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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31,
2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number:
001-39041
Satsuma Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 81-3039831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4819 Emperor Boulevard 27703
,
Suite 340
Durham
,
NC
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (
650
)
410-3200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Name of each exchange on which registered
Symbol(s)
Common stock, par value $0.0001 STSA Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((s)232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
Yes
No
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 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes
No
As of May 8, 2023, the registrant had
33,152,498
shares of common stock, $0.0001 par value per share, outstanding.
-------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We
intend such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Any statements contained in this Quarterly Report on Form 10-Q that are not
statements of historical facts may be deemed to be forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such
as aim, anticipate, assume, believe, contemplate, continue, could, due,
estimate, expect, goal, intend, may, objective, plan, predict, potential,
positioned, seek, should, target, will, would, and other similar expressions
that are predictions of or indicate future events and future trends, or the
negative of these terms or other comparable terminology. These forward-looking
statements include, but are not limited to, statements about:
"
the implementation of our strategic plans for our business and STS101,
including our reduction in force and any changes to senior management;
"
our expectations related to the Merger Agreement, including our ability to
complete the pending transaction as contemplated by the Merger Agreement, the
parties ability to satisfy the conditions to the consummation of the Offer and
the other conditions set forth in the Merger Agreement, the expected timetable
for completing the transaction, and the potential benefits of the transaction
for the Company;
"
our intentions and our ability to conclude the Offer and Merger, as announced
on April 16, 2023, with SNBL whereby SNBL will acquire Satsuma and assume
responsibility for completing development of and commercializing STS101;
"
the timing or likelihood of the acceptance and the approval of our STS101 New
Drug Application (NDA) by the United States Food and Drug Administration (FDA);
"
expectations with regard to the data to be derived from our completed clinical
trials and timing of expected data announcements;
"
expectations regarding the potential market size and size of the potential
patient populations for STS101, if approved for commercial use;
"
commercialization, marketing and manufacturing plans and expectations;
"
the pricing and reimbursement of STS101, if approved;
"
the scope of protection we are able to establish and maintain for intellectual
property rights covering STS101, including the projected terms of patent
protection;
"
estimates of our expenses, future revenue, capital requirements, our needs for
additional financing and our ability to obtain additional capital;
"
our future financial performance; and
"
developments and projections relating to our competitors and our industry,
including competing therapies and procedures.
These forward-looking statements are based on managements current
expectations, estimates, forecasts and projections about our business and the
industry in which we operate and managements beliefs and assumptions and are
not guarantees of future performance or development and involve known and
unknown risks, uncertainties and other factors that are in some cases beyond
our control. As a result, any or all of our forward-looking statements in this
Quarterly Report on Form 10-Q may turn out to be inaccurate and you should not
rely upon forward-looking statements as predictions of future events. Factors
that may cause actual results to differ materially from current expectations
include, among other things, those listed under the section of this Quarterly
Report on Form 10-Q titled Risk Factors and elsewhere in this Quarterly Report
on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time and it is not possible for our
management to predict all risks, nor can we assess the impact of all factors
on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any
forward-looking statements we may make. These forward-looking statements speak
only as of the date of this Form Quarterly Report on 10-Q. Except as required
by law, we assume no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes available in the
future. You should, however, review the factors and risks we describe in the
reports we will file from time to time with the SEC after the date of this
Quarterly Report on Form 10-Q.
i
-------------------------------------------------------------------------------
SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
Below is a summary of the principal factors that make an investment in our
common stock speculative or risky. This summary does not address all of the
risks that we face. Additional discussion of the risks summarized in this risk
factor summary, and other risks that we face, can be found below under the
heading Risk Factors and should be carefully considered, together with other
information in this Quarterly Report on Form 10-Q and our other filings with
the Securities and Exchange Commission (SEC) before making investment
decisions regarding our common stock.
"
The Offer and Merger are subject to a number of conditions beyond our control.
Failure to complete the Offer and the Merger within the expected time frame,
or at all, could have a material adverse effect on our business, operating
results, financial condition and our share price.
"
We do not plan to independently commercialize STS101 in the event that our
STS101 new drug application (NDA), which we submitted to the FDA in March
2023, is approved. If we are unable to timely complete the Offer and Merger we
would likely terminate development of STS101, withdraw our NDA and pursue
other strategic alternatives, such as dissolution and wind-down. Moreover, we
have incurred significant losses since our inception, and we anticipate that
we will continue to incur significant losses for the foreseeable future,
which, together with our limited operating history, make it difficult to
assess our prospects.
"
We would require substantial additional financing to continue operations. We
do not plan to raise additional financing as we believe it is unlikely that we
would be able to raise substantial additional funds on favorable terms. If we
are unable to timely complete the Offer and Merger on favorable terms we will
likely be forced to terminate development of STS101, withdraw our NDA and
pursue other strategic alternatives, such as dissolution and wind-down.
"
Our financial condition raises substantial doubt as to our ability to continue
as a going concern.
"
There can be no assurance that we can timely complete the Offer and Merger, or
any other transaction, prior to exhausting our financial resources or that the
terms of any such other transaction will be favorable.
"
The terms of the Merger Agreement and CVR Agreement provide that significant
payments to our stockholders are contingent upon the monetization of STS101
and/or achievement of certain milestones. The failure of STS101 to achieve any
such milestones, and any failure to receive such payments, would have a
material adverse impact on the consideration ultimately received by our
stockholders.
"
We, or SNBL, may fail to timely obtain regulatory approval for STS101 under
applicable regulatory requirements. The denial or delay of any such approval
would prevent or delay commercialization of STS101 and could adversely affect
potential economic returns to us and our stockholders.
"
STS101 may cause undesirable side effects or have other properties that could
delay or prevent its regulatory approval, limit the commercial profile of an
approved label, or result in significant negative consequences following
marketing approval, if any.
"
Even if STS101 obtains regulatory approval, it may fail to achieve broad
market acceptance.
"
Even if STS101 obtains regulatory approval, the ability of the party that
ultimately commercializes STS101, whether that is SNBL or a third party (the
Commercializing Party), to market and promote STS101 may be limited by
FDA-approved labeling.
"
We face significant competition in an environment of rapid technological and
scientific change, and STS101, if approved, will face significant competition.
The failure of STS101 to effectively compete may prevent STS101, if approved,
from achieving significant market penetration. Many competitors in the
migraine field have significant resources that may be greater than those of
the Commercializing Party and as a result the Commercializing Party may not be
able to successfully compete.
"
The successful commercialization of STS101 by the Commercializing Party will
depend in part on the extent to which governmental authorities, private health
insurers, and other third-party payors provide coverage, adequate
reimbursement levels and implement pricing policies favorable for it. Failure
to obtain or maintain coverage and adequate reimbursement for STS101, if
approved, could limit the ability of the Commercializing Party to market it
and thereby decrease its ability to generate revenue.
"
We have relied, and we anticipate the Commercializing Party would need to
continue to rely, on qualified third parties to supply all components of
STS101, and to manufacture supplies of STS101 for commercial sale. As a
result, the successful development and commercialization of STS101 is
dependent on the supply chain we have established, comprising multiple third
parties, most of which are sole source suppliers, for the manufacture of
STS101. Should problems arise with any of these suppliers, or if they fail to
comply with applicable regulatory requirements or to supply sufficient
quantities at acceptable quality levels or prices, or at all, it would
materially and adversely affect our potential future economic prospects.
ii
-------------------------------------------------------------------------------
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 1
Condensed Balance Sheets 1
Condensed Statements of Operations and Comprehensive Loss 2
Condensed Statements of Stockholders Equity 3
Condensed Statements of Cash Flows 4
Notes to Unaudited Interim Condensed Financial Statements 5
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 65
Item 3. Defaults Upon Senior Securities 65
Item 4. Mine Safety Disclosures 65
Item 5. Other Information 65
Item 6. Exhibits 66
Signatures 67
iii
-------------------------------------------------------------------------------
PART IFINANCI
AL INFORMATION
Item 1. Financial Sta
tements (Unaudited).
SATSUMA PHARMACEUTICALS, INC.
Condensed Bal
ance Sheets
(in thousands, except share and per share amounts)
(unaudited)
March 31, December 31,
2023 2022
Assets
Cash and cash equivalents $ 19,526 $ 16,429
Short-term marketable securities 21,844 36,052
Prepaid expenses and other current assets 2,005 2,328
Total current assets 43,375 54,809
Operating lease right-of-use asset 82 108
Other non-current assets 22 22
Total assets $ 43,479 $ 54,939
Liabilities
Accounts payable $ 874 $ 1,911
Accrued and other current liabilities 4,841 6,066
Operating lease liability 116 138
Total current liabilities 5,831 8,115
Total liabilities 5,831 8,115
Commitments and contingencies (Note 7)
Stockholders equity
Preferred stock, $
0.0001
par value,
10,000,000
shares authorized as of March 31, 2023 and December 31, 2022;
no
shares issued and outstanding as of March 31, 2023 and December 31, 2022
Common stock, $ 3 3
0.0001
par value,
300,000,000
shares authorized as of March 31, 2023 and December 31, 2022;
33,152,498
shares issued and outstanding as of March 31, 2023 and December 31, 2022
Additional paid-in-capital 259,735 258,642
Accumulated other comprehensive loss ( ) ( )
5 30
Accumulated deficit ( ) ( )
222,085 211,791
Total stockholders equity 37,648 46,824
Total liabilities and stockholders equity $ 43,479 $ 54,939
The accompanying notes are an integral part of these unaudited condensed
financial statements.
1
-------------------------------------------------------------------------------
SATSUMA PHARMACEUTICALS, INC.
Condensed Statements of Opera
tions and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
Three Months
Ended March 31,
2023 2022
Operating
expenses
Research and $ 7,459 $ 11,556
development
General and 3,309 3,990
administrative
Total operating $ 10,768 $ 15,546
expenses
Loss from ( ) ( )
operations 10,768 15,546
Interest 474 40
income
Interest ( )
expense 11
Net loss $ ( ) $ ( )
10,294 15,517
Unrealized gain (loss) 25 ( )
on marketable securities 79
Comprehensive $ ( ) $ ( )
loss 10,269 15,596
Net loss per share attributable to $ ( ) $ ( )
common stockholders, basic and diluted 0.31 0.49
Weighted-average shares used in computing net loss per share 33,152,498 31,545,564
attributable to common stockholders, basic and diluted
The accompanying notes are an integral part of these unaudited condensed
financial statements.
2
-------------------------------------------------------------------------------
SATSUMA PHARMACEUTICALS, INC.
Condensed Statements of
Stockholders Equity
(in thousands, except share amounts)
(unaudited)
Common Stock Additional Accumulated Accumulated Total
Paid-In Other Stockholders
Comprehensive
Shares Amount Capital Income (Loss) Deficit Equity
Balances at January 1, 2023 33,152,498 $ 3 $ 258,642 $ ( ) $ ( ) $ 46,824
30 211,791
Stock-based compensation 1,093 1,093
Net loss ( ) ( )
10,294 10,294
Other comprehensive income 25 25
Balances at March 31, 2023 33,152,498 $ 3 $ 259,735 $ ( ) $ ( ) $ 37,648
5 222,085
Common Stock Additional Accumulated Accumulated Total
Paid-In Other Stockholders
Comprehensive
Shares Amount Capital Loss Deficit Equity
Balances at January 1, 2022 31,545,564 $ 3 $ 243,115 $ ( ) $ ( ) $ 101,340
42 141,736
Stock-based compensation 1,239 1,239
Net loss ( ) ( )
15,517 15,517
Other comprehensive loss ( ) ( )
79 79
Balances at March 31, 2022 31,545,564 $ 3 $ 244,354 $ ( ) $ ( ) $ 86,983
121 157,253
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
-------------------------------------------------------------------------------
SATSUMA PHARMACEUTICALS, INC.
Condensed Statemen
ts of Cash Flows
(in thousands)
(unaudited)
Three Months Ended March 31,
2023 2022
Cash flows from
operating activities
Net loss $ ( ) $ ( )
10,294 15,517
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 92
Amortization of operating 37 37
lease right-of-use asset
Non-cash interest expense, and amortization 3
of debt discount and issuance costs
Amortization of premiums / (accretion of ( ) 253
discounts), net on marketable securities 249
Stock-based 1,093 1,239
compensation
Changes in assets
and liabilities
Prepaid expenses 323 1,178
and other assets
Accounts ( ) 339
payable 1,037
Accrued and other ( ) ( )
current liabilities 1,225 1,900
Operating lease ( ) ( )
liabilities, net 33 41
Net cash used in ( ) ( )
operating activities 11,385 14,317
Cash flows from
investing activities
Purchases of ( ) ( )
marketable securities 1,430 1,989
Proceeds from maturities 15,912 22,354
of marketable securities
Purchases of property ( )
and equipment 24
Net cash provided by 14,482 20,341
investing activities
Cash flows from
financing activities
Repayment ( )
of debt 500
Net cash used in ( )
financing activities 500
Net increase in cash 3,097 5,524
and cash equivalents
Cash and cash
equivalents
Cash and cash equivalents, 16,429 15,835
at beginning of period
Cash and cash equivalents, $ 19,526 $ 21,359
at end of period
Supplemental disclosure
of cash flow information:
Cash paid for $ $ 11
interest
Supplemental non-cash investing
and financing activities:
Operating lease right-of-use asset $ $ 80
recorded on the adoption of ASC 842
Operating lease right-of-use assets obtained $ 11 $ 201
in exchange for new lease liabilities
Purchases of property and equipment in accounts $ $ 39
payable and accrued and other current liabilities
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
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SATSUMA PHARMACEUTICALS, INC.
Notes to Unaudited Interim Co
ndensed Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies
Description of the Business
Satsuma Pharmaceuticals, Inc. (the Company) is a development-stage
biopharmaceutical company developing a novel therapeutic for the acute
treatment of migraine. The Companys product candidate, STS101, is a
drug-device combination of a proprietary dry-powder formulation of
dihydroergotamine mesylate, or DHE, which can be quickly and easily
self-administered by a proprietary pre-filled, single-use, nasal delivery
device. The Company, headquartered in South San Francisco, was incorporated in
2016 in the state of Delaware.
At-the-Market Equity Offering
In October 2020, the Company entered into a sales agreement (the SVB Sales
Agreement) with SVB Securities LLC (formerly known as SVB Leerink LLC) (SVB)
to sell shares of its common stock, from time to time, through an
at-the-market (ATM) equity offering program under which SVB acted as its sales
agent and pursuant to which the Company could sell common stock for aggregate
gross sales proceeds of up to $
50.0
million. The issuance and sale of shares of common stock by the Company
pursuant to the SVB Sales Agreement was deemed an ATM offering under the
Securities Act of 1933, as amended. SVB was entitled to compensation for its
services equal to up to
3.0
% of the gross proceeds of any shares of common stock sold through SVB under
the SVB Sales Agreement. In September 2022, the Company issued and sold
1,538,461
shares of common stock under the SVB Sales Agreement. The shares were sold at
a price of $
6.50
per share for aggregate net proceeds of approximately $
9.7
million, after deducting sales commission of $
0.3
million payable by the Company. Prior to the quarter ended September 30, 2022,
the Company had not issued any shares of common stock under the SVB Sales
Agreement. In October 2022, the Company terminated the SVB Sales Agreement and
the offer and sale of shares under the SVB Sales Agreement prospectus
supplement filed in October 2020.
In November 2022, the Company entered into an At-the-Market Sales Agreement
(the Virtu Sales Agreement), with Virtu Americas LLC (Virtu), to sell shares
of its common stock, from time to time, through an ATM equity offering program
under which Virtu will act as its sales agent and pursuant to which the
Company may sell common stock for aggregate gross sales proceeds of up to $
100.0
million. The issuance and sale of shares of common stock by the Company
pursuant to the Virtu Sales Agreement is deemed an ATM offering under the
Securities Act of 1933, as amended. Virtu is entitled to compensation for its
services equal to up to
3.0
% of the gross proceeds of any shares of common stock sold through Virtu under
the Virtu Sales Agreement. As of March 31, 2023,
no
shares of common stock have been sold pursuant to this agreement.
Liquidity
The Company is subject to risks and uncertainties common to early-stage
companies in the biopharmaceutical industry, including, but not limited to,
risks of clinical delays or failure, development by competitors of new
technological innovations, protection of proprietary technology, dependence on
key personnel, reliance on contract manufacturing organizations (CMOs) and
contract research organizations (CROs), compliance with government regulations
and the need to obtain additional financing to fund operations. STS101 is an
investigational product candidate that will require completion of clinical
development prior to any submission for regulatory approval and commercializatio
n, if approved. These efforts require significant amounts of additional
capital, adequate personnel, infrastructure, and extensive compliance and
reporting.
The Company has incurred significant losses and negative cash flows from
operations in all periods since its inception and had an accumulated deficit
of $
222.1
million as of March 31, 2023. The Company has historically financed its
operations primarily through its initial public offering (IPO), private
placements of its equity securities, an ATM equity offering and borrowings
under its former long-term debt facility. The Company has no products approved
for sale, and the Company has not generated any revenue since its inception.
The Company expects to incur significant additional operating losses over at
least the next several years. There can be no assurance that in the event the
Company requires additional financing, such financing will be available on
terms which are favorable or at all. Failure to generate sufficient cash flows
from operations or raise additional capital to support its operations would
have a material adverse effect on the Companys ability to achieve its intended
business objectives.
5
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The Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. As a
result of the reported topline results from the STS101 SUMMIT Phase 3 efficacy
trial, the Company does not plan to invest in commercialization of STS101. The
Company will continue to look for strategic alternatives and does not plan on
raising additional funds. As of March 31, 2023, the Company had cash, cash
equivalents and marketable securities of $
41.4
million. The Companys management believes that the Companys cash, cash
equivalents and marketable securities may not be sufficient to continue as a
going concern for a period of one year from the issuance date of these
unaudited interim condensed financial statements and as such, substantial
doubt exists about the Companys ability to continue as a going concern.
Failure to manage discretionary spending may adversely impact the Companys
ability to achieve its intended business objectives and have an adverse effect
on its results of operations and future prospects.
The accompanying unaudited interim condensed financial statements have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The accompanying unaudited
interim condensed financial statements do not reflect any adjustments relating
to the recoverability and reclassifications of assets and liabilities that
might be necessary if the Company is unable to continue as a going concern.
During the quarter ended December 31, 2022, the Company recorded an impairment
loss of $
11.7
million consisting of $
6.7
million impairment loss to write down the property and equipment to its fair
market value, $
2.2
million impairment loss to write off prepaid expenses and other current assets
related to purchases of property and equipment, and $
2.8
million impairment loss to accrue non-cancelable future payments related to
purchases of the property and equipment. The impairment loss was a result of
the reported topline results from the STS101 SUMMIT Phase 3 efficacy trial and
the plan not to invest in commercialization of STS101.
On April 16, 2023, the Company entered into an Agreement and Plan of Merger
(the Merger Agreement) with Shin Nippon Biomedical Laboratories, Ltd., a
Japanese corporation (the Parent or SNBL) and SNBL23 Merger Sub, Inc., a
Delaware corporation and a direct wholly owned subsidiary of the Parent (the
Purchaser).
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, as promptly as practicable (but in no event more than
fifteen (15) business days after the date of the Merger Agreement), Purchaser
will commence a tender offer (the Offer) to acquire (upon the terms and
subject to the conditions of the Merger Agreement) any and all of the issued
and outstanding shares of common stock, par value $
0.0001
per share, of the Company (the Company Common Stock) in exchange for (i) an
amount in cash equal to $
0.91
, without interest and less applicable withholding taxes (the Per Share
Price), and (ii) one contingent value right per share of Company Common Stock
(a CVR) representing the right to receive, subject to the terms and conditions
of the Contingent Value Rights Agreement, substantially in the form attached
to the Merger Agreement (the CVR Agreement), the consideration set forth in
the CVR Agreement (the CVRs together with the aggregate Per Share Price paid
in accordance with the Merger Agreement, the Offer Consideration). The Merger
Agreement includes a remedy of specific performance and is not subject to a
financing condition. As soon as practicable following the completion of the
Offer, upon the terms and subject to the conditions of the Merger Agreement,
Purchaser will be merged with and into the Company, with the Company surviving
as a wholly owned subsidiary of Parent (the Merger). The Merger Agreement
contemplates that the Merger will be effected pursuant to Section 251(h) of
the General Corporation Law of the State of Delaware (the DGCL), which permits
completion of the Merger without a vote of the holders of the Company Common
Stock upon the acquisition by Purchaser of a majority of the aggregate number
of the shares of Company Common Stock.
Subject to the terms and conditions of the Merger Agreement, if certain
conditions are satisfied and the Offer closes, Parent, following the
satisfaction of such conditions, would acquire any remaining shares by virtue
of the Merger, with the Company surviving the Merger as a wholly-owned
subsidiary of Parent. If the Merger is consummated, the Company will cease to
be a publicly-traded company. The consummation of the transaction is subject
to customary closing conditions, including the Companys stockholders tendering
a minimum number of shares of Company Common Stock in the Offer.
Concurrently with the execution of the Merger Agreement, the Parent entered
into a tender and support agreement (the Support Agreement) with certain
stockholders and directors of the Company (the Supporting Persons), who in the
aggregate own approximately
18.8
% of the Company Common Stock, pursuant to which such Supporting Persons have
agreed, among other things, to tender their shares of Company Common Stock in
the Offer and to vote against certain matters at meetings of the Companys
stockholders which are intended to or would reasonably be expected to impede,
delay or prevent, in any material respect, the Offer or the Merger.
6
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Basis of Presentation
The unaudited interim condensed financial statements and accompanying notes
have been prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP), as defined by the Financial Accounting Standards
Board, or the FASB.
Unaudited Interim Financial Information
The accompanying condensed balance sheet as of March 31, 2023, the condensed
statements of operations and comprehensive loss, the condensed statements of
stockholders equity and the condensed statements of cash flows for the three
months ended March 31, 2023 and 2022 are unaudited. The unaudited interim
condensed financial statements have been prepared on the same basis as the
audited annual financial statements and, in the opinion of management, reflect
all adjustments, which include only normal recurring adjustments, necessary
for the fair statement of the Companys financial position as of March 31, 2023
and the results of its operations and its cash flows for the three months
ended March 31, 2023 and 2022. The financial data and other information
disclosed in these notes related to the three months ended March 31, 2023 and
2022 are also unaudited. The results for the three months ended March 31, 2023
are not necessarily indicative of results to be expected for the year ending
December 31, 2023, any other interim periods, or any future year or period.
The balance sheet as of December 31, 2022 included herein was derived from the
audited financial statements as of that date. Certain disclosures have been
condensed or omitted from the unaudited interim condensed financial statements.
The accompanying interim unaudited condensed financial statements should be
read in conjunction with the audited financial statements and the related
notes thereto for the year ended December 31, 2022, which are included in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2022 filed with the Securities and Exchange Commission, or the SEC, on March
28, 2023.
Use of Estimates
The preparation of unaudited interim condensed financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the unaudited
interim condensed financial statements and the reported amounts of income and
expenses during the reporting period. Such estimates include the accrual of
research and development expenses, impairment of property and equipment and
the fair value of stock-based awards. The Company evaluates its estimates and
assumptions on an ongoing basis using historical experience and other factors,
including the impact of the COVID-19 pandemic and related impacts on the
global economy which may delay the enrollment of subjects for our clinical
trials and may disrupt our supply chain for development and manufacturing
activities, and adjust those estimates and assumptions when facts and
circumstances dictate. Actual results could differ materially from those
estimates and assumptions.
Concentration of Credit Risk
The Company has no significant off-balance sheet concentrations of credit
risk. Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and marketable
securities. Substantially all the Companys cash, cash equivalents and
marketable securities are held by Silicon Valley Bank, and the Company
historically has relied primarily on Silicon Valley Bank for commercial
banking services. On March 10, 2023, the California Department of Financial
Protection and Innovation closed Silicon Valley Bank and appointed the Federal
Deposit Insurance Corporation ("FDIC") as receiver. On March 12, 2023, the
U.S. Department of the Treasury, the Federal Reserve and the FDIC released a
joint statement confirming that all depositors of Silicon Valley Bank would
have access to all of their money after only one business day of closure,
including funds held in uninsured deposit accounts. The Company received full
access to the funds in its deposit and money market accounts on March 13,
2023. In light of actions by the federal government to fully protect deposit
accounts, the Company has not experienced any credit losses on its deposits of
cash or cash equivalents. The Company invests its cash equivalents in
marketable securities and money market funds.
Credit Losses - Marketable Securities
For marketable securities in an unrealized loss position, the Company will
periodically assess its portfolio for impairment. The assessment first
considers the intent or requirement to sell the marketable security. If either
of these criteria are met, the amortized cost basis will be written down to
fair value through earnings.
If
not met, the Company evaluates whether the decline resulted from credit losses
or other factors by considering the extent to which fair value is less than
amortized cost, any changes to the rating of the marketable security by a
rating agency, and any adverse conditions specifically related to the
marketable security, among other factors. If this assessment indicates that a
credit loss exists, the present value of cash flows expected to be collected
from the marketable security is compared to the amortized cost basis of the
7
-------------------------------------------------------------------------------
marketable
security. If the present value of cash flows expected to be collected is less
than the amortized cost basis, a credit loss exists and an allowance for
credit losses is recorded, limited by the amount that the fair value is less
than the amortized cost basis. Any impairment that has not been recorded
through an allowance for credit losses is recognized in other comprehensive
loss.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. The Company reviews
property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may
not be recoverable or that the useful life is shorter than the Company had
originally estimated. Recoverability is measured by comparison of the carrying
amount of the asset or asset group to the future undiscounted cash flows which
the asset or asset group is expected to generate. If the asset or asset group
is considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset or asset group exceeds
the fair value of the asset or asset group. If the useful life is shorter than
originally estimated, the Company amortizes the remaining carrying value over
the new shorter useful life.
In November 2022, the Company reported topline results from the STS101 SUMMIT
Phase 3 efficacy trial. Although topline data showed numerical differences in
favor of STS101 5.2 mg versus placebo on the pre-specified co-primary
endpoints of freedom from pain and freedom from most bothersome symptom at two
hours post-administration, these differences did not achieve statistical
significance. This significant change was a triggering event which resulted in
an evaluation of impairment of the Company's property and equipment which were
designed for future use in production of STS101 after the commercialization.
The Company evaluated the recoverability of the property and equipment by
comparing their carrying amount to the future undiscounted cash flows expected
to be generated by the assets to determine if the carrying value was not
recoverable. The recoverability test indicated that the Company's property and
equipment were impaired. As a result, the Company recognized an impairment
loss of $
11.7
million for the quarter ended December 31, 2022.
Recent Accounting Pronouncements
New Accounting Pronouncements Adopted
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326)
, to provide financial statement users with more useful information about
expected credit losses, which was subsequently updated by ASU 2019-04,
Codification Improvements to Topic 326, Financial Instrument - Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted
Transition Relief. The amendment updates the guidance for measuring and
recording credit losses on financial assets measured at amortized cost by
replacing the incurred loss model with an expected loss model. Accordingly,
these financial assets will be presented at the net amount expected to be
collected. The amendment also requires that credit losses related to
available-for-sale debt securities be recorded as an allowance through net
income rather than reducing the carrying amount under the current,
other-than-temporary-impairment model. In November 2019, the FASB issued ASU
No. 2019-10, according to which, the new standard is effective for public
business entities that meet the definition of an SEC filer, excluding entities
eligible to be smaller reporting companies (SRC) as defined by the SEC, for
fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. For all other entities, the new standard is
effective for fiscal years beginning after December 15, 2022, and interim
periods within that fiscal year. The Company
adopted
this ASU effective
January 1, 2023
. The adoption of this ASU did
no
t have a material effect on the Companys financial statements and related
disclosures.
2.
Fair Value Measurements
The Company applies fair value accounting for all financial assets and
liabilities and non-financial assets and liabilities that are recognized or
disclosed at fair value in the unaudited interim condensed financial
statements on a recurring basis. Fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. As such, fair value is
a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, a three-tier fair value hierarchy has been
established, which prioritizes the inputs used in measuring fair value as
follows:
Level 1Observable inputs, such as quoted prices in active markets for
identical assets or liabilities at the measurement date.
Level 2Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities, quoted prices in markets that are not active,
or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
8
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Level 3Unobservable inputs which reflect managements best estimate of what
market participants would use in pricing the asset or liability at the
measurement date. Consideration is given to the risk inherent in the valuation
technique and the risk inherent in the inputs to the model.
In determining fair value, the Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible as well as considers counterparty credit risk in
its assessment of fair value.
As of March 31, 2023, financial assets measured and recognized at fair value
were as follows (in thousands):
Fair Value Measurements at March 31, 2023
Level 1 Level 2 Level 3 Total
Assets
U.S. government bonds $ 13,876 $ $ $ 13,876
U.S. government agency bonds 1,444 1,444
Corporate bonds 6,446 6,446
Asset backed securities 78 78
Marketable securities 13,876 7,968 21,844
Money market funds 19,463 19,463
(1)
Total fair value of assets $ 33,339 $ 7,968 $ $ 41,307
(1)
Included in cash and cash equivalents on the balance sheet.
Fair Value Measurements at March 31, 2023
Amortized Gross Gross Estimate
Cost Unrealized Unrealized Fair
Gains Losses Value
Assets
U.S. government bonds $ 13,883 $ 1 $ ( ) $ 13,876
8
U.S. government agency bonds 1,443 1 1,444
Corporate bonds 6,445 1 6,446
Asset backed securities 78 78
Marketable securities 21,849 3 ( ) 21,844
8
Money market funds 19,463 19,463
(1)
Total fair value of assets $ 41,312 $ 3 $ ( ) $ 41,307
8
(1)
Included in cash and cash equivalents on the balance sheet.
As of December 31, 2022, financial assets measured and recognized at fair
value were as follows (in thousands):
Fair Value Measurements at December 31, 2022
Level 1 Level 2 Level 3 Total
Assets
U.S. government bonds $ 18,703 $ $ $ 18,703
Corporate bonds 16,941 16,941
Asset backed securities 408 408
Marketable securities 18,703 17,349 36,052
Money market funds 16,384 16,384
(1)
Total fair value of assets $ 35,087 $ 17,349 $ $ 52,436
(1)
Included in cash and cash equivalents on the balance sheet
9
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Fair Value Measurements at December 31, 2022
Amortized Gross Gross Estimate
Cost Unrealized Unrealized Fair
Gains Losses Value
Assets
U.S. government bonds $ 18,724 $ 2 $ ( ) $ 18,703
23
Corporate bonds 16,947 1 ( ) 16,941
7
Asset backed securities 411 ( ) 408
3
Marketable securities 36,082 3 ( ) 36,052
33
Money market funds 16,384 16,384
(1)
Total fair value of assets $ 52,466 $ 3 $ ( ) $ 52,436
33
(1)
Included in cash and cash equivalents on the balance sheet.
There were
no
financial liabilities measured and recognized at fair value as of March 31,
2023 and December 31, 2022. The unrealized losses for marketable securities
related to changes in interest rates.
No
allowance for credit losses was recorded as of March 31, 2023 and December 31,
2022, and
no
impairment losses were recognized for the three months ended March 31, 2023.
3.
Balance Sheet Components
Property and Equipment, Net
Depreciation is computed using the straight-line method. Depreciation expense
was $
0
and $
0.1
million for the three months ended March 31, 2023 and 2022, respectively.
In 2022, the Company performed a recoverability test for its property and
equipment when it was determined that it was more likely than not that the
carrying value of the long-lived assets would not be recoverable. As a result,
the Company recognized a non-cash impairment loss of $
6.7
million in the quarter ended December 31, 2022, to write down the property and
equipment to its fair market value, which was determined to be
nil
as of December 31, 2022. The Company determined that prepaid expenses and
other current assets of $
2.2
million related to purchases of property and equipment were impaired as of
December 31, 2022. The Company recognized a non-cash impairment loss of $
2.2
million in the quarter ended December 31, 2022, to write off prepaid expenses
and other current assets related to purchases of property and equipment.
Additionally, as of December 31, 2022, the Company had non-cancelable future
payments of $
2.8
million related to purchases of the property and equipment. The Company
recognized a non-cash impairment loss of $
2.8
million in the quarter ended December 31, 2022, and recorded a $
2.8
million accrued impairment loss in accrued and other current liabilities on
the Company's balance sheets.
Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following (in thousands):
March 31, December 31,
2023 2022
Accrued salaries and benefits $ 460 $ 536
Accrued severance payments 1,310
Accrued research and development expenses 1,661 2,630
Accrued impairment loss 965 2,765
Accrued professional services 392 66
Other 53 69
Total $ 4,841 $ 6,066
4.
Debt
On October 26, 2018, the Company entered into a Loan and Security Agreement
(the Loan Agreement) with Silicon Valley Bank. The Loan Agreement provided for
loan advances of up to $
10.0
million. The first advance (the Term A Loan) of $
5.0
million was available for draw down by the Company as of the effective date of
the Loan Agreement. The remaining $
5.0
million under the facility was never drawn down and is no longer available for
draw. Interest on the loan advances were payable monthly at a floating per
annum rate equal to the greater of
1.5
% above the prime rate or
6.5
%. Upon the occurrence of an event of default, interest would increase to
5.0
% above the rate that is otherwise applicable. The maturity date of the loan
advances was
May 1, 2022
. The effective interest rate of the Term Loan approximated its stated
interest rates.
10
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The Company incurred debt issuance costs of $
0.1
million, which was presented as reduction of the Term A Loan advance balance.
Debt issuance cost and final payment of $
0.3
million was recognized as additional interest expense using the effective
interest method over the term of the loan.
On May 3, 2022, the Company repaid its entire obligation under the Loan
Agreement amounting to $
0.4
million, including outstanding loan amount of $
0.2
million and final payment of $
0.2
million.
5.
Stock-Based Compensation
A summary of stock option activity for the three months ended March 31, 2023
is set forth below:
Outstanding Options
Shares Number of Weighted Weighted-
Available for Shares Average Average
Grant Exercise Remaining
Price Contractual
Term (Years)
Balance, January 1, 2023 665,900 5,292,403 $ 6.84 7.9
Options cancelled 86,744 ( ) $ 4.21
86,744
Balance, March 31, 2023 752,644 5,205,659 $ 6.88 7.6
Exercisable as of March 31, 2023 2,554,076 $ 8.72 6.4
Vested and expected to vest, March 31, 2023 5,205,659 $ 6.88 7.6
The weighted-average grant-date fair value of options granted during the three
months ended March 31, 2022 was
$
3.42
per share.
No
stock options were granted during the three months ended March 31, 2023.
As of March 31, 2023, the total unrecognized stock-based compensation expense
for stock options was
$
5.8
million,
which is expected to be recognized over a weighted-average period of
2.2
years.
The total fair value of options vested for the three months ended March 31,
2023 and 2022 was $
1.2
million and
$
1.2
million, respectively.
2019 Employee Share Purchase Plan
In September 2019, the Company adopted the 2019 Employee Share Purchase Plan
(ESPP), which became effective on the day of effectiveness of the Companys
registration statement on Form S-1 filed in connection with its IPO. As of
March 31, 2023,
724,258
shares under the ESPP remain available for purchase.
The offering period and purchase period is determined by the board of
directors. As of March 31, 2023, no new offerings had been authorized.
Stock-Based Compensation Expense
Total stock-based compensation expense recorded related to options granted to
employees and non-employees was as follows (in thousands):
Three Months Ended March 31,
2023 2022
Research and development $ 318 $ 436
General and administrative 775 803
$ 1,093 $ 1,239
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6.
Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss
per share attributable to common stockholders (in thousands, except share and
per share data):
Three Months Ended March 31,
2023 2022
Numerator:
Net loss attributable $ ( ) $ ( )
to common stockholders 10,294 15,517
Denominator:
Weighted-average shares used in computing net loss per share 33,152,498 31,545,564
attributable to common stockholders, basic and diluted
Net loss per share attributable to $ ( ) $ ( )
common stockholders, basic and diluted 0.31 0.49
The following outstanding shares of potentially dilutive securities were
excluded from the computation of diluted net loss per share attributable to
common stockholders for the period presented because including them would have
been antidilutive:
March 31,
2023 2022
Options to purchase common stock 5,205,659 3,214,903
Shares committed under ESPP 28,746
Total 5,205,659 3,243,649
7.
Commitments and Contingencies
Operating Leases
Operating lease cost consists of the following (in thousands):
Three Months Ended March 31,
2023 2022
Operating lease cost $ 40 $ 39
Short-term lease cost 38 33
Total lease cost $ 78 $ 72
The maturities of operating lease liabilities as of March 31, 2023 are as
follows (in thousands):
March 31, 2023
2023 (remaining nine months) $ 130
Total undiscounted lease payments 130
Less: imputed interest 14
Total operating lease liability 116
Less: current portion 116
Operating lease liability, net of current portion $
As of March 31, 2023, the remaining term for the operating lease in North
Carolina was
0.6
years, and the discount rate used to measure the lease liability for such
operating lease upon recognition was
9.8
%. During the three months ended March 31, 2023 and 2022, cash paid for
amounts included in operating lease liabilities of less than $
0.1
million and less than
$
0.1
million
, respectively,
was included in cash flows from operating activities on the condensed
statements of cash flows.
8.
Income Taxes
For the three months ended March 31, 2023 and 2022, the Company did
no
t record an income tax provision. The U.S. federal and California deferred tax
assets generated from the Companys net operating losses have been fully
reserved, as the Company believes it is more likely than not the benefit will
not be realized.
12
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9.
Workforce Reduction
On March 27, 2023, the Company's board of directors approved a plan to reduce
its workforce by
9
employees, or approximately
36
% of its total headcount as of such date (the "Workforce Reduction"), in order
to preserve cash and maximize the value of STS101 for a potential strategic
transaction partner. In connection with the Workforce Reduction, the position
of Detlef Albrecht, M.D., the Company's Chief Medical Officer, with the
Company was eliminated. During the three months ended March 31, 2023, the
Company incurred aggregate charges in connection with the Workforce Reduction
of approximat
ely $
1.3
million, which related primarily to severance payments and related
continuation of benefits costs, all of which resulted in cash expenditures,
along with the payment of approximately $
0.2
million in
accrued benefits including paid-time-off.
13
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Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our financial statements and
related notes appearing elsewhere in this Quarterly Report on Form 10-Q and
with our audited financial statements and notes thereto for the year ended
December 31, 2022, included in our Annual Report on Form 10-K, filed with the
U.S. Securities and Exchange Commission, or SEC, on March 28, 2023. Some of
the information contained in this discussion and analysis or set forth
elsewhere in this Quarterly Report on Form 10-Q, including information with
respect to our plans and strategy for our business, includes forward looking
statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the Risk Factors section of this
Quarterly Report on Form 10-Q and the Form 10-K, our actual results could
differ materially from the results described, in or implied, by these
forward-looking statements. Please also see the section of this Quarterly
Report on Form 10-Q titled Forward-Looking Statements.
Pending Transaction
On April 16, 2023, we entered into an Agreement and Plan of Merger (the Merger
Agreement) with Shin Nippon Biomedical Laboratories, Ltd., a Japanese
corporation (Parent or SNBL) and SNBL23 Merger Sub, Inc., a Delaware
corporation and a direct wholly owned subsidiary of Parent (Purchaser).
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, as promptly as practicable (but in no event more than
fifteen (15) business days after the date of the Merger Agreement), Purchaser
will commence a tender offer (the Offer) to acquire (upon the terms and
subject to the conditions of the Merger Agreement) any and all of the issued
and outstanding shares of common stock, par value $0.0001 per share, of the
Company (the Company Common Stock) in exchange for (i) an amount in cash equal
to $0.91, without interest and less applicable withholding taxes (the Per
Share Price), and (ii) one contingent value right per share of Company Common
Stock (a CVR) representing the right to receive, subject to the terms and
conditions of the CVR Agreement, substantially in the form attached to the
Merger Agreement (the CVR Agreement), the consideration set forth in the CVR
Agreement (the CVRs together with the aggregate Per Share Price paid in
accordance with the Merger Agreement, the Offer Consideration). The Merger
Agreement includes a remedy of specific performance and is not subject to a
financing condition. As soon as practicable following the completion of the
Offer, upon the terms and subject to the conditions of the Merger Agreement,
Purchaser will be merged with and into the Company, with the Company surviving
as a wholly owned subsidiary of Parent (the Merger). The Merger Agreement
contemplates that the Merger will be effected pursuant to Section 251(h) of
the General Corporation Law of the State of Delaware (the DGCL), which permits
completion of the Merger without a vote of the holders of the Company Common
Stock upon the acquisition by Purchaser of a majority of the aggregate number
of the shares of Company Common Stock.
Subject to the terms and conditions of the Merger Agreement, if certain
conditions are satisfied and the Offer closes, Parent, following the
satisfaction of such conditions, would acquire any remaining shares by virtue
of a merger of Purchaser with and into the Company (the Merger), with the
Company surviving the Merger as a wholly-owned subsidiary of Parent. If the
Merger is consummated, the Company will cease to be a publicly-traded company.
The consummation of the transaction is subject to customary closing
conditions, including the Companys stockholders tendering a minimum number of
shares of Company Common Stock in the Offer.
Overview
We are a development-stage biopharmaceutical company developing a novel
therapeutic product for the acute treatment of migraine. Our product
candidate, STS101, is a drug-device combination of a proprietary dry-powder
formulation of dihydroergotamine mesylate, or DHE, which is designed to be
quickly and easily self-administered with a proprietary pre-filled,
single-use, nasal delivery device. DHE products have long been recommended as
a first-line therapeutic option for the acute treatment of migraine and have
significant advantages over other therapeutics for many patients. However,
broad use has been limited by invasive and burdensome administration and/or
sub-optimal clinical performance of available injectable and liquid nasal
spray products. STS101 is specifically designed to deliver the clinical
advantages of DHE while overcoming these shortcomings. If we can timely
complete the Offer and Merger, continue development of STS101, and if SNBL can
obtain regulatory approval for and successfully commercialize STS101, we
believe STS101 has the potential to be an important and differentiated option
for the acute treatment of migraine that can address the unmet needs of many
people living with migraines.
In January 2023, we completed our STS101 clinical development program in which
a total of more than 1,600 subjects have treated more than 10,000 migraine
attacks with STS101. The STS101 clinical development program included multiple
Phase 1 clinical trials, two Phase 3 placebo-controlled efficacy trials (the
EMERGE and SUMMIT trials) and a long-term, open-label safety trial (the ASCEND
trial). We believe the results of our STS101 clinical development program are
supportive of the efficacy and safety of STS101. We have also worked to
establish, in collaboration with our contract manufacturing partners, the
ability to manufacture
14
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commercial quantities of STS101 utilizing proprietary processes, custom mold
tooling that we own, and custom, automated filling, assembly and packaging
equipment that we own.
In May 2022, we completed meetings with the Food and Drug Administration (FDA)
related to our clinical data and chemistry, manufacturing and controls (CMC)
for our planned new drug application (NDA) for STS101. The purpose of these
meetings was to discuss and confirm required nonclinical, clinical and CMC
content of the STS101 NDA. In November 2022, we announced topline results from
our STS101 SUMMIT Phase 3 efficacy trial showing numerical differences in
favor of STS101 versus placebo on the pre-specified co-primary endpoints of
freedom from pain and freedom from most bothersome symptom (from among
photophobia, phonophobia and nausea) at the two-hour post-administration
timepoint. However, these differences did not achieve statistical significance
(p-value <0.05). In addition, we announced that we do not plan to invest in
commercializing STS101 and that we will actively explore alternatives to
maximize value for shareholders, while minimizing cash expenditures.
In January 2023, we completed our STS101 ASCEND Phase 3 long-term, open-label
safety trial. During the course of the trial, more than 446 subjects treated
more than 9,000 attacks with more than 10,500 doses of STS101, with some
subjects treating their migraines with STS101 for up to 18 months. STS101
demonstrated a favorable safety and tolerability profile in the ASCEND trial,
consistent with clinical experience to date.
In March 2023, we filed an NDA for STS101 with the FDA, and if the FDA accepts
the NDA for substantive review, we anticipate the FDA action date for the
STS101 NDA will be in January 2024. As has been our longstanding plan, we are
seeking FDA approval of STS101 under the 505(b)(2) regulatory pathway that
allows us to reference some of the information required for STS101 approval
from studies not conducted by Satsuma. Based on written feedback provided to
us by the FDA, we believe the results of our completed Phase 1 pharmacokinetic
(PK) clinical trials and our ASCEND Phase 3 long-term safety trial are
sufficient, in combination with information referenced from studies not
conducted by Satsuma, to support FDA approval of STS101.
The FDA has communicated to us in multiple meetings that a pivotal efficacy
trial, such as the STS101 SUMMIT Phase 3 trial, which we completed and
announced results from in November 2022, is not required for approval of
STS101, as the efficacy of STS101 may be established via a pharmacokinetic
bridge to the 505(b)(2) DHE reference products, D.H.E. 45 (DHE injectable
solution) and Migranal (DHE liquid nasal spray). The FDA has also communicated
to us that the results of the SUMMIT trial may be considered for inclusion in
the STS101 prescribing information if the study is adequate and well-controlled
and has results supportive of efficacy. We believe that the SUMMIT trial was
adequate and well-controlled and that the results from the trial provide a
totality of evidence that is supportive of the efficacy of STS101 in the acute
treatment of migraine despite STS101 not having demonstrated statistical
superiority over placebo on the co-primary endpoints at the two-hour
post-administration timepoint. We further believe that STS101 can address
unmet needs of many people with migraine, and that the results of the SUMMIT
trial, if included in the prescribing information for STS101, if approved by
FDA, would provide important treatment information to physicians and patients.
The clinical portion of our STS101 NDA is supported primarily by clinical
trial results, generated with investigational product that incorporates our
second-generation, nasal delivery device, from (i) the Phase 1 comparative PK
study of STS101 that we completed in June 2021; and (ii) the STS101 Phase 3
ASCEND long-term, open-label safety trial that we completed in January 2023.
We believe our second-generation nasal device, which we introduced into the
then-ongoing ASCEND trial in January 2021, in conjunction with improved
instructions for STS101 use and training of subjects in our clinical trials,
effectively addressed the under-delivery issue first identified with our
first-generation delivery device shortly following our announcement of results
from the EMERGE Phase 3 efficacy trial in September 2020. Based on our
discussions with the FDA, we believe the data in our NDA support approval of
STS101 incorporating this second-generation delivery device.
In November 2022 we announced that we do not plan to invest in commercializing
STS101 and that we would actively explore alternatives to maximize value for
shareholders, while minimizing cash expenditures. Based on the following
factors, we revised our business plan and strategy in order to maximize value
for our stockholders:
"
results of the Phase 3 SUMMIT trial, in which STS101 did not achieve
statistical superiority to placebo on the co-primary outcome measures;
"
our belief, based on review of the SUMMIT trial results in their entirety and
our primary market research conducted subsequent to announcement of the SUMMIT
trial results, that STS101, if approved and successfully commercialized, has
the potential to be an important and differentiated option for the acute
treatment of migraine that can address the unmet needs of many people living
with migraines;
"
the significant decrease in our stock price that occurred following our
announcement of the SUMMIT trial results;
"
current and anticipated future capital market conditions; and
15
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"
our projected need for substantial additional capital were we to continue to
develop STS101 through potential regulatory approval and pursue independent
commercialization of STS101.
Accordingly, key elements of our revised business plan and strategy are as
follows:
"
seek to complete the Offer and Merger on favorable terms under which SNBL will
financially support and assume responsibility for completing development of
and commercializing STS101;
"
minimize cash expenditures and continue to invest in and advance the STS101
development program only to the extent necessary to maintain its viability
until such time as we may be able to complete the Offer and Merger. To this
end, in March 2023, we filed an NDA with the FDA for STS101, and if the FDA
accepts the NDA for substantive review, we anticipate the FDA action date for
the STS101 NDA will be in January 2024; and
"
seek no further funding, as such funding, if available at all, would likely
not be available on terms that would be acceptable or favorable to us.
There can be no assurance that we will be able to successfully execute our
revised business plan and strategy, and in the event we are unable to timely
complete the Offer and Merger on acceptable terms, we may be forced to
discontinue development of STS101, withdraw the STS101 NDA and pursue other
strategic alternatives, such as dissolution and wind-down.
Our net losses were $10.3 million and $15.5 million for the three months ended
March 31, 2023 and 2022, respectively. As of March 31, 2023 we had an
accumulated deficit of $222.1 million.
Since our inception in June 2016, we have invested substantially all of our
efforts and financial resources in the development of STS101 for the acute
treatment of migraine. We have incurred significant operating losses to date
and we expect our operating expenses will decrease significantly as we
complete the clinical development of STS101, refine the manufacturing
processes and seek regulatory approval of STS101 with the filing of an NDA. In
addition, until the completion of the Offer and Merger, we expect to continue
to incur costs associated with operating as a public company and to maintain,
protect and enforce our intellectual property portfolio.
In November 2022, we entered into an At-the-Market Sales Agreement (the Virtu
Sales Agreement), with Virtu Americas LLC (Virtu), to sell shares of our
common stock, from time to time, through an ATM equity offering program under
which Virtu will act as its sales agent and pursuant to which we may sell
common stock for aggregate gross sales proceeds of up to $100.0 million. The
issuance and sale of shares of common stock by us pursuant to the Virtu Sales
Agreement is deemed an ATM offering under the Securities Act of 1933, as
amended. Virtu is entitled to compensation for its services equal to up to
3.0% of the gross proceeds of any shares of common stock sold through Virtu
under the Virtu Sales Agreement. As of March 31, 2023, no shares of common
stock have been sold pursuant to Virtu Sales Agreement.
We do not have any products approved for sale and have not generated any
product revenue since our inception. Our ability to generate revenues will
depend on the successful development of STS101 and eventual commercialization
of STS101 by a third party. We do not intend to seek further funding, as we
believe such funding, if available at all, would likely not be available on
terms that would be acceptable or favorable to us.
As of March 31, 2023, we had cash, cash equivalents and marketable securities
of $41.4 million. We believe our cash, cash equivalents and marketable
securities would be insufficient to enable us to fund current operations for a
period of one year or more from the issuance date of this Quarterly Report on
Form 10-Q were we to continue to pursue development and commercialization of
STS101. We believe that this raises substantial doubt about our ability to
continue as a going concern. See Organization and Summary of Significant
Accounting PoliciesLiquidity in Note 1 to our condensed financial statements
included elsewhere in this Quarterly Report on Form 10-Q for additional
information on our assessment. If we are unable to timely complete the Offer
and Merger on acceptable terms, we may be forced to discontinue development of
STS101, withdraw the STS101 NDA and pursue other strategic alternatives, such
as dissolution and wind-down.
Workforce Reduction
On March 27, 2023, our board of directors approved a plan to reduce our
workforce by 9 employees, or approximately 36% of our headcount as of such
date (the "Workforce Reduction"), in order to preserve cash and maximize the
value of STS101 for a potential strategic transaction partner. In connection
with the Workforce Reduction, the position of Detlef Albrecht, M.D., our Chief
Medical Officer, with the Company was eliminated. We incurred aggregate
charges in connection with the Workforce Reduction of
16
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approximately $1.3 million, which relate primarily to severance payments and
related continuation of benefits costs, all of which resulted in cash
expenditures, along with the payment of approximately $0.2 million in accrued
benefits including paid-time-off.
The foregoing estimates of the charges and expenditures that we expect to
incur in connection with the Workforce Reduction, and the timing thereof, are
subject to several assumptions and the actual amounts incurred may differ
materially from these estimates. In addition, we may incur other charges or
cash expenditures not currently contemplated due to unanticipated events that
may occur, including in connection with the implementation of the Workforce
Reduction.
As requested by Parent, the Company will terminate the employment of each of
John Kollins, President and Chief Executive Officer of the Company, and Tom
ONeil, Chief Financial Officer of the Company, effective as of the closing of
the Offer and the Merger (and subject to the occurrence of the closing of the
Offer and Merger). Prior to the closing, such executive officers shall remain
in their current positions with their current compensation. In connection to
the Merger and in accordance with the Merger Agreement, each of the directors
of the Company will resign as directors of the Company, effective as of the
closing of the Offer and the Merger (and subject to the occurrence of the
closing of the Offer and Merger).
Components of Operating Results
Operating Expenses
Research and Development Expenses
All of our research and development expenses consist of expenses incurred in
connection with the development of STS101 for the acute treatment of migraine.
These expenses include:
"
payroll and personnel-related expenses, including salaries, annual cash
bonuses, employee benefit costs and stock-based compensation expenses for our
research and product development employees;
"
fees paid to third parties to conduct preclinical and clinical studies and
other research and development activities, including contract research
organizations, or CROs, contract manufacturing organizations, or CMOs,
consultants, and other service providers; and
"
costs for licenses and allocated overhead, including rent, equipment,
depreciation, information technology costs and utilities.
We expense both internal and external research and development expenses as
they are incurred. We have entered into various agreements with third party
vendors and CMOs. Our research and development accruals are estimated based on
the level of services performed, progress of the studies, including the phase
or completion of events or tasks, and contracted costs. The estimated costs of
research and development provided, but not yet invoiced, are included in
accrued and other current liabilities on the balance sheet. If the actual
timing of the performance of services or the level of effort varies from the
original estimates, we adjust the accrual accordingly. Payments made to CROs
and CMOs under these arrangements in advance of the performance of the related
services are recorded as prepaid expenses and other current assets until the
services are rendered. Nonrefundable payments made prior to the receipt of
goods or services that will be used or rendered for future research and
development activities are deferred and capitalized as prepaid expenses and
other current assets on our balance sheet. The capitalized amounts are
recognized as expense as the goods are delivered or the related services are
performed.
As we continue the development of STS101, we expect that we and Parent,
subsequent to the anticipated consummation of the Offer and Merger, will incur
significantly lower research and development expenses due to decreased
clinical trial expenses and as a result of the workforce reduction announced
in March 2023. We expect that future research and development expenses will be
incurred as we refine the STS101 manufacturing processes and seek regulatory
approval of STS101. Predicting the timing or the cost to complete validation
of commercial manufacturing and supply processes is difficult, and delays may
occur because of many factors, including factors outside of our control. For
example, if the FDA or other regulatory authorities were to require us to
conduct clinical trials beyond those completed or if we experience delays in
manufacturing with any of our CMOs, we could be required to expend significant
additional financial resources and time on the completion of clinical
development. Furthermore, we are unable to predict with certainty when or if
STS101 will receive regulatory approval.
General and Administrative Expenses
General and administrative expenses consist principally of payroll and
personnel expenses, including salaries, annual cash bonuses, benefits, and
stock-based compensation expenses, professional fees for legal, consulting,
accounting and tax services, directors and officers insurance, allocated
overhead, including rent, equipment, depreciation, information technology
costs, and
17
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utilities, and other general operating expenses not otherwise classified as
research and development expenses including expenses associated with
pre-commercialization activities.
We anticipate that general and administrative expenses will decrease as the
result of the workforce reduction announced in March 2023, and effective as of
the closing of the Offer and the Merger (and subject to the occurrence of the
closing of the Offer and Merger), and termination of pre-commercialization
activities due to our decision not to pursue independent commercialization
STS101. These costs consist of personnel costs, including salaries, benefits
and stock-based compensation expenses, consulting, until the closing of the
Offer and the Merger, legal and accounting services associated with
maintaining compliance with stock exchange listing and Securities and Exchange
Commission, or SEC, requirements, investor relations costs and director and
officer insurance premiums associated with being a public company.
Interest Income
Interest income consists primarily of interest earned on our cash, cash
equivalents and marketable securities.
Interest Expense
Interest expense consisted primarily of interest related to our long-term debt
and accretion of debt discount, debt issuance costs and final payment.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the periods
indicated (in thousands, except percentages):
Three Months Ended March 31,
2023 2022 Change Change %
Operating expenses:
Research and development $ 7,459 $ 11,556 $ (4,097 ) (35 )%
General and administrative 3,309 3,990 (681 ) (17 )%
Loss from operations (10,768 ) (15,546 ) 4,778 (31 )%
Interest income 474 40 434 1,085 %
Interest expense (11 ) 11 (100 )%
Net loss $ (10,294 ) $ (15,517 ) $ 5,223 (34 )%
Research and Development Expenses
Research and development expenses decreased from the three months ended March
31, 2022 to the three months ended March 31, 2023 primarily due to a decrease
of $5.7 million in clinical trial costs, which was the net of a decrease of
$4.6 million for the SUMMIT efficacy trial and $1.2 million for the ASCEND
safety trial, offset by increase of $0.1 million for NDA preparation work, as
well as a decrease of $0.2 million in payroll and personnel expenses partially
offset by an increase of $0.9 million in severance payments due to the
Workforce Reduction, and an increase of $0.9 million in manufacturing
activities.
General and Administrative Expenses
General and administrative expenses decreased from the three months ended
March 31, 2022 to the three months ended March 31, 2023 primarily due to a
decrease of $0.2 million of payroll and personnel expenses, including
salaries, benefits and stock-based compensation expenses, and a decrease of
$0.8 million due to decreased pre-commercialization activity, partly offset by
an increase of $0.3 million in severance payments due to the Workforce
Reduction.
Interest Income
Interest income increased from the three months ended March 31, 2022 to the
three months ended March 31, 2023 primarily as a result of the higher interest
yields in the three months ended March 31, 2023, partly offset by a decrease
in average balances of our cash, cash equivalents and marketable securities in
the three months ended March 31, 2023.
18
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Liquidity and Capital Resources
Sources of Liquidity
We have historically financed our operations primarily through the issuance of
common stock in our IPO, and private placements of equity securities and
borrowings under our long-term debt facility. We have no products approved for
sale, and we have not generated any revenue since inception. We expect to
incur significant additional operating losses over at least the next several
years.
In October 2020, we entered into the SVB Sales Agreement with SVB to sell
shares of our common stock, from time to time, through an ATM equity offering
program under which SVB acted as our sales agent and pursuant to which we
could sell common stock for aggregate gross sales proceeds of up to $50.0
million. In September 2022, we received $9.7 million in net proceeds from the
sale of shares of common stock pursuant to the SVB Sales Agreement. On October
26, 2022, we terminated the SVB Sales Agreement. As a result, the ATM equity
offering facility under the SVB Sales Agreement is no longer available for use.
In November 2022, we entered into the Virtu Sales Agreement with Virtu to sell
shares of our common stock, from time to time, through an ATM equity offering
program under which Virtu will act as our sales agent and pursuant to which we
may sell common stock for aggregate gross sales proceeds of up to $100.0
million.
In October 2018, we entered into the Loan Agreement with Silicon Valley Bank.
The Loan Agreement provided for loan advances of up to $10.0 million. We drew
down the first advance of $5.0 million as of the effective date of the Loan
Agreement. The remaining $5.0 million under the facility was never drawn down
and is no longer available for draw. Interest on the loan advances was payable
monthly at a floating per annum rate equal to the greater of 1.5% above the
prime rate and 6.5%. Upon the occurrence of an event of default, interest
would increase to 5.0% above the rate that is otherwise applicable. Principal
on the outstanding loan advance was repayable commencing on December 1, 2019
in 30 monthly payments through maturity. The maturity date of the loan
advances was May 1, 2022.
In May 2022, we repaid our entire obligation under the Loan Agreement
amounting to $0.4 million, including outstanding loan amount of $0.2 million
and final payment of $0.2 million.
On March 10, 2023, the California Department of Financial Protection and
Innovation closed Silicon Valley Bank and appointed the Federal Deposit
Insurance Corporation ("FDIC") as receiver. On March 12, 2023, the U.S.
Department of the Treasury, the Federal Reserve and the FDIC released a joint
statement confirming that all depositors of Silicon Valley Bank would have
access to all of their money after only one business day of closure, including
funds held in uninsured deposit accounts. We received full access to the funds
in our deposit and money market accounts on March 13, 2023. In light of
actions by the federal government to fully protect deposit accounts, we
believe that the impact on our liquidity is immaterial.
Future Funding Requirements
We have incurred net losses since our inception. Our net losses were $10.3
million and $15.5 million for the three months ended March 31, 2023 and 2022,
respectively. We believe our cash, cash equivalents and marketable securities
would be insufficient to enable us to fund current operations for a period of
one year or more from the issuance date of this Quarterly Report on Form 10-Q
were we to continue to pursue development and commercialization of STS101. We
believe that this raises substantial doubt about our ability to continue as a
going concern. See Note 1 to our condensed financial statements included
elsewhere in this Quarterly Report on Form 10-Q for additional information on
our assessment.
Based on our current plans and strategies, we anticipate our operating
expenses will decrease as we do not plan to invest in commercializing STS101
and plan to complete the Offer and Merger. While less than historically
incurred, on-going expenses will be required to continue development of STS101
to maintain its viability for SNBL.
We do not intend to pursue further funding and, instead, are seeking to
complete the Offer and Merger with SNBL, who would fund further development
and commercialization of STS101.
If we are unable to timely complete the Offer and Merger, we would likely
terminate development of STS101, withdraw our NDA and pursue other strategic
alternatives, such as dissolution and wind-down. See Risk Factors for
additional risks associated with substantial capital requirements.
19
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Summary Statement of Cash Flows
The following table sets forth the primary sources and uses of cash and cash
equivalents for each of the periods presented below (in thousands):
Three months ended March 31,
2023 2022
Net cash (used in) provided by:
Operating activities $ (11,385 ) $ (14,317 )
Investing activities 14,482 20,341
Financing activities (500 )
Net increase in cash and cash equivalents $ 3,097 $ 5,524
Cash Flows Used in Operating Activities
Net cash used in operating activities was $11.4 million for the three months
ended March 31, 2023. Cash used in operating activities was primarily due to
the use of funds in our operations to develop STS101, which resulted in a net
loss of $10.3 million, adjusted for a decrease in accrued and other current
liabilities of $1.2 million, a decrease in accounts payable of $1.0 million,
and net amortization of premiums and discounts on marketable securities of
$0.2 million, which amounts were partially offset by a decrease in prepaid
expenses and other assets of $0.3 million, and stock-based compensation
expense of $1.1 million. The decrease in prepaid expenses and other assets,
accrued and other current liabilities and accounts payable were primarily the
result of the timing of payments to our vendors.
Net cash used in operating activities was $14.3 million for the three months
ended March 31, 2022. Cash used in operating activities was primarily due to
the use of funds in our operations to develop STS101, which resulted in a net
loss of $15.5 million, adjusted for a decrease in accrued and other
liabilities by $1.9 million, which amounts were partially offset by a decrease
in prepaid expenses and other assets of $1.2 million, an increase in accounts
payable of $0.3 million, stock-based compensation expense of $1.2 million, and
net amortization of premiums and discounts on marketable securities of $0.3
million. The decrease in accrued and other liabilities and prepaid expenses
and other assets and increase in accounts payable were primarily the result of
the timing of payments to our vendors.
Cash Flows Provided by Investing Activities
Net cash provided by investing activities was $14.5 million for the three
months ended March 31, 2023, which consisted of proceeds from maturities of
marketable securities of $15.9 million, which amounts were partially offset by
purchases of marketable securities of $1.4 million.
Net cash provided by investing activities was $20.3 million for the three
months ended March 31, 2022, which consisted of proceeds from maturities of
marketable securities of $22.4 million, which amounts were partially offset by
purchases of marketable securities of $2.0 million.
Cash Flows Used in Financing Activities
Net cash used in financing activities was $0.5 million for the three months
ended March 31, 2022, which primarily related to repayment of debt of $0.5
million.
Critical Accounting Policies, Significant Judgments and Estimates
Our unaudited interim condensed financial statements have been prepared in
accordance with U.S. generally accepted accounting principles, or GAAP. The
preparation of these unaudited interim condensed financial statements requires
us 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 expenses incurred during
the reporting periods. Our estimates are based on our historical experience
and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent
from other sources.
Our critical accounting policies are described under the heading Managements
Discussion and Analysis of Financial Condition and Results of OperationsCritical
Accounting Policies, Significant Judgments and Use of Estimates in our Annual
Report on Form 10-K for the year ended December 31, 2022. During the three
months ended March 31, 2023, there were no material changes to our critical
accounting policies from those discussed in the Annual Report on Form 10-K for
the year ended December 31,
20
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2022. See Note 1 to the unaudited interim condensed financial statements
appearing elsewhere in this Quarterly Report on Form 10-Q for related
discussions on updates on recently issued accounting pronouncements.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an
emerging growth company such as us to take advantage of an extended transition
period to comply with new or revised accounting standards applicable to public
companies. We have elected to use this extended transition period under the
JOBS Act. As a result, our financial statements may not be comparable to the
financial statements of issuers who are required to comply with the effective
dates for new or revised accounting standards that are applicable to public
companies, which may make comparison of our financials to those of other
public companies more difficult.
Recent Accounting Pronouncements
See Organization and Summary of Significant Accounting PoliciesRecent
Accounting Pronouncements in Note 1 to our unaudited interim condensed
financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitati
ve Disclosures About Market Risk.
Interest Rate Sensitivity
As of March 31, 2023, we had cash, cash equivalents and marketable securities
of $41.4 million, consisting of interest-bearing money market funds,
investments in U.S. government agency bonds, corporate bonds and asset backed
securities for which the fair value would be affected by changes in the
general level of U.S. interest rates. However, due to the short-term
maturities and the low-risk profile of our cash equivalents and marketable
securities, an immediate 10% change in interest rates would not have a
material effect on the fair value of our cash equivalents and marketable
securities.
We do not believe that inflation, interest rate changes or exchange rate
fluctuations have had a significant impact on our results of operations for
any periods presented herein.
Item 4. Controls
and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated, as of the end of the period covered by
this Quarterly Report on Form 10-Q, the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)). The term
disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
companys management, including its principal executive and principal financial
officers, as appropriate, to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Due to the inherent limitations of control systems, not all misstatements may
be detected. These inherent limitations include the realities that judgments
in decision-making can be faulty and that breakdowns can occur because of a
simple error or mistake. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of March 31,
2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during
the three months ended March 31, 2023, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
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PART IIOTHER
INFORMATION
Item 1. Legal
Proceedings.
Legal Proceedings
We are not currently involved in any litigation or legal proceedings that, in
managements opinion, are likely to have any material adverse effect on our
company.
Item 1A. Ris
k Factors.
Our business involves significant risks, some of which are described below.
You should carefully consider these risks, as well as the other information in
this Quarterly Report on Form 10-Q, including our unaudited condensed
financial statements and the related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations. The occurrence of
any of the events or developments described below could have a material
adverse effect on our business, results of operations, financial condition,
prospects and stock price. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
Risks Related to the Offer and Merger
The Offer and Merger are subject to a number of conditions beyond our control.
Failure to complete the Offer and the Merger within the expected time frame,
or at all, could have a material adverse effect on our business, operating
results, financial condition and our share price.
On April 16, 2023, we entered into the Merger Agreement, pursuant to which,
and upon the terms and subject to the conditions thereof, Purchaser commenced
the Offer to purchase each issued and outstanding share of common stock of the
Company. Subject to the terms and conditions of the Merger Agreement, if
certain conditions are satisfied and the Offer closes, Parent would acquire
any remaining shares in connection with a merger of Purchaser with and into
the Company, with the Company being the surviving corporation and a
wholly-owned subsidiary of Parent. Consummation of the Offer is subject to
certain conditions, including, the Companys stockholders tendering a minimum
number of shares of Company Common Stock in the Offer (the Minimum Condition),
no governmental entity with competent jurisdiction having enacted, issued,
promulgated, enforced or entered into any law or judgment that restrains,
enjoins or otherwise prohibits the Merger (the Governmental Entity Condition)
and us having a minimum net cash balance, as determined in accordance with the
Merger Agreement (the Net Cash Condition).
We cannot predict whether and when the conditions to the Offer will be
satisfied. If one or more of these conditions are not satisfied, and as a
result, we do not complete the Offer and Merger, we would remain liable for
significant transaction costs, and the focus of our management would have been
diverted from seeking other potential strategic opportunities, in each case
without realizing any benefits of the Offer and the Merger. Certain costs
associated with the Offer and Merger have already been incurred or may be
payable even if the Offer and Merger are not consummated. Finally, any
disruptions to our business resulting from the announcement and pendency of
the Offer and Merger, including any adverse changes in our relationships with
our customers, partners, suppliers and employees, could continue or accelerate
in the event that we fail to consummate the Offer and Merger.
Our share price may also fluctuate significantly based on announcements by
SNBL, other third parties, or us regarding the Offer and Merger or based on
market perceptions of the likelihood of the satisfaction of the Minimum
Condition or other conditions to the consummation of the Offer and Merger.
Such announcements may lead to perceptions in the market that the Offer and
Merger may not be completed, which could cause our share price to fluctuate or
decline. Other factors outside of our control, such as a governmental entity
enacting legislation that prohibits the merger, could cause us not to satisfy
the Governmental Entity Condition and thus the merger would not be
consummated. Further, unforeseen and unexpected expenses could cause our net
cash to be below the applicable threshold thus causing us to fail to satisfy
the Net Cash Condition.
If we do not consummate the Offer and Merger, the price of our common stock
may decline significantly from the current market price, which may reflect a
market assumption that the Offer and Merger will be consummated. Any of these
events could have
22
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a material adverse effect on our business, operating results and financial
condition and could cause a decline in the price of our common stock.
The Offer consideration payable to holders of our common stock will not be
adjusted for changes in our business, assets liabilities, prospects, outlook,
financial condition or results of operations, or in the event of any change in
our share price.
The Offer consideration payable to holders of our common stock will not be
adjusted for changes in our business, assets, liabilities, prospects, outlook,
financial condition or results of operations, or changes in the market price
of, analyst estimates of, or projections relating to, our ordinary shares. For
example, if we experienced an improvement in our business, assets,
liabilities, prospects, outlook, financial condition or results of operations
prior to the consummation of the Offer and Merger, there would be no
adjustment to the amount of the proposed Offer consideration.
Our stockholders may not receive any payment on the CVRs and the CVRs may
otherwise expire valueless.
If the Offer and the Merger are completed, the holders of our common stock
will be entitled to receive one contingent value right per share of our common
stock (a "CVR") representing the right to receive, subject to the terms and
conditions of the contingent value rights agreement substantially in the form
attached to the Merger Agreement (the "CVR Agreement"), additional payments
based on the proceeds, subject to certain adjustments, received by Parent from
(i) the sale, license or other grant of rights with respect to the STS101
program or any part thereof, (ii) the sale or disposition of all or
substantially all of the business or assets of the Company (that exists
immediately prior to the closing of the Merger), or (iii) the sale or
disposition of all or substantially all of the equity of the Company or
Purchaser. The CVRs will not be transferable, except in the limited
circumstances specified in the CVR Agreement, will not have any voting or
dividend rights, and interest will not accrue on any amounts potentially
payable on the CVRs. Accordingly, the right of any of our stockholders to
receive any future payment on or derive any value from the CVRs will be
contingent solely upon the proceeds received by Parent, as outlined above, and
if these events are not achieved for any reason within the time periods
specified in the CVR Agreement, no payments will be made under the CVRs, and
the CVRs will expire valueless.
The Merger Agreement contains provisions that could discourage a potential
competing acquirer.
The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, the Company and its representatives cannot solicit or
initiate discussions with third parties regarding other proposals to acquire
the Company and we are subject to restrictions on our ability to respond to
any such proposal, except as permitted under the terms of the Merger
Agreement. In the event that we receive an acquisition proposal from a third
party, we must notify Parent of such proposal and negotiate in good faith with
Parent prior to terminating the Merger Agreement or effecting a change in the
recommendation of our Board of Directors to our stockholders with respect to
the Offer and Merger. The Merger Agreement also contains certain termination
rights for Parent and us and further provides that, upon termination of the
Merger Agreement under specified circumstances, including certain terminations
in connection with an alternative business combination transaction as
permitted by the terms of the Merger Agreement, we will be required to pay
Parent a termination fee of $905,136. These provisions could discourage a
potential third-party acquirer that might have an interest in acquiring all or
a significant portion of us from considering or proposing that acquisition,
even if it were prepared to pay consideration with a higher per share cash or
market value than the market value proposed to be received or realized in the
transaction. These provisions also might result in a potential third-party
acquirer proposing to pay a lower price to our stockholders than it might
otherwise have proposed to pay due to the added expense of the termination fee
that may become payable in certain circumstances.
If the Merger Agreement is terminated and we determine to seek another
business combination, we may not be able to negotiate a transaction with
another party on terms comparable to, or better than, the terms of the Offer
and Merger.
Stockholder litigation could prevent or delay the consummation of the Offer
and Merger or otherwise negatively impact our business, operating results and
financial condition.
We may incur additional costs in connection with the defense or settlement of
existing and any future stockholder litigation in connection with the Offer
and Merger. These lawsuits or other future litigation may adversely affect our
ability to complete the Offer and Merger. We could incur significant costs in
connection with any such litigation, including costs associated with the
indemnification of our directors and officers. Furthermore, one of the
conditions to the consummation of the Offer and Merger is the absence of any
governmental order or law preventing the consummation of the Offer and Merger
or making the consummation of the Offer and Merger illegal. Consequently, if a
plaintiff were to secure injunctive or other relief prohibiting, delaying or
otherwise
23
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adversely affecting our ability to complete the consummation of the Offer and
Merger, then such injunctive or other relief may prevent the Offer and Merger
from becoming effective within the expected time frame or at all.
Our executive officers and directors may have interests in the Offer and the
Merger that are different from, or in addition to, those of our stockholders
generally.
Our executive officers and directors may have interests in the Offer and the
Merger that are different from, or are in addition to, those of our
stockholders generally. These interests include direct or indirect ownership
of our common stock and equity awards, the acceleration of equity awards upon
consummation of the transactions and other interests. Such interests of our
directors and executive officers are set forth in further detail in the
Schedule 14D-9 filed by the Company with the SEC on May 5, 2023.
While the Offer and Merger is pending, we are subject to business
uncertainties and contractual restrictions that could disrupt our business,
and the Offer and Merger may impair our ability to attract and retain
qualified employees or retain and maintain relationships with our suppliers
and other business partners.
Whether or not the Offer and Merger are consummated, the Offer and Merger may
disrupt our current plans and operations, which could have an adverse effect
on our business and financial results. The pendency of the Offer and Merger
may also divert managements attention and our resources from ongoing business
and operations and our employees and other key personnel may have
uncertainties about the effect of the Offer and Merger, and the uncertainties
may impact our ability to retain, recruit and hire key personnel while the
Offer and Merger are pending or if it fails to close. Furthermore, if key
personnel depart because of such uncertainties, or because they do not wish to
remain with the combined company after the consummation of the Offer and
Merger, our business and results of operations may be adversely affected. In
addition, we cannot predict how our suppliers and other business partners will
view or react to the Offer and Merger upon consummation. If we are unable to
reassure our suppliers and other business partners to continue transacting
business with us, our financial condition and results of operations may be
adversely affected.
In addition, the Merger Agreement generally requires us to operate in the
ordinary course of business consistent with past practice, pending
consummation of the Offer and Merger, and restricts us from taking certain
actions with respect to our business and financial affairs without Parents
consent. Such restrictions will be in place until either the Offer and Merger
are consummated or the Merger Agreement is terminated. These restrictions
could restrict our ability to, or prevent us from, pursuing attractive
business opportunities (if any) that arise prior to the consummation of the
Offer and Merger. For these and other reasons, the pendency of the Offer and
Merger could adversely affect our business, operating results and financial
condition.
We have incurred, and will continue to incur, direct and indirect costs as a
result of the Offer and Merger.
We have incurred, and will continue to incur, significant costs and expenses,
including fees for professional services and other transaction costs, in
connection with the Offer and Merger, including costs that we may not
currently expect. We must pay substantially all of these costs and expenses
whether or not the transaction is completed. If the Merger Agreement is
terminated under specified circumstances, we would be required to pay to
Parent a termination fee equal to $905,136. There are a number of factors
beyond our control that could affect the total amount or the timing of these
costs and expenses.
Risks Related to Our Business
We do not plan to independently commercialize STS101 in the event that our
STS101 new drug application (NDA), which we submitted to the FDA in March
2023, is approved. If we are unable to timely complete the Offer and Merger we
would likely terminate development of STS101, withdraw our NDA and pursue
other strategic alternatives, such as dissolution and wind-down. Moreover, we
have incurred significant losses since our inception, and we anticipate that
we will continue to incur significant losses for the foreseeable future,
which, together with our limited operating history, make it difficult to
assess our prospects.
Biopharmaceutical product development is a highly speculative undertaking and
involves a substantial degree of risk. We are a development-stage
biopharmaceutical company, and we have only a limited operating history upon
which you can evaluate our business and prospects. We have limited experience
and have not yet demonstrated an ability to successfully overcome many of the
risks and uncertainties frequently encountered by companies in new and rapidly
evolving fields, particularly in the pharmaceutical industry.
We are focused on developing a single therapeutic product, STS101
(dihydroergotamine (DHE) nasal powder) for the acute treatment of migraine. We
have no products approved for commercial sale, have not generated any revenue
from product sales and have incurred losses in each year since our inception
in June 2016. We do not plan to independently commercialize STS101 in the
event that our STS101 new drug application (NDA), which we submitted to the
FDA in March 2023, is approved, and we seek to
24
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complete the Offer and Merger. If we are unable to timely complete the Offer
and Merger, we would likely terminate development of STS101, withdraw our NDA
and pursue other strategic alternatives, such as dissolution and wind-down.
In November 2022, we announced topline data from the SUMMIT trial, which
randomized approximately 1,600 migraine subjects to STS101 5.2 mg dose or
placebo. Although STS101 showed favorable numerical differences versus placebo
on the pre-specified co-primary endpoints of freedom from pain and freedom
from most bothersome symptom (from among photophobia, phonophobia and nausea)
at the two-hour, post-administration timepoint, these differences did not
achieve statistical significance. In January 2023, we completed the ASCEND
trial, and in March 2023 we submitted an NDA to the FDA seeking approval of
STS101 for the acute treatment of migraine, with or without aura, via the
505(b)(2) regulatory pathway.
We have limited experience as a company in submitting applications for
regulatory approvals, such as an NDA. We do not plan to independently
commercialize STS101 and our plan is to complete the Offer and Merger. There
can be no assurance that we will timely complete the Offer and Merger prior to
exhausting our financial resources or that the terms of any such transaction
will be favorable.
We have had significant operating losses since our inception. Our net losses
for the three months ended March 31, 2023 and 2022 were approximately $10.3
million and $15.5 million, respectively. As of March 31, 2023, we had an
accumulated deficit of 222.1 million. Substantially all of our losses have
resulted from expenses incurred in connection with the development of STS101
and general and administrative costs associated with our operations.
We expect to continue to incur losses for the foreseeable future as we
continue to develop STS101 and seek to complete the Offer and Merger. Our
prior losses, combined with expected losses, have had and will continue to
have an adverse effect on our stockholders equity and working capital.
Our financial condition raises substantial doubt as to our ability to continue
as a going concern.
Our financial statements have been prepared assuming that we will continue to
operate as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. We believe
our cash, cash equivalents and marketable securities would be insufficient to
enable us to fund current operations for a period of one year or more from the
issuance date of this Annual Report on Form 10-K were we to continue to pursue
development and commercialization of STS101. We expect to continue to incur
net operating losses as we continue our development efforts and seek to
complete the Offer and Merger.
These conditions raise substantial doubt about our ability to continue as a
going concern. Additionally, our independent registered public accounting firm
has included in its audit opinion for the year ended December 31, 2022 an
explanatory paragraph that there is substantial doubt as to our ability to
continue as a going concern. We do not believe that funding will be available
to us, will be obtained on terms favorable to us or will provide us with
sufficient funds to meet our objectives. We do not plan to raise additional
financing, and our failure to complete the Offer and Merger may adversely
impact our ability to achieve our intended business objectives and could force
us to consider other strategic alternatives such as wind-down and dissolution.
The reaction of investors to the inclusion of a going concern statement by our
auditors and our potential inability to continue as a going concern may
materially adversely affect our share price and our ability to timely complete
the Offer and Merger. If we become unable to continue as a going concern, we
may have to liquidate our assets and the values we receive for our assets in
liquidation or dissolution could be significantly lower than the values
reflected in our financial statements.
We would require substantial additional financing to continue operations. We
do not plan to raise additional financing as we believe it is unlikely that we
would be able to raise substantial additional funds on favorable terms. If we
are unable to timely complete the Offer and Merger we will likely be forced to
terminate development of STS101, withdraw our NDA and pursue other strategic
alternatives, such as dissolution and wind-down.
We believe our cash, cash equivalents and marketable securities would be
insufficient to enable us to fund current operations for a period of one year
or more from the issuance date of this Annual Report on Form 10-K were we to
continue to pursue development and commercialization of STS101. Accordingly,
our financial statements have been prepared on a going concern basis, which
contemplates the continuity of operations, realization of assets and the
satisfaction of liabilities and commitments in the ordinary course of
business. Our operating plans may change as a result of many factors currently
unknown to us, and our resources may not be sufficient to fund operations
until completion of the Offer and Merger. It is unlikely that adequate funding
would be available to us on acceptable terms, or at all, particularly in light
of the current economic uncertainty and potential local and/or global economic
recession, and we may be forced to terminate development of STS101 or pursue
other strategic alternatives such as dissolution and wind-down. We do not
expect to provide any meaningful economic benefits to our stockholders unless
we are able to timely complete the Offer and Merger.
25
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We do not plan to raise additional funds through the issuance of equity,
equity-linked or debt securities, as those securities would likely have
rights, preferences or privileges senior to those of our common stock, and our
existing stockholders would likely experience significant dilution. Any debt
financing secured by us in the future would likely require that a substantial
portion of our operating cash flow and/or cash assets be devoted to the
payment of interest and principal on such indebtedness, which would decrease
available funds for other business activities, and likely involve restrictive
covenants relating to our capital-raising activities and other financial and
operational matters, which would make it more difficult for us to obtain
additional capital and to pursue business opportunities. Because we believe
that we would be unable to obtain additional financing on favorable terms, if
at all, our ability to grow our business or respond to competitive pressures
or unanticipated requirements is limited, which may seriously harm our
business.
Our future capital requirements, our ability to complete any strategic
transaction, and the potential economic benefits that may accrue to us
pursuant to the Offer and Merger depend on many factors, including:
"
the cost, timing and outcome of regulatory review of STS101;
"
scope and costs of manufacturing development and commercial manufacturing
activities;
"
the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
"
any product liability or other lawsuits related to STS101;
"
our ability to retain qualified personnel, including personnel to support the
continued development of STS101;
"
our ability to conclude the Offer and Merger;
"
the costs associated with being a public company until completion of the Offer
and Merger; and
"
the timing, receipt and amount of payments, if any, generated by upfront,
milestone or royalty payments under any strategic transaction that we or
Parent may be able to conclude.
It is unlikely that additional funds would be available, should we need them,
on terms that would be acceptable to us, or at all. If we are unable to timely
complete the Offer and Merger, we would likely be required to:
"
terminate the STS101 development program and withdraw the STS101 NDA filing;
"
delay, limit, reduce or terminate our efforts to establish manufacturing
capabilities or other activities that may be necessary for a third party to
commercialize STS101; or
"
pursue other strategic alternatives, such as dissolution and wind-down.
To date, we have funded our operations through private placements of
convertible preferred stock, a convertible promissory note, long-term debt,
and common stock. We do not anticipate raising additional funds, and our
current funds may not be sufficient for us to fund the company until such time
as we are able to complete the Offer and Merger. Were we to change our plans
and seek to raise additional funds, our ability to raise such funds will
depend on financial, economic and other factors, many of which are beyond our
control. If we raise additional funds by issuing equity securities, including
pursuant to the Virtu Sales Agreement, our stockholders would likely suffer
significant dilution and the terms of any financing may adversely affect the
rights of our stockholders. In addition, as a condition to providing
additional funds to us, future investors may demand, and may be granted,
rights superior to those of existing stockholders. Debt financing, if
available, is likely to involve restrictive covenants limiting our flexibility
in conducting future business activities, and, in the event of insolvency,
debt holders would be repaid before holders of our equity securities received
any distribution of our corporate assets.
There can be no assurance that we can timely complete the Offer and Merger, or
any other transaction, prior to exhausting our financial resources or that the
terms of any such other transaction will be favorable.
It is likely that we will need to complete the Offer and Merger to continue
the development of STS101. Despite our board of directors and management team
having devoted and continuing to devote substantial time and resources to the
consideration and implementation of the Offer and Merger, there is substantial
risk that we may not be able to timely complete the Offer and Merger due to a
variety of factors.. The failure to timely complete the Offer and Merger would
likely materially and adversely affect our business and force us to terminate
development of STS101, withdraw our NDA and consider other strategic
alternatives, such as dissolution and wind-down. If we failed to timely
complete the Offer and Merger, there would likely be significant risks
associated with pursuing another transaction. For example, conditions in the
financial markets may lead to an increased number of biotechnology companies
that are also seeking to enter into strategic transactions, which may limit
our ability to find a suitable transaction counterparty or
26
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negotiate favorable terms for any such transaction. Further, our current
employees have limited experience with strategic transaction processes.
The terms of the Merger Agreement and CVR Agreement provide that significant
payments to our stockholders are contingent upon the monetization of STS101
and/or achievement of certain milestones. The failure of STS101 to achieve any
such milestones, and any failure to receive such payments, would have a
material adverse impact on the consideration ultimately received by our
stockholders.
Even if we are able to timely conclude the Merger, certain payments to our
stockholders are contingent upon STS101 approval and SNBL achieving certain
aggregate cumulative net proceeds as specified in the CVR Agreement. There can
be no assurance that our STS101 NDA will be approved or that STS101 will
achieve sufficient aggregate cumulative net proceeds such that our
stockholders would be eligible to receive such contingent payments. Failure to
receive such payments would have a material adverse impact on the
consideration ultimately received by our stockholders.
We, or SNBL, may fail to timely obtain regulatory approval for STS101 under
applicable regulatory requirements. The denial or delay of any such approval
would prevent or delay commercialization of STS101 and could adversely affect
potential economic returns to us and our stockholders.
We as a company have limited experience submitting an NDA or any other
marketing application to the FDA or similar filings to comparable foreign
regulatory authorities, and SNBL may also have similar limited experience. An
NDA or other similar regulatory filing requesting approval to market a product
candidate must include extensive preclinical and clinical data and supporting
information to establish that the product candidate is safe, effective, pure
and potent for each desired indication. The NDA or other similar regulatory
filing must also include significant information regarding the chemistry,
manufacturing and controls for the product. After receiving an NDA submission,
the FDA conducts a preliminary review of the NDA and within 60 days of the
receipt of the NDA submission either formally accepts the NDA submission for
substantive review or issues a Refusal to File Letter detailing the
deficiencies in the NDA submission that preclude the FDA from undertaking a
substantive review.
The research, testing, manufacturing, labeling, approval, sale, marketing and
distribution of pharmaceutical products are subject to extensive regulation by
the FDA and other regulatory authorities in the United States and other
countries, and such regulations differ from country to country. The FDA and
applicable foreign regulatory authorities will no permit marketing of STS101
in the United States or in any foreign countries until it receives the
requisite approval from the applicable regulatory authorities of such
jurisdictions.
The FDA or any foreign regulatory bodies can delay, limit or deny approval of
STS101 for many reasons, including:
"
the FDA could determine that our STS101 NDA, which we submitted in March 2023,
is not sufficiently complete to permit a substantive review and issue a
Refusal to File Letter to us or SNBL, the receipt of which would delay
approval of STS101 and could adversely affect our ability to complete the
Potential Offer and Merger and our ability to receive potential future
economic benefits;
"
our inability, or the inability of SNBL, to demonstrate to the satisfaction of
the FDA or the applicable foreign regulatory body that STS101 is safe and
effective for the requested indication;
"
the FDAs or the applicable foreign regulatory agencys disagreement with our
trial protocol or the interpretation of data from preclinical studies or
clinical trials;
"
our inability, or the inability of SNBL, to demonstrate that the clinical and
other benefits of STS101 outweigh any safety or other perceived risks;
"
the FDAs or the applicable foreign regulatory agencys requirement for
additional preclinical studies or clinical trials;
"
the FDAs or the applicable foreign regulatory agencys non-approval of the
formulation, labeling or specifications of STS101;
"
the FDAs or the applicable foreign regulatory agencys failure to approve our
manufacturing processes and facilities or the facilities of third-party
manufacturers upon which we rely;
"
the potential for approval policies or regulations of the FDA or the
applicable foreign regulatory agencies to significantly change in a manner
rendering our clinical data insufficient for approval; or
"
if the FDA determines that STS101 lies within the scope of the non-patent
exclusivity for new clinical investigations granted to Impel Pharmaceuticals
Trudhesa (DHE liquid nasal spray) and as a result postpones approving STS101
until after expiration of the Trudhesa non-patent exclusivity period on
September 2, 2024. Although we do not believe that STS101 lies within the
scope of the non-patent exclusivity granted for Trudhesa, we cannot be certain
that the FDA will
27
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not determine otherwise and postpone final approval of STS101 until expiration
of the Trudhesa non-patent exclusivity period on September 2, 2024.
Of the large number of pharmaceutical products in development, only a small
percentage successfully complete the FDA or other regulatory bodies approval
processes and are commercialized.
Even if STS101 eventually receives approval from the FDA or applicable foreign
agencies, the FDA or the applicable foreign regulatory agency may grant
approval contingent on the performance of costly additional clinical trials,
which may be required after approval. The FDA or the applicable foreign
regulatory agency also may approve STS101 for a more limited indication or a
narrower patient population than we originally requested, and the FDA or
applicable foreign regulatory agency, may not approve it with the labeling
that we believe is necessary or desirable for its successful commercialization.
In addition, because migraine affects adolescents (12 to 17 years of age) and
children (6 to 11 years of age), pediatric studies are required under the
Federal Food, Drug, Cosmetic Act, or the FDCA. To address such requirements,
we designed an initial pediatric study plan, or iPSP, consistent with the FDA
guidance Migraine: Developing Drugs for Acute Treatment (February 2018). We
have received agreement from the FDA on this plan, which the FDA has agreed
may be initiated after completing development of STS101 for acute treatment of
migraine in adults.
Any delay in obtaining, or inability to obtain, applicable regulatory approval
would delay or prevent commercialization of STS101 and could materially
adversely impact our prospects for economic return from the Merger.
Although STS101 has generally been well-tolerated in our clinical trials to
date, with low adverse event rates reported, if unacceptable side effects
arise in any STS101 trials that may be conducted in the future, the
Commercializing Party, or the FDA, or the IRBs at the institutions in which
STS101 studies are conducted could suspend or terminate any future STS101
clinical trials or the FDA or comparable foreign regulatory authorities could
order cessation of clinical trials or deny approval of STS101 for its targeted
indications.
Treatment-related side effects in STS101 clinical trials or in the use of
approved DHE products could also affect subject recruitment or the ability or
willingness of enrolled subjects to complete any STS101 clinical trials,
and/or result in potential product liability claims. In addition, if
undesirable side effects caused by other available DHE products or DHE
products in development, the development and successful commercialization of
STS101, if approved, could be negatively affected. The active pharmaceutical
ingredient in STS101 (DHE) is contraindicated for patients with certain
pre-existing conditions and the labels of approved DHE products warn against
use by patients with cardiovascular risk factors. These contraindications and
warnings could limit the use of STS101 following marketing approval, if
approved, or cause undesirable side effects in individuals who use STS101
despite these warnings. For example, we received a single report of a
treatment-related serious adverse event in an ASCEND trial participant. This
adverse event was consistent with a side effect described in prescribing
information for DHE and other vasoconstrictive agents, such as triptans. The
adverse event occurred following the subjects sixth use of study medication,
and no further occurrences were reported with six subsequent uses of study
medication by the subject. Investigation determined the subjects medical
history, which the subject did not disclose to the trial site, included DHE
contraindications and fulfilled key trial exclusion criteria that are
disqualifying for trial participation. In addition, approved DHE products
carry a black box warning in their labels for a risk that the coadministration
of DHE and certain other drugs, including specific antivirals and antibiotics,
may result in elevated levels of DHE in the blood, potentially causing
vasospasm that may result in inadequate blood flow to the extremities or the
brain. While we believe that the coadministration of STS101 and certain other
drugs does not result in clinically significant drug-drug interactions, the
FDA may still require the label for STS101, if approved, to include such
warning, and this could result in STS101 not achieving its full commercial
potential. Treatment-related side effects in STS101 clinical trials or in the
use of approved DHE products could also affect subject recruitment or the
ability of enrolled subjects to complete any future STS101 clinical trials or
result in potential product liability claims.
If STS101 receives marketing approval and undesirable side effects caused by
STS101 or by other DHE products are subsequently identified, a number of
potentially significant negative consequences could result, including:
"
regulatory authorities may withdraw their approval of STS101;
"
the Commercializing Party may be required to recall the STS101 or change the
way it is administered to patients;
"
additional restrictions may be imposed on the marketing of the STS101 or the
manufacturing processes for STS101 or any component thereof;
"
regulatory authorities may require the addition of labeling statements, such
as a black box warning or a contraindication similar to those that are
currently included with the labels of DHE products;
"
the Commercializing Party may be required to implement a Risk Evaluation and
Mitigation Strategy beyond the creation of a Medication Guide outlining the
risks of such side effects for distribution to patients;
"
we could be sued and held liable for harm caused to patients;
28
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"
STS101 may become less competitive; and
"
our reputation may suffer.
Any of the foregoing events could prevent STS101 from achieving or maintaining
market acceptance, if approved, and adversely affect potential economic
returns to us pursuant to the Merger.
Even if STS101 obtains regulatory approval, it may fail to achieve broad
market acceptance.
Even if STS101 receives FDA or other regulatory approvals, its commercial
success will depend significantly on the extent to which it is adopted,
prescribed by physicians and used by patients. The degree of market acceptance
of STS101, if approved, will depend on a number of factors, including:
"
the safety and efficacy of STS101 as compared to other available acute
therapies for treatment of migraine;
"
patient satisfaction with the results and administration of STS101 and overall
treatment experience, including, the ease and convenience of administration of
STS101;
"
the clinical indications for which STS101 is approved and patient demand for
approved products that treat those indications;
"
the ability to manufacture and release adequate commercial supplies on a
timely basis;
"
the availability of coverage and adequate reimbursement from managed care
plans, private insurers, government payors (such as Medicare and Medicaid) and
other third-party payors for STS101;
"
the cost of treatment with STS101 in relation to alternative treatments and
patients willingness to pay out-of-pocket for the product, if approved, in the
absence of coverage and/or adequate reimbursement from third-party payors;
"
acceptance by physicians, operators of hospitals and clinics and patients of
the product as a safe, effective and easy to administer treatment;
"
physician and patient willingness to adopt a new therapy over other available
preventive and acute therapies for treatment of migraine;
"
the prevalence and severity of side effects;
"
limitations or warnings contained in the FDA-approved labeling for STS101,
such as a black box warning or a contraindication similar to those that are
currently included with the labels of DHE products;
"
the willingness of physicians, operators of hospitals and clinics and patients
to utilize or adopt STS101 as a solution, particularly in light of STS101s
failure to demonstrate statistically significant effectiveness on the
co-primary outcome measures in our EMERGE and SUMMIT trials;
"
the effectiveness of the STS101 sales, marketing and distribution efforts;
"
adverse publicity about STS101 or favorable publicity about competitive
products;
"
patients willingness to take a dry-powder intranasal medication;
"
potential product liability claims; and
"
global economic, market and industry conditions, including economic slowdowns,
recessions, inflationary pressures, rising interest rates, financial market
fluctuations, and reduced credit availability.
We cannot assure you that STS101, if approved, will achieve broad market
acceptance among physicians and patients. Any failure by STS101, if approved,
to achieve market acceptance or commercial success could adversely affect
potential economic returns to us pursuant to the Merger.
Even if STS101 obtains regulatory approval, the ability of the party that
ultimately commercializes STS101, whether that is SNBL, us or a third party
(the Commercializing Party), to market and promote STS101 may be limited by
FDA-approved labeling.
The commercial success of STS101 will likely depend in part upon STS101
receiving sufficiently differentiated FDA-approved product labeling, as
compared to other products for migraine. The failure to achieve FDA approval
of product labeling containing differentiated information could impair its
commercial prospects by preventing advertising and promotion of what we
believe are the
29
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key features of STS101. As a result, this could impair adoption and
prescribing by physicians, favorable pricing or adequate coverage,
reimbursement levels by third-party payors and the ability of the
Commercializing Party to facilitate broad product trial. This would make
STS101 less competitive in the market and consequentially may adversely affect
potential economic returns to us pursuant to the Merger.
We face significant competition in an environment of rapid technological and
scientific change, and STS101, if approved, will face significant competition.
The failure of STS101 to effectively compete may prevent STS101, if approved,
from achieving significant market penetration. Many competitors in the
migraine field have significant resources that may be greater than those of
the Commercializing Party and as a result the Commercializing Party may not be
able to successfully compete.
The biotechnology and pharmaceutical industries in particular are
characterized by rapidly advancing technologies, intense competition and a
strong emphasis on developing proprietary therapeutics. Numerous companies are
engaged in the development, patenting, manufacturing and marketing of
healthcare products competitive with STS101. The Commercializing Party will
face competition from a number of sources, such as pharmaceutical companies,
generic drug companies, biotechnology companies and academic and research
institutions, many of which have greater financial resources, marketing
capabilities, sales forces, manufacturing capabilities, research and
development capabilities, clinical study expertise, intellectual property
portfolios, experience in obtaining patents and regulatory approvals for drug
candidates and other resources. Some of the companies that offer competing
products also have a broad range of other product offerings, large direct
sales forces and long-term customer relationships with target physicians for
STS101, which could inhibit efforts to penetrate the market with STS101.
Mergers and acquisitions in the pharmaceutical industry may result in even
more resources being concentrated among a smaller number of competitors.
Smaller or early-stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. These competitors also compete in recruiting and retaining
qualified scientific and management personnel and establishing clinical study
sites and patient registration for clinical studies, as well as in acquiring
technologies complementary to, or necessary for, successful development and
commercialization of STS101.
Certain alternative treatments offered by competitors may be available at
lower prices and may offer greater efficacy or better safety profiles.
Furthermore, currently approved products could be discovered to have
application for treatment of migraines generally, which could give such
products significant regulatory and market timing advantages over STS101.
Competitors also may obtain FDA, EMA or other regulatory approval for their
products more rapidly than STS101 obtains approval and may obtain orphan
product exclusivity from the FDA for indications that may be targeted in the
future with STS101, which could result in such competitors establishing a
strong market position before STS101 is able to enter the market. Even if a
generic product is less effective than STS101, it may be more quickly adopted
by physicians and patients than STS101 based upon cost or convenience.
The successful commercialization of STS101 by the Commercializing Party will
depend in part on the extent to which governmental authorities, private health
insurers, and other third-party payors provide coverage, adequate
reimbursement levels and implement pricing policies favorable for it. Failure
to obtain or maintain coverage and adequate reimbursement for STS101, if
approved, could limit the ability of the Commercializing Party to market it
and thereby decrease its ability to generate revenue.
The availability of coverage and adequacy of reimbursement by managed care
plans, governmental healthcare programs, such as Medicare and Medicaid,
private health insurers and other third-party payors are essential for most
patients to be able to afford medical services and pharmaceutical products
that receive FDA approval. The Commercializing Partys ability to achieve
acceptable levels of coverage and reimbursement for STS101 by third-party
payors will have an effect on the ability to successfully commercialize it. A
decision by a third-party payor not to cover or separately reimburse for
STS101, could reduce physician utilization if approved. Assuming there is
coverage for STS101 by a third-party payor, the resulting reimbursement
payment rates may not be adequate or may require co-payments that patients
find unacceptably high. We cannot be sure that coverage and reimbursement in
the United States, the European Union or elsewhere will be available for
STS101 and any reimbursement that may become available may not be adequate or
may be decreased or eliminated in the future.
Moreover, increasing efforts by governmental and other third-party payors in
the United States and abroad to cap or reduce healthcare costs have resulted
in increasing challenges to prices charged for pharmaceutical products and
services, and many third-party payors may refuse to provide coverage and
adequate reimbursement for particular drugs when an equivalent generic drug,
biosimilar or a less expensive therapy is available. It is possible that a
third-party payor may consider STS101 as substitutable and only offer to
reimburse patients for the less expensive product, if any. For example, there
are currently generic versions of both DHE liquid nasal spray products and DHE
injectable products, with which STS101 may compete. Even if STS101
demonstrates improved efficacy or improved convenience of administration,
pricing of existing third-party therapeutics may limit the amount that the
Commercializing Party will be able to charge for it. These third-party payors
may deny or revoke the reimbursement status of STS101, if approved, or
establish prices for it at levels that are too low to enable the Commercializing
Party to realize an appropriate return on
30
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its investment. If reimbursement is not available or is available only at
limited levels, the Commercializing Party may not be able to successfully
commercialize STS101.
No uniform policy for coverage and reimbursement for products exists among
third-party payors in the United States. Therefore, coverage and reimbursement
for products can differ significantly from payor to payor. As a result, the
coverage determination process is often a time-consuming and costly process
that may require the Commercializing Party to provide scientific and clinical
support for the use of STS101 to each payor separately, with no assurance that
coverage and adequate reimbursement will be applied consistently or obtained
in the first instance. Furthermore, rules and regulations regarding
reimbursement change frequently, in some cases on short notice, and we believe
that changes in these rules and regulations are likely.
Outside the United States, international operations are generally subject to
extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe and
other countries will likely put pressure on the pricing and usage of medical
products. In many countries, the prices of medical products are subject to
varying price control mechanisms as part of national health systems. Other
countries allow companies to fix their own prices for medical products, but
monitor and control company profits. Additional foreign price controls or
other changes in pricing regulation could restrict the amount that the
Commercializing Party is able to charge for STS101. Accordingly, in markets
outside the United States, the reimbursement for STS101 may be reduced
compared with the United States, may be insufficient to generate commercially-re
asonable revenue and profits or may not be sufficient to justify commercializati
on of STS101 in such markets.
Our business is entirely dependent on the successful development, regulatory
approval and commercialization of STS101, our only product candidate under
development. Failure to successfully develop, receive regulatory approval for
and commercialize STS101 would adversely affect potential economic returns to
us pursuant to the Merger.
We have invested substantially all of our efforts and financial resources in
the development of STS101 for the acute treatment of migraine, which has not
been approved for sale or commercial use. Currently, STS101 is our only
product candidate and we have not licensed, acquired, or invented any other
product candidates for pre-clinical or clinical evaluation. This may make an
investment in our company riskier than similar companies that have multiple
product candidates in active development and that therefore may be able to
better sustain a failure of a lead candidate. The success of our business, in
particular our ability to provide future economic benefits to our stockholders
pursuant to a potential strategic transaction, will depend entirely on the
successful development, regulatory approval and commercialization, by the
Commercializing Party, of STS101, which may never occur and which we do not
plan to control under the Merger.
As we continue development of STS101 and pursue completion of the Offer and
Merger, we will continue to incur significant development expenses, as we seek
to advance STS101 toward manufacturing and regulatory approval, and prepare
for commercialization of STS101, if approved, by the Commercializing Party. If
we are unable to complete the Offer and Merger, we do not plan to advance
STS101 through regulatory approval and, given that we do not plan to raise
additional funds that would be required to successfully commercialize STS101,
we would likely be forced to terminate development of STS101 and pursue other
strategic alternatives, such as dissolution and wind-down. Moreover, our
clinical development program for STS101 may not lead to regulatory approval
from the FDA and similar foreign regulatory agencies if our STS101 NDA fails
to convince the FDA that our clinical trials and the clinical trials of others
that we have referenced in our 505(b)(2) NDA demonstrate that STS101 is safe
and effective, and therefore STS101 may fail to be commercialized. The
challenge of establishing STS101 as being safe and effective may be even more
difficult given the failure of STS101 to demonstrate statistically significant
effects as compared to placebo on the co-primary endpoints of our EMERGE and
SUMMIT trials. Even if approved, STS101 may fail to obtain differentiated
product labeling for STS101 as compared to other available products for
migraine and, as a result, the commercial prospects for STS101 may be
impaired. Any failure to obtain regulatory approval of STS101 would likely
have a material and adverse impact on our ability to receive economic returns
pursuant to the Merger. Even if STS101 successfully obtains regulatory
approvals that permit marketing of the product, its revenue will be dependent,
in part, upon the size of the markets in the territories regulatory approvals
are granted. If the targeted markets or patient subsets are not as significant
as we estimate, sales of STS101 may not generate significant revenues, even if
approved, adversely affecting potential economic returns to us pursuant to the
Merger.
The commercial success of STS101 may depend on a number of factors, including
the following:
"
our ability to complete the Offer and Merger;
"
the capabilities, resources and performance of the Commercializing Party;
"
whether the FDA or similar foreign regulatory agencies require additional
clinical trials or other studies beyond those planned to support approval of
STS101;
"
the ability of our contract manufacturing partners to consistently manufacture
STS101 on a timely basis;
31
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"
the Commercializing Party, as well as any third-party contractors, to remain
in good standing with regulatory agencies and develop, validate and maintain
commercially viable manufacturing processes that are compliant with current
good manufacturing practices, or cGMPs;
"
the ability to demonstrate to the satisfaction of the FDA and similar foreign
regulatory authorities the safety, efficacy and acceptable risk-benefit
profile of STS101;
"
the prevalence, duration and severity of potential side effects or other
safety issues experienced with STS101;
"
the timely receipt of necessary marketing approvals from the FDA and similar
foreign regulatory authorities;
"
achieving and maintaining, and, where applicable, ensuring that third-party
contractors achieve and maintain, compliance with our contractual obligations
and with all regulatory requirements applicable to STS101;
"
the differentiation of STS101 from other available DHE products and other
acute treatments of migraine, and the willingness of physicians, operators of
hospitals and clinics and patients to adopt and utilize STS101;
"
the ability of the Commercializing Party to successfully develop a commercial
strategy and thereafter commercialize STS101 in the United States and
internationally, if approved for marketing, sale and distribution in such
countries and territories, whether alone or in collaboration with a partner or
partners;
"
the availability of coverage and adequate reimbursement from managed care
plans, private insurers, government payors (such as Medicare and Medicaid and
similar foreign authorities) and other third-party payors for STS101;
"
patients willingness to pay out-of-pocket for STS101 in the absence of
coverage and/or adequate reimbursement from third-party payors;
"
the convenience of the administration of STS101;
"
acceptance by physicians, payors and patients of the benefits, safety and
efficacy of STS101, if approved;
"
patient demand for STS101, if approved;
"
the ability to establish and enforce intellectual property rights in and to
STS101; and
"
the ability to avoid third-party patent interference, intellectual property
challenges or intellectual property infringement claims.
These factors, many of which are, or will be, beyond our control, could lead
to significant delays or an inability to obtain regulatory approvals for or
commercialize STS101. Even if regulatory approvals are obtained, the
Commercializing Party may never be able to successfully commercialize STS101,
adversely affecting potential economic returns to us pursuant to the Merger.
In addition, disruptions caused by the COVID-19 pandemic may increase the
likelihood that difficulties or delays are encountered in initiating,
enrolling, conducting or completing future STS101 clinical trials.
While the scope of regulatory approval generally is similar in other
countries, in order to obtain separate regulatory approval in other countries
it is necessary to comply with numerous and varying regulatory requirements of
such countries regarding safety and efficacy. Other countries also have their
own regulations governing, among other things, requirements for nonclinical
studies, clinical trials and commercial sales, as well as pricing and
distribution of STS101, and the Commercializing Party may be required to
expend significant resources to obtain regulatory approval and to comply with
ongoing regulations in these jurisdictions. Regulatory approval in one country
does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country may have a negative effect on the
regulatory process in others.
STS101 failed to demonstrate a statistically significant difference as
compared to placebo on either of the co-primary endpoints in our EMERGE and
SUMMIT efficacy trials.
In September 2020, we announced topline data from the EMERGE Phase 3 efficacy
trial. Although topline data showed numerical differences in favor of STS101
3.9 mg and 5.2 mg versus placebo on the pre-specified co-primary endpoints of
freedom from pain and freedom from most bothersome symptom (from among
photophobia, phonophobia and nausea) at two hours post-administration, these
differences did not achieve statistical significance for either dose strength.
Both dose strengths of STS101 did, however, demonstrate significant effects on
both freedom from pain and most bothersome symptom by three hours post-dose
and later time points. Both STS101 dose strengths were well-tolerated in the
EMERGE efficacy trial, with low adverse event rates and no serious adverse
events reported.
32
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In November 2022, we announced topline data from the SUMMIT Phase 3 efficacy
trial. Although topline data showed numerical differences in favor of STS101
5.2 mg versus placebo on the pre-specified co-primary endpoints of freedom
from pain and freedom from most bothersome symptom (from among photophobia,
phonophobia and nausea) at the two-hours post-administration timepoint, these
differences did not achieve statistical significance for either dose strength.
Both dose strengths of STS101 did, however, demonstrate significant effects on
both freedom from pain and most bothersome symptom by three hours post-dose
and later time points. Both STS101 dose strengths were well-tolerated in the
EMERGE efficacy trial, with low adverse event rates and no serious adverse
events reported.
In addition, it may not be possible to obtain regulatory approval for and
successfully commercialize STS101 without conducting further clinical trials
in addition to those trials that we have completed. We do not plan to conduct
any further STS01 clinical trials, any future clinical trials would need to be
undertaken by the Commercializing Party, and there can be no assurance that
the results of any future STS101 clinical trials will be sufficient to obtain
regulatory approval or support successful commercialization.
Disruptions at the FDA and other government agencies caused by funding
shortages or global health concerns could hinder their ability to hire,
retain, or deploy key leadership and other personnel, or otherwise prevent
products from being developed, approved, or commercialized in a timely manner
or at all, which may adversely affect our business.
The ability of the FDA and other government agencies to review and approve new
products can be affected by a variety of factors, including government budget
and funding levels, ability to hire and retain key personnel and accept the
payment of user fees, and statutory, regulatory, and policy changes. In
addition, government funding of other government agencies that fund research
and development activities is subject to the political process, which is
inherently fluid and unpredictable. Disruptions at the FDA and other agencies,
including a prolonged government shutdown, may cause significant regulatory
delays and, therefore, delay our efforts to seek approvals and adversely
affect our business. For example, over the last several years, the U.S.
government has shut down several times, and certain regulatory agencies, such
as the FDA, have had to furlough critical employees and stop critical
activities.
Separately, in response to the global COVID-19 pandemic, the FDA postponed
most inspections of domestic and foreign manufacturing facilities at various
points. Even though the FDA has since resumed standard inspection operations
where feasible, the FDA has continued to monitor and implement changes to its
inspectional activities to ensure the safety of its employees and those of the
firms it regulates as it adapts to the evolving COVID-19 pandemic, and any
resurgence of the virus or emergence of new variants may lead to further
inspectional delays. Regulatory authorities outside the United States may
adopt similar restrictions or other policy measures in response to the
COVID-19 pandemic. If a prolonged government shutdown occurs, or if global
health concerns continue to prevent the FDA other regulatory authorities from
conducting their regular inspections, reviews, or other regulatory activities,
it could significantly impact the ability of the FDA and other regulatory
authorities to timely review and process our regulatory submissions, which
could have a material adverse effect on our business.
Clinical development involves a lengthy and expensive process with an
uncertain outcome, and delays can occur for a variety of reasons outside of
our control.
Clinical development is expensive and can take many years to complete, and its
outcome is inherently uncertain. Failure can occur at any time during the
clinical trial process. For example, in November 2022, we announced topline
data from the SUMMIT trial. Although STS101 5.2 mg showed favorable numerical
differences versus placebo on the pre-specified co-primary endpoints of
freedom from pain and freedom from most bothersome symptom (from among
photophobia, phonophobia and nausea) at the two-hour post-administration
regulatory timepoint, these differences did not achieve statistical
significance. We do not plan to undertake additional STS101 clinical trials,
and the Commercializing Party may experience delays in initiating or
completing future trials of STS101 that may be required for regulatory
approvals or necessary for successful commercialization of STS101.
Furthermore, we cannot be certain that any future studies or trials for STS101
will begin on time, not require redesign, enroll an adequate number of
subjects on time or be completed on schedule, if at all. Clinical trials can
be delayed or terminated for a variety of reasons, including delays or
failures related to:
"
the COVID-19 pandemic, or other unforeseen events and public health
emergencies, including its impact on the providers of healthcare services,
such as the healthcare clinics and institutions where we conduct our ongoing
clinical trials and may conduct planned clinical trials;
"
the FDA or comparable foreign regulatory authorities disagreeing as to the
design or implementation of our clinical trials;
"
delays in obtaining regulatory authorization to commence a trial;
"
reaching agreement on acceptable terms with prospective contract research
organizations, or CROs, and clinical trial sites, the terms of which can be
subject to extensive negotiation and may vary significantly among different
CROs and trial sites;
33
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"
obtaining institutional review board, or IRB, approval at each trial site;
"
recruiting an adequate number of suitable subjects to participate in a trial;
"
having subjects complete a trial or return for post-treatment follow-up;
"
clinical sites deviating from trial protocol or dropping out of a trial;
"
addressing subject safety concerns that arise during the course of a trial;
"
adding a sufficient number of clinical trial sites; or
"
obtaining sufficient quantities of STS101 for use in clinical trials from
third-party suppliers on a timely basis.
The Commercializing Party may experience numerous adverse or unforeseen events
during, or as a result of, any future preclinical studies and clinical trials
that could delay or prevent its ability, or that of a partner or partners, to
receive marketing approval for or successful commercialize STS101, including:
"
they may receive feedback from regulatory authorities that requires that the
design of a future clinical trial be modified;
"
clinical trials of STS101 may produce negative or inconclusive results (for
example, in the EMERGE and SUMMIT trials, STS101 did not achieve statistical
significance versus placebo on pre-specified co-primary endpoints), and the
sponsor may decide, or regulators may require the sponsor to conduct
additional clinical trials or abandon development of STS101;
"
participants may drop out of clinical trials at a higher rate than anticipated;
"
clinical trial participants may not comply with study protocol procedures and
instructions;
"
a sponsor or third-party contractors may fail to comply with regulatory
requirements, fail to maintain adequate quality controls, or be unable to
produce sufficient product supply to conduct and complete clinical trials of
STS101 in a timely manner, or at all;
"
a sponsor or its investigators might have to suspend or terminate clinical
trials of STS101 for various reasons, including non-compliance with regulatory
requirements, a finding that STS101 has undesirable side effects or other
unexpected characteristics, or a finding that the participants are being
exposed to unacceptable health risks;
"
the cost of clinical trials of STS101 may be greater than anticipated;
"
the quality of STS101 or other materials necessary to conduct clinical trials
of STS101 may be insufficient or inadequate;
"
regulators may revise the requirements for approving STS101, or such
requirements may not be as anticipated; and
"
future collaborators may conduct clinical trials in ways they view as
advantageous to them but that are sub-optimal for a sponsor.
We do not plan to conduct additional clinical trials or other testing of
STS101 beyond those already completed or contemplated. If the Commercializing
Party is required to conduct additional clinical trials or other testing of
STS101 beyond those already completed or currently contemplated, including for
purposes of demonstrating the potential efficacy of STS101, if such party or
parties is unable to successfully complete clinical trials of STS101 or other
testing, and if the results of these trials or tests are not positive or are
only moderately positive or if there are safety concerns, our future economic
prospects may be adversely affected due to:
"
unplanned costs being incurred;
"
delays in obtaining marketing approval for STS101 or not obtaining marketing
approval at all;
"
obtaining marketing approval in some countries and not in others;
"
obtaining marketing approval for indications or patient populations that are
not as broad as intended or desired;
"
obtaining marketing approval with labeling that includes significant use or
distribution restrictions or safety warnings, including boxed warnings;
"
to the imposition of additional post-marketing testing requirements, which
could be expensive and time consuming; or
"
having the treatment removed from the market after obtaining marketing approval.
34
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A sponsor could also encounter delays if a clinical trial is suspended or
terminated by it, by the IRBs of the institutions in which such trials are
being conducted or by the FDA or other regulatory authorities. Such
authorities may suspend or terminate a clinical trial due to a number of
factors, including failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical protocols, inspection of the clinical
trial operations or trial site by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold, unforeseen safety issues or
adverse side effects, failure to demonstrate a benefit from using a product
candidate, changes in governmental regulations or administrative actions or
lack of adequate funding to continue the clinical trial.
Further, conducting clinical trials in foreign countries, as the Commercializing
Party could do for STS101, presents additional risks that may delay
completion of clinical trials. These risks include the failure of enrolled
subjects in foreign countries to adhere to clinical protocol as a result of
differences in healthcare services or cultural customs, managing additional
administrative burdens associated with foreign regulatory schemes, as well as
political and economic risks relevant to such foreign countries.
Principal investigators for clinical trials may serve as scientific advisors
or consultants to the sponsor from time to time and may receive cash or equity
compensation in connection with such services. If these relationships and any
related compensation result in perceived or actual conflicts of interest, or a
regulatory authority concludes that the financial relationship may have
affected the interpretation of the trial, the integrity of the data generated
at the applicable clinical trial site may be questioned and the utility of the
clinical trial itself may be jeopardized, which could result in the delay or
rejection of the marketing application we submit. Any such delay or rejection
could prevent or delay commercialization of STS101.
If any future clinical trials of STS101 are unsuccessful, delayed or
terminated, its commercial prospects may be harmed, and the ability to
generate revenues from sales of STS101 will be delayed or not realized at all.
In addition, any delays in completing clinical trials may increase costs, slow
down STS101 development and delay its approval process and jeopardize the
ability of the Commercializing Party to commence product sales and generate
revenues. Any of these occurrences, as well as many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials may
also ultimately lead to the denial of regulatory approval of STS101. If STS101
generally proves to be ineffective, unsafe or commercially unviable, it could
have materially and adversely affect our future economic prospects.
If the Commercializing Party encounters difficulties with completion of any
future clinical trials, STS101 clinical development activities could be
delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols
depends, among other things, on a sponsors ability to enroll a sufficient
number of subjects who remain in the study until its conclusion. A sponsor may
experience difficulties in subject enrollment in any future clinical trials
for a variety of reasons, including as a result of the availability of
approved preventive and acute treatments for migraine. The enrollment of
subjects depends on many additional factors, including:
"
the subject eligibility criteria defined in the protocol;
"
the general willingness of subjects to enroll in the trial;
"
the sample size of the subjects required for analysis of the trials primary
endpoints;
"
the proximity of subjects to trial sites;
"
the design of the trial;
"
the ability to recruit clinical trial investigators with the appropriate
competencies and experience;
"
clinicians and subjects perceptions as to the potential advantages of the
product candidate being studied in relation to other available therapies,
including any new therapies that may be approved for the indications we are
investigating;
"
the clinical sites ability to obtain and maintain subject consents;
"
subjects may elect not to participate in future trials of STS101 given STS101
did not achieve statistical significance versus placebo on pre-specified
co-primary endpoints in the EMERGE and SUMMIT trials; and
"
clinical trial participants may not comply with study protocol procedures and
instructions.
A sponsors clinical trials may also compete with other clinical trials for
product candidates that seek to treat migraine, and this competition will
reduce the number and types of subjects available to enroll in any future
trials, because some subjects who might have opted to enroll in our trials may
instead opt to enroll in a trial being conducted by one or more competitors.
Since the number of qualified clinical investigators is limited, a sponsor may
conduct some of its clinical trials at the same clinical trial sites that some
of its competitors use, which will reduce the number of subjects who are
available for its clinical trials in such clinical trial sites.
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Delays in subject enrollment may result in increased costs or may affect the
timing or outcome of the planned clinical trials, which could prevent
completion of these trials and adversely affect the ability of the
Commercializing Party to advance or complete the development of STS101.
Furthermore, the COVID-19 pandemic could significantly affect subject
enrollment and completion in any future clinical trials to an extent that is
not anticipated. Although subjects in our EMERGE, ASCEND, and SUMMIT trials,
were generally able to complete their scheduled visits and we were able to
collect the essential data from those visits, there can be no assurances that
this will continue to be the case with any future clinical trials.
STS101 may cause undesirable side effects or have other properties that could
delay or prevent its regulatory approval, limit the commercial profile of an
approved label, or result in significant negative consequences following
marketing approval, if any.
Further analysis of the results of our clinical trials, or the results of
future STS101 clinical trials or nonclinical studies, may show that STS101 may
cause undesirable side effects, which could result in the denial or revocation
of regulatory approval by the FDA and other regulatory authorities. In light
of widely publicized events concerning the safety risk of certain drug
products, regulatory authorities, members of Congress, the Government
Accounting Office, medical professionals and the general public have raised
concerns about potential drug safety issues. These events have resulted in the
withdrawal of drug products, revisions to drug labeling that further limit use
of the drug products and establishment of risk management programs that may,
for instance, restrict distribution of drug products. The increased attention
to drug safety issues may result in a more cautious approach by the FDA to
clinical trials. Data from clinical trials may receive greater scrutiny with
respect to safety, which may make the FDA or other regulatory authorities more
likely to terminate clinical trials before completion, or require longer or
additional clinical trials that may result in substantial additional expense
and a delay or failure in obtaining approval or approval for a more limited
indication than originally sought.
STS101 is a drug-device combination product, which may result in additional
regulatory risks.
Our finished drug product and nasal delivery device will be regulated as a
drug-device combination product. There may be additional regulatory risks for
drug-device combination products, and neither the drug formulation nor nasal
delivery device incorporated in STS101 is utilized in any drug-device
combination product that has undergone regulatory review for marketing
approval. Delays in obtaining regulatory approval for STS101 may arise given
the increased complexity of the review process when approval of the product
and a delivery device is sought under a single marketing application. In the
United States, each component of a combination product is subject to the
requirements established by the FDA for that type of component, whether a
drug, biologic or device. The delivery system device will be subject to FDA
device requirements regarding design, performance and validation as well as
human factors testing, among other things. We implemented several minor
modifications to the second-generation STS101 delivery device to improve its
performance and we cannot be certain these changes will not result in
additional regulatory risks. Failure of the studies conducted by us to satisfy
FDA requirements, or the failure of the Commercializing Party, or our
third-party providers or suppliers to obtain or maintain regulatory approval
could result in increased development costs, delays in or failure to obtain
regulatory approval, and associated delays in STS101 reaching the market.
STS101 faces, and will continue to face, significant competition in an
environment of rapid technological and scientific change and the failure of
the Commercializing Party to effectively compete may prevent STS101, if
approved, from achieving significant market penetration. Many competitors in
the migraine field may have significantly greater resources than the
Commercializing Party, and the Commercializing Party may not be able to
successfully compete.
The pharmaceutical industry is highly competitive, with a number of
established, large pharmaceutical companies, as well as many smaller
companies. Many of these companies have greater financial resources, marketing
capabilities and experience in obtaining regulatory approvals for product
candidates. There are many pharmaceutical companies, biotechnology companies,
public and private universities, government agencies and research
organizations actively engaged in research and development of products which
may target the same markets as STS101. For instance, companies actively
marketing branded products or that have products in late-stage development for
the acute treatment or prevention of migraine which may directly or indirectly
compete with STS101 include, but are not limited to, Teva Pharmaceutical
Industries, Eli Lilly, Novartis, Abbvie, Pfizer, Lundbeck, Amgen and a number
of smaller companies, including Impel Pharmaceuticals, Axsome Therapeutics and
Amneal Pharmaceuticals. As well, generic products for the acute treatment or
prevention of migraine may directly or indirectly compete with STS101. We
expect STS101 to compete on the basis of, among other things, product efficacy
and safety, price, extent of adverse side effects experienced and ease of
administration. One or more competitors may develop and commercialize
competing products that incorporate technologies similar to the proprietary
technologies incorporated in STS101 before STS101 can be successfully
commercialized by the Commercializing
36
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Party, obtain approvals for such products from the FDA more rapidly than
STS101, or develop alternative products or therapies that are safer, more
effective and/or more cost effective than STS101.
The market in which STS101 will compete is currently dominated by generic
triptan products, and also includes other DHE products, newer oral
migraine-specific acute treatments and preventive treatments. The majority of
the prescriptions written for the acute treatment of migraine are for generic
triptans. There are seven FDA-approved triptan molecules available in branded
and branded generic/generic oral dose forms, and two of these molecules are
also available in injectable and/or liquid nasal spray dose forms that may
have faster onset of action than oral dose forms.
With respect to DHE products, STS101 will compete with Bausch Healths Migranal
and several generic versions thereof, which are DHE liquid nasal spray
products, as well as branded and generic DHE injectable products. In addition,
in September 2021 Impel Pharmaceuticals received FDA approval for and
subsequently commercially introduced a DHE liquid nasal spray product,
utilizing the same liquid formulation and container closure system as
Migranal, but with a different propellant-powered, single-use delivery device.
There can be no assurance that STS101, if approved, will be able to
successfully compete against such products.
STS101 face competition from newer oral migraine-specific acute treatments
that have been approved by FDA and commercially introduced in 2020 such as Eli
Lillys lasmiditan, a ditan, and two oral gepants, Abbvies ubrogepant and
Pfizers rimegepant, and a nasally-administered gepant, Pfizers zavegepant.
Because lasmiditan, ubrogepant, rimegepant and zavegepant are thought to act
by mechanisms other than vasoconstriction, recommended use is not restricted
to patients who do not have cardiovascular risk factors or disease, as is the
case for triptan and ergot alkaloid products (including DHE) due to their
vasoconstrictive actions. Although the labels for lasmiditan, ubrogepant and
rimegepant do not limit use to patients without cardiovascular risk factors or
disease, we believe these products have disadvantages. For example, lasmiditan
has been reported to commonly cause central nervous system adverse events such
as dizziness, somnolence and paresthesia, and the lasmiditan label includes
warnings for driving impairment and operation of machinery for at least eight
hours after taking a lasmiditan dose, central nervous system depression,
serotonin syndrome, and medication overuse headache. Additionally, because
lasmiditan has shown potential for abuse and dependence, the U.S. Drug
Enforcement Agency, or DEA, has designated lasmiditan as a controlled
substance; this designation imposes licensing and documentation requirements
upon prescribers and as well restricts distribution. With ubrogepant,
rimegepant, and zavegepant, reported efficacy is modest in comparison with
efficacy historically reported with triptan and DHE products.
Many STS101 competitors have significantly greater financial, technical,
manufacturing, marketing, sales and supply resources and experience than the
Commercializing Party may have. If STS101 is successfully approved for
marketing, the Commercializing Party will face competition based on many
different factors, including the safety and effectiveness of STS101, the ease
with which STS101 can be administered and the extent to which patients accept
the nasal route of administration, the timing and scope of regulatory
approvals for STS101, the availability and cost of manufacturing, marketing
and sales capabilities, price, reimbursement coverage and patent position.
Competing products could present superior treatment alternatives, including by
being more effective, safer, less expensive or marketed and sold more
effectively than STS101. Competitive products may make STS101 obsolete or
noncompetitive. Such competitors could also recruit our employees, or the
employees of the Commercializing Party, which could negatively impact our
ability to realize potential economic returns pursuant to the Merger. For
additional information regarding our competition, see "BusinessCompetition" in
our Annual Report on Form 10-K for the year ended December 31, 2022.
We do not intend to independently commercialize STS101 and are seeking to
complete the Offer and Merger pursuant to which the Commercializing Party
would commercialize STS101, if approved. If such party does not have or is
unable to establish sales capabilities on its own or through third parties, it
may not be able to effectively market and sell STS101 in the United States and
foreign jurisdictions, if approved, or generate product revenue, adversely
affecting potential economic returns to us.
We do not intend to independently commercialize STS101 and are seeking to
complete the Offer and Merger. In order to commercialize STS101, if approved,
in the United States and foreign jurisdictions, the Commercializing Party must
have or build marketing, sales, distribution, managerial and other
non-technical capabilities or make arrangements with third parties to perform
these services, and may not be successful in doing so. If STS101 receives
regulatory approval, such party could be required to establish a sales
organization in the United States with technical expertise and supporting
marketing and distribution capabilities to commercialize it, which will be
expensive and time consuming. They may have limited prior experience as a
company in the marketing, sale and distribution of pharmaceutical products and
there are significant risks involved in building and managing a sales
organization, including the ability to hire, retain, and incentivize qualified
individuals, generate sufficient sales leads, provide adequate training to
sales and marketing personnel, and effectively manage a geographically
dispersed sales and marketing team. Any failure or delay in the development of
internal sales, marketing and distribution capabilities would adversely impact
the commercialization of STS101. Such party may choose to collaborate with
third parties that have direct sales forces and established distribution
systems, either to augment their own sales force and distribution systems or
in lieu of their own sales force and distribution systems. If such party is
unable to enter into such arrangements on acceptable terms or at all, they may
not be able to successfully commercialize STS101. If they are not successful
in commercializing STS101, either on their own or through
37
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arrangements with one or more third parties, they may not be able to generate
product revenue and our potential future economic prospects may be adversely
affected.
We have relied, and we anticipate the Commercializing Party would need to
continue to rely, on qualified third parties to supply all components of
STS101, and to manufacture supplies of STS101 for commercial sale. As a
result, the successful development and commercialization of STS101 is
dependent on the supply chain we have established, comprising multiple third
parties, most of which are sole source suppliers, for the manufacture of
STS101. Should problems arise with any of these suppliers, or if they fail to
comply with applicable regulatory requirements or to supply sufficient
quantities at acceptable quality levels or prices, or at all, it would
materially and adversely affect our potential future economic prospects.
We do not own or operate manufacturing facilities for clinical or commercial
manufacture of either the proprietary dry-powder formulation of DHE component
of STS101 or the proprietary pre-filled, single-use, nasal delivery device,
including the drug substance and packaging. We have limited personnel with
experience in drug-device product manufacturing and we lack the capabilities
to manufacture either the drug or device components of STS101 on a clinical or
commercial scale. We currently outsource all manufacturing and packaging of
STS101 to third parties, and we do not plan to own or operate our own
manufacturing and packaging facilities. There can be no assurance that
unsatisfactory quality findings affecting product supplies utilized in our
clinical trials will not be found, which could jeopardize regulatory approval
of STS101. In particular, any replacement of any STS101third-party supplier
could require significant effort and expertise because there may be a limited
number of qualified replacements. In addition, issues may be encountered with
transferring technology to a new third-party manufacturer, and regulatory
delays could result were it necessary to move the manufacturing of STS101, or
its components, from one third-party manufacturer to another. Some of the
third parties on which we have relied and anticipate the Commercializing Party
would need to continue to rely, may also be adversely impacted by COVID-19 or
other unforeseen events and public health emergencies, and the foregoing
challenges could be compounded as a result.
In addition, we do not currently have long-term commercial supply agreements
with third-party manufacturers for either the formulation or device components
of STS101 or the STS101 finished product. As a result of the foregoing, the
Commercializing Party may be unable to enter into agreements for commercial
supply with all third-party manufacturers, or may be unable to do so on
acceptable terms. Even if these agreements are consummated, or for those
agreements that we have already entered into, the various manufacturers
utilized for STS101 will likely be single source suppliers to us for a
significant period of time. The Commercializing Party may not be able to
establish additional sources of supply for STS101 prior to commercialization.
Certain of such suppliers are subject to regulatory requirements covering
manufacturing, testing, quality control and record keeping relating to STS101,
and are subject to pre-approval and ongoing inspections by the regulatory
agencies. Failure by any suppliers to comply with applicable regulations may
result in long delays and interruptions to manufacturing capacity while
efforts to secure another supplier that meets all regulatory requirements are
pursued.
Reliance on third-party manufacturers (the STS101 CMOs) entails risks to which
we would not be subject if we manufactured STS101 ourselves, including:
"
reliance on the third parties for regulatory compliance, quality assurance and
hazardous materials handling;
"
the possible breach of the manufacturing and quality agreements by the third
parties because of factors beyond our control;
"
the possibility of termination or nonrenewal of the agreements by the third
parties because of our breach of the manufacturing agreement or based on their
own business priorities; and
"
with respect to any manufacturers with which we do not have a long-term
agreement, the possibility that the manufacturer decides to stop supplying or
changes the price or other terms of supply.
Any of these factors could cause the delay of required approvals or
commercialization of STS101, could prevent successful commercialization of
STS101, could cause the suspension of initiation or completion of future
clinical trials and regulatory submissions, and could lead to higher product
costs.
In addition, the facilities used by the STS101 CMOs to manufacture STS101 are
subject to various regulatory requirements and may be subject to the
inspection of the FDA or other regulatory authorities. We do not directly
control manufacturing at the STS101 CMOs, and are completely dependent on them
for compliance with current regulatory requirements. If the STS101 CMOs cannot
successfully manufacture components of finished product that conforms to our
specifications and the regulatory requirements of the FDA or comparable
regulatory authorities in foreign jurisdictions, the Commercializing Party may
not be able to rely on them for the manufacture of STS101. In addition, we
have limited control over the ability of the STS101 CMOs to maintain adequate
quality control, quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority finds the facilities of the STS101
CMOs inadequate for the manufacture of STS101 or if such facilities are
subject to enforcement action in the future or are otherwise inadequate, it
may be necessary to find alternative manufacturing facilities, which would
likely significantly and adversely impact future efforts to develop, obtain
regulatory approval for or commercialize STS101 and the timing of any such
approval and commercialization. We implemented several minor modifications to
the STS101 delivery device to improve its performance and we
38
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cannot be certain these changes will not result in additional regulatory
risks. In addition, if any of the STS101 CMOs are adversely impacted by
COVID-19 or other unforeseen events and public health emergencies, or if such
events impede the ability of the FDA or a comparable regulatory authority to
inspect the facilities used by the STS101 CMOs to manufacture STS101, which
could delay approval or commercialization of STS101.
The STS101 CMOs may experience manufacturing difficulties due to resource
constraints or as a result of labor disputes or unstable political
environments.
Additionally, due to COVID-19 pandemic the Commercializing Party may
experience interruption of, or delays in completing manufacturing and
manufacturing-related activities such as CMO qualification, production
equipment manufacture, delivery and qualification, validation of manufacturing
processes, manufacture and/or analytical characterization of our product
candidate, completion of stability studies and/or manufacture of registration
batches of our product candidate required for NDA submission. If the STS101
CMOs were to encounter any of these difficulties, the ability to provide
STS101 to subjects in any future clinical trials, or to provide product for
the treatment of patients once approved, would be jeopardized.
We have relied, and we anticipate the Commercializing Party would need to
continue to rely, on third-party suppliers for materials used in the
manufacture of STS101, and the loss of third-party suppliers or their
inability to supply adequate key materials could harm our future economic
prospects.
We currently do not have the ability to independently manufacture STS101. We
have relied, and we anticipate the Commercializing Party would need to
continue to rely, on third-party suppliers, most of which are sole source
suppliers, for certain key materials required for the production of the DHE
dry-powder formulation of STS101. Dependence on these third-party suppliers
and the challenges that may be encountered in obtaining adequate supplies of
these materials involve several risks, including limited control over pricing,
availability, quality and delivery schedules. As a small company, our
negotiation leverage is limited and we are likely to get lower priority than
other companies or purchasers that are larger than we are. We cannot be
certain that our suppliers will continue to provide the Commercializing Party
with the quantities of these key materials required to satisfy the anticipated
STS101 specifications and quality requirements. Some of these third parties
may also be adversely impacted by COVID-19 or other unforeseen events and
public health emergencies. Any supply interruption in limited or sole sourced
key materials could materially harm the manufacture of STS101 until a new
source of supply, if any, could be identified and qualified. It may not be
possible to find a sufficient alternative supplier in a reasonable time or on
commercially reasonable terms. Any performance failure on the part an STS101
supplier could delay the development and potential commercialization of
STS101, including limiting supplies necessary for any future clinical trials
and regulatory approvals, which could have a material adverse effect on our
future economic prospects.
We have relied up on third parties in the conduct of all of our clinical
trials. If it is determined these third parties did not successfully carry out
their contractual duties or failed to comply with applicable regulatory
requirements, regulatory approval for STS101 could be jeopardized.
The FDA and comparable foreign regulatory authorities in other jurisdictions
require us to comply with regulations and standards, commonly referred to as
good clinical practice, or GCP, requirements for conducting, monitoring,
recording and reporting the results of clinical trials, in order to ensure
that the data and results are scientifically credible and accurate and that
the trial subjects are adequately informed of the potential risks of
participating in clinical trials. We have relied on medical institutions,
clinical investigators, contract laboratories and other third parties, such as
CROs and consultants, to conduct GCP-compliant clinical trials of STS101
properly and on time. While we have agreements with these third parties, we
monitor and control only certain aspects of their activities and have limited
influence over their actual performance and the amount or timing of resources
that they devote to our STS101 program. Third parties with whom we have
contracted may also have relationships with other commercial entities,
including our competitors, for whom they may also have concurrently conducted
clinical trials or other drug development activities that could harm the
competitive position of STS101. The third parties with whom we have contracted
for execution of our clinical trials played a significant role in the conduct
of these trials and the subsequent collection and analysis of data. Although
we have relied on these third parties to conduct portions of our clinical
trials, we remain responsible for ensuring that each of our clinical trials
has been conducted in accordance with its investigational plan and protocol
and applicable laws and regulations, and our reliance on these third parties
does not relieve us of our regulatory responsibilities. Such monitoring could
prove to be less reliable and could increase data privacy and cybersecurity
risks.
If it is determined that the third parties conducting our clinical trials did
not adequately perform their contractual duties or obligations, or if the
quality or accuracy of the data they obtained is found to be compromised due
to their failure to adhere to our protocols or to GCPs, or for any other
reason, the FDA or other regulatory authorities could decide that clinical
trial data collected by these third parties cannot be used to support the
STS101 NDA or its potential approval. As a result, STS101 might not obtain
regulatory approval in a timely fashion, or at all, adversely affecting our
ability to receive economic benefits pursuant to any strategic transaction.
39
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Our recent reduction in force undertaken to better align our workforce with
the needs of our business and focus more of our capital resources on our
STS101 programs may not achieve its intended outcome.
In March 2023, we implemented a reduction in force affecting approximately 36%
of our workforce in order to preserve cash and maximize the value of STS101
for a potential strategic transaction partner. The reduction in force may
result in unintended consequences and costs, such as the loss of institutional
knowledge and expertise, attrition beyond the intended number of employees,
decreased morale among our remaining employees, and the risk that we may not
achieve the anticipated benefits of the reduction in force. In addition, while
positions have been eliminated, certain functions necessary to our operations
remain, and we may be unsuccessful in distributing the duties and obligations
of departed employees among our remaining employees. The reduction in
workforce could also make it difficult for us to pursue, or prevent us from
successfully completing the Offer and Merger or from continuing to advance
development of STS101 while we pursue such strategic transaction, pursuing, or
require us to incur additional and unanticipated costs to hire new personnel.
Further, as requested by Parent, the Company will terminate the employment of
each of John Kollins, President and Chief Executive Officer of the Company,
and Tom ONeil, Chief Financial Officer of the Company, effective as of the
closing of the Offer and the Merger (and subject to the occurrence of the
closing of the Offer and Merger). In addition, in connection to the Merger and
in accordance with the Merger Agreement, each of the directors of the Company
will resign as directors of the Company, effective as of the closing of the
Offer and the Merger (and subject to the occurrence of the closing of the
Offer and Merger). If we are unable to realize the anticipated benefits from
the reduction in force, or if we experience significant adverse consequences
from the reduction in force, our ability to timely complete the Offer and
Merger may be impaired, and we may be forced to terminate development of
STS101, withdraw the NDA and pursue other strategic alternatives, such as
dissolution and wind-down.
We may conduct additional clinical trials and consider additional headache
indications for STS101 to enhance its commercial potential; however, these
trials may not produce results necessary to enable additional commercial
potential or enhancement of its label.
In addition to the pursuit of initial regulatory approval and successful
commercialization of STS101 in the United States, we, or our partner or
partners, may conduct additional clinical trials and consider additional
headache indications for STS101 to expand its commercial potential, including
by potentially conducting clinical programs outside the United States.
However, any positive results from our ongoing, planned or future clinical
trials of STS101 and results from clinical testing by third parties of other
DHE products and product candidates, may not be predictive of the results of
any such additional clinical trials. Therefore, there can be no assurance that
we will ever be successful enhancing the commercial potential of STS101 or
expanding its label.
The Offer and Merger may not have a successful outcome, which would materially
and adversely affect our potential future economic prospects.
"
In pursuing the completion of the Offer and Merger, we may not be able to
timely conclude a transaction on terms that are favorable. Moreover, the
transaction may be expensive, complex and time-consuming to negotiate,
document and implement and closing could be subject to approvals by our
stockholders and governmental authorities, which are not assured, may be
abandoned or terminated for numerous reasons at any point in the transaction
process prior to closing, which could result in us incurring transaction
expenses that cannot be recouped and force us to terminate development of
STS101, withdraw our NDA and pursue other strategic alternatives, such as
dissolution and wind-down. Furthermore, SNBL may not be successful in its
efforts to further develop, obtain regulatory approval for or commercialize
STS101, we may never receive any future contingent milestone or royalty
payments under such a transaction. Further, the terms of any strategic
transaction which we are able to conclude may not be favorable to us.
"
The future success of STS101 will depend heavily on the post-closing efforts
and activities of SNBL, in the event we are able to conclude such a
transaction. The risks of relying upon SNBL are numerous and may include risks
that:
"
they will have significant discretion in determining the efforts and resources
that they will apply to the STS101 program;
"
they may elect not pursue development and commercialization of STS101 based on
future clinical trial results, changes in their strategic focus due to their
acquisition of competitive products or their internal development of
competitive products, availability of funding or other external factors, such
as a business combination that diverts resources or creates competing
priorities;
40
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"
they may delay future clinical trials, provide insufficient funding for a
future clinical trial program, stop a future clinical trial, abandon a STS101,
repeat or conduct new clinical trials or require a new formulation of STS101
for clinical testing;
"
they could independently develop, or develop with third parties, products that
compete directly or indirectly with STS101;
"
they may not properly maintain or defend our intellectual property rights or
may use our intellectual property or proprietary information in a way that
gives rise to actual or threatened litigation that could jeopardize or
invalidate our intellectual property or proprietary information or expose us
to potential liability;
"
their or the Commercializing Party's sales and marketing activities or other
operations may not be in compliance with applicable laws, resulting in civil
or criminal proceedings;
"
disputes may arise between us and SNBL that causes the delay or termination of
the development or commercialization of STS101 or that result in costly
litigation or arbitration that diverts our managements attention and
resources; and
"
they may be adversely impacted by COVID-19 or other unforeseen events and
public health emergencies.
Our business involves the use of hazardous materials and we and our
third-party manufacturers and suppliers must comply with environmental laws
and regulations, which can be expensive and restrict how we do business.
Our third-party manufacturers and suppliers activities involve the controlled
storage, use and disposal of hazardous materials owned by us, including the
components of STS101 and other hazardous compounds. We and any third-party
manufacturers and suppliers we engage are subject to numerous federal, state
and local environmental, health and safety laws, regulations and permitting
requirements, including those governing laboratory procedures; the generation,
handling, use, storage, treatment, and disposal of hazardous and regulated
materials and wastes; the emission and discharge of hazardous materials into
the ground, air and water; and employee health and safety. Our operations
involve the use of hazardous and flammable materials, including chemicals and
biological materials. Our operations also produce hazardous waste. In some
cases, these hazardous materials and various wastes resulting from their use
are stored at our contract manufacturers facilities pending their use and
disposal. We generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination, which
could cause an interruption of our commercialization efforts, research and
development efforts and business operations, environmental damage resulting in
costly clean-up and liabilities under applicable laws and regulations
governing the use, storage, handling and disposal of these materials and
specified waste products.
Although we believe that the safety procedures utilized by our third-party
manufacturers for handling and disposing of these materials generally comply
with the standards prescribed by these laws and regulations, we cannot
guarantee that this is the case or eliminate the risk of accidental
contamination or injury from these materials. Under certain environmental
laws, we could be held responsible for costs relating to any contamination at
our current or past facilities and at third-party facilities. In such an
event, we may be held liable for any resulting damages and such liability
could exceed our resources and state or federal or other applicable
authorities may curtail our use of certain materials and/or interrupt our
business operations. Furthermore, environmental laws and regulations are
complex, change frequently and have tended to become more stringent. We cannot
predict the impact of such changes and cannot be certain of our future
compliance.
Compliance with applicable environmental laws and regulations may be
expensive, and current or future environmental laws and regulations may impair
our research, product development and manufacturing efforts. In addition, we
cannot entirely eliminate the risk of accidental injury or contamination from
these materials or wastes.
Risks Related to Intellectual Property
Our success depends on our ability to protect our intellectual property and
our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain
patent protection and trade secret protection for STS101, proprietary
technologies and their uses as well as our ability to operate without
infringing upon the proprietary rights of others. We generally seek to protect
our proprietary position by filing patent applications in the United States
and abroad related to STS101, proprietary technologies and their uses that are
important to our business. Our patent applications cannot be enforced against
third parties practicing the technology claimed in such applications unless,
and until, patents issue from such applications, and then only to the extent
the issued claims cover the technology in appropriate jurisdictions. There can
be no assurance that our patent applications or those of our licensors will
result in additional patents being issued or that issued patents will afford
sufficient protection against competitors with similar technology, nor can
there be any assurance that the patents issued will not be infringed, designed
around or invalidated by third parties. Even issued patents may later be found
invalid or unenforceable or may be modified
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or revoked in proceedings instituted by third parties before various patent
offices or in courts. The degree of future protection for our proprietary
rights is uncertain. Only limited protection may be available and may not
adequately protect our rights or permit us to gain or keep any competitive
advantage. For example, we do not have a patent covering the composition of
matter for DHE, the active ingredient in STS101. If we do not adequately
protect our intellectual property and proprietary technology, competitors may
be able to use STS101 and proprietary technologies and erode or negate any
competitive advantage we may have, which could have a material adverse effect
on our financial condition and results of operations.
We have applied, and we intend to continue applying, for patents covering
aspects of STS101, proprietary technologies and their uses that we deem
appropriate. However, we may not be able to apply for patents on certain
aspects of STS101, proprietary technologies and their uses in a timely
fashion, at a reasonable cost, in all jurisdictions, or at all, and any
potential patent coverage we obtain may not be sufficient to prevent
substantial competition.
We own or have an exclusive license under more than sixty U.S. and foreign
patents and pending applications. In the U.S., we own or have exclusive
license rights under 11 issued and allowed U.S. patents and patent
applications relating to STS101 that have expiration dates (absent any
adjustments or extensions of term) as late as 2039. We believe the breadth of
our patent estate reflects the highly innovative and differentiated nature of
our proprietary dry-powder nasal delivery and formulation technologies. With
the exception of one issued U.S. patent and several issued or allowed patents
in the European Union, Japan and Hong Kong that we own, all of our rights
under issued U.S. and foreign patents relating to STS101 are exclusively
licensed from SNBL.
We cannot be certain that the claims in any of our patent applications will be
considered patentable by the USPTO, courts in the United States or by the
patent offices and courts in foreign countries, nor can we be certain that the
claims in issued patents relating to STS101 will not be found invalid or
unenforceable if challenged.
The patent application process is subject to numerous risks and uncertainties,
and there can be no assurance that we or any of our actual or potential future
collaborators will be successful in protecting STS101, proprietary
technologies and their uses by obtaining and defending patents. These risks
and uncertainties include the following:
"
the USPTO and various foreign governmental patent agencies require compliance
with a number of procedural, documentary, fee payment and other provisions
during the patent process, the noncompliance with which can result in
abandonment or lapse of a patent or patent application, and partial or
complete loss of patent rights in the relevant jurisdiction;
"
patent applications may not result in any patents being issued;
"
patents owned or in-licensed by us may be challenged, invalidated, modified,
revoked, circumvented, found to be unenforceable or otherwise may not provide
any competitive advantage;
"
our competitors, many of whom have substantially greater resources than we do
and many of whom have made significant investments in competing technologies,
may seek or may have already filed for or obtained patents that will limit,
interfere with or eliminate our ability to make, use and sell STS101;
"
other parties may have designed around our claims or developed technologies
that may be related or competitive to our platform, may have filed or may file
patent applications and may have received or may receive patents that overlap
or conflict with our patent applications, either by claiming the same
compositions, methods or devices or by claiming subject matter that could
dominate our patent position;
"
any successful opposition or other post-grant challenges to any patents owned
by or licensed to us could result in revocation or amendment to our patents so
that they no longer cover STS101;
"
because patent applications in the United States and most other countries are
confidential for a period of time after filing, we cannot be certain that we
or our licensors were the first to file any patent application related to
STS101, proprietary technologies and their uses;
"
an interference proceeding can be provoked by a third party or instituted by
the USPTO to determine who was the first to invent any of the subject matter
covered by the patent claims of our applications for any application with an
effective filing date before March 16, 2013;
"
there may be significant pressure on the U.S. government and international
governmental bodies to limit the scope of patent protection both inside and
outside the United States for disease treatments that prove successful, as a
matter of public policy regarding worldwide health concerns; and
"
countries other than the United States may have patent laws less favorable to
patentees than those upheld by U.S. courts, allowing foreign competitors a
better opportunity to create, develop and market competing product candidates.
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The patent position of pharmaceutical companies generally is highly uncertain,
involves complex legal and factual questions, and has been the subject of much
litigation in recent years. Moreover, the patent prosecution process is also
expensive and time-consuming, and we may not be able to file and prosecute all
necessary or desirable patent applications at a reasonable cost or in a timely
manner. It is also possible that we will fail to identify patentable aspects
of our research and development output before it is too late to obtain patent
protection. Although we enter into non-disclosure and confidentiality
agreements with parties who have access to patentable aspects of our research
and development output, such as our employees, corporate collaborators,
outside scientific collaborators, CROs, contract manufacturers, consultants,
advisors and other third parties, any of these parties may breach such
agreements and disclose such output before a patent application is filed,
thereby jeopardizing our ability to seek patent protection.
The issuance of a patent is not conclusive as to its inventorship, scope,
validity or enforceability, and our patents, if issued, or the patent rights
that we license from others, may be challenged in the courts or patent offices
in the United States and abroad. Once granted, patents may remain open to
opposition, interference, re-examination, post-grant review,
inter partes
review, nullification or derivation action in court or before patent offices
or similar proceedings for a given period after allowance or grant, during
which time third parties can raise objections against such initial grant. Such
challenges may result in loss of exclusivity or in patent claims being
narrowed, invalidated or held unenforceable, which could limit our ability to
stop others from using or commercializing similar or identical products, or
limit the duration of the patent protection of STS101. Given the amount of
time required for the development, testing and regulatory review of new
product candidates, patents protecting such candidates might expire before or
shortly after such candidates are commercialized. As a result, our
intellectual property may not provide us with sufficient rights to exclude
others from commercializing products similar or identical to ours.
Our ability to enforce our patent rights depends on our ability to detect
infringement. It may be difficult to detect infringers who do not advertise
the components or methods that are used in connection with their products and
services. Moreover, it may be difficult or impossible to obtain evidence of
infringement in a competitors or potential competitors product or service. We
may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded if we were to prevail may not be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put our
patents at risk of being invalidated, held unenforceable or interpreted
narrowly. Such proceedings could also provoke third parties to assert claims
against us or licensor Shin Nippon Biomedical Laboratories, Ltd., or SNBL,
which we have agreed to indemnify under certain circumstances, including that
some or all of the claims in one or more of our patents are invalid or
otherwise unenforceable. If any of our patents covering STS101 are invalidated
or found unenforceable, or if a court found that valid, enforceable patents
held by third parties covered STS101, our competitive position could be harmed
or we could be required to incur significant expenses to enforce or defend our
rights. If we initiate lawsuits to protect or enforce our patents, or litigate
against third-party claims, such proceedings would be expensive and would
divert the attention of our management and technical personnel.
The degree of future protection for our proprietary rights is uncertain, and
we cannot ensure that:
"
any of our patents, or any of our pending patent applications, if issued, or
those of our licensors, will include claims having a scope sufficient to
protect STS101;
"
any of our pending patent applications or those of our licensors may issue as
patents;
"
others will not or may not be able to make, use, offer to sell, or sell
products that are the same as or similar to our own but that are not covered
by the claims of the patents that we own or license;
"
we will be able to successfully commercialize STS101 on a substantial scale,
if approved, before the relevant patents that we own or license expire;
"
we were the first to make the inventions covered by each of the patents and
pending patent applications that we own or license;
"
we or our licensors were the first to file patent applications for these
inventions;
"
others will not develop similar or alternative technologies that do not
infringe the patents we own or license;
"
any of the patents we own or license will be found to ultimately be valid and
enforceable;
"
any patents issued to us or our licensors will provide a basis for an
exclusive market for our commercially viable products or will provide us with
any competitive advantages;
"
a third party may not challenge the patents we own or license and, if
challenged, a court would hold that such patents are valid, enforceable and
infringed;
"
the patents of others will not have an adverse effect on our business;
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"
our competitors do not conduct research and development activities in
countries where we do not have enforceable patent rights and then use the
information learned from such activities to develop competitive products for
sale in our major commercial markets;
"
we will develop additional proprietary technologies or products that are
separately patentable; or
"
our commercial activities or products will not infringe upon the patents of
others.
To the extent we obtain licenses from or collaborate with third parties, in
some circumstances, we may not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents,
covering technology that we license from third parties, or such activities, if
controlled by us, may require the input of such third parties. We may also
require the cooperation of our licensors and collaborators to enforce any
licensed patent rights, and such cooperation may not be provided. Therefore,
these patents and applications may not be prosecuted and enforced in a manner
consistent with the best interests of our business. Moreover, if we do obtain
necessary licenses, we will likely have obligations under those licenses, and
any failure to satisfy those obligations could give our licensor the right to
terminate the license. Termination of a necessary license, or expiration of
licensed patents or patent applications, could have a material adverse impact
on our business.
The lives of our patents may not be sufficient to effectively protect STS101
and our business.
Patents have a limited lifespan. In the United States, the natural expiration
of a patent is generally 20 years after its first effective non-provisional
filing date. Although various extensions may be available, the life of a
patent, and the protection it affords, is limited. Even if patents covering
STS101, proprietary technologies and their uses are obtained, once the patent
life has expired, we may be open to competition. In addition, although upon
issuance in the United States a patents life can be increased based on certain
delays caused by the USPTO, this increase can be reduced or eliminated based
on certain delays caused by the patent applicant during patent prosecution.
Given the amount of time required for the development, testing and regulatory
review of STS101, patents protecting it might expire before or shortly after
it is commercialized. If we do not have sufficient patent life to protect
STS101, proprietary technologies and their uses, our business and results of
operations will be adversely affected.
If we are unable to protect the confidentiality of our trade secrets, our
business and competitive position would be harmed.
We rely on the protection of our trade secrets, including unpatented know-how,
technology and other proprietary information. We have taken steps to protect
our trade secrets and unpatented know-how, including entering into
confidentiality agreements with third parties, and confidential information
and inventions agreements with employees, consultants and advisors. In
addition to contractual measures, we try to protect the confidential nature of
our proprietary information using commonly accepted physical and technological
security measures. Despite these efforts, we cannot provide any assurances
that all such agreements have been duly executed, and any of these parties may
breach the agreements and disclose our proprietary information, including our
trade secrets, and we may not be able to obtain adequate remedies for such
breaches. In addition, such security measures may not provide adequate
protection for our proprietary information, for example, in the case of
misappropriation of a trade secret by an employee, consultant or third party
with authorized access. Our security measures may not prevent an employee or
consultant from misappropriating our trade secrets and providing them to a
competitor, and recourse we take against such misconduct may not provide an
adequate remedy to protect our interests fully. Monitoring unauthorized uses
and disclosures is difficult, and we do not know whether the steps we have
taken to protect our proprietary technologies will be effective. Unauthorized
parties may also attempt to copy or reverse engineer certain aspects of STS101
that we consider proprietary. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret can be difficult, expensive and
time-consuming, and the outcome is unpredictable. Even though we use commonly
accepted security measures, the criteria for protection of trade secrets can
vary among different jurisdictions.
Enforcing a claim that a party illegally disclosed or misappropriated a trade
secret is difficult, expensive and time-consuming, and the outcome is
unpredictable. In addition, some courts inside and outside the United States
are less willing or unwilling to protect trade secrets. Moreover, third
parties may still obtain this information or may come upon this or similar
information independently, and we would have no right to prevent them from
using that technology or information to compete with us. Trade secrets will
over time be disseminated within the industry through independent development,
the publication of journal articles and the movement of personnel skilled in
the art from company to company or academic to industry scientific positions.
Though our agreements with third parties typically restrict the ability of our
advisors, employees, collaborators, licensors, suppliers, third-party
contractors and consultants to publish data potentially relating to our trade
secrets, our agreements may contain certain limited publication rights. If any
of our trade secrets were to be lawfully obtained or independently developed
by a competitor, we would have no right to prevent such competitor from using
that technology or information to compete with us, which could harm our
competitive position. Because from time to time we expect to rely on third
parties in the development, manufacture, and distribution of STS101, we must,
at times, share trade secrets with them. Despite employing the contractual and
other security precautions described above, the need to share trade secrets
increases the risk that such trade secrets become known by our competitors,
are inadvertently incorporated into the
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technology of others, or are disclosed or used in violation of these
agreements. If any of these events occurs or if we otherwise lose protection
for our trade secrets, the value of this information may be greatly reduced
and our competitive position would be harmed. If we do not apply for patent
protection prior to such publication or if we cannot otherwise maintain the
confidentiality of our proprietary technology and other confidential
information, then our ability to obtain patent protection or to protect our
trade secret information may be jeopardized.
Our rights to develop and commercialize STS101 are subject in part to the
terms and conditions of a license granted to us by SNBL. The patent
protection, prosecution and enforcement for STS101 may be dependent on third
parties.
We currently are reliant upon a license of certain patent rights and
proprietary technology pursuant to a licensing and assignment agreement we
entered with SNBL in June 2016, or the SNBL License. Such rights and
technology are important or necessary to the development of STS101. This and
other licenses we may enter into in the future may not provide adequate rights
to use such intellectual property and technology in all relevant fields of use
or in all territories in which we may wish to develop or commercialize our
technology and products in the future. As a result, we may not be able to
develop and commercialize our technology and products in fields of use and
territories for which we are not granted rights pursuant to such licenses.
Licenses to additional third-party technology that may be required for our
development programs may not be available in the future or may not be
available on commercially reasonable terms, which could have a material
adverse effect on our business and financial condition.
In some circumstances, we may not have the right to control the preparation,
filing, prosecution and enforcement of patent applications, or to maintain the
patents, covering technology that we license from third parties. In addition,
in some instances, the SNBL License requires us to negotiate in good faith a
strategy with respect to enforcement of certain licensed patents against third
party infringers, and in some instances, SNBL retains the sole right to
initiate and control such actions. Therefore, we cannot be certain that SNBL
or any future licensors or collaborators will prosecute, maintain, enforce and
defend such intellectual property rights in a manner consistent with the best
interests of our business, including by taking reasonable measures to protect
the confidentiality of know-how and trade secrets, or by paying all applicable
prosecution and maintenance fees related to intellectual property
registrations for STS101. We also cannot be certain that our licensors have
drafted or prosecuted the patents and patent applications licensed to us in
compliance with applicable laws and regulations, which may affect the validity
and enforceability of such patents or any patents that may issue from such
applications. If they fail to do so, this could cause us to lose rights in any
applicable intellectual property that we in-license, and as a result our
ability to develop and commercialize STS101 may be adversely affected and we
may be unable to prevent competitors from making, using and selling competing
products.
The SNBL License imposes a low single-digit royalty on net sales of STS101
along with certain other obligations on us, and any future licenses, if
required, likely will also impose various royalty payments, milestones, and
other obligations on us. If we fail to comply with any of these obligations,
we may be required to pay damages and the licensor may have the right to
terminate the license. Termination by the licensor would cause us to lose
valuable rights, and could prevent us from developing and commercializing
STS101 and proprietary technologies. Our business would suffer if any current
or future licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensors fail to enforce licensed patents against
infringing third parties, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into necessary
licenses on acceptable terms. Furthermore, if any current or future licenses
terminate, or if the underlying patents fail to provide the intended
exclusivity, competitors or other third parties may gain the freedom to seek
regulatory approval of, and to market, products identical to ours. Moreover,
our licensors may own or control intellectual property that has not been
licensed to us and, as a result, we may be subject to claims, regardless of
their merit, that we are infringing or otherwise violating the licensors
rights. In addition, while we cannot currently determine the amount of the
royalty obligations we would be required to pay on sales of future products,
if any, the amounts may be significant. The amount of our future royalty
obligations will depend on the technology and intellectual property we use in
products that we successfully develop and commercialize, if any. Therefore,
even if we successfully develop and commercialize STS101, we may be unable to
achieve or maintain profitability.
Litigation or other proceedings or third-party claims of intellectual property
infringement could require us to spend significant time and money and could
prevent us from selling our products.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. However,
our research, development and commercialization activities may be subject to
claims that we infringe or otherwise violate patents or other intellectual
property rights owned or controlled by third parties. Claims by third parties
that we infringe their proprietary rights may result in liability for damages
or prevent or delay our developmental and commercialization efforts. We cannot
assure you that our operations do not, or will not in the future, infringe
existing or future patents.
Other entities may have or obtain patents or proprietary rights that could
limit our ability to make, use, sell, offer for sale or import STS101 or
impair our competitive position. There is a substantial amount of litigation,
both within and outside the United
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States, involving patent and other intellectual property rights in the
pharmaceutical and biotechnology industries, including patent infringement
lawsuits, interferences, oppositions, reexaminations,
inter partes
review proceedings and post-grant review proceedings before the USPTO and/or
corresponding foreign patent offices. Numerous third-party U.S. and foreign
issued patents and pending patent applications exist in the fields of STS101.
There may be third-party patents or patent applications with claims to
materials, formulations, methods of manufacture or methods for treatment
related to the use or manufacture of STS101.
Furthermore, the scope of a patent claim is determined by an interpretation of
the law, the written disclosure in a patent and the patents prosecution
history and can involve other factors such as expert opinion. Our
interpretation of the relevance or the scope of claims in a patent or a
pending application may be incorrect, which may negatively impact our ability
to market STS101. Further, we may incorrectly determine that our technologies
or STS101 are not covered by a third-party patent or may incorrectly predict
whether a third partys pending patent application will issue with claims of
relevant scope. Our determination of the expiration date of any patent in the
United States or abroad that we consider relevant may be incorrect, which may
negatively impact our ability to develop and market STS101.
As the pharmaceutical industry expands and more patents are issued, the risk
increases that STS101 may be subject to claims of infringement of the patent
rights of third parties. Our competitors in both the United States and abroad,
many of which have substantially greater resources and have made substantial
investments in patent portfolios and competing technologies, may have applied
for or obtained or may in the future apply for and obtain, patents that will
prevent, limit or otherwise interfere with our ability to make, use and sell
STS101. We do not always conduct independent reviews of pending patent
applications of and patents issued to third parties.
Patent applications in the United States and elsewhere are typically published
approximately 18 months after the earliest filing for which priority is
claimed, with such earliest filing date being commonly referred to as the
priority date. Certain U.S. applications that will not be filed outside the
United States can remain confidential until patents issue. In addition, patent
applications in the United States and elsewhere can be pending for many years
before issuance, or unintentionally abandoned patents or applications can be
revived. Furthermore, pending patent applications that have been published
can, subject to certain limitations, be later amended in a manner that could
cover our technologies, STS101 or the use of STS101. As such, there may be
applications of others now pending or recently revived patents of which we are
unaware. These applications may later result in issued patents, or the revival
of previously abandoned patents, that will prevent, limit or otherwise
interfere with our ability to make, use or sell STS101. Because patent
applications are maintained as confidential for a certain period of time,
until the relevant application is published we may be unaware of third-party
patents that may be infringed by commercialization of STS101, and cannot be
certain that we were the first to file a patent application related to a
product candidate or technology. Moreover, because patent applications can
take many years to issue, there may be currently-pending patent applications
that may later result in issued patents that STS101 may infringe. In addition,
identification of third-party patent rights that may be relevant to our
technology is difficult because patent searching is imperfect due to
differences in terminology among patents, incomplete databases and the
difficulty in assessing the meaning of patent claims. Any claims of patent
infringement asserted by third parties would be time consuming and could:
"
result in costly litigation;
"
divert the time and attention of our technical personnel and management;
"
cause development delays;
"
prevent commercialization of STS101 until the asserted patent expires or is
held finally invalid or not infringed in a court of law;
"
require us to develop non-infringing technology, which may not be possible on
a cost-effective basis;
"
require us to pay damages to the party whose intellectual property rights we
may be found to be infringing, which may include treble damages if we are
found to have been willfully infringing such intellectual property;
"
require us to pay the attorneys fees and costs of litigation to the party
whose intellectual property rights we may be found to be infringing; and/or
"
require us to enter into royalty or licensing agreements, which may not be
available on commercially reasonable terms, or at all.
Although no third-party has asserted a claim of patent infringement against us
as of the date of this report, others may hold proprietary rights that could
prevent STS101 from being marketed. Any patent-related legal action against us
claiming damages and seeking to enjoin commercial activities relating to
STS101 or processes could subject us to potential liability for damages,
including treble damages if we were determined to willfully infringe, and
require us to obtain a license to manufacture or market STS101. Defense of
these claims, regardless of their merit, would involve substantial litigation
expense and would be a substantial diversion of
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employee resources from our business. We cannot predict whether we would
prevail in any such actions or that any license required under any of these
patents would be made available on commercially acceptable terms, if at all.
Even if such licenses are available, we could incur substantial costs related
to royalty payments for licenses obtained from third parties, which could
negatively affect our gross margins, and the rights may be non-exclusive,
which could give our competitors access to the same technology or intellectual
property rights licensed to us. In addition, we cannot be certain that we
could redesign STS101 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 STS101, which could harm our business,
financial condition and operating results. In addition, intellectual property
litigation, regardless of its outcome, may cause negative publicity and could
prohibit us from marketing or otherwise commercializing STS101.
If we collaborate with third parties in the development of technology in the
future, our collaborators may not properly maintain or defend our intellectual
property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual
property or proprietary information or expose us to litigation or potential
liability. Further, collaborators may infringe the intellectual property
rights of third parties, which may expose us to litigation and potential
liability. Also, we may be obligated under our agreements with our
collaborators, licensors, suppliers and others to indemnify and hold them
harmless for damages arising from intellectual property infringement by us.
We may be involved in lawsuits to protect or enforce our patents or the
patents of our licensors, which could be expensive, time consuming, and
unsuccessful. Further, issued patents relating to STS101 could be found
invalid or unenforceable if challenged in court.
Competitors may infringe our intellectual property rights or those of our
licensors. To prevent infringement or unauthorized use, we may be required to
file infringement claims, which can be expensive and time-consuming. In
addition, in a patent infringement proceeding, a court may decide that a
patent we own or in-license is not valid, is unenforceable and/or is not
infringed. If we or any of our potential future collaborators were to initiate
legal proceedings against a third party to enforce a patent directed at
STS101, the defendant could counterclaim that our patent is invalid and/or
unenforceable in whole or in part. In patent litigation in the United States,
defendant counterclaims alleging invalidity and/or unenforceability are
commonplace. Grounds for a validity challenge include an alleged failure to
meet any of several statutory requirements, including lack of novelty,
obviousness or non-enablement. Grounds for an unenforceability assertion could
include an allegation that someone connected with prosecution of the patent
withheld relevant information from the USPTO or made a misleading statement
during prosecution. Third parties may also raise similar claims before the
USPTO, even outside the context of litigation. Similar mechanisms for
challenging the validity and enforceability of a patent exist in ex-U.S.
patent offices and may result in the revocation, cancellation, or amendment of
any ex-U.S. patents we hold in the future. The outcome following legal
assertions of invalidity and unenforceability is unpredictable, and prior art
could render our patents or those of our licensors invalid. If a defendant
were to prevail on a legal assertion of invalidity and/or unenforceability, we
would lose at least part, and perhaps all, of the patent protection on such
product candidate. Such a loss of patent protection would have a material
adverse impact on our business. Interference or derivation proceedings
provoked by third parties or brought by us or declared by the USPTO may be
necessary to determine the priority of inventions with respect to our patents
or patent applications or those of our licensors. An unfavorable outcome could
require us to cease using the related technology or to attempt to license
rights to it from the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially reasonable terms
or at all, or if a non-exclusive license is offered and our competitors gain
access to the same technology. Our defense of litigation or interference
proceedings may fail and, even if successful, may result in substantial costs
and distract our management and other employees. In addition, the
uncertainties associated with litigation could have a material adverse effect
on our ability to raise the funds necessary to continue our clinical trials,
continue our research programs, license necessary technology from third
parties or enter into development or manufacturing partnerships that would
help us bring STS101 to market.
Even if resolved in our favor, litigation or other legal proceedings relating
to our intellectual property rights may cause us to incur significant
expenses, and could distract our technical and management personnel from their
normal responsibilities. In addition, there could be public announcements of
the results of hearings, motions or other interim proceedings or developments
and if securities analysts or investors perceive these results to be negative,
it could have a substantial adverse effect on the price of our common stock.
Such litigation or proceedings could substantially increase our operating
losses and reduce the resources available for development activities or any
future sales, marketing or distribution activities. We may not have sufficient
financial or other resources to conduct such litigation or proceedings
adequately. Some of our competitors may be able to sustain the costs of such
litigation or proceedings more effectively than we can because of their
greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could compromise our
ability to compete in the marketplace.
Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during this
type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it could have a
material adverse effect on the price of our common stock.
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We may fail to comply with our obligations under the SNBL License or any
future agreements pursuant to which we may license or otherwise acquire
intellectual property rights or technology, which could result in the loss of
rights or technology that are material to our business.
Our business is dependent on the SNBL License for certain patent rights and
know-how that are directed to SNBLs proprietary nasal drug delivery
technology, including its proprietary nasal delivery device and formulation
technologies, for use with DHE. Our rights under the SNBL License and any
license for intellectual property or technology that we may enter into in the
future are and will be subject to the continuation of and our compliance with
the terms of these agreements. Disputes may arise regarding our rights to
intellectual property licensed to us from a third party, including but not
limited to:
"
the scope of rights granted under the license agreement and other
interpretation-related issues;
"
the extent to which our technology and processes infringe on intellectual
property of the licensor that is not subject to the licensing agreement;
"
the sublicensing of patent and other rights;
"
our diligence obligations under the license agreement and what activities
satisfy those diligence obligations;
"
the ownership of inventions and know-how resulting from the creation or use of
intellectual property by us, alone or with our licensors and collaborators;
"
the scope and duration of our payment obligations;
"
our rights upon termination of such agreement; and
"
the scope and duration of exclusivity obligations of each party to the
agreement.
Any disputes over intellectual property and other rights under the SNBL
License could prevent or impair our ability to maintain the license on
acceptable terms and our ability to successfully develop and commercialize
STS101. In addition, if we fail to comply with our obligations under the SNBL
License, it may be terminated or the scope of our rights under it may be
reduced and we might be unable to develop, manufacture or market STS101.
We may be subject to claims challenging the inventorship or ownership of our
patents and other intellectual property.
We may also be subject to claims that former employees, collaborators or other
third parties have an ownership interest in our patents or other intellectual
property. In addition, we may face claims by third parties that our agreements
with employees, contractors or consultants obligating them to assign
intellectual property to us are ineffective or in conflict with prior or
competing contractual obligations of assignment, which could result in
ownership disputes regarding intellectual property we have developed or will
develop and interfere with our ability to capture the commercial value of such
intellectual property. Litigation may be necessary to defend against these and
other claims challenging inventorship or ownership. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights. Such an outcome could have a material adverse
effect on our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and distraction to
management and other employees.
Risks Related to Government Regulation
Even if we obtain regulatory approval for STS101, STS101 will remain subject
to regulatory scrutiny.
If STS101 is approved, it will be subject to ongoing regulatory requirements
for manufacturing, labeling, packaging, storage, advertising, promotion,
sampling, record-keeping, conduct of post-marketing studies, and submission of
safety, efficacy, and other post- market information, including both federal
and state requirements in the United States and requirements of comparable
foreign regulatory authorities.
Manufacturers and manufacturers facilities are required to comply with
extensive FDA and comparable foreign regulatory authority requirements,
including ensuring that quality control and manufacturing procedures conform
to cGMP regulations. As such, we and our contract manufacturers will be
subject to continual review and inspections to assess compliance with cGMP and
adherence to commitments made in any approved marketing application.
Accordingly, we and others with whom we work must continue to expend time,
money, and effort in all areas of regulatory compliance, including
manufacturing, production, and quality control.
We will have to comply with requirements concerning advertising and promotion
for STS101. Promotional communications with respect to prescription drugs are
subject to a variety of legal and regulatory restrictions and must be
consistent with the information in the products approved label. As such, we
may not promote STS101 for indications or uses for which they do not have
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approval. However, companies may share truthful and not misleading information
that is otherwise consistent with a products FDA approved labeling. We also
must submit new or supplemental applications and obtain approval for certain
changes to STS101, if approved, product labeling, or manufacturing process. We
could also be asked to conduct post-marketing clinical studies to verify the
safety and efficacy of STS101 in general or in specific patient subsets. An
unsuccessful post-marketing study or failure to complete such a study could
result in the withdrawal of marketing approval.
If we discover previously unknown problems with STS101, such as adverse events
of unanticipated severity or frequency, or problems with the facility where
STS101 is manufactured, or if the FDA disagrees with the promotion, marketing
or labeling of STS101, the FDA may impose restrictions on it or us, including
requiring withdrawal of it from the market. If we fail to comply with
applicable regulatory requirements, the FDA and other regulatory authorities
may, among other things:
"
issue warning letters;
"
impose civil or criminal penalties;
"
suspend or withdraw regulatory approval;
"
suspend any of our ongoing clinical studies;
"
refuse to approve pending applications or supplements to approved applications;
"
impose restrictions on our operations, including closing our contract
manufacturers facilities; or
"
require a product recall, seizure or detention.
Any government action or investigation of alleged violations of law could
require us to expend significant time and resources in response, and could
generate negative publicity. Any failure to comply with ongoing regulatory
requirements may significantly and adversely affect our ability to
commercialize and generate revenue from STS101. If regulatory sanctions are
applied or if regulatory approval is withdrawn, the value of our company and
our operating results will be adversely affected.
Moreover, the policies of the FDA and of other regulatory authorities may
change and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of STS101. We cannot predict the
likelihood, nature or extent of government regulation that may arise from
future legislation or administrative or executive action, either in the United
States or abroad. In addition, if we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or policies, or if
we are not able to maintain regulatory compliance, we could lose any marketing
approval that we may have obtained and we may not achieve or sustain
profitability.
If STS101 obtains regulatory approval, competitors could enter the market with
generic versions, which may result in a material decline in sales of affected
products.
Under the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act,
or FDCA, a pharmaceutical manufacturer may file an abbreviated new drug
application, or ANDA, seeking approval of a generic version of an approved
drug product. A manufacturer may also submit an NDA under section 505(b)(2) of
the FDCA, which may be for a new or improved version of the originally
approved drug product. The Hatch-Waxman Amendments also provide for certain
periods of regulatory exclusivity, which preclude FDA acceptance or approval
of an ANDA or 505(b)(2) NDA for specific timeframes, such as three-year
exclusivity available to products submitted with new clinical investigations
(other than bioavailability studies) conducted or sponsored by the applicant
that are essential to approval of the application. In addition to this
non-patent exclusivity, an NDA holder may have patents claiming the active
ingredient, product formulation or an approved use of the drug, which would be
listed in the FDA publication, Approved Drug Products with Therapeutic
Equivalence Evaluations, known as the Orange Book. If there are patents listed
in the Orange Book for a product, a generic or 505(b)(2) applicant that seeks
to market its product before expiration of the patents must include in their
applications what is known as a Paragraph IV certification, challenging the
validity or enforceability of, or claiming non-infringement of, the listed
patent or patents. Notice of the certification must be given to the patent
owner and NDA holder and if, within 45 days of receiving notice, either the
patent owner or NDA holder sues for patent infringement, approval of the ANDA
or 505(b)(2) NDA is stayed for up to 30 months.
Accordingly, if STS101 is approved, including through the 505(b)(2) pathway,
competitors could file ANDAs for generic versions of STS101. If there are
patents listed for STS101 in the Orange Book, those ANDAs would be required to
include a certification as to each listed patent indicating whether the ANDA
applicant does or does not intend to challenge the patent. We cannot predict
which, if any, patents in our current portfolio or patents we may obtain in
the future will be eligible for listing in the Orange Book, how any generic
competitor would address such patents, whether we would sue on any such
patents, or the outcome of any such suit. In addition, while we have requested
three-year exclusivity based on new clinical investigations conducted for
STS101, we cannot predict whether the FDA will agree we have satisfied the
requirements to receive such exclusivity for STS101, if approved.
49
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We may not be successful in securing or maintaining non-patent or proprietary
patent protection for STS101. Moreover, if any of our owned or in-licensed
patents that are listed in the Orange Book are successfully challenged by way
of a Paragraph IV certification and subsequent litigation, STS101 could
immediately face generic competition and its sales would likely decline
rapidly and materially.
Our business operations and current and future relationships with
investigators, healthcare professionals, consultants, third-party payors,
patient organizations and customers will be subject to applicable healthcare
regulatory laws, which could expose us to penalties.
Our business operations and current and future arrangements with investigators,
healthcare professionals, consultants, third-party payors, patient
organizations and customers, may expose us to broadly applicable fraud and
abuse and other healthcare laws. These laws may constrain the business or
financial arrangements and relationships through which we conduct our
operations, including how we research, market, sell and distribute STS101, if
approved. Such laws include, but are not limited to:
"
the U.S. federal Anti-Kickback Statute, which prohibits, among other things,
persons or entities from knowingly and willfully soliciting, offering,
receiving or providing any remuneration (including any kickback, bribe, or
certain rebate), directly or indirectly, overtly or covertly, in cash or in
kind, to induce or reward, or in return for, either the referral of an
individual for, or the purchase, lease, order or recommendation of, any good,
facility, item or service, for which payment may be made, in whole or in part,
under any U.S. federal healthcare program, such as Medicare and Medicaid. A
person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation;
"
the U.S. federal civil monetary penalty and civil and criminal false claims
laws, including the civil federal False Claims Act, which can be enforced
through civil whistleblower or qui tam actions, which prohibit, among other
things, individuals or entities from knowingly presenting, or causing to be
presented, to the U.S. federal government, claims for payment or approval that
are false or fraudulent, knowingly making, using or causing to be made or
used, a false record or statement material to a false or fraudulent claim, or
from knowingly making a false statement to avoid, decrease or conceal an
obligation to pay money to the U.S. federal government. Pharmaceutical
manufacturers can cause false claims to be presented to the U.S. federal
government by engaging in impermissible marketing practices, such as the
off-label promotion of a product for an indication for which it has not
received FDA approval. In addition, the government may assert that a claim
including items and services resulting from a violation of the U.S. federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of
the civil False Claims Act;
"
HIPAA, which imposes criminal and civil liability for, among other things,
knowingly and willfully executing, or attempting to execute, a scheme to
defraud any healthcare benefit program, or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false
statement, in connection with the delivery of, or payment for, healthcare
benefits, items or services. Similar to the U.S. federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the
healthcare fraud statute implemented under HIPAA or specific intent to violate
it in order to have committed a violation;
"
the FDCA, which prohibits, among other things, the adulteration or misbranding
of drugs, biologics and medical devices;
"
the U.S. Physician Payments Sunshine Act and its implementing regulations,
which requires certain manufacturers of drugs, devices, biologics and medical
supplies that are reimbursable under Medicare, Medicaid, or the Childrens
Health Insurance Program, with specific exceptions, to report annually to the
government information related to certain payments and other transfers of
value to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors), certain other non-physician practitioners
(physician assistants, nurse practitioners, clinical nurse specialists,
certified nurse anesthetists, anesthesiologist assistants and certified nurse
midwives) health care professionals beginning in 2022, and teaching hospitals,
as well as ownership and investment interests held by the physicians described
above and their immediate family members;
"
federal consumer protection and unfair competition laws, which broadly
regulate marketplace activities and activities that potentially harm consumers;
"
analogous U.S. state laws, including: state anti-kickback and false claims
laws, which may apply to our business practices, including but not limited to,
research, distribution, sales and marketing arrangements and claims involving
healthcare items or services reimbursed by any third-party payor, including
private insurers; state laws that require pharmaceutical companies to comply
with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the U.S. federal government, or
otherwise restrict payments that may be made to healthcare providers and other
potential referral sources; state laws that require drug manufacturers to file
reports relating to pricing and marketing information, which requires tracking
gifts and other remuneration and items of value provided to healthcare
professionals and entities; and state and local laws requiring the
registration of pharmaceutical sales representatives;
50
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"
the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits,
among other things, U.S. companies and their employees and agents from
authorizing, promising, offering, or providing, directly or indirectly,
corrupt or improper payments or anything else of value to foreign government
officials, employees of public international organizations and foreign
government owned or affiliated entities, candidates for foreign political
office, and foreign political parties or officials thereof; and
"
similar healthcare laws in the European Union and other jurisdictions,
including reporting requirements detailing interactions with and payments to
healthcare providers.
Ensuring that our internal operations and future business arrangements with
third parties comply with applicable healthcare laws and regulations will
involve substantial costs. It is possible that governmental authorities will
conclude that our business practices do not comply with current or future
statutes, regulations, agency guidance or case law involving applicable fraud
and abuse or other healthcare laws. If our operations are found to be in
violation of any of the laws described above or any other governmental laws
that may apply to us, we may be subject to significant penalties, including
civil, criminal and administrative penalties, damages, fines, exclusion from
government-funded healthcare programs, such as Medicare and Medicaid or
similar programs in other countries or jurisdictions, integrity oversight and
reporting obligations to resolve allegations of non-compliance, disgorgement,
imprisonment, contractual damages, reputational harm, diminished profits and
the curtailment or restructuring of our operations. If any of the physicians
or other providers or entities with whom we expect to do business are found to
not be in compliance with applicable laws, they may be subject to significant
criminal, civil or administrative sanctions, including exclusions from
government funded healthcare programs and imprisonment, which could affect our
ability to operate our business. Further, defending against any such actions
can be costly, time-consuming and may require significant personnel resources.
Therefore, even if we are successful in defending against any such actions
that may be brought against us, our business may be impaired.
Enacted and future healthcare legislation may increase the difficulty and cost
for us to obtain marketing approval of and commercialize STS101 and may affect
the prices we may set.
In the United States, the European Union and other jurisdictions, there have
been, and we expect there will continue to be, a number of legislative and
regulatory changes and proposed changes to the healthcare system that could
affect our future results of operations. In particular, there have been and
continue to be a number of initiatives at the U.S. federal and state levels
that seek to reduce healthcare costs and improve the quality of healthcare.
For example, in March 2010, the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act, or collectively
the ACA, was enacted, which substantially changed the way healthcare is
financed by both governmental and private payors. Among the provisions of the
ACA, those of greatest importance to the pharmaceutical and biotechnology
industries include the following:
"
an annual, non-deductible fee payable by any entity that manufactures or
imports certain branded prescription drugs and biologic agents (other than
those designated as orphan drugs), which is apportioned among these entities
according to their market share in certain government healthcare programs;
"
an increase to the minimum Medicaid rebates owed by manufacturers under the
Medicaid Drug Rebate Program and an extension the rebate program to
individuals enrolled in Medicaid managed care organizations;
"
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;
"
expansion of eligibility criteria for Medicaid programs by, among other
things, allowing states to offer Medicaid coverage to certain individuals with
income at or below 133% of the federal poverty level, thereby potentially
increasing a manufacturers Medicaid rebate liability;
"
a new Medicare Part D coverage gap discount program, in which manufacturers
must agree to offer point-of-sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturers outpatient drugs to be covered
under Medicare Part D;
"
a new Patient-Centered Outcomes Research Institute to oversee, identify
priorities in, and conduct comparative clinical effectiveness research, along
with funding for such research; and
"
establishment of a Center for Medicare and Medicaid Innovation at the Centers
for Medicare & Medicaid Services, or CMS, to test innovative payment and
service delivery models to lower Medicare and Medicaid spending, potentially
including prescription drug spending.
Since its enactment, there have been judicial, executive and Congressional
challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme
Court dismissed the most recent judicial challenge to the ACA brought by
several states without specifically ruling on the constitutionality of the
ACA. Prior to the Supreme Courts decision, President Biden issued an executive
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order initiating a special enrollment period from February 15, 2021 through
August 15, 2021 for purposes of obtaining health insurance coverage through
the ACA marketplace. The executive order also instructed certain governmental
agencies to review and reconsider their existing policies and rules that limit
access to healthcare.
In addition, other legislative changes have been proposed and adopted in the
United States since the ACA was enacted. In August 2011, the Budget Control
Act of 2011, among other things, led to aggregate reductions of Medicare
payments to providers. These reductions went into effect in April 2013 and,
due to subsequent legislative amendments to the statute, will remain in effect
through 2032, with the temporary suspension from May 1, 2020 through March 31,
2022, unless additional action is taken by Congress. Further, in March 2021,
the American Rescue Plan Act of 2021 was signed into law, which, among other
things, eliminated the statutory cap on drug manufacturers Medicaid Drug
Rebate Program rebate liability effective January 1, 2024. Under current law
enacted as part of the ACA, drug manufacturers Medicaid Drug Rebate Program
rebate liability is capped at 100% of the average manufacturer price for a
covered outpatient drug. These new laws may result in additional reductions in
Medicare and other healthcare funding and otherwise affect the prices we may
obtain for our product candidates, if approved.
Moreover, payment methodologies may be subject to changes in healthcare
legislation and regulatory initiatives. For example, CMS may develop new
payment and delivery models, such as bundled payment models. In addition,
recently there has been heightened governmental scrutiny over the manner in
which manufacturers set prices for their marketed products, which has resulted
in several U.S. Congressional inquiries and proposed and enacted federal and
state legislation designed to, among other things, bring more transparency to
drug pricing, reduce the cost of prescription drugs under government payor
programs, and review the relationship between pricing and manufacturer patient
programs. Most recently, on August 16, 2022, the Inflation Reduction Act of
2022, or IRA, was signed into law. Among other things, the IRA requires
manufacturers of certain drugs to engage in price negotiations with Medicare
(beginning in 2026), with prices that can be negotiated subject to a cap;
imposes rebates under Medicare Part B and Medicare Part D to penalize price
increases that outpace inflation (first due in 2023); and replaces the Part D
coverage gap discount program with a new discounting program (beginning in
2025). The IRA permits the Secretary of the Department of Health and Human
Services (HHS) to implement many of these provisions through guidance, as
opposed to regulation, for the initial years. For that and other reasons, it
is currently unclear how the IRA will be effectuated, and the impact of the
IRA on our business and the pharmaceutical industry cannot yet be fully
determined. We expect that additional U.S. federal healthcare reform measures
will be adopted in the future, any of which could limit the amounts that the
U.S. federal government will pay for healthcare products and services, which
could result in reduced demand for STS101 or additional pricing pressures.
Individual states in the United States have also increasingly passed
legislation and implemented regulations designed to control pharmaceutical and
biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. Legally-mandated
price controls on payment amounts by third-party payors or other restrictions
could harm our business, results of operations, financial condition and
prospects. In addition, regional healthcare authorities and individual
hospitals are increasingly using bidding procedures to determine what
pharmaceutical products and which suppliers will be included in their
prescription drug and other healthcare programs. Furthermore, there has been
increased interest by third-party payors and governmental authorities in
reference pricing systems and publication of discounts and list prices.
In the European Union, similar political, economic and regulatory developments
may affect our ability to profitably commercialize STS101, if approved. In
addition to continuing pressure on prices and cost containment measures,
legislative developments at the European Union or member state level may
result in significant additional requirements or obstacles that may increase
our operating costs. The delivery of healthcare in the European Union,
including the establishment and operation of health services and the pricing
and reimbursement of medicines, is almost exclusively a matter for national,
rather than European Union, law and policy. National governments and health
service providers have different priorities and approaches to the delivery of
health care and the pricing and reimbursement of products in that context. In
general, however, the healthcare budgetary constraints in most European Union
member states have resulted in restrictions on the pricing and reimbursement
of medicines by relevant health service providers. Coupled with ever-increasing
European Union and national regulatory burdens on those wishing to develop and
market products, this could prevent or delay marketing approval of STS101,
restrict or regulate post-approval activities and affect our ability to
commercialize STS101, if approved. In markets outside of the United States and
European Union, reimbursement and healthcare payment systems vary
significantly by country, and many countries have instituted price ceilings on
specific products and therapies.
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We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action in the United
States, the European Union or any other jurisdiction. If we, or any third
parties we may engage, are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we or such
third parties are not able to maintain regulatory compliance, STS101 may lose
any regulatory approval that may have been obtained and we may not achieve or
sustain profitability.
Changes in and actual or perceived failures to comply with U.S. and foreign
privacy and data protection laws, regulations and standards may adversely
affect our business, operations and financial performance.
We are subject to or affected by numerous federal, state and foreign laws and
regulations, as well as regulatory guidance, governing the collection, use,
disclosure, retention, and security of personal data, such as information that
we collect about trial participants and healthcare providers in connection
with clinical trials in the United States and abroad. The global data
protection landscape is rapidly evolving, and implementation standards and
enforcement practices are likely to remain uncertain for the foreseeable
future. This evolution may create uncertainty in our business, affect our or
any service providers, contractors or future collaborators ability to operate
in certain jurisdictions or to collect, store, transfer use and share personal
information, necessitate the acceptance of more onerous obligations in our
contracts, result in liability or impose additional costs on us. The cost of
compliance with these laws, regulations and standards is high and is likely to
increase in the future. Any failure or perceived failure by us or our
collaborators, service providers and contractors to comply with federal, state
or foreign laws or regulation, our internal policies and procedures or our
contracts governing processing of personal information could result in
negative publicity, diversion of management time and effort and proceedings
against us by governmental entities or others. In many jurisdictions,
enforcement actions and consequences for noncompliance are rising.
As our operations and business grow, we may become subject to or affected by
new or additional data protection laws and regulations and face increased
scrutiny or attention from regulatory authorities. In the United States,
HIPAA, as amended by the Health Information Technology for Economic and
Clinical Health Act of 2009, or collectively, HIPAA, imposes, among other
things, certain standards relating to the privacy, security, transmission and
breach reporting of individually identifiable health information. Most
healthcare providers, including research institutions from which we obtain
patient health information, are subject to privacy and security regulations
promulgated under HIPAA. While we do not believe that we are currently acting
as a covered entity or business associate under HIPAA and thus are not
directly regulated under HIPAA, any person may be prosecuted under HIPAAs
criminal provisions either directly or under aiding-and-abetting or conspiracy
principles. Consequently, depending on the facts and circumstances, we could
face substantial criminal penalties if we knowingly receive individually
identifiable health information from a HIPAA-covered healthcare provider or
research institution that has not satisfied HIPAAs requirements for disclosure
of individually identifiable health information.
Certain states have also adopted comparable privacy and security laws and
regulations, some of which may be more stringent than HIPAA. For example,
California enacted the California Consumer Privacy Act, or the CCPA, on June
28, 2018, which went into effect on January 1, 2020. The CCPA gives California
residents expanded rights to access and delete their personal information, opt
out of certain personal information sharing, and receive detailed information
about how their personal information is used. The CCPA provides for civil
penalties for violations, as well as a private right of action for data
breaches that has increased the likelihood of, and risks associated with data
breach litigation. Further, the California Privacy Rights Act, or the CPRA,
generally went into effect on January 1, 2023 and significantly amends the
CCPA. It imposes additional data protection obligations on companies doing
business in California, including additional consumer rights processes and opt
outs for certain uses of sensitive data. It also creates a new California data
protection agency specifically tasked to enforce the law, which would likely
result in increased regulatory scrutiny of California businesses in the areas
of data protection and security. Similar laws have passed in Virginia,
Colorado, Connecticut and Utah, and have been proposed in other states and at
the federal level, reflecting a trend toward more stringent privacy
legislation in the United States. The enactment of such laws could have
potentially conflicting requirements that would make compliance challenging.
In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA
or other domestic privacy and data protection laws, any liability from failure
to comply with the requirements of these laws could adversely affect our
financial condition.
Our operations abroad may also be subject to increased scrutiny or attention
from data protection authorities. Many countries in these regions have
established or are in the process of establishing privacy and data security
legal frameworks with which we, our collaborators, service providers,
including our CRO, and contractors must comply. For example, the European
Union General Data Protection Regulation, or the GDPR, went into effect in May
2018 and introduces strict requirements for processing the personal
information of individuals within the European Economic Area, or the EEA,
including, including clinical trial data. The GDPR provides for robust
regulatory enforcement and fines of up to 20 million or 4% of the annual
global revenue of the noncompliant company, whichever is greater. It has and
will continue to increase compliance burdens on us, including by mandating
potentially burdensome documentation requirements and granting certain rights
to individuals to control how we collect, use, disclose, retain and process
information about them. The processing of sensitive personal data, such as
physical health condition, may impose heightened compliance burdens under the
GDPR and is a topic of active interest among foreign regulators. The GDPR also
increases the scrutiny
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of transfers of personal data from the EEA to the United States and other
jurisdictions that the European Commission does not recognize as having
adequate data protection laws; in July 2020, the Court of Justice of the
European Union, or CJEU, limited how organizations could lawfully transfer
personal data from the EEA to the United States by invalidating the EU-US
Privacy Shield and imposing further restrictions on use of the standard
contractual clauses, which could increase our costs and our ability to
efficiently process personal data from the EEA. In March 2022, the United
States and EU announced a new regulatory regime intended to replace the
invalidated regulations; however, this new EU-US Data Privacy Framework has
not been implemented beyond an executive order signed by President Biden on
October 7, 2022 on Enhancing Safeguards for United States Signals Intelligence
Activities. European court and regulatory decisions subsequent to the CJEU
decision of July 2020 have taken a restrictive approach to international data
transfers.
Relatedly, following the United Kingdoms withdrawal from the EEA and the EU,
and the expiry of the transition period, companies have had to comply with the
GDPR and the GDPR as incorporated into United Kingdom national law, the latter
regime having the ability to separately fine up to the greater of 17.5 million
or 4% of global turnover. As we expand into other foreign countries and
jurisdictions, we may be subject to additional laws and regulations that may
affect how we conduct business.
Risks Related to Our Common Stock
Our stock price may be volatile and you may not be able to resell shares of
our common stock at or above the price you paid.
The trading price of our common stock may be highly volatile and could be
subject to wide fluctuations in response to various factors, including the
following:
"
announcements with regard to our continued development of STS101;
"
announcements with regard to our strategic business and/or financing plans;
"
results from our clinical trials for STS101;
"
results of clinical trials of our competitors products;
"
competition from existing products or new products that may emerge;
"
announcements by academic, guideline publishers or other third parties
challenging the fundamental premises underlying our approach to treating
migraine;
"
announcements with regard to the FDA accepting our STS101 NDA for substantive
review or refusing to file our STS101 NDA due to deficiencies;
"
announcements of regulatory approval or disapproval of STS101;
"
failure or discontinuation of any of our research and development programs;
"
manufacturing setbacks or delays of or issues with the supply of the materials
for STS101;
"
announcements relating to future licensing, collaboration, development or
strategic transaction agreements, including the termination of any potential
transaction we may announce;
"
delays in the commercialization of STS101;
"
acquisitions and sales of new products, technologies or businesses;
"
quarterly variations in our results of operations or those of our future
competitors;
"
changes in earnings estimates or recommendations by securities analysts;
"
announcements by us or our competitors of new products, significant contracts,
commercial relationships, acquisitions or capital commitments;
"
developments with respect to intellectual property rights;
"
our commencement of, or involvement in, litigation;
"
changes in financial estimates or guidance, including our ability to meet our
future revenue and operating profit or loss estimates or guidance;
"
any major changes in our board of directors or management;
"
new legislation in the United States or relevant foreign jurisdictions
relating to the sale or pricing of pharmaceuticals;
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"
FDA or other U.S. or foreign regulatory actions affecting us or our industry;
"
product liability claims or other litigation or public concern about the
safety of STS101 or other DHE products;
"
market conditions in the pharmaceutical and biotechnology sectors; and
"
general economic conditions in the United States and abroad, including
recession or depression resulting from the current COVID-19 pandemic, the
current inflationary economic environment and rising interest rates.
In addition, the stock markets in general, and the markets for pharmaceutical
and biotechnology stocks in particular, have experienced extreme volatility,
including as a result of the COVID-19 pandemic, that may have been unrelated
to the operating performance of the issuer. These broad market fluctuations
may adversely affect the trading price or liquidity of our common stock. In
the past, when the market price of a stock has been volatile, holders of that
stock have sometimes instituted securities class action litigation against the
issuer. If we were to become involved in securities litigation, we could incur
substantial costs and resources and the attention of our management could be
diverted from the operation of our business.
If we fail to adhere to the listing requirements of the Nasdaq Global Market,
including maintaining a minimum closing bid price of $1.00 per share, our
common stock could be delisted.
Our common stock is listed on the Nasdaq Global Market and as such is subject
to various requirements for continued listing under the rules of the Nasdaq
Global Stock Market (Listing Rules). On April 11, 2023, we received a letter
indicating that for 30 consecutive business days we did not maintain a minimum
closing bid price of $1.00 per share as required by the Listing Rules. On May
1, 2023, we received a letter from Nasdaq informing us that we regained
compliance with the minimum bid price rule. However, there is no assurance
that the market price per share of our common stock will continue to remain in
excess of the $1.00 minimum bid price as required by Nasdaq.
In addition to adhering to the minimum closing bid price requirement, there
are other listing requirements in the Listing Rules we must adhere to. Similar
to the closing bid price requirement, we may not be able to satisfy these
other rules. If we are unable to comply with these additional listing
requirements, our stock could be delisted for such failure. If our common
stock is delisted from Nasdaq, we could be required to list on the
over-the-counter, or OTC, market, which may adversely affect the price and
trading liquidity of our common stock. Delisting from the Nasdaq may have
other negative results, including the potential loss of confidence in us by
employees and partners, the loss of institutional investor interest, fewer
business development opportunities and greater difficulty in obtaining
financing on favorable terms or at all.
We are an emerging growth company and as a result of the reduced disclosure
and governance requirements applicable to emerging growth companies, our
common stock may be less attractive to investors.
We are an emerging growth company, as defined in Jumpstart Our Business Act of
2012, or the JOBS Act, and we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public
companies that are not emerging growth companies including, but not limited
to, not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, reduced
disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding
a nonbinding advisory vote on executive compensation and obtaining stockholder
approval of any golden parachute payments not previously approved. In
addition, as an emerging growth company, the JOBS Act allows us to delay
adoption of new or revised accounting pronouncements applicable to public
companies until such pronouncements are made applicable to private companies.
We have elected to use this extended transition period under the JOBS Act. As
a result, our financial statements may not be comparable to the financial
statements of issuers who are required to comply with the effective dates for
new or revised accounting standards that are applicable to public companies,
which may make comparison of our financials to those of other public companies
more difficult.
We cannot predict if investors will find our common stock less attractive
because we will 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 our stock price may be more volatile. We may take
advantage of these reporting exemptions until we are no longer an emerging
growth company. We will remain an emerging growth company until the earlier of
(1) December 31, 2024, (2) the last day of the year in which we have total
annual gross revenue of at least $1.235 billion, (3) the last day of the year
in which we are deemed to be a large accelerated filer as defined in Rule
12b-2 under the Exchange Act, which would occur if the market value of our
common stock held by non-affiliates exceeded $700.0 million as of the last
business day of the second fiscal quarter of such year or (4) the date on
which we have issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period.
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We incur increased costs as a result of operating as a public company, and our
management devotes substantial time to compliance initiatives. We may fail to
comply with the rules that apply to public companies, including Section 404,
which could result in sanctions or other penalties that would harm our
business.
We incur significant legal, accounting and other expenses as a public company,
including costs resulting from public company reporting obligations under the
Exchange Act and regulations regarding corporate governance practices. The
listing requirements of The Nasdaq Global Market and the rules of the
Securities and Exchange Commission, or the SEC, require that we satisfy
certain corporate governance requirements relating to director independence,
filing annual and interim reports, stockholder meetings, approvals and voting,
soliciting proxies, conflicts of interest and a code of conduct. Our
management and other personnel devote a substantial amount of time to ensure
that we comply with all of these requirements. Moreover, the reporting
requirements, rules and regulations associated with being a public company
have increased our legal and financial compliance costs and make some
activities more time-consuming and costly. Any changes we make to comply with
these obligations may not be sufficient to allow us to satisfy our obligations
as a public company on a timely basis, or at all. These reporting
requirements, rules and regulations, coupled with the increase in potential
litigation exposure associated with being a public company, could also make it
more difficult for us to attract and retain qualified persons to serve on our
board of directors or board committees or to serve as executive officers, or
to obtain certain types of insurance, including directors and officers
insurance, on acceptable terms and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage.
We are subject to Section 404 and the related rules of the SEC, which
generally require our management and independent registered public accounting
firm to report on the effectiveness of our internal control over financial
reporting. Beginning with this annual report, Section 404 requires an annual
management assessment of the effectiveness of our internal control over
financial reporting. However, for so long as we remain an emerging growth
company as defined in the JOBS Act, we intend to take advantage of certain
exemptions from various reporting requirements that are applicable to public
companies that are not emerging growth companies, including, but not limited
to, not being required to comply with the auditor attestation requirements of
Section 404. Once we are no longer an emerging growth company or, if prior to
such date, we opt to no longer take advantage of the applicable exemption, we
will be required to include an opinion from our independent registered public
accounting firm on the effectiveness of our internal controls over financial
reporting. We will remain an emerging growth company until the earlier of (1)
December 31, 2024, (2) the last day of the year in which we have total annual
gross revenue of at least $1.235 billion, (3) the last day of the year in
which we are deemed to be a large accelerated filer as defined in Rule 12b-2
under the Exchange Act, which would occur if the market value of our common
stock held by non-affiliates exceeded $700.0 million as of the last business
day of the second fiscal quarter of such year or (4) the date on which we have
issued more than $1.0 billion in non-convertible debt securities during the
prior three-year period.
To date, we have never conducted a review of our internal control for the
purpose of providing the reports required by these rules. In connection with
the contemporaneous audits of our financial statements for the years ended
December 31, 2017 and 2018, we identified control deficiencies in the design
and operation of our internal control over financial reporting that
constituted a material weakness. While we believe we have fully remediated the
material weakness in our internal controls, if additional material weaknesses
in our internal controls over financial reporting are identified in the
future, we may not detect errors on a timely basis and our financial
statements may be materially misstated. We or our independent registered
public accounting firm may not be able to conclude on an ongoing basis that we
have effective internal control over financial reporting, which could harm our
operating results, cause investors to lose confidence in our reported
financial information and cause the trading price of our stock to fall. In
addition, as a public company we will be required to file accurate and timely
quarterly and annual reports with the SEC under the Exchange Act. In order to
report our results of operations and financial statements on an accurate and
timely basis, we will depend on CROs to provide timely and accurate notice of
their costs to us. Any failure to report our financial results on an accurate
and timely basis could result in sanctions, lawsuits, delisting of our shares
from The Nasdaq Global Market or other adverse consequences that would
materially harm to our business.
We do not currently plan to raise additional capital. However, if we decide to
sell shares of our common stock 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 trading price of our common stock, including pursuant to our
2019 Incentive Award Plan and 2019 Employee Stock Purchase Plan. As a result,
our stockholders would experience immediate dilution upon the purchase of any
shares of our common stock 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
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securities, preferred stock or common stock. If we issue common stock or
securities convertible into common stock, our common stockholders would
experience additional dilution and, as a result, our stock price may decline.
Our ability to use our net operating loss carryforwards and certain other tax
attributes may be limited.
We have incurred substantial losses during our history, do not expect to
become profitable in the near future, and we may never achieve profitability.
To the extent that we continue to incur losses for tax purposes, or NOLs, such
NOLs, will carry forward to offset a portion of future taxable income, if any,
until such NOLs expire, if subject to expiration.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986,
as amended, if a corporation undergoes an ownership change, generally defined
as a greater than 50 percentage point change (by value) in its equity
ownership by certain stockholders over a rolling three-year period, the
corporations ability to use its pre-change net operating loss carryforwards,
or NOLs, and other pre-change tax attributes (such as research and development
tax credits) to offset its post-change income or taxes may be limited. If
finalized, Treasury Regulations currently proposed under Section 382 of the
Code may further limit our ability to utilize our pre-change NOLs or credits
if we undergo a future ownership change. Our ability to utilize NOLs and other
tax attributes to offset future taxable income or tax liabilities may be
currently limited as a result of prior ownership changes, including in
connection with our IPO. Similar rules may apply under our state or foreign
tax laws. We have not completed a formal study to determine if any ownership
changes within the meaning of Section 382 and 383 of the Code have occurred.
It is possible we have experienced ownership changes in the past, and we may
experience ownership changes in the future as a result of subsequent shifts in
our stock ownership (some of which shifts are outside our control). If an
ownership change has occurred, our ability to use our NOLs or tax credit
carryforwards may be restricted, which could require us to pay federal or
state income taxes earlier than would be required if such limitations were not
in effect. There is also a risk that due to regulatory changes, such as
suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs
could expire or otherwise become unavailable to offset future income tax
liabilities.
Provisions in our charter documents and under Delaware law could discourage a
takeover that stockholders may consider favorable and may lead to entrenchment
of management.
Our amended and restated certificate of incorporation and amended and restated
bylaws contain provisions that could delay or prevent changes in control or
changes in our management without the consent of our board of directors. These
provisions will include the following:
"
a classified board of directors with three-year staggered terms, which may
delay the ability of stockholders to change the membership of a majority of
our board of directors;
"
no cumulative voting in the election of directors, which limits the ability of
minority stockholders to elect director candidates;
"
the exclusive right of our board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors or the resignation,
death or removal of a director, which prevents stockholders from being able to
fill vacancies on our board of directors;
"
the ability of our board of directors to authorize the issuance of shares of
preferred stock and to determine the price and other terms of those shares,
including preferences and voting rights, without stockholder approval, which
could be used to significantly dilute the ownership of a hostile acquiror;
"
the ability of our board of directors to alter our amended and restated bylaws
without obtaining stockholder approval;
"
the required approval of at least 66 2/3% of the shares entitled to vote at an
election of directors to adopt, amend or repeal our amended and restated
bylaws or repeal the provisions of our amended and restated certificate of
incorporation regarding the election and removal of directors;
"
a prohibition on stockholder action by written consent, which forces
stockholder action to be taken at an annual or special meeting of our
stockholders;
"
the requirement that a special meeting of stockholders may be called only by
our chief executive officer or president or by the board of directors, which
may delay the ability of our stockholders to force consideration of a proposal
or to take action, including the removal of directors; and
"
advance notice procedures that stockholders must comply with in order to
nominate candidates to our board of directors or to propose matters to be
acted upon at a stockholders meeting, which may discourage or deter a
potential acquiror from conducting a solicitation of proxies to elect the
acquirors own slate of directors or otherwise attempting to obtain control of
us.
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We are also subject to the anti-takeover provisions contained in Section 203
of the Delaware General Corporation Law. Under Section 203, a corporation may
not, in general, engage in a business combination with any holder of 15% or
more of its capital stock unless the holder has held the stock for three years
or, among other exceptions, the board of directors has approved the
transaction. For a description of our capital stock, see Description of
Capital Stock in our Annual Report on Form 10-K for the year ended December
31, 2022.
Claims for indemnification by our directors and officers may reduce our
available funds to satisfy successful third-party claims against us and may
reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated
bylaws provide that we will indemnify our directors and officers, in each
case, to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation
Law, our amended and restated bylaws and our indemnification agreements that
we have entered into with our directors and officers provide that:
"
We will indemnify our directors and officers for serving us in those
capacities or for serving other business enterprises at our request, to the
fullest extent permitted by Delaware law. Delaware law provides that a
corporation may indemnify such person if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the registrant and, with respect to any criminal proceeding,
had no reasonable cause to believe such persons conduct was unlawful.
"
We may, in our discretion, indemnify employees and agents in those
circumstances where indemnification is permitted by applicable law.
"
We are required to advance expenses, as incurred, to our directors and
officers in connection with defending a proceeding, except that such directors
or officers shall undertake to repay such advances if it is ultimately
determined that such person is not entitled to indemnification.
"
We will not be obligated pursuant to our amended and restated bylaws to
indemnify a person with respect to proceedings initiated by that person
against us or our other indemnitees, except with respect to proceedings
authorized by our board of directors or brought to enforce a right to
indemnification.
"
The rights conferred in our amended and restated bylaws are not exclusive, and
we are authorized to enter into indemnification agreements with our directors,
officers, employees and agents and to obtain insurance to indemnify such
persons.
"
We may not retroactively amend our amended and restated bylaw provisions to
reduce our indemnification obligations to directors, officers, employees and
agents.
Our amended and restated certificate of incorporation and amended and restated
bylaws provide for an exclusive forum in the Court of Chancery of the State of
Delaware for certain disputes between us and our stockholders, which could
limit our stockholders ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation and amended and restated
bylaws provide that the Court of Chancery of the State of Delaware is the
exclusive forum for any derivative action or proceeding brought on our behalf,
any action asserting a breach of fiduciary duty, any action asserting a claim
against us arising pursuant to the Delaware General Corporation Law, our
amended and restated certificate of incorporation or our amended and restated
bylaws, or any action asserting a claim against us that is governed by the
internal affairs doctrine; provided that, the exclusive forum provision will
not apply to suits brought to enforce any liability or duty created by the
Securities Act or the Exchange Act or any other claim for which the federal
courts have exclusive jurisdiction; and provided further that, if and only if
the Court of Chancery of the State of Delaware dismisses any such action for
lack of subject matter jurisdiction, such action may be brought in another
state or federal court sitting in the State of Delaware. Nothing in our
amended and restated certificate of incorporation or amended and restated
bylaws precludes stockholders that assert claims under the Securities Act or
the Exchange Act from bringing such claims in state or federal court, subject
to applicable law.
We believe these provisions may benefit us by providing increased consistency
in the application of Delaware law and federal securities laws by chancellors
and judges, as applicable, particularly experienced in resolving corporate
disputes, efficient administration of cases on a more expedited schedule
relative to other forums and protection against the burdens of multi-forum
litigation. This choice of forum provision may limit a stockholders ability to
bring a claim in a judicial forum that it finds favorable for disputes with us
or any of our directors, officers, other employees or stockholders, which may
discourage lawsuits with respect to such claims, although our stockholders
will not be deemed to have waived our compliance with federal securities laws
and the rules and regulations thereunder. If a court were to find the choice
of forum provision that will be contained in our amended and restated
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certificate of incorporation to be inapplicable or unenforceable in an action,
we may incur additional costs associated with resolving such action in other
jurisdictions, which could adversely affect our business and financial
condition.
We do not currently intend to pay dividends on our common stock, and,
consequently, your ability to achieve a return on your investment will depend
on appreciation in the price of our common stock or our ability to timely
complete the Offer and Merger.
We do not currently intend to pay any cash dividends on our common stock for
the foreseeable future. We currently intend to invest our future earnings, if
any, to fund our growth. Therefore, you are not likely to receive any
dividends on your common stock for the foreseeable future. Since we do not
intend to pay dividends, your ability to receive a return on your investment
will depend on any future appreciation in the market value of our common stock
or our ability to timely complete the Offer and Merger. There is no guarantee
that our common stock will appreciate or even maintain the price at which our
holders have purchased it, and there can be no assurance that we can timely
complete the Offer and Merger or that the terms of any such transaction will
be favorable.
General Risk Factors
Unfavorable global economic, market, industry or political conditions could
adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in
the global economy and in the global financial markets, including the current
inflationary economic environment and rising interest rates. A global
financial crisis or a global or regional political disruption could cause
extreme volatility in the capital markets and lead to diminished liquidity and
credit availability, declines in consumer confidence and economic growth,
increases in unemployment rates and uncertainty about economic stability. For
instance, the COVID-19 pandemic has led to a period of considerable
uncertainty and volatility. A severe or prolonged economic downturn or
political disruption could result in a variety of risks to our business,
including weakened demand for STS101, if approved, and our ability to raise
additional capital when needed on acceptable terms, if at all. A weak or
declining economy or political disruption could also strain our manufacturers
or suppliers, possibly resulting in supply disruption, or resulting in the
inability of any future customers to pay for STS101, if approved. In addition,
historically high rising interest rates in the United States have begun to
affect businesses across many industries, including ours, by increasing the
costs of labor, employee healthcare, components and shipping, which may
further constrain our customers or prospective customers budgets. To the
extent there is a sustained general economic downturn and our products are
perceived by customers or potential customers as costly, or too difficult to
deploy or migrate to, our revenue may be disproportionately affected by delays
or reductions in spending. We cannot predict the timing, strength, or duration
of any economic slowdown, instability, or recovery, generally or within any
particular industry. If the economic conditions of the general economy or
markets in which we operate worsen from present levels, demand for our
products, and our business, financial condition, and results of operations,
could be adversely affected.
Market conditions and changing circumstances, some of which may be beyond our
control, could impair our ability to access our existing cash, cash
equivalents and investments and to timely pay key vendors and others.
Market conditions and changing circumstances, some of which may be beyond our
control, could impair our ability to access our existing cash, cash
equivalents and investments and to timely pay key vendors and others. For
example, on March 10, 2023, Silicon Valley Bank (SVB), where we maintain
certain accounts, was placed into receivership with the Federal Deposit
Insurance Corporation (FDIC), which resulted in all funds held at SVB being
temporarily inaccessible by SVBs customers. If other banks and financial
institutions with whom we have banking relationships enter receivership or
become insolvent in the future, we may be unable to access, and we may lose,
some or all of our existing cash, cash equivalents and investments to the
extent those funds are not insured or otherwise protected by the FDIC. In
addition, in such circumstances we might not be able to timely pay key vendors
and others. We regularly maintain cash balances that are not insured or are in
excess of the FDICs insurance limit. Any delay in our ability to access our
cash, cash equivalents and investments (or the loss of some or all of such
funds) or to timely pay key vendors and others could have a material adverse
effect on our operations and cause us to need to seek additional capital
sooner than planned.
If product liability lawsuits are brought against us, we may incur substantial
liabilities and may be required to limit commercialization of STS101
.
We face an inherent risk of product liability as a result of the planned
clinical testing of STS101 and will face an even greater risk if we
commercialize it. For example, we may be sued if STS101 allegedly causes
injury. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in
the product, negligence, strict liability, and a breach of warranty. Claims
could also be asserted under state consumer protection acts. If we cannot
successfully defend ourselves against product liability claims, we may incur
substantial liabilities or be required to limit commercialization of STS101.
Even successful defense would require significant financial and management
resources. Regardless of the merits or eventual outcome, liability claims may
result in:
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"
decreased demand for STS101;
"
injury to our reputation;
"
withdrawal of clinical trial participants;
"
costs to defend the related litigation;
"
a diversion of managements time and our resources;
"
substantial monetary awards to trial participants or patients;
"
regulatory investigations, product recalls, withdrawals or labeling, marketing
or promotional restrictions;
"
loss of revenue; and
"
the inability to commercialize STS101.
Our inability to obtain and maintain sufficient product liability insurance at
an acceptable cost and scope of coverage to protect against potential product
liability claims could prevent or inhibit the commercialization of STS101. We
currently carry product liability insurance covering our clinical trials,
however, any claim that may be brought against us could result in a court
judgment or settlement in an amount that is not covered, in whole or in part,
by our insurance or that is in excess of the limits of our insurance coverage.
Our insurance policies also have various exclusions and deductibles, and we
may be subject to a product liability claim for which we have no coverage. We
will have to pay any amounts awarded by a court or negotiated in a settlement
that exceed our coverage limitations or that are not covered by our insurance,
and we may not have, or be able to obtain, sufficient funds to pay such
amounts. Moreover, in the future, we may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against
losses. If and when we obtain approval for marketing any dose of STS101, we
intend to expand our insurance coverage to include its sale; however, we may
be unable to obtain this liability insurance on commercially reasonable terms
or at all.
We depend on our and our third-party suppliers or providers information
technology systems, and any failure of these systems could harm our business.
Any real or perceived security breaches, loss of data, and other disruptions
or incidents could compromise the privacy, security, integrity or
confidentiality of sensitive information related to our business or prevent us
from accessing critical information and expose us to liability and
reputational harm, which could adversely affect our business, results of
operations and financial condition
.
We collect and maintain data and information that is necessary to conduct our
business, and we are increasingly dependent on information technology systems
and infrastructure to operate our business, including infrastructure operated
and maintained by our third-party suppliers or providers. In the ordinary
course of our business, we collect, store and transmit large amounts of
confidential information, including intellectual property, proprietary
business information and personal information. It is critical that we do so in
a secure manner to maintain the privacy, security, confidentiality and
integrity of such confidential information. We have established physical,
electronic and organizational measures to safeguard and secure our systems and
facilities to prevent an information compromise, and rely on commercially
available systems, software, tools, and monitoring to provide security for our
information technology systems and the processing, transmission and storage of
digital information. We have also outsourced elements of our information
technology infrastructure, and as a result a number of third-party vendors may
or could have access to our confidential information.
Our information technology systems and infrastructure, and those of our
current and any future collaborators, contractors and consultants and other
third parties on which we rely, are vulnerable to attack, interruption, damage
or unauthorized access or use resulting from computer viruses, malware,
natural disasters, terrorism, war, telecommunication and electrical failures,
denial-of-service attacks, cyberattacks or cyber-intrusions over the Internet,
hacking, phishing and other social engineering attacks, attachments to emails,
persons inside our organization (including employees or contractors), lost or
stolen devices, or persons with access to systems inside our organization.
These challenges have been made more difficult by the COVID-19 pandemic and
continued hybrid work environment, which are driving greater dependency on
electronic monitoring of our clinical trial sites. Such monitoring could prove
to be less reliable and could increase data privacy and cybersecurity risks.
The risk of a security breach or disruption or data loss, particularly through
social engineering attacks, cyberattacks or cyber-intrusion, including by
computer hackers, foreign governments and cyber terrorists, has generally
increased as the number, intensity and sophistication of attempted attacks and
intrusions from around the world have increased. Furthermore, because the
techniques used to obtain unauthorized access to, or to sabotage, systems
change frequently and often are not recognized until launched against a
target, we may be unable to anticipate these techniques or implement adequate
preventative measures. We may also experience security breaches that may
remain undetected for an extended period. Even if identified, we may be unable
to adequately investigate
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or remediate incidents or breaches due to attackers increasingly using tools
and techniques that are designed to circumvent controls, to avoid detection,
and to remove or obfuscate forensic evidence.
The costs to us to mitigate, investigate and respond to potential security
incidents, breaches, disruptions, network security problems, bugs, viruses,
worms, malicious software programs and security vulnerabilities could be
significant, and while we have implemented security measures to protect our
data security and information technology systems, our efforts to address these
problems may not be successful, and these problems could result in unexpected
interruptions, delays, cessation of service and other harm to our business and
our competitive position. We and certain of our service providers are from
time to time subject to cyberattacks and security incidents. While we do not
believe that we have experienced any significant system failure, accident or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material disruption of
our product development programs. For example, the loss of clinical trial data
from completed or ongoing or planned clinical trials could result in delays in
our regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. Moreover, if a real or perceived security
breach affects our systems (or those of our third-party providers or
suppliers) or results in the loss of or accidental, unlawful or unauthorized
access to, use of, release of or other processing of personally identifiable
information or clinical trial data, our reputation could be materially
damaged. In addition, such a breach may require notification to governmental
agencies, the media or individuals pursuant to various federal and state
privacy and security laws, if applicable, including HIPAA, regulations
promulgated by the Federal Trade Commission and state breach notification
laws. We would also be exposed to a risk of loss, negative publicity, harm to
our reputation, governmental investigation and/or enforcement actions, claims
or litigation and potential liability, which could materially adversely affect
our business, results of operations and financial condition. Further, our
insurance coverage may not be sufficient to cover the financial, legal,
business or reputational losses that may result from an interruption or breach
of our systems.
Our employees and independent contractors, including principal investigators,
consultants, commercial collaborators, service providers and other vendors may
engage in misconduct or other improper activities, including noncompliance
with regulatory standards and requirements, which could have an adverse effect
on our results of operations.
We are exposed to the risk that our employees and independent contractors,
including principal investigators, consultants, any future commercial
collaborators, service providers and other vendors may engage in misconduct or
other illegal activity. Misconduct by these parties could include intentional,
reckless and/or negligent conduct or other unauthorized activities that
violate the laws and regulations of the FDA and other similar regulatory
bodies, including those laws that require the reporting of true, complete and
accurate information to such regulatory bodies; manufacturing standards; U.S.
federal and state fraud and abuse laws, data privacy and security laws and
other similar non-U.S. laws; or laws that require the true, complete and
accurate reporting of financial information or data. Activities subject to
these laws also involve the improper use or misrepresentation of information
obtained in the course of clinical trials, the creation of fraudulent data in
our preclinical studies or clinical trials, or illegal misappropriation of
product, which could result in regulatory sanctions and cause serious harm to
our reputation. It is not always possible to identify and deter misconduct by
employees and other third-parties, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to be in compliance with such laws
or regulations. In addition, we are subject to the risk that a person or
government could allege such fraud or other misconduct, even if none occurred.
If any such actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could have a
significant impact on our business and financial results, including, without
limitation, the imposition of significant civil, criminal and administrative
penalties, damages, monetary fines, disgorgement, possible exclusion from
participation in Medicare, Medicaid and other U.S. federal healthcare programs
or healthcare programs in other jurisdictions, integrity oversight and
reporting obligations to resolve allegations of non-compliance, imprisonment,
other sanctions, contractual damages, reputational harm, diminished profits
and future earnings and curtailment of our operations, any of which could
adversely affect our ability to operate our business and our results of
operations.
If our trademarks and trade names are not adequately protected, then we may
not be able to build name recognition in our markets of interest and our
business may be adversely affected.
Our unregistered trademarks or trade names may be challenged, infringed,
circumvented or declared generic or determined to be infringing on other
marks. We may not be able to protect our rights to these trademarks and trade
names, which we need to build name recognition among potential partners or
customers in our markets of interest. At times, competitors may adopt trade
names or trademarks similar to ours, thereby impeding our ability to build
brand identity and possibly leading to market confusion. In addition, there
could be potential trade name or trademark infringement claims brought by
owners of other trademarks or trademarks that incorporate variations of our
unregistered trademarks or trade names. Over the long term, if we are unable
to establish name recognition based on our trademarks and trade names, then we
may not be able to compete effectively and our business may be adversely
affected. We may license our trademarks and trade names to third parties, such
as distributors. Though these license agreements may provide guidelines for
how our trademarks and trade names may be used, a breach of these agreements
or misuse of our trademarks and tradenames by our licensees may jeopardize our
rights in or diminish the goodwill associated with our trademarks and trade
names. Our efforts to enforce or protect our proprietary rights related to
trademarks, trade names, trade secrets, domain
61
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names, copyrights or other intellectual property may be ineffective and could
result in substantial costs and diversion of resources and could adversely
affect our financial condition or results of operations.
Changes in patent law in the U.S. or in other countries could diminish the
value of patents in general, thereby impairing our ability to protect STS101.
Our patent rights may be affected by developments or uncertainty in U.S. or
ex-U.S. patent statutes, patent case laws in USPTO rules and regulations or in
the rules and regulations of ex-U.S. patent offices. There are a number of
recent changes to the U.S. patent laws that may have a significant impact on
our ability to protect our technology and enforce our intellectual property
rights. For example, on September 16, 2011, the Leahy-Smith America Invents
Act, or Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a
number of significant changes to U.S. patent law. These include provisions
that affect the way patent applications will be prosecuted and may also affect
patent litigation. In particular, under the Leahy-Smith Act, the United States
transitioned in March 2013 to a first to file system in which the first
inventor to file a patent application will be entitled to the patent. Third
parties are allowed to submit prior art before the issuance of a patent by the
USPTO, and may become involved in post-grant proceedings including opposition,
derivation, reexamination, inter partes review or interference proceedings
challenging our patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation could reduce
the scope or enforceability of, or invalidate, our patent rights, which could
adversely affect our competitive position. This could have a negative impact
on some of our intellectual property and could increase uncertainties
surrounding obtaining and enforcement or defense of issued patents relating to
STS101. In addition, Congress may pass patent reform legislation that is
unfavorable to us. The Supreme Court has ruled on several patent cases in
recent years, either narrowing the scope of patent protection available in
certain circumstances or weakening the rights of patent owners in certain
situations. In addition to increasing uncertainty with regard to our ability
to obtain patents in the future, this combination of events has created
uncertainty with respect to the value of patents, once obtained. Depending on
decisions by Congress, the federal courts and the USPTO, the laws and
regulations governing patents could change in unpredictable ways that would
weaken our ability to obtain new patents or to enforce our existing patents
and patents we might obtain in the future.
Similarly, statutory or judicial changes to the patent laws of other countries
may increase the uncertainties and costs surrounding the prosecution of patent
applications and the enforcement or defense of issued patents.
We may not be able to protect our intellectual property rights throughout the
world.
Filing, prosecuting and defending all current and future patents in all
countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States can
be less extensive than those in the United States. In addition, the laws of
some foreign countries do not protect intellectual property rights to the same
extent as federal and state laws in the United States. Consequently, we may
not be able to prevent third parties from practicing our inventions in all
countries outside the United States, or from selling or importing products
made using our inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have not
obtained patent protection to develop their own products and, further, may
export otherwise infringing products to territories where we have patent
protection but enforcement is not as strong as that in the United States.
These products may compete with STS101, and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from
competing.
In addition, geo-political actions in the United States and in foreign
countries could increase the uncertainties and costs surrounding the
prosecution or maintenance of our patent applications or those of any current
or future licensors and the maintenance, enforcement or defense of future
issued patents or those of any future licensors. For example, the United
States and foreign government actions related to Russias conflict in Ukraine
may limit or prevent filing, prosecution, and maintenance of patent
applications in Russia. Government actions may also prevent maintenance of
issued patents in Russia. In addition, a decree was adopted by the Russian
government in March 2022, allowing Russian companies and individuals to
exploit inventions owned by patentees from the United States without consent
or compensation. Consequently, we would not be able to prevent third parties
from practicing our inventions in Russia or from selling or importing products
made using our inventions in and into Russia. Accordingly, our competitive
position may be impaired, and our business, financial condition, results of
operations and prospects may be adversely affected.
The legal systems of many foreign countries do not favor the enforcement of
patents and other intellectual property protection, which could make it
difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights. For example, some
foreign countries have compulsory licensing laws under which a patent owner
must grant licenses to third parties. In addition, some countries limit the
enforceability of patents against third parties, including government agencies
or government contractors. In these countries, patents may provide limited or
no benefit. Proceedings to enforce our patent rights in foreign jurisdictions
could result in substantial costs and divert our efforts and attention from
other aspects of our business, could put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at risk of not
issuing and could
62
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provoke third parties to assert claims against us. We may not prevail in any
lawsuits that we initiate, and the damages or other remedies awarded, if any,
may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a
significant commercial advantage from the intellectual property that we
develop or license.
Finally, Europes planned Unified Patent Court may in particular present
uncertainties for our ability to protect and enforce our patent rights against
competitors in Europe. In 2012, the European Patent Package, or EU Patent
Package, regulations were passed with the goal of providing a single
pan-European Unitary Patent and a new European Unified Patent Court, or UPC,
for litigation involving European patents. Implementation of the EU Patent
Package will likely occur in the first half of 2023. Under the UPC, all
European patents, including those issued prior to ratification of the European
Patent Package, will by default automatically fall under the jurisdiction of
the UPC. The UPC will provide our competitors with a new forum to centrally
revoke our European patents, and allow for the possibility of a competitor to
obtain pan-European injunctions. It will be several years before we will
understand the scope of patent rights that will be recognized and the strength
of patent remedies that will be provided by the UPC. Under the EU Patent
Package as currently proposed, we will have the right to opt our patents out
of the UPC over the first seven years of the courts existence, but doing so
may preclude us from realizing the benefits of the new unified court.
Obtaining and maintaining patent protection depends on compliance with various
procedural, document submission, fee payment and other requirements imposed by
governmental patent agencies, and our patent protection could be reduced or
eliminated for non-compliance with these requirements
.
The USPTO and various foreign governmental patent agencies require compliance
with a number of procedural, documentary, fee payment and other provisions
during the patent process. Periodic maintenance fees, renewal fees, annuity
fees and various other governmental fees on patents and/or applications will
be due to be paid to the USPTO and various governmental patent agencies
outside of the U.S. in several stages over the lifetime of the patents and/or
applications. We employ reputable professionals and rely on such third parties
to help us comply with these requirements and effect payment of these fees
with respect to the patents and patent applications that we own, and if we
license intellectual property we may have to rely upon our licensors to comply
with these requirements and effect payment of these fees with respect to any
patents and patent applications that we license. In many cases, an inadvertent
lapse can be cured by payment of a late fee or by other means in accordance
with the applicable rules. However, there are situations in which
noncompliance can result in abandonment or lapse of a patent or patent
application, resulting in partial or complete loss of patent rights in the
relevant jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the case.
Intellectual property rights do not necessarily address all potential threats
to our competitive advantage.
The degree of future protection afforded by our intellectual property rights
is uncertain because intellectual property rights have limitations, and may
not adequately protect our business or permit us to maintain our competitive
advantage. For example:
"
others may be able to make therapies that are similar to ours but that are not
covered by the claims of the patents that we own or have exclusively licensed;
"
we or our licensors or future collaborators might not have been the first to
make the inventions covered by the issued patents or pending patent
applications that we own or have exclusively licensed;
"
we or our licensors or future collaborators might not have been the first to
file patent applications covering certain of our inventions;
"
others may independently develop similar or alternative technologies or
duplicate any of our technologies without infringing our intellectual property
rights;
"
it is possible that our pending patent applications will not lead to issued
patents;
"
issued patents that we own or have exclusively licensed may be held invalid or
unenforceable, as a result of legal challenges by our competitors;
"
our competitors might conduct research and development activities in countries
where we do not have patent rights and then use the information learned from
such activities to develop competitive products for sale in our major
commercial markets;
"
we may not develop additional proprietary technologies that are patentable; and
"
the patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business,
results of operations and prospects.
63
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If securities or industry analysts do not publish research or reports about
our business, or if they issue an adverse or misleading opinion regarding our
stock or business, 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.
We do not currently have and may never obtain research coverage by securities
and industry analysts. If no or few securities or industry analysts commence
coverage of us, the trading price for our stock would be negatively impacted.
In the event we obtain securities or industry analyst coverage, if any of the
analysts who cover us issue an adverse or misleading opinion regarding us, our
business model, our intellectual property or our stock performance, or if our
clinical trials and operating results fail to meet the expectations of
analysts, demand for our common stock could decrease and our stock price could
decline. If one or more of these analysts cease coverage of us or fail to
publish reports on us regularly, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to
decline.
64
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Item 2. Unregistered Sales of Equi
ty Securities and Use of Proceeds.
a)
Sales of Unregistered Securities
None.
b)
Use of Proceeds from our Initial Public Offering of Common Stock
On September 12, 2019, the U.S. Securities and Exchange Commission declared
effective our registration statement on Form S-1 (File No. 333-233347), as
amended, filed in connection with our initial public offering (IPO).
There has been no material change in our planned use of the net proceeds from
our IPO as described in our final prospectus filed pursuant to Rule 424(b)(4)
under the Securities Act with the SEC on September 13, 2019.
c)
Repurchases of Shares or of Company Equity Securities
None.
Item 3. Defaults Upon
Senior Securities.
None.
Item 4. Mine Safe
ty Disclosures.
None.
Item 5. Other
Information.
None.
65
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Item 6. E
xhibits.
Exhibit Exhibit Incorporated Filed
Description by Reference
Number Form Date Number Herewith
3.1 Amended and 8-K 9/17/2019 3.1
Restated
Certificate of
Incorporation.
3.2 Amended and 8-K 9/17/2019 3.2
Restated
Bylaws.
4.1 Reference is
made to
exhibits
3.1
through
3.2
.
4.2 Form of S-1/A 9/3/2019 4.2
Common
Stock
Certificate.
4.3 Amended and Restated Investors Rights S-1 8/16/2019 4.3
Agreement, dated as of April 23, 2019,
by and among Satsuma Pharmaceuticals,
Inc. and the investors party thereto.
2.1 Agreement and Plan of Merger, dated as 8-K 4/17/2023 2.1
of April 16, 2023, by and among Satsuma
Pharmaceuticals, Inc., Shin Nippon Biomedical
Laboratories, Ltd. and SNBL23 Merger Sub, Inc.
2.2 Tender and Support Agreement, dated as of April 8-K 4/17/2023 2.2
16, 2023, by among Shin Nippon Biomedical
Laboratories, Ltd., SNBL23 Merger Sub, Inc. and
certain stockholders and directors of the Company
10.1 Form of Contingent Value Rights Agreement 8-K 4/17/2023 10.1
to be entered into between Shin Nippon
Biomedical Laboratories, Ltd. and American
Stock Transfer & Trust Company, LLC.
10.2 Separation Agreement, dated X
March 31, 2023, by and between
Detlef Albrecht and Satsuma
Pharmaceuticals, Inc.
31.1 Certification of Principal Executive Officer X
Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer X
Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification by the Principal Executive X
Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification by the Principal Financial X
Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document The instance X
document does not appear in the Interactive
Data File because its XBRL tags are
embedded within the Inline XBRL document
101.SCH Inline XBRL X
Taxonomy
Extension
Schema Document
101.CAL Inline XBRL X
Taxonomy Extension
Calculation
Linkbase Document
101.DEF Inline XBRL X
Taxonomy Extension
Definition
Linkbase Document
101.LAB Inline XBRL X
Taxonomy Extension
Labels Linkbase
Document
101.PRE Inline XBRL X
Taxonomy Extension
Presentation
Linkbase Document
104 Cover Page Interactive Data File
(formatted as Inline XBRL with
applicable taxonomy extension
information contained in Exhibits 101)
* The certifications attached as Exhibit 32.1 and 32.2 that accompanies this
Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to
be incorporated by reference into any filing of Satsuma Pharmaceuticals, Inc.
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date of this Form 10-Q,
irrespective of any general incorporation language contained in such filing.
66
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SIGNAT
URES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Satsuma Pharmaceuticals, Inc.
Date: May 11, 2023 By: /s/ John Kollins
Name: John Kollins
Title: President and Chief Executive Officer (Principal Executive Officer)
Date: May 11, 2023 By: /s/ Tom ONeil
Name: Tom ONeil
Title: Chief Financial Officer (Principal Financial and Accounting Officer)
67
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Exhibit 10.2
This document supersedes any previous version shared with you
SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS +
This Separation Agreement and General Release of Claims (Separation Agreement)
is entered as of 3/31/2023 (Effective Date) into by Detlef Albrecht (
Employee
), and Satsuma, Inc., together with subsidiaries, affiliates (including TriNet
Group, Inc.), predecessors and successors (collectively, the
Company
).
1.
Separation Terms of Company
.
a)
Employees last day of employment with the Company is March 31, 2023
(Separation Date).
b)
In exchange for Employee agreeing to be bound by the terms and conditions
contained in this Separation Agreement, Company shall:
i.
Make a lump sum payment to Employee, within fourteen (14) days of the
Effective Date, of Separation Pay in the amount of $345,586.50 , which shall
be subject to all applicable payroll taxes and deductions;
ii.
Pay $38,564.08 for the equivalent of 9 months of employees grossed up COBRA
reimbursement.
2.
Employees Release of Claims
.
a)
Employee, on behalf of Employee and Employees executors, heirs, administrators,
representatives and assigns, hereby agrees to release and forever discharge
the Company and all predecessors, successors and their respective parent
corporations, affiliates, related, and/or subsidiary entities, and all of
their past and present investors, directors, shareholders, officers, general
or limited partners, employees, attorneys, agents and representatives, and the
employee benefit plans in which Employee is or has been a participant by
virtue of Employees employment with or service to the Company (collectively,
the
Company Releasees
), from any and all claims, debts, demands, accounts, judgments, rights,
causes of action, equitable relief, damages, costs, charges, complaints,
obligations, promises, agreements, controversies, suits, expenses,
compensation, responsibility and liability of every kind and character
whatsoever (including attorneys fees and costs), whether in law or equity,
known or unknown, asserted or unasserted, suspected or unsuspected
(collectively,
Claims
), which Employee has or may have had against such entities based on any
events or circumstances arising or occurring on or prior to the date hereof or
on or prior to the date hereof, arising directly or indirectly out of,
relating to, or in any other way involving in any manner whatsoever Employees
employment by or service to the Company or the termination thereof including,
without limitation, any and all Claims that Employee may have against any of
the Company Releasees with respect thereto whether pursuant to any contract or
agreement, breach or alleged breach of fiduciary duty or otherwise, and any
and all claims arising under federal, state, or local laws relating to
employment, including without limitation claims of wrongful discharge, breach
of express or implied contract, fraud, misrepresentation, defamation, or
liability in tort, and claims of any kind that may be brought in any court or
administrative agency including, without limitation, claims under the Age
Discrimination in Employment Act, 29 U.S.C. Section 621, et seq. (
ADEA
); Title VIl of the Civil Rights Act of 1964, as amended by the Civil Rights
Act of 1991, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities
Act, as amended, 42 U.S.C. Section 12101, et seq.; the Rehabilitation Act of
1973, as amended, 29 U.S.C. Section 701 et seq.; the Civil Rights Act of 1866,
and Civil Rights Act of 1991, 42 U.S.C. Section 1981, et seq.; the Equal Pay
Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of
Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and
Medical Leave Act, as amended, 29 U.S.C. Section 2601, et seq.; the False
Claims Act , 31 U.S.C. Section 3729 et seq.; the Fair Labor Standards Act of
1938, as amended, 29 U.S.C. Section 201, et seq.; the Employee Retirement
Income Security Act, as amended, 29 U.S.C. Section 1001, et seq.; the Worker
Adjustment and Retraining Notification Act, as amended, 29 U.S.C. Section
2101, et seq.; the Sarbanes-Oxley Act of 2002; as applicable: the California
Fair Employment and Housing Act, as amended, Cal.
1
Detlef Albrecht
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Lab. Code Section 12940, et seq., the California Equal Pay Law, as amended,
Cal. Lab. Code Section 1197.5(a), et seq., the Moore-Brown-Roberti Family
Rights Act of 1991, as amended, Cal. Government Code Sections 12945.2 and
19702.3, California Labor Code Sections 1101, 1102, the California WARN Act,
California Labor Code Section 1400 et. Seq, California Labor Code Sections
1102.5(a) and (b), Claims for wages under the California Labor Code and any
other federal, state or local laws of similar effect; the Illinois Civil
Rights Act,; Claims under the employment and civil rights laws of all
applicable jurisdiction, both states and local; Claims for breach of contract;
Claims arising in tort, including, without limitation, Claims of wrongful
dismissal or discharge, discrimination, harassment, retaliation, fraud,
misrepresentation, defamation, libel, infliction of emotional distress,
violation of public policy, and/or breach of the implied covenant of good
faith and fair dealing; and Claims for damages or other remedies of any sort,
including, without limitation, compensatory damages, punitive damages,
injunctive relief and attorney's fees.
b)
Notwithstanding the generality of the foregoing, Employee does not release (i)
Claims for unemployment compensation or any state disability insurance
benefits pursuant to the terms of applicable state law; (ii) Claims for
workers compensation insurance benefits under the terms of any workers
compensation insurance policy or fund of the Company; (iii) Claims pursuant to
the terms and conditions of COBRA; (iv) Claims for indemnity under the bylaws
of the Company, as provided for by California law or under any applicable
insurance policy with respect to Employees liability as an employee, director
or officer of the Company; (v) Employees right to communicate directly with,
cooperate with, or provide information to, any federal, state or local
government regulator; and (vi) Employees right to bring to the attention of
the Equal Employment Opportunity or California Department of Fair Employment
and Housing, or similar applicable state agencies claims of discrimination,
harassment, interference with leave rights, and retaliation; provided,
however, that Employee does release the right to secure damages for any such
alleged treatment.
c)
For California Employees: EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS BEEN ADVISED
OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542,
WHICH PROVIDES AS FOLLOWS:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING
PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE AND THAT, , IF KNOWN BY HIM OR HER, WOULD HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
BEING AWARE OF SAID CODE SECTION, EMPLOYEE HEREBY EXPRESSLY WAIVES ANY RIGHTS
EMPLOYEE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON
LAW PRINCIPLES OF SIMILAR EFFECT.
d) In accordance with the Older Workers Benefit Protection Act of 1990,
Employee is informed of the following:
i.
Employee has the right to consult with an attorney before signing this
Separation Agreement;
ii.
Employee has been given at least 45 (forty-five) days, from the date upon
which Employee first received this Separation Agreement to consider it;
iii.
Employee has seven (7) days after signing this Release to revoke it, and this
Release will not be effective, and Employee will not receive any of the
benefits of Section 1 above, until that revocation period has expired; and
iv.
Employee understands that this Release will not become effective and
enforceable unless the seven (7) day revocation period passes and Employee
does not revoke the Release in writing. Employee understands that this Release
may not be revoked after the seven (7) day revocation period has passed.
Employee also understands that any revocation of this Release must be made in
writing and delivered by email to John Kollins no later than 5 p.m. Pacific on
the 7
th
day following Employees signature of this Release.
2
Detlef Albrecht
-------------------------------------------------------------------------------
e) Employee understands that this Release shall become effective,
irrevocable, and binding upon Employee on the eighth (8
th
) day after the Effective Date, so long as Employee has not revoked it within
the time period and in the manner specified in clause (d)(iv) above. Employee
further understands that Employee will not be entitled to any severance
payments or benefits under Section 1 above unless Employee executes this
Release, and any applicable revocation period hereunder shall have expired
f) Employee acknowledges that that the Company has provided Employee with ADEA
disclosure information (under 29 U.S.C. (s) 626(f)(1)(H)), attached hereto as
Exhibit A
3.
Employees Representations.
Employee represents and warrants that:
a) Employee has returned to the Company all Company property in Employees
possession;
b) Employee is not owed wages, commissions, bonuses or other compensation,
other than as set forth in this Separation Agreement;
c) During the course of Employees employment, Employee did not sustain any
injuries for which Employee might be entitled to compensation pursuant to
workers compensation law;
d) Employee has not initiated any adversarial proceedings of any kind against
the Company or against any other person or entity released herein, nor will
Employee do so in the future, except as specifically allowed by this
Separation Agreement; and
e) Has carefully read and fully understands all of the provisions of this
Separation Agreement and has voluntarily agreed to accept all of the terms
contained therein without coercion or pressure from Company.
4.
Confidentiality
.
a) Employee agrees to keep the fact, terms and amount of this Separation
Agreement completely confidential and not hereafter disclose any information
concerning this Separation Agreement, provided that Employee may make such
disclosures as are required by federal/state taxing authorities or as are
necessary for the compliance purposes or as required by judicial action.
b) Nothing in this Separation Agreement shall prevent Employee from discussing
or disclosing information about unlawful acts in the workplace, such as
harassment or discrimination or any other conduct that you have reason to
believe is unlawful.
5.
Severability
. In the event any provision of this Release is found to be unenforceable by
an arbitrator or court of competent jurisdiction, such provision shall be
deemed modified to the extent necessary to allow enforceability of the
provision as so limited, it being intended that the parties shall receive the
benefit contemplated herein to the fullest extent permitted by law. If a
deemed modification is not satisfactory in the judgment of such arbitrator or
court, the unenforceable provision shall be deemed deleted, and the validity
and enforceability of the remaining provisions shall not be affected thereby.
6.
Interpretation; Construction
. The headings set forth in this Release are for convenience only and shall
not be used in interpreting this Release. Employee acknowledges that Employee
has had an opportunity to review and revise the Release and have it reviewed
by legal counsel, if desired, and, therefore, any rule of construction to the
effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Release. Either partys
failure to enforce any provision of this Release shall not in any way be
construed as a waiver of any such provision, or prevent that party thereafter
from enforcing each and every other provision of this Release.
3
Detlef Albrecht
-------------------------------------------------------------------------------
7.
Governing Law and Venue
. This Release will be governed by and construed in accordance with the laws
of the United States of America and the State of California applicable to
contracts made and to be performed wholly within such State, and without
regard to the conflicts of laws principles thereof.
8.
Entire Agreement
. This Separation Agreement constitutes the entire agreement of the parties in
respect of the subject matters contained herein and therein and supersede all
prior or simultaneous representations, discussions, negotiations and
agreements, whether written or oral, with the exception of the Employees
previously executed Proprietary Information and Inventions Assignment
Agreement, which shall remain in full force and effect. No waiver, amendment
or modification of this Separation Agreement will be effective under any
circumstances whatsoever.
9.
Miscellaneous
. Facsimile or pdf signatures shall have the same force and effectiveness as
original signatures. EMPLOYEE HAS READ THIS SEPARATION AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, EMPLOYEE HAS
EXECUTED THIS SEPARATION AGREEMENT ON THE DATES SHOWN BELOW.
4
Detlef Albrecht
-------------------------------------------------------------------------------
Please do not sign this document until your last day with the company.
You have until May 15, 2023 (45 days) to review and consider this Agreement
and may sign it before that date, if you wish.
COMPANY EMPLOYEE
/s/ John Kollins /s/ Detlef Albrecht
By: John Kollins Date: 3/31/2023
Title: President & Chief Executive Officer
5
Detlef Albrecht
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Exhibit A
DECISIONAL UNIT: Reduced number of staff required to support our current
business plan and strategy, which calls for continued support of our STS101
program only to the extent necessary to maintain its viability until such
time, if any, as we may be able to conclude a strategic transaction.
Job Title EMPLOYEE AGE NUMBER IMPACTED EMPLOYEE AGE NUMBER NOT IMPACTED
Chief Medical Officer 62 1 0
Clinical Project Manager 62 1 0
Clinical Trial Associate 47 1 0
Chief Commercial Officer 55 1 0
Director, Clinical Operations 58 1 0
Senior Supply Chain Manager 61 1 0
Quality Assurance Manager 59 1 0
Vice President, Clinical Opera 61 1 0
Medical Device Eng Sr Mgr 35 1
VP, Corporate Controller 73 1
VP of Manufacturing Operations 45 1
Director of Accounting 64 1
VP & Head of Operations 44 1
Sr Dir of QA and Compliance 47 1
Senior Quality Engineer 33 1
Associate Director of Mfg 34 1
Manager of Analytical 33 1
President & Chief Executive Of 60 1
Associate Director of Analytic 36 1
Sr Vice President Head of CMC 58 1
VP & Head of Reg. Affairs 46 1
Trial Master File Manager II 39 1
CFO 58 1
Sr Director of Operations 49 1
6
Detlef Albrecht
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Kollins, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Satsuma Pharmaceuticals,
Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 11, 2023 By: /s/ John Kollins
John Kollins
President and Chief Executive Officer and Director
(
Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tom ONeil, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Satsuma Pharmaceuticals,
Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 11, 2023 By: /s/ Tom ONeil
Tom ONeil
Chief Financial Officer
(Principal Financial and Accounting Officer)
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Satsuma Pharmaceuticals, Inc. (the
Company) on Form 10-Q for the period ending March 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I certify,
pursuant to 18 U.S.C. (s) 1350, as adopted pursuant to (s) 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: May 11, 2023 By: /s/ John Kollins
John Kollins
President and Chief Executive Officer and Director
(Principal Executive Officer)
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Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Satsuma Pharmaceuticals, Inc. (the
Company) on Form 10-Q for the period ending March 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I certify,
pursuant to 18 U.S.C. (s) 1350, as adopted pursuant to (s) 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: May 11, 2023 By: /s/ Tom ONeil
Tom ONeil
Chief Financial Officer
(Principal Financial and Accounting Officer)
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