applicable foreign regulatory authority, regulatory submissions related to our products may be delayed or disapproved, and our marketed
products may be affected. If these facilities are not in compliance for the manufacture of our products, our licensees may need to find
alternative manufacturing facilities, which would result in substantial disruptions of sales of our products. In addition, manufacturers
of our products will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for
compliance with cGMPs and similar regulatory requirements. Failure by any of the manufacturers of our products to comply with applicable
cGMP regulations or other applicable requirements could result in sanctions being imposed on us or our licensees, including fines, injunctions,
civil penalties, violation letters, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply,
recalls, withdrawals, issuance of safety alerts, and criminal prosecutions, any of which could have an adverse impact on our business,
financial condition, results of operations, and prospects. Our licensees may seek to enter into long-term agreements with alternative
manufacturers on commercially reasonable terms, and if they do enter into agreements with alternative manufacturers, those alternative
manufacturers may not be approved by the FDA or subsequently lose FDA approval to manufacture our drugs, any of which could have an adverse
impact on our business. We also could experience manufacturing delays if our CMOs give greater priority to the supply of other products
over our products to the delay or other detriment of our products, or otherwise do not satisfactorily perform according to the terms
of their agreements.
We have also experienced a
greater than expected amount of raw materials for ANNOVERA being out of specification. If any of the third-party CMOs of our products
or any suppliers of raw materials or API experience further difficulties, do not comply with the terms of their agreements, or do not
devote sufficient time, energy, and care to providing our manufacturing needs, or if any manufacturing specification modifications that
we or Mayne Pharma have requested are not approved by the FDA, we could experience additional interruptions in the supply of our products,
which may have a material adverse impact on our revenue, results of operations, and financial position.
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Our licensees also do not
have long-term contracts for the supply of all the API used in BIJUVA, and ANNOVERA. If any supplier of the API or other products used
in our products experiences any significant difficulties in its respective manufacturing processes, chooses to cease supplying, or does
not devote sufficient time, energy, and care to providing our manufacturing needs, we could experience significant interruptions in the
supply of our products, which could impair our licensee’s ability to supply our products at the levels required for commercialization
and prevent or delay their successful commercialization.
The commercial success
of our existing products will depend upon gaining and retaining significant market acceptance of these products among physicians and
payers.
Physicians may not prescribe
our products, which would prevent us from generating revenue or becoming profitable. Market acceptance of our products, including our
hormone therapy pharmaceutical products and patient-controlled, long-acting contraceptive, by physicians, patients, and payers, will
depend on a number of factors, many of which are beyond our control, including the following:
● the availability and efficacy of competitive drugs and devices;
● the effectiveness of our licensee’s sales force and marketing efforts;
● limitations or warnings contained in a product’s FDA-approved labeling; and
● prevalence and severity of adverse side effects.
Even if the medical community
accepts that our products are safe and effective for their approved indications, physicians may not immediately be receptive to their
use or may be slow to adopt our products as an accepted treatment for the symptoms for which they are intended. Labeling approved by
the FDA may not permit our licensees to promote our products as being superior to competing products, because the FDA applies a heightened
level of scrutiny to comparative claims when applying its statutory standards for advertising and promotion, including with regard to
its requirements for supporting data and that promotional labeling be truthful and not misleading, and there is potential for differing
interpretations of whether certain communications are consistent with a product’s FDA-required labeling. If our products do not
achieve an adequate level of acceptance by physicians and payers, we may not generate sufficient or any revenue from royalties related
to sales of these products. In addition, the efforts of our licensees to educate the medical community and third-party payers on the
benefits of our products may require significant resources and may never be successful.
Coverage and reimbursement
may not be available for our products, which could make it difficult for our licensees to sell our products profitably.
Market acceptance and sales
of our products, including IMVEXXY, BIJUVA, and ANNOVERA, and our prescription vitamins, will depend on coverage and reimbursement policies
and may be affected by healthcare reform measures. Government healthcare programs and third-party payers decide which prescription pharmaceutical
products they will pay for and establish reimbursement levels. Payers generally do not cover OTC products, and coverage for prescription
vitamins and dietary supplements varies. Many private third-party payers, such as managed care plans, manage access to pharmaceutical
products’ coverage partly to control costs to their plans, and may use drug formularies and medical policies to limit their exposure.
Factors considered by these payers include product efficacy, cost effectiveness, and safety, as well as the availability of other treatments
including generic prescription drugs. The ability to commercialize IMVEXXY, BIJUVA, and ANNOVERA successfully depends on coverage and
reimbursement levels set by government healthcare programs and third-party private payers. Obtaining and maintaining favorable reimbursement
can be a time-consuming and expensive process, and our licensees may not be able to negotiate or continue to negotiate reimbursement
or pricing terms for our products with payers at levels that are profitable to them, or at all.
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In both the U.S. and some foreign jurisdictions, there have been several
legislative and regulatory proposals to change the healthcare system in ways that could affect our licensees’ ability to sell our
products profitably. Payment or reimbursement of prescription drugs by Medicaid or Medicare requires manufacturers of the drugs to submit
pricing information to CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate and report price points, which are used
to determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates for the drug. For
drugs paid under Medicare Part B, manufacturers must also calculate and report their Average Sales Price (“ASP”), which is
used to determine the Medicare Part B payment rate for the drug. The federal government sets general guidelines for Medicaid and requires
rebates on outpatient drugs. Each state creates specific regulations that govern its individual program, including supplemental rebate
programs that prioritize coverage for drugs on the state Preferred Drug List. In the United States, private health insurers and other
third-party payers often provide reimbursement for products and services based on the level at which the government provides reimbursement
through the Medicare or Medicaid programs for such products and services. In addition, government programs like Medicaid include substantial
penalties for increasing commercial prices over the rate of inflation which can affect realization and return on investment. The cost
of pharmaceuticals continues to generate substantial governmental and third-party payer interest and states have begun to take action
to increase transparency in drug pricing through mandatory reporting requirements. We expect that the pharmaceutical industry will experience
pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations, and additional legislative
proposals. Our results of operations could be adversely affected by current and future healthcare reforms. While we cannot predict whether
any proposed cost-containment measures will be adopted or otherwise implemented in the future, any such cost-reduction initiatives could
decrease the coverage and price that our licensees receive for our products from Medicare, if any, including IMVEXXY, BIJUVA, and ANNOVERA,
and could significantly harm our business. It was historically unclear whether products approved to treat moderate-to-severe dyspareunia,
a symptom of vulvar and vaginal atrophy due to menopause, such as IMVEXXY, were excluded under Medicare Part D, which resulted in limited
Medicare coverage for such products. A clarification issued by CMS in May 2018 indicated that drugs, such as IMVEXXY, that are approved
for the treatment of moderate-to-severe dyspareunia (as well as drugs approved for the treatment of moderate-to-severe symptoms of vulvar
and vaginal atrophy associated with menopause) are not excluded from Medicare Part D coverage. CMS’s clarification, however, is
no guarantee that such coverage will be obtained or maintained for IMVEXXY and obtaining Medicare or other government healthcare program
reimbursement for any new pharmaceutical products may take up to several years following FDA approval.
The ability of our licensees
to commercialize ANNOVERA depends on coverage and reimbursement levels set by government healthcare programs and third-party private
payers. Despite our licensees coverage with commercial payers, there is no guarantee that our licensees will be able to retain ours or
their agreements or obtain new agreements, or that they will be able to negotiate favorable reimbursement or pricing terms for our products
in the future. Healthcare reform implementation, additional legislation or regulations, and other changes in government policy or regulation
may affect our licensees’ reimbursement or impose additional coverage limitations and/or cost-sharing obligations on patients,
any of which could have an adverse effect on coverage and reimbursement of our products, and our business, financial condition, results
of operations, and prospects could be harmed.
We expect that our licensees
will experience pricing pressures in connection with the sale of our products generally due to the trend toward managed healthcare, the
increasing influence of health maintenance organizations, the scrutiny of pharmaceutical pricing, the ongoing debates on reducing government
spending and additional legislative proposals. We cannot predict whether new proposals will be made or adopted, when they may be adopted,
or what impact they may have on us if they are adopted.
The availability of generic
products at lower prices than branded products may substantially reduce the likelihood of reimbursement for branded products, such as
IMVEXXY, BIJUVA, and ANNOVERA.
If our licensees fail to successfully
secure and maintain adequate coverage and reimbursement for our products or are significantly delayed in doing so, they could have difficulty
achieving market acceptance of our products and our business, financial condition, results of operations, and prospects could be harmed.
Time and costs associated
with winding down our general and administrative, commercial, and research and development activities may be significant.
There are significant costs
associated with winding down our normal historic operations, such as separation of employees, termination of contracts and engagement
of external consultants, all of which have and in the future will reduce our cash resources and take up large portions of our employees’
and consultants’ time. We have received certain invoices related to our historic operations that
we are currently disputing. Our accruals related to such invoices reflect the amount we believe we will be responsible for based on the
current information we have. Any litigation related to such disputes or to the winding down of our operations, as well as any unforeseen
liabilities related to the same, could have a material impact on our business, growth, financial conditions, results of operations and
cash flows. There is no guarantee that our cash and cash equivalents on hand at any given time will be enough to cover
our liabilities associated with winding down our historic operations.
Unfavorable global economic
conditions could harm our business, financial condition or results of operations.
Our results of operations
could be harmed by general conditions in the global economy and in the global financial markets. A severe or prolonged economic downturn,
including the impact of increased interest rates and inflation, could result in a variety of risks to our business, including our ability
to raise additional capital when needed on acceptable terms, if at all. The foregoing could harm our business and we cannot anticipate
all the ways in which unfavorable economic conditions and financial market conditions could harm our business.
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Licensing of intellectual
property involves complex legal, business, and scientific issues, and disputes could jeopardize our rights under such agreements.
We are currently and may in
the future be a party to license agreements of importance to our business and to our products. Disputes may arise between us and any
of these counterparties regarding intellectual property subject to and each parties’ obligations under such agreements, including:
● the effects of termination.
These or other disputes over
our obligations, our licensees’ obligations, or intellectual property that we have licensed may prevent or impair our ability to
maintain our current arrangements on acceptable terms, or may impair the value of the arrangement to us. Any such dispute could have
an adverse effect on our business.
In July 2018, we entered into
the Population Council License Agreement to obtain exclusive U.S. rights to commercialize ANNOVERA. The agreement required us to commercialize
this product and enter into certain manufacturing agreements, make timely milestone and other payments, provide certain information regarding
our activities under the agreement, and indemnify the other party with respect to our development and commercialization activities under
the terms of the agreements. The Company’s license under the Population Council License Agreement was sold to Mayne Pharma as part
of the Mayne Transaction.
If Mayne Pharma, with respect
to the ANNOVERA license agreement that we have assigned to Mayne Pharma, fails to meet obligations under that license agreement in a
material respect, the Population Council could have the right to terminate the agreement and upon the effective date of such termination,
have the right to re-obtain the related technology as well as, potentially, aspects of any intellectual property controlled by Mayne
Pharma and developed during the period the agreement was in force that relate to the applicable technology. This means that Population
Council could effectively take control of the development and commercialization of ANNOVERA after an uncured, material breach of the
agreement by us or Mayne Pharma. Any uncured, material breach under a license agreement could result in our loss of exclusive rights
and may lead to a complete termination of any commercialization efforts for the applicable product.
In connection with the Mayne
Transaction, we granted a license to Mayne Pharma (i) to research, develop, register, manufacture, have manufactured, market, sell, use,
and commercialize the Licensed Products in the United States and its possessions and territories and (ii) to manufacture, have manufactured,
import and have imported the Licensed Products outside the United States for commercialization in the United States and its possessions
and territories. Any disputes arising under the agreements governing the Mayne Transaction may have a material adverse impact on our
revenue, results of operations and financial position.
We have also entered into
licensing and supply agreements with Knight pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA
in Canada and Israel and with Theramex pursuant to which we granted Theramex an exclusive license to commercialize BIJUVA, and IMVEXXY
outside of the U.S., except for Canada and Israel.
Sales of our products in the
U.S. and our rights to receive royalties with respect to such sales could be adversely affected if products manufactured outside of the
U.S. or for sale outside of the U.S. under the terms of these licensing and supply agreements are reimported and sold in the U.S. In
addition, our rights to receive royalties with respect to our products sold outside the U.S. could be adversely affected if our licensees
fail to diligently pursue approval of our products, or opt not to sell our products, in certain jurisdictions where they are not required
to do so.
We maintain our cash
at financial institutions, often in balances that exceed federally insured limits.
The majority of our cash is
held in accounts at U.S. banking institutions that we believe are of high quality. Cash held in depository accounts may exceed the $250,000
Federal Deposit Insurance Corporation (“FDIC”) insurance limits. If such banking institutions were to fail, such as Silicon
Valley Bank when the FDIC took control in March 2023, we could lose all or a portion of those amounts held in excess of such insurance
limitations. In the future, our access to our cash in amounts adequate to finance our operations could be significantly impaired by the
financial institutions with which we have arrangements directly facing liquidity constraints or failures. Any material loss that we may
experience in the future could have a material adverse effect on our financial condition and could materially impact our ability to pay
our operational expenses or make other payments.
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Our products and our licensees are subject
to extensive and costly government regulation.
Our products are subject to
extensive and rigorous domestic government regulation, including regulation by the FDA, the Centers for Medicare & Medicaid Services
(“CMS”), other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General (“OIG”),
the U.S. Department of Justice (“DOJ”), the Departments of Defense and Veterans Affairs, to the extent our products are paid
for directly or indirectly by those departments, state and local governments, and their respective foreign equivalents. The FDA regulates
dietary supplements, cosmetics, and drugs under different regulatory schemes. For example, the FDA regulates the processing, formulation,
safety, manufacturing, packaging, labeling, and distribution of dietary supplements and cosmetics under its dietary supplement and cosmetic
authority, respectively. The FDA also regulates the research, development, pre-clinical and clinical testing, manufacture, safety, effectiveness,
record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of pharmaceutical
products under various regulatory provisions. If any of our products are marketed abroad, they will also be subject to extensive regulation
by foreign governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign regulation may be
equally or more demanding than corresponding U.S. regulation.
We and our licensees are also
subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business.
Applicable federal and state healthcare laws and regulations include the following:
● The federal Anti-Kickback Statute (“AKS”)
● The Civil Monetary Penalties Law (“CMPL”)
● The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”)
● Section 5(a) of the Federal Trade Commission Act
● The Physician Payments Sunshine Act
● Analogous state laws and regulations
Many aspects of these laws
have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective
interpretations that increases the risk of potential violations. In addition, these laws and their interpretations are subject to change.
Many state laws differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance
efforts. Moreover, the number and complexity of both federal and state laws continues to increase, and additional governmental resources
are being used to enforce these laws and to prosecute companies and individuals who are believed to be violating them. We anticipate
that government scrutiny of pharmaceutical sales and marketing practices will continue for the foreseeable future and subject us to the
risk of government investigations and enforcement actions. For example, federal enforcement agencies recently have shown interest in
pharmaceutical companies’ product and patient assistance programs, including manufacturer reimbursement support services and relationships
with specialty pharmacies. Some of these investigations have resulted in significant civil and criminal settlements.
Efforts to ensure that our
operations, including our business arrangements with third parties including our licensees, comply with applicable healthcare laws and
regulations could be costly. Although effective compliance programs can help mitigate the risk of investigation, regulatory and enforcement
actions, and prosecution for violations of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance
with applicable federal and state fraud, privacy, security, and reporting laws may prove costly. We cannot guarantee that a government
agency will agree with our interpretations, and it is possible that an enforcement authority may find or we may discover that one or
more of our business practices may not comply. If our past or present operations, including activities conducted by our sales team or
agents, 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, and exclusion from government healthcare programs. Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses,
divert our management’s attention from the operation of our business, and damage our reputation. In addition, even if we are not
determined to have violated these laws, government investigations into these issues typically require the expenditure of significant
resources and generate negative publicity, and could result in related stockholder suits, any of which could also have an adverse effect
on our business, financial condition and results of operations.
In addition, from time to
time in the future, we or our licensees may become subject to additional laws or regulations issued by federal or state agencies, all
of which are subject to influence resulting from changes in political party control. We are uncertain of the impact or outcome of new
legislation, regulation, Executive Orders, rescission of rules and policy statements, or new agency priorities, especially any relative
impact on the healthcare regulatory and policy landscape, or the impact they may have on our business.
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Such developments could, however,
require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated,
additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling,
additional scientific substantiation, additional personnel, or other new requirements. Any such developments could have an adverse effect
on our business.
Recently enacted or
future legislation or regulations may adversely affect reimbursement from government healthcare programs and third-party payers.
There have been efforts by
government officials and legislators to implement measures to regulate prices or payment for pharmaceutical products, including legislation
on drug importation, which could adversely affect our royalty revenues. Recently enacted federal and state laws have put considerable
pressure on the pricing of pharmaceutical products.
We are unable to predict the
future course of federal or state healthcare legislation in the United States directed at broadening the availability of healthcare and
containing or lowering the cost of healthcare. The Patient Protection and Affordable Care Act (“ACA”) and any further changes
in the law or regulatory framework could also have an adverse effect on our business, financial condition, and results of operations.
Further, if a federal government
shutdown were to occur for a prolonged period, federal government payment obligations, including its obligations under Medicaid and Medicare,
may be delayed. Similarly, if state government shutdowns were to occur, state payment obligations may be delayed. If the federal or state
governments fail to make payments under these programs on a timely basis, the ability of our licensees to sell our products to government
payers may be limited, thereby reducing anticipated revenues and profitability.
Even after the approval
of IMVEXXY, BIJUVA, and ANNOVERA, the products and the holder of the marketing authorizations will still face extensive, ongoing regulatory
requirements and review, and the products may face future development and regulatory difficulties.
With respect to IMVEXXY, BIJUVA,
and ANNOVERA, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or to the conditions
for approval or impose ongoing requirements for potentially costly post-approval studies, including phase 4 clinical trials or post-market
surveillance. As a condition to granting marketing approval of a product, the FDA may require additional clinical trials. The results
generated in these post-approval clinical trials could result in loss of marketing approval, changes in product labeling, or new or increased
concerns about side effects or efficacy of a product. For example, the labeling for IMVEXXY, BIJUVA, and ANNOVERA contains restrictions
on use and warnings. The Food and Drug Administration Amendments Act of 2007 gives the FDA enhanced post-market authority, including
the imposition of a Risk Evaluation and Mitigation Strategy (“REMS”) as well as explicit authority to require post-market
studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved REMS programs. IMVEXXY,
BIJUVA, and ANNOVERA will also be subject to ongoing FDA requirements governing the manufacturing, labeling, packaging, storage, distribution,
safety surveillance and reporting, advertising, promotion, record keeping, and reporting of safety and other post-market information.
The FDA’s exercise of its authority could result in delays or increased costs during product development, clinical trials and regulatory
review, increased costs to comply with additional post-approval regulatory requirements, and potential restrictions on sales of approved
products. Foreign regulatory agencies often have similar authority and may impose comparable requirements.
As part of the FDA’s
approval of IMVEXXY, we committed to conduct a post-approval observational study to evaluate the risk of endometrial cancer in post-menopausal
women with a uterus who use a low-dose vaginal estrogen unopposed by a progestogen such as IMVEXXY, which study was assumed by Mayne
Pharma as the holder of the new drug application (“NDA”). As part of the FDA’s approval of ANNOVERA, the FDA has required
four non-closed post-marketing studies, including both post-marketing reviews and post-marketing commitments. Each study has a timeline
for completion and submission of a final report to the FDA. If a post-approval study is not fulfilled according to FDA requirements,
the FDA may impose certain further requirements and penalties against the holder of the NDA, which could include withdrawal of the NDA
approval and withdrawal of the product from the market. For ANNOVERA, post marketing studies are being performed by the Population Council
and Mayne Pharma as the NDA holder. In July 2021, we received a letter from the FDA indicating that the post-marketing commitment study
being conducted by the Population Council for ANNOVERA to characterize the in vivo release rate of ANNOVERA was not fulfilled to FDA’s
satisfaction. In addition, the final reports for the two post-marketing requirement studies being performed by the Population Council
for ANNOVERA were not submitted by the initial listed submission deadline, which deadlines have since been extended by FDA. To the extent
that Mayne Pharma or the Population Council, as applicable, does not fulfil these studies to the FDA’s satisfaction, the ability
of our licensees to sell the applicable product may be limited and there may be an adverse impact on our revenue and results of operations.
Post-marketing studies, whether
conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed products,
such as adverse event reports, may also adversely affect sales of our pharmaceutical product candidates once approved, and potentially
our other marketed products. Further, the discovery of significant problems with a product similar to one of our products that implicate
(or are perceived to implicate) an entire class of products could have an adverse effect on sales of our approved products. Accordingly,
new data about our products could negatively affect demand because of real or perceived side effects or uncertainty regarding efficacy
and, in some cases, could result in product withdrawal or recall. Furthermore, new data and information, including information about
product misuse, may lead government agencies, professional societies, and practice management groups or organizations involved with various
diseases to publish guidelines or recommendations related to the use of our products or the use of related therapies or place restrictions
on sales. Such guidelines or recommendations may lead to lower sales of our products.
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Manufacturers of pharmaceutical
products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for
compliance with the FDA’s cGMP regulations and other regulatory requirements, such as adverse event reporting. Facilities for the
manufacturer of pharmaceutical products also undergo internal audits as well as external audits by third parties. If our licensees or
a regulatory agency discovers problems with a product, such as adverse events of unanticipated severity or frequency or problems with
the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility,
or our licensees, including requiring recall or withdrawal of the product from the market or suspension of manufacturing, requiring new
warnings or other labeling changes to limit use of the drug, requiring that additional clinical trials be conducted, imposing new monitoring
requirements, or requiring the establishment of a REMS program. Advertising and promotional materials must comply with FDA rules in addition
to other potentially applicable federal and state laws and are subject to review by FDA. If the FDA raises concerns regarding our licensees’
promotional materials or messages, they may be required to modify or discontinue using them and may be required to provide corrective
information.
Commercial products must now
meet the requirements of the Drug Supply Chain Security Act (“DSCSA”) which imposes obligations on manufacturers of prescription
pharmaceutical products for commercial distribution, regulating the distribution of the products at the federal level, and sets certain
standards for federal or state registration and compliance of entities in the supply chain (manufacturers and re-packagers, wholesale
distributors, third-party logistics providers, and dispensers). The DSCSA preempts previously enacted state pedigree laws and the pedigree
requirements of the Prescription Drug Marketing Act (“PDMA”) and its implementing regulations. Trading partners within the
drug supply chain must now ensure certain product tracing requirements are met that they are doing business with other authorized trading
partners; and they are required to exchange transaction information, transaction history, and transaction statements. Product identifier
information (an aspect of the product tracing scheme) is also now required. The DSCSA requirements, development of standards, and the
system for product tracing have been and will continue to be phased in over a period of years. The distribution of product samples continues
to be regulated under the PDMA, and some states also impose regulations on drug sample distribution.
Our activities and the activities
of our licensees are also potentially subject to federal and state consumer protection and unfair competition laws. If we, our licensees
or our third-party suppliers fail to comply with applicable regulatory requirements, a regulatory agency may take any of the following
actions:
● seek an injunction or impose civil or criminal penalties or monetary fines;
● suspend or withdraw regulatory approval;
Recent government enforcement
has targeted pharmaceutical companies for violations of fraud, abuse and other laws.
The federal government has
pursued actions against pharmaceutical companies for violations of fraud, abuse, and other laws, including, but not limited to the AKS, False Claims Act, FDCA, HIPAA, HITECH, Ryan Haight Act, and others, including marketing and promotional
compliance programs or codes of conduct, and law or rules requiring reporting of commercial activities.
We cannot ensure that ours
or our licensee’s compliance controls, policies, and procedures will be sufficient to protect against acts of ours or their employees,
business partners, licenses, or vendors that may violate federal or state fraud and abuse laws or other applicable requirements.
The violations of any of these
law or rules may result in penalties that may force us to expend significant amounts of time and money and may significantly inhibit
our licensee’s ability to continue to market our products and generate revenue. Following the closing of the vitaCare Divestiture,
we may still be required to indemnify the buyer of vitaCare in the event any enforcement related to activities prior to the vitaCare
Divestiture. Similar regulations apply in foreign jurisdictions.
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If our dietary supplement,
hormone therapy pharmaceutical products or patient-controlled, long-acting contraceptive products do not have the effects intended
or cause undesirable side effects, our business may suffer.
Although many of the ingredients
in our dietary supplement products are vitamins, minerals, and other substances for which there is a long history of human consumption,
they also contain innovative ingredients or combinations of ingredients. Furthermore, our hormone therapy or patient-controlled, long-acting
contraceptive pharmaceutical products have been approved by the FDA based on its assessment of the safety and efficacy of these products.
While we believe that all of these products and the combinations of ingredients in them are safe when taken as directed, the products
could have certain undesirable side effects if not taken as directed or if taken by a consumer who has certain medical conditions. In
addition, these products may not have the effect intended if they are not taken in accordance with certain instructions, which include
certain dietary or other labeling restrictions. Furthermore, there can be no assurance that any of the products, even when used as directed,
will have the effects intended or will not have harmful side effects in an unforeseen way or on an unforeseen cohort. If any of our are
shown to be harmful or generate negative publicity from perceived harmful effects, our business, financial condition, results of operations,
and prospects could be harmed significantly.
Our products face significant
competition from branded and generic products, and our operating results will suffer if we fail to compete effectively.
Development and awareness
of our products will depend largely upon our licensee’s success in increasing the consumer base for our products. The pharmaceutical
and dietary supplement industries are intensely competitive and subject to rapid and significant technological change. Our products face
intense competition, including from major multinational pharmaceutical and dietary supplement companies, established biotechnology companies,
specialty pharmaceutical, and generic drug companies. Many of these companies have greater financial and other resources, such as larger
R&D staffs and more experienced marketing and manufacturing organizations. As a result, these companies may obtain regulatory approval
more rapidly and may be more effective in selling and marketing their products. They also may invest heavily to accelerate discovery
and development of novel compounds or to in-license novel compounds that could make the products that we sell or develop obsolete. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. If our licensees are unable to economically promote or maintain our brand, our business, results of operations and financial
condition could be severely harmed. In addition, loss of exclusivity may provide opportunity for competing products, particularly generics,
to siphon off our consumers.
In February 2020, we received
a Paragraph IV certification notice letter (the “IMVEXXY Notice Letter”) regarding an ANDA submitted to the FDA by Teva Pharmaceuticals
USA, Inc. (“Teva”). See “If our efforts or the efforts of our licensees to protect the proprietary nature of the intellectual
property covering our hormone therapy pharmaceutical products and other products are not adequate, we may not be able to compete effectively
in our market” below for more information regarding the IMVEXXY Notice Letter. Additionally, on March 2020, we received a Paragraph
IV certification notice letter (the “BIJUVA Notice Letter”) regarding an ANDA submitted to FDA by Amneal Pharmaceuticals.
See Item 1. Business – Pharmaceutical Regulation – Regulatory Exclusivity for more information on the BIJUVA Notice Letter.
In addition, we cannot predict
what additional ANDAs could be filed by Teva or other potential generic competitors requesting approval to market generic forms of our
products, which if approved, could result in significant decreases in the revenue derived from royalties sales of our marketed products
and thereby harm our business and financial condition.
Our future success depends
on our ability to attract and retain qualified personnel.
We have one employee and use
a limited number of external consultants for the operation of our company, any of whom may terminate their consultancy with us at any
time. We may not be able to attract and retain consultants on acceptable terms given the competition for similar personnel. Some of our
consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with
other entities that may limit their availability to us. We do not maintain “key person” insurance. If we are unable to continue
to use our current consultants, or if we are unable to recruit new consultants, then our ability to operate our business will be negatively
impacted and it could interfere with our ability to receive any potential royalties.
Our financial condition
and results of operations in 2021 and 2022 were, and our financial condition and results of operations in the future may be, adversely
affected by the COVID-19 pandemic and any future pandemics or epidemics.
Our business was impacted
by the COVID-19 pandemic and it may be impacted by any future pandemics or epidemics. The severity of the impact of any pandemic on our
business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted.
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During the COVID-19 pandemic,
stay at home, quarantine, and social distancing orders and closures and restrictions on travel negatively affected the ability of our
sales force to access healthcare providers to promote our products and the ability of patients to visit their healthcare professionals
for non-emergent matters. The sales force of our licensees may continue to use a hybrid model of office visits when necessary and digital
engagement tools and tactics and virtual detailing, which may be less effective than their ordinary course sales and marketing programs.
Further. our future results
of operations and liquidity could be adversely affected during or following any future pandemics or epidemics by extended billing and
collection cycles at our company, our licensees, or otherwise; delays in payments of outstanding receivable amounts beyond normal payment
terms, including royalty payments; supply chain disruptions; and uncertain demand.
Also, disruptions have
occurred and may occur in the future that affect our licensees’ ability to obtain supplies or other components for our products,
manufacture additional products, or deliver inventory in a timely manner. This would result in lost sales (and royalties) and damage
to our reputation.
Our business may also be
affected by negative impacts of any future pandemic or epidemic on capital markets and economies worldwide, and it is possible that a
pandemic could cause a local and/or global economic recession. While policymakers globally have responded with fiscal policy actions
to support the healthcare industry and economy as a whole, the magnitude and overall effectiveness of these actions remains uncertain.
We may also experience
other unknown impacts from COVID-19 or any future pandemics or epidemics that cannot be predicted. Accordingly, disruptions to our business
as a result of COVID-19 and other pandemics or epidemics could continue to result in an adverse effect on our business, results of operations,
financial condition and prospects in the near-term and beyond 2024.
Failure to obtain
regulatory approval outside the U.S. will prevent our licensees from marketing our hormone therapy pharmaceutical products in non-U.S.
markets.
We have entered into licensing
and supply agreements with Knight and Theramex to commercialize IMVEXXY and BIJUVA in non-U.S. markets. To market these products in the
European Union and many other non-U.S. jurisdictions, our licensees must obtain separate regulatory approvals. We have had limited interactions
with non-U.S. regulatory authorities, the approval procedures vary among countries and can involve additional testing, and the time required
to obtain approval may differ from that required to obtain FDA approval or clearance. Approval or clearance by the FDA does not ensure
approval by regulatory authorities in other countries, and approval by one or more non-U.S. regulatory authorities does not ensure approval
by other regulatory authorities in other countries or by the FDA. The non-U.S. regulatory approval process may include all risks associated
with obtaining FDA approval or clearance. For these non-U.S. regulatory approvals, our licensees may not obtain them on a timely basis,
if at all. Our licensees’ failure to receive necessary non-U.S. regulatory approvals to commercialize IMVEXXY and BIJUVA in a given
market could have an adverse effect on our business, financial condition, results of operations, and prospects.
In addition, by seeking
to obtain approval to market IMVEXXY and BIJUVA in one or more non-U.S. markets, we or our licensees will be subject to rules and regulations
in those markets relating to our products. In some countries, particularly countries of the European Union, each of which has developed
its own rules and regulations, pricing is subject to governmental control. In these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of regulatory approval for a drug. To obtain reimbursement or pricing approval
in some countries, our licensees may be required to conduct a clinical trial that compares the cost-effectiveness of our pharmaceutical
product to other available products. If reimbursement of our pharmaceutical product is unavailable or limited in scope or amount, or
if pricing is set at unsatisfactory levels, our licensees may be unable to generate revenues and achieve or sustain profitability with
respect to any given market, which could have an adverse effect on our business, financial condition, results of operations, and prospects.
If our licensees obtain approval to market IMVEXXY or BIJUVA in one or more non-U.S. markets, there will be additional pharmacovigilance
reporting requirements for our products. To the extent that the non-U.S. markets in which our licensees distribute our products have
different pharmacovigilance reporting requirements than the U.S., there is a risk that the marketing of our drugs in those countries
may increase the number of adverse events reported for our products.
Our success is tied to our licensees’
distribution channels.
Our revenue is dependent
on our licensees’ distribution through wholesale distributors and retail pharmacy distributors. Our business would be harmed if
our licensees’ customers refused to distribute our products and if our licensees were not able to replace such customers through
their distribution channels.
Our ability to utilize net operating loss
carryforwards may be limited.
As of December 31, 2023, we had federal net operating loss (“NOL”)
carryforwards of $577.0 million. Subject to applicable limitations, our NOL may be used to offset future taxable income, to the extent
we generate any taxable income, and thereby reduce our future federal income taxes otherwise payable.
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Section 382 of the Internal
Revenue Code of 1986, as amended, imposes limitations on a corporation’s ability to utilize NOL carryforwards if it experiences
an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership
of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. If an ownership change has occurred,
or were to occur, utilization of our NOL carryforwards would be subject to an annual limitation under Section 382 determined by multiplying
the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation
may be carried over to later years. We may be found to have experienced an ownership change under Section 382 because of events in the
past or the issuance of shares of our common stock in the future. If so, the use of our NOL carryforwards, or a portion thereof, against
our future taxable income may be subject to an annual limitation under Section 382.
In 2017, the U.S. federal government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act makes broad and complex changes to
the U.S. federal tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 34 percent to 21 percent and
imposing new restrictions on the use of NOL carryforwards. The 2017 Tax Act reduced the corporate tax rate to 21 percent, effective January
1, 2018. Management assessed the valuation allowance analyses with respect to our NOL carryforwards as affected by various aspects of
the 2017 Tax Act and determined that a full valuation allowance continues to be appropriate. Additionally, to address the impact of the
COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted into law in March 2020. The CARES
Act includes several significant business tax provisions that, among other things, includes further statutory amendments to the rules
governing NOL carryforwards, as amended by the 2017 Tax Act. The CARES Act limits the NOL deduction in taxable years beginning in 2021
to the lesser of the NOL carryforwards or 80% of the taxpayer’s taxable income (after considering the deduction for NOL arising in tax
years beginning before January 1, 2018), which may restrict our ability to offset future taxable income with NOL carryforwards and increase
our future federal income taxes otherwise payable.
Any failure of our licensees
to adequately maintain a sales force or adequately promote our products will impede our growth.
We are substantially dependent
on the sales forces of our licensees to attract new business and to manage existing customer relationships. There is significant competition
for qualified, productive direct sales personnel with advanced sales skills and technical knowledge. Our ability to achieve growth in
revenue in the future will depend, in large part, on our licensees’ success in recruiting, training, and retaining direct sales
personnel, and their decision to adequately promote our products. If our licensees are unable to hire, engage, and develop enough productive
sales personnel or fail to adequately promote our products, our business prospects could suffer.
Risks related to our
intellectual property
If our efforts or the
efforts of our licensees to protect the proprietary nature of the intellectual property covering our hormone therapy pharmaceutical products
and other products are not adequate, we may not be able to compete effectively in our market.
Our commercial success will
depend in part on ours and our licensees’ ability to obtain additional patents and protect our existing patent positions as well
as our ability to maintain adequate protection of other intellectual property for our hormone therapy pharmaceutical products. If we
do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive
advantage we may have, which could harm our business and ability to achieve profitability. The patent positions of pharmaceutical companies
are highly uncertain. The legal principles applicable to patents are in transition due to changing court precedent and legislative action,
and we cannot be certain that the historical legal standards surrounding questions of validity will continue to be applied or that current
defenses relating to issued patents in these fields will be sufficient in the future. Changes in patent laws in the U.S., such as the
America Invents Act of 2011, may affect the scope, strength, and enforceability of our patent rights or the nature of proceedings that
may be brought by us related to our patent rights. In addition, the laws of some foreign countries do not protect proprietary rights
to the same extent as the laws of the U.S., and we may encounter significant problems in protecting our proprietary rights in these countries.
We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies
are covered by valid and enforceable patents or are effectively maintained as trade secrets.
These risks include the possibility of the following: