Item 1A.
Risk Factors.
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information included or incorporated by reference in this Form 10-K before purchasing our common stock . Our business, financial condition and results of operations could be materially and adversely affected by any of these and currently unknown risks or uncertainties. In that case, the market price of our common stock could decline, and you may lose all or part of your investment in our securities.
Summary of Principal Risk Factors
We will need to raise additional capital, and if we are unable to do so, we will not be able to continue as a going concern.
Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving liquidity, defaults or non-performance, could adversely affect our operations and liquidity.
We expect that we will continue to incur net losses in the foreseeable future.
Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.
We may not be able to comply with Nasdaq’s continued listing standards.
Our recent organizational changes, including the Aceragen Acquisition, and any acquisitions or business development opportunities we pursue may not be successful.
As a small biopharmaceutical-focused company with limited resources, we may be unable to attract and retain qualified personnel.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could compromise our ability to pursue our growth strategy and grow our business.
We are depending heavily on the development, regulatory approval, and commercialization of product candidates. If we are unable to successfully develop and commercialize product candidates, or experience significant delays in doing so, our business may be materially harmed.
If our clinical trials are unsuccessful, delayed or terminated, we may not be able to develop and commercialize our product candidates.
The technologies on which we rely are unproven and may not result in any approved and marketable products.
We face substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than us.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming, and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates.
We may not be able to obtain or maintain anticipated periods of regulatory exclusivity for our product candidates.
A breakthrough therapy, fast track, or other expedited designation for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that those product candidates will receive marketing approval.
We have only limited experience in regulatory affairs and our product candidates are based on new technologies; these factors may affect our ability or the time we require to obtain necessary regulatory approvals.
We are subject to extensive and costly governmental regulation, the violation of which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.
We depend on information technology, infrastructure, and data to conduct our business. Any significant disruption, or cyber-attacks, could have a material adverse effect on our business.
Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and adversely affect our business.
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Our existing collaborations, clinical funding arrangements, and any collaborations or arrangements we enter into in the future may not be successful.
If we are unable to establish additional collaborative alliances, our business may be materially harmed.
We are subject to substantial customer concentration. If we fail to retain our revenues from the U.S. Government consistent with historical performance or acquire new customers cost-effectively, our business could be adversely affected.
If we are unable to obtain and maintain patent protection for our discoveries, the value of our technology and any product candidates could be adversely affected.
We do not own or license patents or patent applications that claim the active pharmaceutical ingredient in our ACG-701 and ACG-801 product candidates.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Our rights to develop and commercialize ACG-801 and future product candidates may be subject to terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future license agreements, we could lose important intellectual property rights and the ability to continue to develop and commercialize products.
We may not be successful in obtaining all rights necessary to develop and commercialize our current or future product candidates.
We may become involved in expensive patent litigation or other proceedings, which could result in our incurring substantial costs and expenses or substantial liability for damages, require us to stop our development and commercialization efforts or result in our patents being invalidated, interpreted narrowly or limited.
Our intellectual property may be infringed by a third party.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We may be subject to claims by third parties asserting that we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
We rely on government funding for certain aspects of our research and development activities and we may develop intellectual property through such activities and therefore may be subject to federal regulations. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.
Even if the compounds we may develop are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.
Because we have limited manufacturing experience, and no manufacturing facilities or infrastructure, we are dependent on third-party manufacturers to manufacture product candidates for us.
We have no experience selling, marketing or distributing potential products and no internal capability to do so.
If third parties on whom we rely for clinical and preclinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business may suffer.
We face a risk of product liability claims and may not be able to obtain insurance.
Provisions in our restated certificate of incorporation (“Charter”) and second amended and restated bylaws (“Bylaws”) may prevent a change in control that stockholders may consider desirable.
Six stockholders beneficially own approximately 69% of our outstanding common stock. If these significant stockholders choose to act together, they could exert substantial influence over our business, and the interests of these stockholders may conflict with those of other stockholders.
The issuance or sale of shares of our common stock could depress the trading price of our common stock.
Because we do not intend to pay dividends on our common stock, investor returns will be limited to any increase in the value of our stock.
Our Series X Preferred Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of Series X Preferred Stock holders differing from those of the holders of common stock.
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Risks Relating to Our Financial Position and Need for Additional Capital
Despite recent cost-saving measures, we will need to raise additional capital, and if we are unable to do so, we will not be able to continue as a going concern.
As of December 31, 2022, we had $12.0 million in cash and cash equivalents. We believe based on our current operating plan, our existing cash and cash equivalents will enable us to fund our operations into May 2023. Accordingly, we need to raise additional capital to continue to fund our operations and service our obligations in the future. If we are unable to raise additional capital when needed, we will not be able to continue as a going concern. We do not currently have any products approved for sale and do not generate any revenue from product sales. Accordingly, we expect to rely primarily on equity and/or debt financings and our clinical funding arrangements (e.g., contract with Department of Defense’s DTRA) to fund our continued operations.
We are seeking and expect to continue to seek additional funding through financings of equity and/or debt securities, strategic research and development collaborations, clinical funding arrangements, or the sale or license of technology assets. We may also engage in strategic alternative conversations of mergers, acquisition, or sale of the company or assets. We believe the key factors that will affect our ability to obtain funding are: (i) the results of our clinical development activities in our product candidates we develop on the timelines anticipated; (ii) the time and expense required to submit a marketing application for our product candidates; (iii) the cost, timing, and outcome of regulatory reviews; (iv) the receptivity of the capital markets to financings by biotechnology companies generally and companies with product candidates and technologies similar to ours specifically; (v) receptivity of the capital markets to any in-licensing, product acquisition or other transaction we may enter into; and (vi) ability to enter into additional collaborations and the success of such collaborations.
Financing may not be available to us when we need it, or on favorable or acceptable terms, or at all. We could be required to seek funds through collaborative alliances or through other means that may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise pursue on our own. In addition, if we raise additional funds by issuing equity securities, our existing stockholders may experience dilution, or an equity financing that involves existing stockholders may cause a concentration of ownership. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and are likely to include rights that are senior to the holders of our common stock. Any additional debt or equity financing may contain terms which are not favorable to us or to our stockholders, such as liquidation and other preferences, or liens or other restrictions on our assets. As discussed in Note 16 to the consolidated financial statements appearing elsewhere in this Form 10-K, additional equity financings may also result in cumulative changes in ownership over a three-year period in excess of 50% which would limit the amount of net operating and tax credit carryforwards that we may utilize in any one year. If we are to obtain adequate funding on a timely basis or at all, we will be required to , modify or clinical trials of our product candidates, or rights to portions of our technology, product candidates and/or products.
In addition, we recently undertook staff furloughs and salary reductions for certain of our employees, and we may undertake other cost-saving initiatives in the future. The actions we announced on April 13, 2023, as well as future restructuring or cost-saving initiatives, may not achieve our goal of preserving capital or raising additional capital.
If we are unable to raise additional capital when required or on acceptable terms, or we are unsuccessful in our cost-saving measures, we may be required to:
significantly delay, scale back, or discontinue the development or commercialization of our product candidates;
seek strategic alliances, or amend existing alliances, for research and development programs at an earlier stage than otherwise would be desirable or that we otherwise would have sought to develop independently, or on terms that are less favorable than might otherwise be available in the future;
dispose of technology assets, or relinquish or license on unfavorable terms, our rights to technologies or any of our product candidates that we otherwise would seek to develop or commercialize ourselves;
pursue the sale of our company to a third party at a price that may result in a loss on investment for our stockholders; or
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file for bankruptcy or cease operations altogether.
Any of these events could have a material adverse effect on our business, operating results, and prospects.
Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our current financial condition, operations and liquidity.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, one of our banking partners, Silicon Valley Bank, (“SVB”), was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the Federal Deposit Insurance Corporation (“FDIC”), as receiver. As more fully described in Note 19, “Subsequent Events,” as of March 10, 2023, we had approximately 56% of our cash and cash equivalent balances in segregated custodial accounts held by a third-party custodian for which SVB was our agent and/or SVB Asset Management, an affiliate of SVB, was the advisor at the time SVB was closed.
On March 12, 2023, the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at SVB would have access to their funds, even those funds in excess of the standard FDIC insurance limits, under a systemic risk exception. As of March 13, 2023, we had access to our cash and cash equivalents at SVB; however, there is uncertainty in the markets regarding the stability of regional banks and the safety of deposits in excess of the FDIC insured deposit limits. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions in a timely fashion or at all. Furthermore, we may be impacted by other disruptions to the U.S. banking system caused by the recent developments involving SVB, including potential delays in our ability to transfer funds, make payments, or receive funds whether held with SVB or other banks.
We expect that we will continue to incur net losses in the foreseeable future.
During the year ended December 31, 2022, we incurred a net loss of $23.4 million, as compared to net income of $98.1 million for the year ended December 31, 2021. As of December 31, 2022, we had an accumulated deficit of $758.8 million and a cash and cash equivalents balance of $12.0 million. We expect to incur substantial operating losses in future periods and will require additional capital as we seek to advance any future product candidates through development to commercialization. We do not expect to generate product revenue, sales-based milestones or royalties until we successfully complete development of and obtain marketing approval for our product candidates, either alone or in collaboration with third parties, which may not occur or may take a number of years. To commercialize any future product candidates, we need to complete clinical development and comply with comprehensive regulatory requirements. We are subject to numerous risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding and history of operating losses.
Even if we succeed in receiving marketing approval for and commercializing any product candidate, we will continue to incur substantial research and development and other expenditures to develop and market additional potential indications or products. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.
We historically have experienced significant volatility in our stock price. Since December 31, 2022, our common stock has traded as high as 12.07 and as low as 2.14 per share. The realization of any of the risks described in these risk factors or other unforeseen risks could have an adverse effect on the market price of our common stock. The trading price of our common stock is likely to continue to be highly volatile and could be subject to declines in response to numerous factors, including disappointing results in a clinical program, as was the case following the announcement of topline results for ILLUMINATE-301. Other risk factors include results from clinical trials; FDA
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regulatory actions; announcements by us or our competitors of acquisitions, regulatory approvals, clinical milestones, new products, significant contracts, commercial relationships, or capital commitments; additions or departures of key personnel; commencement of, or our involvement in, litigation; and any major change in our Board of Directors or management.
From time to time, we estimate the timing of the potential accomplishment of clinical and other development goals or milestones. These estimated milestones may include the commencement or completion of clinical trials. Also, from time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All estimated milestones are based on numerous assumptions. These milestones may change and the actual timing of meeting these milestones may vary dramatically from our estimates, in some cases for reasons beyond our control. If we do not meet these estimated milestones, or the anticipated timing thereof, as publicly announced, our stock price may decline.
We may not be able to comply with Nasdaq’s continued listing standards.
Our Common Stock trades on The Nasdaq Capital Market (“Nasdaq”) under the symbol “ACGN.” We cannot assure you that our securities will continue to be listed on Nasdaq.
As previously reported, on November 26, 2021, we received a deficiency letter (the “First Nasdaq Letter”) from the Nasdaq Listing Qualifications Department (the “Staff”), notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires us to maintain a minimum bid price of at least $1 per share for continued listing (the “Minimum Bid Requirement”). Our failure to comply with the Minimum Bid Requirement was based on the Common Stock per share price being below the $1.00 threshold for a period of 30 consecutive business days. Pursuant to the First Nasdaq Letter, we had 180 calendar days from November 26, 2021 to regain compliance with the Minimum Bid Requirement.
Also as previously reported, on May 26, 2022, we received a second notice (the “Second Nasdaq Letter”) from the Staff indicating that, while we had not regained compliance with the Minimum Bid Requirement, the Staff had determined that we were eligible for an additional 180-day period, or until November 21, 2022, to regain compliance with the Minimum Bid Requirement.
On November 22, 2022, the Company was notified by the Staff that, based upon the Company’s continued non-compliance with the Minimum Bid Requirement, the Company’s securities were subject to delisting unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”).
The Company timely requested a hearing before the Panel, which request stayed any further delisting action by the Staff at least pending the conclusion of the Company’s hearing before the Panel and the expiration of any extension period that may be granted by the Panel to the Company following the hearing. The Company had its Panel hearing on January 5, 2023. On January 10, 2023, the Company received a letter on behalf of the Panel granting an extension until January 20, 2023, for the Company to regain compliance with the continued listing standards.
Following the successful completion of the Company’s 1-to-17 reverse stock split, on January 25, 2023, the Company received a written notice from the Panel that the Company satisfied all initial listing requirements of Nasdaq, as required by the Panel.
While we regained compliance and are currently in compliance with Nasdaq continued listing requirements, there is no guarantee that we will be able to perpetually satisfy Nasdaq’s continued listing requirements to maintain our listing on Nasdaq for any periods of time. Our failure to continue to meet these requirements may result in our securities being delisted from Nasdaq.
As of December 31, 2022, we had an accumulated deficit of $758.8 million and total stockholders’ equity of $11.8 million. We expect to incur substantial operating losses in future periods and will require additional capital as we seek to advance any future product candidates through development to commercialization. Additionally, since December 31, 2022, our common stock has traded as low as 2.14 per share. If we fail to comply with Nasdaq rules and requirements, including, without limitation, with (i) the Minimum Bid Requirement, or (ii) Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2.5 million in stockholders’ equity (the “Minimum Equity Requirement”), our stock may be delisted. In addition, even if we demonstrate compliance
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with the Minimum Bid Requirement and Minimum Equity Requirement, we will have to continue to meet other objective and subjective listing requirements to continue to be listed on Nasdaq. Delisting from Nasdaq could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without a Nasdaq listing, stockholders may have a difficult time getting a quote for the sale or purchase of our common stock, the sale or purchase of our common stock would likely be made more difficult, and the trading volume and liquidity of our common stock could decline. Delisting from Nasdaq could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are , we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common stock is by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB Market, where an investor may find it more to sell our stock or obtain accurate quotations as to the market value of our common stock. In the event our common stock is from Nasdaq, we may not be to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation system.
Risks Relating to Our Business, Strategy, and Industry
Our recent organizational changes, including the Aceragen Acquisition, and any acquisitions or business development opportunities we pursue may not be successful.
As part of our business strategy, we review and intend to continue to review acquisition opportunities that we believe would be advantageous or complementary to the development of our business. During the third quarter of 2022, we acquired Legacy Aceragen, and we may acquire additional businesses, assets, or technologies in the future. If we make any acquisitions, we could take any or all of the following actions, any one of which could adversely affect our business, financial condition, results of operations or share price:
use a significant portion of our available cash, if any;
require a significant devotion of management’s time and resources in the pursuit or consummation of any acquisition;
incur debt, which may not be available to us on favorable terms and may adversely affect our liquidity;
issue equity or equity-based securities that would dilute existing stockholders’ ownership percentage;
assume contingent and other liabilities; and
take charges in connection with such acquisitions.
For example, prior to the Aceragen Acquisition, Legacy Aceragen was obligated to pay an aggregate amount of $8.0 million to certain former stockholders of Arrevus, Inc. (the “Former Stockholders”). As a result of this obligation and subsequent to the Aceragen Acquisition, on January 31, 2023 the Company issued 12% convertible unsecured promissory notes to certain of the Former Stockholders in an aggregate amount of approximately $5.9 million, which convertible notes bear annual interest at 12%. Under the terms of the convertible notes, at the holder’s election, any or all of the then outstanding principal and accrued interest may be converted into shares of Company’s common stock. The terms of the convertible notes provide the Former Stockholders with customary registration rights covering the common stock issued following any conversion of the convertible notes.
Acquisitions also entail numerous other risks, including, without limitation: difficulties in assimilating acquired operations, products, technologies and personnel; unanticipated costs; diversion of management’s attention from existing operations; risks of entering markets in which we have limited or no prior experience; risk relating to obtaining regulatory approvals; unanticipated costs or liabilities; and potential loss of key employees from either our existing business or the acquired organization. Acquisitions may result in accounting charges for restructuring and other expenses, amortization of purchased technology and intangible assets and stock-based compensation expense, any of which could materially and adversely affect our operating results. We may not be able to realize the anticipated synergies, innovation, operational efficiencies, benefits of or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire, and our to do so could our business, operating results, and potentially our share price.
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As a small biopharmaceutical-focused company with limited resources, we may be unable to attract and retain qualified personnel.
As of March 31, 2023, we had 26 full-time employees. We are a small company and any future growth will require hiring additional qualified personnel. Also, because of the specialized scientific nature of our business, we face intense competition for qualified employees and consultants from biopharmaceutical companies, research organizations and academic institutions. Failure to attract and retain qualified personnel would materially harm our ability to compete effectively and grow our business.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could compromise our ability to pursue our growth strategy and grow our business.
Our success depends largely upon the continued services of our executive officers and other key employees. We do not maintain “key person” insurance for our executive officers. From time to time there may be changes in our senior management team resulting from the hiring or departure of executives, which could disrupt our business. For example, in 2022, in connection with the Aceragen Acquisition, Vincent Milano resigned as Chief Executive Officer of the Company. Mr. Milano was replaced by John Taylor, the Chief Executive Officer of Legacy Aceragen. All of our employees’ employment is at-will, including the employment of our Chief Executive Officer and our Chief Financial Officer, which means that any of these employees could leave our employment at any time. The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.
We are depending heavily on the development, r egulatory approval, and commercialization of product candidates. If we are unable to successfully develop and commercialize product candidates, or experience significant delays in doing so, our business may be materially harmed.
We have made and intend to continue to make a significant investment of our time and financial resources in the development and commercialization of our product candidates. Our ability to generate product revenues will depend heavily on our ability to successfully develop, obtain regulatory approval for, and commercialize our product candidates. If we fail to obtain regulatory approval and successfully commercialize our product candidates, our business would be materially and adversely impacted. Even if our product candidates receive regulatory approval, we will incur significant expenses to support its commercialization and launch, which investment may never be realized if sales are insufficient.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the U.S. Enrollment may be particularly difficult for our product candidates that are intended for rare and orphan diseases.
In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Our inability to enroll a sufficient number of patients for our clinical trials could also require us to abandon one or more clinical trials altogether. Enrollment delays may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
If our clinical trials are unsuccessful, delayed or terminated, we may not be able to develop and commercialize our product candidates.
We have not yet been able to commence our ADVANCE study for ACG-801 due to an FDA clinical hold. While we expect to be able to resolve the clinical hold and commence the ADVANCE study in the second half of 2023, there is no guarantee that FDA will agree and will permit us to begin the study. Additionally, there is a risk that we may experience additional clinical holds and will not be able to obtain timely or any approval for our product candidates, and we may need to carry out additional clinical trials, non-clinical studies, CMC assessments, and /or remediation. Clinical trials are lengthy, complex, and expensive processes with uncertain results. We may not be able to
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complete any clinical trial of an investigational product within any specified time period or at all. Moreover, clinical trials may not show our investigational products to have an acceptable safety and efficacy profile. The FDA, IRBs, Drug Safety Monitoring Boards, or other equivalent foreign regulatory agencies may not allow us to complete these trials or commence and complete any other clinical trials.
Numerous unforeseen events may occur during, or as a result of, preclinical testing, nonclinical testing or the clinical trial process that could delay or inhibit the ability to receive regulatory approval or to commercialize products. For example, setbacks in clinical trials may result in enhanced scrutiny by regulators or IRBs of clinical trials of our product candidates. Regulators or IRBs may also prohibit the commencement or continuation of clinical trials, data monitoring committees may recommend that studies be modified or discontinued, regulatory authorities may require additional nonclinical studies as a precondition to commencing clinical trials or imposing restrictions on the design or scope of clinical trials that could slow enrollment of trials, increase the costs of trials or limit the significance of the results of trials. Such setbacks could also adversely impact the desire of investigators to enroll patients in, and the desire of patients to enroll in, clinical trials of our product candidates.
Other events that could delay or inhibit conduct of our clinical trials, or prevent receipt of product approval, include: (i) nonclinical or clinical data may not be readily interpreted, which may lead to delays and/or misinterpretation; (ii) our nonclinical tests, including toxicology studies, or clinical trials may produce negative or inconclusive results; (iii) we might have to suspend or terminate our clinical trials if the participating subjects experience serious adverse events or undesirable side effects or are exposed to unacceptable health risks; (iv) regulators or IRBs may hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements, issues identified through inspections of manufacturing or clinical trial operations or clinical trial sites; (v) we, along with our and subcontractors, may not employ, in any capacity, persons who have been under by FDA or similar foreign regulatory authorities; (vi) we or our contract manufacturers may be to manufacture sufficient quantities of our product candidates for use in clinical trials meeting the applicable quality standards or regulatory authorities may with our manufacturing and control methods; (vii) the cost of our clinical trials may be than we currently anticipate making continuation and/or completion improbable; (viii) our investigators and contract research organizations may not follow the applicable regulatory requirements requiring that studies be or repeated; (ix) FDA and regulatory authorities may not agree with the design or analysis of the results from our clinical studies; (x) there may be changes in approval requirements that may necessitate that we conduct additional development work; and (ix) our product candidates may not cause the effects or may cause side effects or our product candidates may have other characteristics. These risks may be increased for product candidates intended for the treatment of diseases or conditions where there may be limited clinical experience; where there may not be validated or established measures to show of a subject’s condition; where we are using new, unvalidated, or unestablished, endpoints, tests or methodologies; or where the product candidates are new or novel.
In conducting clinical trials, we cannot be certain that any planned clinical trial will begin on time, if at all. Delays in commencing clinical trials of potential products could increase our product candidate development costs, delay any potential revenues, reduce the potential length of patent exclusivity and reduce the probability that a potential product will receive regulatory approval. Significant clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidates.
The technologies on which we rely are unproven and may not result in any approved and marketable products.
Our technologies or therapeutic approaches are relatively new and unproven. Further, the chemical and pharmacological properties of our product candidates may not be fully recognized in preclinical studies and small-scale clinical trials, and such compounds may interact with human biological systems in unforeseen, ineffective or harmful ways that we have not yet identified. Pre-clinical trials and early-stage clinical trials may not be indicative of results that may be obtained in later stage trials. As a result of these factors, we may never succeed in obtaining regulatory approval to market any product.
We face substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than us.
The development and commercialization of new products is highly competitive. There are many other companies, public and private, actively engaged in discovery, development, and commercializing products and technologies that may compete with our product candidates and rare disease program. Some potentially competitive products have been in development or commercialized for years. Many of the marketed products have been accepted by the
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medical community, patients, and third-party payors. Our ability to compete may be affected by the previous adoption of such products by the medical community, patients, and third-party payors.
We recognize that other companies, including large pharmaceutical companies, may be developing or have plans to develop products and technologies that may compete with ours. Many of our competitors have substantially greater financial, technical, and human resources than we have and/or may have significantly greater experience than we have in undertaking preclinical studies and human clinical trials of new pharmaceutical products, obtaining FDA and other regulatory approvals of products for use in health care and manufacturing, and marketing and selling approved products. We anticipate that the competition with our product candidates and technologies will be based on a number of factors including product efficacy, safety, availability, reimbursement, insurance coverage, and price. The timing of market introduction of our product candidates and competitive products will also affect competition among products. We expect the relative speed with which we can develop products, complete the clinical trials and approval processes, and supply commercial quantities of the products to the market to be important competitive factors.
Information regarding our competitors is discussed in further detail in the section entitled “Business” of this Form 10-K.
Our business could be adversely affected by the effects of health epidemics, such as the ongoing COVID-19 global pandemic, including disruptions to our clinical trials or the delay of regulatory approvals.
Our business may be adversely affected by the effects of health epidemics, including the ongoing worldwide COVID-19 pandemic. The COVID-19 pandemic has caused significant volatility and uncertainty globally. This has resulted in an economic downturn and may disrupt our business and delay our clinical trials and regulatory approvals. This may also result in an interruption or issues with respect to the manufacture and supply of our product candidates. The COVID-19 pandemic may also require that changes be made to any clinical trials or product manufacturing that may ultimately have an adverse impact.
The COVID-19 pandemic continues to evolve. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy. However, any one or a combination of these events could have an adverse effect on the operation of and results from our clinical trials, which could prevent or delay us from obtaining approval for our product candidates, or on our employee resources.
Risks Relating to Regulatory Approval and Marketing and Other Compliance Matters
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming, and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates.
We are not permitted to market our product candidates in the U.S. or in other countries until we, or any future collaborators, receive marketing approval from the FDA or marketing approval from applicable regulatory authorities outside of the U.S. The approval process is lengthy, often taking a number of years, is uncertain, and is expensive. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities is also required. Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any collaborators we may have to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
Our failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad which subjects us to additional business risks that could adversely affect our operations.
We, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements in foreign jurisdictions. The approval procedure varies among countries and can involve additional studies. The time required to obtain approval may differ substantially from that required to obtain FDA approval. In addition, in many countries outside of the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We, and any future collaborators,
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may not obtain approvals from regulatory authorities outside of the U.S. on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in foreign jurisdictions, and approval by one regulatory authority outside of the U.S. does not ensure approval by regulatory authorities in other jurisdictions or by the FDA.
Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.
We, and any future collaborators, must comply with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing approval. Such promotional communications are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we, and any future collaborators, will not be able to promote any products we develop for indications or uses for which they are not approved.
In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to Good Manufacturing Practices (“cGMPs”), which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our future collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA, and other regulatory authorities to monitor and ensure compliance with cGMPs.
Accordingly, assuming we, or our future collaborators, receive marketing approval for one or more of our product candidates, we, and our future collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.
If we, and our future collaborators, are not able to comply with post-approval regulatory requirements, we, and our future collaborators, could have the marketing approvals for our products withdrawn by regulatory authorities and our, or our future collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Moreover, legislative and regulatory proposals have been made to expand post-approval requirements and restrict promotional activities relating to our drug and biologic products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us and any collaborators to more stringent product labeling and post-marketing testing and other requirements.
Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future could be subject to post-approval restrictions or withdrawal from the market and we, and our future collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy, which could include requirements for a restricted distribution system.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the DOJ, closely regulate and
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monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed, and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label promotion.
In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after product approval, may yield various results, including: (i) litigation involving patients taking our product; (ii) restrictions on such products, manufacturers or manufacturing processes; (iii) restrictions on the labeling or marketing of a product; (iv) restrictions on product distribution or use; (v) requirements to conduct post-marketing studies or clinical trials; (vi) warning letters or untitled letters, as well as other enforcement and adverse actions; (vii) withdrawal of the products from the market; (viii) refusal to approve pending applications or supplements to approved applications that we submit; (ix) recall of products; (x) fines, restitution or disgorgement of profits or revenues; (xi) suspension or withdrawal of marketing approvals; (xii) to relationships with any potential ; (xiii) press coverage and to our reputation; (xiv) to permit the import or export of products; (xv) product seizure; or (xvi) or the imposition of civil or .
We may not be able to obtain or maintain anticipated periods of regulatory exclusivity for our product candidates.
We currently anticipate that our product candidates may be eligible for certain periods of regulatory exclusivity. By example, the FDA has granted us orphan drug designation for ACG-701 (sodium fusidate) for the treatment of CF PEx patients and for ACG-801 (recombinant human acid ceramidase) for the treatment of Farber disease. Additionally, ACG-801 was granted orphan drug designation by the EMA for Farber disease. We also have received QIDP designation for ACG-701 for the treatment of CF PEx and we anticipate that, depending on the product candidate, we may be eligible for certain periods of exclusivity under the Hatch Waxman Act and the Biologic Price Competition and Innovation Act. There can be no assurance that we will obtain any anticipated periods of regulatory exclusivity or that we will be able to maintain the designations that are necessary for such exclusivities. We also may not be able to obtain additional necessary designations in the future. Moreover, even if we initially receive periods of regulatory exclusivity following product approval, such exclusivities may be lost or overcome under certain circumstances, and the scope of such exclusivities may not provide sufficient protection from competition.
A breakthrough therapy, fast track, or other expedited designation for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that those product candidates will receive marketing approval.
The FDA has granted us Fast Track designation for ACG-701 (sodium fusidate) for the treatment of CF PEx patients and for ACG-801 (recombinant human acid ceramidase) for the treatment of Farber disease.
We may also seek a breakthrough therapy, fast track, or other designation for appropriate product candidates. Designations such as these are within the discretion of the FDA, or other comparable regulatory authorities. The receipt of a designation for a product candidate may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify under one of FDA’s designation programs, the FDA may later decide that the products no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
We have only limited experience in regulatory affairs and our product candidates are based on new technologies; these factors may affect our ability or the time we require to obtain necessary regulatory approvals.
We have never obtained regulatory approval for, or commercialized, a product. It is possible that the FDA may refuse to accept any or all of our planned marketing applications for substantive review or may conclude, after review of our data, that our applications are insufficient to obtain regulatory approval of any of our product candidates. The FDA may also require that we conduct additional clinical or manufacturing validation studies, which may be costly and time-consuming, and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies, approval of any marketing application that we
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submit may be significantly delayed, possibly for years, or may require us to expend more resources than we have available or can secure.
A variety of factors, including inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA 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, accept payments of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result of these and other factors. In addition, government funding of government agencies on which our operations may rely, including those 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 may also slow the time necessary for new therapeutic candidates to be reviewed and/or approved by necessary government agencies, which could adversely affect our business. For example, over the last several years, the U.S. government has shut down several times. If a prolonged government shutdown occurs, or if global health concerns (such as those relating to the COVID-19 pandemic) continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
We are subject to extensive and costly governmental regulation, the violation of which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.
Our product candidates are subject, and any future commercial products will be subject to costly, extensive and rigorous domestic and foreign government regulation, as discussed under the caption “Government Regulation” within Item 1 of this Form 10-K. These requirements are continually evolving, which will require us to adapt our practices and processes, which we may not be able to do.
In addition, our future arrangements with third party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. These include, but are not limited to, the following: the Anti-Kickback Statute; the Foreign Corrupt Practices Act; the False Claims Act; privacy laws such as HIPAA; transparency requirements; and analogous state and foreign laws. Additionally, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require manufacturers to report information related to drug pricing and to certain payments and other transfers of value to physicians, other healthcare providers, and healthcare entities, or marketing expenditures.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, suspension and debarment from procurement and non-procurement transactions, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to , civil, or administrative sanctions, including exclusions from government funded healthcare programs.
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We depend on information technology, infrastructure, and data to conduct our business. Any significant disruption, or cyber-attacks, could have a material adverse effect on our business.
We are dependent upon information technology, infrastructure, and data. Computer systems, including ours and those of our suppliers, partners, and service providers, contain sensitive confidential information or intellectual property, and are vulnerable to service interruption or destruction, cyber-attacks (both malicious and random) and other natural or man-made incidents or disasters, which may be prolonged or go undetected. Such events are increasing in their frequency, sophistication, and intensity, and have become increasingly difficult to detect. A significant interruption of our information technology could adversely affect our ability to manage and keep our operations running efficiently and effectively. An incident that results in a wider or sustained disruption to our business or products could have a material effect on our business, financial condition and results of operations.
Likewise, data privacy or security breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, or other business partners may be exposed to unauthorized persons or to the public. There can be no assurance that our efforts, or the efforts of our partners and vendors, will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business, or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks, and other related .
Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require significant operational changes and expenditures, reduce demand for the Company’s products and adversely affect our business, financial condition, and results of operations.
Climate change, environmental, social and governance (“ESG”) and sustainability are a growing global movement. These matters have garnered continuous political and social attention leading to the introduction of national, regional, and local legislation, regulatory requirements, reporting obligations, and policy changes. Further, there is a growing societal demand to limit greenhouse gas emissions and support global initiatives. Compliance with these international agreements and measures may necessitate operational changes, impose taxes or require purchases of emission credits, leading to significant capital expenditures. Furthermore, future legislative, regulatory, or policy changes may emerge that require additional modifications to reduce greenhouse gas emissions from our operations, which may result in substantial capital expenditures.
The growing focus on climate change, ESG, and sustainability has led to government investigations and litigation, both public and private, which may result in increased costs or adverse effects on our business or financial results. Furthermore, entities that offer investors information regarding corporate governance and similar issues have developed rating systems for assessing companies on their ESG approach. Some investors use these ratings to inform their investment and voting decisions. If we receive unfavorable ESG ratings, it may lead to a rise in negative investor sentiment towards us, which could harm our securities’ price and our ability to access capital at reasonable costs.
Any or all of these ESG and sustainability initiatives may result in significant operational changes and expenditures, cause us reputational harm, and could materially adversely affect our business, financial condition, and results of operations.
Risks Relating to Collaborators
Our existing collaborations, clinical funding arrangements, and any collaborations or arrangements we enter into in the future may not be successful.
Our current collaboration and clinical funding agreements, as more fully described within Item 1 of this Form 10-K, or any collaborations we may enter into in the future, may not be successful. The success of our collaborative alliances, if any, will depend heavily on the efforts and activities of our collaborators. Our existing collaborations and any potential future collaborations have risks, including the following: (i) our collaborators may control the development (and timing thereof) of the product candidates being developed with our technologies and compounds; (ii) our collaborators may control the public release of information regarding the developments; (iii) disputes may arise in the future with respect to the ownership of or right to use technology and intellectual property
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developed with our collaborators; (iv) disagreements with our collaborators could delay or terminate the development of our products, or result in litigation or arbitration; (v) we may have difficulty enforcing the contracts if any of our collaborators fail to perform; (vi) our collaborators may terminate their collaborations with us, which could make it difficult for us to attract new collaborators or adversely affect the perception of us in the business or financial communities; (vii) our collaboration agreements are likely to be for fixed terms and subject to by our in the event of a material or of scientific by us; (viii) our may our intellectual property rights or utilize our intellectual property rights in such a way as to invite that could or our intellectual property rights or us to potential liability; (ix) our may not comply with all applicable regulatory requirements; (x) our may under fund or not commit sufficient resources to the testing or development of our product candidates; and (xi) our may develop alternative products either on their own or in with others, or encounter of interest or changes in business strategy or other business issues. Additionally, our will face the same development risks that we do and may not be in their efforts. Given these risks, it is possible that any into which we enter may not be .
If we are unable to establish additional collaborative alliances, our business may be materially harmed.
Collaborators provide the necessary resources and product development experience to advance our compounds in their programs. We have entered into and expect to continue to seek to enter into collaborative alliances with pharmaceutical companies. Upfront payments and milestone payments received from collaborations help to provide us with the financial resources for our internal research and development programs. We believe additional resources will be required to advance compounds. If we do not reach agreements with additional collaborators in the future or if the terms of such a collaborative alliance on are not favorable to us, we may not be able to obtain the expertise and resources necessary to achieve our business objectives, our ability to advance our compounds will be jeopardized and we may fail to meet our business objectives. Moreover, are complex and time consuming to negotiate, document, and implement. We may not be in our efforts to establish and implement on a timely basis.
We are subject to substantial customer concentration. If we fail to retain our revenues from the U.S. Government consistent with historical performance or acquire new customers cost-effectively, our business could be adversely affected.
We are subject to substantial customer concentration risk. The U.S. Government accounted for all of the Company’s revenues for the year ended December 31, 2022. These revenues are from collaboration and license agreements and a contract with the U.S. Government. If these agreements are terminated or fees and funding are reduced under these agreements, our business could be adversely affected.
Risks Relating to Intellectual Property
If we are unable to obtain and maintain patent protection for our discoveries, the value of our technology and any product candidates could be adversely affected.
Our commercial success and ability to develop and commercialize products depends in significant part on our ability to: (i) obtain and maintain valid and enforceable patents and other intellectual property rights in the U.S. and other countries with respect to our technology and product candidates; (ii) obtain licenses to the proprietary rights of others on commercially reasonable terms; (iii) operate without infringing upon the proprietary rights of others; (iv) prevent others from infringing on our proprietary rights; and (v) protect our trade secrets. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the U.S. and abroad related to our novel technologies and product candidates that are important to our business.
If the scope of the patent protection we or our licensors obtain is not sufficiently broad, we may not be able to prevent others from developing and commercializing technology and products similar or identical to ours. The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that
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mature into issued patents will include, claims with a scope sufficient to protect our current and future product candidates or otherwise provide any competitive advantage. In addition, to the extent that we license intellectual property in the future, we cannot provide assurances that those licenses will remain in force. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. 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.
Our patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one or more of our product candidates but that falls outside the scope of our patent protection. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business.
Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing the scope of claims allowable in the pharmaceutical and biotechnology fields have emerged in the United States. The scope of patent protection in jurisdictions outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdictions in which we seek patent protection may diminish our ability to protect our inventions and maintain and enforce our intellectual property rights; and, more generally, may affect the value of our intellectual property, including the narrowing of the scope of our patents and any that we may license.
The patent prosecution process is complex, expensive, time-consuming and inconsistent across jurisdictions. We may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent rights at a commercially reasonable cost or in a timely manner or at all. In addition, we may not pursue or obtain patent protection in all relevant markets. It is possible that we will fail to identify important patentable aspects of our research and development efforts in time to obtain appropriate, or any, patent protection. While we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts, including for example, our employees, external academic scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose our confidential or proprietary information before a patent application is filed, thereby endangering our ability to seek patent protection. In addition, publications of discoveries in the scientific and scholarly literature often behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Consequently, we cannot be certain that we were the first to file for patent protection on the claimed in our patents or pending patent applications.
The issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Pending patent applications cannot be enforced against third parties unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that our patent applications or any patent applications that we may license in the future will result in patents being issued. Further, the scope of the invention claimed in a patent application can be significantly reduced before the patent is issued, and this scope can be reinterpreted after issuance. Even if patent applications we currently own or that we may license in the future issue as patents, they may not issue in a form that will provide us with adequate protection to prevent competitors or other third parties from competing with us, or otherwise provide us with a competitive advantage. Any patents that eventually issue may be challenged, narrowed or invalidated by third parties. Consequently, we do not know whether our technology or any of our product candidates will be protectable or remain protected by valid and enforceable patent rights. Our competitors or other third parties may be able to our patent rights by developing new products that are similar to our product candidates, biosimilars of our product candidates, or alternative technologies or products in a non- manner.
The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future, become
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subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter partes review, or interference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the U.S. Patent and Trademark Office, or USPTO, or other foreign patent office. An unfavorable determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or limit or extinguish our ability to manufacture or commercialize products without infringing third-party patent rights.
In addition, 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. Moreover, some of our owned and in-licensed patents and patent applications may in the future be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we or our licensors may need the cooperation of any such co-owners of our owned and in-licensed patents in order to enforce such patents against third parties, and such cooperation may not be provided to us or our licensors. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
We do not own or license patents or patent applications that claim the active pharmaceutical ingredient in our ACG-701 and ACG-801 product candidates.
The active pharmaceutical ingredient in ACG-701, sodium fusidate, is an old compound that was published in the 1960s, has been approved for therapeutic use in jurisdictions outside the United States and is included in ex-US cystic fibrosis treatment guidelines. We do not own or license patents that claim sodium fusidate or its acid form, fusidic acid, as a composition of matter. We do own patents in the United States and in other jurisdictions that claim certain methods of treatment using ACG-701, and we seek additional patent claims on certain compositions. There can be no assurances that our granted patents will, or that any of our pending patent applications that grant as patents will, effectively prevent others from commercializing competitive technologies and products. There is a risk that others, including companies that make generic pharmaceuticals, may develop products that are the same as or similar to ACG-701 for the same or similar uses as us, and that our patents will not effectively prevent them from commercializing their products.
The active pharmaceutical ingredient in ACG-801 is a recombinant form of acid ceramidase. Human acid ceramidase is a naturally occurring protein and patentability of such proteins is limited under current patent law. We do not own or license patents that claim recombinant human acid ceramidase as a composition of matter. We own patents in the United States and in other jurisdictions that claim certain compositions of and methods of treatment using acid ceramidase, and we seek additional patent claims on certain compositions. There can be no assurances that our granted patents will, or that any of our pending patent applications that grant as patents will, effectively prevent others from commercializing competitive technologies and products. There is a risk that others, including companies that make biosimilar pharmaceuticals, may develop products that are similar to ACG-801 for the same or similar uses as us, and that our patents will not effectively prevent them from commercializing their products.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Our rights to develop and commercialize ACG-801 are subject to the terms and conditions of our license agreement with Icahn School of Medicine at Mount Sinai, and our rights to develop and commercialize future product candidates may be subject to terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future intellectual property license agreements or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business and lose the ability to continue to develop and commercialize the related product .
We are and expect to continue to be reliant upon third-party licensors for certain patent and other intellectual property rights that are important or necessary to the development of our technology and product candidates. In particular, ACG-801 is dependent on our Amended and Restated License Agreement with Icahn School of Medicine at Mount Sinai (“Mt. Sinai License”). Pursuant to the Mt. Sinai License we are the exclusive licensee of patent
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rights and know-how of Mt. Sinai. The Mt. Sinai License imposes, and we expect that any future license agreement will impose, specified diligence, milestone payment, royalty, commercialization, development and other obligations on us and require us to meet development timelines, or to exercise diligent or commercially reasonable efforts to develop and commercialize licensed products, in order to maintain the licenses.
Furthermore, Mt. Sinai has, and future licensors may have, the right to terminate the license if we materially breach the agreement and fail to cure such breach within a specified period or in the event we undergo certain bankruptcy events. In spite of our best efforts, our current or any future licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements. If the Mt. Sinai License is terminated, and we lose our intellectual property rights under the Mt. Sinai License, this may result in complete termination of our development and commercialization activities with respect to ACG-801. If the Mt. Sinai License is terminated, or if the underlying intellectual property fails to provide the intended , our competitors or other third parties could have the freedom to seek regulatory approval of, and to market, products and technologies identical or competitive to ours and we may be required to our development and commercialization of certain of our product candidates and technology. In addition, we may seek to obtain additional licenses from Mr. Sinai or a future licensor and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more to the licensors, including by agreeing to terms that could third parties, including our competitors, to receive licenses to a portion of the intellectual property that is subject to our existing licenses and to compete with any product candidates we may develop and our technology. Any of the foregoing could have a material effect on our competitive position, business, financial condition, results of operations and prospects. may arise regarding intellectual property subject to a licensing agreement, including:
the scope of rights granted under the license agreement and other interpretation-related issues;
our or our licensors’ ability to obtain, maintain and defend intellectual property and to enforce intellectual property rights against third parties;
the extent to which our technology, product candidates and processes infringe, misappropriate or otherwise violate the intellectual property of the licensor that is not subject to the license agreement;
the sublicensing of patent and other intellectual property rights under our license agreements;
our diligence, development, regulatory, commercialization, financial or other obligations under the license agreement and what activities satisfy those diligence obligations;
the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our current or future licensors and us and our partners; and
the priority of invention of patented technology.
In addition, our license agreement with Mt. Sinai is, and future license agreements are likely to be, complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our diligence, development, regulatory, commercialization, financial or other obligations under the relevant agreement. In addition, if disputes over intellectual property that we have licensed or any other dispute related to our license agreements prevent or impair our ability to maintain our current license agreements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates and technology. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
License agreements we may enter into in the future may be non-exclusive. Accordingly, third parties may also obtain non-exclusive licenses from such licensors with respect to the intellectual property licensed to us under such license agreements. Accordingly, these license agreements may not provide us with exclusive rights to use such licensed patent and other intellectual property rights, or may not provide us with exclusive rights to use such patent and other intellectual property rights in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and any product candidates we may develop in the future.
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Moreover, some of our in-licensed patent and other intellectual property rights may in the future be subject to third party interests such as co-ownership. If we are unable to obtain an exclusive license to such third-party co-owners’ interest, in such patent and other intellectual property rights, such third-party co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. We or our licensors may need the cooperation of any such co-owners of our licensed patent and other intellectual property rights in order to enforce them against third parties, and such cooperation may not be provided to us or our licensors.
Additionally, under the terms of the Mt. Sinai License we do not control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications that we exclusively license. Although we have a right to have our comments considered in connection with patent prosecution and maintenance, we cannot be certain that Mt. Sinai will prepare, file, prosecute and maintain the licensed patents and patent applications in a manner that is consistent with the best interests of with our business. If Mt. Sinai fails to prosecute or maintain or loses rights to any licensed patents or applications, the rights we have licensed may be reduced or eliminated, which could adversely affect our ability to develop and commercialize ACG-801. If we enter into additional licenses in the future with Mt. Sinai or other licensors we may not control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications that we license from such licensors. It is possible that our licensors’ filing, and maintenance of the licensed patents and patent applications, enforcement of patents infringers or defense of such patents of validity or of enforceability may be less vigorous than if we had conducted them ourselves, and accordingly, we cannot be certain that these patents and patent applications will be prepared, filed, , maintained, enforced and in a manner consistent with the interests of our business. If our licensors to file, , maintain, enforce and such patents and patent applications, or rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, our right to develop and commercialize any of our technology and any product candidates we may develop that are the subject of such licensed rights could be affected and we may not be to prevent competitors or other third parties from making, using and selling competing products.
Furthermore, our owned and in-licensed patent rights may be subject to a reservation of rights by the licensor and or one or more third parties. For example, the research resulting in certain of our in-licensed patent rights and technology was funded in part by the U.S. government. Consequently, the U.S. government may have certain rights in to such patents. Certain patents that we exclusively license from Mt. Sinai are the results of research that was funded in part by the U.S. government and certain of our development activities for ACG-701 are funded in part by the U.S. government. When new technologies are developed with government funding, in order to secure ownership of patent rights related to the technologies, the recipient of such funding is required to comply with certain government regulations, including timely disclosing the inventions claimed in such patent rights to the U.S. government and timely electing title to such inventions. A failure to meet these obligations may lead to a loss of rights or the unenforceability of relevant patents or patent applications. In addition, the U.S. government may have certain rights in such patent rights, including a non-exclusive license authorizing the U.S. government to use the or to have others use the on its behalf. If the U.S. government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. The U.S. government’s rights may also permit it to the funded and technology, which may include our confidential information, to third parties and to exercise march-in rights to use or allow third parties to use the technology that was developed using U.S. government funding. The U.S. government may exercise its march-in rights if it determines that action is necessary because we or our licensors to practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such U.S. government-funded may be subject to certain requirements to manufacture any product candidates we may develop embodying such in the United States. Any of the foregoing could our business, financial condition, results of operations and prospects significantly.
We may not be successful in obtaining all rights necessary to develop and commercialize our current or future product candidates
We currently have exclusively licensed certain intellectual property from Mt. Sinai that is relevant for ACG-801. Our current and future product candidates may require the use of additional intellectual property rights held by third parties, and our ability to develop and commercialize such product candidates will depend, in part, on our ability to acquire, in-license or use any relevant intellectual property rights. We may be unable to secure such licenses or
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otherwise acquire or in-license intellectual property rights from third parties that we identify as necessary for any product candidates we may develop and our technology on commercially reasonable terms, or at all. Even if we are able to in-license any such necessary intellectual property, it could be on non-exclusive terms, thereby giving our competitors and other third parties access to the same intellectual property licensed to us, and the applicable licensors could require us to make substantial licensing and royalty payments. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.
We sometimes collaborate with non-profit and academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to third parties, potentially blocking our ability to pursue our research program and develop and commercialize our product candidates.
Third parties may own or control patents or patent applications and require us to seek licenses, which could increase our development and commercialization costs, or prevent us from developing or marketing products.
Although we have issued patents and pending patent applications in the U.S. and other countries, we may not have rights under certain third-party patents or patent applications related to our compounds under development and product candidates. Third parties may own or control these patents and patent applications in the U.S. and abroad. In addition, there may be other patents and patent applications related to our current or future product candidates of which we are not aware. Therefore, in some cases, in order to develop, manufacture, sell or import some of our product candidates, we or our collaborators may choose to seek, or be required to seek, licenses under third-party patents issued in the U.S. and abroad or under third-party patents that might issue from U.S. and foreign patent applications. In such an event, we would be required to pay license fees or royalties or both to the licensor. If licenses are not available to us on acceptable terms, we or our collaborators may not be able to develop, manufacture, sell, or import these products, or may be delayed in doing so. Either of these results could have a material adverse effect on our business.
We may become involved in expensive patent litigation or other proceedings, which could result in our incurring substantial costs and expenses or substantial liability for damages, require us to stop our development and commercialization efforts or result in our patents being invalidated, interpreted narrowly or limited.
Competitors may infringe our patents or the patents of our licensors. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the biotechnology industry. We may become a party to various types of patent litigation or other proceedings regarding intellectual property rights from time to time even under circumstances where we are not practicing and do not intend to practice any of the intellectual property involved in the proceedings. In addition to litigation, we may become involved in patent office proceedings, including oppositions, reexaminations, supplemental examinations and inter partes reviews involving our patents or the patents of third parties. We may initiate such proceedings or have such proceedings brought against us. An adverse determination in any such proceeding, or in litigation, could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without third-party patent rights. In addition, if the breadth or of protection provided by our patents and patent applications is , it could dissuade companies from with us to license, develop or commercialize current or future product candidates. An determination in a proceeding involving a patent in our portfolio could result in the of protection or a narrowing in the scope of protection provided by that patent.
Even if resolved in our favor, litigation or other proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our scientific, 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
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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 adequately conduct such litigation or proceedings. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. If any patent litigation or other proceeding is resolved against us, we or our collaborators may be enjoined from developing, manufacturing, selling, or importing our products without a license from the other party and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms or at all. In a patent office proceeding, such as an opposition, reexamination, or inter partes review, our patents may be narrowed or . Uncertainties resulting from the initiation and continuation of patent or other proceedings could have a material effect on our ability to compete in the marketplace. Patent and other proceedings may also absorb significant management time.
Our intellectual property may be infringed by a third party.
Third parties may infringe one or more of our issued patents or trademarks. We cannot predict if, when or where a third party may infringe one or more of our issued patents or trademarks. To counter infringement, we may be required to file infringement claims, which can be expensive and time-consuming. Moreover, there is no assurance that we would be successful in proving that a third party is infringing one or more of our issued patents or trademarks. Any claims we assert against perceived infringers could also provoke these parties to assert counterclaims against us, alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is or unenforceable, in whole or in part, construe the patent’s narrowly and/or to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in , any of which may affect our business. Even if we are in proving in a court of law that a third party is one or more of our issued patents or trademarks there can be no assurance that we would be in halting their activities.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect and some courts inside and outside the United States are less willing or unwilling to protect trade secrets. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, contractors and other parties who have access to such technology and processes. However, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. 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. If any of the , scientific advisors, employees and consultants who are parties to these agreements or the terms of any of these agreements, we may not have adequate remedies for any such or . As a result, we could our trade secrets and third parties could use our trade secrets to compete with any product candidates we may develop and our technology. Additionally, we cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems; however, such systems and security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors or other third parties. Competitors or third parties could purchase any product candidates we may develop or our technology and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our intellectual property rights or develop their own competitive technologies that fall outside the scope of our intellectual property rights. If any of our trade
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secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate such trade secrets, from using that technology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market against competitors’ products, our business, financial condition, results of operations and prospects could be materially and adversely affected.
Changes in patent laws could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity, and obtaining and enforcing pharmaceutical patents is costly, time-consuming, and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries could increase uncertainties and costs of prosecuting patent applications and the enforcement or defense of patents, and may diminish the value of our patents or narrow the scope of our patent protection. For example, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an regardless of whether a third-party was the first to the claimed . The America Invents Act also includes a number of significant changes that affect the way patent applications are and also may affect patent . These include allowing third-party submission of prior art to the USPTO during patent and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. However, the America Invents Act and its implementation and any future changes to the patent law could increase the uncertainties and costs surrounding the of our patent applications and the enforcement or defense of our issued patents, all of which could have an effect on our business, financial condition, results of operations, and prospects. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or 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 ways that would our ability to obtain new patents or to enforce existing patents and patents we may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the of our patent applications and the enforcement or defense of our issued patents.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates and any future product candidates throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws and practices of some foreign countries, particularly those relating to pharmaceuticals, do not protect intellectual property rights to the same extent as federal and state laws in the U.S. For example, novel formulations and methods of medical treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including EU countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially the value of our patents. This could limit our potential revenue . Accordingly, our efforts to enforce intellectual property rights around the world may be to obtain a significant commercial from our intellectual property.
We may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions into or within the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own
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products, and may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us in these jurisdictions.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost 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 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.
Patent terms may not adequately protect our competitive position on our product candidates.
Depending upon the timing, duration and specifics of development, testing and regulatory approval of our product candidates, such as ACG-701 and ACG-801, patents protecting such candidates might expire before or shortly after such candidate is commercialized. We plan to seek extension of patent terms in the United States and in other countries, if available, if we have patents that are eligible for term extension when a product candidate is approved. In the United States the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, permit the term of a patent to be extended up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, which is limited to the approved indication, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review phase, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise to applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are to obtain patent term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products and commercialize those products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially .
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, 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.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. We rely on our service providers or our licensors to pay these fees. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We rely on reputable law firms or our licensors for compliance with patent agency requirements. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and to properly legalize and submit formal documents. If we or our licensors to maintain the patents and patent applications covering our product candidates, our competitive position would be affected.
We may be subject to claims by third parties asserting that we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Some of our employees were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in
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defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
We rely on government funding for certain aspects of our research and development activities and we may develop intellectual property through such activities and therefore may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S. based companies. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.
In August 2021, we entered into a contract with Department of Defense’s Defense Threat Reduction Agency (DTRA contract) for the completion of pre-clinical and clinical development activities for ACG-701 for the treatment of melioidosis. We may generate intellectual property rights through the use of this or other U.S. government funding and are therefore subject to certain federal regulations. Also, the research that lead to certain patents and technology that we exclusively license from Mt. Sinai used U.S. government funding. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act), and implementing regulations. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the ; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these if we to the to the government and to file an application to register the intellectual property in the specified manner and within specified time limits. These time limits have recently been changed by regulation, and may change in the future. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject or produced through the use of the subject be manufactured substantially in the U.S. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the U.S. or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.
Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.
The degree of future protection afforded by our intellectual property rights, whether owned or in-licensed, is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The factors that may limit any potential competitive advantage provided by our intellectual property rights include:
others may be able to make compounds or formulations that are similar to our product candidates but that are not covered by the claims of the patents that we own or control;
we may not be able to obtain and/or maintain necessary licenses on reasonable terms or at all;
we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or control;
we 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;
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it is possible that our pending patent applications will not lead to issued patents;
issued patents that we own or control may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
our competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as 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 be able to maintain the confidentiality of our trade secrets or other proprietary information;
others may independently develop similar or alternative technologies without infringing our intellectual property rights;
we may not develop additional proprietary technologies that are patentable; and
the patents of others may have an adverse effect on our business.
Risks Relating to Product Manufacturing, Marketing and Sales, and Reliance on Third Parties
Even if the compounds we may develop are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.
Even if the compounds were successful in clinical development and receive regulatory approvals, it may never reach or remain on the market, be successfully developed into commercial products or gain market acceptance among physicians, patients, healthcare payors or the medical community for a number of reasons including: (i) it may be found ineffective or cause harmful side effects; (ii) it may be difficult to manufacture on a scale necessary for commercialization; (iii) it may experience excessive product loss due to contamination, equipment failure, inadequate transportation or storage, improper installation or operation of equipment, vendor or operator error, natural disasters or other catastrophic events, inconsistency in yields or variability in product characteristics; (iv) it may be to produce; (v) the timing of market introduction of the compounds we may develop and competitive products may be inopportune; (vi) political and legislative changes may make the commercialization of any product candidates we may develop in the future, more ; (vii) we may to obtain reimbursement approvals or pricing that is cost for patients as compared to other available forms of treatment or that covers the cost of production and other expenses; (viii) they may not compete effectively with existing or future alternatives; (ix) we may be to develop commercial operations and to sell marketing rights; (x) it may to market acceptance; or (xi) we may be from commercialization of a product due to proprietary rights of third parties.
Because we have limited manufacturing experience, and no manufacturing facilities or infrastructure, we are dependent on third-party manufacturers to manufacture product candidates for us.
We have limited manufacturing experience and no manufacturing facilities, infrastructure or clinical or commercial scale manufacturing capabilities. In order to continue to develop our product candidates, apply for regulatory approvals, and ultimately commercialize products, we need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities. We currently rely upon third parties to produce material for nonclinical and clinical testing purposes and expect to continue to do so in the future. We also expect to rely upon third parties to produce materials that may be required for the commercial production of our product candidates, if approved. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any product candidates on a timely and competitive basis. We currently do not have any long-term supply contracts.
There are a limited number of manufacturers who operate under the FDA’s cGMP regulations capable of manufacturing our product candidates. As a result, we may have difficulty finding manufacturers for our product candidates suitable for our needs. If we are unable to arrange for third-party manufacturing of our product
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candidates on a timely basis, or on acceptable terms, we may not be able to complete development of our product candidates or market them.
Any contract manufacturers with which we enter into manufacturing arrangements will be subject to extensive regulatory requirements and ongoing periodic, unannounced inspections or remote regulatory assessments by the FDA, or foreign equivalent, and corresponding state and foreign agencies or their designees to ensure compliance with cGMP requirements and other governmental regulations and corresponding foreign standards. Any failure by our third-party manufacturers to comply with such requirements, regulations or standards could lead to a delay in the conduct of our clinical trials, or a delay in, or failure to obtain, regulatory approval of any of our product candidates. Such failure could also result in sanctions being imposed, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, product seizures or recalls, imposition of operating restrictions, total or partial of production or distribution, or .
Additionally, contract manufacturers may not be able to manufacture our product candidates at a cost or in quantities necessary to make them commercially viable. Furthermore, changes in the manufacturing process or procedure, including a change in the location where the drug substance or product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval in accordance with the FDA’s cGMP and marketing application regulations and may require that we conduct bridging studies to demonstrate that the product produced under prior processes and procedures or by prior manufacturers is comparable to future product. Contract manufacturers may also be subject to comparable foreign requirements. This review may be costly and time-consuming and could delay or prevent the launch of a product candidate. The FDA or similar foreign regulatory agencies at any time may also implement new standards or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. If we or our contract manufacturers are unable to comply, we or they may be subject to regulatory action, civil actions or penalties.
We have no experience selling, marketing or distributing potential products and no internal capability to do so.
Advancing compounds through Phase 3 development and regulatory approval will require us to begin commercialization preparation activities and incur related expenses. These activities will include, among other things, the development of an in-house marketing organization and sales force, a market access and payor reimbursement strategy and a distribution function, which will require significant capital expenditures, management resources and time. If we are unable to adequately prepare the market for the potential future commercialization of compounds, we may not be able to generate product revenue once marketing authorization is obtained.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products; however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements on commercially reasonable terms, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates. Finally, regardless of whether we contract out our sales and marketing functions, we will be responsible for the marketing and promotion of our products and may be held responsible should any products be improperly marketed or promoted.
If third parties on whom we rely for clinical and preclinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business may suffer.
We do not have the ability to independently conduct the clinical or preclinical trials required to obtain regulatory approval for our product candidates. We depend on independent investigators, contract research organizations (“CROs”), and other third-party service providers in the conduct of the trials of our product candidates and expect to continue to do so. We expect to contract with CROs, investigators, and other third parties for future clinical and preclinical trials but there is no guarantee that we will be able to at all or on favorable terms. We rely heavily on these parties for successful execution of our trials, but do not control many aspects of their activities. We are responsible for ensuring that each of our trials is conducted in accordance with the applicable regulations and protocols for the trial. Third parties may not complete activities on schedule, or at all, or may not conduct our trials in accordance with regulatory requirements or our protocols. If these third parties fail to carry out their obligations,
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we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible. There can be no assurance that we will be able to sustain our relationships with these third-party entities, secure additional partnerships, or identify alternative sites or CROs in the event of any termination of our existing agreements or should we need to establish alternative arrangements. Moreover, if third parties fail to carry out their obligations and comply with the applicable regulatory requirements, our preclinical or clinical trials may need to be extended, delayed, terminated or repeated, and we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable product candidate, or to commercialize such product candidate being tested in such trials. If we seek to conduct any of these activities ourselves in the future, we will need to recruit appropriately trained personnel and add to our research, clinical, quality and corporate infrastructure. Moreover, if we need to replace any third parties, we may not be to do so in a timely fashion or on commercially reasonable terms.
The commercial success of any product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.
Any products that we ultimately bring to the market, if they receive marketing approval, may not gain market acceptance by physicians, patients, third-party payors or others in the medical community. If our products do not achieve an adequate level of acceptance, we may not generate product revenue and we may not become profitable. The degree of market acceptance of our products, if approved for commercial sale, will depend on a number of factors, including: (i) the prevalence and severity of any side effects; (ii) the efficacy and potential advantages over alternative treatments; (iii) the ability to offer our product candidates for sale at competitive prices; (iv) relative convenience and ease of administration; (v) the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; (vi) the strength of marketing and distribution support and the timing of market introduction of competitive products; and (vii) publicity concerning our products or competing products and treatments.
Even if a potential product displays a favorable efficacy and safety profile, market acceptance of the product will not be known until after it is launched. Our efforts to educate patients, the medical community, and third-party payors about our product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional methods used by our competitors.
If we are unable to obtain adequate reimbursement from third-party payors for any products that we may develop or acceptable prices for those products, our revenues and prospects for profitability will suffer.
Most patients rely on Medicare, Medicaid, private health insurers, and other third-party payors to pay for their medical needs, including any drugs we may market. If third-party payors do not provide adequate coverage or reimbursement for any products that we may develop, our revenues and prospects for profitability will suffer.
Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly-approved products. These third-party payors may base their coverage and reimbursement on the coverage and reimbursement rate paid by carriers for Medicare beneficiaries. Furthermore, many such payors are investigating or implementing methods for reducing health care costs, such as the establishment of capitated or prospective payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by health care providers, which could limit the price we might establish for products that we or our current or future collaborators may develop or sell, which would result in lower product revenues or royalties payable to us. In particular, third-party payors may limit the indications for which they will reimburse patients who use any products that we may develop or impose other patient access or utilization controls or limitations.
We face a risk of product liability claims and may not be able to obtain insurance.
Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing, and marketing of prescription products. We face a risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater risk if we commercially sell any products. Regardless of merit or eventual outcome, liability claims and product recalls may result in: (i) decreased demand for our product candidates and products; (ii) damage to our reputation; (iii) regulatory investigations that could require costly recalls or product modifications; (iv) withdrawal of clinical trial participants; (v) costs to defend related ligation; (vi) substantial monetary awards to clinical trial participants or patients; (vii) loss of revenue; (viii) the diversion of
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management’s attention away from managing our business; and (ix) the inability to commercialize any products that we may develop.
Although we have product liability and clinical trial liability insurance that we believe is adequate, this insurance is subject to deductibles and coverage limitations. We may not be able to obtain or maintain adequate protection against potential liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could also prevent or interfere with our commercialization efforts.
Risks Relating to Ownership of Our Preferred and Common Stock
Provisions in our restated certificate of incorporation (“Charter”) and second amended and restated bylaws (“Bylaws”) and Delaware law, may prevent a change in control that stockholders may consider desirable.
Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) and our Charter and Bylaws contain provisions that might enable our management to resist a takeover of our company or discourage a third party from attempting to take over our company. These provisions include: (i) a classified board of directors; (ii) limitations on the removal of directors; (iii) limitations on stockholder proposals at meetings of stockholders; (iv) the inability of stockholders to act by written consent or to call special meetings; and (v) the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval. These provisions could: (i) have the effect of delay, defer, or prevent a change in control of us or a change in our management that stockholders may consider favorable or beneficial or (ii) discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions.
The Company’s Bylaws provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.
Our Bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the Company to the Company or its stockholders, (iii) any action arising pursuant to any provision of the DGCL, the Company’s Charter or the Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the Charter or the Bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits against the Company or its directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The forum provision in our Bylaws would not apply to brought under the Exchange Act or the Securities Act, or any other claim for which the federal courts have jurisdiction. Additionally, such provision will not relieve us of our duty to comply with the federal securities laws and the rules and regulations thereunder, and stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
Six stockholders beneficially own approximately 69% of our outstanding common stock in the aggregate. If these significant stockholders choose to act together, they could exert substantial influence over our business, and the interests of these stockholders may conflict with those of other stockholders.
Following the Series Z Preferred Stock Conversion (as defined below) there is a concentration of ownership of our outstanding common stock because approximately 69% of our outstanding common stock is beneficially owned by six stockholders. As of March 1, 2023: (i) entities affiliated with Pillar Invest Corporation (the “Pillar Investment Entities”) beneficially owned approximately 11.2% of our outstanding common stock; (ii) NovaQuest beneficially owned approximately 9.8% of our outstanding common stock; (iii) Dr. Atul Chopra, a founder and a member of Legacy Aceragen’s board of directors, beneficially owned approximately 17.5% of our outstanding common stock; and (iv) Mr. John Taylor, Mr. Daniel Salain, and Mr. Andrew Jordan (“Executives”) individually beneficially owned
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17.5%, 17.5% and 5.4% of our common stock, respectively (“Pillar Investment Entities” and, together with NovaQuest, Dr. Chopra, and Executives, the “Significant Securityholders”). If any of our Significant Securityholders acted together, they could be able to exert substantial influence over our business. Additionally, the interests of the Significant Securityholders may be different from or conflict with the interests of our other stockholders. This concentration of voting power with the Significant Securityholders could delay, defer or prevent a change of control, entrench our management and the board of directors or delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that other stockholders may desire. In addition, conflicts of interest could arise in the future between us, on the one hand, and either of our Significant Securityholders on the other hand, concerning potential competitive business activities, business opportunities, the issuance of additional securities and other matters.
The issuance or sale of shares of our common stock could depress the trading price of our common stock.
If (i) we issue additional shares of our common stock or rights to acquire shares of our common stock in other future transactions, (ii) any of our existing stockholders sells a substantial amount of our common stock, or (iii) the market perceives that such issuances or sales may occur, then the trading price of our common stock may significantly decrease. In addition, our issuance of additional shares of common stock will dilute the ownership interests of our existing common stockholders.
Because we do not intend to pay dividends on our common stock, investor returns will be limited to any increase in the value of our stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business and do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future.
Our Series X Preferred Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the holders of our Series X Preferred Stock differing from those of the holders of common stock.
The Series X Preferred Stock ranks senior to our common stock with respect to dividend rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution, or winding up of our affairs. The holders of our Series X Preferred Stock are entitled to receive distributions on shares of Series X Preferred Stock as set forth in (a) the Purchase Agreement, and (b) the PRV Agreement (any such distributions under the Purchase Agreement and the PRV Agreement, the “Preferred Distributions”), prior and in preference to any declaration or payment of any other distribution or dividend (other than dividends on shares of Common Stock payable in shares of Common Stock).
In addition, holders of Series X Preferred Stock are entitled to receive a distribution in the event either (i) Aceragen receives any proceeds from the sale of a PRV granted by the FDA in connection with regulatory approval of a ACG-801 (recombinant human acid ceramidase) or ACG-701 (sodium fusidate) product or (ii) Aceragen does not receive such a PRV or does not complete a PRV sale within a certain period after receipt. The holders of Series X Preferred Stock are also entitled to net sales distributions based upon future net sales of the ACG-801 and ACG-701.
The holders of our Series X Preferred Stock also have the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series X Preferred Stock upon certain change of control events or Product Divestiture (as defined in the PRV Agreement) of a ACG-801 product without NovaQuests’ consent with respect to certain change of control events or Product Divestiture (as defined in the PRV Agreement), and Aceragen may, and NovaQuest may require us to, redeem the Series X Preferred Stock at a price equal to the fair market value thereof or make certain distributions to the holders of Series X Preferred Stock.
These dividend, distribution, and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for general corporate purposes. Our obligations to the holders of the Series X Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. These preferential rights could also result in divergent interests between the holders of shares of Series X Preferred Stock and holders of our common stock.
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