Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.
Entero Therapeutics disclosed 52 risk factors in its most recent earnings report. Entero Therapeutics reported the most risks in the “Finance & Corporate” category.
Risk Overview Q3, 2024
Risk Distribution
38% Finance & Corporate
25% Tech & Innovation
12% Legal & Regulatory
10% Production
10% Macro & Political
6% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
2020
Q4
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Entero Therapeutics Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q3, 2024
Main Risk Category
Finance & Corporate
With 20 Risks
Finance & Corporate
With 20 Risks
Number of Disclosed Risks
52
No changes from last report
S&P 500 Average: 31
52
No changes from last report
S&P 500 Average: 31
Recent Changes
1Risks added
0Risks removed
2Risks changed
Since Sep 2024
1Risks added
0Risks removed
2Risks changed
Since Sep 2024
Number of Risk Changed
2
No changes from last report
S&P 500 Average: 3
2
No changes from last report
S&P 500 Average: 3
See the risk highlights of Entero Therapeutics in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 52
Finance & Corporate
Total Risks: 20/52 (38%)Above Sector Average
Share Price & Shareholder Rights10 | 19.2%
Share Price & Shareholder Rights - Risk 1
The market price of our Common Stock may be volatile which could subject us to securities class action litigation and prevent you from being able to sell your shares at or above the offering price.
The market price for our Common Stock has been and may continue to be volatile and subject to wide fluctuations in response to factors including the following:
- sales or potential sales of substantial amounts of our Common Stock, including sales required for us to regain and maintain compliance with Nasdaq's continued listing requirements;- delay or failure in initiating or completing pre-clinical or clinical trials or unsatisfactory results of these trials;- announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions;- developments concerning our licensors or product manufacturers;- litigation and other developments relating to our patents or other proprietary rights or those of our competitors;- conditions in the pharmaceutical or biotechnology industries;- governmental regulation and legislation;- variations in our anticipated or actual operating results;- change in securities analysts' estimates of our performance, or our failure to meet analysts' expectations; foreign currency values and fluctuations; and - overall economic conditions.
Many of these factors are beyond our control. The stock markets in general, and the market for pharmaceutical and biotechnological companies in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our Common Stock, regardless of our actual operating performance.
Share Price & Shareholder Rights - Risk 2
The limited public market for our securities may adversely affect an investor's ability to liquidate an investment in us.
Although our Common Stock is currently listed on the Nasdaq Capital Market, there is limited trading activity. We can give no assurance that an active market will develop, or if developed, that it will be sustained. If an investor acquires shares of our Common Stock, the investor may not be able to liquidate our shares should there be a need or desire to do so.
Share Price & Shareholder Rights - Risk 3
Our failure to maintain compliance with Nasdaq's continued listing requirements could result in the delisting of our Common Stock.
Our common stock is currently listed for trading on The Nasdaq Stock Market LLC. We must satisfy the continued listing requirements of Nasdaq, to maintain the listing of our common stock on The Nasdaq Stock Market LLC.
On August 17, 2023, we received notice from the Listing Qualifications Staff (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") indicating that we were not in compliance with the $2.5 million minimum stockholders' equity requirement for continued listing of the Common Stock on Nasdaq, as set forth in Nasdaq Listing Rule 5550(b)(1) (the "Minimum Stockholders' Equity Rule"). In that regard, we reported a stockholders' deficit of $(881,960) in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 (we did not then, and do not now, meet the alternative compliance standards relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years). On October 2, 2023, we submitted a plan to the Staff to regain compliance with the Minimum Stockholders' Equity Rule. On November 13, 2023, we filed our Quarterly Report on Form 10-Q for the period ended September 30, 2023, reporting total stockholders' equity of $3,278,805 as of September 30, 2023.
As we have previously reported, on August 24, 2023, we received a notice (the "Minimum Bid Price Notice") from the Staff indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Rule"). We were provided a compliance period of 180 calendar days from the date of the Notice, or until February 20, 2024, to regain compliance with the Minimum Bid Price Rule, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before February 20, 2024, the closing bid price of the Common Stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, subject to Nasdaq's discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(G) to 20 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. On January 4, 2024, we received notice from Nasdaq Listing Qualifications stating that the Staff had determined that for the prior eleven consecutive business days, from December 18, 2023, to January 3, 2024, the closing bid price of our Common Stock had been at $1.00 per share or greater, and accordingly, we had regained compliance with the Bid Price Rule.
On October 26, 2023, we received notice from the Staff of Nasdaq indicating that, in connection with our July 2023 Offering, we were not in compliance with Nasdaq's shareholder approval requirements set forth in Listing Rule 5635(d), which requires prior shareholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price, defined as a price that is the lower of: (i) the Nasdaq official closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement. On December 12, 2023, during the Special Meeting, our stockholders ratified our entry into the Offering as we received the affirmative vote of the majority of the votes cast by shares of our common stock present or represented by proxy and entitled to vote at the Special Meeting. On March 19, 2024, we received the Letter of Reprimand from the Nasdaq Listing Qualifications Staff stating that, while we failed to comply with Nasdaq's continued listing requirements, our violation of listing rule 5635(d) does not appear to have been the result of a deliberate intent to avoid compliance, and as such, the Staff does not believe that delisting our securities is an appropriate sanction and that it is appropriate to close these matters by issuing the Letter of Reprimand.
There can be no assurance that we will be able to ultimately regain and sustain compliance with all applicable requirements for continued listing on The Nasdaq Stock Market LLC. In 2020, the SEC approved a previously proposed Nasdaq rule change to expedite delisting of securities with a closing bid price at or below $0.10 for 10 consecutive trading days during any bid price compliance period and that have had one or more reverse stock splits with a cumulative ratio of one for 250 or more shares over the prior two-year period. In addition, if a company falls out of compliance with the $1.00 minimum bid price after completing reverse stock splits over the immediately preceding two years that cumulatively result in a ratio one for 250 shares, the company will not be able to avail itself of any bid price compliance periods under Rule 5810(c)(3)(A), and Nasdaq will instead require the issuance of a Staff delisting determination. We could appeal the determination to a hearings panel, which could grant us a 180-day exception to remain listed if it believes we would be able to achieve and maintain compliance with the bid price requirement. Following the exception, the company would be subject to the procedures applicable to a company with recurring deficiencies (Nasdaq Rule 5815(d)(4)(B)).
In the event that we are unable to regain and sustain compliance with all applicable requirements for continued listing on the Nasdaq, our common stock may be delisted from Nasdaq. If our common stock were delisted from Nasdaq, trading of our common stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our common stock would be subject to SEC rules as a "penny stock," which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. In addition, delisting would materially and adversely affect our ability to raise capital on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise capital.
Share Price & Shareholder Rights - Risk 4
As a result of the Series B Exchange Right in the Certificate of Designations, Powers, Preferences and Rights of the Series B Preferred Stock (the "Series B Certificate of Designations"), we may be required to issue additional securities to the investors who purchased shares of our Series B Preferred Stock and related warrants to purchase shares of our Common Stock in a private placement in July 2020.
On July 16, 2020, we consummated a private placement offering (the "Series B Private Placement") in which we issued an aggregate of approximately 2,912.58 shares of Series B Preferred Stock, at a price of $7,700 per share, initially convertible into an aggregate of 693 shares of Common Stock at $32,340 per share, together with warrants to purchase an aggregate of 346 shares of Common Stock at an exercise price of $35,700 per share. The Series B Preferred Stock carries a cumulative dividend at a rate of 9.0% per annum, payable at our option either in cash or in kind in additional shares of Series B Preferred Stock.
As a result of previous conversions and exchanges, as of December 31, 2023, 514.96 shares of Series B Preferred Stock were outstanding, with an aggregate stated value of approximately $4.0 million, plus accrued and unpaid dividends through such date of approximately $1.1 million, and a conversion price of $32,340.00 per share.
Under the Series B Certificate of Designations, in the event we effect any issuance of Common Stock or Common Stock equivalents for cash consideration, or a combination of units thereof (a "Subsequent Financing"), each holder of the Series B Preferred Stock has the right to exchange the stated value, plus accrued and unpaid dividends, of the Series B Preferred Stock for any securities issued in the Subsequent Financing, in lieu of any cash subscription payments therefor (the "Series B Exchange Right"). As a result of sales of additional shares of common stock made on November 30, 2021, at a price of $10,985.94 per share, pursuant to our At The Market Agreement dated May 26, 2021 (the "ATM Agreement") (such price being the lowest price per share sold under the ATM Agreement to date), as of March 27, 2024, we may be required to issue in aggregate up to 449 shares of common stock, with no warrants, to any holders of Series B Preferred Stock who elect to exercise their Series B Exchange Right into shares of common stock. In any event, we anticipate that we would convert any shares of Series C Preferred Stock to be issued pursuant to the Series B Exchange Right into underlying shares of common stock immediately upon issuance.
In February 2022, we entered into waiver agreements (the "February 2022 Waiver") with certain holders of Series B Preferred Stock, pursuant to which we agreed to pay a cash waiver fee equal to ten percent of the stated value of the shares of Series B Preferred Stock held by such holder (other than holders who are company insiders who did not receive a cash waiver fee), and such holder agreed to irrevocably waive its Series B Exchange Right with respect to any Subsequent Financing that occurs from and after the date of the Waiver until December 31, 2022. Effective May 12, 2022, the holders of 81.3% of the outstanding shares of the Series B Preferred Stock permanently waived for themselves and all other holders of the Series B Preferred Stock the Series B Exchange Right with respect to any Subsequent Financing occurring on or after January 1, 2022 (the "Permanent Waiver").
If the holders of our Series B Preferred Stock exercise their Series B Exchange Rights, it will result in certain dilution to our stockholders, and would afford our stockholders a smaller percentage interest in our voting power, liquidation value and aggregate book value. The sale or resale of the Common Stock issued upon conversion of the preferred stock could cause the market price of our Common Stock to decline. In addition, the issuance of Common Stock upon the exercise of the Investor Warrants will result in similar dilution to our stockholders. This dilution, or the possibility that it may occur, may make it more difficult for us to sell equity securities in the future at a time and a price that we deem appropriate.
Share Price & Shareholder Rights - Risk 5
We currently have Series B Preferred Stock and Series G Preferred Stock outstanding. Our certificate of incorporation authorizes our Board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our Common Stock.
Our Board has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board also has the authority to issue preferred stock without further stockholder approval.
As of March 27, 2024, we have approximately 514.96 shares of Series B Preferred Stock outstanding with a stated value of $7,700 per share, which are currently convertible at the holder's option at any time, together with any accrued but unpaid dividends thereon, into shares of Common Stock at a conversion price of $32,340.00, subject to certain adjustments.
Our Series B Preferred Stock gives its holders the preferred right to our assets upon liquidation and the right to receive dividend payments at 9.00% per annum before dividends are distributed to the holders of Common Stock, among other things. The holders of the Series B Preferred Stock, voting as a separate class, also have customary consent rights with respect to certain corporate actions, including the issuance of an increased number of shares of Series B Preferred Stock, the establishment of any capital stock ranking senior to or on parity the Series B Preferred Stock as to dividends or upon liquidation, the incurrence of indebtedness, and certain changes to our Charter or Bylaws including other actions.
As of March 27, 2024, we have 12,373.226 shares of Series G Preferred Stock, par value $0.0001, outstanding. If the Conversion proposal is approved by our stockholders, each share of Series G Preferred Stock will automatically convert into 1,000 shares of Common Stock, subject to certain limitations, including that a holder of Series A Preferred Stock is prohibited from converting shares of Series G Preferred Stock into shares of Common Stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (to be established by the holder between 4.9% and 19.9%) of the total number of shares of Common Stock issued and outstanding immediately after giving effect to such conversion. Alternatively, the Series G Preferred Stock is redeemable for cash at the option of the holder thereof at any time following the date that is six months after the initial issuance of the Series G Preferred Stock (without regard to the lack of obtaining the requisite stockholder approval to convert the Series G Preferred Stock into Common Stock), at a price per share equal to the then-current fair value of the Series G Preferred Stock.
Holders of Series G Preferred Stock are entitled to receive dividends equal to, on an as-if-converted basis, and in the same form as dividends actually paid on shares of the Common Stock. Our Series G Preferred Stock does not have voting rights, except as required by law. The holders of the Series G Preferred Stock, voting as a separate class, have customary consent rights with respect to certain corporate actions, including the issuance of an increased number of shares of Series G Preferred Stock, the establishment of any capital stock, the incurrence of indebtedness, and certain changes to our Charter or Bylaws including other actions. Additionally, the Company shall not prior to the earlier of stockholder approval of the Conversion Proposal or the six-month anniversary of the Closing, without the affirmative vote of the holders of a majority of the then-outstanding Series G Preferred Stock, consummate or enter into any agreement with respect to any fundamental transactions or any stock sale to, or any merger, consolidation or other business combination of the Company with or into, another entity in which the stockholders of the Company immediately before such transaction do not hold at least a majority of the capital stock of the Company immediately after such transaction.
Our Board also created the following series of preferred stock: (i) Series C Preferred Stock ("Series C Preferred Stock"), of which 75,000 shares are authorized for issuance, none of which are currently outstanding; (ii) Series D Preferred Stock ("Series D Preferred Stock"), of which 150 shares are authorized for issuance, none of which are currently outstanding; (iii) Series E Preferred Stock ("Series E Preferred Stock"), of which 150 shares are authorized for issuance, none of which are currently outstanding; and (iv) Series F Preferred Stock ("Series F Preferred Stock"), of which 7,000 shares are authorized for issuance, none of which are currently outstanding. Pursuant to the Series B Exchange Right, we may be required to issue shares of Series C Preferred Stock in certain circumstances.
Our obligations to the holders of the Series B Preferred Stock, Series G Preferred Stock and any future holders of any additional series of preferred stock we may issue could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition and hinder the accomplishment of our corporate goals.
In addition to the above-referenced preferred stock, our Board could authorize the issuance of additional series of preferred stock with such rights preferential to the rights of our Common Stock, including the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing stockholders.
Share Price & Shareholder Rights - Risk 6
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our share price and trading volume could decline.
The trading market for our shares is influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our share price could decline.
Share Price & Shareholder Rights - Risk 7
Provisions in our Charter, our amended and restated by-laws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Common Stock.
Provisions of our Charter, our amended and restated by-laws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:
- the inability of stockholders to call special meetings;- the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors;- advance notice required for any nomination or other business to be properly brought before an annual meeting of stockholders which requires notice to be delivered to our secretary not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting, subject to certain exceptions;- any vacancies on our board of directors that results from the death, disability, resignation, disqualification or removal of any director or from any other cause shall be filled solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director and shall not be filled by the stockholders; provided that a vacancy created by the removal of a director by the stockholders may be filled by the stockholders; and - forum selection provisions that state that unless we consent in writing to the selection of an alternative forum, (A) (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Company to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware ("DGCL"), the Charter or the by-laws as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
In addition, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years, has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.
Share Price & Shareholder Rights - Risk 8
The issuance or conversion of securities would result in significant dilution in the equity interest of existing stockholders and adversely affect the marketplace of the securities.
The issuance or conversion of common shares or other securities convertible into common shares would result in significant dilution in the equity interest of existing stockholders and adversely affect the market price of the common shares. We have issued 11,777.418 shares of Series G Preferred Stock to former shareholders of ImmunogenX which are initially convertible, in the aggregate, into 11,777,418 shares of the Company's common stock, subject to adjustment and certain shareholder approval limitations specified in the Certificate of Designations. These and other future issuances of or conversions of securities may result in significant dilution to existing stockholders, which could adversely impact your investment.
Share Price & Shareholder Rights - Risk 9
Pursuant to the terms of the Merger Agreement, we are required to recommend that our stockholders approve the conversion of shares of our Series G Preferred Stock into shares of our Common Stock. We cannot guarantee that our stockholders will approve this matter, and if they fail to do so we may be required to settle such shares in cash and our operations may be materially harmed.
Under the terms of the Merger Agreement, we agreed to call and hold a meeting of our stockholders to obtain the requisite approvals for the conversion of shares of Series G Preferred Stock into shares of our Common Stock. Additionally, beginning on the date that is six months from the date of the Closing, the holders of our then-outstanding shares of Series G Preferred Stock will be entitled to elect to have such shares of Series G Preferred Stock redeemed for cash at a price per share equal to the then-current fair value of the Series G Preferred Stock, as described in the Certificate of Designation of Preferences, Rights and Limitations of the Series G Non-Voting Preferred Stock (the "Certificate of Determination"). Unless we operate profitably, our ability to redeem the Series G Preferred Stock would require the availability of adequate "surplus," which is defined as the excess, if any, of our net assets (total assets less total liabilities) over our capital. If we do have sufficient "surplus" to effect any requested redemption of the Series G Preferred Stock, our available cash will be negatively impacted. In addition, such reduction in our available cash could decrease the trading price of our Common Stock.
Share Price & Shareholder Rights - Risk 10
Company stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the transactions.
If the Company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, our stockholders may experience a dilution of their ownership interests our Company without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the Company is able to realize only part of the strategic and financial benefits currently anticipated from the transactions. The Merger may pose integration challenges which could result in management and business disruptions, any of which could harm our results of operation, business prospects, and impair the value of the Merger to our stockholders.
Accounting & Financial Operations3 | 5.8%
Accounting & Financial Operations - Risk 1
We are a clinical stage biopharmaceutical company and have a limited operating history upon which to base an investment decision.
We are a clinical stage biopharmaceutical company. Since inception, we have engaged primarily in research and development activities of Adrulipase and Niclosamide, and more recently Latiglutenase and Capeserod. We have not generated any revenue from product sales and have incurred significant net losses. We have not demonstrated our ability to perform the functions necessary for the successful commercialization of any product candidates. The successful commercialization of any of our products will require us to perform a variety of functions, including:
- continuing to undertake pre-clinical development and clinical trials;- participating in regulatory approval processes;- formulating and manufacturing products; and - conducting sales and marketing activities.
Our operations to date have been limited to organizing and staffing, acquiring, developing and securing the proprietary rights for, and undertaking pre-clinical development, manufacturing and clinical trials of Latiglutenase, Adrulipase, Capeserod and Niclosamide. These operations provide a limited basis for our stockholders and prospective investors to assess our ability to complete development of or commercialize Latiglutenase, Adrulipase, Capeserod, Niclosamide, or any other product candidates and the advisability of investing in our securities.
We have incurred significant losses and negative cash flows from our operations since inception. As of December 31, 2023, we had accumulated deficit of approximately $184.3 million and working capital of approximately $1.8 million. Based on our historical and anticipated rate of cash expenditures, we do not anticipate our existing working capital will be sufficient to sustain our business through the commercialization of our product candidates. Therefore, we are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We are actively working to obtain additional funding. We cannot make any assurances that additional financings will be available to us and, if available, completed on a timely basis, on acceptable terms or at all. If we are unable to complete an equity and/or debt offering, or otherwise obtain sufficient financing when and if needed, it would negatively impact our business and operations, which would likely cause the price of our Common Stock to decline or ultimately force us to cease our operations.
Accounting & Financial Operations - Risk 2
We have never paid and do not intend to pay cash dividends on our Common Stock. As a result, capital appreciation, if any, will be your sole source of gain.
We have never paid cash dividends on any of our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business. Our Series B Preferred Stock carries a dividend rate of 9.0% per year, which is cumulative and continues to accrue on a daily basis whether or not declared and whether or not we have assets legally available therefor. We may pay such dividends at our option either in cash or in kind in additional shares of preferred stock. We do not expect to pay any dividends in cash and have paid accrued dividends in kind in additional shares of preferred stock to date. In addition, the terms of future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.
Accounting & Financial Operations - Risk 3
Requirements associated with being a public company will increase our costs significantly and will divert significant company resources and management attention.
Since we are no longer an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, we are no longer able to take advantage of certain exemptions from various reporting requirements that were previously available to us, but which were not available to other public companies that are not emerging growth companies. Accordingly, we will be required to comply with increased disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, we will incur greater expenses associated with such reporting requirements. These expenses would further increase if we ceased to be a "smaller reporting company." In addition, if we are deemed an accelerated filer or large accelerated filer in the future, we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We have not yet completed the process of compiling the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion when required to do so. In that regard, we currently do not have an internal audit function, and we will need to hire or contract additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we may incur as a result of this.
Debt & Financing4 | 7.7%
Debt & Financing - Risk 1
Changed
There is substantial doubt about our ability to continue as a "going concern," and we will require substantial additional funding to finance our near- and long-term operations. If we are unable to raise additional capital, we have delayed, and could be forced to further delay, reduce or terminate certain of our products or other operations.
We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future. As of September 30, 2024, we had cash and cash equivalents of approximately $0.4 million and have sustained cumulative losses attributable to common stockholders of approximately $190.1 million.
Based on our cash on hand at November 13, 2024, we anticipate having sufficient cash to fund planned operations into December 2024. The acceleration or reduction of cash outflows by management can significantly impact the timing for the need to raise additional capital to complete development of our products. We believe that we will need to raise substantial additional capital in the near term to fund our continuing operations, satisfy existing and future obligations and liabilities, and otherwise support our working capital needs and business activities. In order to manage our operating costs, we have paused development activities for Latiglutenase, Capeserod and Adrulipase, and we are exploring strategic alternatives for Latiglutenase and Niclosamide.
We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability. Therefore, we are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We are actively working to obtain additional funding. However, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to us on favorable terms, if at all. We believe these conditions may raise substantial doubt about our ability to continue as a going concern. If we are unable to secure additional capital, we may be required to delay or curtail any future development of products, and we may take additional measures to reduce expenses in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. This would negatively impact our business and operations, which would likely cause the price of our Common Stock to decline or ultimately force us to cease our operations.
Debt & Financing - Risk 2
Added
We have recently rationalized our operations and may further rationalize or terminate our operations if we cannot obtain sufficient capital.
We are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be forced to delay, reduce or terminate our business activities.
As of December 31, 2023, we had 9 employees, which increased to 15 employees in March 2024 following the IMGX Merger. In connection with certain cost reduction measures we have taken, on July 16, 2024, we reduced our headcount to 11 employees, and Dr. Syage agreed to reduce his annual base salary to $66,560, effective July 1, 2024. On August 1, 2024, in order to further reduce costs and conserve resources, we approved the termination of all non-essential employees.
On August 2, 2024, in connection with the reduction in workforce, the Board approve the termination of (i) the employment agreement with our Chief Executive Officer, James Sapirstein (the "Sapirstein Employment Agreement"), and (ii) the offer letter between us and our President, Jack Syage. In connection with the termination of the Sapirstein Employment Agreement, on August 2, 2024, we entered into a consulting agreement with Mr. Sapirstein (the "Sapirstein Consulting Agreement"), whereby he will continue to serve as our Chief Executive Officer, and pursuant to which Mr. Sapirstein will be paid $400 an hour monthly for services rendered to us. The Sapirstein Consulting Agreement has an initial term of six months, is subject to early termination by either party for any reason at any time, and may be extended on a month-to-month basis upon mutual agreement after the expiration of the initial six-month term.
Additionally, on August 2, 2024, as part of the reduction in workforce described above, the Board approved the payout of unused vacation time for all employees accrued through August 1, 2024, including Mr. Sapirstein, Dr. Syage, and our Chief Financial Officer, Sarah Romano. We paid Mr. Sapirstein, Dr. Syage, and Ms. Romano $69,230, $1,920, and $45,590, respectively, to compensate for their unused vacation time accrued through August 1, 2024.
As a result of the rationalization, we have paused research and development activities for our Latiglutenase, Adrulipase and Capeserod product candidates and any other non-essential research and development activities and have paused or terminated third party service arrangements related thereto. We are exploring strategic alternatives for Niclosamide and are evaluating all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction, including a potential sale or wind-down of the IMGX assets and liabilities. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that we will make any cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our research and development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
Debt & Financing - Risk 3
Defaults under the Amended Credit Agreement or the Shareholders Notes could result in a substantial loss of our assets.
The borrowings under the Amended Credit Agreement are secured by substantially all of the assets of IMGX and the borrowings under the Shareholder Notes are secured by, among other things, the patents and trademarks owned by IMGX. If an event of default under any of such agreements could enable the lenders or creditors thereunder to declare all borrowings outstanding on such debt, together with accrued and unpaid interest and fees, to be due and payable. The lenders could also elect to foreclose on our assets securing such debt. In such an event, the Company may not be able to refinance or repay all of its indebtedness, have sufficient liquidity to meet operating and capital expenditure requirements, or hold the necessary intellectual property rights to conduct its business. Any such acceleration could cause us to lose a substantial portion of our assets and will substantially adversely affect our ability to continue our operations.
Debt & Financing - Risk 4
In connection with the Merger, we assumed significantly more indebtedness. Our level of indebtedness and our ability to make payments on or service our indebtedness could adversely affect our business, financial condition, results of operations, cash flow and liquidity.
Prior to the Merger, IMGX was party to that certain Credit Agreement, dated as of October 3, 2022 (as amended by that certain Modification of Loan Documents, dated as of September 6, 2023, the "Credit Agreement"), with Mattress Liquidators, Inc. ("Lender"). In connection with the Merger, IMGX entered into a Second Modification of Loan Documents, dated March 13, 2024 (the "Second Amendment," and the Credit Agreement as amended by the Second Amendment, the "Amended Credit Agreement"), which provides for, among other things: (i) Lender's consent for the Merger, (ii) Second Merger Sub's assumption all of IMGX's obligations, rights and liabilities as borrower under the Amended Credit Agreement, (iii) an amendment to the interest rate to a per annum floating rate equal to the prime rate plus 6.00%, (iv) an extension of the maturity date to September 13, 2025, (v) a prohibition on the borrower's ability to request additional loans under the revolving credit facility, subject to certain limited exceptions, (vi) the pledge by the stockholders of IMGX (the "Pledgors") of their equity interests of the Company as part of the collateral securing the obligations under the Amended Credit Agreement (the "Pledged Equity"), and (vii) an amendment to the total commitment under the Amended Credit Agreement to $8,212,345.17, which takes into account a one-time prepayment by IMGX to Lender in the amount of $1,000,000 (the "One-Time Prepayment"), accrued interest and fees for the remaining term of the facility and certain other fees to be paid under the Amended Credit Agreement.
In order to fund the One-Time Prepayment, on March 13, 2024, IMGX entered into (i) a secured promissory note in favor of Jack Syage, in an aggregate principal amount of $500,000 (the "Syage Note"), and (ii) a secured promissory note in favor of Peter Felker, in an aggregate principal amount of $500,000 (the "Felker Note" and collectively with the Syage Note, the "Shareholder Notes"). The Shareholder Notes will bear interest at a per annum floating rate equal to the prime rate plus 4.50% and mature on October 13, 2025.
If we are not able to repay or refinance our debt as it becomes due, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt or equity on terms that may be onerous or highly dilutive, if we can obtain it at all. If we raise equity through the issuance of preferred stock, the terms of the preferred stock may give the holders rights, preferences and privileges senior to those of holders of our Common Stock, particularly in the event of liquidation. Our ability to arrange financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. We cannot assure you that we will be able to obtain financing or refinancing on terms acceptable to us or at all.
If funds are not available when needed, or available on acceptable terms, we may be required to delay, scale back or eliminate some of our obligations. In addition, we may not be able to grow market share, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could negatively impact our business, operating results and financial condition.
Corporate Activity and Growth3 | 5.8%
Corporate Activity and Growth - Risk 1
The failure to successfully integrate the businesses of the Company and IMGX in the expected timeframe would adversely affect our future results.
Our ability to successfully integrate the operations of the Company and IMGX will depend, in part, on our ability to realize the anticipated benefits from the Merger. If we are not able to achieve these objectives, the anticipated benefits and cost savings of the Merger may not be realized fully, or at all, or may take longer to realize than expected, and the value of our Common Stock may be adversely affected. In addition, the integration of the Company's and IMGX's respective businesses will be a time-consuming and expensive process. Proper planning and effective and timely implementation will be critical to avoid any significant disruption to our operations. It is possible that the integration process could result in the loss of key employees, the disruption of our business or the identification of inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers, suppliers, distributors, creditors, lessors, clinical trial investigators or managers or to achieve the anticipated benefits of the Merger. Delays encountered in the integration process could have a material adverse effect on our operating results and financial condition, including the value of its Common Stock.
Corporate Activity and Growth - Risk 2
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2023, we had 9 employees, which increased to 15 employees in March 2024 following the IMGX Merger. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, research and development, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
- identifying, recruiting, integrating, maintaining and motivating additional employees;- managing our internal development efforts effectively, including the clinical, FDA and international regulatory review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and - improving our operational, financial and management controls, reporting systems and procedures.
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including certain aspects of regulatory approval, clinical management and manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants and contractors or find other competent outside contractors and consultants on economically reasonable terms, or at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.
Corporate Activity and Growth - Risk 3
We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.
From time to time, we may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to Latiglutenase, Adrulipase, Capeserod and Niclosamide and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. These relationships also may result in a delay in the development of Latiglutenase, Adrulipase, Capeserod and Niclosamide if we become dependent upon the other party and such other party does not prioritize the development of our product candidates relative to its other development activities. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. We rely completely on third parties to manufacture our preclinical and clinical pharmaceutical supplies and expect to continue to rely on third parties to produce commercial supplies of our product candidates, and our dependence on third party suppliers could adversely impact our business.
Tech & Innovation
Total Risks: 13/52 (25%)Below Sector Average
Innovation / R&D8 | 15.4%
Innovation / R&D - Risk 1
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of the approved labeling, or result in significant negative consequences following marketing approval, if any.
Results of current and future clinical trials of Latiglutenase, Adrulipase, Capeserod and Niclosamide could reveal a high and/or unacceptable severity and frequency of these or other side effects. In such an event, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Further, any observed drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences could materially harm our business, financial condition and prospects.
Additionally, if Latiglutenase, Adrulipase, Capeserod and Niclosamide receive marketing approval, and we or others later identify undesirable side effects caused by our products, a number of potentially significant negative consequences could result, including:
- regulatory authorities may withdraw approvals of such product;- regulatory authorities may require additional warnings in the product's labeling;- we may be required to create a medication guide for distribution to patients that outlines the risks of such side effects;- we could be sued and held liable for harm caused to patients; and - our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product, if approved, and could significantly harm our business, results of operations and prospects.
Innovation / R&D - Risk 2
We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.
Regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Clinical trials must be conducted in accordance with current cGCPs or other applicable foreign government guidelines governing the design, safety monitoring, quality assurance and ethical considerations associated with clinical studies. Clinical trials are subject to oversight by the FDA, other foreign governmental agencies and IRBs at the study sites where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced in accordance with applicable cGMPs, which are the FDA's regulations governing the design, monitoring and control of manufacturing processes and facilities. Clinical trials may be suspended by the FDA, other foreign governmental agencies, or us for various reasons, including:
- deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;- deficiencies in the clinical trial operations or trial sites;- the product candidate may have unforeseen adverse side effects;- deficiencies in the trial design necessary to demonstrate efficacy;- fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;- the product candidate may not appear to be more effective than current therapies; or - the quality or stability of the product candidate may fall below acceptable standards.
If we elect or are forced to suspend or terminate a clinical trial for Latiglutenase, Adrulipase, Capeserod and Niclosamide the commercial prospects for that product candidate will be harmed and our ability to generate product revenue from that product candidate may be delayed or eliminated. Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these product candidates either by us or by our collaboration partners.
Innovation / R&D - Risk 3
Delays in the commencement or completion of our clinical trials could result in increased costs and delay our ability to pursue regulatory approval and commercialization of our product candidates.
The commencement and completion of clinical trials can be delayed for a variety of reasons, including delays in:
- obtaining regulatory clearance to commence a clinical trial;- identifying, recruiting and training suitable clinical investigators;- reaching agreement on acceptable terms with prospective clinical research organizations ("CROs") and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time to time and may vary significantly among different CROs and trial sites;- obtaining sufficient quantities of investigational product ("IP") for our product candidates for use in clinical trials;- obtaining Institutional Review Board ("IRB") or ethics committee approval to conduct a clinical trial at a prospective site;- identifying, recruiting and enrolling patients to participate in a clinical trial, including delays and/or interruptions resulting from geo-political actions, such as the war in Ukraine, disease or public health epidemics, such as the coronavirus, or natural disasters;- retaining patients who have initiated a clinical trial but may withdraw due to adverse events from the therapy, insufficient efficacy, changing clinical protocols, fatigue with the clinical trial process, or personal issues;- retaining patients who may not follow the clinical trial protocols due to factors including the coronavirus epidemic; and - availability of funds.
Any delays in the commencement of our clinical trials will delay our ability to pursue regulatory approval for our product candidates. In addition, many of the factors that cause, or lead to, a delay in the commencement of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.
Innovation / R&D - Risk 4
Any product candidate we advance into and through clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent their regulatory approval or commercialization or limit their commercial potential.
Unacceptable adverse events caused by Latiglutenase, Adrulipase, Capeserod and Niclosamide in clinical trials could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications and markets. This, in turn, could prevent us from commercializing the affected product candidate and generating revenues from its sale. We have not yet completed testing of any of our product candidates for the treatment of the indications for which we intend to seek product approval in humans, and we currently do not know the extent of adverse events, if any, that will be observed in patients who receive any of our product candidates. If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory approval or commercialize such product or, if such product candidate is approved for marketing, future adverse events could cause us to withdraw such product from the market.
Innovation / R&D - Risk 5
Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, any product candidate we advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Pharmaceutical development has inherent risk. We will be required to demonstrate through well-controlled clinical trials that our product candidates are safe and effective with a favorable benefit-risk profile for use in their target indications before we can seek regulatory approvals for their commercial sale. Latiglutenase has completed three Phase 2 trials: Alvine Pharmaceuticals conducted Phase 2a and Phase 2b studies and ImmunogenX completed a Phase 2b trial. Adrulipase has completed four Phase 2 clinical trials in two separate indications (three Phase 2 in CF patients and one Phase 2 in CP patients). Capeserod was previously studied by Sanofi in seven Phase 1 and two Phase 2 trials investigating the potential of Capeserod for neurological disorders. Niclosamide has completed a Phase 1b/2a study, conducted by First Wave, in patients with mild-to-moderate ulcerative colitis. Success in pre-clinical studies or early clinical trials does not mean that later clinical trials will be successful, as product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing. We also may need to conduct additional clinical trials that are not currently anticipated. Drug developers frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results.
Innovation / R&D - Risk 6
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. The enrollment of patients depends on many factors, including:
- the patient eligibility criteria defined in the protocol;- the size of the patient population;- the proximity and availability of clinical trial sites for prospective patients;- the design of the trial;- our ability to recruit clinical trial investigators with the appropriate competencies and experience;- the availability of other clinical trials and competition for eligible patients;- our ability to obtain and maintain patient consents; and - the risk that patients enrolled in clinical trials will drop out of the trials before completion.
Our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates. This competition will reduce the number and types of patients and qualified clinical investigators available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors or clinical trial sites may not allow us to conduct our clinical trial at such site if competing trials are already being conducted there. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. We may also encounter difficulties finding a clinical trial site at which to conduct our trials.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our planned clinical trials, which could prevent completion of these clinical trials and adversely affect our ability to advance the development of our product candidates.
Innovation / R&D - Risk 7
Changed
Due to the significant resources required for the development of our product candidates, we must prioritize development of certain product candidates and/or certain disease indications, and deprioritize others. We may expend our limited resources, as they become available, on candidates or indications that do not yield a successful product and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Our goal is to develop a pipeline of product candidates to treat GI and other diseases. Due to the significant resources required for the development of product candidates, we must focus our attention and resources on specific diseases and/or indications and decide which product candidates to pursue and the amount of resources to allocate to each. We intend to focus our resources, as they become available, on the development of our product candidates Adrulipase and Capeserod.
Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from better opportunities. Similarly, any decision to delay, terminate or collaborate with third parties in respect of certain programs or product candidates may subsequently prove to be suboptimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the viability or market potential of any of our programs or product candidates or misread trends in the GI, CF, CP, COVID-19, ICI-AC or biotechnology industry, our business, financial condition and results of operations could be materially adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases and indications that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain development and commercialization rights.
Innovation / R&D - Risk 8
Our product candidates are at an early stage of development and may not be successfully developed or commercialized.
We have no products approved for sale. Latiglutenase, Adrulipase, Capeserod and Niclosamide are in the early stages of clinical development. Our product candidates will require substantial capital expenditures, development, testing, and regulatory clearances prior to commercialization. The development and regulatory approval process take several years, and it is not likely that any such products, even if successfully developed and approved by the FDA or any comparable foreign regulatory authority, would be commercially available for a significant period of time. Many promising drug candidates fail at some stage of their clinical development. Accordingly, even if we are able to obtain the requisite financing to fund our development programs, we cannot assure you that our product candidates will be successfully developed, receive required regulatory approvals and successfully commercialized. Our failure to develop, manufacture or receive regulatory approval for or successfully commercialize any of our product candidates, could result in the failure of our business and a loss of all of your investment in our company.
Trade Secrets4 | 7.7%
Trade Secrets - Risk 1
If we breach our license or other intellectual property-related agreements for our product candidates or otherwise experience disruptions to our business relationships with our licensor, we could lose the ability to continue the development and commercialization of our product candidates.
On September 13, 2023, we entered into a license agreement with Sanofi (the "Sanofi License Agreement"), pursuant to which we received a license to obtain certain exclusive worldwide rights to develop and commercialize Capeserod, a selective 5-HT4 receptor partial agonist which we intend to repurpose and develop for gastrointestinal indications. Our license may not cover all intellectual property rights owned or controlled by our licensor and relevant to our product candidates. If we have not obtained a license to all intellectual property rights owned or controlled by our licensor that are relevant to our product candidates, we may need to obtain additional licenses to such intellectual property rights which may not be available on an exclusive basis, on commercially reasonable terms or at all. In addition, if our licensor breaches such agreement, we may not be able to enforce such agreements against our licensor or their parent entity or affiliates. Under the Sanofi License Agreement, in exchange for licensing to us the right to develop and commercialize the applicable product candidate, Sanofi will be eligible to receive from us milestone payments, tiered royalties from commercial sales of such product candidates, assuming relevant approvals from government authorities are obtained, or other payments.
If we fail to meet any of our obligations under our license and intellectual property-related agreements, our licensors may have the right to terminate our licenses and sublicenses and, upon the effective date of such termination, have the right to re-obtain the licensed and sublicensed technology and intellectual property. If any of our licensors terminate any of our licenses or sublicenses, we will lose the right to develop and commercialize our applicable product candidates and other third parties may be able to market product candidates similar or identical to ours. In such case, we may be required to provide a grant back license to the licensors under our own intellectual property with respect to the terminated products. While we would expect to exercise all rights and remedies available to us, including seeking to cure any breach by us, and otherwise seek to preserve the intellectual property rights licensed and sublicensed to us, we may not be able to do so in a timely manner, at an acceptable cost or at all. In particular, some of the milestone payments are payable upon our product candidates reaching development milestones before we have commercialized, or received any revenue from, sales of such product candidate, and we cannot guarantee that we will have sufficient resources to make such milestone payments. Any uncured, material breach under the license agreements could result in our loss of exclusive rights and may lead to a complete termination of our rights to the applicable product candidate. Any of the foregoing could have a material adverse effect on our business, financial conditions, results of operations and prospects.
In addition, disputes may further arise regarding intellectual property subject to a license agreement, including, but not limited to:
- the scope of rights granted under the license agreement and other interpretation-related issues;- the extent to which our technology and processes infringe, misappropriate or otherwise violate intellectual property of the licensor that is not subject to the licensing agreement;- the sublicensing of patent and other rights under our collaborative development relationships;- our diligence obligations under the license agreement and what activities satisfy those diligence obligations;- the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and - the priority of invention of patented technology.
In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed or sublicensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations and prospects.
If we experience disruptions to our business relationships with our licensors, we could lose the ability to continue to source, develop and commercialize our product candidates, including ultimately losing our rights to such product candidates.
Trade Secrets - Risk 2
Our ability to compete may decline if we do not adequately protect our proprietary rights.
Our success depends on obtaining and maintaining proprietary rights to our product candidates for the treatment of age-related diseases, as well as successfully defending these rights against third-party challenges. We will only be able to protect our product candidates, and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them. Our ability to obtain patent protection for our product candidates is uncertain due to a number of factors, including:
- we may not have been the first to make the inventions covered by pending patent applications or issued patent;- we may not have been the first to file patent applications for our product candidates or the compositions we developed or for their uses;- others may independently develop identical, similar or alternative products or compositions and uses thereof;- our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;- any or all of our pending patent applications may not result in issued patents;- we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;- any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages, or may be successfully challenged by third parties;- our compositions and methods may not be patentable;- others may design around our patent claims to produce competitive products which fall outside of the scope of our patents;- others may identify prior art or other bases which could invalidate our patents.
Even if we have or obtain patents covering our product candidates or compositions, we may still be barred from making, using and selling our product candidates or technologies because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering compositions or products that are similar or identical to ours. There are many issued U.S. and foreign patents relating to chemical compounds and therapeutic products, and some of these relate to compounds we intend to commercialize. These could materially affect our ability to develop our product candidates or sell our products if approved. Because patent applications do not publish for 18 months from their priority date, can be filed with a non-publication request in the United States, and can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our product candidates or compositions may infringe. These patent applications may have priority over patent applications filed by us.
Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, various other governmental fees on patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the cost associated with complying with numerous procedural provisions during the patent application process. We may or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer.
Legal actions to enforce our proprietary rights (including patents and trademarks) can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or trademarks or a finding that they are unenforceable. We may or may not choose to pursue litigation or other actions against those that have infringed on our patents or trademarks, or used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.
Trade Secrets - Risk 3
If we or our partners are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.
Our success also depends upon our ability and the ability of any of our future collaborators to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third parties. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products, some of which may be directed at claims that overlap with the subject matter of our intellectual property. Because patent applications do not publish for 18 months from their priority date, can be filed with a non-publication request in the United States, and can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe. Similarly, there may be issued patents relevant to our product candidates of which we are not aware.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third-party claims that we or any of our licensors, suppliers or collaborators infringe the third party's intellectual property rights, we may have to:
- obtain licenses, which may not be available on commercially reasonable terms, if at all;- abandon an infringing product candidate or redesign our products or processes to avoid infringement;- pay substantial damages, including the possibility of treble damages and attorneys' fees, if a court decides that the product or proprietary technology at issue infringes on or violates the third party's rights;- pay substantial royalties, fees and/or grant cross licenses to our technology; and/or - defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
Trade Secrets - Risk 4
Our success will depend upon intellectual property, proprietary technologies and regulatory market exclusivity periods, and we may be unable to protect our intellectual property.
Our success will depend, in large part, on obtaining and maintaining patent protection and trade secret protection for Latiglutenase, Adrulipase, Capeserod and Niclosamide and their formulations and uses, as well as successfully defending these patents against third-party challenges. If we or our licensors fail to appropriately prosecute and maintain patent protection for our product candidates, our ability to develop and commercialize these product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. This failure to properly protect the intellectual property rights relating to these product candidates could have a material adverse effect on our financial condition and results of operations.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or our partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
- patent applications may not result in any patents being issued or any issued patents may not be of sufficient scope to cover our products;- patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable, or otherwise may not provide any competitive advantage;- our competitors, many of which have substantially greater resources than we or our partners and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products;- there may be significant pressure on the United States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful as a matter of public policy regarding worldwide health concerns;- countries other than the United States may have patent laws less favorable to patentees than those upheld by United States courts, allowing foreign competitors a better opportunity to create, develop, and market competing products;- others may allege ownership of our patents or patent applications or those of our licensors, and defense of such allegation or potential proceeding could be expensive, time consuming and unsuccessful; and - we may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.
In addition to patents, we and our partners also rely on trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, third parties may still obtain this information or come upon this same or similar information independently. We may become subject to claims that we or consultants, advisors or independent contractors that we may engage to assist us in developing Latiglutenase, Adrulipase, Capeserod and Niclosamide have wrongfully or inadvertently disclosed to us or used trade secrets or other proprietary information of their former employers or their other clients.
Cyber Security1 | 1.9%
Cyber Security - Risk 1
Significant disruptions of information technology systems or breaches of data security could materially adversely affect our business, results of operations and financial condition.
We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established physical, electronic and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our internal information technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants and other third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments and cyber-terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service and other harm to our business and our competitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Moreover, if a computer security breach affects our systems or results in the unauthorized release of personally identifiable information, our reputation could be materially damaged.
In addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and security laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Clinical Health Act of 2009, and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws.
Under the EU regulation and notably the General Data Protection Regulation, or GDPR, No. 2016/679, which entered into force on May 25, 2018 and is applicable personal data that we process in relation to our presence in the EU, the offering of products or services to individuals in the EU or the monitoring of the behavior of individuals in the EU, we have also a legal responsibility to report personal data breaches to the competent supervisory authority. The EU data protection regulation includes a broad definition and a short deadline for the notification of personal data breaches, which may be difficult to implement in practice and requires that we implement robust internal processes. Under this regulation, we have to report personal data breaches to the competent supervisory authority within 72 hours of the time we become aware of a breach "unless the personal data breach is unlikely to result in a risk to the right and freedoms of natural persons" (Article 33 of the GDPR). In addition, the GDPR requires that we communicate the breach to the Data Subject if the breach is "likely to result in a high risk to the rights and freedoms of natural persons" (Article 34 of the GDPR). In order to fulfil these requirements, we have to implement specific internal processes to be followed in case of a personal data breach, which will allow us to (a) contain and recover the breach, (b) assess the risk to the data subjects, (c) notify, and possibly communicate the breach to the data subjects, (d) investigate and respond to the breach. The performance of these processes implies substantial costs in resources and time.
Moreover, as we may rely on third parties that will also process as processor the data for which we are a data controller-for example, in the context of the manufacturing of our product candidates or for the conduct of clinical trials, we must contractually ensure that strict security measures, as well as appropriate obligations including an obligation to report in due delay any security incident are implemented, in order to allow us fulfilling our own regulatory requirements.
We would also be exposed to a risk of loss or litigation and potential liability for any security breach on personal data for which we are data controller. The costs of above-mentioned processes together with legal penalties, possible compensation for damages and any resulting lawsuits arising from a breach may be extensive and may have a negative impact on reputation and materially adversely affect our business, results of operations and financial condition.
In August 2019, management was advised that it was a victim of a cyber-related fraud whereby a hacker impersonated one of our key vendors to redirect payments, totaling approximately $420,000. Management and our Audit Committee completed our investigation and is reviewing all available avenues of recovery, including from our financial institution to recover the payments. As of December 31, 2021, we recovered approximately $50,000 from our financial institution and we do not expect to recover anything further from the cyber-related fraud. As a result of the cyber-related fraud, we have instituted additional controls and procedures and all employees now undergone cybersecurity training.
Legal & Regulatory
Total Risks: 6/52 (12%)Below Sector Average
Regulation4 | 7.7%
Regulation - Risk 1
Any product candidates we advance into and through clinical development are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA in the United States and by comparable health authorities in foreign markets, including Health Canada's Therapeutic Products Directorate, or the TPD, and the European Medicines Agency, or the EMA. In the United States, we are not permitted to market our product candidates until we receive approval of an NDA (New Drug Application) or BLA (Biologic License Application) from the FDA. The process of obtaining such approval is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. In addition to the significant clinical testing requirements, our ability to obtain marketing approval for these product candidates depends on obtaining the final results of required non-clinical testing, including characterization of the manufactured components of our product candidates and validation of our manufacturing processes. The FDA may determine that our product manufacturing processes, testing procedures or facilities are insufficient to justify approval. Approval policies or regulations may change, and the FDA has substantial discretion in the pharmaceutical approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.
The FDA, the TPD and/or the EMA can delay, limit or deny approval of a product candidate for many reasons, including, but not limited to:
- disagreement with the design or implementation of our clinical trials;- failure to demonstrate to their satisfaction that a product candidate is safe and effective for any indication;- failure to accept clinical data from trials which are conducted outside their jurisdiction;- the results of clinical trials may not meet the level of statistical significance required for approval;- we may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;- such agencies may disagree with our interpretation of data from preclinical studies or clinical trials;- failure to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; or - changes in the approval policies or regulations of such agencies may significantly change in a manner rendering our clinical data insufficient for approval.
Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates.
Regulation - Risk 2
The approval processes of regulatory authorities are lengthy, time consuming, expensive and inherently unpredictable. If we are unable to obtain approval for our product candidates from applicable regulatory authorities, we will not be able to market and sell those product candidates in those countries or regions and our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. We have not submitted an NDA or similar filing or obtained regulatory approval for any drug candidate in any jurisdiction and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Latiglutenase, Adrulipase, Capeserod and Niclosamide could fail to receive regulatory approval for many reasons, including any one or more of the following:
- the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;- we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;- the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;- we may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;- the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;- the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA, BLA or other submission or to obtain regulatory approval in the United States or elsewhere;- the FDA or comparable foreign regulatory authorities may fail to hold to previous agreements or commitments;- the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;- the FDA or comparable foreign regulatory authorities may fail to approve our product candidates;- invest significant additional cash in each of the above activities; and - the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
The time and expense of the approval process, as well as the unpredictability of clinical trial results and other contributing factors, may result in our failure to obtain regulatory approval to market, in one or more jurisdictions, Latiglutenase, Adrulipase, Capeserod, Niclosamide, or future product candidates, which would significantly harm our business, results of operations and prospects.
In addition, even if we were to obtain regulatory approval in one or more jurisdictions, regulatory authorities may approve Latiglutenase, Adrulipase, Capeserod and Niclosamide for fewer or more limited indications than we request, may not approve the prices we may propose to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with labeling that does not include the claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing circumstances could materially harm the commercial prospects for Latiglutenase, Adrulipase, Capeserod and Niclosamide.
Regulation - Risk 3
If we or any of our independent contractors, consultants, collaborators, manufacturers, vendors or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could result in penalties and affect our ability to develop, market and sell our product candidates and may harm our reputation.
We are subject to federal, state, and foreign healthcare laws and regulations pertaining to fraud and abuse and patients' rights. These laws and regulations include:
- the U.S. federal healthcare program anti-kickback law, which prohibits, among other things, persons and entities from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid;- the U.S. federal false claims and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties;- the U.S. federal Health Insurance Portability and Accountability Act ("HIPAA"), which prohibits, among other things, executing a scheme to defraud healthcare programs;- HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes requirements relating to the privacy, security, and transmission of individually identifiable health information, and requires notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;- the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members, which is published in a searchable form on an annual basis; and - state laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws that may be broader in scope and also apply to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data privacy and security.
If our operations are found to be in violation of any such health care laws and regulations, we may be subject to penalties, including administrative, civil and criminal penalties, monetary damages, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely affect our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management's attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.
Regulation - Risk 4
Changes in healthcare law and implementing regulations, including government restrictions on pricing and reimbursement, as well as healthcare policy and other healthcare payor cost-containment initiatives, may negatively impact our ability to generate revenues.
The potential pricing and reimbursement environment for Latiglutenase, Adrulipase, Capeserod Niclosamide, and any future drug products may change in the future and become more challenging due to, among other reasons, policies advanced by the current or any new presidential administration, federal agencies, healthcare legislation passed by Congress, or fiscal challenges faced by all levels of government health administration authorities.
Litigation & Legal Liabilities1 | 1.9%
Litigation & Legal Liabilities - Risk 1
We may incur substantial product liability or indemnification claims relating to the use of our product candidates.
We face an inherent risk of product liability exposure based on the use of Latiglutenase, Adrulipase, Capeserod and Niclosamide in human clinical trials, or, if obtained, following marketing approval and commercialization. Claims could be brought against us if use or misuse of one of our product candidates causes, or merely appears to have caused, personal injury or death. Although we have and intend to maintain product liability insurance relating to our clinical trials, our coverage may not be sufficient to cover claims that may be made against us and we may be unable to maintain such insurance. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources or destroy the prospects for commercialization of the product which is the subject of any such claim. We are unable to predict if we will be able to obtain or maintain product liability insurance for any products that may be approved for marketing. Additionally, we have entered into various agreements where we indemnify third parties for certain claims relating to the testing and use of our product candidates. These indemnification obligations may require us to pay significant sums of money for claims that are covered by these indemnifications.
We cannot predict all of the possible harms or side effects that may result from the use of our products and, therefore, the amount of insurance coverage we currently hold, or that we or our collaborators may obtain, may not be adequate to protect us from any claims arising from the use of our products that are beyond the limit of our insurance coverage. If we cannot protect against potential liability claims, we or our collaborators may find it difficult or impossible to commercialize our products, and we may not be able to renew or increase our insurance coverage on reasonable terms, if at all. The marketing, sale and use of our products and our planned future products could lead to the filing of product liability claims against us if someone alleges that our products failed to perform as designed. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend.
Any product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage. Additionally, any product liability lawsuit could damage our reputation, result in the recall of products, or cause current partners to terminate existing agreements and potential partners to seek other partners, any of which could impact our results of operations.
Environmental / Social1 | 1.9%
Environmental / Social - Risk 1
We use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.
We may use hazardous materials, including chemicals and biological agents and compounds, that could be dangerous to human health and safety or the environment. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage and our property and casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
Although we maintain workers' compensation insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Production
Total Risks: 5/52 (10%)Below Sector Average
Employment / Personnel2 | 3.8%
Employment / Personnel - Risk 1
Our employees and independent contractors, including principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations.
We are exposed to the risk that our employees and independent contractors, including principal investigators, consultants, any future commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA, EMA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies; manufacturing standards; healthcare fraud and abuse, data privacy laws and other similar laws; or laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials, or illegal misappropriation of product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in governmental healthcare programs, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Employment / Personnel - Risk 2
If we fail to attract and retain key management and clinical development personnel, we may be unable to successfully develop or commercialize our product candidates.
We are dependent on our management team and clinical development personnel and our success will depend on their continued service, as well as our ability to attract and retain highly qualified personnel. In particular, the continued employment of our senior management team, which includes James Sapirstein, our Chief Executive Officer and Sarah Romano, our Chief Financial Officer, is critical to our success. The market for the services of qualified personnel in the biotechnology and pharmaceutical industries are highly competitive. The loss of service of any member of our senior management team or key personnel could prevent, impair or delay the implementation of our business plan, the successful conduct and completion of our planned clinical trials and the commercialization of any product candidates that we may successfully develop. We do not carry key man insurance for any member of our senior management team.
Supply Chain3 | 5.8%
Supply Chain - Risk 1
We rely on third parties to conduct our clinical trials. If these third parties do not meet our deadlines or otherwise conduct the trials as required, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.
We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. We use contract research organizations (CROs) to conduct our clinical trials and will rely upon such CROs, as well as medical institutions, clinical investigators and consultants, to conduct our trials in accordance with our clinical protocols. Our CROs, investigators and other third parties will play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials.
There is no guarantee that any CROs, investigators and other third parties upon which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fail to meet expected deadlines, fail to adhere to our clinical protocols or otherwise perform in a substandard manner, our clinical trials may be extended, delayed or terminated. If any of our clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized.
Supply Chain - Risk 2
We rely completely on third parties to manufacture our preclinical and clinical pharmaceutical supplies and expect to continue to rely on third parties to produce commercial supplies of any approved product candidate, and our dependence on third party suppliers could adversely impact our business.
We rely on third parties to manufacture our product candidates, including Latiglutenase, Adrulipase, Capeserod, and Niclosamide.
The proprietary E. Coli cell line from which the Latiglutenase API is derived is kept at a storage facility maintained by Charles River Laboratories Inc. Latiglutenase drug substance is currently manufactured at a contract facility located in Tribiano (MI), Italy owned by ACS Dobfar SpA, which is not currently GMP certified. While we believe that the GMP certification of the facility owned by ACS Dobfar SpA is achievable, there can be no assurances that such certification will occur. We believe there are multiple alternative contract manufacturers capable of producing the Latiglutenase API that we need for clinical trials. There is no guarantee that the processes are reproducible and transferrable.
Capeserod API is obtained by chemical synthesis and is currently under development to be manufactured by Asymchem Inc. at a facility in Tianjin, China. We believe there are multiple alternative contract manufacturers capable of producing the product we need for clinical trials; however, there is no guarantee that the processes are reproducible and transferrable.
The proprietary yeast cell line from which the Adrulipase API is derived is kept at a storage facility maintained by Charles River Laboratories Inc. Adrulipase drug substance and drug product are currently manufactured at a contract facility located in Tianjin, China owned by Asymchem Life Science Co., Ltd. We believe there are multiple alternative contract manufacturers capable of producing the Adrulipase product we need for clinical trials. There is no guarantee that the processes are easily reproducible and transferrable.
Niclosamide API is obtained by chemical synthesis and is currently manufactured by Olon SpA at a facility in Murcia, Spain. The drug product manufacturing for Niclosamide is currently conducted at a contract facility located in Milan, Italy and Tianjin, China owned by Monteresearch s.r.l. and Asymchem Life Science Co., Ltd, respectively.
We are completely dependent on these third parties for product supply and our Latiglutenase, Adrulipase, Capeserod and Niclosamide development programs would be adversely affected by a significant interruption in our ability to receive such materials. We have not yet entered into long-term manufacturing or supply agreements with any third parties. Furthermore, our third-party suppliers will be required to obtain and maintain compliance with cGMPs and will be subject to inspections by the FDA or comparable regulatory authorities in other jurisdictions to confirm such compliance. In the event that the FDA or such other authorities determine that our third-party suppliers have not complied with cGMP, our clinical trials could be terminated or subjected to a clinical hold until such time as we are able to obtain appropriate replacement material. Any delay, interruption or other issues that arise in the manufacture, packaging, or storage of our products, including Latiglutenase, as a result of a failure of the facilities or operations of our third-party suppliers to pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products.
We do not expect to have the resources or capacity to commercially manufacture any of our proposed products, if approved, and will likely continue to be dependent upon third party manufacturers. Our dependence on third parties to manufacture and supply us with clinical trial materials and any approved products may adversely affect our ability to develop and commercialize our products on a timely basis or at all.
Supply Chain - Risk 3
While we have entered into the non-binding Niclosamide LOI for the Niclosamide Sale, there is no assurance that the Niclosamide Sale will be completed on the terms contained in the Niclosamide LOI or otherwise.
On December 27, 2023, we announced that we entered into the Niclosamide LOI. The amount and structure of the consideration could change as a result of subsequent negotiations, due diligence, or other factors. Any definitive agreement with respect to the Niclosamide Sale would be subject to approval by the respective parties to the Niclosamide LOI, including approval by our Board of Directors, and would likely include a number of customary provisions, including without limitation, representations and warranties of the buyer and us, restrictive covenants, and indemnification provisions, as well as various closing conditions, including without limitation receipt of applicable third party approvals and satisfactory financing arrangements. There can be no assurance that the Niclosamide LOI parties will ultimately negotiate and enter into definitive transaction agreements on the terms contemplated by the Niclosamide LOI or otherwise. In particular, the timing and closing of any such transaction and the aggregate consideration that we may receive may materially differ from that currently contemplated by the Niclosamide LOI. In addition, in the event the Niclosamide Sale does not occur, we may, in the future, enter into other non-binding or binding letters of intent, as well as definitive documentation relating to the sale of niclosamide, however there can be no assurance that we will do so. If we do not complete the sale of Niclosamide pursuant to the Niclosamide LOI, other letters of intent, and any related transaction documentation, we will have incurred expenses without our stockholders realizing any benefit therefrom. Additionally, if we fail to consummate such anticipated Niclosamide Sale, such failure could result in fluctuations to the market price of our Common Stock and may have a material adverse impact on our financial condition and results of operations.
Macro & Political
Total Risks: 5/52 (10%)Above Sector Average
Economy & Political Environment4 | 7.7%
Economy & Political Environment - Risk 1
Geopolitical risks associated with Russia's invasion of Ukraine and Israel's war with Hamas could result in increased market volatility and uncertainty, which could negatively impact our business, financial condition, and results of operations.
The uncertain nature, scope, magnitude, and duration of hostilities stemming from Russia's military invasion of Ukraine and Israel's war with Hamas, including the potential effects of such hostilities as well as sanctions, embargoes, asset freezes, cyber-attacks and other actions taken in response to such hostilities on the world economy and markets, have disrupted global markets and contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic and other factors that affect our business and supply chain. There can be no certainty regarding the impacts stemming from the invasion, including the imposition of additional sanctions, embargoes, asset freezes or other economic or military measures resulting from the invasion. The impact of these developments, and additional events that may occur as a result, is currently unknown and could adversely affect our business, supply chain, suppliers and customers and potential customers. It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability and cost of materials, supplies, labor, currency exchange rates and financial markets, all of which could negatively impact our business, financial condition and results of operations.
Economy & Political Environment - Risk 2
Adverse global conditions, including economic uncertainty, may negatively impact our financial results.
Global conditions, dislocations in the financial markets, any negative financial impacts affecting United States as a result of tax reform or changes to existing trade agreements or tax conventions, may adversely impact our business.
In addition, the global macroeconomic environment could be negatively affected by, among other things, pandemics or epidemics, instability in global economic markets, increased U.S. trade tariffs and trade disputes with other countries, instability in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of the Russian invasion of Ukraine, the war between Israel and Hamas and other political tensions, and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets.
Economy & Political Environment - Risk 3
Disruptions in the global economy and supply chains may have a material adverse effect on our business, financial condition and results of operations.
The disruptions to the global economy in 2020 and into 2022 have impeded global supply chains, resulting in longer lead times and also increased critical component costs and freight expenses. We have taken and may have to take steps to minimize the impact of these disruptions in lead times and increased costs by working closely with our suppliers and other third parties on whom we rely for the conduct of our business. Despite the actions we have undertaken or may have to undertake to minimize the impacts from disruptions to the global economy, there can be no assurances that unforeseen future events in the global supply chain will not have a material adverse effect on our business, financial condition and results of operations.
Furthermore, inflation can adversely affect us by increasing the costs of clinical trials, the research and development of our product candidates, as well as administration and other costs of doing business. We may experience increases in the prices of labor and other costs of doing business. In an inflationary environment, cost increases may outpace our expectations, causing us to use our cash and other liquid assets faster than forecasted. If this happens, we may need to raise additional capital to fund our operations, which may not be available in sufficient amounts or on reasonable terms, if at all, sooner than expected.
Economy & Political Environment - Risk 4
Healthcare reform and restrictions on reimbursements may limit our financial returns.
Our ability or the ability of our collaborators to commercialize any of our product candidates that we successfully develop may depend, in part, on the extent to which government health administration authorities, private health insurers and other organizations will reimburse consumers for the cost of these products. These third parties are increasingly challenging both the need for and the price of new drug products. Significant uncertainty exists as to the reimbursement status of newly approved therapeutics. Adequate third-party reimbursement may not be available for our product candidates to enable us or our collaborators to maintain price levels sufficient to realize an appropriate return on their and our investments in research and product development.
Capital Markets1 | 1.9%
Capital Markets - Risk 1
We intend to rely on market exclusivity periods that may not be or remain available to us.
We intend to rely on our ability to obtain and maintain a regulatory period of market exclusivity for any of our product candidates, including Latiglutenase, Adrulipase, Capeserod and Niclosamide that are successfully developed and approved for commercialization. Although this period in the United States is currently 12 years from the date of marketing approval, reductions to this period have been proposed. This exclusivity period in Europe is currently 10 years from the date of marketing approval by the EMA. Once any regulatory period of exclusivity expires, depending on the status of our patent coverage and the nature of the product, we may not be able to prevent others from marketing products that are biosimilar to or interchangeable with our products, which would materially adversely affect us.
Because Niclosamide is a small molecule it would be subject either to three or five year exclusivity, depending on the regulatory pathway of any clinical trials. Niclosamide is not entitled to the same 12-year exclusivity as our biologic product candidates.
Ability to Sell
Total Risks: 3/52 (6%)Below Sector Average
Competition1 | 1.9%
Competition - Risk 1
We will face intense competition and may not be able to compete successfully.
We operate in highly competitive segments of the biotechnology and biopharmaceutical markets. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. Latiglutenase, Adrulipase, Capeserod and Niclosamide, if successfully developed and approved, will compete with established therapies, as well as new treatments that may be introduced by our competitors. Many of our competitors have significantly greater financial, product development, manufacturing and marketing resources than us. Large pharmaceutical companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. We also may compete with these organizations to recruit management, scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. New developments, including the development of other biological and pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical and life sciences industries at a rapid pace. Developments by competitors may render our product candidates obsolete or noncompetitive. We will also face competition from these third parties in recruiting and retaining qualified personnel, establishing clinical trial sites and patient registration for clinical trials and in identifying and in-licensing new product candidates. In the case of Niclosamide, we may also face competition from other companies developing different formulation of Niclosamide for the same indications for which we intend to develop Niclosamide, or from off-label uses of Niclosamide approved for other indications.
Sales & Marketing2 | 3.8%
Sales & Marketing - Risk 1
We currently have no commercial organization. If we are unable to establish satisfactory sales and marketing capabilities or secure a sales and marketing partner, we may not successfully commercialize any of our product candidates.
We have no commercial infrastructure. In order to commercialize products that are approved for marketing, we must either establish our own sales and marketing infrastructure or collaborate with third parties that have such commercial infrastructure.
We may not be able to enter into collaboration agreements on terms acceptable to us or at all. In addition, even if we enter into such relationships, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties. If we elect to establish a sales and marketing infrastructure, we may not realize a positive return on this investment. In addition, we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize our product candidates without strategic partners or licensees include:
- our inability to recruit and retain adequate numbers of effective sales and marketing personnel;- the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our future products;- the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and - unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, or if we do not successfully enter into appropriate collaboration arrangements, we will have difficulty successfully commercializing our product candidates and any we may develop or acquire, which would adversely affect our business, operating results and financial condition. Outside the United States, we may commercialize our product candidates by entering into collaboration agreements with pharmaceutical partners. We may not be able to enter into such agreements on terms acceptable to us or at all. In addition, even if we enter into such relationships, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties.
Sales & Marketing - Risk 2
If we are unable to execute our sales and marketing strategy for our products and are unable to gain market acceptance, we may be unable to generate sufficient revenue to sustain our business.
We are a clinical-stage biopharmaceutical company and have yet to begin to generate revenue from Latiglutenase, Adrulipase, Capeserod and Niclosamide. Our product candidates are in an early stage of clinical development, and, if we obtain marketing approval for any of products in the future, which we anticipate would not occur for several years, if at all.
We may never gain significant market acceptance for our product candidates and therefore may never generate substantial revenue or profits for us. We will need to establish a market for any of our product candidates that receive regulatory approval through physician education, sales and marketing efforts, awareness programs and the publication of clinical data. Gaining acceptance in medical communities requires, among other things, publication in leading peer-reviewed journals of results from our studies. The process of publication in leading medical journals is subject to a peer review process and peer reviewers may not consider the results of our studies sufficiently novel or worthy of publication. Failure to have our studies published in peer-reviewed journals could limit the adoption of Latiglutenase, Adrulipase, Capeserod and Niclosamide. Our ability to successfully market our product candidates that we may develop will depend on numerous factors, including:
- the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;- the efficacy and safety as demonstrated in clinical trials;- the clinical indications for which the product is approved;- the inability to demonstrate effectively that the clinical and other benefits of a product candidate outweigh any safety or other perceived risks;- the inability to demonstrate effectively that the efficacy of a product candidate is superior to a competing treatment;- conducting clinical utility studies of our product candidates to demonstrate economic usefulness to providers and payers;- relative convenience and ease of administration;- whether our current or future partners, support our offerings;- the success of the sales force and marketing effort;- unfavorable publicity relating to the product;- whether healthcare providers believe our product candidates provide clinical utility relative to their cost; and - whether private health insurers, government health programs and other third-party payers will cover our product candidates.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.