S-1/A 1 nt10015006x11_s1a.htm S-1/A

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As filed with the United States Securities and Exchange Commission on March 15, 2021.
Registration No. 333-253303
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GAIN THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
2834
85-1726310
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer Identification
Number)
Gain Therapeutics, Inc.
4800 Hampden Lane, Suite 200
Bethesda, MD 20814
(301) 500-1556
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Eric I. Richman
Chief Executive Officer
Gain Therapeutics, Inc.
4800 Hampden Lane, Suite 200
Bethesda, MD 20814
(301) 500-1556
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
Andrea L. Nicolás, Esq.
Jeremy London, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, New York 10001
(212) 735-3000
Michael D. Maline
DLA Piper LLP (US)
1251 Avenue of the Americas
New York, New York 10020
(212) 335-4500
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
CALCULATION OF REGISTRATION FEE
Title of Each Class
of Securities to be Registered
Amount to be
Registered(2)
Proposed Maximum
Aggregate Offering
Price per Share(1)(2)
Proposed Maximum
Aggregate Offering Price(1)(2)
Amount of
Registration Fee(3)
Common Stock, $0.0001 par value per share
4,181,818
12.00
$50,181,816
$5,474.84
(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the “Securities Act”).
(2)
Includes the additional shares that the underwriters have the option to purchase from the Registrant.
(3)
Of this amount, the Registrant previously paid registration fees of $5,474.84 with previous filings of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED MARCH 15, 2021
3,636,364 Shares

Common Stock
This is the initial public offering of shares of common stock of Gain Therapeutics, Inc. We are offering 3,636,364 shares of our common stock.
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share of common stock will be between $10.00 and $12.00. We have been approved to list our common stock on the Nasdaq Global Market under the symbol “GANX.”
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, and will be subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company. See “Summary—Implications of Being an Emerging Growth Company and Smaller Reporting Company.”
Investing in our common stock is highly speculative and involves a high degree of risk. See “Risk Factors” beginning on page 14.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Per Share
Total
Public offering price
$  
$  
Underwriting discount and commissions(a)
$
$
Proceeds, before expenses, to Gain Therapeutics, Inc.
$
$
(a)
See “Underwriting” for a complete description on the compensation payable to the underwriters.
We have granted the underwriters the option for a period of 30 days to purchase up to an additional 545,454 shares of common stock at the initial price to the public less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on   , 2021 through the book-entry facilities of The Depository Trust Company.
BTIG
Oppenheimer & Co.
 
 
National Securities Corporation
Prospectus dated   , 2021

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Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any related free writing prospectuses. Neither we nor any of the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of common stock offered by this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date regardless of the time of delivery of this prospectus or any sale of shares of common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or the possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States. See “Underwriting.”
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ABOUT THIS PROSPECTUS
Basis of Presentation
On July 20, 2020, we consummated the corporate reorganization as described in this prospectus under the section titled “Certain Relationships and Related Party Transactions—Corporate Reorganization with GT Gain Therapeutics SA,” pursuant to which all of the issued and outstanding stock of GT Gain Therapeutics SA, a Swiss company formed in 2017, were exchanged for common stock or preferred stock, as applicable, of Gain Therapeutics, Inc., the issuer of the common stock being offered in this offering (the “Corporate Reorganization”). As a result of the Corporate Reorganization, GT Gain Therapeutics SA became a wholly-owned subsidiary of Gain Therapeutics, Inc., a holding company incorporated under the laws of the state of Delaware.
The Corporate Reorganization is accounted for as a recapitalization for accounting purposes, with GT Gain Therapeutics SA as the predecessor entity. For periods and at dates prior to the Corporate Reorganization, the financial statements included in this prospectus were prepared based on the historical financial statements of GT Gain Therapeutics SA, adjusted to give retroactive effect to the share exchange transaction for all periods presented.
Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Market, Industry, and Other Data
This prospectus includes statistics and other data relating to markets, market sizes and other industry data pertaining to our business that we have obtained from industry publications, surveys and other information available to us as well as our own estimates based on our management’s knowledge of, and experience in, the industry and markets in which we compete. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Although we have not independently verified the accuracy or completeness of the data contained in these industry publications and reports, based on our industry experience we believe that the publications are reliable, the conclusions contained in the publications and reports are reasonable and the third-party information included in this prospectus and in our estimates is accurate and complete. Nevertheless, market data and statistics are inherently predictive and speculative and are not necessarily reflective of actual market conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. In addition, the value of comparisons of statistics for different markets is limited by many factors, including that (i) the markets are defined differently, (ii) the underlying information was gathered by different methods, and (iii) different assumptions were applied in compiling the data. Accordingly, the market statistics included in this prospectus should be viewed with caution. We believe that information from these industry publications included in this prospectus is reliable.
Certain statistical data estimates and forecasts contained in this prospectus are based on the following independent industry publications or reports:
Grand View Research, Enzyme Replacement Therapy Market Size, Share & Trends Analysis Report By Enzyme (Pancreatic Enzymes, Agalsidase Beta), By Therapeutic Condition, By Route Of Administration, By End Use, And Segment Forecasts, 2019-2026, October 2019;
Fortune, Neurodegenerative Diseases Drugs Market Size, Share and Industry Analysis By Drug Class (Immunomodulator, Interferons, Decarboxylase Inhibitors, Dopamine Agonists, Others), By Disease Indication (Multiple Sclerosis, Parkinson’s Disease, Alzheimer’s Disease, Spinal Muscular Atrophy (SMA), Others), By Route of Administration (Oral, Injection, Transdermal, Others), By End User and Regional Forecast 2019-2026; June 2019.
Trademarks, Service Marks, and Trade Names
This prospectus includes our trademarks, and trade names, including but not limited to Site-Directed Enzyme Enhancement Therapy, or SEE-TxTM, which are protected under applicable intellectual property laws. This prospectus also may contain trademarks, service marks, trade names, and copyrights of other companies, which are the property of their respective owners. Solely for convenience, the trademarks, service marks, trade names, and copyrights referred to in this prospectus are listed without the TM, SM, ©, and ® symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors, if any, to these trademarks, service marks, trade names, and copyrights.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in shares of our common stock. You should read this entire prospectus carefully, including the “Risk Factors” section immediately following this summary, “Cautionary Statement Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus, before making an investment decision to purchase shares of our common stock. Unless the context otherwise requires, all references to “Gain,” “we,” “us,” “our,” the “Company” and similar designations refer to Gain Therapeutics, Inc, a Delaware company, and its wholly-owned Swiss subsidiary, GT Gain Therapeutics SA.
Overview
We are a development stage biotechnology company developing novel therapeutics to treat diseases caused by protein misfolding, with an initial focus on lysosomal storage disorders (“LSDs”), including rare genetic diseases and neurological disorders. We use our exclusively in-licensed proprietary platform, Site-Directed Enzyme Enhancement Therapy (“SEE-Tx”), to discover novel allosteric sites on misfolded proteins and identify proprietary small molecules that bind these sites and restore protein folding, potentially treating the underlying disease. These small molecule binding sites, away from the protein’s active areas, are called allosteric sites. We believe targeting the allosteric binding site instead of the active binding site can provide a number of advantages: superior regulation of misfolded proteins implicated in disease, enhanced specificity by being non-competitive with the natural substrate and the potential for molecules with favorable drug-like properties. While the SEE-Tx platform is novel and has not been used to develop approved drugs yet, these advantages have the potential to ultimately enhance both tolerability and response.
As of February 19, 2021, we have already identified and filed three patent applications and one provisional patent application (such applications do not cover the United States) for our novel Structurally Targeted Allosteric Regulators (“STARs”), which are small molecules with the potential to treat diseases with high unmet medical need for which there are currently few or no available therapies. These diseases include Morquio B, GM1 Gangliosidosis (GM1), neuronopathic Gaucher disease, GBA1 Parkinson’s disease, Krabbe disease and Mucopolysaccharidosis type 1.
We are currently advancing the development of our STAR candidates through preclinical studies where we will continue to identify optimal lead compounds for each indication that we will advance into clinical trials. Through academic partnerships, co-development and licensing arrangements, we intend to develop a broad pipeline of therapeutics to catalyze a new approach to the treatment of diseases caused by misfolded enzymes. We expect to obtain additional preclinical data and commence IND-enabling studies for lead compound candidates beginning 2021, at which point we will begin the process to prepare and submit investigational new drug, or IND, submissions to the FDA seeking clearance to commence clinical research.
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Protein Misfolding and Disease
Proteins are large biomolecules that have a vast array of functions in different cell types in the body. Enzymes are a type of protein that accelerate and facilitate chemical reactions inside of cells by acting on substrates and converting those substrates into different chemical products. To perform their function in the body, enzymes and other proteins must be folded into the correct three-dimensional shape. Misfolded enzymes may not function properly, which can lead to the toxic accumulation of unprocessed substrate which is the cause of many rare genetic diseases, including LSDs and some neurodegenerative diseases such as certain forms of Parkinson’s disease. Enzyme misfolding may arise from genetic mutations that disrupt the folding pattern as well as from cellular stress due to aging and inflammation. Therapeutic small molecules that facilitate the folding of enzymes into their correct shape can restore function and the proper processing of substrate. As illustrated below, in LSDs, the gene that codes for an enzyme is mutated and results in a misfolded enzyme. The misfolded enzyme cannot traffic through the cell resulting in toxic protein accumulation. We believe that our STARs will have the ability to bind to the allosteric site of the defective enzyme and restore wild type activity and thus serve as potential therapeutic treatments for diseases.

Limitations on Current Therapeutic Treatments
Current therapeutic approaches to address misfolded enzymes have inherent limitations. In standard chaperone therapy, the drug binds to the active site of the enzyme or other target protein which impairs the protein’s function to some degree by competing with the active substrate, decreasing efficacy and potentially leading to selectivity issues. Other treatments such as enzyme replacement therapy, or ERT, in which new functional enzymes are infused into the patient, are not optimal for treating neurological conditions because currently available ERT cannot cross the blood-brain barrier. Gene therapy, which aims to create new, functional enzymes, is not readily accepted for treating neurological conditions because the procedure is invasive in nature and the efficacy of treating neurological conditions remains to be established. Given these limitations on current therapies, we believe patients would benefit from a new therapeutic approach both on its own and, potentially, in combination with existing therapies.
We believe our therapeutic approach represents a potentially significant change from current approaches by addressing protein misfolding using our efficient and proprietary ability to identify previously undiscovered allosteric sites and compounds that avoid the active sites of enzymes and cross the blood-brain barrier or penetrate other hard-to-treat organs such as bone and cartilage. Additionally, our approach enables the less-invasive process of oral administration.
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Our Platform – Computational Identification Approach
Overview
Our exclusively in-licensed and proprietary SEE-Tx platform allows us to identify previously undiscovered sites on an enzyme where a small molecule can attach and potentially facilitate the enzyme into the correct folding pathway, all without disrupting its function. We refer to the small molecules we identify that bind to these allosteric sites as STARs to reflect their mechanism of action and how they are discovered.

Allosteric Site Identification
Using the three-dimensional structure of enzymes and our computational technology, our SEE-Tx platform identifies and maps, through molecular simulations, previously uncharacterized binding sites called “binding hotspots.” These are key areas on the protein surface where a small molecule can potentially bind. The amount, density, nature and quality of these hotspots determine the druggability of the protein, that is, if the drug-like small molecules can effectively bind to the particular site with an appropriate potency. We then use our proprietary structure-based virtual screening methodology to filter a pool of seven to ten million commercially-available compounds to identify those that may potentially bind to the hotspot and have a functional effect. Using this information, we develop structural templates to guide the development of a narrowed pool of unique and proprietary small molecules that bind to the newly discovered allosteric sites and could potentially facilitate the enzyme into the correct folding structure and treat diseases.
As illustrated below, we believe our ability to identify and target previously uncharacterized allosteric binding sites has the potential to ultimately enhance both tolerability and response.

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STAR Identification – Our Molecular Hypothesis
We believe our STAR identification process is a more efficient and effective drug discovery tool than random screening because we use a validated-target approach. In random screening, very large libraries of molecules are tested for their ability to perform a specific function such as binding to a target. This approach typically results in a large number of positive responses that must then be laboriously screened to identify product candidates that are worth pursuing. In contrast, every small molecule generated by our platform is analyzed based on a two-part molecular hypothesis: (i) the restoration of the function of the target enzyme could be a treatment for the disease and (ii) our SEE-Tx platform could identify druggable allosteric binding sites that could be exploited to restore the enzyme’s functional activity. This validated-target approach confers a great advantage during the lead compound optimization process compared to random screening approaches. The lead compound optimization (“Lead OP”) process is the process by which drug candidates are synthetically refined from their original state into an agent that is safer, more potent and more useful. The goal during the lead optimization stage is to maintain favorable properties in lead compounds, while improving on deficiencies in lead structure. We can identify an allosteric site in five to six weeks, screen hits in two to three weeks and validate compounds in two to three months. In addition, compared to random screening, our validated-target approach is less expensive and requires less time to produce results with a higher success rate because this approach eliminates a number of false-hits by requiring each output to meet our two-part molecular hypothesis.
We believe each STAR has high specificity to its allosteric binding site and does not interact with the active site of the enzyme target, which is designed to enhance both tolerability and response. Our technology allows us to identify STARs that have the ability to bind to both mutant and wild-type enzymes. Because they are small molecules, STARs can be administered orally, have the ability to cross the blood-brain barrier and enter hard-to-treat tissues such as bone and cartilage. We believe the ability to cross the blood-brain barrier is essential to effectively treat diseases with neurological symptoms. In addition, we believe our STARs could be used in combination with ERT or gene therapy approaches to more completely address the patient’s needs.
Our Pipeline of STARs
We are leveraging our SEE-Tx technology platform to develop a pipeline of novel drug candidates to address diseases caused by protein misfolding. We are initially focusing on several LSDs with high unmet medical need, with the ability to expand our pipeline as we continue to discover new targets. We have entered into a number of academic collaborations to advance the development of our programs, such as with the University of Minnesota and the University of Maryland; these collaborations are understandings to work together in the research of specific demyelinating diseases and neither we, nor the institutions we collaborate with, are under contractual obligations to continue the collaboration and all parties retain their respective intellectual property. Additionally, in June 2020, we entered into a two-year research collaboration agreement with Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo”) for the research and development of structurally targeted allosteric regulators to restore functional activity of defective lysosomal enzymes in rare genetic and demyelinating diseases.

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GLB Enzyme-Related Disorders: GM1 Gangliosidosis and Morquio B
We are investigating restoration of GLB function as a treatment for GM1 and Morquio B. GLB is an enzyme found in lysosomes, which are compartments within cells that digest and recycle different types of molecules, especially toxic ones. GLB is essential for the breakdown of GM1 and keratan sulfate, which serve important functions in the brain and other tissues. Misfolding of GLB allows these substrates to build up to toxic levels and lead to the diseases GM1 and Morquio B.
Currently, there are no cures for these diseases. Currently available treatment options include substrate reduction therapy, which cannot cross the blood-brain barrier or reach either bone or cartilage and can therefore only help manage select symptoms. Additionally, while gene therapy approaches are being explored, they are still in early clinical development, require surgical procedures and are prone to immunological responses from the vectors. Conversely, our STARs in our GLB1 program are designed to cross the blood-brain barrier, and STARs in our GM1 program are designed to penetrate bone tissue, which is an important target tissue for treatment of Morquio B.
We have identified novel STARs targeting GLB, and the four most promising compounds have been selected as leads: GT-00413, GT-00493, GT-00513 and GT-00546. Data from our preclinical studies have shown that our STARs do not inhibit the normal activity of GLB in healthy cells, whereas competitive chaperone compounds typically do. Preclinical studies indicate that our STARs help mutated β-galactosidase escape premature degradation and travel to the lysosome where it can perform its catalytic activity. In addition, preclinical studies of these STARs in GM1-affected cells and Morquio B-affected cells show an increase in GLB activity and a reduction in the accumulation of a GM1 ganglioside substrate.
GCase Enzyme-Related Disorders: Neuronopathic Gaucher Disease and GBA1 Parkinson’s Disease
We are investigating the restoration of GCase enzymatic function as a treatment for neuronopathic Gaucher disease (nGD), a LSD. Unlike other types of Gaucher disease, none of the existing therapeutics are effective in treating nGD. GCase is an enzyme encoded by the GBA1 gene and found in lysosomes that is needed to breakdown the large molecule glucocerebroside (a component of the cell membrane) into sugar and fat. The misfolding of GCase can lead to accumulation of these substrates to toxic levels in the liver, spleen, bone marrow and nervous system and can result in lysosomal storage and neurodegenerative diseases.
The GCase mutation most commonly associated with nGD is also found in the most pathogenic form of Parkinson’s disease. Reduced GCase activity may enhance the risk for Parkinson’s disease by facilitating alpha-synuclein accumulation, which is a pathological hallmark of Parkinson’s disease. As a result, we are also investigating restoration of GCase function in patients with GBA1 Parkinson’s disease (GBA1+PD). Currently, there is no cure for nGD or for GBA1+PD, and there are very limited treatment options. Current treatments such as ERT cannot address central nervous system symptoms because they cannot cross the blood-brain barrier, unlike our STARs.
We have identified novel STARs targeting GCase and are continuing characterization of our most promising compounds. Data from our preclinical studies have shown that in normal cell lysates these STARs do not inhibit the normal activity of GCase, while competitive chaperone compounds typically do. In transfected cells with either normal GCase expression or GCase with relevant mutations, STARs increase lysosomal GCase. In addition, preclinical studies of these STARs in both healthy and GCase-affected cells show a dose-dependent increase in GCase activity and in a relevant neuronal model a reduction in the accumulation of toxic GCase substrate in Gaucher patient-derived fibroblasts was observed. A reduction of alpha-synuclein accumulation was also observed in the same neuronal model as well as two other neuronal in vitro models. A preclinical in vivo animal study indicated that these STARs enhance GCase wild-type enzyme activities and a rotenone induced Parkinson’s disease animal demonstrated that oral administration of STARs lead to depletion of alpha-synuclein, increase in tyrosine hydroxylase and improvement in locomotor activity.
IDUA Enzyme-Related Disorders: Mucopolysaccharidosis Type 1
We are investigating restoration of IDUA function as a treatment for Mucopolysaccharidosis type 1 (MPS 1). IDUA is an enzyme in lysosomes needed to breakdown large sugar molecules called glycosaminoglycans (GAGs), especially heparan sulfate and dermatan sulfate. The misfolding of IDUA can allow substrate to build up to toxic levels in the bone and cartilage and can result in MPS 1. Currently, there is no cure for MPS 1, and the treatment options to address the underlying symptoms including ERT, laronidase, and bone marrow transplants, are limited.
We have identified a STAR targeting IDUA and are applying medicinal chemistry approaches to generate proprietary compounds. Preclinical studies of this molecule have shown that in healthy cells, this STAR can stabilize
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recombinant IDUA and increase its activity. Additionally, when this STAR is co-administrated with laronidase, there is a dose-dependent increase in IDUA activity levels in vitro and in mice. As we continue our development process, we will continue to evaluate partnership opportunities in which a strategic partner could help us to accelerate the development of our program, provide access to synergistic combinations, or provide expertise that could allow us to expand potential treatment applications.
GALC Enzyme-Related Disorders: Krabbe Disease
We are investigating the restoration of GALC function as a treatment for Krabbe disease. GALC is an enzyme in lysosomes needed to breakdown galactolipids, which are fats primarily found in the nervous system and kidneys. Among the galactolipids that GALC breaks down are galactosylceramide, which is an essential component of neuronal myelin, and psychosine which is formed during myelin production and is toxic to cells. The misfolding of GALC can result in the toxic accumulation of galactosylceramide, inhibiting myelin production, and of psychosine, leading to demyelination of cells and ultimately to Krabbe disease. There is currently no available cure for Krabbe disease. Current developments in invasive procedures such as bone marrow transplants have not been shown to provide significant neurological improvements. In addition, most gene therapy treatments in development are still in the preclinical stages.
We have identified several compounds that bind to allosteric sites on GALC and stabilize the enzyme in vitro. We are continuing our development of these promising molecules.
Our Key Strengths and Competitive Advantages
We believe that we have a number of key strengths driven by our SEE-Tx platform and highly experienced team and deep expertise. These strengths uniquely position us to develop therapeutics for various protein misfolding diseases, successfully implement our strategy outlined below, and positively transform the lives of patients suffering from these life-threatening diseases.
SEE-Tx, our in-licensed proprietary, efficient and transformative technology platform. SEE-Tx addresses a unique challenge: the identification of small-molecule drugs that can usher their protein targets into the correct folding pathway and protect them from unfolding, thus potentially providing novel treatment options for protein misfolding diseases. We believe SEE-Tx provides several unique advantages:
Novel allosteric site identification. SEE-Tx has allowed us to identify and exploit novel allosteric sites that historically were not targeted with small molecules.
Efficiency. The computational platform allows us to quickly select allosteric site targets with the greatest potential, scan millions of commercially-available compounds and identify initial hit compounds with minimal monetary and human capital investment. We can identify an allosteric site in five to six weeks, screen hits in two to three weeks and validate compounds in a couple of months.
Validated-target approach. SEE-Tx allows every molecule we test to be based on our two-part molecular hypothesis. This rational approach confers a great advantage during lead optimization compared to random screening approaches.
Proprietary small molecules. SEE-Tx allows us to only work on target sites that can yield molecules with suitable pharmacokinetic properties. This includes the ability to cross the blood-brain barrier. These small molecules do not block the natural function of the target protein (i.e., do not bind to the active site of the enzyme), providing a wider therapeutic window and simpler dose regimes due to the bioavailability nature of the drug. We believe this is essential to achieve efficacy in diseases with neurological manifestations.
Flexible technology. SEE-Tx can be adapted to the specific druggability and unique hit identification requirements for each program.
We have an experienced management team and board of directors with global and broad-based scientific, medical and commercial expertise. Our senior management team and international board of directors have valuable global and diversified expertise in the biotech and pharmaceutical industries and orphan, metabolic and central nervous system (“CNS”) diseases space both from a scientific perspective, product development and commercial perspective. Members of our management team have experience advancing pharmaceutical products from discovery stage through to commercialization. Senior representatives of the management derive their experience among others from companies, such as Vifor Pharma, Helsinn Healthcare, PwC, Jazz Pharmaceuticals, Pharmacia & Upjohn, Newron Pharmaceuticals and MedImmune. As scientific expertise is a cornerstone to our business model, our board of directors (the “board of directors”) is comprised
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of industry experts with experience from companies focused on small molecules, rare and niche diseases, and CNS diseases, including Sanofi, SmithKline Beecham, Pfizer, Salmedix, Sarepta Therapeutics, Collegium Pharmaceutical, Vasopharm, MedImmune, LEV Pharma, Minerva Bioscience Inc and ADMA biologics.
Our Strategy
Our vision is to redefine drug discovery, with the goal of developing and ultimately commercializing therapies that dramatically and positively transform the lives of patients suffering from life-threatening rare diseases and CNS disorders with limited or no approved treatment options. Patients are considered in every decision we make. Our goal is to expedite preclinical studies of our lead product candidates to advance them into clinical trials with the goal of commercializing treatments for these diseases if our product candidates are approved.
Key elements of this strategy include:
Advance our lead product candidates into clinical development. We are focused on applying our in-licensed and proprietary SEE-Tx platform to discover and develop new small molecule drugs to treat diseases resulting from protein misfolding and to improve outcomes for patients with these serious, life-threatening conditions. We hold worldwide development and commercial rights to our product candidates and believe we have selected optimal product candidates for certain indications based on extensive preclinical data, including data with disease-specific animal models and biomarkers, thus supporting the potential of clinical success of our product candidates. Our goal is to advance these product candidates into clinical trials. If our clinical trials are successful, we plan to meet with regulatory authorities to discuss whether expedited regulatory approval strategies would be available.
Initially focus on rare, underserved indications for which we can have a transformative impact on patients’ lives. We believe that our ability to redefine drug discovery has the potential to have a transformative impact on rare, monogenic CNS disorders, LSDs, protein misfolding diseases and on patients’ lives, by providing them with a treatment for life-threatening diseases with no approved disease-modifying treatments.
Expand our pipeline by identifying and developing additional product candidates and identifying additional target indications. We believe our differentiated therapeutic approach utilizing our SEE-Tx platform will allow us to address a broad range of rare, LSD and neurodegenerative disorders, thus expanding our pipeline. Approximately 70% of LSDs present as progressive neurodegenerative diseases, highlighting how vulnerable the central nervous system is to lysosomal dysfunction. Additionally, LSDs, through convergent pathogenic mechanisms, can aid our understanding of pathogenesis in more common neurodegenerative diseases, infectious diseases, cancers and other genetic diseases. We intend to continue to expand our pipeline in the area of rare diseases to provide multiple opportunities for clinical and commercial success and demonstrate the breadth of our platform’s abilities across multiple organ systems, tissues and therapeutic modalities. We believe that in the near-term we can direct our highly efficient platform technology to identify clinically relevant allosteric binding sites that lead to treatments for more prevalent indications where there is a genetic subset of patients that might benefit from small molecules such as metabolic diseases and other diseases caused by protein misfolding.
Continue to expand our patent portfolio. We have made a significant investment in our patent portfolio to protect our technologies and programs and we intend to continue to do so. We have filed three patent applications and one provisional patent application for our STARs and have exclusive licenses for one additional patent related to our platform SEE-Tx (including the exploitation of SEE-Tx). We continue to actively pursue further patent protection and exclusivity opportunities. Our focus is on protecting our small molecule programs based on structurally targeted allosteric modulators. Protection is sought for a relevant scope to obtain commercial exclusivity in key geographies including the United States and Europe (via the European Patent Convention), as well as additional geographic areas of interest specific for each disease program. Currently, we have PCT, national phase applications or provisional patents for our core intellectual property. We currently do not have issued patents nor pending patent applications in the United States.
Selectively enter into new discovery relationships with premier research institutions and commercial partners and expand our existing collaborations. Our current academic partners include the University of Minnesota, University of Maryland, University of Oxford, University of Graz, the University of Adelaide, the National Institute of Health, Universitá della Svizzera italiana, Telethon, University of
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Cambridge and the Children's Hospital of Pittsburgh. We strive to further develop our expertise within our therapeutic areas of interest through close collaborations with academic experts. Neither we nor the organizations we collaborate with are under any contractual obligation to work with one another and all parties retain their respective intellectual property. Additionally, in June 2020, we entered into a two-year research collaboration agreement with Sumitomo for the research and development of structurally targeted allosteric regulators to restore functional activity of defective lysosomal enzymes in rare genetic and demyelinating diseases. Through these partnerships, we support the advancement of molecular, pharmacological and clinical understandings of the relevant diseases and perform preclinical evaluations in various biological models. Through these collaborations, we are conducting a number of preclinical studies that provide insights into the precise mechanism of action of our product candidates and the improvement of therapeutic strategies for LSDs and CNS diseases. In connection with all of our partnerships and collaborations, we have the exclusive right to use the data generated by these arrangements, with the exception of certain of our arrangements with academic institutions, which allow those institutions to use such data for teaching, internal research and other non-commercial purposes.
Extend existing and establish new relationships with patients and patient advocacy groups. Patients are the core of what we do. We have been engaging with patients and advocacy groups (such as CureGM1, the National Tay-Sachs & Allied Diseases Association, Inc., the International Gaucher Alliance and MPS Lisosomales) since our inception and have acquired an intimate understanding of how we can positively impact their lives. These relationships deeply inform us as we develop and ultimately seek to commercialize our product candidates.
Risks Associated with our Business
Investing in our common stock involves substantial risks. Before you participate in this offering, you should carefully consider all of the information contained in this prospectus, including the information set forth under the heading “Risk Factors.” Some of the more significant risks include the following:
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 have a limited operating history and 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;
raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates;
if preclinical studies or clinical trials for our product candidates cannot be initiated or completed or if they are unsuccessful or delayed, we will be unable to meet our future development and commercialization goals;
the disorders we seek to treat have low prevalence and it may be difficult to identify patients with these disorders, which may lead to delays in enrollment for our trials or slower commercial revenue if approved;
our product candidates are novel and still in development. If we are unable to successfully develop, receive regulatory approval for and commercialize our current or future product candidates, our business will be harmed;
we have not tested any of our product candidates in clinical trials. Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials;
clinical trials required for our product candidates are expensive and time-consuming, may face enrollment challenges and their outcome is uncertain;
our business and operations may be adversely affected by the evolving and ongoing COVID-19 global pandemic;
we are subject to extensive and costly government regulation;
even if we obtain regulatory approval to market our product candidates, our product candidates may not be accepted by the market; and
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we rely on a license to use the technology that is material to our business and if the agreements underlying the licenses were to be terminated or if other rights that may be necessary for commercializing our intended products cannot be obtained, it would halt our ability to market our products and technology, as well as have an immediate material adverse effect on our business, operating results and financial condition.
Corporate Information
We were incorporated under the laws of the state of Delaware on June 26, 2020 under the name Gain Therapeutics, Inc. On July 20, 2020, we consummated the Corporate Reorganization pursuant to which all of the issued and outstanding stock of GT Gain Therapeutics SA, a Swiss company formed in 2017, were exchanged for common stock or preferred stock, as applicable, of Gain Therapeutics, Inc. As a result of the Corporate Reorganization, GT Gain Therapeutics SA became a wholly-owned subsidiary of Gain Therapeutics, Inc., a holding company incorporated under the laws of the state of Delaware. Our principal executive offices are located at 4800 Hampden Lane, Suite 200, Bethesda, MD 20814. Our telephone number is (301) 500-1556. Our website address is http://www.gaintherapeutics.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise generally applicable to public companies. As a result:
we are required to have only two years of audited financial statements and only two years of related selected financial data and Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;
we are not required to engage an auditor to report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;
we are permitted to take advantage of extended transition periods for complying with new or revised accounting standards which allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies;
we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” and
we are not required to comply with certain disclosure requirements related to executive compensation, such as the requirement to disclose the correlation between executive compensation and performance and the requirement to present a comparison of our Chief Executive Officer’s compensation to our median employee compensation.
We may take advantage of these reduced reporting and other requirements until the last day of our fiscal year following the fifth anniversary of the completion of this offering, or such earlier time that we are no longer an emerging growth company. If certain events occur prior to the end of such five-year period, including if we have more than $1.07 billion in annual gross revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. We may choose to take advantage of some but not all of these reduced requirements. We have elected to adopt the reduced requirements with respect to our financial statements and the related selected financial data and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure. We have also elected to take advantage of the extended transition periods for complying with certain new or revised accounting standards. As a result, the information that we provide to stockholders may be different than the information you may receive from other public companies in which you hold equity.
We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed
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fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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THE OFFERING
Issuer
Gain Therapeutics, Inc.
Common stock offered by us
3,636,364 shares
Underwriters’ option to purchase additional shares
We have granted the underwriters the option for a period of 30 days to purchase up to an additional 545,454 shares of common stock.
Common stock to be outstanding after this offering
11,331,006 shares (or 11,876,460 shares if the underwriters exercise their option to purchase additional shares in full).
Use of proceeds
We estimate that our net proceeds from this offering will be approximately $35.4 million (or approximately $40.98 million if the underwriters exercise their option to purchase additional shares in full) at an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds that we receive in this offering to advance our lead programs in preclinical studies and into clinical trials, to advance our discovery and candidate selection stage programs and for general corporate purposes. See “Use of Proceeds.”
Risk factors
Investing in our common stock involves substantial risks. See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our common stock.
Dividend policy
We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. In addition, future debt instruments may materially restrict our ability to pay dividends on our common stock. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of then-existing debt instruments and other factors our board of directors deems relevant. See “Dividend Policy.”
Listing
We have been approved to list our common stock on the Nasdaq Global Market under the symbol “GANX.”
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The number of shares of our common stock to be outstanding after completion of this offering is based on 8,736,125 shares (without taking into account any stock splits) of our common stock outstanding as of December 31, 2020, after giving effect to the automatic conversion of all outstanding shares of (i) our Series A Preferred Stock (the “Series A Preferred Stock”) into 1,346,390 shares of our common stock and (ii) our Series B Preferred Stock (the “Series B Preferred Stock”) into 3,366,999 shares of our common stock, referred to herein as the Preferred Conversion immediately prior to the closing of this offering, and excludes:
1,153,827 shares of common stock reserved for future issuance under our share option plans as described in “Executive and Director Compensation – Gain Therapeutics Inc. 2020 Omnibus Incentive Plan” and reflects the stock split described below;
the exercise of warrants to purchase 237,249 shares of our common stock outstanding as of December 31, 2020, which will result in the issuance of 237,249 shares of common stock in connection with this offering, and reflects the stock split described below;
517,902 shares of common stock issuable upon the exercise of stock options outstanding as of February 28, 2021, at a weighted average exercise price of $3.37 per share, and reflects the stock split described below.
Unless otherwise indicated or the context otherwise requires, all information in this prospectus assumes or gives effect to:
a 0.88-for-1 stock split which will occur prior to the closing of this offering;
the effectiveness of our restated certificate of incorporation and restated bylaws in connection with the completion of this offering;
no exercise by the underwriters of their option to purchase up to 545,454 additional shares of common stock from us to cover over-allotments; and
an initial public offering price of $11.00 per share of common stock, which is the midpoint of the price range set forth on the cover page of this prospectus.
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SUMMARY FINANCIAL DATA
The following tables summarize our selected financial and other data. The summary consolidated statements of operations data presented below for the years ended December 31, 2020, 2019, 2018 and the balance sheet data as of December 31, 2020 and 2019 are derived from our audited consolidated financial statements included elsewhere in this prospectus. For periods and at dates prior to the Corporate Reorganization, our financial statements were prepared based on the historical financial statements of GT Gain Therapeutics SA.
Our historical results are not necessarily indicative of the results that may be expected in any future period. You should read the following summary consolidated financial data together with the information in the sections titled “Use of Proceeds,” “Selected Historical Financial Data,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.
 
Year Ended
December 31,
 
2020
2019
2018
Revenues:
Other income
$28,881
$41,301
$20,609
Total revenues
28,881
41,301
20,609
Operating expenses:
 
 
 
Research and development
2,259,204
1,586,245
826,880
General and administrative
1,249,126
555,165
222,047
Total operating expenses
3,508,330
2,141,410
1,048,927
Loss from operations
(3,479,449)
(2,100,109)
(1,028,318)
Interest (income)/expense, net
(3,637)
20,540
52,477
Foreign exchange (gain)/loss, net
96,484
65,682
14,964
Loss before income tax provision
(3,572,296)
(2,186,331)
(1,095,759)
Income tax provision
5,386
7,114
9,781
Net loss
(3,577,682)
(2,193,445)
(1,105,540)
Net loss per ordinary share:
 
 
 
Basic and diluted loss per share
(1.17)
(0.97)
(0.49)
Weighted-average ordinary shares used in per share calculations – basic and diluted
3,046,355
2,250,000
2,250,000
Pro forma net loss per share attributable to common stockholders - basic and diluted(1)
(0.69)
(1.11)
(0.56)
Pro forma weighted-average common shares outstanding - basic and diluted(1)
5,161,660
1,981,764
1,981,764
 
Year Ended
December 31,
 
2020
2019
2018
Cash and cash equivalents:
$7,492,910
$303,320
$400,694
Total current assets
8,987,828
429,525
494,638
Total non-current assets
616,530
230,761
316,996
Total current liabilities
2,114,831
879,052
530,786
Total non-current liabilities
1,287,538
231,090
1,231,756
Total stockholders’ equity (deficit)
6,201,989
(449,856)
(950,908)
1
The unaudited pro-forma basic and diluted net loss per share attributable to common stockholders, for the year ended December 31, 2020, has been computed using the weighted-average number of common shares outstanding after giving pro-forma effect to (i) the conversion of all outstanding shares of convertible preferred stock into shares of common stock, and (ii) a 0.88-for-1 stock split which will occur prior to the closing of this offering, as if such conversion and stock split had occurred at the beginning of the period presented or the date of original issuance, whichever is later. As of December 31, 2020, there were 1,346,390 shares of Series A Preferred Stock and 3,366,999 Shares of Series B Preferred Stock issued and outstanding. For the year ended December 31, 2020, see Note 17 to our audited consolidated financial statements appearing elsewhere in this prospectus for further details on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders. The unaudited pro-forma basic and diluted net loss per share attributable to common stockholders, for the years ended December 31, 2019 and 2018, has been computed using the weighted-average number of common shares outstanding after giving pro-forma effect to the 0.88-for-1 stock split which will occur prior to the closing of this offering, as if such stock split had occurred at the beginning of the period presented or the date of original issuance, whichever is later.
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RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider carefully the risks described below, together with all of the other information included or incorporated by reference in this prospectus. The risks described below are material risks currently known, expected or reasonably foreseeable by us. However, the risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition. If any of these risks actually materialize, our business, prospects, financial condition and results of operations could be seriously harmed. This could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment.
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.
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 product candidates requires significant preclinical, clinical and regulatory development. 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 studies and clinical trials and regulatory compliance activities.
We expect to incur substantial additional operating expenses over the next several years as our research, development, preclinical studies and clinical trial activities increase. 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 preclinical development and testing and clinical trials 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 have a limited operating history and 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 preclinical stage biopharmaceutical company with a limited operating history. Our operations to date have been primarily limited to organizing and staffing our company, acquiring, developing and securing our proprietary technology and preclinical development of our product candidates. We have not yet begun or successfully completed any clinical trials, completed Investigational New Drug (“IND”) enabling or Good Laboratory Practice (“GLP”) compliant studies for any of our target enzymes, manufactured our products at clinical or commercial scale or conducted sales and marketing activities that will be necessary to successfully commercialize our 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
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fluctuations include other factors described elsewhere in this prospectus and also include, among other things:
our ability to obtain additional funding to develop our product candidates;
our ability to conduct and complete preclinical studies, including GLP-compliant and IND-enabling preclinical studies;
delays in the commencement, enrollment and timing of clinical trials;
the success of our preclinical studies and clinical trials through all phases of development;
any delays in regulatory review and approval of product candidates in clinical development;
our ability to obtain and maintain regulatory approval for our product candidates in the United States and foreign jurisdictions;
potential toxicity and/or side effects of our product candidates that could delay or prevent commercialization, limit the indications for any approved drug, require the establishment of risk evaluation and mitigation strategies (“REMS”), or cause an approved drug to be taken off the market;
our ability to establish or maintain collaborations, licensing or other arrangements;
market acceptance of our product candidates;
competition from existing products, new products or new therapeutic approaches that may emerge;
the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our products;
our ability to leverage our proprietary technology platform to discover and develop additional product candidates;
our ability and our licensors’ abilities to successfully obtain, maintain, defend and enforce intellectual property rights important to our business; and
potential product liability claims;
Accordingly, the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial revenue, we may finance our cash needs through a combination of equity offerings, government or private party grants, debt financings and license and collaboration agreements. We do not currently have any other committed external sources of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams or product candidates, grant licenses on terms that may not be favorable to us or commit to future payment streams. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
If preclinical studies or clinical trials for our product candidates are unsuccessful or delayed, we will be unable to meet our future development and commercialization goals.
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 studies and clinical trials
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involving our product candidates. We have less control over the timing and other aspects of these preclinical studies and clinical trials than if we performed the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our preclinical studies and clinical trials on our anticipated schedule or, for clinical trials, consistent with a clinical trial protocol. To date, we have not conducted any IND-enabling studies or GLP compliant preclinical studies. We may not be able to initiate or successfully complete those studies in the future which could delay or restrict the advancement of our programs into the clinic. Delays in preclinical studies and clinical trials 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 trials may also ultimately lead to denial of regulatory approval of a product candidate.
The commencement of clinical trials can be delayed for a variety of reasons, including delays in:
demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;
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
obtaining institutional review board (“IRB”) approval to conduct a clinical trial at a prospective site.
Once a clinical trial 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:
ongoing discussions with the FDA or other regulatory authorities regarding the scope or design of our clinical trials;
failure to conduct clinical trials in accordance with regulatory requirements;
lower than anticipated recruitment or retention rate of patients in clinical trials;
inspection of the clinical trial operations or study sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
lack of adequate funding to continue clinical trials;
negative results of clinical trials;
investigational drug product out-of-specification; or
nonclinical or clinical safety observations, including adverse events and SAEs.
If clinical trials are unsuccessful, and we are not able to obtain regulatory approvals for our product candidates under development, we will not be able to commercialize these products, and therefore may not be able to generate sufficient revenues to support our business.
The disorders we seek to treat have low prevalence and it may be difficult to identify patients with these disorders, which may lead to delays in enrollment for our trials or slower commercial revenue if approved.
Genetically defined disorders generally, and especially those for which our current product candidates are targeted, have low incidence and prevalence. For example, the reported incidence of infantile GM1 is approximately 1.4 in 100,000 live births and the incidence of Krabbe disease is approximately 2.6 in 100,000 births. While certain states currently have mandatory newborn genetic screening for Krabbe disease, there is no mandatory screening for GM1. Without mandatory screening, it may be difficult for us to identify a sufficient number of eligible patients to conduct our clinical trials. These could be significant obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into our trials. Further, we expect to rely in part on relationships with clinical centers of excellence, key opinion leaders and patient advocacy groups to assist in identifying eligible patients, and any deterioration of those relationships could impede our ability to successfully enroll patients. Patient enrollment may be affected by other factors including:
the severity of the disease under investigation;
design of the study protocol;
the eligibility criteria for the trial;
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the perceived risks, benefits and convenience of administration of the product candidate being studied;
our efforts to facilitate timely enrollment in clinical trials;
the availability of other clinical trials being conducted for the same indication;
the patient referral practices of physicians; and
the proximity and availability of clinical trial sites to prospective patients.
Our inability to enroll a sufficient number of patients with these diseases for our future clinical trials would result in significant delays and could require us to not initiate or to abandon clinical trials for one or more indications altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
Additionally, the reported number of people who have GM1, Krabbe disease and other indications we aim to treat, as well as the people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. The total addressable market opportunity for our product candidates will ultimately depend upon, among other things, the final approved product labeling for each of our product candidates, if our product candidates are approved for sale in our target indications, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients globally may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business.
Our product candidates are novel and still in development. If we are unable to successfully develop, receive regulatory approval for and commercialize our current or future product candidates, our business will be harmed
Because the SEE-Tx platform remains untested and our product candidates are in early stages of development, they will require extensive preclinical and clinical testing. None of our product candidates are currently ready for clinical trials. Our drug development methods may not lead to commercially viable drugs for any of several reasons. Also, third parties we rely on for preclinical development such as the providers of supercomputer time needed for our SEE-Tx platform and collaborators that provide us with materials and resources may fail to fulfill their obligations to us in a timely manner or at all and the development of our product candidates could be significantly delayed as a result. For example, we may fail to identify appropriate targets or compounds, our product candidates may fail to be safe and effective in clinical trials, or we may have inadequate financial or other resources to pursue development efforts for our product candidates. In addition, our product candidates will require significant additional development, preclinical and IND-enabling studies and clinical trials, regulatory clearances and additional investment by us or our collaborators before they can be commercialized. In addition, we are still developing proof of concept for our product candidates in animals and positive data from animal models may not be predictive of positive human results and patients may have side effects that were not observed in animals.
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 trials, manufacturing, labeling, promotion, selling, adverse event reporting and recordkeeping. Obtaining FDA approval is a lengthy, expensive and uncertain process. If required regulatory registrations or approvals are delayed, denied, withdrawn or if the regulatory authorities question the efficacy of our new small molecules as a treatment, such events are likely to have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects.
We have not tested any of our product candidates in clinical trials. Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials.
Our programs largely remain in the early drug discovery stage and few have progressed into initial preclinical studies that will inform future plans to conduct IND-enabling and GLP-compliant preclinical studies. We have not tested any of our product candidates in clinical trials and minimal preclinical work has been conducted to date. Success in early preclinical studies or any clinical trials we may conduct not be indicative of results obtained in later preclinical studies and clinical trials.
We will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and effective, with a favorable benefit-risk profile, for use in their target indications before we
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can seek regulatory approvals for their commercial sale. Trial designs and results from early-phase trials are not necessarily predictive of future clinical trial designs or results, and initial positive results we may observe may not be confirmed in later-phase clinical trials. Our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development even if they successfully advance through initial clinical trials. We may not be able to demonstrate the safety and efficacy of our STAR molecules in our clinical trials. Even if our clinical trials demonstrate acceptable safety and efficacy of STAR molecules for a targeted disease, the labeling we obtain through negotiations with the FDA or foreign regulatory authorities may not include data on secondary endpoints and may not provide us with a competitive advantage over other products approved for the same or similar indications.
Many companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and there is a high failure rate for product candidates proceeding through clinical trials. In addition, different methodologies, assumptions and applications we utilize to assess particular safety or efficacy parameters may yield different statistical results. Even if we believe the data collected from clinical trials of our product candidates are promising, these data may not be sufficient to support approval by the FDA or foreign regulatory authorities. Preclinical and clinical data can be interpreted in different ways. Accordingly, the FDA or foreign regulatory authorities could interpret these data in different ways from us or our partners, which could delay, limit or prevent regulatory approval. If our study data do not consistently or sufficiently demonstrate the safety or efficacy of any of our product candidates, then the regulatory approvals for such product candidates could be significantly delayed as we work to meet approval requirements, or, if we are not able to meet these requirements, such approvals could be withheld or withdrawn. Regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. We may face similar setbacks.
The approach we are taking to discover and develop our product candidates is novel and may never lead to marketable products.
We have concentrated our efforts and research and development activities on our novel small molecules for potential treatment of rare and genetic diseases caused by protein misfolding and SEE-Tx, our target identification platform. Our future success depends on the successful development of such product candidates, including our ability to initiate and successfully complete IND-enabling and GLP-compliant preclinical studies, and the effectiveness of our platform. The scientific discoveries that form the basis for our efforts to discover and develop new drugs are relatively new. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Skepticism as to the feasibility of developing small molecules of this type that can cross the blood-brain barrier generally has been, and may continue to be, expressed in scientific literature. In addition, decisions by other companies with respect to their therapeutic development efforts may increase skepticism in the marketplace regarding the potential for potential therapeutics. There are currently no companies with approved drugs for these indications that have the ability to cross the blood-brain barrier.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. 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 current and future research and development programs and 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 collaboration, 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.
Clinical trials required for our product candidates are expensive and time-consuming, and their outcome is uncertain.
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 trials. Conducting clinical trials is a lengthy, time-consuming, and expensive process. The length of time may vary
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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 in clinical trials for our product candidates may cause us to incur additional operating expenses. The commencement and rate of completion of clinical trials may be delayed by many factors, including, for example: inability to manufacture sufficient quantities of stable and qualified materials under current good manufacturing practices (“cGMPs”) for use in clinical trials; slower than expected rates of patient recruitment; failure to recruit a sufficient number of patients, which is a common issue in studies for rare disorders such as the indications we are currently pursuing; modification of clinical trial protocols; changes in regulatory requirements for clinical trials; the lack of effectiveness during clinical trials; the emergence of unforeseen safety issues; delays, suspension, or termination of the clinical trials due to the investigatory authority responsible for overseeing the trial at a particular trial site; and government or regulatory delays or “clinical holds” requiring suspension or termination of the studies.
Our clinical trials may be conducted in patients with neurodegenerative diseases, 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. Any safety issues that arise with respect to our product candidates may delay or prevent clinical development.
The failure of clinical trials to demonstrate safety and effectiveness for the desired indications could harm the development of that product candidate and other product candidates that use a similar therapeutic approach. 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 trials would delay our ability to obtain regulatory approvals for and commercialize our product candidates and generate product revenues. Any change in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations.
We have limited experience as a company conducting clinical trials and may be unable to complete pivotal clinical trials for any product candidates we may develop.
We are not yet a clinical stage company and our success is dependent upon our ability to initiate and successfully complete clinical trials and obtain regulatory approval for and commercialization of our product candidates. We have not demonstrated an ability to perform the functions necessary for the approval or successful commercialization of any product candidate. The successful commercialization of any product candidate may require us to perform a variety of functions, including:
continuing to undertake preclinical development;
obtaining approval to commence clinical trials;
successfully planning and enrolling subjects in clinical trials;
participating in regulatory approval processes;
formulating and manufacturing products; and
conducting sales and marketing activities.
We have limited experience designing, conducting and enrolling subjects in clinical trials. While certain members of our management and staff have significant experience in conducting clinical trials, to date, we have not successfully begun or completed any clinical trials as a company. Until recently, our operations have been limited primarily to organizing and staffing our company, acquiring, developing and securing our proprietary technology and preclinical development of our product candidates. These operations provide a limited basis to assess our ability to develop and commercialize our product candidates.
Because of this lack of experience, any future clinical trials we may conduct may not be completed on time, if at all. Large-scale trials require significant additional financial and management resources, monitoring and oversight, and reliance on third-party clinical investigators, consultants or contract research organizations (“CROs”). Relying on third-party clinical investigators, CROs and manufacturers, which are all also subject to governmental oversight and regulations, may also cause us to encounter delays that are outside of our control.
In addition, we are still in the drug discovery and preclinical development stage for our product candidates and have not yet begun discussions with the FDA as to the design, structure and number of clinical trials that our product candidates would require for approval. Consequently, we may be unable to successfully and efficiently advance any
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candidates we select for clinical trials or execute and complete necessary GLP-compliant preclinical and IND-enabling studies in a way that leads to IND submission and approval of any product candidate. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of any product candidates that we develop. Failure to commence or complete, or delays in, future planned clinical trials, could prevent us from or delay us in commercializing our product candidates.
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 studies and clinical trials, manufacture, safety, effectiveness, record-keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of biopharmaceutical products. 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 the FDA’s 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 studies and clinical trials of each product candidate, is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct clinical trials. 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 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.
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 manufacturers 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.
If we decide to pursue a Fast Track Designation for some of our product candidates, it may not lead to a faster development or regulatory review or approval process.
We may seek Fast Track Designation for one or more of our product candidates. 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 product sponsor may apply for FDA Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, the FDA may decide not to grant it. Even if we do receive Fast Track Designation, 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.
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If we decide to seek Orphan Drug Designation for some of our product candidates, we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for supplemental market exclusivity.
As part of our business strategy, we may seek Orphan Drug Designation for one or more of our product candidates, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as a 25% tax credit. Opportunities for grant funding toward clinical trial costs may also be available for clinical trials of drugs for rare diseases, regardless of whether the drugs are designated for the orphan use. In addition, if a product that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same product for the same indication for seven years, except in limited circumstances.
Even if we obtain Orphan Drug Designation for our product candidates in specific indications, we may not be the first to obtain marketing approval of these product candidates for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. If a competitor with a product that is determined by the FDA to be the same as one of our product candidates obtains marketing approval before us for the same indication we are pursuing and obtains orphan drug exclusivity, our product candidate may not be approved until the period of exclusivity ends unless we are able to demonstrate that our product candidate is clinically superior. Even after obtaining approval, we may be limited in our ability to market our product. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different principal molecular structural features can be approved for the same condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek Orphan Drug Designation for our product candidates, we may never receive such designation.
We do not have, and may never obtain, the regulatory approvals we need to market our product candidates.
Following completion of clinical trials, the results are evaluated and, depending on the outcome, an NDA is submitted to the FDA to obtain the FDA’s 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: 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 review by the FDA 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 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 IND or an NDA 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.
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Our product candidates may cause serious adverse events (“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 our product candidates could arise either during development or, if approved, after the approved product has been marketed. The results of future clinical trials may show that our product candidates cause SAEs or undesirable side effects, which could interrupt, delay or halt clinical trials, resulting in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.
If any of our product candidates cause SAEs or undesirable side effects or suffer from quality control issues:
regulatory authorities may impose a clinical hold or REMS, which could result in substantial delays, significantly increase the cost of development, and/or adversely impact our ability to continue development of the product;
regulatory authorities may require the addition of statements, specific warnings, or contraindications to the product label, or restrict the product’s indication to a smaller potential treatment population;
we may be required to change the way the product is administered or conduct additional clinical trials;
we may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on our ability to commercialize the product;
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;
we may, voluntarily or involuntarily, initiate field alerts for product recall, which may result in shortages;
sales of the product may decrease significantly;
regulatory authorities may require us to take our approved product off the market;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
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.
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 monitoring and reporting obligations by the FDA, 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 the FDA’s 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 trials.
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 the FDA’s and others’ requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
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
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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 safety and effectiveness of our products, including any significant potential side effects (including drowsiness and dry mouth), as compared to alternative products or treatment methods;
the timing of market entry as compared to competitive products;
the rate of adoption of our products by doctors and nurses;
product labeling or product insert required by the FDA for each of our products;
reimbursement policies of government and third-party payors;
effectiveness of our sales, marketing and distribution capabilities and the effectiveness of such capabilities of our collaborative partners, if any; and
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, which may not be available, See “Risks Related to Our Financial Condition and Capital Requirements; Competition” for additional discussion regarding our ability to raise additional funds.
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 primarily on the development of our GLB program (which includes our STARs for Morquio B and GM1) and our GBA program (which includes our STARs for nGD and GBA1+PD). As a result of this focus, 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.
Risks Related to Our Financial Condition and Capital Requirements; Competition
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.
To develop and bring our product candidates to market, we must commit substantial resources to costly and time-consuming research, preclinical studies and clinical trials and marketing activities. We anticipate that our existing cash and cash equivalents will enable us to maintain our current operations for at least the next 12 months. We anticipate using our cash and cash equivalents to fund further research and development with respect to our product candidates. 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:
the time and expense for preclinical studies and clinical trials for our product candidates;
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the time and costs involved in obtaining regulatory approval for our product candidates;
costs associated with protecting our intellectual property rights;
successful commercialization of our product candidates;
development of marketing and sales capabilities;
payments received under current and 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 studies and clinical trials, 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 trials 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.
We may not 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.
Our business and operations may be adversely affected by the evolving and ongoing COVID-19 global pandemic.
Our business and operations may be adversely affected by the effects of the recent and evolving COVID-19 virus, which was declared by the World Health Organization as a global pandemic. The COVID-19 pandemic has resulted in travel and other restrictions in order to reduce the spread of the disease, including public health directives and orders in the United States and the European Union that, among other things and for various periods of time, directed individuals to shelter at their places of residence, directed businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings and events and ordered cessation of non-essential travel. Future remote work policies and similar government orders or other restrictions on the conduct of business operations and travel related to the COVID-19 pandemic may negatively impact productivity and may disrupt our ongoing and planned research and development activities, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business, including our continued drug discovery efforts and preclinical studies, in the ordinary course.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
We face intense competition in the markets targeted by our product candidates. Many of our competitors have substantially greater resources than we do, and we expect that all of our product candidates under development will face intense competition from existing or future drugs.
We expect that all of our product candidates under development, if approved, will face intense competition from existing and future drugs marketed by large companies. These competitors may successfully market products that
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compete with our products, successfully identify product candidates or develop products earlier than we do, or develop products that are more effective, have fewer side effects or cost less than our products. See “Our Business—Competition” for additional information regarding our current competitive landscape.
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 can extend up to three and one-half years.
These competitive factors could require us to conduct substantial new research and development activities to establish new product targets, which would be costly and time consuming. These activities would adversely affect our ability to commercialize products and achieve revenue and profits.
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. For example, other companies may succeed in developing a technology that addresses protein misfolding and proves to be more effective or is more readily accepted than STARs. 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.
We may not be able to obtain marketplace acceptance for any of our product candidates 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. Even if our products are successfully developed and approved for use by all governing regulatory bodies, physicians and patients may not accept our products as a treatment of choice.
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.
Risks Related to Our Intellectual Property Rights and Regulatory Exclusivity
We rely on a license to use various technologies that are material to our business and if the agreements underlying the licenses were to be terminated or if other rights that may be necessary for commercializing our intended products cannot be obtained, it would halt our ability to market our products and technology, as well as have an immediate material adverse effect on our business, operating results and financial condition.
We are significantly dependent upon our license with Minoryx Therapeutics SL (the “Minoryx License”), as described in the section “Business—License Agreement with Minoryx Therapeutics, S.I.”. The Minoryx License grants us exclusive, worldwide rights to certain patents and related intellectual property. If we breach the terms of the Minoryx License, for example, by failing to comply with any material terms thereof, Minoryx may have the right to terminate the license. If we were to lose our license under this agreement, including because we are unable to maintain the license on acceptable terms, we would not be able to market our products and technology, which would likely require us to cease our current operations which would have an immediate material adverse effect on our business, operating results and financial condition.
Our success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our products and technologies.
We are currently seeking patent protection for numerous compounds and methods of treating diseases. There is no assurance that these patents will be issued, and no assurance that, if they do issue, they will prevent other companies from competing with us. Our ability to obtain and enforce patents that may issue from any pending or
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future patent applications is uncertain and involves complex legal, scientific and factual questions. Thus, we cannot be sure that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid or enforceable by a court of law, will provide us with any significant protection against competing products, or will afford us a commercial advantage over competitive products. If, at some point in the future, one or more products resulting from our product candidates is approved for sale by the FDA and we do not have adequate intellectual property protection for those products, competitors could duplicate them for approval and sale in the United States without repeating the extensive testing required of us to obtain FDA approval. See “Our Business – Patents,” below.
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, maintain and protect intellectual property rights related to our product candidates. If we do not adequately maintain or protect our intellectual property, competitors may be able to use our technologies to produce and market drugs in direct competition with us and erode our competitive advantage. Furthermore, 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. For example, the legal systems in India, China and certain other developing countries do not favor the enforcement of patents and other intellectual property rights. We may not be able to prevent misappropriation of our proprietary rights and intellectual property rights in these and other countries.
In addition, the patent process is subject to numerous risks and uncertainties, and we may not 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 proprietary technologies on products we develop. Additionally, extensive time is required for development, testing and regulatory review of a potential product. While extensions of patent terms 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, which could deprive us of rights necessary for the successful commercialization of our product candidates.
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 by 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. We have not conducted any formal search of patents issued to third parties, and third-party patents containing claims
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covering our product candidates that predate our patents may exist. Because of the number of patents issued and patent applications filed in our technical areas or fields, our competitors or other third parties may assert that our product candidates are covered by United States or foreign patents held by them.
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, divert the attention of our management and scientific personnel, 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 proceeding 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 inventions disclosed in our patents or patent applications. Determining whether a product infringes a patent, as well as priority of inventions and other patent-related disputes, involves complex legal and factual issues and the outcome is often uncertain. 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 or securities analysts perceive these results to be negative, the price of our common stock could be adversely affected.
Also, a third party may assert that our patents are invalid or unenforceable. There are not currently any unresolved communications, allegations, complaints or threats of litigation that claim 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
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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 or 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 or 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.
In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware, and which may result in issued patents that our future products would infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe.
We have licensed all of the rights, assets and technology related to the SEE-Tx platform from Minoryx and we believe that they owned all of such rights prior to our license. Although, to our knowledge, no third party has asserted a claim of infringement or other claim against us, others may hold or claim to hold proprietary or other rights that could prevent our SEE-Tx platform from being developed or marketed. Any legal action against us claiming damages and seeking to enjoin commercial activities relating to our SEE-Tx platform or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market any future product candidates based upon the SEE-Tx platform. We may not prevail in any such actions and any license required under any of these patents may not be made available on commercially acceptable terms, if at all. In addition, we may not be able to redesign any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing our future product candidates, which could harm our business, financial condition and operating results.
Risks Related to Third Parties and Collaborators
We intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.
We expect to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we will have agreements governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that our clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs will not relieve us of our regulatory responsibilities.
We and our CROs are required to comply with the FDA’s Good Clinical Practices (“GCPs”) for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our clinical trials will require enrollment and participation of a sufficiently large number of patients to evaluate the effectiveness and safety of our product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of participants, our clinical trials may be delayed or we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we are not able to control whether or not they devote sufficient time and resources to our clinical trials. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our competitive position.
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If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for such product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
We intend to rely on third parties to manufacture the compounds used in our studies, and we intend to rely on them for the manufacture of any approved products for commercial sale. If these third parties do not manufacture our product candidates in sufficient quantities and at an acceptable cost, clinical development and commercialization of our product candidates could be delayed, prevented or impaired.
We have no manufacturing facilities, and we have no experience in the clinical or commercial-scale manufacture of drugs or in designing drug manufacturing processes. We intend to rely on third party contract manufacturing organizations (“CMOs”) to manufacture some or all of our product candidates in future clinical trials and our products that reach commercialization. Initiation and completion of our clinical trials and commercialization of our product candidates requires the manufacture of a sufficient supply of our product candidates. If, for any reason, we become unable to rely on these third parties for the manufacture of our product candidates, either for clinical trials or, at some future date, for commercial quantities, then we would need to identify and contract with additional or replacement third-party manufacturers to manufacture compounds for preclinical, clinical and commercial purposes, which we may not be able to do on reasonable terms or at all, or we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources. In either scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original CMO and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change CMOs for any reason, we will be required to verify that the new CMO maintains facilities and procedures that comply with quality standards and with all applicable regulations.
We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidates according to any specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMO may possess technology related to the manufacture of our product candidate that such CMO owns independently. This would increase our reliance on such CMO or require us to obtain a license from such CMO in order to have another CMO manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.
We believe that there are a variety of manufacturers that we may be able to retain to produce these products. However, once we retain a manufacturing source, if our manufacturers do not perform in a satisfactory manner, we may not be able to develop or commercialize potential products as planned. Certain specialized manufacturers are expected to provide us with modified and unmodified pharmaceutical compounds, including finished products, for use in our preclinical studies and clinical trials. Some of these materials are available from only one supplier or vendor. Any interruption in or termination of service by such sole source suppliers could result in a delay or interruption in manufacturing until we locate an alternative source of supply. Any delay or interruption in our future supply chain and manufacturing operations (or failure to locate a suitable replacement for such suppliers), including on account of the ongoing COVID-19 pandemic, could materially adversely affect our business, prospects, or results of operations. If we fail to contract for manufacturing on acceptable terms or if third-party manufacturers do not perform as we expect, our development programs could be materially adversely affected. This may result in delays in filing for and receiving FDA approval for one or more of our products. Any such delays could cause our prospects to suffer significantly.
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Failure by our third-party manufacturers to comply with the regulatory guidelines set forth by the FDA with respect to our product candidates could delay or prevent the completion of clinical trials, the approval of any product candidates or the commercialization of our products.
Third-party manufacturers must be inspected by the FDA for cGMP compliance before they can produce commercial products. Since March 2020, foreign and domestic inspections by the FDA have largely been on hold due to the COVID-19 pandemic with the FDA announcing plans in July 2020 to resume prioritized domestic inspections. Should the FDA determine that an inspections of manufacturing, establishments or clinical sites are necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, the FDA has stated that it generally intends to issue a complete response letter and several other companies have reported receiving complete response letters. Further, if there is inadequate information to make a determination on the acceptability of a facility, the FDA may defer action on the application until an inspection can be completed. It is unclear how long the COVID-19 pandemic will impact FDA inspection activities and whether foreign regulatory authorities may adopt similar limitations and policies.
We may be in competition with other companies for access to these manufacturers’ facilities and may be subject to delays in manufacture if the manufacturers give other clients higher priority than they give to us. If we are unable to secure and maintain third-party manufacturing capacity, the development and sales of our products and our financial performance may be materially affected.
Manufacturers are obligated to operate in accordance with FDA-mandated requirements. A failure of any of our third-party manufacturers to establish and follow cGMP requirements and to document their adherence to such practices may lead to significant delays in the availability of material for clinical trials, may delay or prevent filing or approval of marketing applications for our products, and may cause delays or interruptions in the availability of our products for commercial distribution following FDA approval. This could result in higher costs to us or deprive us of potential product revenues.
Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the Drug Enforcement Administration, or DEA, and corresponding state and foreign agencies to ensure strict compliance with cGMP requirements and other requirements under Federal drug laws, other government regulations and corresponding foreign standards. If we or our third-party manufacturers fail to comply with applicable regulations, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure by the government to grant marketing approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating restrictions and criminal prosecutions.
Corporate and academic collaborators may take actions to delay, prevent, or undermine the success of our products.
Our operating and financial strategy for the development, clinical testing, manufacture, and commercialization of product candidates is heavily dependent on our entering into collaborations with corporations, academic institutions, licensors, licensees, and other parties and we may not be successful in establishing such collaborations. Some of our existing collaborations are, and future collaborations may be, terminable at the sole discretion of the collaborator. Replacement collaborators might not be available on attractive terms, or at all. The activities of any collaborator will not be within our control and may not be within our power to influence. Any collaborators may not perform their obligations to our satisfaction, or at all, we may not derive any revenue or profits from such collaborations, and any collaborators may ultimately compete with us. If any collaboration is not pursued, we may require substantially greater capital to undertake development and marketing of our proposed products and may not be able to develop and market such products effectively, if at all. In addition, a lack of development and marketing collaborations may lead to significant delays in introducing proposed products into certain markets and/or reduced sales of proposed products in such markets.
Data provided by collaborators and others upon which we rely that has not been independently verified could turn out to be false, misleading, or incomplete.
We rely on third-party vendors, scientists and collaborators to provide us with significant data and other information related to our projects, clinical trials and our business. If such third parties provide inaccurate, misleading or incomplete data, our business, prospects and results of operations could be materially adversely affected.
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If we fail to establish marketing, sales and distribution capabilities, or fail to enter into arrangements with third parties, we will not be able to create a market for our product candidates.
Our strategy for our product candidates is to control, directly or through contracted third parties, all or most aspects of the product development process, including marketing, sales and distribution. Currently, we do not have any sales, marketing or distribution capabilities. In order to generate sales of any product candidates that receive regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third parties to perform these services for us. The acquisition or development of a sales and distribution infrastructure would require substantial resources, which may divert the attention of our management and key personnel and defer our product development efforts.
To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to develop sales, marketing and distribution channels, or enter into arrangements with third parties, we will experience delays in product sales and incur increased costs.
Sales of pharmaceutical products largely depend on the reimbursement of patients’ medical expenses by government health care programs and private health insurers. Without the financial support of the government or third-party payors, the market for our products will be limited. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. Recent proposals to change the health care system in the United States have included measures that would limit or eliminate payments for medical products and services or subject the pricing of medical treatment products to government control. Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors may not reimburse sales of our products or enable our collaborators to sell them at profitable prices.
Our business strategy might involve out-licensing product candidates to or collaborating with larger firms with experience in marketing and selling pharmaceutical products. We may not be able to successfully establish marketing, sales, or distribution relationships and such relationships, if established, may not be successful. Further, we may not be successful in gaining market acceptance for our products. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our product revenues will be lower than if we marketed and sold our products directly, and any revenues we receive will depend upon the efforts of such third-parties. If we are unable to establish such third-party sales and marketing relationships, or choose not to do so, we will have to establish and rely on our own in-house capabilities.
We, as a company, have no experience in marketing or selling pharmaceutical products and currently have no sales, marketing, or distribution infrastructure. To market any of our products directly, we would need to develop a marketing, sales, and distribution force that both has technical expertise and the ability to support a distribution capability. The establishment of a marketing, sales, and distribution capability would significantly increase our costs, possibly requiring substantial additional capital. In addition, there is intense competition for proficient sales and marketing personnel, and we may not be able to attract individuals who have the qualifications necessary to market, sell, and distribute our products. We may not be able to establish internal marketing, sales, or distribution capabilities. If we are unable to, or choose not to establish these capabilities, or if the capabilities we establish are not sufficient to meet our needs, we will be required to establish collaborative marketing, sales, or distribution relationships with third parties.
If any of our existing or future collaborative partners do not satisfy their obligations, we will be unable to develop our partnered product candidates.
We may not have day-to-day control over the activities of our existing and future collaborative partners with respect to any of these product candidates. Any collaborative partner may not fulfill its obligations under these agreements. If a collaborative partner fails to fulfill its obligations under an agreement with us, we may be unable to assume the development of the products covered by that agreement or enter into alternative arrangements with a third party. In addition, we may encounter delays in the commercialization of the product candidate that is the subject of the agreement. Accordingly, our ability to receive any revenue from the product candidates covered by these agreements will be dependent on the efforts of our collaborative partner. We could also become involved in disputes with a collaborative partner, which could lead to delays in or termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. In addition, any such dispute could diminish our collaborators’ commitment to us and reduce the resources they devote to developing and commercializing our products. Conflicts or disputes with our collaborators, and competition from them, could harm our relationships with
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our other collaborators, restrict our ability to enter future collaboration agreements and delay the research, development or commercialization of our product candidates. If any collaborative partner terminates or breaches its agreement, or otherwise fails to complete its obligations in a timely manner, our chances of successfully developing or commercializing these product candidates would be materially and adversely affected. We may not be able to enter into collaborative agreements with partners on terms favorable to us, or at all. Our inability to enter into collaborative arrangements with collaborative partners, or our failure to maintain such arrangements, would limit the number of product candidates that we could develop and ultimately decrease our sources of any future revenues.
We may face risks in connection with existing and future collaborations with respect to the development, manufacture and commercialization of our product candidates.
We face a number of risks in connection with our current and future collaborations. Our collaboration agreements are subject to termination under various circumstances. Our collaborators may change the focus of their development and commercialization efforts or may have insufficient resources to effectively assist in the development of our products. Any future collaboration agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in collaboration with third parties. Further, disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development, might cause delays, might result in litigation or arbitration, or might result in termination of the research, development or commercialization of our products. Any such disagreements would divert management attention and resources and be time-consuming and costly.
General Company-Related Risks
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weaknesses, we may not be able to report our financial results accurately or to prevent fraud.
Our management is responsible for establishing and maintaining internal control over financial reporting, disclosure controls, and compliance with the other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC thereunder. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with applicable financial reporting standards. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected by the company’s internal controls on a timely basis.
Prior to this offering, we have operated as a private company that was not required to comply with the obligations of a public company with respect to internal control over financial reporting. We have historically operated with limited accounting personnel and other resources with which to address our internal control over financial reporting.
In connection with the audits of our financial statements in preparation for this offering, we and our independent registered public accounting firm identified material weaknesses primarily related to a (i) lack of sufficient accounting and supervisory personnel who have the appropriate level of technical accounting experience and training, and (ii) lack of adequate procedures and controls to ensure that accurate financial statements can be prepared and reviewed on a timely basis for annual reporting purposes. These deficiencies constitute material weaknesses in our internal control over financial reporting in both design and operation. We have engaged outside advisors with expertise in these matters to assist us in the preparation of our financial statements and in our compliance with SEC reporting obligations related to this offering, and we expect to continue to do so while we remediate the material weaknesses.
We have initiated a remediation plan to address these material weaknesses, including the hire of a full time additional employee in our accounting department and a more streamlined process in order to prepare and review financial information; however, our control environment needs improvements, and as a result we may be exposed to errors. We plan to take additional steps to remediate the material weaknesses and improve our accounting function, including hiring of additional senior level and staff accountants with US GAAP technical knowledge to support the timely completion of financial close procedures, implement robust processes, and provide additional needed technical expertise, and in the interim, continuing to engage third parties as required to assist with the preparation of our
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financial statements and our compliance with SEC reporting obligations. Additionally, we intend to develop and implement consistent accounting policies, internal control procedures and provide additional training to our accounting and financial reporting personnel.
Although we are working to remediate such material weaknesses as quickly and efficiently as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating the material weaknesses. If we are unable to successfully remediate our identified material weaknesses, if we discover additional material weaknesses or if we otherwise are unable to report our financial statements accurately or in a timely manner, we would be required to continue disclosing such material weaknesses in future filings with the SEC, which could adversely affect our business, investor confidence in our company and the market price of our common shares and could subject us to litigation or regulatory enforcement actions. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the market value of our common shares.
We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As we advance our product candidates through preclinical studies and clinical trials, and develop new product candidates, we will need to increase our product development, scientific, regulatory and compliance and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we:
successfully attract and recruit new employees with the expertise and experience we will require;
manage our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
develop a marketing, distribution and sales infrastructure in addition to a post-marketing surveillance program if we seek to market our products directly; and
continue to improve our operational, manufacturing, quality assurance, financial and management controls, reporting systems and procedures.
If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
Our executive officers and other key personnel are critical to our business, and our future success depends on our ability to retain them.
Our success depends to a significant extent upon the continued services of Eric I. Richman, our Chief Executive Officer. Mr. Richman has overseen the company since July 2020 and provides leadership for our growth and operations strategy. Loss of the services of our key personnel would have a material adverse effect on our growth, revenues and prospective business. The loss of any of our key personnel, or the inability to attract and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely affect our business, financial condition and results of operations.
Any employment agreement we enter into will not ensure the retention of the employee who is a party to the agreement. In addition, we have only limited ability to prevent former employees from competing with us. Furthermore, our future success will also depend in part on the continued service of our key scientific and management personnel and our ability to identify, hire, and retain additional personnel. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our business. Moreover, competition for personnel with the scientific and technical skills that we seek is extremely high and is likely to remain high. Because of this competition, our compensation costs may increase significantly.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
Our employment agreements generally include covenants not to compete. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees
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work at all or for a sufficient duration of time to prevent members of our management team from competing with us. If we are unable to enforce these covenants not to compete, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our competitiveness may be diminished.
If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.
Over time we will need to hire additional qualified personnel with expertise in drug development, product registration, clinical, preclinical and nonclinical research, quality compliance, government regulation, formulation and manufacturing, financial matters and sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and our search for such personnel may not be successful. Attracting and retaining qualified personnel will be critical to our success.
Our relationships with customers, physicians, and third-party payors will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors may subject us to various federal and state fraud and abuse laws and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations. These laws will impact, among other things, our clinical research, proposed sales, marketing and educational programs. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will affect our operations include, but are not limited to:
the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
federal civil and criminal false claims laws, including, without limitation, the False Claims Act, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private);
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, health care clearinghouses and health care providers, and their respective business associates;
federal transparency laws, including the federal Physician Payments Sunshine Act, which is part of PPACA, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to: (i) payments or other “transfers of value” made to physicians and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members;
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state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; and
state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
Coverage and adequate reimbursement may not be available for our current or any future product candidates, which could make it difficult for us to sell profitably, if approved.
Market acceptance and sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis. One payor’s determination to provide coverage for a drug does not determine whether or not another payor will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our drugs unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drugs.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Coverage and reimbursement may not be available for any drug that we commercialize and, if reimbursement is available, it is uncertain what the level of reimbursement will be. Inadequate coverage and reimbursement may
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impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only at limited levels, we may not be able to successfully commercialize our current and any future product candidates that we develop.
Healthcare legislative reform measures may have a negative impact on our business and results of operations.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the PPACA was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things: (i) addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; (ii) increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expands the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) establishes a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Some of the provisions of the PPACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the PPACA. The Budget Resolution is not a law; however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The PPACA remains subject to legislative efforts to repeal, modify or delay the implementation of the law. Recent efforts to repeal, modify or delay implementation of the ACA have resulted in some level of success. If the PPACA is repealed or further modified, or if implementation of certain aspects of the PPACA are delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects, operating results or financial condition. Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. In addition, changes to the political landscape in the United States (including as a result of the 2020 presidential elections) may impact the market sentiment surrounding the pharmaceutical industry.
We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
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If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.
If any of our product candidates are approved for commercialization outside of the United States, we intend to enter into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additional risks related to entering into international business relationships, including:
different regulatory requirements for drug approvals;
reduced protection for intellectual property rights, including trade secret and patent rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, hurricanes, floods and fires; and
difficulty in importing and exporting clinical trial materials and study samples.
We face the risk of product liability claims and may not be able to obtain insurance.
Our business exposes us to the risk of product liability claims that are inherent in the development of drugs. If the use of one or more of our or our collaborators’ drugs harms people, we may be subject to costly and damaging product liability claims brought against us by clinical trial participants, consumers, health care providers, pharmaceutical companies or others selling our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with collaborators. While we currently expect to carry clinical trial insurance and product liability insurance, the amount of insurance coverage up to $5 million we hold now or in the future may not be adequate to cover all liabilities we might incur. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. If we are sued for any injury allegedly caused by our or our collaborators’ products, our liability could exceed our total assets and our ability to pay the liability. A product liability claim or series of claims brought against us would decrease our cash and could cause our stock price to fall.
Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured liabilities.
We carry insurance for most categories of risk that our business may encounter; however, we may not have adequate levels of coverage. We currently maintain general liability, property, workers’ compensation, products liability and directors’ and officers’ insurance, along with an umbrella policy, which collectively costs approximately $35,000 per annum. We may not be able to maintain existing insurance at current or adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
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Risks Related to Our Securities and the Offering
If we sell securities in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.
We may from time to time issue additional shares of common stock at a discount from the current market price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any of our securities sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders could experience additional dilution and, as a result, our stock price may decline.
We will have broad discretion in how we use the net proceeds of this offering. We may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.
We will have considerable discretion in the application of the net proceeds of this offering, including for any of the purposes described in the section entitled “Use of Proceeds.” We intend to use the net proceeds from this offering to advance our lead programs in preclinical studies and into clinical trials, to advance our discovery and candidate selection stage programs and for general corporate purposes. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
No active trading market for our common stock currently exists. An active trading market may not develop and you may not be able to resell your shares of our common stock at or above the initial offering price, or at all.
Prior to this offering, there has not been an active trading market for our common stock. If an active trading market for our common stock does not develop following this offering, you may not be able to sell your shares quickly or at the market price. Our ability to raise capital to continue to fund operations by selling shares of our common stock and our ability to acquire other companies or technologies by using shares of our common stock as consideration may also be impaired. The initial public offering price of our common stock will be determined by negotiations between us and representatives of the underwriters and may not be indicative of the market prices of our common stock that will prevail in the trading market.
The market price for our common stock may be volatile, and your investment in our securities could decline in value.
The stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology and specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been highly volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
announcements of technological innovations or new products by us or our competitors;
announcement of FDA approval or disapproval of our product candidates or other product-related actions;
developments involving our discovery efforts and clinical trials;
developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation against us or our potential licensees;
developments involving our efforts to commercialize our products, including developments impacting the timing of commercialization;
announcements concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;
public concerns as to the safety or efficacy of our product candidates or our competitors’ products;
changes in government regulation of the pharmaceutical or medical industry;
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changes in the reimbursement policies of third party insurance companies or government agencies;
actual or anticipated fluctuations in our operating results;
changes in financial estimates or recommendations by securities analysts;
developments involving corporate collaborators, if any;
changes in accounting principles; and
the loss of any of our key scientific or management personnel.
In the past, securities class action litigation has often been brought against companies that experience volatility in the market price of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results and financial condition.
If you purchase shares of our common stock in this offering, you will suffer immediate dilution of your investment.
The initial public offering price of our common stock is substantially higher than the net tangible book value (deficit) per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma as adjusted net tangible book value per share after this offering. Based on the assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $7.33 per share, representing the difference between our pro forma as adjusted net tangible book value per share after this offering and the assumed initial public offering price.
In addition, as of February 28, 2021, we had outstanding stock options to purchase an aggregate of 517,902 shares of common stock at an exercise price of $3.37 per share. To the extent these outstanding options are exercised, there will be further dilution to investors in this offering.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we no longer qualify as an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur previously. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified senior management personnel or members for our board of directors. In addition, these rules and regulations are often subject to varying interpretations, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
While we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To prepare for eventual compliance with Section 404, once we no longer qualify as an emerging growth company, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
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We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We qualify as an “emerging growth company,” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to public companies that are not emerging growth companies. These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statements; and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We intend to take advantage of the exemptions discussed above. As a result, the information we provide will be different than the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the market price of our common stock may be more volatile.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the first fiscal year after our annual gross revenue exceeds $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.00 billion in non-convertible debt securities, or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.
We do not anticipate paying dividends on our common stock and, accordingly, stockholders must rely on stock appreciation for any return on their investment.
We have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our board of directors and limitations under applicable law, and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our common stock, which is uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Upon completion of this offering we will have outstanding a total of 11,331,006 shares of common stock. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering.
Our directors, executive officers and the holders of a majority of our outstanding equity securities have entered into lock-up agreements pertaining to this offering that will expire 180 days from the date of this prospectus, subject to earlier release of all or a portion of the shares subject to such agreements by the representatives of the underwriters in their sole discretion. After the lock-up agreements expire, these shares of common stock will be eligible for sale in the public market, unless held by directors, executive officers and other affiliates, in which case such shares will be subject to certain limitations of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.
In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our existing equity compensation plans will become eligible for sale in the public market to the extent
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permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Additionally, the number of shares of our common stock reserved for issuance under our 2020 Omnibus Incentive Plan will increase as determined by our compensation committee. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution.
After this offering, the holders of 4,151,479 shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See “Description of Capital Stock—Registration Rights.” Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
The rights of the holders of our securities may be impaired by the potential issuance of preferred stock.
Our articles of incorporation give our board of directors the ability to designate and issue preferred stock in one or more series. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the relative voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could have the effect of discouraging, delaying or preventing a change of control of us. The possible impact on takeover attempts could adversely affect the price of our securities. Although we have no present intention to designate any series, or issue any shares, of preferred stock, other than pursuant to this offering, we may do so in the future.
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. Our research coverage by industry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay attempts to acquire us that you might consider favorable.
Our amended and restated certificate of incorporation (the “Amended Charter”) and amended and restated bylaws (the “Amended Bylaws”) will contain provisions that may make the merger or acquisition of us more difficult without the approval of our board of directors. Among other things, these provisions will:
allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;
provide that our bylaws may be amended or repealed only by a majority vote of our board of directors or by the affirmative vote of the holders of at least 66 2/3% of the votes which all our stockholders would be entitled to cast in any annual election of directors; and
establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay, or prevent a transaction involving a change in control of us, including actions that our stockholders may deem advantageous, or could negatively affect the market price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to
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elect directors of your choosing and to cause us to take other corporate actions you desire. See “Description of Capital Stock – Anti-Takeover Effects of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law.”
Our Amended Charter will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders and federal district courts will be the sole and exclusive forum for Securities Act claims, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our Amended Charter, which will become effective prior to the completion of this offering, will provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, or other employees to us or to our stockholders; (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law (the “DGCL”), the Amended Charter or the Amended Bylaws or as to which the DGCL confers exclusive jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim governed by the internal affairs doctrine, provided that the exclusive forum provisions will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or the Exchange Act or to any claim for which the federal courts have exclusive jurisdiction. Our Amended Charter will further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts are the sole and exclusive forum for the resolution of any complaint asserting a right under the Securities Act, subject to a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. The choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provisions contained in our Amended Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Provisions in our organizational documents regarding exculpation and indemnification of our directors and officers may result in substantial expenditures by us and may discourage lawsuits against our directors and officers.
Our Amended Charter and Amended Bylaws will, to the maximum extent permissible under Delaware law, eliminate the personal liability of our directors and officers to us and our stockholders for damages for breach of fiduciary duty. These provisions may discourage us, or our stockholders through derivative litigation, from bringing a lawsuit against any of our current or former directors or officers for any breaches of their fiduciary duties, even if such legal actions, if successful, might benefit us or our stockholders. In addition, our Amended Charter and Amended Bylaws will provide that we will, to the fullest extent permitted by Delaware law, indemnify our directors and officers for costs or damages incurred by them in connection with any threatened, pending, or completed action, suit, or proceeding brought against them by reason of their positions as directors and officers. We also intend to enter into indemnification agreements with each of our directors and executive officers. See “Certain Relationships and Related Party Transactions – Agreements with Directors and Officers – Indemnification Agreements.” Although we expect to purchase directors' and officers' insurance, these indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made under the headings “Summary,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus contain forward-looking statements that reflect our plans, beliefs, expectations and current views with respect to, among other things, future events and financial performance.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often characterized by the use of words such as “believe,” “can,” “could,” “potential,” “plan,” “predict,” “goals,” “seek,” “should,” “may,” “may have,” “would,” “estimate,” “continue,” “anticipate,” “intend,” “expect” or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. These include, but are not limited to, statements about:
our ability to develop, obtain regulatory approval for and commercialize our product candidates;
the timing of future IND submissions, initiation of preclinical studies and clinical trials, and timing of expected clinical results for our product candidates;
our success in early preclinical studies, which may not be indicative of results obtained in later studies or clinical trials;
the outbreak of the novel strain of coronavirus disease, COVID-19, which could adversely impact our business, including our preclinical studies and any future clinical trials;
the potential benefits of our product candidates;
our ability to obtain regulatory approval to commercialize our existing or any future product candidates;
our ability to identify patients with the diseases treated by our product candidates, and to enroll patients in clinical trials;
the success of our efforts to expand our pipeline of product candidates and develop marketable products through the use of our SEE-Tx platform;
our expectations regarding collaborations and other agreements with third parties and their potential benefits;
our ability to obtain, maintain and protect our intellectual property;
our reliance upon intellectual property licensed from third parties, including the license to use our SEE-Tx platform;
our ability to identify, recruit and retain key personnel;
our expected use of net proceeds from this offering and the sufficiency of such net proceeds, together with our cash and cash equivalents, to fund our operations;
our financial performance;
developments or projections relating to our competitors or our industry;
the impact of laws and regulations;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and
other factors and assumptions described in this prospectus under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Our Business”, and elsewhere in this prospectus.
These statements are based on our historical performance and on our current plans, estimates and projections in light of information currently available to us, and therefore you should not place undue reliance on them. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or
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any other person that the future plans, estimates or expectations contemplated by us will be achieved. Forward-looking statements made in this prospectus speak only as of the date of this prospectus, and we undertake no obligation to update them in light of new information or future events, except as required by law.
You should carefully consider the above factors, as well as the factors discussed elsewhere in this prospectus, including under “Risk Factors,” before deciding to invest in our common stock. The factors identified above should not be construed as an exhaustive list of factors that could affect our future results and should be read in conjunction with the other cautionary statements that are included in this prospectus. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. If any of these trends, risks or uncertainties actually occurs or continues, our business, revenue and financial results could be harmed, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $35.40 million from the sale of 3,636,364 shares of common stock in this offering at the assumed initial public offering price of $11.00 per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting underwriting commissions and discounts of $2.80 million and estimated offering expenses of $1.80 million. If the underwriters exercise in full their option to purchase 545,454 additional shares of common stock, then we estimate that our net proceeds from this offering will be approximately $40.98 million.
A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $3.38 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We currently intend to use the net proceeds we receive from this offering, as follows:
approximately between $7.0 million to $9.0 million to fund expenses to advance the development of our GLB1 programs for our lead product candidates in ongoing preclinical studies and into Phase 1/2 clinical trials for the treatment of Morquio B and GM1 Gangliosidosis;
approximately between $11.0 million to $14.0 million to fund expenses to advance the development of our GBA1 programs for our lead product candidates, in ongoing preclinical studies and into Phase 1/2 clinical trials for the treatment of neuronopathic Gaucher and GBA1 Parkinson (GBA1+PD) diseases;
approximately between $3.0 million to $5.0  million to fund expenses to advance research and development activities that relate to all our other preclinical activities, including process development activities related to the advancement of our product candidates and the cost of research and development personnel; and,
the remainder for planned general and administrative expenses, the costs of operating as a public company, working capital and general corporate purposes.
This expected use of net proceeds from this offering and our existing cash and cash equivalents represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, as well as any collaborations that we may enter into with third parties for our drug candidates, and any unforeseen cash needs. As a result, our management will have broad discretion in the application of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of those net proceeds. The timing and amount of our actual expenditures will be based on many factors, including the focus, pace and timing of our development efforts and the existence of unforeseen opportunities or obstacles. As a result, we may find it necessary or advisable to use portions of the proceeds from this offering for other purposes. Pending these uses, we plan to invest these net proceeds in short-term, interest bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States.
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DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business, and therefore we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our business prospects, results of operations, financial condition, cash requirements and availability, debt repayment obligations, capital expenditure needs, contractual restrictions, covenants in the agreements governing our current and future indebtedness, industry trends, the provisions of Delaware law affecting the payment of dividends and distributions to stockholders and any other factors or considerations our board of directors may regard as relevant.
Our ability to pay dividends may also be restricted by the terms of any credit agreement or any future debt or preferred equity securities agreement that we or our subsidiaries enter into. Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them. See “Risk Factors—Risks Related to Our Securities and the Offering—We do not anticipate paying dividends on our common stock and, accordingly, stockholders must rely on stock appreciation for any return on their investment.”
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CAPITALIZATION
The following table sets forth our cash, cash equivalents and capitalization as of December 31, 2020:
on an actual basis; and
on a pro forma basis to give effect to the following events, as if each event had occurred on December 31, 2020: (i) the Preferred Conversion; (ii) the 0.88-for-1 reverse stock split and the filing and effectiveness of our Amended Charter and the adoption of our Amended Bylaws; and
on a pro forma as adjusted basis giving further effect to the issuance and sale of 3,636,364 shares of common stock in this offering and the application of the proceeds from this offering as described in “Use of Proceeds,” based on an assumed initial public offering price of $11.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses.
You should read this table, together with the information contained in this prospectus, including “Use of Proceeds,” “Unaudited Pro Forma Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included elsewhere in this prospectus.
 
December 31, 2020
 
Actual
Pro Forma
Pro Forma
as adjusted(1)
 
(unaudited)
Cash and cash equivalents
$7,492,910
$7,492,910
$42,892,914
Debt:
 
 
 
​Loans
738,282
738,282
738,282
Total debt
738,282
738,282
738,282
Equity:
Series A Preferred Stock, $0.0001 par value per share; 1,346,390 issued and outstanding as of December 31, 2020 and no shares issued and outstanding on a pro forma basis or pro forma as adjusted basis
135
​Series B Preferred Stock, $0.0001 par value per share: 3,366,999 shares issued and outstanding as of December 31, 2020 and no shares issued and outstanding on a pro forma basis or pro forma as adjusted basis
337
Common stock, $0.0001 par value per share: 50,000,000 shares authorized, 4,022,736, 7,694,642, 11,331,006 shares issued and outstanding as of December 31, 2020, on a pro forma basis, and on a pro forma as adjusted basis, respectively
402
769
1,133
Additional paid-in capital
13,388,666
13,388,770
48,788,410
Other comprehensive loss
(152,698)
(152,698)
(152,698)
Retained earnings
(7,034,853)
(7,034,853)
(7,034,853)
Total stockholders’ equity
6,201,989
6,201,989
41,601,992
Total capitalization
$6,940,271
$6,940,271
$42,340,274
(1)
Each $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of total stockholders’ equity by approximately $3.38 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each 1,000,000 increase or decrease in the number of shares of common stock offered in this offering by us would increase or decrease the pro forma as adjusted amount of total stockholders’ equity by approximately $10.23 million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discount and commissions and estimated offering expenses payable by us.
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DILUTION
Investors purchasing our common stock in this offering will experience immediate and substantial dilution in the pro forma net tangible book value of their shares of common stock. Dilution in pro forma net tangible book value represents the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after giving effect to this offering.
Pro forma net tangible book value represents our total tangible assets less total liabilities, divided by the pro forma number of outstanding shares of common stock after a reverse stock split of 0.88-for-1 and giving effect to the Preferred Conversion. As of December 31, 2020, our pro forma net tangible book value was $6.20 million, or $0.81 per share. After the sale and issuance of 3,636,364 shares of our common stock in this offering at an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus and after deducting the underwriting discount and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2020 would have been approximately $41.60 million, or $3.67 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $2.86 per share to our existing stockholders and an immediate dilution of $7.33 per share to new investors participating in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis.
The following table illustrates this dilution on a per share basis to new investors:
Assumed initial public offering price per share of common stock
    
$11.00
Pro forma net tangible book value per share of common stock as of December 31, 2020
$0.81
 
Increase per share of common stock attributable to this offering
$2.86
Pro forma net tangible book value per share of common stock, as adjusted to give effect to this offering
 
3.67
Dilution in pro forma net tangible book value per share of common stock to new investors
$7.33
Each $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value by approximately $3.38 million, or approximately $0.30 per share, and increase or decrease the dilution per share to investors participating in this offering by approximately $0.63 per share, assuming that the number of shares offered by us remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares of common stock offered by us would increase our pro forma as adjusted net tangible book value by approximately $10.23 million, or $0.90 per share, and decrease the dilution per share to investors participating in this offering by $1.91 per share, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value after this offering would be $3.97 per share, the increase in pro forma net tangible book value per share would be $0.49 per share and the dilution per share to new investors would be $1.04 per share, in each case assuming an initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.
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The following table summarizes, on the pro forma as adjusted basis described above as of December 31, 2020, the differences between the number of shares of common stock purchased from us, the total consideration and the price per share paid by our existing stockholders and by investors participating in this offering at an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the underwriting discount and estimated offering expenses payable by us.
 
Shares Purchased
Total Consideration
Average
Price Per
Share
 
Number
Percent
Amount
Percent
Existing stockholder
7,694,642
68%
$14,211,250
26%
$1.85
New investors
3,636,364
32%
$40,000,000
74%
$11.00
Total
11,331,006
100%
$54,211,154
100%
Each $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share would increase or decrease total consideration paid by new investors by approximately $3.38 million, assuming that the number of shares, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares of common stock we are offering. An increase or decrease of 1,000,000 in the number of shares of common stock offered by us would increase or decrease total consideration paid by new investors by approximately $10.23 million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
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SELECTED HISTORICAL FINANCIAL DATA
The following tables summarize our selected financial and other data. The summary consolidated statements of operations data presented below for the years ended December 31, 2020, 2019, 2018 and the balance sheet data as of December 31, 2020 and 2019 are derived from our audited consolidated financial statements included elsewhere in this prospectus. For periods and at dates prior to the Corporate Reorganization, our financial statements were prepared based on the historical financial statements of GT Gain Therapeutics SA.
Our historical results are not necessarily indicative of the results that may be expected in any future period. You should read the following summary consolidated financial data together with the information in the sections titled “Use of Proceeds,” “Selected Historical Financial Data,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.
 
Year Ended
December 31,
 
2020
2019
2018
Revenues:
Other income
$28,881
$41,301
$20,609
Total revenues
28,881
41,301
20,609
Operating expenses:
 
 
 
Research and development
2,259,204
1,586,245
826,880
General and administrative
1,249,126
555,165
222,047
Total operating expenses
3,508,330
2,141,410
1,048,927
Loss from operations
(3,479,449)
(2,100,109)
(1,028,318)
Interest (income)/expense, net
(3,637)
20,540
52,477
Foreign exchange (gain)/loss, net
96,484
65,682
14,964
Loss before income tax provision
(3,572,296)
(2,186,331)
(1,095,759)
Income tax provision
5,386
7,114
9,781
Net loss
(3,577,682)
(2,193,445)
(1,105,540)
Net loss per ordinary share:
 
 
 
Basic and diluted loss per share
(1.17)
(0.97)
(0.49)
Weighted-average ordinary shares used in per share calculations – basic and diluted
3,046,355
2,250,000
2,250,000
Pro forma net loss per share attributable to common stockholders – basic and diluted(1)
(0.69)
(1.11)
(0.56)
Pro forma weighted-average common shares outstanding – basic and diluted(1)
5,161,660
1,981,764
1,981,764
 
Year Ended
December 31,
 
2020
2019
2018
Cash and cash equivalents:
​7,492,910
$303,320
$400,694
Total current assets
8,987,828
429,525
494,638
Total non-current assets
616,530
230,761
316,996
Total current liabilities
2,114,831
879,052
530,786
Total non-current liabilities
1,287,538
231,090
1,231,756
Total stockholders’ equity (deficit)
6,201,989
(449,856)
(950,908)
1
The unaudited pro-forma basic and diluted net loss per share attributable to common stockholders, for the year ended December 31, 2020, has been computed using the weighted-average number of common shares outstanding after giving pro-forma effect to (i) the conversion of all outstanding shares of convertible preferred stock into shares of common stock, and (ii) a 0.88-for-1 stock split which will occur prior to the closing of this offering, as if such conversion and stock split had occurred at the beginning of the period presented or the date of original issuance, whichever is later. As of December 31, 2020, there were 1,346,390 shares of Series A Preferred Stock and 3,366,999 shares of Series B Preferred Stock issued and outstanding. For the year ended December 31, 2020, see Note 17 to our audited consolidated financial statements appearing elsewhere in this prospectus for further details on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders. The unaudited pro-forma basic and diluted net loss per share attributable to common stockholders, for the years ended December 31, 2019 and 2018, has been computed using the weighted-average number of common shares outstanding after giving pro-forma effect to the 0.88-for-1 stock split which will occur prior to the closing of this offering, as if such stock split had occurred at the beginning of the period presented or the date of original issuance, whichever is later.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and operating results together with the section captioned “Selected Financial Data” and our financial statements and the related notes appearing at the end of this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the prospectus captioned “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are a development stage biotechnology company developing novel therapeutics to treat diseases caused by protein misfolding, with an initial focus on LSDs, including rare genetic diseases and neurological disorders. We use our exclusively in-licensed platform, SEE-Tx, to discover novel allosteric sites on misfolded proteins and identify proprietary small molecules that bind these sites and restore protein folding, potentially treating the underlying disease. These small molecule binding sites, away from the protein’s active areas, are called allosteric sites. We believe targeting the allosteric binding site instead of the active binding site can provide a number of advantages: superior regulation of misfolded proteins implicated in disease, enhanced specificity by being non-competitive with the natural substrate and the potential for molecules with favorable drug-like properties. While the SEE-Tx platform is novel and has not been used to develop approved drugs yet, these advantages have the potential to ultimately enhance both tolerability and response.
We have already identified and filed three patent applications and one provisional patent application (such applications do not cover the Unites States) for our novel STARs, which are small molecules with the potential to treat diseases with high unmet medical need for which there are currently few or no available therapies. These diseases include Morquio B, GM1 Gangliosidosis (GM1), neuronopathic Gaucher disease, GBA1 Parkinson’s disease, Krabbe disease and Mucopolysaccharidosis type 1.
We are currently advancing the development of our STAR candidates through preclinical studies where we will continue to identify optimal lead compounds for each indication that we will advance into clinical trials. Through academic partnerships, co-development and licensing arrangements, we intend to develop a broad pipeline of therapeutics to catalyze a new approach to the treatment of diseases caused by misfolded enzymes. We expect to obtain additional preclinical data and commence IND-enabling studies for lead compound candidates beginning in 2021, at which point we will begin the process to prepare and submit investigational new drug, or IND, submissions to the FDA seeking clearance to commence clinical research..
Since our inception in 2017, we have devoted substantially all of our resources to identify and develop next-generation brain-penetrant allosteric small molecules for the treatment of devastating LSDs and CNS indications using our in-licensed proprietary SEE-Tx technology. To date, we do not have any product candidate approved for sale and have not generated any revenue from product sales. We have primarily financed our operations through a combination of sales of our securities and research grants.
We have incurred recurring losses and negative cash flows from operations since inception and as of December 31, 2019 and 2020, had an accumulated deficit of $3,457,171 and $7,034,853, respectively. We anticipate incurring additional losses until such time, if ever, that we can generate significant sales of our product candidates currently in development. We will need substantial additional capital to fund our operations and to develop our product candidates.
Our operations have consisted primarily of organizing the company, securing financing, developing licensed technology, performing research and conducting preclinical studies. We face risks associated with early-stage biotechnology companies whose product candidates are in development. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital for us to complete our research and development, achieve our research and development objectives, defend our intellectual property rights, and recruit and retain skilled personnel, and key members of management. Even if our product development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.
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We plan to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. We may not be able to obtain financing on acceptable terms, or at all, and we may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect our holdings or the rights of our stockholders. If we are unable to obtain funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business prospects.
Components of Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, we will not generate revenue in the future. Our current revenues are not related to our core business, but rather are residual and primarily consist of income from subleases of our office space.
Operating Expenses
Our expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, which include:
expenses incurred under collaborations with third parties, including contract research organizations, or CROs, and Universities, that conduct research and preclinical studies, such as in-vitro and in-vivo absorption, distribution, metabolism and excretion (“ADME”), cell model studies, in-vivo pharmacology and pharmacokinetic studies, toxicology studies and chemical synthesis, on our behalf;
employee salaries, benefits and other related costs, including share-based compensation expenses, for employees engaged in research and development functions and overhead allocations consisting of various support and facilities-related expenses, which include rent, utilities and maintenance of our Barcelona labs and Lugano office, depreciation, travel and congress expenses;
fees paid to consultants who assist with research and development activities and related travel expenses; and
the cost of sponsored research, which includes laboratory materials and supplies, manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical studies.
The following table provides a breakout of our research and development expenses by major categories of expense (in thousands):
 
Year Ended
December 31,
 
2020
2019
2018
Pre-clinical activities and outside services
1,297,694
599,125
329,853
Personnel expenses
1,100,722
906,142
390,824
Other
176,611
187,401
106,203
Research grants
(315,823)
(106,423)
Total research and development expenses
2,259,204
1,586,245
826,880
We recognize research and development costs as incurred and these costs are reflected in our financial statements as prepaid or accrued research and development expenses. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development
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expenses. We anticipate that our research and development expenses will increase substantially in future periods to support progress in our research and development activities, including the commencement of the clinical trials for product candidates we are developing. These increases will likely also result from increased headcount, expanded infrastructure and increased insurance costs.
Our primary research and development focus since inception has been the development of our in-licensed and proprietary SEE-Tx platform. We are using our platform to design and develop a broad pipeline of STARs.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will continue to increase in the foreseeable future as we (i) increase personnel costs, including stock-based compensation, (ii) continue preclinical development of our lead compounds, (iii) initiate clinical trials for certain product candidates, (iv) continue to discover and develop additional product candidates, and (v) pursue later stages of clinical development of product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, bonus and other related costs, including share-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services, insurance costs, travel expenses, and facility-related expenses, and other operating costs.
We anticipate that our general and administrative expenses will increase in the future, in the form of additional compensation, including salaries, benefits, incentive arrangements and share-based compensation awards, as we increase our headcount to support the expected growth and the potential commercialization of our product candidates. We also expect to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.
We expect our general and administrative costs to increase as we attract and retain additional personnel.
Other Income (Expense)
Other income (expense) consists of interest expense on convertible debts and foreign exchange gain or loss.
Income Taxes
The Company is subject to taxation in the United States, Spain and Switzerland. Taxes are recorded on an accrual basis and represent the allowances for taxes paid or to be paid for the year, calculated according to the current enacted rates and applicable laws. The Company was incorporated on June 26, 2020 and has not recorded an income tax provision or benefit for the United States (U.S.) federal and state incomes taxes during the year ended December 31, 2020. GT Gain Therapeutics SA, our wholly-owned subsidiary located in Lugano (Switzerland), has accumulated net operating losses since inception and has not recorded an income tax provision or benefit for the federal and cantonal Swiss taxes for the years ended 2020, 2019 and 2018. Gain Therapeutics Sucursal de Espana, our wholly-owned branch located in Barcelona (Spain), has recorded an income tax provision on an effective tax rate of 25%, which represents the statutory tax rate, as no discrete items were noted in the computation of incomes taxes, for taxes amounting to $5,386, $7,114 and $9,781, respectively for the years ended 2020, 2019 and 2018.
As of December 31, 2020, the domestic NOLs carried forward amounted approximately to USD 532 thousand. Due to the uncertainty regarding the realization of the related deferred tax assets, full valuation allowance has been posted as of December 31, 2020.
Foreign NOLs carried forward refer to our wholly-owned subsidiary GT Gain Therapeutics SA. This entity generated losses since its inception and for the year ended December 31, 2020, 2019 and 2018 NOL carried forward amount to USD 6,076 thousand, USD 3,660 thousand and USD 1,370 thousand, respectively. Due to the uncertainty regarding the realization of the related deferred tax assets, full valuation allowance has been posted as of December 31, 2020, 2019 and 2018. According to Swiss tax law, these NOLs can be carried forward for seven years and will begin to expire commencing from 2025 for the NOLs generated in 2017.
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As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. We believe that it is more likely than not that the benefit for deferred tax assets will not be realized. In recognition of this uncertainty, a full valuation allowance was applied to the deferred tax assets. Future realization depends on our future earnings, if any, the timing and amount of which are uncertain as of December 31, 2020. In the future, should management conclude that it is more likely than not that the deferred tax assets are partially or fully realizable, the valuation allowance would be reduced to the extent of such expected realization and the amount would be recognized as a deferred income tax benefit in our consolidated statements of operations.
There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from inception of the company. There have been no material income tax-related interests or penalties assessed or recorded.
No liability related to uncertain tax positions is reported in our consolidated financial statements.
Results of Operations
The following table summarizes our historical results of operations. The period-over-period comparison of results of operations is not necessarily indicative of results for future periods. You should read this discussion of our results of operations in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
 
Year Ended
December 31,
 
2020
2019
2018
Revenues:
Other income
$28,881
$41,301
$20,609
Total revenues
28,881
41,301
20,609
Operating expenses:
 
 
Research and development
2,259,204
1,586,245
826,880
General and administrative
1,249,126
555,165
222,047
Total operating expenses
3,508,330
2,141,410
1,048,927
Loss from operations
(3,479,449)
(2,100,109)
(1,028,318)
Interest (income) expense, net
(3,637)
20,540
52,477
Foreign exchange (gain)/loss, net
96,484
65,682
14,964
Loss before income tax provision
(3,572,296)
(2,186,331)
(1,095,759)
Income tax provision
5,386
7,114
9,781
Net loss
(3,577,682)
(2,193,445)
(1,105,540)
Net loss per ordinary share:
 
 
 
Basic and diluted loss per share
(1.17)
(0.97)
(0.49)
Weighted-average ordinary shares used in per share calculations – basic and diluted
3,046,355
2,250,000
2,250,000
Comparison of the Years Ended December 31, 2020 and 2019
Revenues
For the years ended December 31, 2020 and 2019 total revenues were $28,881 and $41,301 respectively and consist mainly of income from the sublease of the Lugano office space.
Research and Development Expenses
Research and development expenses increased by $672,959 to $2,259,204 for the year ended December 31, 2020 from $1,586,245 for the year ended December 31, 2019. The increase in research and development expenses was primarily attributable to increases in personnel-related costs as a result of hiring additional personnel for research and development, and increases in outside services as we continue to expand our research and development activities, including external collaborations chemical synthesis, toxicology studies, in vitro ADME and model studies, and in vivo. pharmacology and pharmacokinetic studies. As of December 31, 2020, and 2019, research and development expense are net of research grant of $315,823 and $106,423 respectively.
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General and Administrative Expenses
General and administrative expenses increased by $693,961 to $1,249,126 for the year ended December 31, 2020 from $555,165 for the year ended December 31, 2019. The increase in general and administrative expenses was primarily attributable to increases in personnel-related costs as a result of the hiring of our Chief Executive Officer, Eric Richman, in July 2020 and our Chief Financial Officer, Sal Calabrese, increase in expenses for legal fees relating to patent and corporate matters, professional fees for accounting, professional services and investor relations as we continue to expand our business and build management infrastructure.
Comparison of the Years Ended December 31, 2019 and 2018
Revenues
For the years ended December 31, 2019 and 2018, total revenues were $41,301 and $20,609 respectively and refers mainly to income from sublease of Lugano office space.
Research and Development Expenses
Research and development expenses increased by $759,365 to $1,586,245 for the year ended December 31, 2019 from $826,880 for the year ended December 31, 2018. The increase in research and development expenses was primarily attributable to increases in salaries and wages, travel and congress expenses and outside services as we continue to expand our research and development activities, including external collaborations, chemical synthesis, toxicology studies, in vitro ADME and model studies, and in vivo pharmacology and pharmacokinetic studies. As of December 31, 2019 and 2018, research and development expense is net of research grants of $106,423 and nil, respectively.
General and Administrative Expenses
General and administrative expenses increased by $333,118 to $555,165 for the year ended December 31, 2019 from $222,047 for the year ended December 31, 2018. The increase in general and administrative expenses was primarily attributable to increases in expenses for legal fees relating to patent and corporate matters, professional fees for accounting, auditing, tax and professional services as we continue to expand our business and build management infrastructure for our business.
Liquidity and Capital Resources
Since our inception, we have not generated any revenue from product sales or otherwise and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any products or technologies, and we do not expect to generate revenue from sales of any products in the near term, if at all. We have funded our operations to date primarily through a combination of sales of our securities and research grants.
In February 2019, our wholly-owned subsidiary, GT Gain Therapeutics SA, concluded a capital raise of CHF 1,782,500 or USD 1,772,089 through the issuance of 58,119 shares of Series A Preferred Stock and incurred issuance costs of CHF 20,731 or USD 20,610. Concurrent with the capital raise, GT Gain Therapeutics SA issued 41,225 shares of Series A Preferred Stock in connection with the conversion of two outstanding convertible loan agreements. For additional information regarding this capital raise and notes conversion see “Certain Relationships and Related Party Transactions—February 2019 Capital Raise” and “Certain Relationships and Related Party Transactions—Convertible Notes and Exercise.”
In February 2020, our wholly-owned subsidiary, GT Gain Therapeutics SA, concluded a capital raise of CHF 1,082,500 or USD 1,101,898 through the issuance of 35,295 shares of Series A Preferred Stock and incurred issuance costs of CHF 10,368 or USD 10,553. For additional information regarding this capital raise and notes conversion see “Certain Relationships and Related Party Transactions—February 2020 Capital Raise.”
In March 2020, our wholly-owned subsidiary, GT Gain Therapeutics SA obtained a CHF 14,600 or USD 16,517 five-year loan. The loan has zero interest and it is due at maturity on March 31, 2025. The loan is guaranteed through a joint and several sureties by the Swiss Confederation and Ticino Canton. The loan is part of the infrastructure put in place by the Federal Council and Swiss Parliament to assist companies in Switzerland in view of the economic consequences of the coronavirus.
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In July 2020, Gain Therapeutics Inc. completed a private placement of 3,366,999 shares of Series B Preferred Stock at a purchase price per share of $2.97. Gross proceeds from the offering were $10 million. The private placement offering cost amounted to $878,286. In connection with the private placement, we issued warrants to designees of the placement agent to purchase an aggregate of 269,360 shares of our common stock at an exercise price of $4.46 per share. The warrants provide for a cashless exercise right and are exercisable for a period of five years from July 20, 2020. For additional information regarding this capital raise, see “Certain Relationships and Related Party Transactions—Series B Private Placement.”
In July 2020, GT Gain Therapeutics SA shareholders exchanged their shares in GT Gain Therapeutics SA for shares of Gain Therapeutics, Inc., which resulted in Gain Therapeutics Inc. issuing an aggregate of 2,250,000 shares of our common stock and 1,346,390 shares of our Series A Preferred Stock, reflecting a 10:1 stock split. The amounts of common stock and Series A Preferred Stock disclosed above have been retrospectively adjusted to reflect the share split as described in “Certain Relationships and Related Party Transactions—Series B Private Placement.”
In August 2020, our wholly-owned subsidiary, GT Gain Therapeutics SA obtained a CHF 638,000 or USD 699,139 nine-year loan. The loan has zero interest. The loan is due in quarterly installment of CHF 20,000 commencing on December 31, 2021 and ending on September 30, 2029. The loan is part of the infrastructure put in place by the Federal Council and Swiss Parliament to assist companies in Switzerland in view of the economic consequences of the coronavirus.
Cash Flows
The following table provides information regarding our cash flows for the periods presented:
 
Year Ended
December 31,
 
2020
2019
2018
 
 
(audited)
 
Net cash used in operating activities
​$(3,240,237)
$(1,868,509)
$(774,514)
Net cash used in investing activities
(20,826)
(13,723)
(7,987)
Net cash provided by financing activities
10,486,961
1,751,479
983,778
Net change in cash and cash equivalents
7,190,581
(97,189)
237,884
Net Cash Used in Operating Activities
During the years ended December 31, 2020 and 2019, net cash used in operating activities was $3,240,237 and $1,868,509, respectively, resulting from our net loss of $3,577,682 and $2,193,445, respectively and changes in operating assets and liabilities. The increase in cash used in operating activities resulted primarily from funding our operations related to the development of our product candidates and business expansion.
During the years ended December 31, 2019 and 2018, net cash used in operating activities was $1,868,509 and $774,514, respectively, resulting from our net loss of $2,193,445 and $1,105,540, respectively and changes in operating assets and liabilities. The increase in cash used in operating activities resulted primarily from funding our operation related to the development of our product candidates and business expansion.
Net Cash Used in Investing Activities
During the years ended December 31, 2020 and 2019, net cash used in investment activities was $20,826 and $13,723, respectively, primarily due to purchases of computers and office equipment.
During the years ended December 31, 2019 and 2018, net cash used in investment activities was $13,723 and $7,987, respectively, primarily due to purchases of computers and leasehold improvements.
Net Cash Provided by Financing Activities
During the year ended December 31, 2020 net cash provided by financing activities net of issuance cost was $10,486,961 primarily due to proceeds from (i) the issuance of Series A Preferred Stock in GT Gain Therapeutics SA for $1,091,345, (ii) the issuance of Series B Preferred Stock in the company pursuant to a private placement memorandum, for net proceeds of $9,127,902, (iii) access to long-term loans in the amount of $738,282, and (iv) payment of offering costs totaling $470,745. During the year ended December 31, 2019, net cash provided by financing activities was $1,751,479 primarily due to proceeds from the issuance of Series A Preferred Stock in GT Gain Therapeutics SA, net of issuance costs.
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During the years ended December 31, 2019 and 2018, net cash provided by financing activities was $1,751,479 and $983,778, respectively, primarily from the issuance of Series A Preferred Stock in our wholly-owned subsidiary, GT Gain Therapeutics SA, net of issuance costs and from convertible notes.
Funding Requirements
Our primary use of cash is to fund operating expenses, most significantly research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
our ability to establish additional collaborations on favorable terms, if at all;
the costs required to scale up our clinical, regulatory and manufacturing capabilities;
the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. Because of the numerous risks and uncertainties associated with the development of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials.
We believe that the anticipated net proceeds from this offering, together with our cash on hand, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations converted to USD based on the exchange rate as of December 31, 2020 and the effects that such obligations are expected to have on our liquidity and cash flow in future periods:
 
Total
2021
2022
2023
2024
2025
2026 and
thereafter
 
(in thousands)
Loans
738
23
90
90
91
​107
​337
Operating lease commitments
612
155
116
116
116
109
Collaborative agreement with research centers
509
411
84
14
Total
1,859
589
290
220
207
216
337
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to recognition of grants funds, accrued expenses, defined benefit pension liability, fair value measurements and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Use of Estimates in the Preparation of Financial Statements
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, our future results of operations will be affected.
Research grants
Under the terms of the research and development grants awarded (such as those awarded by the Michael J. Fox Foundation, the Silverstein Foundation, Eurostars and Eureka), we are entitled to receive reimbursement of our allowable direct expenses. Contributions from research and development activities under the grants are recorded based on management’s best estimate of the periods in which the related expenditures are incurred and activities performed and are classified in the statement of operations as a reduction to research and development expenses.
Research and Development Expenses
Several of our activities and related costs are designated research and development expenses, which primarily include salary and benefits payments to our direct employees, employee stock-based compensation expenses, preclinical activities, outside services, material and supplies and contracted services. The billings we receive from contract research organizations for services rendered may not be received for several months following the service. We accrue the estimated costs of the contract research organizations’ related services based on our estimates. We are
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in constant communication with our contract research organizations to assess their progress on the underlying studies and the reasonableness of their cost estimates. Differences between estimated preclinical costs and actual costs have not been material to date, and changes have been made when actual costs became known. Under this policy, research and development expenses can vary due to accrual adjustments related to the underlying preclinical activities and the expenses incurred by the contract research organizations.
Accrued expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time at the date of the preparation of the financial statements. There may be instances in which payments made to our vendors exceed the level of services provided, and result in a prepayment reported under other current assets, which are subsequently expenses in the statement of operations when the related activity has been performed rather than when the payment is made. To date, there have been no material differences between our estimates of accrued expenses reported at each balance sheet date and the amounts actually incurred.
Impairment of Long-Lived Assets
We test long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the long-lived asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, we recognize an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows.
For the years ended December 31, 2020, 2019 and 2018, we did not recognize an impairment loss on our long-lived assets.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016 02, “Leases” (“ASC 842”) to enhance the transparency and comparability of financial reporting related to leasing arrangements. Under this new lease standard, most leases are required to be recognized on the balance sheet as right-of-use assets and lease liabilities. Disclosure requirements have been enhanced with the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases. Prior to January 1, 2019, GAAP did not require lessees to recognize assets and liabilities related to operating leases on the balance sheet. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement as well as the reduction of the right of use asset.
Effective January 1, 2018, we adopted Accounting Standards Codification 842, Leases (“ASC 842”) using the additional transition method option provided by ASU 2018-11. Under this transition method, we applied the new accounting guidance as of the date of adoption. Upon adoption, a cumulative effect adjustment was not required.
Subsequent to the adoption, we determine if an arrangement contains a lease at inception based on whether or not we have the right to control the asset during the contract period and other facts and circumstances. We are the lessee in a lease contact when it obtains the right to control the asset. Operating lease right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a term of 12 months or less at inception are expensed on a straight-line basis over the lease term in the statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain.
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Pension obligations
We operate defined benefit pension plans and defined contribution pension plans in accordance with local regulations and practices. These plans are funded by regular contribution made by the employer and the employees to a third-party. For defined benefit pension plans, the liability recognized in the balance sheets is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The overfunded or underfunded status of the defined benefit plans is calculated as the difference between plan assets and the projected benefit obligations. Estimates are used in determining the assumptions incorporated in the calculation of the pension obligations, which is supported by input from independent actuaries. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in “Accumulated Other Comprehensive Income (Loss)” in the statements of equity and are charged or credited to income over the employees’ expected average remaining working lives. For defined contribution pension plans, we pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. We have no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expenses on an accrual basis. The measurement date used for our employee benefit plans is December 31. The funding policies of our plans are consistent with the local government and tax requirements.
Income Tax
We account for income taxes under the liability method. Under this method deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities and for operating losses and tax credit carry forwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded if it is “more likely than not” that a portion or all of a deferred tax asset will not be realized.
As of each reporting date, the Company considers existing evidence, both positive and negative, that could impact its view with regards to future realization of deferred tax assets. In consideration of the start-up status of the Company, a full valuation allowance has been established to offset the deferred tax assets, as the related realization is currently uncertain. In the future, should management conclude that it is more likely than not that the deferred tax assets are partially or fully realizable, the valuation allowance will be reduced to the extent of such expected realization, and the corresponding amount will be recognized as income tax benefit in the Company’s consolidated statement of operations.
The Company recognizes tax liabilities from an uncertain tax position if it is more likely than not that the tax position will not be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. There are no uncertain tax positions that have been recognized in the accompanying consolidated financial statements.
Fair Value Measurement
Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that categorizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:
Level 1:
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2:
Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3:
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in their assessment of fair value.
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Equity-based Compensation
We apply the fair value method of measuring equity-based compensation, which requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We issue stock-based awards with only service-based vesting conditions and record the expense for these awards using the straight-line method. We have not issued any stock-based awards with performance- or market-based vesting conditions.
We recognize the related cost in the consolidated statement of operations and as additional paid in capital in the consolidated statement of shareholders’ equity in accordance with the vesting period during which the award recipients are required to provide services in exchange for the awards. We account for forfeitures as they occur.
Given the absence of an active market for our common stock, we and the board of directors determined the estimated fair value of our equity instruments based on a number of factors, including prices paid for our convertible preferred stock, which we had sold to outside investors in arm’s-length transactions; our stage of development; and the fact that the grants of stock-based awards involved illiquid securities in a private company.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. As there is no public market for our common stock, we determined the volatility and the expected term for awards granted based on an analysis of reported data for a peer group of similar biopharmaceuticals companies. We expect to continue to do so until such time as we have reliable historical data regarding the volatility of our traded stock price and expected term of exercise patterns. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. We have not paid, and do not anticipate paying, cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero.
The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different.
JOBS Act
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
As described in Note 2 to our financial statements, we adopted certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of completion of this offering, (iii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years or (iv) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates.
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Internal Control Over Financial Reporting
Historically, we have been a private company and did not maintain the internal accounting and financial reporting resources necessary to comply with the obligations of a public reporting company, including maintaining effective internal control over financial reporting. We and our independent registered public accounting firm identified material weaknesses primarily related to a (i) lack of sufficient accounting and supervisory personnel who have the appropriate level of technical accounting experience and training, and (ii) lack of adequate procedures and controls to ensure that accurate financial statements could have been prepared and reviewed on a timely basis for annual reporting purposes.
We have initiated a remediation plan to address the material weaknesses, including the hire of a full time additional employee in our accounting department and a more streamlined process in order to prepare and review financial information; however, our control environment needs improvements, and as a result we may be exposed to errors. Our remediation plan includes hiring additional senior level and staff accountants with US GAAP technical knowledge to support the timely completion of financial close procedures, implementing robust processes, and providing additional needed technical expertise, and in the interim, continuing to engage third parties as required to assist with the preparation of our financial statements and our compliance with SEC reporting obligations. Additionally, we intend to develop and implement consistent accounting policies, internal control procedures and provide additional training to our accounting and financial reporting personnel. While we are working to remediate such weaknesses as quickly and efficiently as possible, we cannot at this time, provide an estimate of the timeframe we expect in connection with implementing our plan to remediate the material weaknesses.
The process of designing and implementing an effective accounting and financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain an accounting and financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our financial statements appearing elsewhere in this prospectus.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As of December 31, 2020, we had cash equivalents consisting primarily of $6,585,656 in money market mutual funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Consequently, changes in market interest rates would not have a material impact on our financial position or results of operations.
As of December 31, 2020, we had debts outstanding of $715,656, guaranteed by the Swiss Federal Authority, at a zero percent interest rate, and are therefore not exposed to interest rate risk with respect to the cost of servicing and repaying debt.
Inflation-Related Risks
We do not believe that the rate of inflation in Spain or Switzerland has had a material impact on our business to date. However, our costs in Spain and Switzerland will increase if the inflation rate in Spain or Switzerland exceeds the devaluation of the Euro or Swiss Franc against the U.S. dollar or if the timing of such devaluation lags behind inflation in either Spain or Switzerland.
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Foreign Currency Exchange Risk
We have operations in Switzerland and Spain as well as in the U.S. The functional currency of each foreign subsidiary is generally the local currency. We are exposed to foreign currency exchange risk as the functional currency financial statements of foreign subsidiaries are translated to U.S. dollars. The assets and liabilities of our foreign subsidiaries having a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, and at the average exchange rate for the reporting period for revenue and expense accounts. The cumulative foreign currency translation adjustment is recorded as a component of accumulated other comprehensive loss in shareholders’ equity. The reported results of our foreign subsidiaries will be influenced by their translation into U.S. dollars by currency movements against the U.S. dollar. Our primary currency translation exposure is related to our subsidiaries that have functional currencies denominated in CHF. A hypothetical 10% strengthening or weakening in the rates used to translate the results of our foreign subsidiaries that have functional currencies denominated in CHF would have increased or decreased net income for the year ended December 31, 2020 by approximately $268,009.
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OUR BUSINESS
We are a development stage biotechnology company developing novel therapeutics to treat diseases caused by protein misfolding, with an initial focus on LSDs, including rare genetic diseases and neurological disorders. We use our exclusively in-licensed platform, SEE-Tx, to discover novel allosteric sites on misfolded proteins and identify proprietary small molecules that bind these sites and restore protein folding, potentially treating the underlying disease. These small molecule binding sites, away from the protein’s active areas, are called allosteric sites. We believe targeting the allosteric binding site instead of the active binding site can provide a number of advantages: superior regulation of misfolded proteins implicated in disease, enhanced specificity by being non-competitive with the natural substrate and the potential for molecules with favorable drug-like properties. While the SEE-Tx platform is novel and has not been used to develop approved drugs yet, these advantages have the potential to ultimately enhance both tolerability and response.
As of February 19, 2021, we have already identified and filed three patent applications and one provisional patent application (such applications do not cover the United States) for our novel STARs, which are small molecules with the potential to treat diseases with high unmet medical need for which there are currently few or no available therapies. These diseases include Morquio B, GM1 Gangliosidosis (GM1), neuronopathic Gaucher disease, GBA1 Parkinson’s disease, Krabbe disease and Mucopolysaccharidosis type 1.
We are currently advancing the development of our STAR candidates through preclinical studies where we will continue to identify optimal lead compounds for each indication that we will advance into clinical trials. Through academic partnerships, co-development and licensing arrangements, we intend to develop a broad pipeline of therapeutics to catalyze a new approach to the treatment of diseases caused by misfolded enzymes. We expect to obtain additional preclinical data and commence IND-enabling studies for lead compound candidates beginning in 2021, at which point we will begin the process to prepare and submit investigational new drug, or IND, submissions to the FDA seeking clearance to commence clinical research.
Protein Misfolding and Disease
Proteins are large biomolecules that have a vast array of functions in different cell types in the body. Enzymes are a type of protein that accelerate and facilitate chemical reactions inside of cells by acting on substrates and converting those substrates into different chemical products. To perform their function in the body, enzymes and other proteins must be folded into the correct three-dimensional shape. Misfolded enzymes may not function properly, which can lead to the toxic accumulation of unprocessed substrate which is the cause of many rare genetic diseases, including LSDs and some neurodegenerative diseases such as certain forms of Parkinson’s disease. Enzyme misfolding may arise from genetic mutations that disrupt the folding pattern as well as from cellular stress due to aging and inflammation. Therapeutic small molecules that facilitate the folding of enzymes into their correct shape can restore function and the proper processing of substrate. As illustrated below, in LSDs, the gene that codes for an enzyme is mutated and results in a misfolded enzyme. The misfolded enzyme cannot traffic through the cell resulting in toxic protein accumulation. We believe that our STARs will have the ability to bind to the allosteric site of the defective enzyme and restore wild type activity and thus serve as potential therapeutic treatments for diseases.
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Limitations on Current Therapeutic Treatments
Current therapeutic approaches to address misfolded enzymes have inherent limitations. In standard chaperone therapy, the drug binds to the active site of the enzyme or other target protein which impairs the protein’s function to some degree by competing with the active substrate, decreasing efficacy and potentially leading to selectivity issues. Other treatments such as ERT, in which new functional enzymes are infused into the patient, are not optimal for treating neurological conditions because currently available ERT cannot cross the blood-brain barrier. Gene therapy, which aims to create new, functional enzymes, is not readily accepted for treating neurological conditions because the procedure is invasive in nature and the efficacy of treating neurological conditions remains to be established. Given these limitations on current therapies, we believe patients would benefit from a new therapeutic approach both on its own and, potentially, in combination with existing therapies. We believe our therapeutic approach represents a potentially significant change from current approaches by addressing protein misfolding using our efficient and proprietary ability to identify previously undiscovered allosteric sites and compounds that avoid the active sites of enzymes and cross the blood-brain barrier or penetrate other hard-to-treat organs such as bone and cartilage. Additionally, our approach enables the less-invasive process of oral administration.
Our Platform – Computational Identification Approach
Overview
Our exclusively in-licensed and proprietary SEE-Tx platform allows us to identify previously undiscovered sites on an enzyme where a small molecule can attach and potentially facilitate the enzyme into the correct folding pathway, all without disrupting its function. We refer to the small molecules we identify that bind to these allosteric sites as STARs to reflect their mechanism of action and how they are discovered.

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Allosteric Site Identification
Using the three-dimensional structure of enzymes and our computational technology, our SEE-Tx platform identifies and maps, through molecular simulations, previously uncharacterized binding sites called “binding hotspots.” These are key points on the protein surface where a small molecule can potentially bind. The amount, density, nature and quality of these hotspots determine the druggability of the protein, that is, if the drug-like small molecules can effectively bind to the particular site with an appropriate potency. We then use our proprietary structure-based virtual screening methodology to filter a pool of seven to ten million commercially-available compounds to identify those that may potentially bind to the hotspot and have a functional effect. Using this information, we develop structural templates to guide the development of a narrowed pool of unique and proprietary small molecules that bind to the newly discovered allosteric sites and could potentially facilitate the enzyme into the correct folding structure and treat diseases.
As illustrated below, we believe our ability to identify and target previously uncharacterized allosteric binding sites has the potential to ultimately enhance both tolerability and response.

STAR Identification – Our Molecular Hypothesis
We believe our STAR identification process is a more efficient and effective drug discovery tool than random screening because we use a validated-target approach. In random screening, very large libraries of molecules are tested for their ability to perform a specific function such as binding to a target. This approach typically results in a large number of positive responses that must then be laboriously screened to identify product candidates that are worth pursuing. In contrast, every small molecule generated by our platform is analyzed based on a two-part molecular hypothesis: (i) the restoration of the function of the target enzyme could be a treatment for the disease and (ii) our SEE-Tx platform could identify druggable allosteric binding sites that could be exploited to restore the enzyme’s functional activity. This validated-target approach confers a great advantage during the lead compound optimization process compared to random screening approaches. The lead compound optimization process is the process by which drug candidates are synthetically refined from their original state into an agent that is safer, more potent and more useful. The goal during the lead optimization stage is to maintain favorable properties in lead compounds, while improving on deficiencies in lead structure. We can identify an allosteric site in five to six weeks, screen hits in two to three weeks and validate compounds in two to three months. In addition, compared to random screening, our validated-target approach is comparatively less expensive, requires less time to produce results with a higher success rate because this approach eliminates a number of false-hits by requiring each output to meet our two-part molecular hypothesis.
We believe each STAR has high specificity to its allosteric binding site and does not interact with the active site of the enzyme target, which is designed to enhance both tolerability and response. Our technology allows us to identify STARs that have the ability to bind to both mutant and wild-type enzymes. Because they are small molecules, STARs can be administered orally, have the ability to cross the blood-brain barrier and enter hard-to-treat tissues such as bone and cartilage. We believe the ability to cross the blood-brain barrier is essential to effectively treating diseases with neurological symptoms. In addition, we believe our STARs could be used in combination with ERT or gene therapy approaches to more completely address the patient’s needs.
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Our Pipeline of STARs
We are leveraging our SEE-Tx technology platform to develop a pipeline of novel drug candidates to address diseases caused by protein misfolding. We are initially focusing on several LSDs with high unmet medical need, with the ability to expand our pipeline as we continue to discover new targets. We have entered into a number of academic collaborations to advance the development of our programs, such as with the University of Minnesota and the University of Maryland; these collaborations are understandings to work together in the research of specific demyelinating diseases and neither we, nor the institutions we collaborate with, are under contractual obligations to continue the collaboration and all parties retain their respective intellectual property. Additionally, in June 2020, we entered into a two-year research collaboration agreement with Sumitomo for the research and development of structurally targeted allosteric regulators to restore functional activity of defective lysosomal enzymes in rare genetic and demyelinating diseases.

Development Pipeline

GLB Enzyme-Related Disorders: GM1 Gangliosidosis and Morquio B
We are investigating restoration of GLB function as a treatment for GM1 and Morquio B. GLB is an enzyme found in lysosomes, which are compartments within cells that degrade and recycle different types of molecules, including toxic molecules. GLB is essential for the breakdown of GM1 and keratan sulfate, which serve important functions in the brain and other tissues. Misfolding of GLB allows these substrates to build up to toxic levels and leads to the diseases GM1 and Morquio B.
There are currently no cures for these diseases. Available treatment options include substrate reduction therapy, which cannot cross the blood-brain barrier or reach either bone or cartilage, and can therefore only help manage select symptoms. Additionally, while gene therapy approaches are being explored, they are still in early clinical development, require surgical procedures and are prone to immunological responses from the vectors. Conversely, our STARs in our GLB1 program are designed to cross the blood-brain barrier, and STARs in our GM1 program are designed to penetrate bone tissue, which is an important target tissue for treatment of Morquio B.
We have identified novel STARs targeting GLB, and the four most promising compounds have been selected as leads: GT-00413, GT-00493, GT-00513 and GT-00546. Data from our preclinical studies have shown that our STARs do not inhibit the normal activity of GLB in healthy cells, whereas competitive chaperone compounds typically do. Preclinical studies indicate that our STARs help mutated β-galactosidase escape premature degradation and travel to the lysosome where it can perform its catalytic activity. In addition, preclinical studies of these STARs in GM1-affected cells and Morquio B-affected cells show an increase in GLB activity and a reduction in the accumulation of a GM1 ganglioside substrate.
Overview of GM1 Gangliosidosis
GM1 is a rare and often life-threatening LSD in infants (type 1), juveniles (type 2) and adults (type 3). It manifests in a continuum of clinical severity by type. In type 1 or the infantile form, the onset is observed earlier and is a more severe and rapidly progressive disease. Type 2 and 3 are less severe manifestations and have slower progression with a juvenile or adult onset. The infantile form of the disease is characterized by onset in the first year of life with symptoms including hypotonia (reduced muscle tone), progressive CNS dysfunction that can lead to
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deafness, blindness, enlarged liver and spleen rigidity, and progressive skeletal dysplasia that can result in restrictive lung disease and aspiration pneumonia. The disease rapidly progresses, with a life expectancy of two to four years. Juvenile GM1 manifests between 18 months and five years of age with a slower progression compared to infants. The average life expectancy for type 2 GM1 is typically 10 years. Adult GM1 has an onset age between three and 30. While it is less severe and progresses at a slower rate than infantile or juvenile GM1, adult GM1 causes debilitating symptoms, including muscular atrophy, corneal clouding and dystonia.
GM1 is caused by recessive mutations in the GLB1 gene, which encodes the lysosomal enzyme GLB. This enzyme catalyzes the first step in the natural degradation of GM1 ganglioside. The reduction in GLB activity can result in the accumulation of toxic levels of GM1 ganglioside in neurons throughout the brain and highly variable storage of glycosaminoglycans and glycopeptides in visceral and skeletal tissues, causing progressive damage to both the CNS and the peripheral tissues.
The prevalence of GM1 is approximately 1:100,000 to 200,000 live births worldwide. Currently, there is no effective cure for GM1, and symptomatic treatment options, including substrate reduction therapy, ERT, bone marrow transplantation, stem cell transplantation and gene therapy are limited or still under development. Existing approaches are unable to address both the neuronal and systemic symptoms because current treatment options cannot cross the blood-brain barrier or reach other hard-to-treat organs such as bone.
Overview of Morquio B
Morquio B is a progressive LSD that results from a defect in the GLB1 gene which leads to the accumulation of keratan sulfate in bones, cartilage and the cornea. Clinical presentation of the disease ranges from a severe, rapidly progressing form (which represents the classical description of this disorder) to a phenotype that evolves more slowly. Onset of disease symptoms commonly occurs before the age of one year in patients with a severe phenotype or as late as the second decade of life in patients with the slowly progressing form of the disease. Patients with Morquio B retain their normal neurological functions but develop severe skeletal changes which may lead to nerve compression, growth retardation, corneal clouding, and impairment of cardiac function.
The prevalence of Morquio B is approximately 1:200,000 to 300,000 live births. Currently, there is no effective cure for Morquio B, and symptomatic treatment options, including substrate reduction therapy, ERT, bone marrow transplantation, stem cell transplantation and gene therapy are limited or still under development. Existing approaches are unable to address both the neuronal and systemic symptoms because current treatment options cannot cross the blood-brain barrier or reach other hard-to-treat organs such as bone.
Preclinical Characterization of GLB STAR Lead Compounds
Biological Activity
We have identified novel STAR molecules targeting GLB through our SEE-Tx platform. The four most promising molecules selected as lead compounds were: GT-00413, GT-00493, GT-00513 and GT-00546. We conducted our initial studies on these compounds. After additional studies, we narrowed our lead compounds to: GT-00493 and GT-00513. Binding of these compounds to the GLB target has been confirmed using a biophysical assay. In LSDs, the mutant enzyme is often unstable and is rapidly degraded in the endoplasmic reticulum (ER). Preclinical studies indicate that our STARs help mutated GLB escape premature degradation and travel to the lysosome where it can perform its catalytic activity. These preliminary studies were conducted in vitro using cells that carried the GLB1 mutation.
The figure below shows how GT-00513 increases the delivery of β-galactosidase to the lysosome. HEK293 cells were transfected with WT (normal GCase expression), I51T (a prevalent mutation associated with GM1) or W273L (a prevalent mutation associated with Morquio B) GLB1-HaloTag and were treated with the indicated compounds for
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17 hours and a fluorescent Halo ligand. Once the protein reaches the lysosome, the tag is cleaved off β-gal but is resistant to lysosomal hydrolases enabling the detection of a 31 kDa fluorescent fragment that corresponds to the protein that reached the lysosomes. Lysosomal fragment is measured by western blot.
Effect on protein maturation and lysosomal delivery of WT and mutant β-galactosidase

The figure below shows that GT-00413 treatment cleared the toxic GM1 ganglioside accumulation (green florescence) in GM1-affected canine cells. In this preclinical study, canine GM1-affected cells were loaded with GM1 ganglioside for two days followed by the addition of GT-00413 for four days. The canine cells were stained to detect GM1 ganglioside which appears green, and cell nuclei were stained to appear blue. The images in the top row below show the cells before GT-00413 treatment. Images in the lower row show the same cells after treatment with GT-00413, showing the reduction of the GM1 ganglioside substrate.
GM1 ganglioside depletion in GM1-effected cell lines

Toxicology and Safety
Our STAR lead GLB-targeting molecules have been evaluated in an acute toxicity study in mice after oral administration, we treated two mice per dose and monitored the mice for seven days. No abnormal clinical signs were observed in any of the molecules (GT-00413, GT-00493, GT-00513 and GT-00546) and there were no mortalities in mice when dosed at 50, 150 and 400 mg/kg. The maximum tolerable dose in mice was therefore higher than 400 mg/kg.
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Pharmacokinetics
Our STAR lead GLB-targeting molecules have been tested in pharmacokinetic (PK) studies after intravenous and oral administration in mice. These molecules were initially tested in a neuro-PK study to evaluate their brain penetration (three mice were treated for each of 15 minutes, two hours and eight hours). An intravenous dose of 10 mg/kg was administered to mice, and plasma and brain drug levels were measured at 15 minutes, two and eight hours after dosing. All the tested molecules showed positive brain-penetrating properties.
We have also performed oral bioavailability studies in mice to compare oral versus intravenous exposure. In the seven-day PK study, after repeated administration, we used 27 mice in total (nine for each dose group). The animals were observed after the oral administration and they were found normal with no central or peripheral clinical abnormalities. The brain to plasma ratio was greater than one at each dose tested (up to 1.9) while the bone to plasma ratio increased over time (from one hour to eight hours), which equals a ratio of 15.1 at one hour and 44.3 at eight hours.
The pharmacokinetic profile was completed with PK studies after repeated treatments to obtain safety information and exposure in tissues including some of the most relevant for the GM1 disease: brain and bone. We conducted plasma pharmacokinetics and tissue (brain and left femur bone) distribution analyses of GT-00413 following a single oral (180 mg/kg) and seven day repeated oral (30 and 90 mg/kg) dose administration in mice. GT-00413 was generally well-tolerated after seven days of treatment without showing clinical signs. Comparable plasma exposure was observed at oral doses of 30 and 90 mg/kg and accumulation was not observed after seven days of treatment. Brain concentrations were quantifiable up to eight hours following the last dose showing brain and bone exposure. A single oral dose of 180 mg/kg was quantifiable in plasma, brain and bone up to eight hours after administration.
Typically, therapeutic compounds having a brain to blood ratio from 0.3 to 0.5 have sufficient access across the blood-brain barrier, those with a value greater than 1 freely cross the blood-brain barrier, and those with a ratio less than 0.1 may not have access to the CNS. Results are shown in the graphs below:
Plasma pharmacokinetics and tissue (brain and left femur bone)
distribution of GT-00413 in mice

Pharmacology
We are planning to evaluate these lead molecules in pharmacology studies to obtain the proof of concept in relevant animal models. These studies have been planned for the fourth quarter of 2020 and second half of 2021 and
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are expected to be performed with a CRO along with the academic group at the University of Minnesota headed by Professor Chester Whitley, a professor in the Department of Pediatrics and faculty member in the Division of Genetics and Metabolism, the Department of Experimental and Clinical Pharmacology, and Mucopolysaccharidosis Center.
GBA1 (GCase) Enzyme-Related Disorders: Neuronopathic Gaucher Disease and GBA1 Parkinson’s Disease
We are investigating the restoration of GCase enzymatic function as a treatment for neuronopathic Gaucher disease (nGD), a LSD. Unlike other types of Gaucher disease, none of the existing therapeutics are effective in treating nGD. GCase is an enzyme encoded by the GBA1 gene and found in lysosomes that is needed to breakdown the large molecule glucocerebroside (a component of the cell membrane) into sugar and fat. The misfolding of GCase can lead to accumulation of these substrates to toxic levels in the liver, spleen, bone marrow and nervous system and can result in lysosomal storage and neurodegenerative diseases.
The GCase mutation most commonly associated with nGD is also found in the most pathogenic form of Parkinson’s disease. Reduced GCase activity may enhance the risk for Parkinson’s disease by facilitating alpha-synuclein accumulation, which is a pathological hallmark of Parkinson’s disease. As a result, we are also investigating restoration of GCase function in patients with GBA1 Parkinson’s disease (GBA1+PD). Currently, there is no cure for nGD or for GBA1+PD, and there are very limited treatment options. Current treatments such as ERT cannot address central nervous system symptoms because they cannot cross the blood-brain barrier, unlike our STARs.
We have identified novel STARs targeting GCase and are continuing characterization of our most promising compounds. Data from our preclinical studies have shown that in normal cell lysates these STARs do not inhibit the normal activity of GCase in healthy cells, while competitive chaperone compounds typically do. In transfected cells with either normal GCase expression or Case with relevant mutations, STARs increase lysosomal GCase. In addition, preclinical studies of these STARs in healthy and GCase-affected cells show an increase in GCase activity, and preclinical studies in a relevant neuronal model of Gaucher patient-derived fibroblasts show a reduction in the accumulation of toxic GCase substrate. A reduction of alpha-synuclein accumulation was also observed in the same neuronal models as well as two other neuronal in vitro models. A preclinical in vivo animal study, discussed in more detail below, indicated that these STARs enhance GCase wild-type enzyme activities and a rotenone induced Parkinson’s disease animal demonstrated that oral administration of STARs lead to depletion of alpha-synuclein, increase in tyrosine hydroxylase and improvement in locomotor activity.
Overview of GBA Gaucher Disease
Gaucher disease is an inherited LSD caused by the misfolding and subsequent dysfunction of beta-glucocerebrosidase (GCase), an enzyme that breaks down fatty chemicals in the body. Gaucher disease is traditionally classified according to one of three types. Type 1 Gaucher disease is traditionally referred to as a non-neuronopathic form of the disease, for which some treatments are available, but evolving science has shown that patients with type 1 Gaucher disease may also manifest neurological symptoms later in life. Current ERT and gene therapy treatments are unable to address the onset of type 1 neurological symptoms because these treatments are unable to cross the blood-brain barrier. Unlike Gaucher disease type 1, Gaucher disease types 2 and 3 have early onset brain degeneration that gets progressively worse over time. For this reason, Gaucher disease types 2 and 3 are known as neuronopathic Gaucher disease (nGD). Currently, there is no effective treatment for the severe brain degeneration associated with Gaucher disease types 2 and 3. In type 2 Gaucher disease, there is neurological impairment that presents before birth through the first months of life, progresses rapidly, and is typically fatal within two years. It is a devastating disorder characterized by neurodegeneration and brainstem dysfunction. Additionally, infants with Gaucher disease may have abnormally large organs, deficiency in growth, seizures and compromised swallow and airway problems. Gaucher disease type 3 (also known as chronic neuronopathic Gaucher disease) is thought to be the most common type worldwide. It has a later and more gradual onset compared with type 2. People with Gaucher disease type 3 may survive into adulthood with a wide variety of signs and symptoms, including seizures, skeletal irregularities, eye movement disorders, cognitive and coordination problems as well as enlarged liver and spleen, respiratory problems and blood disorders.
Gaucher disease is caused by alterations in the GBA1 gene that encodes GCase, an enzyme which catalyzes a key step in breaking down glucosylceramide and glucosylsphingosine. Partial or complete loss of GCase activity can cause the buildup of glucosylceramide and glucosylsphingosine in the lysosomes of macrophages and the accumulation of these lipid substrates within the CNS can result in neurological symptoms.
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The prevalence of Gaucher disease type 1 (non-neuronopathic Gaucher disease) is reported as 1:57,000 to 75,000 people worldwide. Type 1 is the most common form in Western countries (around 95%). The prevalence of type 2 and type 3 Gaucher disease (so called neuronopathic Gaucher disease) is approximately 1:100,000 people worldwide, and these forms are the most common in non-Western countries, especially in Asian countries where they make up more than 50% of the Gaucher disease patient population. At present there are no available treatment options for neuronopathic Gaucher disease, but ERT is still used to address organ enlargement, hematological manifestation and bone disease, as well as to improve the quality of life for these patients. ERT does not cross the blood-brain barrier and is not efficient in treating neurological manifestations, therefore creating a significant unmet medical need in this patient population.
Overview of GBA1 Parkinson’s Disease
Mutations in the GBA1 gene are also among the most pathogenic risk factors for the development of Parkinson’s disease and related neurodegenerative disorders characterized by the accumulation of alpha-synuclein in cell bodies of neurons. Studies have shown a link between patients with nGD and people who carry the mutation for Parkinson’s disease, although the exact mechanism for this association has not been fully elucidated.
It is widely accepted that GCase deficiency has a biological role as a modifier or facilitator of Parkinson’s disease pathogenesis in the brain. Brain autopsy studies have shown that even some cases of idiopathic Parkinson’s disease (without GBA1 mutations) exhibit decreased levels of GCase. GCase activity may enhance the risk for Parkinson’s disease by facilitating a pathological hallmark, namely alpha-synuclein accumulation. Alpha-synuclein accumulation and GCase deficiency are thought to act in a debilitating cycle. GCase deficiency can cause the accumulation of glucosylsphingosine substrate, which has been reported to directly affect the accumulation and aggregation of alpha-synuclein. In addition, increased alpha-synuclein levels can lead to less GCase activity, which in turn can lead to more alpha-synuclein accumulation.
Parkinson’s disease is reported to affect about 1 in 780 people worldwide. Approximately 2.3 to 9.4% of patients with Parkinson’s disease carry GBA1 mutations, making it the major genetic risk factor for the disease and this rate is higher in certain patient populations. At present, there is no effective cure for Parkinson’s disease associated with GBA1 mutations (GBA1+PD). Treatment options or potential treatments, such as ERT, are limited due to their inability to cross the blood-brain barrier and are therefore unable to prevent neurodegeneration. Current approved therapies for Parkinson’s disease are limited to symptomatic treatments such as levodopa, dopaminergic receptor agonists and inhibitors of enzymes related to dopamine metabolism such as monoamine oxidase inhibitors and catechol-O-methyltransferase inhibitors. These therapies aim to improve overall dopaminergic function. The benefits of these types of treatments diminish over time as the disease progresses, and these therapies do not impact the non-motor symptoms or the progression of the disease. As the disease progresses, the non-motor symptoms, such as dementia and cognitive impairment, can lead to severe morbidity and mortality.
Preclinical Characterization of GBA1 STAR Lead Compounds
Biological Activity
We have identified novel STAR molecules targeting GCase and are conducting preclinical screening of the most promising compounds. Biophysical assay results have demonstrated that our STAR compounds can specifically bind to GCase protein and increase its thermal stability. We observed a dose-dependent increase in GCase activity in normal and GCase mutant cells when treated with our STAR molecules. Additionally, selected compounds have shown cell type and mutation specific GCase enzyme enhancement in an extended panel of patient derived cells representative of the most frequent and pathogenic GBA1 mutations related to GBA1 Parkinson’s and neuronopathic Gaucher’s disease. The figure below contains results from preclinical screening of one of our promising compounds for Gaucher’s disease. The Gauchers fibroblast lines shown below represent nearly all of the known mutations in Gaucher's type III and neuronopathic Gaucher's disease.
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Compound shows enzyme enhancement in Gaucher patient-derived fibroblasts

Treatment with GT-2287 of transfected cells both with WT and mutated GBA1 leads to GCase lysosomal delivery. HEK293 were transfected with either GBA WT, GBA L444P and GBA N370S with HaloTag, 30 hours later, compounds and a fluorescent Halo ligand that covalently binds to a pocket in the tag were added for 17 hours. Once the protein reaches the lysosome, the tag is cleaved off GCase but is resistant to lysosomal hydrolases enabling the detection of a 31 kDa fluorescent fragment that corresponds to the protein that reached the lysosome. Full length protein and lysosomal fragment were measured by western blot.
The figures below show the results from our initial lysosomal delivery study of our GT-2287 compound:
Compound shows increase in lysosomal GCase delivery

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As shown in the figures below, treatment with GT-02287 and GT-02329 of cells bearing wild-type and L444P GCase leads to a decrease of glucosylsphingosine. Dopaminergic neurons BE(2)-M17 carrying either wild-type or L444P GBA1 mutation were treated for 10 days with 25 μM of GT-02287 or GT-02329 compounds. Media exchange with compound was performed after 3 days, then after 4 days and finally cells are harvested after 3 additional days. GlcSph (Lyso-Gb1) levels were quantified by LC-MS/MS.
STAR compounds decrease glucosylsphingosine levels in the neuronal cell model

Supported by a grant from the Michael J. Fox Foundation and the Silverstein Foundation, the promising compounds were further evaluated in a neuronal cell model developed by the Vall d’Hebron Research Institute. These neuronal cell lines express either normal or mutated GCase and display alpha-synuclein accumulation. Since accumulation of alpha-synuclein is the pathological hallmark of Parkinson’s disease, the use of these cell lines is important to determine the capacity of STAR compounds to decrease accumulation of the most pathogenic form of alpha-synuclein, namely phosphorylated alpha-synuclein (p-synuclein) through enhancement of GCase activity.
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As shown below, Compound 1 has shown an ability to increase GCase activity in the neuronal model and to decrease the levels of phosphorylated synuclein (green fluorescence) both in the wildtype and in the most pathogenic GBA1 mutations (L444P and N370S).
Decrease p-synuclein levels in differentiated neuronal cell lines

Toxicology and Safety
We are continuing our medicinal chemistry analysis and other work to optimize our lead series for this indication. GT-002287 was administered in mice after IV (3 mice per dose group) and oral administration (12 mice per dose group). GT-002287 was safe up to 60mg/kg IV and was well tolerated up to 120mg/kg PO BID following sub-chronic twelve days treatment.
Pharmacokinetics
We examined promising STAR molecules in neuro-PK studies to evaluate their brain penetration properties. Several of the compounds selected showed high brain exposure with a brain-to-plasma ratio level greater than one. A complete PK program, including bioavailability and exposure in tissues, will start as soon as new leads have been generated based on the ongoing medicinal chemistry efforts.
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Pharmacology
A preclinical mouse model demonstrated that oral administration of GT-02329 significantly enhances WT GCase activity and the effect is dose-dependent. GT-02329 was administered orally, twice a day for 12 days, to ten mice per group and samples were collected one hour after the final administration.

A preclinical rotenone-induced Parkinson’s disease model demonstrated that oral administration of GT-02287 leads to depletion of alpha-synuclein, increase in tyrosine hydroxylase and improvement in locomotor activity. GT-02287 was administered orally, twice a day for 7 days, to ten rats per group and samples were collected one day after final administration. Rearing behavior and locomotion assessment has been performed at day 8.

In addition, pharmacology studies in mice are planned for the second quarter and fourth quarter of 2021 for GBA1+PD and nGD indications in collaboration with academic groups in Spain. This work will be supported by CROs and by grants from the Michael J. Fox Foundation and the Silverstein Foundation.
IDUA Enzyme-Related Disorders: Mucopolysaccharidosis Type 1
We are investigating restoration of IDUA function as a treatment for Mucopolysaccharidosis type 1 (MPS 1). IDUA is an enzyme in lysosomes needed to breakdown large sugar molecules called glycosaminoglycans (GAGs), especially heparan sulfate and dermatan sulfate. The misfolding of IDUA can allow substrate to build up to toxic levels in the bone and cartilage and can result in MPS 1. There is no cure for MPS 1, and treatment options to address symptoms such as ERT, laronidase, and bone marrow transplants are limited.
We have identified a STAR targeting IDUA and are applying medicinal chemistry approaches to generate proprietary compounds. Preclinical studies of this compound have shown that in healthy cells, this STAR can stabilize recombinant IDUA and increase its activity. Additionally, when this STAR is co-administrated with laronidase, there is a dose-dependent increase in IDUA activity levels in vitro and in mice.
Overview of Mucopolysaccharidosis type 1 (MPS 1)
Mucopolysaccharidosis type 1 (MPS 1) is a rare LSD that presents as a spectrum of symptoms that can include severe impairment of the CNS. Because there is no clear delineation between the syndromes, patients are best described as having one of two subtypes, severe MPS 1 or attenuated MPS 1. Patients with severe MPS 1 typically have earlier onset of symptoms and experience a decline in intellectual function and a more rapid disease progression.
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Symptoms include abnormal formation of the soft tissue of the face, enlarged vocal cords, enlarged liver and spleen, heart valve defects, short stature, joint deformities, corneal clouding, macrocephaly, hydrocephalus, hearing loss, development delays and regression. Children with severe MPS 1 usually do not live past the age of 10. Patients with attenuated MPS 1 make up approximately 55% of all MPS 1 cases and present a variety of symptoms that tend to be less acute than in those seen in severe MPS 1. Due to their longer life span, attenuated MPS 1 patients also make up a larger fraction of the patient population.
MPS 1 results from mutations in the gene encoding IDUA, an enzyme responsible for the hydrolysis of glycosidic bonds in terminal α-L-iduronic acid residues of complex glycosaminoglycans (GAGs), such as heparan sulfate and dermatan sulfate. Impaired degradation of these molecules can lead to their accumulation within lysosomes and triggers a complex cascade of intracellular events ultimately leading to multisystem morbidity caused by tissue damage and organ dysfunction.
The prevalence of severe MPS 1 is reported as affecting about 1 in 100,000 live births. Attenuated MPS 1 is less common and occurs in about 1 in 500,000 live births. At present, there is no effective cure for MPS 1 and there are limited treatment options to address symptoms such as ERT, laronidase, and bone marrow transplants. These approaches, however, do not cross the blood-brain barrier or penetrate the hard to treat tissues like cartilage.
Preclinical Characterization of IDUA Compounds
Biological Activity
We have identified certain compounds that bind to an allosteric site on IDUA with functional effect. We plan to use this compound as a starting point to generate proprietary compounds. These compounds have been shown to stabilize IDUA and protect the enzyme against denaturation in physiological conditions. Preclinical cell-based studies indicate that stability and cellular uptake of IDUA is enhanced when co-administered with these compounds in MPS-affected fibroblasts.
Toxicology and Safety
The acute toxicity of these preliminary test compounds was investigated after acute intravenous administration to mice to provide information on the maximum tolerated dose to be used in pharmacology studies (three mice were treated per dose group and monitored for seven days). Intravenous administration of these compounds at doses up to 45 mg/kg was generally well-tolerated. The highest tested dose of 60 mg/kg resulted in 100% mortality (two out of two treated animals died). Consequently, the dose of 45 mg/kg was considered the maximum tolerable dose for intravenous administration in mice.
Pharmacokinetics
We performed a neuro-PK study in mice after intravenous administration of this compound at 2 mg/kg. We monitored enzymatic activity up to two hours in the plasma and up to six hours in tissues (bone and cartilage) at this dose, the compound was not detected in the brain. However, these compounds showed tissue distribution in bone and cartilage after oral administration in mice (nine mice per dose group). Bioavailability is critical for a potential treatment of MPS 1 as current treatments are ineffective at penetrating bone and cartilage. Additionally, at higher doses limited brain penetration was observed and the low brain penetration of this compound was confirmed from a pharmacology study performed.
Pharmacology
Combination therapy of STARs with pharmacological chaperones and ERT can improve tissue uptake and reduce ERT’s immunogenicity by stabilizing the enzyme in its properly folded and active form in vivo. In preclinical studies, one of our STAR compounds was co-administered with laronidase (Aldurazyme), an approved enzyme replacement therapy, intravenously to mice (we monitored enzymatic activity up to 24 hours in 30 mice per group). Data show the combination treatment stabilized the recombinant enzyme, increasing enzymatic activity levels in plasma, liver, bone and cartilage in a dose-dependent manner. Bone and cartilage represent the most critical medical need due to poor ERT uptake in these tissues. The benefit of combination therapy is particularly noticeable at longer times.
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GALC Enzyme-Related Disorders: Krabbe Disease
We are investigating the restoration of GALC function as a treatment for Krabbe disease. GALC is an enzyme in lysosomes needed to breakdown galactolipids, which are fats primarily found in the nervous system and kidneys. Among the galactolipids that GALC breaks down are galactosylceramide, which is an essential component of neuronal myelin, and psychosine, which is formed during myelin production and is toxic to cells. The misfolding of GALC can result in the toxic accumulation of galactosylceramide, inhibiting myelin production, and of psychosine, leading to demyelination of cells and ultimately to Krabbe disease. There is no available cure for Krabbe disease. Current developments in invasive procedures such as bone marrow transplants have not been shown to provide significant neurological improvements, and most developments in gene therapy treatments are still in the preclinical stages.
We have identified compounds that bind to allosteric sites on GALC and stabilize the enzyme in vitro. We are continuing our development of these promising molecules.
Overview of Krabbe Disease
Krabbe disease is a severe neurological condition that is part of a group of disorders which result from the loss of myelin (demyelination) in the CNS. Myelin is the protective covering around neurons that ensures the rapid transmission of neural signals. The most common form of Krabbe disease, the infantile form, usually begins before the age of one. Initial symptoms typically include irritability, muscle weakness, feeding difficulties, episodes of fever without any sign of infection, stiff posture and delayed mental and physical development. As the disease progresses, muscles continue to weaken, affecting the infant’s ability to move, chew, swallow and breathe. Affected infants also experience vision loss and seizures. Because of the severity of the condition, individuals with the infantile form of Krabbe disease rarely survive beyond the age of two. The less common forms, those that have a later onset, begin in childhood, adolescence, or adulthood. Vision problems and walking difficulties are the most common initial symptoms in these late-onset forms of the disorder, however, signs and symptoms vary considerably among affected individuals. Individuals with late-onset Krabbe disease may survive many years after the condition begins.
Krabbe disease is an inherited LSD caused by mutations in the gene GALC. In affected individuals, GALC substrate psychosine accumulation can trigger a neuroinflammatory response, a loss of myelin forming cells and a progressive demyelination of the central and peripheral nervous systems.
The prevalence of Krabbe disease is reported as about 1 in 100,000 to 1 in 250,000 live births worldwide. At present, there is no effective cure or disease-modifying treatment for Krabbe Disease. Treatment of a child who is symptomatic before six months of age is supportive and focused on improving quality of life and avoiding complications. For older individuals, treatment with HSCT is individualized based on disease burden and manifestations, but it serves to delay disease progression and is not an effective cure.
Preclinical Characterization of GALC STAR Lead Compounds
Biological Activity
We have identified several compounds that bind to allosteric sites on GALC and are able to stabilize GALC against thermal denaturation. We plan to continue our development of these molecules and believe we can develop proprietary compounds with functional effects.
Competition
The biotechnology and pharmaceutical industries, including the rare disease field, are characterized by rapidly changing technologies, intense competition and a strong emphasis on intellectual property. According to an October 2019 Grand View Research report, the global ERT market size is expected to grow at a compound annual growth rate of 7.7% from $6.74 billion in 2018 to $12.1 billion in 2026. Similarly, according to a June 2019 Fortune report, the global neurodegenerative diseases drug market is expected to grow at a compound annual growth rate of 7.4% from $35.5 billion in 2018 to $62.8 billion in 2026. While we believe that our differentiated platform, scientific expertise and know-how, along with intellectual property provide us with competitive advantages, we face current and future competition.
We are not aware of any other companies that are taking the therapeutic approach to protein folding disorders similar to the one we are pursuing. However, we are aware of companies developing gene therapy approaches for our
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target indications. For example, Axovant Gene Therapies, Ltd., recently began clinical trial for its gene therapy treatment for juvenile GM1, and Lysogene, S.A. is expected to initiate a clinical trial for its gene therapy treatment for GM1. Additionally, other companies are developing product candidates for the treatment of Krabbe disease such as Chiesi, Ranedis, Passage Bio, MediciNova and Polaryx, which are in the discovery and preclinical stages, and Magenta which is developing a cell-based approach for various inherited metabolic disorders, including Krabbe disease, which is in clinical trials. Companies such as Prevail Therapeutics and Apollo Therapeutics are developing candidates targeting GCase and GBA1 to address type 2 and type 3 Gaucher’s disease and are in the preclinical and clinical stage for certain candidates. We may also face competition from large pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions with genetic medicine and other therapeutic approaches.
Many of our potential competitors, alone or with their strategic partners, may have substantially greater financial, technical and other resources than we do. These may include larger research and development, clinical, marketing and manufacturing organizations and resources. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any product candidates that we may develop. Competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, new or advanced technologies developed by our competitors may render our current or future product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
Research Collaboration Agreement with Sumitomo Dainippon Pharma Co.
In September 2020, we entered into a strategic research collaboration agreement with Sumitomo for the research and development of structurally targeted allosteric regulators to restore functional activity of defective lysosomal enzymes in rare genetic and demyelinating diseases. Under the terms of the agreement, we and Sumitomo will collaborate to identify and develop small molecules targeting allosteric sites in lysosomal enzymes for the treatment of rare genetic and demyelinating diseases.
License Agreement with Minoryx Therapeutics, S.I.
We have a License Agreement, dated December 20, 2017 (the “Minoryx License Agreement”), with Minoryx Therapeutics, S.I., a company organized under the laws of Spain (“Minoryx”), pursuant to which we obtained, among other things, exclusive worldwide license rights from Minoryx to use and exploit its intellectual property (“IP”), including its SEE-Tx discovery platform for the identification of non-competitive pharmacological chaperones and exclusive worldwide sublicense rights to certain IP licensed by Minoryx from the University of Barcelona and the Institució Catalana de Recerca i Estudis Avançats. Under the terms of the Minoryx License Agreement, we have an exclusive, worldwide, royalty-bearing, assignable, transferable license, including the right to license through multiple tiers of sublicense, to Minoryx’s IP to make, have made, use, import, export, offer to sell, have sold, copy, modify, perform, display, create derivative versions of products in the licensed field or otherwise to exploit Minoryx’s IP in the field. Minoryx’s IP includes the Site-Directed Enzyme Enhancement Therapy (SEE-TX®) discovery platform for identification of non-competitive pharmacological chaperones, certain proprietary Minoryx compounds acting as pharmacological chaperones, all patents and pending applications related thereto and Minoryx’s Know-How and Trademark related to the SEE-TX® platform. We also have an exclusive, worldwide, royalty-bearing, assignable, transferable sublicense, including the right to sublicense through multiple tiers of sublicense, to the IP of Universitat de Barcelona (UB) and Institucio Catalana de Recerca i Estudis Avancats (ICREA) in EP11380102 and know-how and software related thereto, for the purpose of making, having made, using, importing, offering to sell, selling and having sold, copying, modifying, performing, displaying, and creating derivative versions of products in the field. Under the Minoryx License Agreement, products include any product in the field that would infringe the UB/ICREA IP or the Minoryx IP in the absence of the license provided therein. Also, field encompasses any field of use and commercialization of the UB/ICREA IP or the Minoryx IP. Unless earlier terminated, the Minoryx License Agreement expires upon expiration of the royalty term, which occurs ten years after the first product covered by the licensed IP is commercialized. Khalid Islam, the Chairman of our board of directors and one of our founders, is currently the Chairman of the board of directors of Minoryx.
As consideration for the license grant from Minoryx, we have agreed to pay Minoryx royalties on a product-by-product basis based on the licensed IP used by us, ranging from a high single digit to low single digit
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percentage of net revenues of products during the royalty term commencing on the effective date of the Minoryx License Agreement and continuing until the 10th anniversary of the first product commercialization. Upon the expiration of the royalty term for a product or service in a country, the license with respect to the product or service, as the case may be, shall become royalty-free, fully-paid, irrevocable and perpetual.
In addition to royalties, we will pay Minoryx certain milestones payments of 1.25% of any consideration received by us in the event of a sale of our company or substantially all of our assets, including by merger, change of control, or reorganization.
The Minoryx License Agreement will terminate upon expiration of the royalty term (which is the 10th anniversary of the commercialization of the first product covered by the licensed IP) or by mutual agreement. In addition, each party has the right to terminate the Minoryx License Agreement upon a material breach by the other party that remains uncured. Minoryx has the right to terminate the Minoryx License Agreement on a country-by-country basis if we abandon the technology or use the technology for purposes in violation of law and we fail to cure such abandonment or unlawful use. We may terminate the Minoryx License Agreement at any time upon 90 days’ written notice.
Intellectual Property
We strive to protect and enhance the proprietary technologies, inventions and improvements that we believe are important to our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect our proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements, platforms and our product candidates that are important to the development and implementation of our business.
As of November 14, 2020, our patent portfolio consisted of 3 pending European patent applications and related national stage applications. In regards to our SEE-Tx Technology, we in-license a European patent under the Minoryx License Agreement, which is owned by UB/ICREA and has claims directed to a method of binding site and binding energy determination by mixed explicit solvent simulations. This patent is expected to expire in 2032.
In regards to our GLB program, we in-license from Minoryx pursuant to the Minoryx License Agreement, a patent family with a pending European patent application with claims directed to composition of matter and 8 foreign patent applications pending in such jurisdictions such as Canada, Australia, Japan, Europe, and China. These patent applications, if issued, are expected to expire in 2037, not giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.
In regards to our GBA program, we in-license from Minoryx pursuant to the Minoryx License Agreement, a patent family with a pending European patent application with claims directed to composition of matter and 8 foreign patent applications pending in such jurisdictions such as Canada, Australia, Japan, Europe, and China. These patent applications, if issued, are expected to expire in 2037, not giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date or the filing date of a PCT application that designates the United States. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S. Patent and Trademark Office, or USPTO, delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date, which is typically the filing date of the PCT application. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
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Furthermore, we rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our collaborators, employees and consultants and invention assignment agreements with our employees. We also have confidentiality agreements or invention assignment agreements with our collaborators and selected consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Our success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future drugs may have an adverse impact on us. If third parties have prepared and filed patent applications prior to March 16, 2013 in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the USPTO to determine priority of invention. For more information, please see “Risk Factors—Risks Related to Our Intellectual Property and Information Technology.”
Government Regulation
The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs. We, along with our vendors, contract research organizations and contract manufacturers, will be required to navigate the various preclinical, clinical, manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval of our product candidates. The process of obtaining regulatory approvals of drugs and ensuring subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.
In the U.S., the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, as amended, its implementing regulations and other laws. If we fail to comply with applicable FDA or other requirements at any time with respect to product development, clinical testing, approval or any other legal requirements relating to product manufacture, processing, handling, storage, quality control, safety, marketing, advertising, promotion, packaging, labeling, export, import, distribution, or sale, we may become subject to administrative or judicial sanctions or other legal consequences. These sanctions or consequences could include, among other things, the FDA’s refusal to approve pending applications, issuance of clinical holds for ongoing studies, withdrawal of approvals, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.
The process required by the FDA before our product candidates are approved as drugs for therapeutic indications and may be marketed in the U.S. generally involves the following:
completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP, requirements;
submission to the FDA of an IND application, which must become effective before clinical trials may begin;
approval by an institutional review board, or IRB, or independent ethics committee at each clinical trial site before each trial may be initiated;
performance of adequate and well-controlled clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication;
submission to the FDA of an NDA;
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a determination by the FDA within 60 days of its receipt of an NDA, to accept the filing for review;
satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;
potential FDA audit of the clinical trial sites that generated the data in support of the NDA;
payment of user fees for FDA review of the NDA; and
FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the U.S.
Preclinical Studies and Clinical Trials for Drugs
Before testing any drug in humans, the product candidate must undergo rigorous preclinical testing. Preclinical studies include laboratory evaluations of drug chemistry, formulation and stability, as well as in vitro and animal studies to assess safety and in some cases to establish the rationale for therapeutic use. The conduct of preclinical studies is subject to federal and state regulations and requirements, including GLP requirements for safety/toxicology studies. The results of the preclinical studies, together with manufacturing information and analytical data must be submitted to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational product to humans and must become effective before clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research patients will be exposed to unreasonable health risks, and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may result in the FDA not allowing clinical trials to commence or not allowing clinical trials to commence on the terms originally specified in the IND.
The clinical stage of development involves the administration of the product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research patients provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters and criteria to be used in monitoring safety and evaluating effectiveness. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trial are minimized and are reasonable related to the anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. The FDA, the IRB or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trials to public registries. Information about clinical trials, including clinical trials results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website.
A sponsor who wishes to conduct a clinical trial outside of the U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor can submit data from the clinical trial to the FDA in support of an NDA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Clinical trials to evaluate therapeutic indications to support NDAs for marketing approval are typically conducted in three sequential phases, which may overlap.
Phase I—Phase I clinical trials involve initial introduction of the investigational product into healthy human volunteers or patients with the target disease or condition. These studies are typically designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, excretion the side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.
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Phase II—Phase II clinical trials typically involve administration of the investigational product to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.
Phase III—Phase III clinical trials typically involve administration of the investigational product to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval and physician labeling.
Post-approval trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase IV clinical trials as a condition of approval of an NDA.
Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA. Written IND safety reports must be submitted to the FDA and the investigators fifteen days after the trial sponsor determines the information qualifies for reporting for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human volunteers and any clinically important increase in the severity or rate of a serious suspected adverse reaction over that listed in the investigator brochure. The sponsor must also notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction as soon as possible but in no case later than seven calendar days after the sponsor’s initial receipt of the information.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing the drug product in commercial quantities in accordance with cGMP requirements.
The manufacturing process must be capable of consistently producing quality batches of the product candidate and manufacturers must develop, among other things, methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Marketing Approval for Drugs
Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. An NDA must contain proof of the drug’s safety and efficacy. The marketing application may include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of an NDA must be obtained before a drug may be marketed in the U.S.
The FDA reviews all submitted NDAs before it accepts them for filing and may request additional information rather than accepting the NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt, and such decision could include a refusal to file by the FDA. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. Under the goals and polices agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA targets ten months, from the filing date, in which to complete its initial review of a new molecular entity NDA and respond to the applicant, and six months from the filing date of a new molecular entity NDA for priority review. The FDA does not always meet its PDUFA goal dates for standard or priority NDAs, and the review process is often extended by FDA requests for additional information or clarification.
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Further, under PDUFA, as amended, each NDA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.
The FDA also may require submission of a Risk Evaluation and Mitigation Strategy, or REMS, program to ensure that the benefits of the drug outweigh its risks. The REMS program could include medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk-minimization tools.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, which reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP and other requirements and the integrity of the clinical data submitted to the FDA.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
Even if the FDA approves a product, depending on the specific risk(s) to be addressed it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase IV clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act of 1983, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the U.S., or if it affects more than 200,000 individuals in the U.S., there is no reasonable expectation that the cost of developing and making the product available in the U.S. for the disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, though companies developing orphan products are eligible for certain incentives, including tax credits for qualified clinical testing and waiver of application fees.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to a seven-year period of marketing exclusivity during which the FDA may not approve any other applications to market the same therapeutic agent for the same indication, except in limited circumstances, such as a subsequent product’s showing of clinical superiority over the product with orphan exclusivity or where the original applicant cannot produce sufficient quantities of product. Competitors, however, may receive approval of different therapeutic agents for the indication for which the orphan product has exclusivity or obtain approval for the same therapeutic agent for a different indication than that for which the orphan product has
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exclusivity. Orphan product exclusivity could block the approval of one of our products for seven years if a competitor obtains approval for the same therapeutic agent for the same indication before we do, unless we are able to demonstrate that our product is clinically superior. If an orphan designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. Further, orphan drug exclusive marketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Expedited Development and Review Programs for Drugs
The FDA maintains several programs intended to facilitate and expedite development and review of new drugs to address unmet medical needs in the treatment of serious or life-threatening diseases or conditions. These programs include Fast Track designation, Breakthrough Therapy designation, Priority Review and Accelerated Approval, and the purpose of these programs is to either expedite the development or review of important new drugs to get them to patients earlier than under standard FDA development and review procedures.
A new drug is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address unmet medical needs for such disease or condition. Fast Track designation provides increased opportunities for sponsor interactions with the FDA during preclinical and clinical development, in addition to the potential for rolling review once a marketing application is filed, meaning that the agency may review portions of the marketing application before the sponsor submits the complete application, as well as Priority Review, discussed below.
In addition, a new drug may be eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Breakthrough Therapy designation provides all the features of Fast Track designation in addition to intensive guidance on an efficient drug development program beginning as early as Phase I, and FDA organizational commitment to expedited development, including involvement of senior managers and experienced review staff in a cross-disciplinary review, where appropriate.
Any product submitted to the FDA for approval, including a product with Fast Track or Breakthrough Therapy designation, may also be eligible for additional FDA programs intended to expedite the review and approval process, including Priority Review designation and Accelerated Approval. A product is eligible for Priority Review if it has the potential to provide a significant improvement in safety or effectiveness in the treatment, diagnosis or prevention of a serious disease or condition. Under Priority Review, the FDA must review an application in six months compared to ten months for a standard review.
Additionally, products are eligible for Accelerated Approval if they can be shown to have an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality which is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.
Accelerated Approval is usually contingent on a sponsor’s agreement to conduct additional post-approval studies to verify and describe the product’s clinical benefit. The FDA may withdraw approval of a drug or indication approved under Accelerated Approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, unless otherwise informed by the FDA, the FDA currently requires, as a condition for Accelerated Approval, that all advertising and promotional materials that are intended for dissemination or publication within 120 days following marketing approval be submitted to the agency for review during the pre-approval review period, and that after 120 days following marketing approval, all advertising and promotional materials must be submitted at least 30 days prior to the intended time of initial dissemination or publication.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or the time period for FDA review or approval may not be shortened. Furthermore, Fast Track designation, Breakthrough Therapy designation, Priority Review and Accelerated Approval do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval but may expedite the development or review process.
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U.S. Post-Approval Requirements for Drugs
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, reporting of adverse experiences with the product, complying with promotion and advertising requirements, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available products for off-label uses, manufacturers may not market or promote such uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use or first publication. Further, if there are any modifications to the drug, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the development of additional data or preclinical studies and clinical trials.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-market testing, including Phase IV clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.
In addition, drug manufacturers and their subcontractors involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP, which impose certain procedural and documentation requirements upon us and our contract manufacturers. Failure to comply with statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, product seizures, injunctions, civil penalties or criminal prosecution. There is also a continuing, annual prescription drug product program user fee.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, requirements for post-market studies or clinical trials to assess new safety risks, or imposition of distribution or other restrictions under a REMS. Other potential consequences include, among other things:
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve applications or supplements to approved applications, or withdrawal of product approvals;
product seizure or detention, or refusal to permit the import or export of products;
injunctions or the imposition of civil or criminal penalties; and
consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; or mandated modification of promotional materials and labeling and issuance of corrective information.
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Other Regulatory Matters
Manufacturing, sales, promotion and other activities of product candidates following product approval, where applicable, or commercialization are also subject to regulation by numerous regulatory authorities in the U.S. in addition to the FDA, which may include the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments and governmental agencies.
Healthcare Reform
In March 2010, Congress passed the Affordable Care Act, or the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of health spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional policy reforms. The ACA, for example, contains provisions that subject products to potential competition by lower-cost products and may reduce the profitability of products through increased rebates for drugs reimbursed by Medicaid programs; address a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increase the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; establish annual fees and taxes on manufacturers of certain branded prescription drugs; and create a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70% pursuant to the Bipartisan Budget Act of 2018, or BBA, effective as of 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Since its enactment, there have been judicial, administrative, executive and Congressional legislative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of the ACA are currently undergoing constitutional challenges in the U.S. Supreme Court, the Trump Administration has issued various Executive Orders eliminating cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices, and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended, and we cannot predict what affect further changes to the ACA would have on our business.
Other federal health reform measures