EDGAR 10-K Filing

Company CIK: 1488039
Filing Year: 2021
Filename: 1488039_10-K_2021_0001437749-21-007756.json

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ITEM 1. BUSINESS
ITEM 1.
BUSINESS
Overview
We are a clinical-stage biopharmaceutical company seeking to discover and develop innovative medicines in areas of significant unmet medical need in oncology and infectious diseases, with a current focus on breast cancer, other breast conditions and COVID-19. Our drug under development for breast cancer and other breast conditions is Endoxifen which is being developed primarily in two settings: one to reduce tumor cell activity in breast cancer patients in the “window of opportunity” between diagnosis of breast cancer and surgery; and another for women with dense breast tissue to reduce the density. Our two COVID-19 drugs under development are AT-H201, to improve lung function of moderate to severely ill, hospitalized COVID-19 patients by inhalation; and AT-301, a nasal spray for COVID-19 patients for at-home use. Our business strategy is to advance our programs through clinical studies including with partners, and opportunistically add programs in areas of high unmet medical need through acquisition, collaboration, or internal development.
Summary of Leading Programs
Endoxifen for MBD. Mammographic breast density ("MBD") is an emerging public health issue affecting over 10 million women in the U.S. Studies conducted by others have shown that MBD increases the risk of developing breast cancer and that reducing MBD can reduce the incidence of breast cancer. We believe our proprietary oral Endoxifen may reduce MBD, based in part on our previous successful Phase 2 study of our topical Endoxifen. Endoxifen is an active metabolite of tamoxifen which is an FDA-approved drug to treat and prevent breast cancer in high risk women. Endoxifen has been studied in over 160 participants in Atossa-conducted clinical studies.
We contracted with Stockholm South General Hospital to conduct a randomized, double-blinded, placebo-controlled Phase 2 study of our oral Endoxifen in pre-menopausal women with measurable MBD who will be dosed over six months. This study will evaluate safety, tolerability and efficacy of Endoxifen. The study is subject to approval by the European Medical Product Authority and ethics board. We expect to open this study in Stockholm soon after receiving all necessary regulatory approvals, provided COVID-19 restrictions permit patient recruitment. No assurance can be given that reduction in MBD is an approvable indication or that the regulators will approve opening the study in Sweden.
Endoxifen for Window of Opportunity. Once a woman is diagnosed with breast cancer, it can take several weeks for surgery to be scheduled so that the tumor can be removed through lumpectomy or mastectomy. During this time, without treatment the cancer typically continues to grow. We believe there is a compelling need for therapy with our Endoxifen in this neo-adjuvant or “window of opportunity” setting.
We recently completed a Phase 2 study in Australia in the window of opportunity which enrolled 7 newly-diagnosed patients with ER+ and human epidermal growth factor receptor 2 negative ("HER2-") stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. In February 2021, we concluded that the study produced substantially positive results and that continuing enrollment in the study would not be useful in advancing the program. We have therefore discontinued the study based in part on results from the first six patients which showed a statistically significant (p=0.031) reduction of about 74% in tumor cell proliferation with a reduction below 25% in all participants, as measured by Ki-67 (a recognized standard measurement of breast cancer cell proliferation). We now plan to seek guidance from the FDA on conducting a study in the United States. No assurance can be given that reduction in Ki-67 or any other biomarker in the window of opportunity is an approvable indication.
Compassionate Use of Endoxifen. We have supplied our oral Endoxifen to two patients under the FDA’s expanded access, or “compassionate use,” pathway. One patient has ER+ breast cancer and was not responding to tamoxifen. This patient has taken our Endoxifen, both in the window of opportunity and post-surgery for a total of more than 24 months. According to her physician, she has not had a recurrence of breast cancer, has not had treatment-related changes in periodic laboratory blood tests and the treatment has been well tolerated, including an absence of typically seen vasomotor symptoms (night sweats and hot flashes). The other patient has recurrent ovarian cancer. The patient underwent functional molecular genomic testing, using 3D tumor organoid cultures grown in the laboratory from the patient’s tumor. The organoid testing revealed that the combination of Endoxifen and alpelisib produced an exceptionally favorable tumor response. If the drug combination shows promise in this patient, we will consider conducting additional clinical studies in patients with ovarian cancer.
Under the FDA expanded access program, the use of our oral Endoxifen is restricted to the individual patient in the application. The expanded access studies are being conducted by others; our involvement is limited to supplying our Endoxifen. The results from single-patient expanded access programs does not imply success in a larger patient population.
AT-301. There are currently no FDA-approved drugs to treat COVID-19 at-home. AT-301 is our proprietary drug candidate intended for nasal administration in patients immediately following diagnosis of COVID-19 but who have not yet exhibited symptoms severe enough to require hospitalization. It is intended for at-home use to reduce symptoms of COVID-19 and to slow the infection rate so that a person’s immune system can more effectively fight COVID-19.
AT-301 is being developed with a nasal spray delivery mechanism because many COVID-19 patients are infected via the nasal passage. Our nasal spray formulation AT-301 is being designed to contain ingredients that can potentially block SARS-CoV-2 viral entry gene proteins in nasal epithelial cells by interfering with spike protein activation by host proteases, by masking receptor binding domains via electrostatic mechanisms, and by providing a generalized mucoadhesive epithelial barrier. In July 2020, we completed in vitro testing of AT-301 which showed that AT-301 inhibits SARS-CoV-2 infectivity of VERO cells in a laboratory culture.
In October 2020, we completed enrollment in a Phase 1 study of AT-301 which was a double-blinded, randomized, and placebo-controlled safety study of AT-301 nasal spray in 32 healthy adult subjects. An evaluation of the data indicated that there were no serious adverse events, no discontinuations, and only one of the subjects in the study experienced adverse events that were considered moderate in severity. We concluded that our AT-301 nasal spray was safe and well tolerated in this study. These results support advancing this program into a Phase 2 study. We recently received input from the FDA on this program and based in part on that input, we are now preparing to conduct an additional pre-clinical study. Following that, we expect to apply to the FDA to commence a Phase 2 study in the United States.
We may also develop our AT-301 nasal spray to potentially help prevent COVID-19 infection, particularly for people in high-risk environments, such as people living with an infected patient, people living and working in healthcare facilities, emergency responders or teachers.
AT-H201. AT-H201 is a proprietary combination of two drugs previously approved by the FDA to treat other diseases. It is intended to improve compromised lung function for moderate to severely ill, hospitalized COVID-19 patients by inhalation. In May 2020, we completed in vitro testing of AT-H201 which showed that the components of AT-H201 inhibit SARS-CoV-2 infectivity of VERO cells, which is a standard cell type being used to study infectivity of the coronavirus. The AT-H201 components were found to be at least four times more potent than Remdesivir and at least 20 times more potent than Hydroxychloroquine. Potency was measured by microscopic examination of the cytopathic effect caused by SARS-CoV-2 in VERO cells. We received input from the FDA on potential pathways to develop AT-H201 and the FDA requested that we provide, among other things, additional pre-clinical and other information on AT-H201. We have also applied to the regulatory authorities to conduct the initial clinical study of AT-H201 in Australia.
Impact of the Novel Coronavirus
The continued spread of the COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including causing possible disruptions in the supply of the Company’s Endoxifen, AT-H201, AT-301 and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the U.S. FDA and other health authorities including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. The evolving COVID-19 pandemic could also directly or indirectly impact the pace of enrollment in our clinical trials for at least the next several months and possibly longer as patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices except for a health emergency. Such facilities and offices may also be required to focus limited resources on non-clinical trial activities, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial activities related to the Company's products under development. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. 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, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material adverse impact on the Company’s liquidity, capital resources, operations, financial position and business and those of the third parties on which we rely. We have not experienced any delay in drug supply for our ongoing and planned clinical studies, including studies of Endoxifen, AT-301 and AT-H201. We anticipate commencing the MBD Endoxifen trial soon after receiving all necessary regulatory approvals; subject to delays in enrollment due to COVID-19 disruptions, which could take several months or longer. We will continue to monitor future enrollment in studies for potential restrictions on site visits, mammograms or the impositions of new restrictions on trials as a result of the COVID-19 pandemic.
We were incorporated in 2009 and our common stock is currently quoted on The Nasdaq Capital Market under the symbol “ATOS.”
Our Programs Under Development
Endoxifen Programs
Background
Endoxifen is one of the metabolites of an FDA-approved drug called tamoxifen, which has been FDA-approved and widely used for over 40 years to both treat and prevent breast cancer. Tamoxifen is a “pro-drug”, in that it must be metabolized into active components (“metabolites”) in order to be effective. Despite the success of tamoxifen in treating estrogen-receptor-positive breast cancer, its systemic side effects have led to generally low acceptance as a therapy to reduce the risk of breast cancer. These systemic side effects relate to estrogen agonist activity on the endometrium and the activation of coagulation pathways, leading to an increased risk of uterine events and thromboembolism. Hot flashes and vaginal symptoms are additional barriers to tamoxifen being accepted in the prevention setting.
Other limiting aspects of tamoxifen are that some people lack liver enzymes to adequately metabolize it and it can take a long time for many patients to reach therapeutic levels. Up to 50% of breast cancer survivors who are taking tamoxifen do not produce therapeutic endoxifen levels (meaning they are “refractory”) for a number of reasons including that they, due to their genotype, do not have the requisite liver enzymes. Additionally, it can take from 50-200 days for tamoxifen to reach “steady-state” meaning that the drug may be providing little or no benefit for up to several months after starting treatment. We believe our proprietary oral Endoxifen, in part because it is not a pro-drug and does not need to be metabolized by the liver, may overcome some of the shortcomings of tamoxifen.
We estimate that approximately ten million women in the U.S. have MBD, for which there is no FDA-approved treatment. Although oral tamoxifen is approved to prevent breast cancer in “high-risk” women (typically based on responses to a questionnaire), it is used by less than 5% of women with an increased risk of developing breast cancer because of the actual or perceived side effects and risks of tamoxifen. We believe our Endoxifen may provide an option for women to proactively reduce the density of their breasts. Moreover, our Endoxifen may improve mammography accuracy and patient care by unmasking cancerous tumors that are otherwise hidden by breast density.
Legislation that has been enacted in almost all U.S. states requiring that women be notified if they have MBD. These notifications typically state that women with MBD have a higher risk of developing breast cancer, and that mammography may not be as effective in detecting breast cancer because the MBD can “mask” the detection of cancers. In February 2019, Federal legislation was enacted that requires that the FDA adopt rules requiring that mammography reports include information about breast density and inform women about their breast density.
Our Phase 1 Studies
In 2017 we completed a comprehensive Phase 1 study in 48 healthy women in Australia using both the topical and oral forms of our proprietary Endoxifen. The objectives of this double-blinded, placebo-controlled, Phase 1 study were to assess the pharmacokinetics of our proprietary Endoxifen dosage forms as single (oral) and repeat (oral and topical) doses, as well as to assess safety and tolerability. The study was conducted in two parts based on route of administration.
There were no clinically significant safety signals and no clinically significant adverse events: both the oral and topical Endoxifen were well tolerated. In the topical arm of the study, there were low but detectable Endoxifen levels in the blood in a dose-dependent fashion and in the oral arm of the study participants exhibited dose-dependent Endoxifen levels consistent with published reports of the therapeutic range. The median time for patients in the study to reach the steady-state serum levels of Endoxifen while taking daily doses of oral Endoxifen was approximately seven days. Published literature indicates that it takes approximately 50-200 days for patients to reach steady-state Endoxifen levels when taking daily doses of oral tamoxifen. Finally, the median time for patients in the study to reach the maximum serum level of Endoxifen after taking Atossa’s oral Endoxifen ranged from 4 to 8 hours (depending on dose). The 4 mg dose of Endoxifen produced a maximum serum level of Endoxifen in 4 to 8 hours at levels above the generally accepted threshold for a therapeutic effect on estrogen-dependent breast cancer.
In September 2019, we completed additional Phase 1 work using our capsule Endoxifen and a new modified-release tablet form of our oral Endoxifen. Study results showed that the capsule and tablet were safe and well-tolerated. Because the pharmacokinetic profile of the tablet did not meet the desired pharmacokinetic profile we do not expect to further develop the tablet.
We have also completed a double-blinded, placebo controlled, three arm Phase 1 study of our topical Endoxifen in men which showed that various dose levels of our topical Endoxifen were safe and well tolerated by the 24 study participants over 28 days of dosing.
Our Phase 2 Studies
In April 2019, Stockholm South General Hospital in Sweden completed a randomized, double-blinded placebo-controlled Phase 2 study of our topical Endoxifen in women with measurable MBD. The study was led by principal investigator Dr. Per Hall, MD, Ph.D., Head of the Department of Medical Epidemiology and Biostatistics at Karolinska Institutet. The primary endpoint of this pilot study was to determine if topical Endoxifen reduces individual MBD as measured by mammography. Secondary endpoints included demonstrating safety and tolerability. The primary objective was to determine if topical Endoxifen reduces MBD, and if so by how much, in order to calculate the sample size for statistical significance in a future trial. The study enrolled 90 participants who were equally randomized to three different groups (30 per group): placebo; 10 mg topical Endoxifen; and 20 mg topical Endoxifen. Participants applied the study drug to each breast daily for a maximum of six months. Each participant received a baseline (pre-treatment) mammogram, and additional mammograms at month 3 and 6, or at the time of study exit. Once the study was completed, all mammograms were interpreted and MBD determined and any changes that occurred per patient recorded.
In June 2019, we reported preliminary analysis from our Phase 2 study of proprietary daily topical Endoxifen to reduce MBD, showing significant (p=0.02) and rapid reduction in MBD at the 20 mg daily dose level. MBD was reduced by an average of 14.3% in the group applying 20 mg daily topical Endoxifen, which was statistically significant (p = 0.02). In the 10 mg dose group, MBD was reduced by an average of 9.0%, but was not statistically significant. Approximately 70% of participants receiving 20 mg topical Endoxifen experienced a reduction in MBD, and of those, the mean reduction in MBD was 27%. There were no differences in systemic endocrine or vascular side effects (for example, hot flashes) in the placebo versus active groups. Systemic side effects were measured using a modified validated symptom questionnaire. Approximately 72 participants eventually developed skin rashes and local irritation and did not complete a full six months of dosing. However, these results which are based on MBD measurements at the time of enrollment in the study and again at the time dosing ended, show that even in those participants who dropped out of the study due to skin reactions Endoxifen reduced MBD in a mean of 55 and 88 days for the 20 mg and 10 mg groups, respectively. Our initial evaluation indicates that the skin reactions are due to the active pharmaceutical ingredient. We are not currently planning to further develop our topical Endoxifen.
In December 2019, we contracted with Stockholm South General Hospital in Sweden to conduct a Phase 2 study of our oral Endoxifen to reduce MBD in premenopausal women with measurable breast density. The primary objective of this randomized, double-blinded, placebo-controlled study is to determine if Endoxifen changes MBD compared to placebo and among different doses, with secondary endpoints to assess and characterize safety and tolerability. The study is being led by principal investigator Dr. Per Hall. We expect multiple groups will be dosed with our oral Endoxifen for six months. The study is subject to approval by the European Medical Product Authority and ethics board. We expect to open this study in Stockholm soon after receiving all necessary regulatory approvals, provided COVID-19 restrictions, which are in place now and may be reimposed in the future even if lifted, permit patient recruitment. No assurance can be given that reduction in MBD is an approvable indication or that the regulators will approve opening the study in Sweden.
We recently concluded a Phase 2 study of our oral Endoxifen in Australia in the window of opportunity between diagnosis of breast cancer and surgery. The study enrolled patients newly-diagnosed with ER+ and HER2- stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. Patients received our proprietary oral Endoxifen for at least 14 days from the time of diagnosis up to the day of surgery. The primary endpoint was to determine if the administration of oral Endoxifen reduces the tumor activity as measured by Ki-67 (a measure of cellular proliferation that correlates with tumor growth). The secondary endpoints are safety and tolerability and assessment of the study drug on expression levels of both estrogen and progesterone receptors. In February 2021, we concluded that the study produced substantially positive results and that continuing enrollment in the study would not be useful in advancing the program. We have therefore discontinued the study based in part on results from the first six patients which showed:
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Ki-67 was reduced by more than 50% in every patient in the window of opportunity between initial biopsy and surgery, with an overall relative reduction of 74%.
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All six patients had a Ki-67 below 25% after treatment. In a paper entitled, “Prognostic value of different cut-off levels of Ki-67 in breast cancer: a systematic review and meta-analysis of 64,196 patients,” Ki-67 was an independent prognostic value for predicting overall survival in ER+ breast cancer patients. Ki-67 levels below 25% were associated with the lowest risk of death in this systematic review and meta-analysis.
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Treatment ranged from 16-40 days with an average of 22 days.
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There were no safety or tolerability issues, including vasomotor symptoms such as hot flashes and night sweats, which are often a tolerability challenge for patients on tamoxifen.
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A seventh patient has recently completed the study and will be included in the final data set.
We plan to seek guidance from the FDA on conducting a study in the United States. No assurance can be given that reduction in Ki-67 or any other biomarker in the window of opportunity is an approval indication.
AT-H201 Inhalation Therapy for COVID-19
AT-H201 uses a novel combination of two drugs that have been previously approved by the FDA for other diseases. It is intended to improve compromised lung function for moderate to severely ill, hospitalized COVID-19 patients by inhalation. In May 2020, we completed in vitro testing of AT-H201 that showed that the components of AT-H201 inhibit SARS-CoV-2 infectivity of VERO cells, which is a standard cell type being used to study infectivity of the coronavirus. The AT-H201 components were found to be at least four times more potent than Remdesivir and at least 20 times more potent than Hydroxychloroquine. Potency was measured by microscopic examination of the cytopathic effect caused by SARS-CoV-2 in VERO cells. We received input from the FDA on potential pathways to develop AT-H201 and the FDA requested that we provide, among other things, additional pre-clinical and other information on AT-H201. We have also applied to the regulatory authorities to conduct the initial clinical study of AT-H201 in Australia.
AT-301 COVID-19 Nasal Spray
There are currently no FDA-approved drugs to treat COVID-19 at-home. AT-301 is our proprietary drug candidate intended for nasal administration in patients immediately following diagnosis of COVID-19 but who have not yet exhibited symptoms severe enough to require hospitalization. It is intended for at-home use to reduce symptoms of COVID-19 and to slow the infection rate so that a person’s immune system can more effectively fight COVID-19.
AT-301 is being developed with a nasal spray delivery mechanism because many COVID-19 patients are infected via the nasal passage. Our nasal spray formulation AT-301 is being designed to contain ingredients that can potentially block SARS-CoV-2 viral entry gene proteins in nasal epithelial cells by interfering with spike protein activation by host proteases, by masking receptor binding domains via electrostatic mechanisms, and by providing a generalized mucoadhesive epithelial barrier. In July 2020, we completed in vitro testing of AT-301 which showed that AT-301 inhibits SARS-CoV-2 infectivity of VERO cells in a laboratory culture.
We may also develop our AT-301 nasal spray to potentially help prevent COVID-19 infection - particularly for people in high-risk environments, such as people living with an infected patient, people living and working in healthcare facilities, emergency responders or teachers.
We believe that AT-301 nasal spray will play an important role alongside the traditional vaccines now being deployed, particularly as it becomes clear that it will take months or years for vaccines to be administered around the world. New deadlier and/or more infective variants of COVID-19 are being reported in the U.S. and in many other countries and it is not clear that current vaccines will be completely effective against these and future variants. Additionally, none of the currently available vaccines are 100% effective, they may have more significant side effects in older people, and effectiveness is expected to diminish over time. The intended mechanism of action of AT-301 is to prevent virus entry into human cells by inhibiting the obligatory Spike Protein activation. The activation is performed by three human cell surface enzymes, ACE2, furin, and TMPRSS2, and is therefore unaffected by mutations and variants in SARS-CoV-2.
We have completed a Phase 1 study double-blinded, randomized, and placebo-controlled safety study of AT-301 nasal spray in 32 healthy adult subjects who were divided into two study groups. Part A consists of two single-dose cohorts receiving either active therapy, AT-301B, or the placebo comparator AT-301A at two different doses. Part B was a multiple dose arm with cohorts receiving either AT-301A or AT-301B for 14 days at two different doses. The primary objectives of the study were to evaluate the safety and tolerability of single and multiple doses of AT-301 administered via nasal instillation to healthy volunteers. Secondary objectives were to assess the incidence and severity of local irritation and bronchospasm following administration of AT-301 via nasal instillation. The study was conducted in Australia.
Final analysis of the data from the study indicates that there were no serious adverse events, no discontinuations, no bronchospasms, and only one subject of the 32 subjects in the study experienced adverse events that were considered moderate in severity and all other adverse events were considered mild. Our assessment is that AT-301 nasal spray was safe and well tolerated in this study. The most common treatment-related adverse events observed with AT-301 treatment with either single or multiple doses were nasal discomfort and sneezing.
We recently received input from the FDA on the AT-301 program and based in part on that input, we are now preparing to conduct an additional pre-clinical study, and following that, we expect to apply to the FDA to commence a Phase 2 study in the United States.
Immunotherapy/CAR-T Programs
Our immunotherapy/CAR-T programs are in early stage of development. On November 26, 2020, we entered into a sponsored research agreement with Dana-Farber Cancer Institute, Inc. The agreement provides that Atossa will support research of cytokine-coated nanoparticles for the potential treatment of breast cancer by Carl Novina, MD, Ph.D.
Much of the recent success in the field of chimeric antigen receptor therapy, or CAR-T, has relied on the systemic delivery (for example a needle injection into the blood stream) of the CAR-T which is intended to treat various non-solid tumor cancers, such as blood cancers. One concern with this systemic approach is that it does not target the location of the cancer and it can have adverse effects, including deadly “cytokine storms.” Moreover, CAR-T treatments delivered systemically can be as high as $500,000 per patient.
We have filed patent applications on a novel method to deliver CAR-T cells or other types of immunotherapy into the milk ducts of the breast for the potential targeted treatment of breast cancer. This approach uses targeted intraductal delivery of either T-cells that have been genetically modified to attack breast cancer cells or various other immune-therapies. We believe this intraductal method has several potential advantages including the reduction of toxicity by limiting systemic exposure of the T-cells or immunotherapy; improved efficacy by placing the T-cells or immunotherapy in direct contact with the target ductal epithelial cells that are undergoing or have undergone malignant transformation; and, lymphatic migration of the CAR-T cells or immunotherapy potentially extending their cytotoxic actions into the regional lymph system, which could limit tumor cell dissemination or metastasis. Moreover, our approach may be more cost effective if lower doses of therapy can be delivered compared to systemic CAR-T.
Markets
Potential Market Opportunities
We believe that, based in part on a January 2017 study by Defined Health Inc. (now called Cello Health Bioconsulting), a leading market research firm, the potential U.S. market for our Endoxifen in the breast cancer treatment and prevention settings is up to $1 billion annually.
The Breast Cancer Markets
The American Cancer Society (“ACS”) estimates that in the U.S. in 2021, 281,550 women will be diagnosed with breast cancer, and 43,600 will die from the disease. Although about 100 times less common than in women, breast cancer also affects men. The ACS estimates that in the U.S. in 2021, 2,650 new cases of invasive breast cancer will be diagnosed in men, and 530 men will die from breast cancer.
COVID-19 Global Pandemic
According to the COVID-19 Dashboard by the Center for Systems Science and Engineering at Johns Hopkins University, as of March 15, 2021, approximately 120 million cases of COVID-19 have been reported world-wide and over 2,650,000 people have died from the disease. We believe the potential market for an at-home therapy like AT-301 is large given that most COVID-19 patients are not hospitalized and instead recover at home.
Our Capital Resources
We have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We plan to obtain additional capital resources by selling our equity securities and borrowing from stockholders or others when needed. However, we cannot assure you that we will be successful in accomplishing any of these plans and, if we are unable to obtain adequate capital, we could be forced to cease operations. We do not anticipate any revenue until our pharmaceutical programs are developed, including receiving all necessary regulatory approvals, and until we successfully commercialize these programs.
As of December 31, 2020, we had cash and cash equivalents of $39.6 million and in the first quarter of 2021 through the date of filing this Annual Report, we have received an additional $102.4 million from the sale of common stock and warrants and from the exercise of warrants. Our capital raising activity consisted of the following:
2019 Financing Activities
In March 2019, we received approximately $11.3 million from exercises of the 2018 warrants. As a result of the warrant exercises, we cancelled approximately 2.8 million warrants and issued approximately 2.8 million shares of common stock.
2020 Financing Activities
On February 7, 2020, we entered into an equity distribution agreement with Oppenheimer & Co. Inc., as sales agent for an “at-the-market” (ATM) offering and sale by Atossa of common shares with an aggregate gross sales price of up to $5 million. On April 27, 2020 we began selling shares under the ATM and completed sales during the third quarter of 2020. Net proceeds were approximately $4.7 million from the ATM.
On September 25, 2020, we entered into a new equity distribution agreement with Maxim Group LLC, acting as sales agent for an ATM offering and sale by Atossa of common shares with an aggregate gross sales price of up to $10,000,000 as another potential source of financing. Sales of the shares, if any, will be made at our sole discretion. Sales under the new ATM with Maxim began in October, with approximately $140,000 in total gross proceeds to us as of December 31, 2020. On March 21, 2021, we terminated the equity distribution agreement, previously entered into with Maxim Group LLC. As a result of the termination of the ATM, no further sales of common stock will be made thereunder.
On December 8, 2020, we entered into an underwriting agreement with Maxim Group, LLC, pursuant to which we agreed to issue and sell registered units consisting of an aggregate of: (i) 14,575,000 shares of the Company’s common stock, par value $0.18 per share; (ii) 5,425 Shares of Series C convertible preferred stock, par value $0.001 per share and (iii) warrants convertible into up to 15,000,000 shares of common stock. The warrants included in the units were immediately exercisable at a price of $1.00 per share of common stock and expire four years from the date of issuance. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock was $1.00. The combined purchase price for one share of Series C convertible stock and a purchase warrant to purchase 0.75 shares of common stock was $1,000. On December 28, 2020, the Company also closed on the overallotment which included the sale of an additional 3,000,000 shares of common stock and 2,250,000 warrants under the same terms as described above. Net proceeds in total were approximately $21.0 million, after deducting expenses relating to the offering, including dealer-manager fees and expenses, and excluding any proceeds received upon exercise of any warrants.
On December 17, 2020, we entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 14,000,000 shares of Company common stock. Concurrently with the offering, we also commenced a private placement whereby it issued and sold warrants exercisable for an aggregate of up to 10,500,000 shares of common stock, which represents 75% of the shares of common stock sold in the offering. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock was $1.00. The warrants expire 4.5 years from the anniversary of the date of issuance. Net proceeds were approximately $12.9 million, after deducting expenses relating to the offering, including dealer-manager fees and expenses, and excluding any proceeds received upon exercise of any warrants.
2021 Financing Activities
On January 6, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 23,850,000 shares of Company common stock, par value $0.18 per share and warrants to purchase 17,887,500 shares of common stock. The combined purchase price for one share of common stock and a warrant to purchase 0.75 shares of common stock was $1.055. Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants expire on the 4.5 year anniversary of the date of issuance and have an exercise price of $1.055 per share. The common stock and warrants have been registered under the Securities Act of 1933, as amended. Pursuant to a letter agreement, dated as of January 6, 2021, between the Company and the placement agent Maxim Group LLC, we agreed to pay the placement agent a cash fee of 7% of the aggregate gross proceeds. We also agreed to reimburse the placement agent for expenses, including legal fees which shall be limited to, in the aggregate, $45,000. The offering closed on January 8, 2021 with net proceeds to us from the offering of approximately $23.3 million, after deducting fees and expenses.
On March 22, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 17,361,100 shares of our common stock, par value $0.18 per share. Concurrently with the offering, and pursuant to the purchase agreement, we also commenced a private placement whereby we issued and sold warrants exercisable for an aggregate of up to 13,020,825 shares of common stock, which represents 75% of the shares of common stock sold in the offering. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock is $2.88. Subject to certain ownership limitations, the warrants are exercisable upon issuance and will expire on the 4.5 year anniversary of the date of issuance. None of the warrants, nor the warrant shares, have been registered under the Securities Act of 1933, as amended. We agreed to pay the placement agent a cash fee of 7% of the aggregate gross proceeds of the offering and the private placement. We also agreed to reimburse the placement agent for expenses, including the legal fees which shall be limited to, in the aggregate, $45,000. We estimate our total expenses associated with the offering, excluding placement agent fees and expenses, will be approximately $70,000. The offering closed on March 23, 2021 with net proceeds to us from the offering of approximately $46.4 million, after deducting fees and expenses.
2021 Warrant Activity
From January 1 through March 24, 2021, we received approximately $19.5 million from exercises of the 2020 warrants, with an exercise price of $1.00 per share. As a result of the warrant exercises, we cancelled approximately 19.5 million warrants and issued approximately 19.5 million shares of common stock. During the same period, we also received approximately $13.3 million from exercises of the January 2021 warrants, with an exercise price of $1.055. As a result of the warrant exercises, we cancelled approximately 12.6 million warrants and issued approximately 12.6 million shares of common stock.
Potential Uses of Capital Resources
We intend to use our capital resources to execute on our business plan, which may include acquiring or in-licensing additional programs. We may also use our capital resources to invest directly or indirectly in business opportunities in healthcare or other industries including through purchases of equity in other companies. These investments may be in special purpose acquisition companies either as a sponsor or as an equity investor. Our business plan may evolve to require more capital resources than currently contemplated either because our existing programs progress more quickly or at a greater expense than currently anticipated or because we add additional programs.
Research and Development Phase
Research and development costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expenses for our drugs under development, expenses associated with clinical trials and associated salaries and benefits. R&D expenses also include an estimated allocation of the CEO's salary and related benefits including non-cash stock-based compensation expense based on time devoted to R&D. Research and development expenses for the years ended December 31, 2020 and 2019 were $6,608,392 and $6,645,417, respectively.
Intellectual Property
We own patent applications directed to Endoxifen, treatments for COVID-19, and immunotherapies such as CAR-T therapies. We commonly seek patent claims directed to compositions of matter to therapeutics, including Endoxifen as well as methods of using such compositions. For each of our products, we have filed and expect to file multiple additional patent applications﻿. As of February 26, 2021, based on a review of our patent estate, we own and are pursuing 52 pending patent applications (17 U.S. applications and 35 international applications) directed to our Endoxifen, immunotherapies such as CAR-T therapeutics and COVID-19 therapeutics programs. In addition, we hold patents and patent applications directed to devices, including those covering our ForeCyte, FullCyte and Acueity devices, kits, various compositions and methods of using them that are no longer core to our business or have short patent terms remaining on them. As a company focused on therapies in oncology and infectious diseases, we are not developing or commercializing any of our medical devices, including our breast aspirator devices, transportation kits, tools for breast surgeons, and nipple aspirate fluid (NAF) cytology tests or methods of using such devices, kits or tests - nor do we maintain an inventory of our medical devices. We continue to evaluate our patent portfolio on an ongoing basis and, as a clinical-stage pharmaceutical company, no longer file, prosecute, maintain, or defend our patents and patent applications directed to any of our medical devices, kits, tests, and compositions not core to our business or to methods of using the foregoing due to short patent terms remaining on them and changed business goals.
As of February 26, 2021, the following are the estimated number of patents(2) related to our programs that we are currently pursuing.
Pending Applications(1, 2, 4)
Approximate Expiry Date(3)
U.S.
International
Endoxifen Programs
2038 - 2040
COVID-19 Programs
Immunotherapy/CAR-T Program
2037-2039
1. Each patent application includes at least one claim or disclosure directed to a listed therapeutic/program.
2. The patent counts in the table above may differ from the total numbers of the patent applications in the Atossa portfolio as the patent counts in the table above reflect that a patent application may have claims directed to more than one type of therapeutic/program.
3. The patent counts and the approximate expiry dates disclosed herein and in our patent estate are subject to change, for example, in the event of changes in the law, post-grant patent challenges, or legal rulings affecting our patents and applications or if we become aware of new information or amend our business goals. The standards that the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that will be adequate to conduct our business as planned. Additionally, any issued patents we currently own or obtain in the future may have a shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our products.
4. The standards that the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the scope, type and extent of patent claims that will be adequate to conduct our business as planned. Additionally, any issued patents we currently own or obtain in the future may have a shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our product﻿.
Manufacturing, Clinical Studies and Associated Operations
Our drug development strategy utilizes third party contractors for the procurement and manufacture, as applicable, of raw materials, active pharmaceutical ingredients and finished drug products, as well as for storage, and distribution of our products and associated supply chain operations. We also plan to rely on third parties to conduct nonclinical and clinical studies of our drugs under development. As our development programs advance, we expect that our manufacturing, pre-clinical and clinical studies, and related operational requirements will correspondingly increase. Each third-party contractor undergoes a qualification process by Atossa subject matter experts prior to signing any service agreement and initiating any third-party work.
Integral to our development strategy is our quality program, which includes standard operating procedures and specifications with the goal that our work complies with Good Clinical (GCP), Good Laboratory (GLP) and Good Manufacturing Practices (cGMP), and other applicable global regulations. We expect and confirm that selected service providers meet or exceed our expectations for compliance with these standards in providing services and products that meet our requirements.
We believe our operational strategy of utilizing qualified contractors and suppliers in the foregoing manner allows us to direct our financial and managerial resources to development and commercialization activities, rather than to the establishment and maintenance of manufacturing and clinical infrastructure.
Government Regulation
Drug Regulations
We are subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations set forth, among other things, regulations for the execution of clinical studies, and the requirements for the testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. Our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be important differences. Additionally, some significant aspects of regulation in the E.U. are addressed in a centralized procedure through the Europe Medicines Agency (EMA) and the European Commission, but country-specific regulation by the competent authorities of the E.U. member states remains essential in many respects.
U.S. Regulations
In the U.S., the FDA regulates drugs under the FDCA and its implementing regulations, through review and ultimately approval of the New Drug Applications (NDAs). NDAs require extensive studies and submission of a large amount of data by the applicant, which is an amalgamation of data obtained under Investigational New Drug Application (INDs) and other supporting available information.
Drug Development
Nonclinical Testing: Before testing any compound in human subjects in the U.S., extensive nonclinical data is required. Nonclinical testing generally consists of toxicological and pharmacological studies in animals. Studies must be performed in compliance with the FDA’s GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act.
IND Application: In nearly all cases, human clinical trials in the U.S. cannot commence until an IND is submitted to the FDA for review and a “Safe to Proceed” letter has been provided to the sponsor. The sponsor must prepare a dossier of information that includes the results of nonclinical studies; detailed drug manufacturing information and test results; and proposed clinical studies, design and development strategy. The FDA then evaluates if there is an adequate basis for testing the drug in an initial (human) clinical study. Unless the FDA raises concerns, the IND application becomes effective 30 days following its receipt by the FDA at which time written notification is provided. Once human clinical trials have commenced, the sponsor is obligated to report serious side and unexpected effects to the FDA. The FDA may suspend a clinical trial by placing it on “clinical hold” if the FDA has concerns about the safety of the product being tested, subject risks, investigator actions, related product information or for other reasons.
Clinical Trials: Clinical trials involve the administration of the drug to healthy human volunteers or to patients, under the supervision of a qualified investigator according to a vetted and approved protocol.
The conduct of clinical trials is subject to extensive regulation, including compliance with the FDA’s bioresearch monitoring regulations and GCP, requirements, which establish standards for conducting, recording data from and reporting the results of, clinical trials, and are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected. Clinical trials must be conducted under written and approved protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is reviewed by the FDA as part of the IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an institutional review board, or IRB, at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial and timely reporting adverse events. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the U.S. Data from a foreign study not conducted under an IND application may be submitted in support of an NDA if the study was conducted in accordance with GCP and the FDA is able to validate the data.
A study sponsor is required to submit certain details about active clinical trials and clinical trial results to the National Institutes of Health for public posting on http://clinicaltrials.gov. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another:
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Phase 1 clinical trials include the initial administration of the investigational drug to humans, typically to a small group of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase 1 clinical trials generally are intended to determine the metabolism and pharmacologic actions of the drug, the side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.
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Phase 2 clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population, and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects.
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Phase 3 clinical trials are conducted after preliminary evidence of effectiveness has been obtained, and are intended to gather the additional information about safety and effectiveness necessary to evaluate the drug’s overall risk-benefit profile, and to provide a basis for physician labeling. Generally, Phase 3 clinical development programs consist of expanded, large-scale studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug, or the safety, purity, and potency of a biological product, at the proposed dosing regimen.
The sponsoring company, the FDA or the IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Further, success in early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or prevent regulatory approval.
There are regulatory pathways that can accelerate the speed with which a product can be developed, including a Special Protocol Assessment (SPA), Break-through therapy designation, etc. The designations are obtained from the FDA on a case-by-case basis and do not guarantee the ultimate approval of a product for commercialization.
Drug Approval
Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical trials, together with other detailed information, including information on the manufacture and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort and financial resources. Submission of an NDA requires payment of a review user fee to the FDA, which will be $2,875,842 for fiscal year 2021. The FDA will review the application and may deem it to be inadequate to support commercial marketing, and there can be no assurance that any product approval will be granted on a timely basis, if at all. The FDA may also seek the advice of an advisory committee, typically a panel of clinicians practicing in the field for which the product is intended, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee.
The FDA has various programs, including break-through therapy, fast track, priority review and accelerated approval that are intended to expedite or simplify the process for reviewing drugs and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that provide meaningful benefit over existing treatments. We cannot be sure that any of our drugs will qualify for any of these programs, or that, if a drug does qualify, the review time will be reduced or the product will be approved.
Before approving an NDA, the FDA usually inspects the clinical sites with the greatest accrual to confirm the veracity of the clinical data, execution of the clinical study and protection of patient safety. The FDA will inspect the facility or the facilities where the product is manufactured, tested and distributed. Approval is not granted if these inspections raise concerns about the execution of the clinical studies or there is a lack of cGMP compliance. If the FDA evaluates the NDA and determines the clinical trial execution and manufacturing facilities as acceptable, the FDA may issue an approval letter. If the NDA is not approved, the FDA issues a complete response letter which is only issued for applications that are not approved. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or efficacy, or impose other post-approval commitment conditions.
In some circumstances, post-marketing testing may include post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, which are used primarily to gain additional experience from the treatment of patients in the intended population, particularly for long-term safety follow-up. In addition, the FDA may require a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits outweigh the risks. A REMS can include medication guides, physician communication plans and elements to assure safe use, such as restricted distribution methods, patient registries or other risk mitigation tools.
After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical trials be conducted.
Post-Approval Requirements
Holders of an approved NDA are required to: (i) report certain adverse reactions to the FDA; (ii) comply with certain requirements concerning advertising and promotional labeling for their products; and (iii) continue to have cGMP compliance and all aspects of product manufacturing in a “state of control.” The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. Future FDA inspections may identify compliance issues at manufacturing facilities that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market.
Marketing of prescription drugs is also subject to significant regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse. After approval in the U.S., we must comply with FDA’s regulation of drug promotion and advertising, including restrictions on off-label promotion, and we comply with federal anti-kickback statutes, limitations on gifts and payments to physicians and reporting of payments to certain third parties, among other requirements.
Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as clinical holds, FDA refusal to approve pending NDAs or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.
Non-U.S. Regulation
Before our products can be marketed outside of the U.S., they are subject to regulatory approval similar to that required in the U.S., although the requirements governing the conduct of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product.
In the E.U., marketing authorizations for medicinal products can be obtained through several different procedures founded on the same basic regulatory process. The centralized procedure is mandatory for certain medicinal products, including orphan medicinal products, medicinal products derived from certain biotechnological processes, advanced therapy medicinal products and certain other new medicinal products containing a new active substance for the treatment of certain diseases. It is optional for certain other products, including medicinal products that are significant therapeutic, scientific or technical innovations, or whose authorization would be in the interest of public or animal health. The centralized procedure allows a company to submit a single application to the EMA which will provide a positive opinion regarding the application if it meets certain quality, safety, and efficacy requirements. Based on the opinion of the EMA, the European Commission takes a final decision to grant a centralized marketing authorization which is valid in all 28 E.U. Member States and three of the four European Free Trade Association states (Iceland, Liechtenstein and Norway). Cancer products are usually required to go through the centralized procedure.
Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and leads to separate approval by, the competent authorities of each E.U. Member State in which the product is to be marketed. One national competent authority selected by the applicant, the Reference Member State, assesses the application for marketing authorization. Following a positive opinion by the competent authority of the Reference Member State the competent authorities of the other E.U. Member States, Concerned Member States are subsequently required to grant marketing authorization for their territory on the basis of this assessment except where grounds of potential serious risk to public health require this authorization to be refused. The mutual recognition procedure is similarly based on the acceptance by the competent authorities of the Concerned Member States of the marketing authorization of a medicinal product by the competent authorities of other Reference Member States. The holder of a national marketing authorization granted by a Reference Member State may submit an application to the competent authority of a Concerned Member State requesting that this authority mutually recognize the marketing authorization delivered by the competent authority of the Reference Member State.
Similar to accelerated approval regulations in the U.S., conditional marketing authorizations can be granted in the E.U. by the European Commission in exceptional circumstances. A conditional marketing authorization can be granted for medicinal products where a number of criteria are fulfilled; i) although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, the benefit/risk balance of the product is positive, ii) it is likely that the applicant will be in a position to provide the comprehensive clinical data, iii) unmet medical needs will be fulfilled and iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization must be renewed annually.
Even if a product receives authorization in the E.U., there can be no assurance that reimbursement for such product will be secured on a timely basis or at all. Individual countries comprising the E.U. member states, rather than the E.U., have jurisdiction across the region over patient reimbursement or pricing matters. Therefore, we will need to expend significant effort and expense to establish and maintain reimbursement arrangements in the various countries comprising the E.U. and may never succeed in obtaining widespread reimbursement arrangements therein.
The national authorities of the individual E.U. Member States are free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. Some E.U. Member States adopt policies according to which a specific price or level of reimbursement is approved for the medicinal product. Other E.U. Member States adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market, including volume-based arrangements and reference pricing mechanisms.
Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some E.U. Member States. These E.U. Member States include the U.K, France, Germany and Sweden. The HTA process, which is governed by the national laws of these countries, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product vary between E.U. Member States.
Post-Approval Regulation
Similarly to the U.S., both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual E.U. Member States both before and after grant of the manufacturing and marketing authorizations. Failure by us or by any of our third-party partners, including suppliers, manufacturers and distributors to comply with E.U. laws and the related national laws of individual E.U. Member States governing the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products and marketing of such products, both before and after grant of marketing authorization, may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.
The holder of an E.U. marketing authorization for a medicinal product must also comply with E.U. pharmacovigilance legislation and its related regulations and guidelines, which entail many requirements for conducting pharmacovigilance, or the assessment and monitoring of the safety of medicinal products. These rules can impose on central marketing authorization holders for medicinal products the obligation to conduct a labor intensive collection of data regarding the risks and benefits of marketed products and to engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical studies, which may be time consuming and expensive and could impact our profitability. Non-compliance with such obligations can lead to the variation, suspension or withdrawal of the marketing authorization for the product or imposition of financial penalties or other enforcement measures.
The manufacturing process for medicinal products in the E.U., is highly regulated: regulators may shut down manufacturing facilities that they believe do not comply with regulations. Manufacturing requires a manufacturing authorization, and the manufacturing authorization holder must comply with various requirements set out in the applicable E.U. laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with E.U. cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the E.U. with the intention to import the active pharmaceutical ingredients into the E.U. Similarly, the distribution of medicinal products into and within the E.U. is subject to compliance with the applicable E.U. laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the E.U. Member States.
We and our third-party manufacturers are subject to cGMP, which are extensive regulations governing manufacturing processes, stability testing, record keeping and quality standards as defined by the EMA, the competent authorities of E.U. Member States and other regulatory authorities. The EMA reviews Periodic Safety Update Reports for medicinal products authorized in the E.U. If the EMA has concerns that the risk benefit profile of a product has varied, it can adopt an opinion advising that the existing marketing authorization for the product be suspended or varied and can advise that the marketing authorization holder be obliged to conduct post-authorization safety studies. The EMA opinion is submitted for approval by the European Commission. Failure by the marketing authorization holder to fulfill the obligations for which the approved opinion provides can undermine the on-going validity of the marketing authorization.
Sales and Marketing Regulations
In the E.U., the advertising and promotion of our products are subject to E.U. Member States’ laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other legislation adopted by individual E.U. Member States may apply to the advertising and promotion of medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off-label promotion. The off-label promotion of medicinal products is prohibited in the E.U. The applicable laws at E.U. level and in the individual E.U. Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the E.U. could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public and may also impose limitations on our promotional activities with health care professionals.
Anti-Corruption Legislation
Our business activities outside of the U.S. are subject to anti-bribery or anti-corruption laws, regulations, industry self-regulation codes of conduct, and physicians’ codes of professional conduct or rules of other countries in which we operate, including the U.K. Bribery Act of 2010.
Interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct developed at both E.U. level and in the individual E.U. Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited in the E.U. Violation of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain E.U. Member States also must be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, his/her competent professional organization, and/or the competent authorities of the individual E.U. Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
Data Privacy and Protection
Data protection laws and regulations have been adopted at E.U. level with related implementing laws in individual E.U. Member States which impose significant compliance obligations. For example, the E.U. Data Protection Directive, as implemented into national laws by the E.U. Member States, imposes strict obligations and restrictions on the ability to collect, analyze, and transfer personal data, including health data from clinical trials and adverse event reporting. Furthermore, there is a growth towards the public disclosure of clinical trial data in the E.U. which also adds to the complexity of processing health data from clinical trials. Such public disclosure obligations are provided in the new E.U. Clinical Trials Regulation, EMA disclosure initiatives, and voluntary commitments by industry. Data protection authorities from the different E.U. Member States may interpret the E.U. Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the E.U., and guidance on implementation and compliance practices are often updated or otherwise revised. Apart from exceptional circumstances, the E.U. Data Protection Directive prohibits the transfer of personal data to countries outside of the European Economic Area that are not considered by the European Commission to provide an adequate level of data protection including the U.S.
Further, the E.U. has recently adopted a comprehensive overhaul of its data protection regime from the current national legislative approach to a single European Economic Area Privacy Regulation, the General Data Protection Regulation 2016/679/EU (“GDPR”), which came into effect in May 25, 2018. The GDPR extends the scope of the E.U. data protection law to all foreign companies controlling, processing, and/or using data of E.U. residents. It imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide turnover and €20 million and includes new rights such as the “right to be forgotten” and “portability” of personal data, with more onerous requirements related to pseudo-anonymization and anonymization of personal data. Further, the scope of “personal data” has been expanded to include genetic data, and data concerning health and adverse event reporting from clinical trials.
Privacy and Security of Health Information and Personal Information; Standard Transactions
We are subject to state and federal laws and implementing regulations relating to the privacy and security of the medical information of the patients it treats. The principal federal legislation is part of HIPAA. Pursuant to HIPAA, the Secretary of the Department of Health and Human Services, or HHS, has issued final regulations designed to improve the efficiency and effectiveness of the healthcare system by facilitating the electronic exchange of information in certain financial and administrative transactions, while protecting the privacy and security of the patient information exchanged. International regulations (such as the current Directive 95/46/EC and the GDPR and their implementing regulations) also provide privacy protection to clinical trial participants of their personal health care information. We take appropriate steps to protect the privacy of our clinical study participants.
Federal and State Fraud and Abuse Laws
The federal healthcare Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce referrals or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any healthcare item or service reimbursable under a governmental payor program. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests, opportunity to earn income, and providing anything at less than its fair market value. The Anti-Kickback Statute is broad, and it prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, HHS has issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain provisions that, if met, will provide healthcare providers and other parties with an affirmative defense against prosecution under the federal Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued.
From time to time, the Office of Inspector General, or OIG, issues alerts and other guidance on certain practices in the healthcare industry. In October 1994, the OIG issued a Special Fraud Alert on arrangements for the provision of clinical laboratory services. The Fraud Alert set forth a number of practices allegedly engaged in by some clinical laboratories and healthcare providers that raise issues under the “fraud and abuse” laws, including the Anti-Kickback Statute.
Compliance Program
Compliance with government rules and regulations is a significant concern throughout the industry, in part due to evolving interpretations of these rules and regulations. We seek to conduct our business in compliance with all statutes and regulations applicable to our operations. To this end, we have established a compliance program that reviews for regulatory compliance procedures, policies, and facilities throughout our business. Failure to comply with applicable requirements may subject us to administrative or judicial sanctions, such as clinical holds, refusal of regulatory authorities to approve or authorize pending product applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, monetary penalties, injunctions and/or criminal prosecution.
Legal Proceedings
See “PART I, ITEM 3. LEGAL PROCEEDINGS” in this Annual Report, which is incorporated into this PART I, ITEM 1 by this reference.
Employees
As of the date of filing this report, we employ two executive officers, four full-time employees and two part-time employees. We expect that we will hire more employees as we expand.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, and incentivizing our management team and our clinical, scientific and other employees and consultants. The principal purposes of our equity and bonus plans are to attract, retain and motivate personnel through the granting of stock-based and cash-based compensation awards, to align our interests and the interests of our stockholders with those of our employees and consultants. Our compensation committee approves associated merit increases and annual incentive bonus payments during the first quarter annually. When needed, we augment our employee base with outside consultants who specialize in various fields.
Executive officers
The names of our executive officers and their ages as of December 31, 2020 are as follows:
Name
Age
Position
Executive Officers:
Steven C. Quay, M.D., Ph.D.
Chairman of the Board, President and Chief Executive Officer
Kyle Guse, Esq., CPA (inactive)
Chief Financial Officer, General Counsel and Secretary
Steven C. Quay, M.D., Ph.D. Dr. Quay has served as Chief Executive Officer, President and Chairman of the Board of Directors of the Company since the Company was incorporated in April 2009. Dr. Quay is certified in Anatomic Pathology with the American Board of Pathology and completed both an internship and residency in anatomic pathology at Massachusetts General Hospital, a Harvard Medical School teaching hospital. He is a former faculty member of the Department of Pathology, Stanford University School of Medicine. Dr. Quay is an inventor, with 87 U.S. patents, 139 pending patent applications and is a named inventor on patents covering five pharmaceutical products that have been approved by the U.S. Food and Drug Administration. Dr. Quay received an M.D. in 1977 and a Ph.D. in 1975 from the University of Michigan Medical School. He also received his B.A. degree in biology, chemistry and mathematics from Western Michigan University in 1971.
Kyle Guse, Esq., CPA (inactive). Mr. Guse has served as Chief Financial Officer, General Counsel and Secretary since January 2013. His experience includes more than 25 years of counseling life sciences and other rapid growth companies through all aspects of finance, corporate governance, securities laws and commercialization. Mr. Guse has practiced law at several of the largest international law firms, including from January 2012 through January 2013 as a partner at Baker Botts LLP and, prior to that, from October 2007 to January 2012, as a partner at McDermott Will & Emery LLP. Before working at McDermott Will & Emery, Mr. Guse previously served as a partner at Heller Ehrman LLP. Mr. Guse began his career as an accountant at Deloitte & Touche and he is a licensed Certified Public Accountant (inactive) and member of the Bar in the State of California. Mr. Guse earned a B.S. in business administration and an M.B.A. from California State University, Sacramento, and a J.D. from Santa Clara University School of Law.
Insurance
We currently maintain director’s and officer’s insurance, key-man life insurance for our Chief Executive Officer, commercial general and office premises liability insurance, insurance on our clinical studies, and product errors and omissions liability insurance for our products and services.
Recent Developments
On March 29, 2021, the Board of Directors approved an amendment to the 2020 Stock Incentive Plan to increase the plan by 15 million shares, subject to stockholder approval.
Research and Development Phase
We are in the research and development phase and are not currently marketing any products or services. We do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs.

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ITEM 1A. RISK FACTORS
ITEM 1A.
RISK FACTORS
Purchasing of our shares of common stock is an investment in our securities and involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this Annual Report, before purchasing our securities. If any of the following risks actually occur, our business, financial condition and results of operations would likely suffer. In that case, the market price of the common stock could decline, and you may lose part or all of your investment in our company. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations.
Risks Relating to our Business
We have only a limited operating history, and, as such, an investor cannot assess our profitability or performance based on past results.
We were incorporated in Delaware in April 2009. Initially, our operations were focused on establishing our CLIA-certified laboratory and commercializing our medical devices and laboratory tests. In December 2015, we sold our laboratory, ceased generating revenue, ceased developing and commercializing our medical devices, kits, and tests, and refocused our business on the development of novel therapeutics and delivery methods for the treatment of breast cancer and other breast conditions. In the first quarter of 2020, we began development of a novel potential therapy for hospitalized COVID-19 patients and in the second quarter 2020 we launched a second COVID-19 program for patients who do not require hospitalization. However, this is a departure from our historical focus on breast cancer and we have no operating history as a company in developing treatments for infectious diseases. Because of our limited operating history, particularly in the area of pharmaceutical development, our revenue and income potential is uncertain and cannot be based on prior results. Any evaluation of our business and prospects must be considered in light of these factors and the risks and uncertainties often encountered by companies in the development stage. Some of these risks and uncertainties include our ability to:
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commence, execute and obtain successful results from our clinical studies;
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obtain regulatory approvals in the U.S. and elsewhere for our pharmaceuticals we are developing;
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work with contract manufacturers to produce our pharmaceuticals under development in clinical and commercial quantities on acceptable terms and in accordance with required standards;
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respond effectively to competition;
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manage growth in operations;
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respond to changes in applicable government regulations and legislation;
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access additional capital when required; and
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attract and retain key personnel.
We have not established sources of ongoing revenue to cover operating costs and allow us to continue as a going concern.
Although we have sufficient capital resources to fund our operations for the next four years based on our current business plan, our business plan may change and may require greater expenditures of capital than currently anticipated. We have not yet established an ongoing source of revenue sufficient to cover operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we may be unable to develop and commercialize our product offerings or geographic reach and we could be forced to cease operations.
If we do not raise additional capital, we anticipate liquidity issues in the next four years.
For the year ended December 31, 2020, we incurred a net loss of $17,827,952 and we had an accumulated deficit of $111,898,992. As of December 31, 2020, we had cash and cash equivalents of $39.6 million and in the first quarter of 2021 through the date of filing this Annual Report, we have received an additional $102.4 million from the sale of common stock and warrants as well as warrant exercises. As of the date of filing this Annual Report with the SEC, we expect that our existing resources will be sufficient to fund our planned operations for at least the next four years. We have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We currently have no products and services approved for commercialization. We may not receive or maintain regulatory clearance for our products and other sources of capital may not be available when we need them or on acceptable terms. If we are unable to raise in a timely fashion the amount of capital we anticipate needing, we would be forced to curtail or cease operations.
We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms.
When we elect to raise additional funds or when additional funds are required, we may raise such funds from time to time through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. These financing arrangements may not be available on acceptable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from developing our pharmaceutical candidates, pursuing acquisitions, invest in other companies including as a sponsor or investor in special purpose acquisition companies, licensing, development and commercialization efforts, and our ability to continue operations, generate revenues, and achieve or sustain profitability will be substantially harmed.
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and 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. Any debt financing or additional equity, including securities convertible into or exercisable for equity securities, that we raise may contain terms, such as liquidation, conversion and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our operations.
Failure to raise additional capital as needed could adversely affect us and our ability to develop our products.
We expect to spend substantial amounts of capital to:
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develop our pharmaceutical programs, including our COVID-19 program;
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perform clinical studies for the pharmaceuticals we are developing;
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continue our research and development activities to advance our product pipeline;
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obtain clinical supplies of the pharmaceuticals for the programs we are developing; and
● pursue acquisitions, invest in other companies including as a sponsor or investor in special purpose acquisition companies, enter into licensing, development and other commercialization arrangements.
We have not identified other sources for additional funding and we cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may have to significantly delay, scale back or discontinue the commercialization of our products or our research and development activities. Furthermore, such lack of funds may inhibit our ability to respond to competitive pressures or unanticipated capital needs, or may force us to reduce operating expenses, which could significantly harm the business and development of operations.
We may expend our capital resources in ways that you don't agree or that don't produce stockholder value
We intend to use our capital resources to execute on our business plan, which may include acquiring or in-licensing additional programs. We may also use our capital resources to invest directly or indirectly in business opportunities in healthcare or other industries including through purchases of equity in other companies. These investments may be in special purpose acquisition companies either as a sponsor or as an equity investor. Our business plan may evolve to require more capital resources than currently contemplated either because our existing programs progress more quickly or at a greater expense than currently anticipated or because we add additional programs. You may not agree with the ways in which we expend our capital resources and we may not produce stockholder value from the ways we deploy our capital.
We have a history of operating losses and we expect to continue to incur losses in the future.
We have a limited operating history and have incurred net losses each year. Our net loss for the year ended December 31, 2020 was $17,827,952. We will continue to incur further losses in connection with research and development costs for development of our programs, including ongoing and additional clinical studies.
Our business may be affected by legal proceedings.
We have been in the past, and may become in the future, involved in legal proceedings.
You should carefully review and consider the various disclosures we make in our reports filed with the SEC regarding legal matters that may affect our business. Civil and criminal litigation is inherently unpredictable and outcomes can result in excessive verdicts, fines, penalties and/or injunctive relief that can affect how we operate our business. Monitoring and defending against legal actions, whether or not meritorious, and considering stockholder demands, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant. We cannot predict with certainty the outcome of any legal proceeding in which we become involved, and it is difficult to estimate the possible costs to us stemming from these matters. Settlements and decisions adverse to our interests in legal actions could result in the payment of substantial amounts and could have a material adverse effect on our cash flow, results of operations, and financial position.
Raising funds by issuing equity or debt securities could dilute the value of the Common Stock and impose restrictions on our working capital.
If we raise additional capital by issuing equity securities or through the exercise of warrants currently outstanding or that we may issue in the future, the value of the then outstanding common stock may be reduced. If the additional equity securities are issued at a per share price less than the per share value of the outstanding shares, then all of the outstanding shares would suffer a dilution in value with the issuance of such additional shares. Further, the issuance of debt securities in order to obtain additional funds may impose restrictions on our operations and may impair our working capital as we service any such debt obligations.
The products we may develop may never achieve significant commercial market acceptance.
We may not succeed in achieving commercial market acceptance of any of our products. In order to gain market acceptance for the drugs under development, we will need to demonstrate to physicians and other healthcare professionals the benefits of these therapies including the clinical and economic application for their particular practice. Many physicians and healthcare professionals may be hesitant to introduce new services or techniques into their practice for many reasons, including lack of time and resources, the learning curve associated with the adoption of such new services or techniques into already established procedures, and the uncertainty of the applicability or reliability of the results of a new product. In addition, the availability of full or even partial payment for our products, whether by third-party payors (e.g., insurance companies), or the patients themselves, will likely heavily influence physicians’ decisions to recommend or use our products.
The loss of the services of our Chief Executive Officer could adversely affect our business.
Our success is dependent in large part upon the ability to execute our business plan, manufacture our pharmaceutical drugs and attract and retain highly skilled professional personnel. In particular, due to the relatively early stage of our business, our future success is highly dependent on the services of Steven C. Quay, our Chief Executive Officer and founder, who provides much of the necessary experience to execute our business plan.
We may experience difficulty in locating, attracting, and retaining experienced and qualified personnel, which could adversely affect our business.
We will need to attract, retain, and motivate experienced clinical development and other personnel, particularly in the greater Seattle area as we expand our pharmaceutical development activities. These employees may not be available in this geographic region. In addition, competition for these employees is intense and recruiting and retaining skilled employees is difficult, particularly for a development-stage organization such as ours. If we are unable to attract and retain qualified personnel, our development activities may be adversely affected.
Compounds and methods that appear promising in research and development may fail to reach later stages of development for a number of reasons, including, among others, that clinical trials may take longer to complete than expected or may not be completed at all, and interim, top-line or preliminary clinical trial data reports may ultimately differ from actual results once data are more fully evaluated.
Successful development of anti-cancer and other pharmaceutical products is highly uncertain, and obtaining regulatory approval to market drugs to treat cancer and other breast conditions is expensive, difficult, and speculative. Compounds that appear promising in research and development may fail to reach later stages of development for several reasons, including, but not limited to:
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an unacceptable safety profile;
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lack of efficacy;
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delay or failure in obtaining necessary U.S. and international regulatory approvals, or the imposition of a partial or full regulatory hold on a clinical trial;
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difficulties in formulating a compound, scaling the manufacturing process, timely attaining process validation for particular drug products, and completing manufacturing to support clinical studies;
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pricing or reimbursement issues or other factors that may make the product uneconomical to commercialize;
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production problems, such as the inability to obtain raw materials or supplies satisfying acceptable standards for the manufacture of our products;
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equipment obsolescence, malfunctions or failures, product quality/contamination problems or changes in regulations requiring manufacturing modifications;
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inefficient cost structure of a compound, finished drug, or device compared to alternative treatments;
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obstacles resulting from proprietary rights held by others, such as patent rights for a particular compound;
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lower than anticipated rates of patient enrollment as a result of factors, such as the number of patients with the relevant conditions, the proximity of patients to clinical testing centers, perceived cost/benefit of participating in the study, eligibility criteria for tests, and competition with other clinical testing programs;
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nonclinical or clinical testing requiring significantly more time than expected, resources or expertise than originally expected and inadequate financing, which could cause clinical trials to be delayed or terminated;
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failure of clinical testing to show potential products to be safe and efficacious, and failure to demonstrate desired safety and efficacy characteristics in human clinical trials;
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suspension of a clinical trial at any time by us, an applicable collaboration partner or a regulatory authority on the basis that the participants are being exposed to unacceptable health risks or for other reasons;
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delays in reaching or failing to reach agreement on acceptable terms with manufacturers or prospective clinical research organizations ("CROs"), and trial sites;
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availability of vaccines developed by others may reduce the demand and commercial opportunities for our COVID-19 drug candidates; and
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failure of third-parties, such as clinical research organizations, academic institutions, collaborators, cooperative groups, and/or investigator sponsors, to conduct, oversee, and monitor clinical trials and results.
In addition, from time to time we expect to report interim, top-line or “preliminary” data for clinical trials, including for example the interim results reported in May 2020 for our window of opportunity Phase 2 study. Such data are based on a preliminary analysis of then-available efficacy and safety data, and such findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Interim, top-line or preliminary data are based on important assumptions, estimations, calculations and information then available to us to the extent we have had, at the time of such reporting, an opportunity to fully and carefully evaluate such information in light of all surrounding facts, circumstances, recommendations and analyses. As a result, interim, top-line or “preliminary” results may differ from future results, or different conclusions or considerations may qualify such results once existing data have been more fully evaluated. In addition, third parties, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular compound and our business in general.
For example, some participants in the Phase 2 MBD study we conducted in Stockholm, Sweden despite showing reduced MBD as a result of using our topical Endoxifen exited the study before completing a full six months of dosing because of skin irritation and rashes.
If the development of our products is delayed or fails, or if top-line or preliminary clinical trial data reported differ from actual results, our development costs may increase and the ability to commercialize our products may be harmed, which could harm our business, financial condition, operating results or prospects.
We may not obtain or maintain the regulatory approvals required to develop or commercialize some or all of our products.
We are subject to rigorous and extensive regulation by the FDA in the U.S. and by comparable agencies in other jurisdictions, including the Europe Medicines Agency ("EMA") in the European Union ("E.U.") and the Therapeutic Goods Administration (TGA) in Australia.
Our product candidates are currently in research or development and we have not received marketing approval for our products. Our products may not be marketed in the U.S. until they have been approved by the FDA and may not be marketed in other jurisdictions until they have received approval from the appropriate foreign regulatory agencies. Each product candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. As a result, the regulatory pathway for these products may be more complex and obtaining regulatory approvals may be more difficult.
Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our products on a timely basis, or at all. The number, size, design, and focus of preclinical and clinical trials that will be required for approval by the FDA, the EMA, or any other foreign regulatory agency varies depending on the compound, the disease or condition that the products are designed to address and the regulations applicable to any particular products. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA, and other foreign regulatory agencies can delay, limit, or deny approval of a product for many reasons, including, but not limited to:
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a product may not be shown to be safe or effective;
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the clinical and other benefits of a product may not outweigh its safety risks;
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clinical trial results may be negative or inconclusive, or adverse medical events may occur during a clinical trial;
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the results of clinical trials may not meet the level of statistical significance required by regulatory agencies for approval;
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regulatory agencies may interpret data from pre-clinical and clinical trials in different ways than we do;
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regulatory agencies may not approve the manufacturing process or determine that the manufacturing is not in accordance with current good manufacturing practices;
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a product may fail to comply with regulatory requirements; or
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regulatory agencies might change their approval policies or adopt new regulations.
Regulatory agencies may also fail to grant approvals to commence studies for any number of reasons. For example, in May 2020, the FDA asked for additional pre-clinical data and other information for a proposed study of AT-H201. If we cannot provide the requested data and information the FDA may not authorize us to commence this study.
If our products are not approved at all or quickly enough to provide net revenues to defray our operating expenses, our business, financial condition, operating results and prospects could be harmed.
We are developing our AT-H201 drug to treat COVID-19 patients who are severely ill, and patient deaths that occur in our clinical trials could negatively impact our business even if such deaths are not shown to be related to our drugs.
We intend to enroll patients in studies of our drug candidate AT-H201 who are severely ill, including patients on ventilators. COVID patients on ventilators are very sick and many do not recover either because of COVID-19 or other illnesses. As a result, it is likely that we will observe severe adverse outcomes of some patients in our COVID clinical trials for our drugs, including patient death. These adverse outcomes, even if unrelated to our drugs, could expose us to lawsuits and liabilities and could diminish our ability to obtain regulatory approval and/or achieve commercial acceptance for the related drug and our business could be materially harmed.
In the event that we seek and the FDA does not grant accelerated approval or priority review for a drug candidate, we would experience a longer time to commercialization in the U.S., if commercialized at all, and our development costs may increase and our competitive position may be harmed.
We may in the future decide to seek accelerated approval pathway for our products. The FDA may grant accelerated approval to a product designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. A surrogate endpoint under an accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. There can be no assurance that the FDA will agree that any endpoint we suggest with respect to any of our drug candidates is an appropriate surrogate endpoint. Furthermore, there can be no assurance that any application will be accepted or that approval will be granted. Even if a product candidate is granted accelerated approval, such accelerated approval is contingent on the sponsor’s agreement to conduct one or more post-approval confirmatory trials. Such confirmatory trial(s) must be completed with due diligence and, in some cases, the FDA may require that the trial(s) be designed and/or initiated prior to approval. Moreover, the FDA may withdraw approval of a product candidate or indication approved under the accelerated approval pathway for a variety of reasons, including if the trial(s) required to verify the predicted clinical benefit of a product candidate fails to verify such benefit or does not demonstrate sufficient clinical benefit to justify the risks associated with the drug, or if the sponsor fails to conduct any required post-approval trial(s) with due diligence.
In the event of priority review, the FDA has a goal (but is not required) to take action on an application within a total of eight months (6 months to take action following a 60 day period to determine if the application is acceptable) instead of the 12- months (10 months to take action following a 60 day period to determine if the application is acceptable) allocated for a standard review. The FDA grants priority review only if it determines that a product treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness when compared to a standard application. The FDA has broad discretion whether to grant priority review, and, while the FDA has granted priority review to other oncology product candidates, our drug candidates may not receive similar designation. Moreover, receiving priority review from the FDA does not guarantee completion of review or approval within the targeted eight-month cycle or thereafter.
A failure to obtain accelerated approval or priority review would result in a longer time to commercialization of the applicable product in the U.S., if commercialized at all, could increase the cost of development and could harm our competitive position in the marketplace.
Even if our products are successful in clinical trials and receive regulatory approvals, we may not be able to successfully commercialize them.
The development and ongoing clinical trials for our drug candidates may not be successful and, even if they are, the resulting products may never be successfully developed into commercial products. Even if we are successful in our clinical trials and in obtaining other regulatory approvals, the respective products may not reach or remain in the market for a number of reasons including:
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they may be found ineffective or cause harmful side effects;
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they may be difficult to manufacture on a scale necessary for commercialization;
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they may experience excessive product loss due to contamination, equipment failure, inadequate transportation or storage, improper installation or operation of equipment, vendor or operator error, inconsistency in yields or variability in product characteristics;
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they may be uneconomical to produce;
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we may fail to obtain reimbursement approvals or pricing that is cost effective for patients as compared to other available forms of treatment or that covers the cost of production and other expenses;
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they may not compete effectively with existing or future alternatives, for example our COVID-19 therapies under development may not effectively compete with traditional vaccines;
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we may be unable to develop commercial operations and to sell marketing rights;
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they may fail to achieve market acceptance; or
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we may be precluded from commercialization of a product due to proprietary rights of third parties.
If we fail to commercialize products or if our future products do not achieve significant market acceptance, we will not likely generate significant revenues or become profitable.
The pharmaceutical business is subject to increasing government price controls and other restrictions on pricing, reimbursement and access to drugs, which could adversely affect our future revenues and profitability.
To the extent our products are developed, commercialized, and successfully introduced to market, they may not be considered cost-effective and third-party or government reimbursement might not be available or sufficient. Globally, governmental and other third-party payors are becoming increasingly aggressive in attempting to contain health care costs by strictly controlling, directly or indirectly, pricing and reimbursement and, in some cases, limiting or denying coverage altogether on the basis of a variety of justifications, and we expect pressures on pricing and reimbursement from both governments and private payors inside and outside the U.S. to continue.
In the U.S., we are subject to substantial pricing, reimbursement, and access pressures from state Medicaid programs, private insurance programs and pharmacy benefit managers, and implementation of U.S. health care reform legislation is increasing these pricing pressures. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA” or the “Affordable Care Act”), instituted comprehensive health care reform, and includes provisions that, among other things, reduce and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions), and impose new and/or increased taxes. The future of the Affordable Care Act and its constituent parts are uncertain at this time.
In almost all markets, pricing and choice of prescription pharmaceuticals are subject to governmental control. Therefore, the price of our products and their reimbursement in Europe and in other countries is and will be determined by national regulatory authorities. Reimbursement decisions from one or more of the European markets may impact reimbursement decisions in other European markets. A variety of factors are considered in making reimbursement decisions, including whether there is sufficient evidence to show that treatment with the product is more effective than current treatments, that the product represents good value for money for the health service it provides, and that treatment with the product works at least as well as currently available treatments.
The continuing efforts of government and insurance companies, health maintenance organizations, and other payors of health care costs to contain or reduce costs of health care may affect our future revenues and profitability or those of our potential customers, suppliers, and collaborative partners, as well as the availability of capital.
We are dependent on third-party service providers for a number of critical operational activities including, in particular, for the manufacture and testing of our products and associated supply chain operations, as well as for clinical trial activities. Any failure or delay in these undertakings by third parties could harm our business.
Our business is dependent on the performance by third parties of their responsibilities under contractual relationships. In particular, we heavily rely on third parties for the manufacture and testing of our products. We do not have internal analytical laboratory or manufacturing facilities to allow the testing or production of products in compliance with Good Manufacturing Practices ("cGMP"). As a result, we rely on third parties to supply us in a timely manner with manufactured product candidates. We may not be able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. In particular, we depend on third-party manufacturers to conduct their operations in compliance with Good Laboratory Practices ("GLP") or similar standards imposed by the U.S. and/or applicable foreign regulatory authorities, including the FDA and EMA. Any of these regulatory authorities may take action against a contract manufacturer who violates cGMP. Failure of our manufacturers to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance.
We may not be able to obtain sufficient quantities of our products if we are unable to secure manufacturers when needed, or if our designated manufacturers do not have the capacity or otherwise fail to manufacture compounds according to our schedule and specifications or fail to comply with cGMP regulations. Furthermore, in order to ultimately obtain and maintain applicable regulatory approvals, any manufacturers we utilize are required to consistently produce the respective products in commercial quantities and of specified quality or execute fill-finish services on a repeated basis and document their ability to do so, which is referred to as process validation. In order to obtain and maintain regulatory approval of a compound, the applicable regulatory authority must consider the result of the applicable process validation to be satisfactory and must otherwise approve of the manufacturing process. Even if our compound manufacturing processes obtain regulatory approval and sufficient supply is available to complete clinical trials necessary for regulatory approval, there are no guarantees we will be able to supply the quantities necessary to effect a commercial launch of the applicable drug, or once launched, to satisfy ongoing demand. Any product shortage could also impair our ability to deliver contractually required supply quantities to applicable collaborators, as well as to complete any additional planned clinical trials.
We also rely on third-party service providers for certain warehousing and transportation. With regard to the distribution of our drugs, we depend on third-party distributors to act in accordance with Good Distribution Practice ("GDP"), and the distribution process and facilities are subject to continuing regulation by applicable regulatory authorities with respect to the distribution and storage of products.
In addition, we depend on medical institutions and CROs (together with their respective agents) to conduct clinical trials and associated activities in compliance with Good Clinical Practices ("GCP") and data privacy standards such as defined under the Health Insurance Portability and Accountability Act ("HIPAA"), California Consumer Privacy Acts (“CCPA”), and General Data Protection Regulation ("GDPR") and in accordance with our timelines, expectations and requirements. We are substantially dependent on the organizations conducting the clinical trials of our proprietary Endoxifen. To the extent any such third parties are delayed in achieving or fail to meet our clinical trial enrollment expectations, fail to conduct our trials in accordance with GCP, patient and data privacy standards such as HIPAA or study protocol or otherwise take actions outside of our control or without our consent, our business may be harmed. Furthermore, we conduct clinical trials in foreign countries, subjecting us to additional risks and challenges, including, patient and data privacy standards such as GDPR and in particular, as a result of the engagement of foreign medical institutions and foreign CROs, who may be less experienced with regard to regulatory matters applicable to us and may have different standards of medical care.
With regard to certain of the foregoing clinical trial operations and stages in the manufacturing and distribution chain of our compounds, we rely on vendors. In most cases we use a primary vendor and have identified, in some cases, secondary vendors. In particular, our current business structure contemplates, at least in the foreseeable future, use of a primary commercial supplier for Endoxifen drug substance. The use of primary vendors for core operational activities, such as, manufacturing, the resulting lack of diversification, expose us to the risk of a material interruption in service related to these primary, outside vendors. As a result, our exposure to this concentration risk could harm our business.
Although we monitor the compliance of our third-party service providers performing the aforementioned services, we cannot be certain that such service providers will consistently comply with applicable regulatory requirements or that they will otherwise timely satisfy their obligations to us. Any such failure and/or any failure by us to monitor their services or to plan for and manage our short- and long-term requirements underlying such services could result in shortage of the compound, delays in or cessation of clinical trials, failure to obtain or revocation of product approvals or authorizations, product recalls, withdrawal or seizure of products, suspension of an applicable wholesale distribution authorization, and/or distribution of products, operating restrictions, injunctions, suspension of licenses, other administrative or judicial sanctions (including civil penalties and/or criminal prosecution), and/or unanticipated related expenditures to resolve shortcomings.
Such consequences could have a significant impact on our business, financial condition, operating results, or prospects.
We may encounter delays in our clinical trials, or may not be able to conduct our trials in a timely manner.
Clinical trials are expensive and subject to regulatory approvals. Potential trial delays may arise from, but are not limited to:
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the effects of the ongoing coronavirus pandemic, including access to clinical trial sites both by study participants and our clinical research organizations;
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failure to obtain on a timely basis, or at all, approval from the applicable institutional review board or ethics committee to open a clinical study;
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lower than anticipated patient enrollment for reasons such as existing conditions, eligibility criteria or if patients perceive a lack of benefit to enroll in the study for whatever reason;
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delays in reaching agreements on acceptable terms with prospective CROs; and
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failure of CROs or other third parties to effectively and timely monitor, oversee, and maintain the clinical trials.
Our products and services may expose us to possible litigation and product liability claims.
Our business may expose us to potential product liability risks inherent in the testing, marketing, and processing personalized medical products, particularly those products and services we offered prior to shifting our focus on pharmaceutical development. Product liability risks may arise from, but are not limited to:
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death of severely ill patients in studies using AT-301 or AT-H201; and
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adverse events related to drugs and therapies we are developing.
A successful product liability claim, or the costs and time commitment involved in defending against a product liability claim, could have a material adverse effect on our business. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost, or otherwise, to protect against potential product liability claims could prevent or inhibit the commercialization of our products.
If we are not able to protect our proprietary technology, others could compete against us more directly, which would harm our business.
Our commercial success will depend, in part, on our ability to obtain additional patents and licenses and to protect our existing patent position, both in the U.S. and in other countries, for therapeutics and related technologies, processes, methods, compositions, and other inventions that we believe are patentable all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. As of February 26, 2021, we own and are pursuing 52 (17 U.S. and 35 international applications) pending provisional and non-provisional patent applications. We continue to evaluate the full range of our technologies and file new patent applications.
Our ability to preserve our trade secrets, trademarks and other intellectual property rights is also important to our long-term success. Our success depends in part on obtaining patent protection for our products and processes, preserving trade secrets, patents, copyrights and trademarks, operating without infringing the proprietary rights of third parties, and acquiring licenses for technology or products. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to establish or maintain profitability. Patents may also be issued to third parties which could interfere with our ability to bring our therapeutics to market. As the patent and landscape for products for breast disorders, including breast cancers, grows more crowded and becomes more complex we may find it more difficult to obtain patent protection for our products including those related to Endoxifen.
The laws of some foreign countries do not protect our proprietary rights to the same extent as U.S. laws, and we may encounter significant problems in protecting our proprietary rights in these countries. The patent positions of diagnostic companies and pharmaceutical and biotechnology companies, including our patent position, are generally highly uncertain and particularly after the Supreme Court decisions, Mayo Collaborative Services v. Prometheus Laboratories, 132 S. Ct. 1289 (2012), Association for Molecular Pathology v. Myriad Therapeutics, Inc., 133 S. Ct. 2107 (2013), Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), and Athena Diagnostics, Inc. v. Mayo Collaborative Servs., LLC, 915 F.3d 743 (Fed. Cir. 2019). Our patent positions also involve complex legal and factual questions, for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the U.S. Furthermore, in the biotechnology and pharmaceutical fields, courts frequently render opinions that may affect the patentability of certain inventions or discoveries, including opinions that may affect the patentability of methods for diagnostics, personalized medicine, and analysis and comparison of DNA and, therefore, any patents issued to us may be challenged, deemed unenforceable, invalidated or circumvented. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and any future tests and products are covered by valid and enforceable patents or are effectively maintained as trade secrets. In addition, our patent applications may never issue as patents, and the claims of any issued patents may not afford meaningful protection for our products, technology or tests.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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we or others were the first to make the inventions covered by each of our patent applications;
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we or others were the first to file patent applications for our claimed inventions;
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others will not independently develop similar or alternative technologies or duplicate any of our technologies;
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any of our patent applications will result in issued patents;
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other parties will not challenge any patents issued to us or any of our patents will be valid or enforceable;
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any patents issued to us and collaborators will provide a basis for commercially viable therapeutics, will provide us with any competitive advantages or will not be challenged by third parties;
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the patents of others will not have an adverse effect on our business; or
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our patents and patent applications or patents and patent applications that we license from others, if any will survive legal challenges, and remain valid and enforceable.
If a third-party files a patent application with claims to a drug we have discovered or developed, a derivation proceeding may be initiated regarding competing patent applications. If a derivation proceeding is initiated, we may not prevail in the derivation proceeding. If the other party prevails in the derivation proceeding, we may be precluded from commercializing our products, or may be required to seek a license. A license may not be available to us on commercially acceptable terms, if at all.
Any litigation proceedings relating to our proprietary technology may fail and, even if successful, may result in substantial costs and distract our management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Finally, we may not be able to prevent, alone or with the support of our licensors, if any, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the U.S.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
United States Patent and Trademark Office ("USPTO") and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent process. Periodic maintenance fees, renewal fees, annuity fees, and various other governmental fees on any issued patents and/or applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ outside firms and rely on our outside counsel to pay these fees. While an inadvertent lapse may sometimes 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. In such an event, our competitors might be able to enter the market earlier than should otherwise have been the case, which would have a material adverse effect on our business.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents. Obtaining and enforcing patents in the biotechnology and pharmaceutical industries involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. For the past several years, the U.S. has conducted proceedings involving post-issuance patent review procedures, such as inter partes review (“IPR”), and post-grant review and covered business methods. These proceedings are conducted before the Patent Trial and Appeal Board (“PTAB”), of the USPTO. Each proceeding has different eligibility criteria and different patentability challenges that can be raised. In this regard, the IPR process permits any person (except a party who has been litigating the patent for more than a year) to challenge the validity of U.S. patents on the grounds that it was anticipated or made obvious by prior art. As a result, non-practicing entities associated with hedge funds, pharmaceutical companies who may be our competitors and others have challenged certain valuable pharmaceutical U.S. patents based on prior art through the IPR process. A decision in such a proceeding adverse to our interests could result in the loss of valuable patent rights which would have a material adverse effect on our business, financial condition, results of operations and growth prospects. Any potential future changes to the U.S. patent system could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Further, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In particular, on March 20, 2012, the U.S. Supreme Court issued the Prometheus and Alice decision, holding that several claims drawn to measuring drug metabolite levels from patient samples were not patentable subject matter. The full impact of the Prometheus and Alice decision on diagnostic and certain method claims is uncertain. 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 the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. The standards that courts use to interpret patents are not always applied predictably or uniformly and may evolve, particularly as new technologies develop. In addition, changes to patent laws in the U.S. or other countries may be applied retroactively to affect the validity, enforceability, or term of our patent. For example, the U.S. Supreme Court has modified some legal standards applied by the USPTO in examination of U.S. patent applications, which may decrease the likelihood that we will be able to obtain patents and may increase the likelihood of challenges to patents we obtain or license.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our products in all countries throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights in the same manner and to the same extent as laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection but enforcement of such patent protection is not as strong as that in the U.S. These products may compete with our products and services, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing with our products.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products and services in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, and 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. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.
Our current patent portfolio may not include all patent rights needed for the full development and commercialization of our products. We cannot be sure that patent rights we may need in the future will be available for license on commercially reasonable terms, or at all.
We may be unable to obtain any licenses or other rights to patents, technology, or know-how from third parties necessary to conduct our business and such licenses, if available at all, may not be available on commercially reasonable terms. Others may seek licenses from us for other technology we use or intend to use. Any failure to obtain such licenses could delay or prevent us from developing or commercializing our proposed products, which would harm our business. We may not be able to secure such a license on acceptable terms. Litigation or patent derivation proceedings may need to be brought against third parties, as discussed below, to enforce any of our patents or other proprietary rights, or to determine the scope and validity or enforceability of the proprietary rights of such third parties.
Third-party claims alleging intellectual property infringement may prevent or delay our drug discovery and development efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties, including the intellectual property rights of competitors. There is a substantial amount of litigation, both within and outside the U.S., involving patents and other intellectual property rights in the medical device and pharmaceutical fields, as well as administrative proceedings for challenging patents, including inter partes review, post-grant review, derivation, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in various foreign jurisdictions. These procedures bring uncertainty to the possibility of challenges to our patents in the future, including those patents perceived by our competitors as blocking entry into the market for their products, and the outcome of such challenges. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our products. As the medical device, biotechnology, and pharmaceutical industries expand and more patents are issued, the risk increases that our activities related to our products may give rise to claims of infringement of the patent rights of others.
We cannot assure you that our current or future products will not infringe on existing or future patents. We may not be aware of patents that have already issued that a third-party might assert are infringed by one of our current or future products.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufacture of our products. Because patent applications can take many years to issue and may be confidential for eighteen months or more after filing, there may be currently pending third-party patent applications which may later result in issued patents that our products may infringe, or which such third-parties claim are infringed by our products and services.
Parties making claims against us for infringement or misappropriation of their intellectual property rights may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our products. Defense of these claims, regardless of their merit, would involve substantial expenses and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us by a third-party, we may have to (i) pay substantial damages, including treble damages and attorneys’ fees if we are found to have willfully infringed the third-party’s patents; (ii) obtain one or more licenses from the third-party; (iii) pay royalties to the third-party; or (iv) redesign any infringing products. Redesigning any infringing products may be impossible or require substantial time and monetary expenditure. Further, we cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms. In the event that we could not obtain a license, we may be unable to further develop and commercialize our products, which could harm our business significantly. Even if we were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property.
In addition to infringement claims against us, if third parties have prepared and filed patent applications in the U.S. that also claim technology related to our products, we may have to participate in derivation proceedings in the USPTO to determine the priority of invention. Third parties may also attempt to initiate reexamination, post-grant review or inter partes review of our patents in the USPTO. We may also become involved in similar proceedings in the patent offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other diagnostic, medical device or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or our employees’ former employers. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our products. We may also be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
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 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. We require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, to enter into confidentiality agreements. However, we cannot be certain that all such confidentiality agreements have been duly executed, that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Risks Related to Our Industry
Legislative or regulatory reforms may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to manufacture, market and distribute our products after approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of future products. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. Similar changes and revisions can also occur in foreign countries.
For example, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently cleared products on a timely basis. Any change in the laws or regulations that govern the clearance and approval processes relating to our current and future products could make it more difficult and costly to obtain clearance or approval for new products, or to produce, market and distribute existing products. Significant delays in receiving clearance or approval, or the failure to receive clearance or approval for our new products would have an adverse effect on our ability to expand our business.
The FDA recently announced the Coronavirus Treatment Acceleration Program. That program may not, however, lead to a faster review or approval of our FDA submissions including for our COVID-19 studies. Presently, we are responding to comments and information requests from the FDA relating to our proposed AT-H201 study and there can be no assurance that the FDA will permit us to proceed with the trial.
Our inadvertent or unintentional failure to comply with the complex government regulations concerning privacy patients, data subjects, and of medical records could subject us to fines and adversely affect our reputation.
Federal privacy regulations, among other things, restrict our ability to use or disclose protected health information in the form of patient-identifiable laboratory data, without written patient authorization, for purposes other than payment, treatment, or healthcare operations as defined under HIPAA, except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. The privacy regulations provide for significant fines and other penalties for wrongful use or disclosure of protected health information, including potential civil and criminal fines and penalties. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, we could incur damages under state laws, for example, California Consumer Privacy Act, to private parties for the wrongful use or disclosure of confidential health information or other private personal information.
We intend to implement policies and practices that we believe will make us compliant with the privacy regulations. However, the documentation and process requirements of the privacy regulations are complex and subject to interpretation. Failure to comply with the privacy regulations could subject us to sanctions or penalties, loss of business, and negative publicity.
The HIPAA privacy regulations establish a “floor” of minimum protection for patients as to their medical information and do not supersede state laws that are more stringent. Therefore, we are required to comply with both HIPAA privacy regulations and various state privacy laws. The failure to do so could subject us to regulatory actions, including significant fines or penalties, and to private actions by patients, as well as to adverse publicity and possible loss of business. In addition, federal and state laws and judicial decisions provide individuals with various rights for violation of the privacy of their medical information by healthcare providers such as us.
The collection and use of personal data including personal health data of individuals in the E.U. regardless of citizenship or residence is governed by the provisions of the General Data Protection Regulation 2016/679 (commonly known as GDPR) which came into effect on May 25, 2018 with no transition period, and which has penalties for noncompliance. GDPR supersedes the Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995. GDPR regulates the protection of individuals in E.U. with regard to the processing of personal data and on the free movement of such data within E.U. and outside the E.U. and European Economic Area ("EEA") areas. GDPR imposes a number of requirements including an obligation to seek the consent of individuals to whom the personal data relates, the information that must be provided to the individuals, notification of data processing obligations to the competent national data protection authorities of individual E.U. Member States, and the security and confidentiality of the personal data. No personal data may be processed unless this processing is done under one of six lawful bases specified by the regulation (consent, contract, public task, vital interest, legitimate interest or legal requirement). When the processing is based on consent the data subject has the right to revoke it at any time.
Failure to comply with the requirements of GDPR, and the related national data protection laws of the E.U. Member States may result in fines and other administrative penalties, litigation, government enforcement actions (which could include civil and/or criminal penalties), and harm our business. Moreover, patients about whom we or our partners obtain information, as well as the providers who share this information with us, may have contractual rights that may limit our ability to use this information. Claims that we have violated patient’s or any individual’s rights or breached our contractual obligations, even if ultimately we are not found liable, could be expensive and time-consuming to defend, and could result in adverse publicity and harm our business.
If we experience a significant disruption in our information technology systems or breaches of data security, our business could be adversely affected.
We rely on information technology systems to keep financial records, manage our manufacturing operations, fulfill customer orders, capture laboratory data, maintain corporate records, communicate with staff and external parties and operate other critical functions. Our information technology systems are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses or other disruptive events including but not limited to natural disaster. If we were to experience a prolonged system disruption in our information technology systems or those of certain of our vendors, it could negatively impact our ability to serve our customers, which could adversely impact our business. Although we maintain offsite back-ups of our data, if operations at our facilities were disrupted, it may cause a material disruption in our business if we are not capable of restoring function on an acceptable timeframe. In addition, our information technology systems are potentially vulnerable to data security breaches - whether by employees or others - which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, customers and others, any of which could have a material adverse effect on our business, reputation, financial condition and results of operations. In addition, any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, including state data protection regulations and the E.U. GDPR, and other regulations, the breach of which could result in significant penalties. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.
The failure to comply with complex federal and state laws and regulations related to submission of claims for services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs.
We are subject to extensive federal and state laws and regulations relating to the submission of claims for payment for services, including those that relate to coverage of services under Medicare, Medicaid, and other governmental healthcare programs, the amounts that may be billed for services, and to whom claims for services may be submitted, such as billing Medicare as the secondary, rather than the primary, payor. The failure to comply with applicable laws and regulations, for example, enrollment in the Medicare Provider Enrollment, Chain and Ownership System, could result in our inability to receive payment for our services or attempts by third-party payors, such as Medicare and Medicaid, to recover payments from us that we have already received. Submission of claims in violation of certain statutory or regulatory requirements can result in penalties, including civil money penalties of up to $10,000 for each item or service billed to Medicare in violation of the legal requirement, and exclusion from participation in Medicare and Medicaid. Government authorities may also assert that violations of laws and regulations related to submission of claims violate the federal False Claims Act or other laws related to fraud and abuse, including submission of claims for services that were not medically necessary. The Company will be generally dependent on independent physicians to determine when its services are medically necessary for a particular patient. Nevertheless, we could be adversely affected if it were determined that the services we provided were not medically necessary and not reimbursable, particularly if it were asserted that we contributed to the physician’s referrals of unnecessary services. It is also possible that the government could attempt to hold us liable under fraud and abuse laws for improper claims submitted by us if it were found that we knowingly participated in the arrangement that resulted in submission of the improper claims.
In addition to the PPACA, the effect of which cannot presently be quantified, various healthcare reform proposals have also emerged from federal and state governments. Changes in healthcare policy could adversely affect our business.
We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the U.S. in which we may do business, or the effect any future legislation or regulation will have on us. The taxes imposed by the new federal legislation and the expansion in government’s effect on the U.S. healthcare industry may result in decreased profits to us, lower reimbursements by payors for our products or reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations.
Other Risks
The continued spread of coronavirus globally could adversely impact our operations and clinical trials.
Public health pandemics, epidemics or outbreaks could adversely impact our business. In December 2019, a novel strain of COVID-19 emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it is now considered by the World Health Organization as a pandemic and has spread to many other countries and infections have been reported globally, with a significant number of cases in the United States including the Seattle area, which is where we have our headquarters. The extent to which the coronavirus pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The continued spread of COVID-19 could have an adverse impact on our business and our financial results. For example, the Endoxifen Phase 2 clinical study we conducted in Australia did not enroll as quickly as anticipated in 2020 due in part to the COVID-19 restrictions. Additionally, COVID-19 restrictions currently in place in Stockholm, Sweden would likely hinder enrollment in our planned Endoxifen clinical study in women with breast density. The continued spread of the coronavirus globally could adversely impact our operations that are dependent on third-party service providers for a number of critical operational activities including, in particular,
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regulatory (FDA, MPA, IRB, TGA) meetings and approvals could be delayed;
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our drug supply chain could be interrupted;
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enrollment in our clinical studies could slow or be halted;
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operations in general could be disrupted with potential infection of employees and consultants and difficulties with a remote work force;
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quarantines of people and drugs needed for our studies could adversely affect operations;
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our stock price could be adversely impacted and access to capital could be more challenging; or
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our ability to access our facilities and timely prepare and file regulatory reports with the SEC.
Risks Related to the Securities Markets and Investment in our Securities
Our shares of common stock are listed on The Nasdaq Capital Market, but we cannot guarantee that we will be able to satisfy the continued listing standards going forward.
Although our shares of common stock are listed on The Nasdaq Capital Market, we cannot ensure that we will be able to satisfy the continued listing standards of The Nasdaq Capital Market going forward. If we cannot satisfy the continued listing standards going forward, Nasdaq may commence delisting procedures against us, which could result in our stock being removed from listing on The Nasdaq Capital Market.
If our stock price does not satisfy the $1.00 minimum bid price requirement or we otherwise fail to satisfy other continued listing requirements (and such other continued listing requirements may be enhanced during the period our stock price is below the $1.00 minimum bid requirement including a requirement that we maintain at least $5 million in stockholders’ equity rather than the $2.5 million that is typically required for continued listing), we may be delisted from Nasdaq, which could adversely affect our stock price, liquidity, and our ability to raise funding. Our common stock has at times trades below the $1.00 minimum bid requirement.
The sale of a substantial number of shares of our common stock into the market may cause substantial dilution to our existing stockholders and the sale, actual or anticipated, of a substantial number of shares of common stock could cause the price of our common stock to decline.
We have offered and sold a considerable amount of common shares in recent financings. Any additional or anticipated sales of shares by us, holders of our warrants to purchase common stock or other stockholders may cause the trading price of our common stock to decline. Additional issuances of shares by us may result in dilution to the interests of other holders of our common stock. The sale of a substantial number of shares of our common stock by us, our warrant holders or other stockholders or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
The trading price of our common stock has been, and is likely to continue to be volatile.
Our stock price is highly volatile. During the one year prior to March 24, 2021, our stock price has ranged from $0.81 to $5.08 per share. In addition to the factors discussed in this report, the trading price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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results of clinical studies;
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regulatory and FDA actions, including inspections and warning letters;
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actions of securities analysts who initiate or maintain coverage of us, and changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors;
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any ongoing litigation that we are currently involved in or litigation that we may become involved in in the future;
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additional shares of our common stock being sold into the market by us or our existing stockholders or warrant holders or the anticipation of such sales; and
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media coverage of our business and financial performance.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many healthcare companies. Stock prices of many healthcare companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. As a result, an investment in our common stock may decrease in value.
If our common stock is delisted from The Nasdaq Capital Market, we may be subject to the risks relating to penny stocks.
If our common stock were to be delisted from trading on The Nasdaq Capital Market and the trading price of the common stock were below $5.00 per share on the date the common stock was delisted, trading in our common stock would also be subject to the requirements of certain rules promulgated under the Exchange Act. Our common stock has generally traded below $5.00 per share, including during the period covered by this report. These rules require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a “penny stock” (i.e., generally, any non-exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions) and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally institutions. These additional requirements may discourage broker-dealers from effecting transactions in securities that are classified as penny stocks, which could severely limit the market price and liquidity of such securities and the ability of purchasers to sell such securities in the secondary market.
The ownership of our common stock may become concentrated among a small number of stockholders, and if our principal stockholders, directors, and officers choose to act together, they may be able to significantly influence management and operations, which may prevent us from taking actions that may be favorable to you.
Our ownership may become concentrated among a small number of stockholders. These stockholders, acting together, will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership could have the effect of delaying, deferring, or preventing a change in control of the Company or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock may be negatively affected.
We are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of the Sarbanes-Oxley Act in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express, if required, an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities is listed, the Securities and Exchange Commission, or other regulatory authorities, which could require additional financial and management resources. We have identified a material weakness which has been disclosed on our management's report on internal controls over financial reporting. Based on our assessment of internal controls, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020 due to the following material weakness. The Company had ineffective controls over the evaluation and accounting for complex financing transactions, specifically, we did not have sufficient technical resources to appropriately identify errors in the accounting for warrants issued in a registered offering and whether the warrants should be classified as a liability or as equity. The classification error was corrected prior to issuance of the consolidated financial statements as of and for the year ended December 31, 2020.
The requirements of being a public company may strain our resources and divert management’s attention.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Capital Market, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results.
In addition, complying with public disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.
Our Stockholder Rights Agreement, the anti-takeover provisions in our charter documents and Delaware law could delay or prevent a change in control which could limit the market price of our common stock and could prevent or frustrate attempts by our stockholders to replace or remove current management and the current Board of Directors.
Our Stockholder Rights Agreement that we adopted in May 2014, our amended and restated certificate of incorporation, and amended and restated bylaws contain provisions that could delay or prevent a change in control or changes in our Board of Directors that our stockholders might consider favorable. These provisions include the establishment of a staggered Board of Directors, which divides the board into three classes, with directors in each class serving staggered three-year terms. The existence of a staggered board can make it more difficult for a third-party to effect a takeover of our Company if the incumbent board does not support the transaction. These and other provisions in our corporate documents, our Shareholder Rights Plan and Delaware law might discourage, delay or prevent a change in control or changes in the Board of Directors of the Company. These provisions could also discourage proxy contests and make it more difficult for an investor and other stockholders to elect directors not nominated by our Board. Furthermore, the existence of these provisions, together with certain provisions of Delaware law, might hinder or delay an attempted takeover other than through negotiations with the Board of Directors.
We do not expect to pay dividends in the future, which means that investors may not be able to realize the value of their shares except through a sale.
We have never, and do not anticipate that we will, declare or pay a cash dividend. We expect to retain future earnings, if any, for our business and do not anticipate paying dividends on common stock at any time in the foreseeable future. Because we do not anticipate paying dividends in the future, the only opportunity for our stockholders to realize the creation of value in our common stock will likely be through a sale of those shares.
We may raise substantial additional capital in the future and we may be unable to raise such funds when needed and on acceptable terms.
We may elect to raise additional funds from time to time through public or private equity offerings, debt financings, corporate collaboration, and licensing arrangements, or other financing alternatives, as well as sales of common stock through a purchase agreement. Additional equity or debt financing or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing acquisition, licensing, development and commercialization efforts and our ability to generate revenues and achieve or sustain profitability will be substantially harmed.
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and 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. Any debt financing or additional equity that we raise may contain terms, such as liquidation preferences, and other rights that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition, and prospects could be materially and adversely affected and we may be unable to continue our operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2.
PROPERTIES
As of December 31, 2020, we leased a total of approximately 202 square feet of office space in one location in Seattle, Washington, from WW 107 Spring Street LLC. We believe that our current facilities will be adequate to meet our needs for the next 12 months. This information is incorporated in this report under “PART II, ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Commercial Lease Arrangements.”

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
MINE SAFETY DISCLOSURE
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock, par value $0.18 per share, began trading on the Nasdaq Capital Market under the symbol “ATOS” on November 8, 2012.
Stockholders
As of March 24, 2021, there were approximately 35 stockholders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC and approximately 163,757 beneficial holders. All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one stockholder.
Dividends
The Company has never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business.
Issuer Purchases of Securities
We did not repurchase any of our equity securities during the fourth quarter of the year ended December 31, 2020.
Use of Proceeds
Not applicable.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements, which are based on assumptions about the future of the Company's business. The actual results could differ materially from those contained in the forward-looking statements. Please read “Forward-Looking Statements” included elsewhere in this report for additional information regarding forward-looking statements.
Company Overview
We are a clinical-stage biopharmaceutical company seeking to discover and develop innovative medicines in areas of significant unmet medical need in oncology and infectious diseases, with a current focus on breast cancer, other breast conditions and COVID-19. Our drug under development for breast cancer and other breast conditions is Endoxifen which is being developed primarily in two settings: one to reduce tumor cell activity in breast cancer patients in the “window of opportunity” between diagnosis of breast cancer and surgery; and another for women with dense breast tissue to reduce the density. Our two COVID-19 drugs under development are AT-H201, to improve lung function of moderate to severely ill, hospitalized COVID-19 patients by inhalation; and AT-301, a nasal spray for COVID-19 patients for at-home use. Our business strategy is to advance our programs through clinical studies including with partners, and opportunistically add programs in areas of high unmet medical need through acquisition, collaboration, or internal development.
Summary of Leading Programs
Endoxifen for MBD. Mammographic breast density ("MBD") is an emerging public health issue affecting over 10 million women in the U.S. Studies conducted by others have shown that MBD increases the risk of developing breast cancer and that reducing MBD can reduce the incidence of breast cancer. We believe our proprietary oral Endoxifen may reduce MBD, based in part on our previous successful Phase 2 study of our topical Endoxifen. Endoxifen is an active metabolite of tamoxifen which is an FDA-approved drug to treat and prevent breast cancer in high risk women. Endoxifen has been studied in over 160 participants in Atossa-conducted clinical studies.
We contracted with Stockholm South General Hospital to conduct a randomized, double-blinded, placebo-controlled Phase 2 study of our oral Endoxifen in pre-menopausal women with measurable MBD who will be dosed over six months. This study will evaluate safety, tolerability and efficacy of Endoxifen. The study is subject to approval by the European Medical Product Authority and ethics board. We expect to open this study in Stockholm soon after receiving all necessary regulatory approvals, provided COVID-19 restrictions permit patient recruitment. No assurance can be given that reduction in MBD is an approvable indication or that the regulators will approve opening the study in Sweden.
Endoxifen for Window of Opportunity. Once a woman is diagnosed with breast cancer, it can take several weeks for surgery to be scheduled so that the tumor can be removed through lumpectomy or mastectomy. During this time, without treatment the cancer typically continues to grow. We believe there is a compelling need for therapy with our Endoxifen in this neo-adjuvant or “window of opportunity” setting.
We recently completed a Phase 2 study in Australia in the window of opportunity which enrolled 7 newly-diagnosed patients with ER+ and human epidermal growth factor receptor 2 negative ("HER2-") stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. In February 2021, we concluded that the study produced substantially positive results and that continuing enrollment in the study would not be useful in advancing the program. We have therefore discontinued the study based in part on results from the first six patients which showed a statistically significant (p=0.031) reduction of about 74% in tumor cell proliferation with a reduction below 25% in all participants, as measured by Ki-67 (a recognized standard measurement of breast cancer cell proliferation). We now plan to seek guidance from the FDA on conducting a study in the United States. No assurance can be given that reduction in Ki-67 or any other biomarker in the window of opportunity is an approvable indication.
Compassionate Use of Endoxifen. We have supplied our oral Endoxifen to two patients under the FDA’s expanded access, or “compassionate use,” pathway. One patient has ER+ breast cancer and was not responding to tamoxifen. This patient has taken our Endoxifen, both in the window of opportunity and post-surgery for a total of more than 24 months. According to her physician, she has not had a recurrence of breast cancer, has not had treatment-related changes in periodic laboratory blood tests and the treatment has been well tolerated, including an absence of typically seen vasomotor symptoms (night sweats and hot flashes). The other patient has recurrent ovarian cancer. The patient underwent functional molecular genomic testing, using 3D tumor organoid cultures grown in the laboratory from the patient’s tumor. The organoid testing revealed that the combination of Endoxifen and alpelisib produced an exceptionally favorable tumor response. If the drug combination shows promise in this patient, we will consider conducting additional clinical studies in patients with ovarian cancer.
Under the FDA expanded access program, the use of our oral Endoxifen is restricted to the individual patient in the application. The expanded access studies are being conducted by others; our involvement is limited to supplying our Endoxifen. The results from single-patient expanded access programs does not imply success in a larger patient population.
AT-301. There are currently no FDA-approved drugs to treat COVID-19 at-home. AT-301 is our proprietary drug candidate intended for nasal administration in patients immediately following diagnosis of COVID-19 but who have not yet exhibited symptoms severe enough to require hospitalization. It is intended for at-home use to reduce symptoms of COVID-19 and to slow the infection rate so that a person’s immune system can more effectively fight COVID-19.
AT-301 is being developed with a nasal spray delivery mechanism because many COVID-19 patients are infected via the nasal passage. Our nasal spray formulation AT-301 is being designed to contain ingredients that can potentially block SARS-CoV-2 viral entry gene proteins in nasal epithelial cells by interfering with spike protein activation by host proteases, by masking receptor binding domains via electrostatic mechanisms, and by providing a generalized mucoadhesive epithelial barrier. In July 2020, we completed in vitro testing of AT-301 which showed that AT-301 inhibits SARS-CoV-2 infectivity of VERO cells in a laboratory culture.
In October 2020, we completed enrollment in a Phase 1 study of AT-301 which was a double-blinded, randomized, and placebo-controlled safety study of AT-301 nasal spray in 32 healthy adult subjects. An evaluation of the data indicated that there were no serious adverse events, no discontinuations, and only one of the subjects in the study experienced adverse events that were considered moderate in severity. We concluded that our AT-301 nasal spray was safe and well tolerated in this study. These results support advancing this program into a Phase 2 study. We recently received input from the FDA on this program and based in part on that input, we are now preparing to conduct an additional pre-clinical study. Following that, we expect to apply to the FDA to commence a Phase 2 study in the United States.
We may also develop our AT-301 nasal spray to potentially help prevent COVID-19 infection - particularly for people in high-risk environments, such as people living with an infected patient, people living and working in healthcare facilities, emergency responders or teachers.
AT-H201. AT-H201 is a proprietary combination of two drugs previously approved by the FDA to treat other diseases. It is intended to improve compromised lung function for moderate to severely ill, hospitalized COVID-19 patients by inhalation. In May 2020, we completed in vitro testing of AT-H201 which showed that the components of AT-H201 inhibit SARS-CoV-2 infectivity of VERO cells, which is a standard cell type being used to study infectivity of the coronavirus. The AT-H201 components were found to be at least four times more potent than Remdesivir and at least 20 times more potent than Hydroxychloroquine. Potency was measured by microscopic examination of the cytopathic effect caused by SARS-CoV-2 in VERO cells. We received input from the FDA on potential pathways to develop AT-H201 and the FDA requested that we provide, among other things, additional pre-clinical and other information on AT-H201. We have also applied to the regulatory authorities to conduct the initial clinical study of AT-H201 in Australia.
Impact of the Novel Coronavirus
The continued spread of the COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including causing possible disruptions in the supply of the Company’s Endoxifen, AT-H201, AT-301 and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the U.S. FDA and other health authorities including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. The evolving COVID-19 pandemic could also directly or indirectly impact the pace of enrollment in our clinical trials for at least the next several months and possibly longer as patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices except for a health emergency. Such facilities and offices may also be required to focus limited resources on non-clinical trial activities, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial activities related to the Company's products under development. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. 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, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material adverse impact on the Company’s liquidity, capital resources, operations, financial position and business and those of the third parties on which we rely. We have not experienced any delay in drug supply for our ongoing and planned clinical studies, including studies of Endoxifen, AT-301 and AT-H201. We anticipate commencing the MBD Endoxifen trial soon after receiving all necessary regulatory approvals; subject to delays in enrollment due to COVID-19 disruptions, which could take several months or longer. We will continue to monitor future enrollment in studies for potential restrictions on site visits, mammograms or the impositions of new restrictions on trials as a result of the COVID-19 pandemic.
Research and Development Phase
We are in the research and development phase and are not currently marketing any products. We do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs.
Commercial Lease Agreements
On November 1, 2018, the Company entered into an operating lease to pay $3,660 monthly rent for a term of 22 months with WW 107 Spring Street LLC to lease office space at 107 Spring Street, Seattle, Washington. In May 2020, we amended our office lease and extended the expiration from August 31, 2020 to February 28, 2021. In the first quarter of 2021, the Company entered into an operating lease to pay monthly rent of $750 for a term of 12 months.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
While our significant accounting policies are more fully described in Note 3 to our consolidated financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.
Research and Development
Research and development ("R&D") costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expenses for our drugs under development, expenses associated with clinical trials and associated salaries and benefits. R&D expenses also include an estimated allocation of the CEO's salary and related benefits including non-cash stock-based compensation expense based on time devoted to R&D.
Stock-Based Payments
We follow the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense based on the grant date’s fair value was estimated in accordance with the provisions of ASC 718 and is recognized as an expense over the requisite service period with forfeitures recognized when they occur.
The fair value of each option grant is estimated using the Black-Scholes option-pricing model, which requires assumptions regarding the expected volatility of our stock options, the expected life of the options, an expectation regarding future dividends on our common stock, and estimation of an appropriate risk-free interest rate. Our expected common stock price volatility assumption is based upon the volatility of our stock price. The expected life assumption for stock option grants was based upon the simplified method provided for under ASC 718-10, which averages the contractual term of the options of ten years with the average vesting term of one to four years. The dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options.
Financial Instruments with Characteristics of Both Liabilities and Equity
During December 2020, we issued certain financial instruments, including warrants to purchase common stock, which have characteristics of both liability and equity. Financial instruments such as warrants that are classified as liabilities are fair valued upon issuance and are remeasured at fair value at subsequent reporting periods with the resulting change in fair value recorded in “change in fair value of common stock warrants”. The fair value of warrants is estimated using valuation models that require the input of subjective assumptions including stock price, strike price, stock price volatility, expected life, an expectation regarding future dividends on our common stock, and estimation of an appropriate risk-free interest rate.
Results of Operations
Comparison of Years Ended December 31, 2020 and 2019
Revenue and Cost of Revenue:
For the years ended December 31, 2020 and 2019, we have no source of sustainable revenue and no associated cost of revenue.
Operating Expenses: Total operating expenses were $14,607,000 for the year ended December 31, 2020, which is a decrease of $2,658,000 or 15%, from the year ended December 31, 2019. Operating expenses for 2020 consisted of research and development ("R&D") expenses of $6,608,000 and general and administrative ("G&A") expenses of $7,999,000. Operating expenses for 2019 consisted of R&D expenses of $6,645,000, and G&A expenses of $10,620,000. The basis for the decreased operating expenses in 2020 is explained below.
Research and Development Expenses: R&D expenses for the year ended December 31, 2020, were $6,608,000, a decrease of $37,000 or 1% from total R&D expenses in 2019 of $6,645,000. The decrease in R&D expense is attributed primarily to a decrease in stock-based compensation of approximately $2,214,000, which is a non-cash charge, offset by an increase in salaries of approximately $428,000, professional fees and clinical trials expenses of approximately $1,696,000, as compared to the same period in 2019. We expect our R&D expenses to increase into 2021 as we seek to commence a study of AT-H201, complete a preclinical and commence a Phase 1 study of AT-301, launch a Phase 2 clinical trial of Endoxifen in women with high breast density, and continue the development of other indications and therapeutics.
General and Administrative Expenses: G&A expenses were $7,999,000 for the year ended December 31, 2020, a decrease of $2,621,000, or 25% from the total G&A expenses for the year ended December 31, 2019, of $10,620,000. The decrease in G&A expenses for the year ended December 31, 2020, is mainly attributed to a decrease in stock-based compensation of approximately $3,610,000, which is a non-cash charge, offset by an increase in legal fees of approximately $507,000, professional fees of approximately $169,000 and insurance costs of approximately $268,000 compared to the same period in 2019. G&A expenses consist primarily of personnel and related benefit costs, facilities, professional services, insurance, and public company related expenses.
Warrant Financing Costs and Change in Fair Value of Common Stock Warrants: The December 11, 2020 financing including the overallotment on December 28, 2020, included the issuance of common stock liability warrants. The Company incurred financing costs associated with these common stock liability warrants of $938,794 upon issuance. The Company also recorded changes in the fair value of the liability warrants during the year ended December 31, 2020 of $2,332,567. There were no common stock liability warrants issued during the year ended December 31, 2019.
Income taxes: We have incurred net operating losses from inception; we did not record an income tax benefit for our incurred losses for the years ended December 31, 2020 and 2019, due to uncertainty regarding utilization of our net operating carryforwards and due to our history of losses.
Liquidity and Capital Resources
The Company has incurred net losses and negative operating cash flows since inception. For the year ended December 31, 2020, the Company recorded a net loss of approximately $17.8 million and used approximately $11.6 million of cash in operating activities. As of December 31, 2020, the Company had approximately $39.6 million in cash and cash equivalents and working capital of approximately $27.1 million. From January 2021 through March 24, 2021, we have raised an additional $102.4 million in cash. We believe we have sufficient cash to fund our projected operating requirements into 2024 depending on the timing and extent of the Company’s clinical trials.
Cash Flows
As of December 31, 2020, we had cash, cash equivalents and restricted cash of $39.7 million.
Net Cash Flows from Operating Activities: Net cash used in operating activities was approximately $12,509,000 for the year ended December 31, 2020, an increase of $2,442,000, or 27%, compared to net cash used in operating activities for the year ended December 31, 2019 of approximately $9,128,000. The increase in the 2020 period as compared to 2019 resulted primarily from a decrease in stock-based compensation of approximately $4,083,000, a decrease of approximately $1,742,000 of the fair value of the stock-based compensation liability, an increase in prepaid and other assets of approximately $1,235,000; offset by the change in the fair value of the common stock warrant liability of approximately $2,333,000, an increase in warrant financing expense of approximately $939,000, and increased spending on accounts payable of approximately $1,356,000.
Net Cash Flows from Investing Activities: Net cash used in investing activities was approximately $9,000 for the year ended December 31, 2020 an increase of $1,000 or 13%, compared to net cash used in investing activities for the year ended December 31, 2019 of approximately $8,000.
Net Cash Flows from Financing Activities: Net cash provided by financing activities was approximately $38,552,000 for the year ended December 31, 2020, an increase of approximately $27,215,000, or 240%, compared to net cash provided by financing activities of approximately $11,337,000, for the year ended December 31, 2019. During the year ended December 31, 2020, the Company sold shares of common stock under ATMs for net proceeds of $4,665,000, issued common stock and warrants for net proceeds of $28,954,000 and issued of Series C convertible preferred stock and warrants for net proceeds of approximately $4,947,000. The 2019 financing activity of $11,337,000 was cash received from the exercise of approximately 2.8 million of the warrants issued in the May 2018 financing.
Funding Requirements
We expect to incur ongoing operating losses for the foreseeable future as we continue to develop our planned therapeutic programs including related clinical studies and other programs in the pipeline. We expect that our existing resources will be sufficient to fund our planned operations for the next four years from the date of this report.
If we are unable to raise additional capital when needed, however, we could be forced to curtail or cease operations. Our future capital uses and requirements will depend on the time and expenses needed to begin and continue clinical trials for our new drug developments. As mentioned earlier, the COVID-19 outbreak could adversely impact the timing and enrollment of our clinical trials.
Additional funding may not be available to us on acceptable terms or at all. The continued spread of COVID-19 and uncertain market conditions may limit our ability to access capital. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling debt securities, if convertible, further dilution to our existing stockholders would result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements.
If adequate funds are not available, we may be required to terminate, significantly modify or delay our development programs, reduce our planned commercialization efforts, or obtain funds through collaborators that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. Further, we may elect to raise additional funds even before we need them if we believe the conditions for raising capital are favorable.
Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.
Recently Adopted Accounting Pronouncements
On January 1, 2020, we adopted Accounting Standards Update ("ASU") No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to improve the effectiveness of disclosures. The amendments remove, modify, and add certain disclosure requirements in Topic 820, “Fair Value Measurement.” The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption had no impact our consolidated financial statements.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity Topic 815 which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance is effective for fiscal years beginning on or after December 15, 2023, with early adoption permitted, but not earlier than fiscal years beginning after December 15, 2020. We plan to implement this ASU effective January 1, 2021 using the modified retrospective approach. Upon adoption we expect to record a cumulative adjustment to beginning stockholders' equity in the amount of $13,003,075 to reclassify the common stock warrant liability to Stockholders' Equity.
In December 2019, the FASB issued ASU 2019-12, Income Taxes, (Topic 740): Simplifying the Accounting for Income Taxes, which amends the existing guidance relating to accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of U.S. GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We do not expect that the adoption of this new guidance will have a material effect on our consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth beginning on page 49 of this report and are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, our disclosure controls and procedures were not effective because of the material weakness described below.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control -- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Based on this assessment, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2020 due to the following material weakness.
The Company had ineffective controls over the evaluation and accounting for complex financing transactions, specifically, the Company did not have sufficient technical resources to appropriately identify errors in the accounting for warrants issued in a registered offering including whether the warrants should be classified as a liability or as equity.
The control deficiency described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. This material weakness resulted in a material adjustment to the classification of certain warrants issued in December 2020 from equity to a liability on the consolidated balance sheet. The classification error was corrected prior to issuance of the consolidated financial statements as of and for the year ended December 31, 2020.
Remediation Plan
Management is implementing remedial actions to ensure that the material weakness is remediated such that the existing controls will operate effectively. The remedial actions we are taking, and expect to take, include educating and re-training control owners regarding the accounting standards related to the accounting for complex financial instruments and contracting with appropriate resources to provide accounting interpretation guidance to assist us in identifying and addressing any issues that affect our consolidated financial statements.
We believe that these actions, and the improvements we expect to achieve as a result, will effectively remediate the material weakness. However, the material weakness in our internal control over financial reporting will not be considered remediated until the operation of the remediated control is sufficiently tested.
Changes in Internal Control Over Financial Reporting
No other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our disclosure controls and procedures.

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ITEM 9B. OTHER INFORMATION
ITEM 9B.
OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers is set forth in Item 1 of Part I of this Report under the caption “Executive Officers.”
The information required by this item is incorporated herein by reference to the sections entitled “Proposal No. 1 - Election of Directors,” “Beneficial Owners and Management,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Director Compensation,” “Corporate Governance” and “Board of Directors and Committees” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2021 (the “Proxy Statement”).

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Director Compensation" and “Corporate Governance”, in our Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation- Equity Compensation Plan Information" and “Beneficial Owners and Management” in our Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance” in our Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to the sections entitled “Proposal No. 2 - Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this 10-K:
1.
Financial Statements
The following financial statements are included in Part II, Item 8 of this 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
All financial statement schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto.
3.
Exhibits
See the Exhibit Index set forth on page 66 of this report.