Innovation Pharmaceuticals (IPIX) Risk Analysis

We have limited experience in conducting and supervising clinical trials that must be performed to obtain data to submit in applications for approval by the FDA. Because we have limited experience in conducting or supervising clinical trials, we outsource a significant amount of the work relating to our clinical trials to third parties. We therefore have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events, and the management of data developed through the trials than would be the case if we were relying entirely upon our own staff. We also have more limited control over compliance with procedures and protocols used to complete clinical trials. If these contractors fail to meet applicable regulatory standards, the testing of our drugs would be adversely affected, causing a delay in our ability to engage in revenue-generating operations that could have a materially adverse effect on our business. Communicating with outside parties can also be challenging, potentially leading to mistakes, as well as difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials. We may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay our trials and contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.

A number of new drugs and biologics have shown promising results in preclinical studies and initial clinical trials, but subsequently have failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals to initiate commercial sale. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. Product candidates in later stages of clinical trials may fail to show the desired benefit-risk profile despite having progressed through preclinical studies and initial clinical trials. As a result, data from our preclinical studies and Phase 1 and Phase 2 clinical trials of our drug candidates Brilacidin and Kevetrin, as well as the results of the past or future internal data reviews, should not be relied upon as predictive or indicative of future clinical results. The results we have previously obtained, as well as any future results, may not predict the future therapeutic benefit of our drug candidates. In addition, from time-to-time, preliminary or interim data from clinical trials, such as relating to the Brilacidin Phase 2, open-label, Proof-of-Concept (PoC) clinical trial, or potential future clinical trials, may be reported or announced by us or the clinical investigators and medical institutions with which we work. Such data are preliminary and the data from any final analysis may be materially different. Even if final safety and/or efficacy data are positive, significant additional clinical testing will be necessary to advance the future development of our drug candidates. Preliminary or interim results may also not be reproduced in any potential future clinical trials. Accordingly, preliminary or interim data should be considered carefully and with caution.

Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management services place substantial responsibilities on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for or successfully commercialize our drug candidates. We or regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time 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 the patients enrolled in our clinical trials. In addition, clinical trials may have independent monitoring boards composed of experts in the field. These boards may also have the authority to suspend or terminate clinical trials. Our clinical trial operations are and will be subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be inadequate, or are dissatisfied with the corrective actions that we or our clinical trial sites have implemented, our clinical trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow us to manufacture or market our drug candidates or we may be criminally prosecuted. If we are unable to complete clinical trials and have our products approved due to our failure to comply with regulatory requirements, we will be unable to commence revenue-generating operations, which could force us to cease operations.

Delays in the commencement or completion of clinical testing of our products or products could significantly affect our product development costs and our ability to generate revenue. We do not know whether the FDA will agree with the trial designs for ongoing and planned clinical trials or whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to our ability to do the following: - provide sufficient safety, efficacy or other data regarding a drug candidate to support the commencement of a Phase 3 or other clinical trial; - reach agreement on acceptable terms with prospective contract manufacturers, contract research organizations (CROs) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different third parties; - select CROs, trial sites and, where necessary, contract manufacturers that do not encounter any regulatory compliance problems; - manufacture sufficient quantities of a product candidate for use in clinical trials; - obtain IRB approval to conduct a clinical trial at a prospective site; - recruit and enroll patients to participate in clinical trials, which can be impacted by many factors outside our or our partners' control, including competition from other clinical trial programs for the same or similar indications; and - retain patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues. Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us or our partner, the FDA, an IRB, a clinical trial site with respect to that site, or other regulatory authorities due to a number of factors, including: - failure to conduct the clinical trial in accordance with regulatory requirements, including GCP, or our protocols; - inspection of the clinical trial operations, trial sites or manufacturing facility by the FDA or other regulatory authorities resulting in findings of non-compliance and the imposition of a clinical hold; - unforeseen safety issues or results that do not demonstrate efficacy; and - lack of adequate funding to continue the clinical trial. Additionally, we may need to amend clinical trial protocols for a variety of reasons, including changes in regulatory requirements and guidance. Such amendments may require us to, for example, resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. We may decide to terminate a clinical study for commercial reasons including increased market availability of generic treatments. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenues will be delayed and/or reduced. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

On July 18, 2019, we entered into a license agreement with Alfasigma, under which we granted Alfasigma the worldwide right to develop, manufacture and commercialize locally-administered Brilacidin for the treatment of ulcerative proctitis/ulcerative proctosigmoiditis (UP/UPS). Pursuant to the terms of the license agreement, Alfasigma is obligated to use commercially reasonable efforts (as defined in the license agreement) to develop, manufacture and commercialize Brilacidin for UP/UPS, and to achieve specified developmental milestones. Under the terms of the license agreement, Alfasigma will make payments of up to $24.0 million to the Company based upon the achievement of certain milestones. In addition, Alfasigma will pay a royalty to the Company equal to six percent of net sales of Brilacidin for UP/UPS, subject to adjustment as provided in the license agreement. The right to potential future payments under the license agreement represents a significant portion of the value of the license agreement to us. We cannot be certain that we will receive any future payments under the license agreement, which would adversely affect the trading price of our common stock and our business prospects. Additionally, if Alfasigma were to breach or terminate the license agreement, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for Brilacidin for UP/UPS and will not be able to, or may be delayed in our efforts to, successfully commercialize Brilacidin for UP/UPS. We may not be able to seek and obtain a viable, alternative collaborator to partner for the development and commercialization of the licensed products on similar terms or at all.

We depend upon confidentiality and non-use agreements with our officers, employees, consultants, and subcontractors to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and may not afford an adequate remedy in the event of an unauthorized disclosure of confidential information. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition, and results of operations.

All facilities and manufacturing processes used in the production of active pharmaceutical ingredient, or API, and drug products for clinical use in the U.S. must be operated in conformity with cGMP as established by the FDA. Similar requirements in other countries exist for manufacture of drug products for clinical use. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Before we can commercialize a drug, we must obtain regulatory approval of our cGMP manufacturing facility and process, if any, or the cGMP manufacturing facility and process of the third party or parties with whom we may outsource our manufacturing activities. In connection with any application for commercial approval, and if any drug candidate is approved by the FDA or other regulatory agencies for commercial sale, a significant scale-up in manufacturing may require additional validation studies. If we are unable to successfully increase the manufacturing capacity for a drug candidate, the regulatory approval or commercial launch of that drug candidate may be delayed, or there may be a shortage of supply, which could limit our ability to develop or commercialize the drug. Our manufacturing facilities, if any in the future, and the manufacturing facilities of our third-party manufacturers will be subject to inspection by the FDA and other state, local and foreign regulatory authorities, before and after product approval. We cannot guarantee that we, or any potential third-party manufacturer of our products, will be able to comply with the cGMP regulations or other applicable manufacturing regulations. Failure on our or our third party manufacturers' part to comply with applicable regulations and specific requirements or specifications of other countries could result in the termination of ongoing research, disqualification of data for submission to regulatory authorities, delays or denials of new product approvals, warning letters, fines, consent decrees restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of products and criminal prosecution. Any of these consequences could have a materially adverse effect on our business.

The development of our investigational products and our general operations are subject to extensive regulation in the U.S. and in foreign countries. Although we have developed and instituted controls to comply with applicable regulatory requirements, we cannot assure you that we, our employees, our consultants or our contractors will operate at all times in full compliance with all potentially applicable U.S. federal and state regulations and/or laws or all potentially applicable foreign law and/or regulations. Further, we have a limited ability to monitor and control the activities of third-party service providers, suppliers and manufacturers to ensure compliance by such parties with all applicable regulations and/or laws. We may be subject to direct liabilities or be required to indemnify such parties against certain liabilities arising out of any failure by them to comply with such regulations and/or laws. If we or our employees, consultants or contractors fail to comply with any of these regulations and/or laws a range of consequences could result, including, but not limited to, the termination of clinical trials, the failure to obtain approval of a product candidate, restrictions on our products or manufacturing processes, withdrawal of our products from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation that could adversely affect our results of operations.

The drug discovery and development process is highly uncertain and we have not developed, and may never develop, a drug candidate that ultimately leads to a commercially viable drug. Our drug candidates are in early and mid-stages of development, and our most advanced drug candidate has completed Phase 2 testing. Further development and extensive testing will be required to determine their technical feasibility and commercial viability. Conducting clinical trials is a complex, time-consuming and expensive process that requires an appropriate number of trial sites and patients to support the product label claims being sought. The length of time, number of trial sites and number of patients required for clinical trials vary substantially according to their type, complexity, novelty and the drug candidate's intended use, and we may spend several years completing certain trials. The time within which we can complete our clinical trials depends in large part on the ability to enroll eligible patients who meet the enrollment criteria and who are in proximity to the trial sites. We face competition with other clinical trials for eligible patients. As a result, there may be limited availability of eligible patients, which can result in increased development costs, delays in regulatory approvals and associated delays in drug candidates reaching the market. We experienced these issues in our psoriasis and oral mucositis clinical trials. At any time, we, the FDA or an institutional review board ("IRB"), may temporarily or permanently stop a clinical trial, for a variety of reasons. We may experience numerous unforeseen events during, or as a result of, the clinical development process that could delay or prevent our drug candidates from being approved, including: - failure to achieve clinical trial results that indicate a candidate is effective in treating a specified condition or illness in humans; - presence of harmful side effects; - determination by the FDA that the submitted data do not satisfy the criteria for approval; - lack of commercial viability of the drug; - failure to acquire, on reasonable terms, intellectual property rights necessary for commercialization; and  - existence of alternative therapeutics that are more effective. As our product candidates advance to later stage clinical trials, it is customary that various aspects of the development program, such as manufacturing, formulation and other processes, and methods of administration, may be altered to optimize the candidates and processes for scale-up necessary for later stage clinical trials and potential approval and commercialization. These changes may not produce the intended optimization, including production of drug substance and drug product of a quality and in a quantity sufficient for Phase 3 clinical stage development or for commercialization, which may cause delays in the initiation or completion of clinical trials and greater costs. We may also need to conduct "bridging studies" to demonstrate comparability between newly manufactured drug substance and/or drug product for commercialization relative to previously manufactured drug substance and/or drug product for clinical trials. Demonstrating comparability may require us to incur additional costs or delay initiation or completion of clinical trials and, if unsuccessful, could require us to complete additional preclinical studies or clinical trials. We learned during our completed Kevetrin Phase 1 study Kevetrin IV was almost completely out of plasma within 24 hours. Therefore, little drug remains for any substantial period of time afterwards. Having the patient receive multiple IV infusions per week is a difficult course of treatment. Therefore, an oral formulations for Kevetrin is needed. There is no assurance we will be successful in developing an oral formulation. We used Brilacidin in a water base, administered by enema, in our ulcerative proctitis study. However, a commercial product for Inflammatory Bowel Disease will need a different formulation (e.g. Brilacidin in capsule or foam). Additional formulation development is needed. There is no assurance we will be successful in developing new formulations for possible commercialization. If we fail to adequately manage the increasing number, size and complexity of clinical trials, the clinical trials and corresponding regulatory approvals may be delayed or we or our partners may fail to gain approval for our drug candidates altogether. Even if we successfully conduct clinical trials, we may not obtain favorable clinical trial results and may not be able to obtain regulatory approval on this basis. If we are unable to market and sell our drug candidates or are unable to obtain approvals in the time frame needed to execute our product strategies, our business and results of operations would be materially adversely affected. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into reliable, commercially competitive drugs on a timely basis. The length of time required to complete clinical studies, submit an application for marketing approval, and obtain approval can vary considerably from one product to another, and may be difficult to predict or control. Drugs that we may develop are not likely to be commercially available for several years, if ever. The proposed development schedules for our drug candidates may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in government regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our drug candidates could result either in such drugs being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in "Risk Factors", we may not be able to complete successfully the development or marketing of any of our drug candidates. We may fail to successfully develop and commercialize our drug candidates for multiple reasons, including because they: - are found to be unsafe or ineffective in clinical trials;  - do not receive necessary approval from the FDA or foreign regulatory agencies;  - have manufacturing production problems, costs, pricing or reimbursement issues, or other factors that make the product not economical; - are hampered by the proprietary rights of others and their competing products and technologies;  - fail to conform to a changing standard of care for the diseases they seek to treat; or  - are less effective or more expensive than current or alternative treatment methods. Drug development failure can occur at any stage of clinical trials and as a result of many factors and there can be no assurance that we will reach our anticipated clinical targets. Promising results in preclinical development or early clinical trials may not be predictive of results obtained in later clinical trials. Many pharmaceutical companies have experienced significant setbacks in advanced clinical trials, even after obtaining promising results in earlier preclinical studies and clinical trials. Clinical results are susceptible to varying interpretations that may delay, limit, or prevent regulatory approvals. Even if we complete our clinical trials, we do not know what the long-term effects of exposure to our drug candidates will be. Furthermore, our drug candidates may be used in combination with other treatments and there can be no assurance that such use will not lead to unique safety issues. Failure to complete clinical trials or to prove that our drug candidates are safe and effective would have a material adverse effect on our ability to generate revenue and could require us to reduce the scope of or discontinue our operations, which could cause you to lose all of your investment. At any time, we may decide to discontinue the development of, or to not commercialize, a drug candidate, such as our decision in December 2018 to discontinue the Prurisol psoriasis program. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to allocate those resources to potentially more productive uses.

Our drug candidates Brilacidin and Kevetrin will require lengthy and costly studies in humans to obtain approval from the FDA before they can be marketed. We cannot predict with any certainty that the study results will be satisfactory to the FDA for approval to ultimately be granted. Preclinical and clinical trials may reveal that one or more products are ineffective or unsafe, in which event further development of such products could be seriously delayed or terminated. Approval of a drug candidate as safe and effective for use in humans is never certain and regulatory agencies may delay or deny approval of drug candidates for commercialization. For example, even though our product candidate Brilacidin has received QIDP designation, such designation may not result in a faster development process, review, or approval than drugs considered for approval under conventional FDA procedures; nor does such designation assure ultimate approval by the FDA or related exclusivity benefits. Regulatory agencies also may delay or deny approval based on additional government regulation or administrative action, changes in regulatory policy during the period of clinical trials in humans and regulatory review, or the availability of alternative treatments. Delays in obtaining, or failure to obtain, FDA or any other necessary regulatory approvals of any proposed drugs would have an adverse effect on the drug's potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that a proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed and regulatory approvals have been obtained. In this event, we may be required to withdraw such drug from the market. To the extent that our success will depend on any regulatory approvals from government authorities outside of the United States that perform roles similar to that of the FDA, uncertainties similar to those stated above will also exist.