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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 001-36570

ZOSANO PHARMA CORPORATION
(Exact name of registrant as specified in its charter)
____________________________
Delaware 45-4488360
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
34790 Ardentech Court
Fremont, CA 94555
(Address of principal executive offices) (Zip Code)
(510) 745-1200
(Registrant’s telephone number, including area code)
___________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueZSANThe Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes     No  x
As of May 11, 2022, the registrant had a total of 4,902,260 shares of its common stock, $0.0001 par value per share, outstanding.


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Zosano Pharma Corporation
Quarterly Report on Form 10-Q
INDEX
 
Page




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Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “intend,” “seek,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” or the negative of those terms, and similar expressions and comparable terminology intended to reference future periods. Forward-looking statements include, but are not limited to, statements about:
our expectations regarding our expenses and revenue, the sufficiency of our cash resources, needs for additional financing and ability to continue our operations;
our ability to continue as a going concern;
the potential for future impairment of our long-lived assets;
the potential for resubmitting a 505(b)(2) New Drug Application (“NDA”) for M207 to the U.S. Food and Drug Administration (“FDA”);
our expectations regarding the clinical effectiveness and safety of our product candidates;
the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved product;
our manufacturing capabilities and strategy, and our ability to establish and maintain relationships with contract manufacturing organization(s) (“CMOs”);
the anticipated timing, costs and conduct of any clinical trials and preclinical studies;
our intellectual property position and our ability to obtain and maintain intellectual property protection for our product candidates;
our expectations regarding competition;
the anticipated trends and challenges in our business and the markets in which we operate;
the scope, progress, expansion, and costs of developing and commercializing our product candidates;
the size and growth of the potential markets for our product candidates and the ability to serve those markets;
the rate and degree of market acceptance of our product candidates;
our ability to establish and maintain development partnerships;
our ability to retain key personnel;
our expectations regarding federal, state and foreign regulatory requirements;
the timing of and expected costs related to workforce reduction activities;
our ability to pursue strategic alternatives and our anticipated general and administrative expenses relating to the same;
our retention bonus program, and incentive payments under the program; and
regulatory developments in the United States and foreign countries.
These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the U.S. Securities Exchange Commission. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly
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Report on Form 10-Q and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.
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Risk Factors Summary
The following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial condition, all of which are more fully described in Part II, Item 1A, “Risk Factors.” This summary should be read in conjunction with Item 1A, “Risk Factors” and should not be relied upon as an exhaustive summary of the material risks we face.
Below is a summary of some of the principal risks we face.
We will need to obtain substantial additional funding to fund our operations, and we will not be able to continue as a going concern if we are unable to do so. Without additional capital, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations. Our ability to raise capital is limited by the significant decline in our market capitalization and current market conditions.
We have a history of operating losses. We expect to continue to incur additional significant losses in the foreseeable future and are not likely to become profitable.
We have made significant investments in property and equipment, and, in the quarter ended March 31, 2022, we recorded an impairment of our long-lived property and equipment and right-of-use assets in the amount of $25.9 million, or approximately 71% of the carrying value at the date of impairment, and, in the future, we could see further impairment of our long-lived property and equipment and right-of-use assets if our estimates of future undiscounted cash flows are not greater than the carrying value of the long-lived assets. Additionally, if we commit to a plan to sell our property and equipment assets, any amount that we may receive for the assets could be significantly less than fair value.
We have generated only limited revenues, and even if we were to resume our product development activities, we would need substantial additional capital to develop and commercialize our product candidates, which may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or lead product candidates.
Our build-to-suit arrangement with Trinity Funding 1, LLC (successor to Trinity Capital Fund III, L.P.) (Trinity”), imposes restrictions on our business and requires that we maintain a minimum cash balance equal to three times the remaining rent due, and if we default on our obligations, Trinity would have a right to request payment in full of the build-to-suit obligation.
We have limited operating history and capabilities.
The development and commercialization of our product candidates are subject to many risks. For example, on October 20, 2020, we received a Complete Response Letter (“CRL”) from the FDA in response to our NDA for M207, and based on feedback from the FDA, we conducted an additional pharmacokinetic (“PK”) study for inclusion in an NDA resubmission package. On February 17, 2022, we received a response letter from the FDA with regard to our January 18, 2022 resubmission of the M207 NDA, stating that the FDA did not consider the resubmitted M207 NDA to be a complete response to the deficiencies identified in the FDA’s October 20, 2020 CRL, and that the FDA will not begin substantive review of the application until a complete response is received. In April 2022, in order to preserve our capital and cash resources, we suspended our M207 program. We currently do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA. If we do not successfully develop, receive approval for, and commercialize our product candidates, our business will be adversely affected.
If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful.
Clinical trials are very expensive, time-consuming and difficult to design and implement.
The COVID-19 pandemic, including any strains or variants of the virus, could adversely impact our business.
The results of our clinical trials may not support the intended use of any product candidates we may develop.
Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.
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We use customized equipment to manufacture, coat and package our transdermal microneedle system; any production or equipment performance failures could negatively impact the clinical trials of our product candidates that we may develop or sales of our product candidate(s), if approved.
We currently depend on third-party suppliers for manufacture of certain components of our product candidates. If these manufacturers fail to provide us or our collaborators with adequate supplies of materials for clinical trials or commercial product or fail to comply with the requirements of regulatory authorities, we may be unable to develop or commercialize product candidates we may develop.
We rely on CMOs for various components of our transdermal microneedle system, and our business could be harmed if those third parties fail to provide us with sufficient quantities of those components at acceptable quality levels and prices or fail to maintain or achieve satisfactory regulatory compliance.
We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to comply with applicable regulatory requirements or to meet deadlines for the completion of such trials.
We have no experience selling, marketing or distributing approved product candidates and currently have no internal capabilities to do so, and, if we resume our M207 program, we will rely on Eversana or other third parties for the commercialization of M207, and we and they may not be able to effectively market, sell and distribute M207, if approved. An amendment to the Eversana agreement provides that, if the M207 NDA is approved, the deferral mechanism, payment terms and loan terms in the master services agreement will be adjusted as mutually agreed by both parties. There is no guarantee that we and Eversana will reach an agreement on the deferral mechanism, payment terms and loan terms.
If we fail to comply with our obligations to our licensor in our intellectual property license, we could lose license rights that are important to our business.
Our failure to obtain and maintain patent protection for our technology and our product candidates could permit our competitors to develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be adversely affected.
We are highly dependent on the technical, financial and business development expertise of our executive officers and other employees at our Fremont, California facility. A number of employees terminated pursuant to our March 2022 and April 2022 workforce reductions had extensive knowledge of our technology and manufacturing processes, and the loss of technical expertise resulting from these workforce reductions will result in delays in product development if we resume our M207 program and diversion of management resources.
The trading price of our common stock has been volatile with substantial price fluctuations on heavy volume, which could result in substantial losses for purchasers of our common stock and existing stockholders.
If we are unable to maintain listing of our securities on the Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for our stockholders to sell their securities.
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements

ZOSANO PHARMA CORPORATION
CONDENSED BALANCE SHEETS
(in thousands, except par value and share amounts)
March 31,
2022
December 31,
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$13,529 $11,043 
Accounts receivable91 146 
Prepaid expenses and other current assets2,012 420 
Total current assets15,632 11,609 
Restricted cash455 455 
Property and equipment, net7,922 32,557 
Operating lease right-of-use assets2,436 3,769 
Total assets$26,445 $48,390 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$3,720 $2,120 
Accrued compensation475 1,767 
Build-to-suit obligation, current portion, net of debt issuance costs and discount1,739 3,822 
Operating lease liabilities, current portion1,642 1,606 
Other accrued liabilities2,154 1,818 
Total current liabilities9,730 11,133 
Build-to-suit obligation, long-term portion, net of debt issuance costs and discount 970 
Operating lease liabilities, long-term portion2,662 3,081 
Other long-term liabilities 231 
Total liabilities12,392 15,415 
Commitments and contingencies (see note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, $0.0001 par value; 250,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 4,902,260 and 3,434,451 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
  
Additional paid-in capital409,577 395,090 
Accumulated deficit(395,524)(362,115)
Total stockholders’ equity
14,053 32,975 
Total liabilities and stockholders’ equity$26,445 $48,390 


The accompanying notes are an integral part of these financial statements.
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ZOSANO PHARMA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended March 31,
 20222021
Service revenue$132 $258 
Operating expenses:
Cost of service revenue86 162 
Research and development4,481 5,330 
General and administrative2,942 2,814 
Impairment loss25,941  
Total operating expenses
33,450 8,306 
Loss from operations(33,318)(8,048)
Other income (expense):
Interest income2 1 
Interest expense(73)(97)
Other income (expense), net(20)2 
Loss before provision for income taxes
(33,409)(8,142)
Provision for income taxes
  
Net loss$(33,409)$(8,142)
Net loss per common share – basic and diluted$(7.86)$(2.73)
Weighted-average common shares used in computing net loss per common share – basic and diluted4,248 2,981 


The accompanying notes are an integral part of these financial statements.
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ZOSANO PHARMA CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
 

 Common StockAdditional
Paid-In Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 SharesAmount
Balance at January 1, 20223,434,451  $395,090 $(362,115)$32,975 
Issuance of common stock and Series F warrants in connection with public offering, net1,464,284 — 14,053 — 14,053 
Release of restricted stock units3,525 — — — — 
Stock-based compensation— — 434 — 434 
Net loss— — — (33,409)(33,409)
Balance at March 31, 20224,902,260 $ $409,577 $(395,524)$14,053 

 Common StockAdditional
Paid-In Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 SharesAmount
Balance at January 1, 20212,916,177 $ $379,705 $(332,190)$47,515 
Issuance of common stock upon exercise of Series E warrants116,533  3,274 — 3,274 
Issuance of common stock upon exercise of Series C warrants4,143 — 94 — 94 
Issuance of common stock in connection with at-the-market offering, net2,370 — — — — 
Stock-based compensation— — 410 — 410 
Net loss— — — (8,142)(8,142)
Balance at March 31, 20213,039,223 $ $383,483 $(340,332)$43,151 


The accompanying notes are an integral part of these financial statements.

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ZOSANO PHARMA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months Ended March 31,
 20222021
Cash flows from operating activities:
Net loss$(33,409)$(8,142)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization250 435 
Stock-based compensation434 410 
Change in operating lease right-of-use assets259 277 
Accretion of asset retirement obligation 249 3 
Effective interest on financing obligations56 141 
Capitalized effective interest(28)(102)
Loss on impairment of long-lived assets25,941  
Change in operating assets and liabilities:
Accounts receivable, prepaid expenses and other assets(1,488)(1,138)
Accounts payable724 332 
Accrued compensation and other accrued liabilities(1,145)651 
Operating lease liabilities(383)(327)
Net cash used in operating activities(8,540)(7,460)
Cash flows from investing activities:
Purchases of property and equipment(65)(3,236)
Net cash used in investing activities(65)(3,236)
Cash flows from financing activities:
Proceeds from offering of securities, net of commissions and offering costs14,203  
Proceeds from exercise of Series E warrants 3,274 
Proceeds from issuance of securities in connection with at-the-market offering program, net of commissions and offering costs 105 
Proceeds from exercise of Series C warrants 94 
Principal payments on financing obligations(3,112)(1,158)
Net cash provided by financing activities11,091 2,315 
Net increase (decrease) in cash, cash equivalents and restricted cash2,486 (8,381)
Cash, cash equivalents and restricted cash at beginning of period11,498 35,718 
Cash, cash equivalents and restricted cash at end of period$13,984 $27,337 
Cash and cash equivalents $13,529 $26,882 
Restricted cash 455 455 
Cash, cash equivalents and restricted cash at end of period$13,984 $27,337 
Supplemental cash flow information:
Cash paid for interest$81 $198 
Non-cash investing and financing activities:
Acquisition of property and equipment under accounts payable and other accrued liabilities$1,547 $1,750 
Accrued offering costs$150 $105 
Asset retirement obligation $ $89 


The accompanying notes are an integral part of these financial statements.
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Zosano Pharma Corporation
Notes to Financial Statements
(unaudited)
 
1.    Organization
The Company
Zosano Pharma Corporation (the “Company”) is a clinical-stage biopharmaceutical company focused on providing rapid systemic administration of therapeutics and other bioactive molecules to patients using its proprietary transdermal microneedle system (“System”).
The Company submitted a 505(b)(2) New Drug Application (“NDA”) for M207 to the U.S. Food and Drug Administration (the “FDA”) on December 20, 2019, and on October 20, 2020, the Company received a Complete Response Letter (the “CRL”) from the FDA with respect to the NDA.
On January 18, 2022, the Company resubmitted its NDA to the FDA under Section 505(b)(2) of the Food, Drug, and Cosmetic Act. On February 17, 2022, the Company received a response letter from the FDA (the "FDA Notice") stating that they did not consider the resubmitted NDA to be a complete response to the deficiencies identified in the CRL and that the FDA will not begin substantive review of the application until a complete response is received.
On April 14, 2022, the FDA granted the Company a twelve-month extension until April 20, 2023 to resubmit its NDA without considering the application to have been withdrawn. However, in order to preserve its capital and cash resources, the Company has suspended its M207 program, manufacturing operations at its Fremont, California facility and activities at its third-party contract manufacturing organizations ("CMOs") related to the qualification of commercial manufacturing equipment. The Company does not currently have capital or resources to continue with the development of M207 or resubmission of the NDA.
Liquidity and Substantial Doubt about Going Concern
Since inception, the Company has incurred recurring operating losses and negative cash flows from operating activities, and expects to incur significant losses in the foreseeable future. As of March 31, 2022, the Company had an accumulated deficit of $395.5 million and approximately $13.5 million in cash and cash equivalents. The Company does not have cash and cash equivalents sufficient to fund its anticipated level of operations and meet its obligations as they become due within twelve months following the date of filing of this Quarterly Report on Form 10-Q. If the Company is not able to obtain required funding in the near future or obtain funding on favorable terms it will have a material adverse effect on its operations. Without additional capital, the Company's liquidity, financial condition and business prospects will be materially and adversely affected, and it may have to cease operations. Additionally, the Company's ability to raise capital is limited by the significant decline in the Company's market capitalization and current market conditions.
The Company has retained SierraConstellation Partners, LLC, as an independent financial advisor to assist in exploring financial and strategic alternatives to maximize value, which may include, but not be limited to, asset or equity sales, joint venture and partnership opportunities, and restructuring, amendment or refinancing of existing liabilities. The Company is also evaluating various alternatives to improve its liquidity, including but not limited to, further reductions of operating expenditures and other contractual obligations. There can be no assurances that the Company will be able to successfully raise capital, improve its financial position and liquidity, restructure its obligations, enter into any asset or equity sale, joint venture or partnership opportunity and/or otherwise achieve any of these objectives.
The Company is seeking opportunities to evaluate collaborations with strategic partners to further the clinical development of its technology. However, it cannot forecast with any degree of certainty if it will receive additional capital or collaboration revenue in the future, as a result of any partnership that it might pursue for any potential future use of its technology or how such arrangements would affect its development plans or capital requirements. As a result of these uncertainties, the Company is unable to determine the duration and completion of costs of research and development projects or if, when and to what extent it will generate revenue. Additionally, a future collaborative partner may only be interested in applying the Company's technology in the development and advancement of their own product candidates.
The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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COVID-19 Pandemic
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Due to the COVID-19 pandemic, there has been uncertainty in the global financial markets and economic conditions. The Company is closely monitoring the impact of the COVID-19 pandemic on its business, including how it may impact its employees, any clinical trials, third-party service providers who perform critical services for the Company's business and its ability to raise capital through an equity financing, debt financing, a license or collaboration or a combination of such sources of capital, and as a result, its ability to continue as a going concern. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it. As of the date of issuance of this Quarterly Report on Form 10-Q, management is not aware of any specific event or circumstances that would require an update to its estimates or a revision of the carrying value of its assets or liabilities. These estimates may change, as new events occur, and additional information is obtained.
2.    Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Regulation S-X. They do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other subsequent period. These financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K and filed with the United States Securities and Exchange Commission (“SEC”) on March 17, 2022. The preparation of the accompanying financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of expenses during the periods reported. Actual results could differ from those estimates or assumptions.
Reverse Stock Split
On April 8, 2022, at a special meeting of stockholders, the Company's stockholders approved a proposal authorizing its board of directors, in its discretion, to effect a reverse stock split of the Company's outstanding shares of common stock at a ratio ranging from 1-for-5 to 1-for-50 to be determined by the board of directors and effected, if at all, no later than May 16, 2022. On April 8, 2022, the Company's board of directors approved a 1-for-35 reverse stock split of the Company's outstanding common stock, which was effected on April 11, 2022. At the effective time, every thirty-five shares of common stock issued and outstanding were automatically combined into one share of issued and outstanding common stock. The par value remained unchanged at $0.0001 per share. No fractional shares of common stock were issued in the reverse stock split, but in lieu thereof, each holder of common stock who would otherwise have been entitled to a fraction of a share in the reverse stock split received a cash payment. A proportionate adjustment was made to the per share exercise price, if applicable, and the number of shares issuable upon the exercise or vesting of outstanding equity awards, options and warrants to purchase shares of the Company's common stock and to the number of shares reserved for issuance pursuant to its equity incentive compensation plans. The reverse stock split affected all stockholders of the Company's common stock uniformly, and did not affect any stockholder’s percentage of ownership interest. As a result of the reverse stock split, the number of the Company’s outstanding shares of common stock as of April 11, 2022 decreased from 171,579,255 (pre-split) shares to 4,902,260 (post-split) shares. Unless otherwise noted, all share and per share information included in these financial statements have been retroactively adjusted to give effect to the reverse stock split.
The reverse stock split did not affect the number of shares of common stock authorized for issuance under the Company's certificate of incorporation, which remained at 250,000,000 shares.
Significant Accounting Policies
There have been no significant changes to the Company’s accounting policies during the three months ended March 31, 2022, as compared to the significant accounting policies described in Note 2 of the "Notes to the Financial Statements" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.
As of March 31, 2022 and December 31, 2021, the Company had restricted cash of approximately $0.5 million consisting primarily of deposits of $0.3 million to secure its building lease until the end of the lease term and a deposit of approximately $0.1 million to a utility provider.
Fair Value Instruments
The Company records its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
    Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.
    Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
    Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying values of certain assets and liabilities of the Company, such as cash equivalents and accounts payable, approximate fair value due to their relatively short maturities. The carrying value of the Company’s short-term financial obligations approximates their fair value as the terms of the borrowing are consistent with current market rates and the duration to maturity is short. The carrying value of the Company's long-term financial obligations approximates fair value as interest rates approximate market rates that the Company could obtain for debt with similar terms and maturities.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for indications of possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Net Loss Per Common Share
Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, common stock warrants, stock options and restricted stock units (“RSUs”) are considered to be potential dilutive securities but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive and therefore, basic and diluted net loss per share were the same for all periods presented.
The following outstanding common stock equivalents were excluded from the computations of diluted net loss per common share for the periods presented as the effect of including such securities would be antidilutive:
March 31, 2022March 31, 2021
(unaudited; shares)
Warrants to purchase common stock1,704,739 26,413 
Options to purchase common stock141,681 123,363 
RSUs23,558 26,370 
Total1,869,978 176,146 
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3.    Master Services Agreement with Eversana
On August 6, 2020, the Company entered into a master services agreement (the “Eversana Agreement”) with Eversana Life Science Services, LLC (“Eversana”) for the commercialization of M207 in the United States, if approved by the FDA. Under the terms of the Eversana Agreement, the Company maintains ownership of the M207 NDA as well as all legal, regulatory and manufacturing responsibilities for M207. Eversana receives an exclusive right to conduct agreed commercialization activities and will utilize its internal sales organization along with its other commercial capabilities for market access, marketing, distribution and patient support services for M207.
The term of the Eversana Agreement is five years following the date, if any, that the FDA approves the M207 NDA. The Company may terminate the Eversana Agreement if Eversana fails to provide pre-commercial or commercial plans and budgets by specified dates, if the Company decides to discontinue development or commercialization efforts for M207 in the United States (subject to a termination payment if such termination occurs within a specified time period), or upon a change of control of the Company. Either party can terminate the Eversana Agreement if net profits are not realized within a specified time period following commercial launch, for material breach of the Eversana Agreement by the other party that is not cured within a defined time period, for insolvency of the other party, if M207 is subject to a safety recall in the United States or if M207 is not commercially launched within a specified time period after FDA approval of the NDA (other than by reason of the terminating party’s failure to perform its obligations under the Eversana Agreement).
On September 28, 2021, the Company entered into Amendment No. 1, effective as of September 29, 2021 (the “Eversana Amendment”), to the Eversana Agreement, which modified the provision in the Eversana Agreement that provided for termination by either party of the Eversana Agreement if FDA approval was not received by July 31, 2021 to December 31, 2021, with written notice within sixty days of such date. In addition, the Eversana Amendment provides that if the NDA is approved, the deferral mechanism, payment terms and loan terms in the Eversana Agreement will be adjusted as mutually agreed by both parties. Neither party exercised its right to terminate the Eversana Agreement due to FDA approval not being received by December 31, 2021.
The Company is accounting for the Eversana Agreement as a collaborative arrangement. As of March 31, 2022, no material accruals, expenses, payments, or revenues were recorded by the Company in connection with the Eversana Agreement.
4.    Impairment Loss
The Company determined that receipt of the FDA Notice on February 17, 2022 was an indicator of impairment and performed an impairment analysis of its property and equipment and right-of-use assets as of that date. The analysis determined that the fair value of the assets, which was calculated using the cost approach for property and equipment and a market approach for right-of-use assets, was lower than the carrying value. The cost approach uses a current replacement and/or reproduction cost minus physical deterioration, functional and economic obsolescence, with consideration for lack of marketability. Accordingly, the Company recorded an impairment loss of $25.9 million for the three months ended March 31, 2022, consisting of $24.8 million of property and equipment and $1.1 million of right-of-use assets. The impairment loss was primarily related to the write-down of specialized equipment and related manufacturing space for the commercial manufacture of the Company's suspended M207 program.
In association with the impairment analysis, the following assets were measured at fair value at February 17, 2022:
Fair Value Measurements
 TotalQuoted prices in active market
Level 1
Significant other observable inputs
Level 2
Significant unobservable inputs
Level 3
 (unaudited; in thousands)
Property and equipment$7,965 $ $ $7,965 
Operating lease right-of-use assets$2,550 $ $ $2,550 
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5.    Cash Equivalents
The following table summarizes the Company's cash equivalents at fair value on a recurring basis:
As of March 31, 2022:Fair Value Measurements
 TotalQuoted prices in active market
Level 1
Significant other observable inputs
Level 2
Significant unobservable inputs
Level 3
 (unaudited; in thousands)
Money market funds classified as cash equivalents$11,921 $11,921 $ $ 

As of December 31, 2021:Fair Value Measurements
 TotalQuoted prices in active market
Level 1
Significant other observable inputs
Level 2
Significant unobservable inputs
Level 3
 (in thousands)
Money market funds classified as cash equivalents$9,421 $9,421 $ $ 

6.    Balance Sheet Components
Prepaid Expenses and Other Current Assets
The following table summarizes the Company’s prepaid expenses and other current assets for each of the periods presented:
March 31, 2022December 31, 2021
 
(unaudited; in thousands)(in thousands)
Prepaid insurance$912 $79 
Prepaid services893 146 
Prepaid software and subscriptions72 87
Deferred offering costs67 85 
Unbilled revenue16  
Other52 23 
Total$2,012 $420 

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Property and Equipment
The following table summarizes the Company’s property and equipment for each of the periods presented:
March 31, 2022December 31, 2021
(unaudited; in thousands)(in thousands)
Leasehold improvements$17,622 $24,301 
Manufacturing equipment12,365 15,075 
Laboratory and office equipment1,457 1,641 
Computer equipment and software177 181 
Construction-in-progress6,438 21,348 
Property and equipment, gross38,059 62,546 
Less: accumulated depreciation(30,137)(29,989)
Total$7,922 $32,557 
In the first quarter of 2022, the Company recorded an impairment loss on its property and equipment of $24.8 million (See Note 4. Impairment Loss). Depreciation expense was approximately $0.3 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively.
Construction-in-progress included $5.5 million and $16.5 million of an asset relating to the build-to-suit arrangement for construction of the Company's commercial coating and primary packaging system as of March 31, 2022 and December 31, 2021, respectively, of which capitalized construction period interest was $3.3 million as of December 31, 2021 (See Note 8. Debt Financing). The Company did not capitalize any interest after the impairment of the Company's long-lived assets and all construction period interest was recorded as an impairment loss in the Company's condensed statement of operations for the three months ended March 31, 2022.
Other Accrued Liabilities
The following table summarizes the Company’s other accrued liabilities for each of the periods presented:
March 31, 2022December 31, 2021
(unaudited; in thousands)(in thousands)
Construction-in-progress obligations$594 $918 
Asset retirement obligation460  
Contract manufacturing services408 17 
Accrued taxes217  
Professional service fees183 258 
Pre-clinical and clinical studies124 397 
Deferred revenue 26 
Other168 202 
Total$2,154 $1,818 

Construction-in-progress obligations represent accrued liabilities for construction of dedicated manufacturing space at one of the Company's CMOs. The asset retirement obligation represents the costs that would be required to be paid to this CMO to remove the Company's equipment and restore its facility (See Note 11. Commitments and Contingencies).
7.    Leases
Operating Leases
The Company has a non-cancelable operating lease for office, research and development, and manufacturing facilities in Fremont, California through August 31, 2024, with an option to further extend the lease for an additional 60 months subject to certain terms and conditions. The Company also has operating leases for manufacturing space at two of its CMOs. The operating leases are embedded in agreements with these CMOs that include lease and non-lease components.
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The following table summarizes the impact of the Company's operating leases on its financial statements for each of the periods presented:
Three Months Ended March 31,
20222021
(unaudited; in thousands)
Statements of Operations
Operating lease costs$439 $439 
Three Months Ended March 31,
20222021
(unaudited; in thousands)
Statements of Cash Flows
Operating cash flows from operating leases - cash paid for operating leases$508 $489 

The following table summarizes the lease terms and discount rates for the Company's leases as of March 31, 2022:
(unaudited)
Weighted-average remaining lease term (in years)2.40
Weighted-average discount rate11 %
The following table summarizes the maturities of the Company's lease liabilities for each year ending December 31, as of March 31, 2022:
(unaudited; in thousands)
2022$1,534 
20232,017 
20241,371 
Total undiscounted cash flows4,922 
Less: amount representing interest(618)
Present value of lease liabilities$4,304 
Current portion$1,642 
Long-term portion2,662 
Total$4,304 
8.    Debt Financing
Build-to-Suit Obligation with Trinity
The Company has a build-to-suit arrangement (the “Agreement”) with Trinity Funding 1, LLC (successor to Trinity Capital Fund III, L.P.) (“Trinity”) to finance the third-party construction of the Company's commercial coating and primary packaging system (the “Equipment”), which was delivered to the Company's CMO in the first quarter of 2021 for installation and qualification. Under the Agreement, Trinity provided the Company $14.0 million for equipment costs and associated soft costs (“Total Cost”), with an initial drawdown of $5.0 million and additional drawdowns in increments of not less than $0.5 million. Under the Agreement, each individual drawdown represented a separate financing arrangement with its own term and stated interest rate, which varied from 9.43% to 9.93%. Each drawdown was non-cancelable, with no prepayment options. In consideration of the financing arrangement, as collateral, the Company granted Trinity a first-priority lien and security interest in substantially all of the Company's assets.
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On May 27, 2020, the Company entered into the First Amendment to Lease Documents (the “Trinity Amendment”). The Trinity Amendment, among other things, extended each individual drawdown term from 36 months to 42 months by providing for an interest-only period from May 2020 through October 2020. Additionally, the Trinity Amendment removed all end-of-term options other than the option to purchase the equipment at 12% of the Total Cost, which is equal to the total drawdown amount (“Purchase Option Fee”). The security interest will terminate on the earlier to occur of (i) the date that falls six (6) months after the delivery and installation of the Equipment or (ii) payment in full of all amounts owed. The Company accounted for the Trinity Amendment as a debt modification under ASC 470-50, as the amended terms were not substantially different from the terms of the Agreement.
On March 11, 2022, the Company entered into a Second Amendment to Lease Documents (the “Second Amendment”) with Trinity. The Second Amendment, among other things, provided for an upfront payment of $2.0 million in lease payments from the Company to Trinity on the date of the Second Amendment, modified the remaining monthly lease payments and Purchase Option Fee payments due under the Agreement to $215,441 per month from April 1, 2022 to December 1, 2022, established a minimum cash covenant equal to three times the remaining aggregate amount of lease payments due, and amended the definition of material adverse event, certain events of default, and certain operating covenants. The Company accounted for the Trinity Amendment as a debt modification under ASC 470-50, as the amended terms were not substantially different from the terms of the Agreement. The modification resulted in an interest rate of approximately 15.2% and an effective interest rate of approximately 26.85% for the modified term.
The Company determined that it controls the Equipment during the construction period due to its involvement in and its obligations related to the construction of the Equipment. Accordingly, construction costs incurred were recorded as construction-in-progress, a component of property and equipment on the balance sheet, and the Trinity financing obligation was recorded as a build-to-suit obligation on the balance sheet. As of March 31, 2022, the Company had an aggregate commercial coating and primary packaging system construction-in-progress balance of $5.5 million.
The Trinity build-to-suit arrangement requires compliance with various affirmative and restrictive covenants in regard to maintaining a minimum cash balance equal to three times the remaining aggregate amount of lease payments due, making certain investments and other restricted payments, engaging in mergers or consolidations, and the sale or transfer of certain assets. Failure to comply with any of these covenants, or pay principal, interest or other amounts when due, would constitute an event of default under the applicable agreement. The Company was in compliance with its covenants with respect to the Trinity build-to-suit arrangement as of March 31, 2022.
The following table summarizes the Company's build-to-suit obligation as of March 31, 2022 (unaudited; in thousands):
Build-to-suit obligation principal amount$1,822 
Less: unamortized discounts and issuance costs(83)
Build-to-suit obligation, net of debt issuance costs and discount$1,739 
The following table summarizes future minimum payments on the Company’s build-to-suit obligation as of March 31, 2022:
PrincipalInterestTotal
(unaudited; in thousands)
20221,822 117 1,939 
The following table summarizes interest incurred on the Company's build-to-suit obligation for each of the periods presented:
Three Months Ended March 31,
20222021
(unaudited; in thousands)
Build-to-suit obligation, cash interest expense$83 $197 
Build-to-suit obligation, effective interest expense56 137 
Less: build-to-suit obligation, interest capitalized(67)(242)
Build-to-suit obligation interest expense$72 $92 
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The Company did not capitalize any interest after the impairment of the Company's long-lived assets and all construction period interest was recorded as an impairment loss in the Company's condensed statement of operations for the three months ended March 31, 2022.
9.    Stockholders' Equity
Shelf Registration Statements
2021 Shelf Registration Statement
The Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on July 14, 2021 (the “2021 Shelf Registration Statement”). The 2021 Shelf Registration Statement provides the Company with the ability to issue common stock and other securities as described in the registration statement from time to time up to an aggregate amount of $150.0 million. In February 2022, the Company used approximately $33.1 million of the $150.0 million.
2020 Shelf Registration Statement
The Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective by the SEC on April 16, 2020 (the “2020 Shelf Registration Statement”). The 2020 Shelf Registration Statement provides the Company with the ability to issue common stock and other securities as described in the registration statement from time to time up to an aggregate amount of $74.5 million, of which approximately $3.7 million was available at March 31, 2022.
Offering - February 2022
On February 8, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (“Maxim”) related to the public offering by the Company of 1,464,284 units (“Units”), each consisting of one share of the Company's common stock and one Series F Common Stock Purchase Warrant (“Series F Warrant”) to purchase one share of the Company's common stock, at a public offering price of $10.50 per Unit (the "February 2022 Offering"). The Company also granted Maxim an option for a period of 30 days to purchase up to an additional 219,642 shares of common stock and/or additional Series F Warrants to purchase up to 219,642 shares of common stock. Maxim partially exercised the option and purchased the additional Series F Warrants to purchase up to 219,642 shares of common stock. The option to purchase additional shares of common stock expired unexercised. The net proceeds from the offering and the exercise by Maxim of the option to purchase the additional Series F Warrants were approximately $14.1 million after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The offering was made pursuant to the 2021 Shelf Registration Statement and a prospectus supplement and accompanying prospectus filed with the SEC.
At-the-Market Offering Programs
At-the-Market Offering Program - 2021
On June 28, 2021, the Company entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC (together, the “Sales Agents”) to establish an at-the-market offering program (the “2021 ATM”), under which the Company may sell from time to time, at its option, up to an aggregate of $30.0 million of shares of its common stock. Shares sold under the 2021 ATM are issued pursuant to the Company’s 2020 Shelf Registration Statement and a prospectus supplement dated June 28, 2021. The Company is required to pay the Sales Agents a commission of 3% of the gross proceeds from the sale of shares and has also agreed to provide the Sales Agents with customary indemnification rights. During the three months ended March 31, 2022, no shares of the Company's stock were sold under the program. As of March 31, 2022, the Company has up to approximately $25.0 million available to be offered and sold under the 2021 ATM.
At-the-Market Offering Program - 2020
On June 8, 2020, the Company entered into a sales agreement with BTIG, LLC ("BTIG"), as sales agent, to establish an at-the-market offering program (“2020 ATM”), under which the Company was permitted to offer and sell, from time to time, shares of common stock having a maximum aggregate offering price of up to $20.0 million. The Company was required to pay BTIG a commission of 3% of the gross proceeds from the sale of shares and also agreed to provide BTIG with customary indemnification rights. During the three months ended March 31, 2021, the Company issued and sold 2,369 shares of its common stock at an average price of $45.82 per share under the 2020 ATM with aggregate net proceeds of less than $1,000 after deducting commissions and offering expenses payable by the Company. The shares were sold pursuant to the Company’s 2020 Shelf Registration Statement and a prospectus supplement dated June 8, 2020. No shares remain available for sale under the 2020 ATM.
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Common Stock Warrants
The following table summarizes the Company's issued and outstanding common stock warrants:
Warrants Outstanding as ofIssuedExercisedExpiredWarrants Outstanding as ofExercise Price per ShareExpiration Date
December 31, 2021March 31, 2022
unaudited
Series F - February 2022 1,683,929   1,683,929 $10.5000 02/10/27
Series E - March 202018,022    18,022 $28.0875 03/06/25
Series C - February 2020646    646 $22.7500 02/14/25
Trinity - September 20182,142    2,142 $125.7480 09/25/25
Total20,810 1,683,929   1,704,739 
Each warrant grants the holder the right to purchase one share of common stock. Equity warrants are recorded at their relative fair market value in the stockholders’ equity section of the balance sheet. The Company’s equity warrants can only be settled through the issuance of shares.
Series F Warrants
The Company evaluated the Series F Warrants under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, and determined permanent equity treatment was appropriate for these freestanding financial instruments. The February 2022 Offering did not include any embedded features that would require bifurcation. Each Series F Warrant grants the holder the right to purchase one share of common stock, subject to proportional adjustments in the event of stock splits, combinations or similar events. The Series F Warrants do not have any dividend or liquidation preferences or participation rights. Subject to certain conditions, the warrants are exercisable on a cashless basis, and subject to certain beneficial ownership limitations, any unexercised Series F Warrants will be automatically exercised via cashless exercise on the expiration date pursuant to the terms of the Series F Warrants. Subject to certain exceptions, the Series F Warrants contain a full-ratchet anti-dilution exercise price adjustment upon the issuance of any common stock, securities convertible into common stock or certain other issuances at a price below the then-existing exercise price of the Series F Warrants.
10.    Stock-Based Compensation
The following table summarizes activity under the Amended and Restated 2014 Equity and Incentive Plan (“2014 Plan”) the 2012 Stock Incentive Plan and inducement grants issued to new employees outside of the 2014 Plan in accordance with Nasdaq Listing Rule 5635(c)(4) for the three months ended March 31, 2022 (unaudited):
Number of Shares Subject to Outstanding Stock OptionsWeighted-Average Exercise Price per ShareNumber of RSUs OutstandingWeighted-Average Grant Date Fair Value per Share
Outstanding at January 1, 2022151,727 $71.53 28,388 $34.86 
Granted1,768 $8.22  
Released (3,525)$42.04 
Canceled/forfeited/expired(11,814)$91.05 (1,305)$39.17 
Outstanding at March 31, 2022141,681 $69.11 23,558 $33.54 
On January 1, 2022, the number of shares of common stock authorized for issuance under the 2014 Plan was increased by 120,205 shares pursuant to the automatic annual increase provisions of the 2014 Plan. As of March 31, 2022, 139,998 shares of common stock were available for issuance under the 2014 Plan.
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Stock-Based Compensation Expense
The following table summarizes the Company's stock compensation expense for each of the periods presented:
Three Months Ended March 31,
 20222021
 (unaudited; in thousands)
Research and development$116 $138 
General and administrative318 272 
Total$434 $410 

11.    Commitments and Contingencies
Contract Manufacturing Organizations
The Company has a technology transfer agreement and a manufacturing and supply agreement with a CMO to provide services related to the manufacture and commercialization of M207. During the term of the agreement, the CMO will provide services related to processing, packaging, labeling and storing M207, in addition to other services such as stability testing, quality control and assurance, and waste disposal.
The agreements call for annual fees of $4.6 million in 2022, $11.5 million in 2023 and $14.0 million in 2024 and beyond, to be paid in equal monthly installments. The annual fee includes the production of a defined number of units with an option to purchase additional units at a defined price, technology transfer in 2022, and other operating expenses. The agreement contains negotiated representations and warranties, indemnification, limitations of liability, and other provisions. The initial term of the manufacturing and supply agreement continues until the seventh anniversary of the date on which the Company receives NDA approval of M207 in the United States.
The Company may terminate the agreements upon denial of regulatory approvals or if regulatory approvals are withdrawn under certain circumstances for the cost to remove the Company's equipment and restore the CMO's facility, which is recorded as a current liability on the balance sheet. The Company may also elect to terminate the contracts for convenience, which would result in cancellation fees in the amount of 50% of the annual fee due in the year that the contract is terminated, and costs to remove the Company's equipment and restore the CMO's facility. The Company or the CMO may terminate the agreement for the other’s uncured material breach, uncured force majeure or bankruptcy or insolvency-related events.
The Company has non-cancelable commitments with this CMO for the construction of manufacturing space and technology transfer fees totaling $3.3 million, of which $1.3 million was a current liability on the balance sheet as of March 31, 2022.
The Company has additional agreements with CMOs to provide services related to the manufacture and assembly of component parts of M207. Under these agreements, the Company may be required to pay up to an aggregate of $7.4 million in various fees and minimum purchase requirements; however, significant portions of these payments may not be required if the FDA does not approve M207, and no such payment will be required in the event of a material breach by a CMO.
Indemnification and Guarantees
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its officers and directors for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. There have been no claims to date and the Company has director and officer insurance that may enable the Company to recover a portion of any amounts paid for future potential claims. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of March 31, 2022.
Legal Proceedings
The Company is not party to any material pending legal proceedings. However, it may from time to time, become involved in lawsuits and legal proceedings, which arise in the ordinary course of business. Lawsuits and legal proceedings are subject to inherent uncertainties and an adverse result in any lawsuit or legal proceeding may materially adversely affect the Company's
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business, financial condition and results of operations. The Company accrues for contingencies when it believes that a loss is probable and that it can reasonably estimate the amount of any such loss. To the extent that there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred and the amount of such additional loss would be material, the Company will either disclose the estimated additional loss or state that such an estimate cannot be made.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. You should not place undue reliance on these forward-looking statements, which involve risks and uncertainties. As a result of many factors, including but not limited to those set forth under ‘‘Risk Factors,’’ our actual results may differ materially from those anticipated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Overview
Zosano Pharma Corporation is a clinical-stage biopharmaceutical company focused on providing rapid systemic administration of therapeutics and other bioactive molecules to patients using our proprietary transdermal microneedle system (the “System”). Our System is designed to facilitate rapid drug absorption into the bloodstream, and to provide an improved pharmacokinetic (“PK”) profile compared to original dosage forms. The System consists of a 3cm2 to 6cm2 array of titanium microneedles approximately 200-350 microns in length, coated with a hydrophilic formulation of drug, mounted on an adhesive patch. The patch is designed to be applied with a reusable hand-held applicator that presses the microneedles into the skin to a uniform depth in each application, close to the capillary bed, allowing for dissolution and absorption of the drug, but not deep enough to contact the nerve endings in the skin. The microneedles are designed to penetrate the stratum corneum in an effort to allow the drug to be absorbed into the microcapillary system of the skin.
We have no product sales to date, and we will not have product sales unless and until we receive approval from the U.S. Food and Drug Administration (the "FDA"), or equivalent foreign regulatory bodies, to market and sell any product candidates. Accordingly, our success depends not only on the development, but also on our ability to finance the development of any product candidates. We will require substantial additional funding to complete development and seek regulatory approval for any products. In addition, our clinical and pre-commercial manufacturing activities have been suspended following our March 2022 and April 2022 workforce reductions.
M207 for Migraine
Our recent development efforts were focused on our product candidate, M207, our proprietary formulation of zolmitriptan delivered utilizing our System. Zolmitriptan is one of a class of serotonin receptor agonists known as triptans and is used as an acute treatment for migraine. Migraine is a debilitating neurological disease, symptoms of which include moderate to severe headache pain, nausea and vomiting, and abnormal sensitivity to light and sound. M207 was developed with the intent of providing faster onset of efficacy and sustained freedom from migraine symptoms. M207 is designed to provide rapid absorption of zolmitriptan into the bloodstream without dependence on the gastrointestinal (“GI”) tract.
We submitted a 505(b)(2) New Drug Application (“NDA”) for M207 to the FDA on December 20, 2019, and on October 20, 2020, we received a Complete Response Letter (“CRL”) from the FDA with respect to the NDA. The CRL cited inconsistent zolmitriptan exposure levels observed across clinical pharmacology studies, which had been previously identified in the FDA’s discipline review letter that we received on September 29, 2020. Specifically, the CRL noted differences in zolmitriptan exposures observed between subjects receiving different lots of M207 in our trials and inadequate PK bridging between the lots that made interpretation of some safety data unclear. The CRL referenced unexpected high plasma concentrations of zolmitriptan observed in five study subjects enrolled in our PK studies. The FDA recommended that we conduct a repeat bioequivalence study comparing lots manufactured with the equipment used during development. The CRL noted that additional product quality validation data, which were planned to be submitted following approval, if received, were required to be submitted with the application. In addition, the CRL mentioned that due to U.S. Government and/or Agency-wide restrictions on travel, inspections of our contract manufacturing and/or critical subcontractor facilities were not able to be conducted before the FDA's goal date for completing its review of the original NDA, but that such inspections would be required and would have to be conducted before the application may be approved. In addition, a pre-approval inspection of our Fremont, California facility by the FDA is expected. However, following a March 2022 workforce reduction, we would need to hire additional employees to support any pre-approval inspection.
On January 29, 2021, we held a Type A meeting with the FDA Division of Neurology II (the “Division”) regarding the requirements for resubmission of the M207 NDA and, in February 2021, we received the final meeting minutes from the FDA. The Type A meeting minutes were generally consistent with our expectations to conduct an additional PK study for inclusion in an NDA resubmission package. In a post-meeting comment, the FDA recommended a skin assessment on patients in the PK study to generate additional safety information, which was included in the proposed study protocol submitted to the FDA for
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review. After the receipt of FDA comments and recommendations to our proposed PK study protocol for M207, we made the recommended changes and established an agreement with a contract research organization to conduct the PK study required to support the resubmission of the M207 505(b)(2) NDA.
On October 4, 2021, we announced that we had received preliminary top-line results from the PK study and had been granted a Type C written response-only meeting with the FDA regarding the resubmission of the M207 NDA. The study included 48 healthy volunteers and evaluated approximately 2,500 samples utilizing lots of M207 produced with two different pieces of manufacturing equipment. The study was designed to evaluate safety and the pharmacokinetics of M207 compared to a control of two 5 mg doses of intranasal zolmitriptan. The safety assessment showed that M207 was generally well tolerated, consistent with previous studies. The PK study data showed that there were no outliers with unexpected high plasma concentrations of zolmitriptan, which was a focus of the FDA as identified in the CRL for the original M207 NDA. The FDA had also raised questions regarding differences in zolmitriptan exposures observed between subjects receiving different lots of M207 in our clinical trials. The PK study data showed that drug plasma concentration levels of M207 produced on manufacturing equipment at our Fremont, California facility, which produced M207 patches for our long-term safety study, were lower compared to control and to M207 produced by alternative equipment, that was the basis for our Phase 2/3 clinical efficacy data in our original NDA submission, but within ranges consistent with approved therapeutic dose levels of zolmitriptan. On October 25, 2021, we received full data tables from our PK study, which were consistent with the top-line results announced on October 4, 2021. On October 27, 2021, we submitted a briefing package to the FDA in advance of the Type C written-response-only meeting previously granted by the FDA to obtain feedback on our strategy for resubmitting the M207 505(b)(2) NDA.
We received Type C written responses from the FDA with respect to our strategy for resubmitting the M207 505(b)(2) NDA, which, among other things, noted concerns regarding our approach for establishing a PK bridge to ZOMIG® nasal spray (NDA 21-450) (the “Listed Drug”) through comparisons across multiple PK studies of M207, particularly Study CP-2019-002, which included PK outliers.
On January 18, 2022, we resubmitted our NDA to the FDA. In line with our previously disclosed resubmission strategy, the NDA was resubmitted under Section 505(b)(2) of the Food, Drug, and Cosmetic Act. The 505(b)(2) submission relies on the FDA’s findings of safety and efficacy of the Listed Drug. The resubmitted NDA relied primarily on data from the recently completed Phase 1 PK study (CP 2021-001), along with previous PK studies evaluating M207 (CP-2018-002 and CP-2019-002), with the goal of establishing comparative bioavailability to the Listed Drug.
On February 17, 2022, we received a response letter from the FDA (the "FDA Notice") with regard to our January 18, 2022 NDA resubmission. The FDA Notice stated that the FDA did not consider the resubmitted M207 NDA to be a complete response to the deficiencies identified in the FDA’s October 20, 2020 CRL, and that the FDA will not begin substantive review of the application until a complete response is received. Among other things, the FDA Notice stated that our strategy for establishing a PK bridge to the Listed Drug by relying primarily on data from the Study CP-2021-001 was not acceptable, due in part to differences between the design of Study CP-2021-001, which compared the PK of M207 to two sequential doses of the Listed Drug, and the criteria for re-dosing set forth in the labeling instructions for the Listed Drug. The FDA Notice described alternative methods through which we may establish a PK bridge to the Listed Drug, including: (i) by demonstrating bioequivalence to the Listed Drug using standard criteria for all PK exposure metrics, including through a combination of relevant PK data and modeling or simulation procedures; or (ii) by conducting a relative bioavailability study in healthy volunteer subjects.
On April 14, 2022, the FDA granted us a twelve-month extension until April 20, 2023 to resubmit our M207 NDA without considering the application to have been withdrawn. However, in order to preserve our capital and cash resources, we have suspended our M207 program, manufacturing operations at our Fremont, California facility and activities at our third-party contract manufacturing organizations ("CMOs") related to the qualification of commercial manufacturing equipment. We currently do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA.
Reverse Stock Split
On April 8, 2022, at a special meeting of stockholders, our stockholders approved a proposal authorizing our board of directors, in its discretion, to effect a reverse stock split of our outstanding shares of common stock at a ratio ranging from 1-for-5 to 1-for-50 to be determined by the board of directors and effected, if at all, no later than May 16, 2022. On April 8, 2022, our board of directors approved a 1-for-35 reverse stock split of our outstanding common stock. A Certificate of Amendment to the Amended and Restated Certificate of Incorporation effecting the reverse stock split was filed with the Secretary of State of the State of Delaware on April 11, 2022 and the reverse stock split became effective. At the effective time, every thirty-five shares of common stock issued and outstanding were automatically combined into one share of issued and outstanding common stock. The par value remained unchanged at $0.0001 per share. No fractional shares of common stock were issued in the
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reverse stock split, but in lieu thereof, each holder of common stock who would otherwise have been entitled to a fraction of a share in the reverse stock split received a cash payment. A proportionate adjustment was made to the per share exercise price, if applicable, and the number of shares issuable upon the exercise or vesting of outstanding equity awards, options and warrants to purchase shares of our common stock and to the number of shares reserved for issuance pursuant to our equity incentive compensation plans. The reverse stock split affected all stockholders of our common stock uniformly, and did not affect any stockholder’s percentage of ownership interest. As a result of the reverse stock split, the number of our outstanding shares of common stock as of April 11,2022 decreased from 171,579,255 (pre-split) shares to 4,902,260 (post-split) shares. Unless otherwise noted, all share and per share information included in this Quarterly Report on Form 10Q have been retroactively adjusted to give effect to the reverse stock split.
The reverse stock split did not affect the number of shares of common stock authorized for issuance under our certificate of incorporation, which remained at 250,000,000 shares.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported results of operations during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.
While there have been no significant changes to our existing critical accounting policies which are included in Note 2. Summary of Significant Accounting Policies to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 17, 2022, we believe that beginning with the quarter ended March 31, 2022, the accounting policy discussed below is critical to understanding our historical and future performance, as this policy relates to a significant area involving management’s judgments and estimates.
Impairment of Long-Lived Assets
We evaluate our long-lived assets for indications of possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Financial Operations Overview
General
Since inception, we have incurred recurring operating losses and negative cash flows from operating activities, and expect to incur significant losses in the foreseeable future. As of March 31, 2022, we had an accumulated deficit of $395.5 million and approximately $13.5 million in cash and cash equivalents. As of May 11, 2022, we had approximately $9.9 million of cash and cash equivalents, which is not sufficient to fund our anticipated level of operations and meet our obligations as they become due within twelve months following the date of filing of this Quarterly Report on Form 10-Q. If we are not able to obtain required funding in the near future or obtain funding on favorable terms it will have a material adverse effect on our operations. Without additional capital, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations. Our ability to raise capital is limited by the significant decline in our market capitalization and current market conditions.
We do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA and we have suspended our M207 program, manufacturing operations at our Fremont, California facility and activities at our third-party CMO"s related to the qualification of commercial manufacturing equipment.
We have retained SierraConstellation Partners, LLC, as an independent financial advisor to assist in exploring financial and strategic alternatives to maximize value, which may include, but not be limited to, asset or equity sales, joint venture and partnership opportunities, and restructuring, amendment or refinancing of existing liabilities. We are also evaluating various alternatives to improve our liquidity, including but not limited to, further reductions of operating expenditures and other contractual obligations.
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There can be no assurances that we will be able to successfully raise capital, improve our financial position and liquidity, restructure our obligations, enter into any asset or equity sale, joint venture or partnership opportunity and/or otherwise achieve any of these objectives.
We are seeking opportunities to evaluate collaborations with strategic partners to further the clinical development of our technology. However, we cannot forecast with any degree of certainty if we will receive additional capital or collaboration revenue in the future, as a result of any partnership that we might pursue for any potential future use of our technology or how such arrangements would affect our development plans or capital requirements. As a result of these uncertainties, we are unable to determine the duration and completion of costs of research and development projects or if, when and to what extent we will generate revenue. Additionally, a future collaborative partner may only be interested in applying our technology in the development and advancement of their own product candidates.
The aforementioned factors raise substantial doubt about our ability to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Service revenue
Service revenue is related to feasibility studies in which we provide research and development services to customers to determine the feasibility of using our System in connection with the customers’ pharmaceutical agents.
Cost of service revenue
Cost of service revenue consists of personnel and material costs associated with feasibility studies.
Research and development expenses
Research and development expenses consist primarily of:
Salaries and related expenses for personnel in research and development functions, including stock-based compensation;
Expenses related to the production of our System, including the purchase of active pharmaceutical ingredients and raw materials as well as fees paid to CMOs;
Expenses related to the performance of drug formulation and clinical trials and studies, including fees paid to CROs, clinical consultants, clinical trial sites and vendors, including Institutional Review Boards, in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis; and
Allocation of certain shared costs, such as facilities-related costs.
In the three months ended March 31, 2022, our research and development efforts and resources focused primarily on advancing the development of M207.
General and administrative expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit and tax services and other general operating expenses not otherwise included in research and development. We expect that our general and administrative expenses may increase as we pursue strategic options.
Impairment loss
We evaluate our long-lived assets for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Other income and expense
Interest income. Interest income consists primarily of interest, amortization of purchase premiums and accretion of purchase discounts, if any, related to our investments in marketable securities.
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Interest expense. Interest expense consists primarily of interest costs and associated amortization of debt discounts and issuance costs, if any, related to debt financing.
Other income (expense). Other income (expense), net consists of miscellaneous income and expenses that are not included in other categories of the statement of operations.
Results of Operations
Comparison of the three months ended March 31, 2022 and 2021
 Three Months Ended March 31,Change
 20222021Amount%
 (unaudited; in thousands, except percentages)
Service revenue$132 $258 $(126)(49)%
Operating expenses:
Cost of service revenue$86 $162 $(76)(47)%
Research and development$4,481 $5,330 $(849)(16)%
General and administrative$2,942 $2,814 $128 %
Impairment Loss$25,941 $— $25,941 N/A
Other income (expense):
Interest income$$$100 %
Interest expense$(73)$(97)$24 (25)%
Other income (expense), net$(20)$$(22)*
* Not meaningful.
Service revenue
For the three months ended March 31, 2022, service revenue decreased approximately $0.1 million, or 49% as compared to the same period in 2021. The decrease is a result of only one remaining active feasibility study related to an agreement with a pharmaceutical company as compared to three such active studies in the three months ended March 31, 2021. We expect this study to be complete in the second quarter of 2022. We do not anticipate having additional service revenue unless and until we enter into new agreements.
Cost of service revenue
For the three months ended March 31, 2022, cost of service revenue decreased approximately $0.1 million, or 47% as compared to the same period in 2021. The decrease is a result of only one remaining active feasibility study related to an agreement with a pharmaceutical company as compared to three such active studies in the three months ended March 31, 2021. We expect this study to be completed in the second quarter of 2022. We do not anticipate having additional cost of service revenue unless and until we enter into new agreements.
Research and development expenses
Research and development expenses decreased approximately $0.8 million, or 16%, for the three months ended March 31, 2022, as compared to the same period in 2021. The decrease was primarily due to a decrease of $0.6 million in employee and consulting expenses and $0.3 million in spending for clinical trials, offset by a $0.1 million increase in pre-commercial activities.
General and administrative expenses
General and administrative expenses increased approximately $0.1 million, or 5%, for the three months ended March 31, 2022, as compared to the same period in 2021. The change was primarily due to an increase of $0.5 million in professional service fees to our financial and legal advisors and $0.2 million for services related to our special stockholders' meeting, offset by $0.6 million in lower employee related expenses.
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Impairment loss
Impairment loss of $25.9 million for the three months ended March 31, 2022 was triggered by the receipt of the FDA Notice on February 17, 2022. The impairment loss was primarily related to the write-down of specialized equipment and related manufacturing space for the commercial manufacture of our suspended M207 program.
Other income (expense)
Interest income. For the three months ended March 31, 2022 and 2021, interest income resulted primarily from interest recognized related to investments in marketable securities classified as cash equivalents.
Interest expense. For the three months ended March 31, 2022 and 2021, interest expense consisted primarily of interest and amortization of debt discount. The decrease in interest expense resulted from a lower outstanding balance on our build-to-suit obligation with Trinity Funding 1, LLC (successor to Trinity Capital Fund III, L.P.) (“Trinity”) during the three months ended March 31, 2022 as compared to the same period in 2021. For the three months ended March 31, 2022 and 2021, we capitalized a portion of interest paid to Trinity as construction-in-progress. Capitalization of interest ended upon the receipt of the February 2022 FDA Notice.
Liquidity and Capital Resources
Our liquidity and capital resources are summarized as follows:
March 31, 2022December 31, 2021
(unaudited; in thousands)(in thousands)
Cash and cash equivalents$13,529 $11,043 
Working capital*$5,902 $476 
Accumulated deficit$(395,524)$(362,115)
* We define working capital as current assets less current liabilities. See our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q for further details regarding our current assets and current liabilities.
As of March 31, 2022, we had approximately $13.5 million in cash and cash equivalents, $5.9 million of working capital and an accumulated deficit of $395.5 million. The increase in cash and cash equivalents and working capital as of March 31, 2022 as compared to December 31, 2021 was primarily the result of cash received from the sale of shares of our common stock and warrants, offset by our loss from operations and our payments to Trinity.
As of May 11, 2022, we had approximately $9.9 million of cash and cash equivalents which is not sufficient to fund our anticipated level of operations and meet our obligations as they become due within twelve months following the date of filing of this Quarterly Report on Form 10-Q. The aforementioned factors raise substantial doubt about our ability to continue as a going concern for a period of one year from the issuance of these financial statements. If we are not able to obtain required funding in the near future or obtain funding on favorable terms it will have a material adverse effect on our operations. Without additional capital, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations. Additionally, our ability to raise capital is limited by the significant decline in our market capitalization and current market conditions.
We have retained SierraConstellation Partners, LLC, as an independent financial advisor to assist in exploring financial and strategic alternatives to maximize value, which may include, but not be limited to, asset or equity sales, joint venture and partnership opportunities, and restructuring, amendment or refinancing of existing liabilities. We are also evaluating various alternatives to improve our liquidity, including but not limited to, further reductions of operating expenditures and other contractual obligations. However, there can be no assurances that we will be able to successfully raise capital, improve our financial position and liquidity, restructure our obligations, enter into any asset or equity sale, joint venture or partnership opportunity and/or otherwise achieve any of these objectives.
In 2020 and 2021, we filed shelf registration statements on Form S-3 with the SEC to provide us with the ability to issue common stock and other securities as described in the registration statements. We currently have approximately $120.6 million available on the two outstanding shelf registration statements. However, our ability to complete the sale of equity securities and access the market as a source of liquidity is dependent on investor demand, market conditions and other factors. Therefore, we can provide no assurance that any such offering will be on terms favorable to us or our stockholders, or that such offering will be successful at all. In addition, our ability to raise capital will be limited by the significant decline in our market capitalization.
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As of May 11, 2022, our market capitalization was approximately $8.1 million and, as a result, any significant capital raise may result in a change of control and require shareholder approval.
We expect to incur additional significant losses in the future and without additional capital, we may be required to further reduce our operating expenses, sell or license our technologies, clinical product candidate, or programs, if any, out-license intellectual property rights to our transdermal delivery technology, or a combination of the above, which may have a material adverse effect on our business, results of operations, financial condition and/or our ability to fund our scheduled obligations on a timely basis or at all.
Currently, we do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA and we have suspended our M207 program, manufacturing operations at our Fremont, California facility and activities at our third-party CMOs related to the qualification of commercial manufacturing equipment, which may limit our ability to obtain financing for our operations.
Cash Flows
Three Months Ended March 31,
20222021
 (unaudited; in thousands)
Net cash provided by (used in):
Operating activities$(8,540)$(7,460)
Investing activities(65)(3,236)
Financing activities11,091 2,315 
Net increase (decrease) in cash, cash equivalents, and restricted cash$2,486 $(8,381)
Operating Cash Flow: Net cash used in operating activities for the three months ended March 31 in both 2022 and 2021 was primarily related to personnel, manufacturing, facility and technology transfer and development costs in conjunction with services performed by our contract manufacturers, pre-commercial activities and other administrative expenses incurred in the course of our continuing operations. The changes in net cash used in operating activities were primarily related to our net loss, working capital fluctuations and changes in our non-cash expenses, all of which are highly variable.
Net cash used in operating activities for the three months ended March 31, 2022 of $8.5 million was primarily due to our net loss of $33.4 million, adjusted for non-cash items of $27.2 million, consisting primarily of a $25.9 million impairment loss, $0.4 million of stock-based compensation, $0.3 million of depreciation and amortization, $0.3 million of change in operating lease right-of-use assets and $0.2 million for accretion of an asset retirement obligation. Additionally, we used cash of $1.5 million for changes in prepaid and other assets and $0.8 million for current liabilities. Net cash used in operating activities for the three months ended March 31, 2021 of $7.5 million was primarily due to our net loss of $8.1 million adjusted for non-cash stock-based compensation of $0.4 million and depreciation and amortization of $0.4 million and an increase in our prepaid expenses of $1.1 million, offset by an increase in accounts payable and accrued compensation and other accrued liabilities of approximately $1.0 million.
Investing Cash Flow: Net cash used in investing activities of $0.1 million and $3.2 million for the three months ended March 31, 2022 and 2021, respectively was the result of property and equipment purchases to support our pre-commercialization activities.
Financing Cash Flow: Net cash provided by financing activities of $11.1 million for the three months ended March 31, 2022 was primarily due to the net cash proceeds of $14.2 million from the public offering of common stock and warrants. These proceeds were offset by repayments on the Trinity build-to-suit obligation of $3.1 million. See below for further discussion of our financing activities during the first three months of 2022. Net cash provided by financing activities of $2.3 million for the three months ended March 31, 2021 was primarily due to the proceeds from the issuance of common stock from the exercise of warrants of $3.4 million. These proceeds were offset by repayments on the Trinity build-to-suit obligation of $1.2 million.
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Offering - February 2022
On February 8, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (“Maxim”) related to the public offering by us of 1,464,284 units (“Units”), each consisting of one share of our common stock and one Series F Common Stock Purchase Warrant (“Series F Warrant”) to purchase one share of our common stock, at a public offering price of $10.50 per Unit (the "February 2022 Offering"). We also granted Maxim an option for a period of 30 days to purchase up to an additional 219,642 shares of common stock and/or additional Series F Warrants to purchase up to 219,642 shares of common stock. Maxim partially exercised the option and purchased the additional Series F Warrants to purchase up to 219,642 shares of common stock. The option to purchase additional shares of common stock expired unexercised. The net proceeds from the offering and the exercise by Maxim of the option to purchase the additional Series F Warrants were approximately $14.1 million after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The offering was made pursuant to a 2021 shelf registration statement and a prospectus supplement and accompanying prospectus filed with the SEC.
At-the-Market Offering Programs
At-the-Market Offering Program - 2021
On June 28, 2021, we entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC (together, the “Sales Agents”) to establish an at-the-market offering program (the “2021 ATM”), under which we may sell from time to time, at our option, up to an aggregate of $30.0 million of shares of our common stock. Shares sold under the 2021 ATM are issued pursuant to a 2020 Shelf Registration Statement and a prospectus supplement dated June 28, 2021. We are required to pay the Sales Agents a commission of 3% of the gross proceeds from the sale of shares and have also agreed to provide the Sales Agents with customary indemnification rights. During the three months ended March 31, 2022, no shares of our stock were sold under the program. As of March 31, 2022, we have up to approximately $25.0 million available to be offered and sold under the 2021 ATM.
At-the-Market Offering Program - 2020
On June 8, 2020, we entered into a sales agreement with BTIG, LLC ("BTIG") as sales agent, to establish an at-the-market offering program (“2020 ATM”), under which we were permitted to offer and sell, from time to time, shares of common stock having a maximum aggregate offering price of up to $20.0 million. We were required to pay BTIG a commission of 3% of the gross proceeds from the sale of shares and also agreed to provide BTIG with customary indemnification rights. During the three months ended March 31, 2021, we issued and sold 2,369 shares of our common stock at an average price of $45.82 per share under the 2020 ATM with aggregate net proceeds of less than $1,000 after deducting commissions and offering expenses payable by us. The shares were sold pursuant to the 2020 shelf registration statement and a prospectus supplement dated June 8, 2020. No shares remain available for sale under the 2020 ATM.
Trinity Second Amendment
On March 11, 2022, we entered into a Second Amendment to Lease Documents (the “Second Amendment”) with Trinity. The Second Amendment, among other things, provided for an upfront payment of $2.0 million in lease payments to Trinity on the date of the Second Amendment, modified the remaining monthly lease payments and Purchase Option Fee payments due under the Agreement to $215,441 per month from April 1, 2022 to December 1, 2022, established a minimum cash covenant equal to three times the remaining aggregate amount of lease payments due, and amended the definition of material adverse event, certain events of default, and certain operating covenants.
Contractual Obligations
During the three months ended March 31, 2022, there were no material changes to our contractual obligations described under Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2021, filed with the SEC on March 17, 2022, other than the fulfillment of existing obligations in the ordinary course of business. See Note 11. Commitments and Contingencies of the Notes to Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for more information regarding our contractual obligations.
Recently Issued Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies of the Notes to Financial Statements included in Item 1 Part I of this Quarterly Report on Form 10-Q for a summary of Recent Accounting Pronouncements.
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. Some of the securities that we invest in have market risk where a change in prevailing interest rates may cause the principal amount of the marketable securities to fluctuate. Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, as well as investments in marketable securities. We had cash and cash equivalents of $13.5 million as of March 31, 2022, which consisted of bank deposits and money market accounts. The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we receive from any investment in marketable securities without significantly increasing risk. Additionally, we established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.
Our cash and cash equivalents are held for working capital purposes. Cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits, and we are exposed to credit risk when our cash balances exceed FDIC insurance limits. Our total cash and cash equivalent balances exceed the maximum amounts insured by the FDIC.
Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of United States interest rates. We hold interest-earning instruments, which carry a degree of interest rate risk. To date, fluctuations in interest income and expense have not been significant. However, fluctuations in market interest rates in the future could have a material impact on our financial condition and results of operations.
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Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Act of 1933, as amended, is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended) during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
We are not party to any material pending legal proceedings. However, we may from time to time, become involved in lawsuits and legal proceedings, which arise in the ordinary course of business. Lawsuits and legal proceedings are subject to inherent uncertainties and an adverse result in any lawsuit or legal proceeding may materially adversely affect our business, financial condition and results of operations. In addition, even if not meritorious, these matters could result in the expenditure of significant financial resources and diversion of management efforts.

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Item 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, as well as general economic and business risks, and all of the other information contained in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, including our financial statements and related notes thereto, and other documents that we file with the U.S. Securities and Exchange Commission (“SEC”). Any of the following risks could have a material adverse effect on our business, results of operations, financial condition and prospects and cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. Any of the following risks and uncertainties are, and will be, exacerbated by COVID-19 pandemic and any worsening of the global business and economic environment as a result.
RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL
We will need to obtain substantial additional funding to fund our operations, and we will not be able to continue as a going concern if we are unable to do so. Without additional capital, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations. Our ability to raise capital is limited by the significant decline in our market capitalization and current market conditions.
Developing and commercializing biopharmaceutical products, including launching new products into the marketplace and conducting preclinical studies and clinical trials, is an expensive and highly uncertain process that takes years to complete. Since inception, we have generated no revenues from product sales. We are not approved to make and have not made any commercial sales of products. As of March 31, 2022, we had an accumulated deficit of $395.5 million and approximately $13.5 million in cash and cash equivalents as well as negative cash flows from operating activities. We do not have sufficient cash and cash equivalents to fund our anticipated level of operations as they become due during the twelve months following the date of filing of this Quarterly Report on Form 10-Q. We will need substantial additional capital to fund our operations, and we will not be able to continue as a going concern if we are unable to do so. Without additional capital, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations.
If we resume our product development activities, we expect that our product development activities will require additional significant operating and capital expenditures resulting in negative cash flow for the foreseeable future.
We would expect to finance our cash needs through a combination of equity offerings, debt financing and license and collaboration agreements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.
However, adequate and additional funding may not be available to us on acceptable terms or at all. Our ability to raise capital is limited by the significant decline in our market capitalization and the current market conditions. As of May 11, 2022, our market capitalization was approximately $8.1 million and, as a result, any significant capital raise may result in a change of control and require a shareholder vote. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends on our common stock. Also, the Series F Warrants issued in connection with our February 2022 public offering contain a full-ratchet anti-dilution exercise price adjustment upon the issuance of any common stock, securities convertible into common stock or certain other issuances at a price below the then-existing exercise price of the Series F Warrants.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our research programs or product candidates or grant licenses on terms that may not be favorable to us.
Moreover, our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 include an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern which may discourage some third parties from contracting with us and some investors from purchasing our stock or providing alternative capital financing, which could adversely affect our business, financial condition, cash flows, results of operations and prospects. Additionally, the COVID-19 pandemic has caused volatility in the global financial markets and threatened a slowdown in the global economy, which may adversely affect our ability to raise additional capital on attractive terms or at all. A recession, depression or other sustained adverse market event resulting from the spread of COVID-19, including any strains or variants of
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the virus, may also limit our ability to obtain financing for our operations. The uncertainty regarding our ability to obtain additional capital or meet future liquidity requirements raises substantial doubt about our ability to continue as a going concern.
As described elsewhere in this Quarterly Report on Form 10-Q, we have retained SierraConstellation Partners, LLC as an independent financial advisor to assist in exploring financial and strategic alternatives to maximize value, which may include, but not be limited to, asset or equity sales, joint venture and partnership opportunities, and restructuring, amendment or refinancing of existing liabilities. We are also evaluating various alternatives to improve our liquidity, including but not limited to, further reductions of operating and capital expenditures and other contractual obligations. However, there can be no assurances that we will be able to successfully raise capital, improve our financial position and liquidity, restructure our obligations, enter into any asset or equity sale, joint venture or partnership opportunity and/or otherwise achieve any of these objectives.
We have a history of operating losses. We expect to continue to incur significant losses in the foreseeable future and are not likely to become profitable.
Since inception, we have incurred significant operating losses. For the year ended December 31, 2021 and the three months ended March 31, 2022, we incurred net losses of $29.9 million and $33.4 million, respectively, and, as of March 31, 2022, we had an accumulated deficit of $395.5 million. We expect to continue to incur additional significant operating losses and anticipate that our expenses will increase in the foreseeable future. Even if we resume our product development activities and we succeed in developing, obtaining regulatory approval for and commercializing M207 or any other product candidates that we develop, because of the numerous risks and uncertainties associated with our commercialization efforts, we are unable to predict that we will ever be able to manufacture, distribute and sell any of our products profitably, and we may never generate revenue that is significant enough to achieve or maintain profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.
We have made significant investments in property and equipment, and, in the quarter ended March 31, 2022, we recorded an impairment of our long-lived property and equipment and right-of-use assets in the amount of $25.9 million, or approximately 71% of the carrying value at the date of impairment, and, in the future, we could see further impairment of our long-lived property and equipment and right-of-use assets if our estimates of future undiscounted cash flows are not greater than the carrying value of the long-lived assets. Additionally, if we commit to a plan to sell our property and equipment, any amount that we receive for the assets may be significantly less than fair value.
We made significant investments in property and equipment in advance of any FDA approval of M207 and as a result of the FDA notification on February 17, 2022 that the FDA will not begin substantive review of our resubmitted M207 NDA until a complete response is received, we suspended our M207 program. We determined that receipt of the FDA Notice on February 17, 2022 was an indicator of impairment and performed an impairment analysis of our property and equipment and right-of-use assets as of that date. The analysis determined that the fair value of the assets, which was calculated using the cost approach for property and equipment and a market approach for right-of-use assets, was lower than the carrying value. Accordingly, we recorded an impairment loss of $25.9 million for the three months ended March 31, 2022, consisting of $24.8 million of property and equipment and $1.1 million of right-of-use assets. The impairment loss was primarily related to the write-down of specialized equipment and related manufacturing space for the commercial manufacture of our suspended M207 program.
We will continue to evaluate our long-lived assets for impairment on a periodic basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any future impairment analysis, may result in further write-downs of our property and equipment and right-of-use assets, which could be material. Additionally, if we commit to a plan to sell our property and equipment assets, the amount that we may receive for the assets could be significantly less than fair value.

Our build-to-suit arrangement with Trinity Funding 1, LLC (successor to Trinity Capital Fund III, L.P.) (“Trinity”) imposes restrictions on our business, and if we default on our obligations, Trinity would have a right to request payment in full of the build-to-suit obligation.
We agreed to covenants in connection with the Trinity build-to-suit arrangement that may limit our ability to take some actions without the consent of Trinity, as applicable. In particular, without Trinity’s consent under the terms of the build-to-suit arrangement, we are restricted in our ability to:
create liens on our property;
sell, transfer, or otherwise dispose of all or substantially all of our assets;
transfer or dispose of financed equipment;
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acquire or merge with another entity; and
engage in a transaction that would constitute 50% or more in change in control.
Our indebtedness to Trinity may prevent us from engaging in activities that could be beneficial to our business and our stockholders unless we repay the outstanding obligation, which may not be desirable or possible.
We have pledged substantially all of our assets, including our intellectual property, to secure our obligations to Trinity. In addition, under the terms of the build-to-suit arrangement as amended in March 2022, we are required to maintain cash in an amount equal to three times the remaining aggregate amount of rent due to Trinity under the build-to-suit arrangement. If we default on our obligations prior to repaying this indebtedness and are unable to obtain a waiver for such default, Trinity would have a right to accelerate our payments under the build-to-suit arrangement, as applicable, and possibly foreclose on the collateral, which would potentially include our intellectual property. Any such action on the part of Trinity would significantly harm our business and our ability to operate.
We have limited operating history and capabilities.
Although our business was formed in 2006, we have had limited operations since that time and we are only able to manufacture our product candidates on a limited scale at the Fremont, California site. Our operations to date have been focused on developing and securing our proprietary technology and pursuing opportunities internally and, in some cases, with certain strategic partners to further the potential clinical and commercial development of product candidates where we believe our System may offer advantages, and pre-commercialization efforts for M207. In April 2022 we decided to suspend our M207 program to preserve our capital and cash resources. We currently do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA. If we resume our M207 program, the successful commercialization of M207 or any other product candidate will require us to perform a variety of functions, including:
continuing to conduct clinical development of our product candidates;
obtaining required regulatory approvals;
formulating and manufacturing product; and
conducting marketing and sales activities.
Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary, topline or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

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RISKS RELATED TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCT CANDIDATES
The development and commercialization of our product candidates are subject to many risks. If we do not successfully develop, receive approval for, and commercialize our product candidates, our business will be adversely affected.
To date, we have devoted the majority of our research, development and clinical efforts and financial resources toward the development of M207, our proprietary formulation of zolmitriptan for the acute treatment of migraine headaches. In December 2019, we submitted a 505(b)(2) New Drug Application (“NDA”) to the FDA seeking approval for M207. On September 29, 2020, we received a Discipline Review Letter (“DRL”) from the FDA in response to the application. The DRL described two concerns with respect to the clinical pharmacology section of the NDA. First, the FDA raised questions regarding unexpected high plasma concentrations of zolmitriptan observed in five study subjects from two pharmacokinetic (“PK”) studies, and how the data from these subjects affect the overall clinical pharmacology section of the application. Second, the FDA raised questions regarding differences in zolmitriptan exposures observed between subjects receiving different lots of M207 in our clinical trials.
On October 20, 2020, we received a Complete Response Letter (“CRL”) from the FDA with respect to the NDA. The CRL cited inconsistent zolmitriptan exposure levels observed across clinical pharmacology studies, which had been previously identified in the FDA’s discipline review letter that we received on September 29, 2020. Specifically, the CRL noted differences in zolmitriptan exposures observed between subjects receiving different lots of M207 in our trials and inadequate pharmacokinetic (“PK”) bridging between the lots that made interpretation of some safety data unclear. The CRL referenced unexpected high plasma concentrations of zolmitriptan observed in five study subjects enrolled in our PK studies. The FDA recommended that we conduct a repeat bioequivalence study comparing lots manufactured with the equipment used during development. The CRL noted that additional product quality validation data, which were planned to be submitted following approval, if received, were required to be submitted with the application. In addition, the CRL mentioned that due to U.S. Government and/or Agency-wide restrictions on travel, inspections of our contract manufacturing and/or critical subcontractor facilities were not able to be conducted before the FDA's goal date for completing its review of the original NDA, but that such inspections would be required and would have to be conducted before the application may be approved. In addition, a pre-approval inspection of our Fremont, California facility by the FDA is expected. However, following a March 2022 workforce reduction, we would need to hire additional employees to support any pre-approval inspection.
On January 29, 2021, we held a Type A meeting with the FDA Division of Neurology II (the “Division”) regarding the requirements for resubmission of the M207 NDA and, in February 2021, we received the final meeting minutes from the FDA. The Type A meeting minutes were generally consistent with our expectations to conduct an additional PK study for inclusion in an NDA resubmission package. In a post-meeting comment, the FDA recommended a skin assessment on patients in the PK study to generate additional safety information which was included in the proposed study protocol submitted to the FDA for review. After receipt of FDA comments and recommendations to our proposed PK study protocol for M207, we made the recommended changes and established an agreement with a contract research organization to conduct the PK study required to support the resubmission of the M207 505(b)(2) NDA.
On October 4, 2021, we announced that we had received preliminary top-line results from the PK study and had been granted a Type C written response-only meeting with the FDA regarding the resubmission of the M207 NDA. On October 25, 2021, we received full data tables from our PK study, which were consistent with the previously announced preliminary top-line results. On October 27, 2021, we submitted a briefing package to the FDA in advance of the Type C written-response-only meeting previously granted by the FDA to obtain feedback on our strategy for resubmitting the M207 505(b)(2) NDA.
We received Type C written responses from the FDA with respect to our strategy for resubmitting the M207 505(b)(2) NDA, which, among other things, noted concerns regarding our approach for establishing a PK bridge to ZOMIG® nasal spray (NDA 21-450) (the “Listed Drug”) through comparisons across multiple PK studies of M207, particularly Study CP-2019-002, which included PK outliers.
On January 18, 2022, we resubmitted our NDA to the FDA. In line with our previously disclosed resubmission strategy, the NDA was resubmitted under Section 505(b)(2) of the Food, Drug, and Cosmetic Act. The 505(b)(2) submission relies on the FDA’s findings of safety and efficacy of the Listed Drug. The resubmitted NDA relied primarily on data from the recently completed Phase 1 PK study (CP 2021-001), along with previous PK studies evaluating M207 (CP-2018-002 and CP-2019-002), with the goal of establishing comparative bioavailability to the Listed Drug.
On February 17, 2022, we received a response letter from the FDA with regard to our January 18, 2022 resubmission of the M207 NDA. The response letter stated that the FDA did not consider the resubmitted M207 NDA to be a complete response to the deficiencies identified in the FDA’s October 20, 2020 CRL, and that the FDA will not begin substantive review of the application until a complete response is received. Among other things, the FDA’s response letter stated that our strategy for establishing a PK bridge to the Listed Drug by relying primarily on data from the Study CP-2021-001 was not acceptable, due
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in part to differences between the design of Study CP-2021-001, which compared the PK of M207 to two sequential doses of the Listed Drug, and the criteria for re-dosing set forth in the labeling instructions for the Listed Drug. The FDA’s response letter described alternative methods through which we may establish a PK bridge to the Listed Drug, including: (i) by demonstrating bioequivalence to the Listed Drug using standard criteria for all PK exposure metrics, including through a combination of relevant PK data and modeling or simulation procedures; or (ii) by conducting a relative bioavailability study in healthy volunteer subjects. On April 14, 2022, the FDA provided us with an extension, allowing us to resubmit the M207 NDA until April 20, 2023 without considering the application to have been withdrawn. However, in April 2022 we decided to suspend our M207 program to preserve our capital and cash resources. We currently do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA. Even if we are able to successfully resume our M207 program and resubmit the M207 NDA, there is no guarantee that we will be able to adequately address the issues raised to the FDA’s satisfaction. For example, if the FDA does not allow us to resubmit our M207 NDA using our existing PK data comparing ZOMIG® nasal spray and patches produced on manufacturing equipment at our Fremont, California facility that also produced patches for our long-term safety study, then the approval pathway for M207 will likely take significantly longer than expected, cost significantly more than anticipated, and may not be successful.
In addition to the above factors, the development and commercialization of M207 and any product candidates we may develop and commercialize in the future is subject to many risks including:
we may be unable to obtain additional funding to develop our product candidates;
we may experience delays in regulatory review and approval of our product candidates in clinical development;
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;
the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;
the FDA may not find the data from preclinical studies and clinical trials sufficient to demonstrate that clinical and other benefits outweigh its safety risks;
the FDA may disagree with our interpretation of data from our preclinical studies and clinical trials or may require that we conduct additional studies or trials;
we may be required to undertake additional clinical trials of M207 before we receive approval of the NDA;
the FDA may not accept data generated at our clinical trial sites;
we may be unable to obtain and maintain regulatory approval of our product candidates in the United States and foreign jurisdictions;
potential side effects of our product candidates could delay or prevent commercialization, limit the indications for any approved product candidate, require the establishment of a risk evaluation and mitigation strategy (“REMS”), or cause an approved product candidate to be taken off the market;
the FDA may identify deficiencies in our manufacturing processes or facilities or those of our contract manufacturing organizations (“CMOs”);
the FDA may change its approval policies or adopt new regulations;
we will depend on third-party manufacturers to supply or manufacture components of our products;
we depend on CROs to conduct our clinical trials;
we may experience delays in the commencement of, enrollment of patients in and timing of our clinical trials;
we may not be able to demonstrate that our product candidates are safe and effective treatments for their intended indications to the satisfaction of the FDA or other similar regulatory bodies;
we may be unable to establish or maintain collaborations, licensing or other arrangements;
the market may not accept our product candidates, if approved;
we may be unable to establish and maintain an effective sales and marketing infrastructure;
we will depend on Eversana or another third party to commercialize M207, if approved;
we may experience competition from existing products or new products that may emerge; and
we and our licensors may be unable to successfully obtain, maintain, defend and enforce intellectual property rights important to protect our product candidates.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to regulatory authorities, which may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of a study. This could result in a delay in approval, or rejection, of our marketing applications. If any of these risks materializes, we could experience significant
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delays or an inability to successfully commercialize our product candidates, which would have a material adverse effect on our business, financial condition and results of operations.
The Long-term Safety Study (“LTSS”) for M207 was an important step in the development of M207. If we are to resume our M207 program, and the results from the study do not establish the safety of M207 to the FDA's satisfaction, the regulatory approval process could be delayed or failed, and our business could be adversely affected.
In February 2019, we announced the completion of the final phase of our LTSS where more than 50 evaluable subjects were treated for a year, and in September 2019, we announced the presentation of final results from the LTSS at the 19th Congress of the International Headache Society in Dublin, Ireland. Although we have currently suspended development of M207, if we resume activities for M207 and successfully resubmit the M207 NDA, we expect that the results of the LTSS will need to support the safety of M207 for the acute treatment of migraine. If the results do not provide sufficient evidence for the FDA to determine the safety of M207, we could be required to conduct additional clinical or preclinical studies. Also, even though we have discussed our development strategy with the FDA on our M207 program and received feedback from the FDA about the size and the length of the safety study, the FDA may require us to provide more data than we currently anticipate before approving M207, if ever, which would further delay the regulatory approval process and require additional clinical or preclinical work; for example, in the CRL, the FDA recommended that we conduct a repeat bioequivalence study comparing lots manufactured with the equipment used during development.
If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful.
If we resume our product development activities, we plan to seek FDA approval through the 505(b)(2) regulatory pathway for our product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug and Cosmetics Act (“FDCA”). Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant.
If the FDA does not allow us or any partner with which we collaborate to pursue the 505(b)(2) regulatory pathway for our product candidates, we or they may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, we or they will need to successfully complete additional Phase 2 and/or Phase 3 clinical trials and submit to the FDA for approval one or more NDAs in order to obtain FDA approval to market our product candidates. The time and financial resources required to obtain FDA approval for our product candidates would likely substantially increase.
Moreover, the inability to pursue the 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the 505(b)(2) regulatory pathway for our product candidates, we cannot assure you that we will receive the requisite approvals for commercialization of such product candidates.
In addition, our competitors may file petitions with the FDA in an attempt to persuade the FDA that our product candidates, or the clinical studies that support their approval, contain deficiencies. Such actions by our competitors could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
Clinical trials are very expensive, time-consuming and difficult to design and implement.
Human clinical trials are very expensive, time-consuming and difficult to design and implement, in part because they are subject to rigorous regulatory requirements, and their outcome is inherently uncertain. Furthermore, failure of a product candidate can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials.
Further, we may experience delays in our ongoing clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. The commencement and completion of clinical trials may be delayed by several factors, including:
changes in government regulation, administrative action or changes in FDA policy with respect to clinical trials that change the requirements for approval;
delays in obtaining authorization from regulators and required Institutional Review Board (“IRB”) approval at each site to commence a trial;
imposition of a clinical hold for safety reasons or following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authority;
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delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, or failure by such CROs or trial sites to carry out the clinical trial at each site in accordance with the terms of our agreements with them;
difficulties or delays in having patients complete participation in a trial or return for post-treatment follow-up;
clinical sites electing to end their participation in one of our clinical trials, which would likely have detrimental effect on subject enrollment;
time required to add new clinical sites;
delays by us or our contract manufacturers to produce and deliver sufficient supply of clinical trial materials;
unforeseen safety issues;
determination of dosing issues;
lack of effectiveness during clinical trials;
slower than expected rates of patient recruitment and enrollment;
inability to raise or delays in raising funding necessary to initiate or continue a trial;
inability to monitor patients adequately during or after treatment; and
inability or unwillingness of medical investigators to follow our clinical protocols.
Disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing any clinical trials.
In addition, we, the FDA, or other regulatory authorities and ethics committees with jurisdiction over our studies may terminate or suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA or other authorities find deficiencies in our regulatory submissions or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for any future clinical trials. Any such unexpected expenses or delays in our clinical trials could increase our need for additional capital, which may not be available on favorable terms or at all.
If we are required to conduct additional clinical trials or other testing of our product candidates, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these clinical trials or tests are not positive or are only modestly positive and/or if there are safety concerns, we may:
be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
be subject to additional post-marketing testing requirements; or
have our product candidates removed from the market after obtaining marketing approval.
Our development costs will also increase if we experience delays in testing or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring a product candidate to market before we do, and thereby impair our ability to successfully commercialize our product candidates.
The COVID-19 pandemic, including any strains or variants of the virus, could adversely impact our business.
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple countries, including the United States. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities have been closed and production has been suspended, and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. If COVID-19, including any strains or variants of the virus, continues to spread in the United States and elsewhere, we may experience additional disruptions that could severely impact our business, preclinical studies and any future clinical trials, including:
delays in receiving approval from local regulatory authorities to initiate any clinical trials;
delays or difficulties in enrolling subjects in any clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
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delays in clinical sites receiving the supplies and materials needed to conduct any clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;
changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which any clinical trials are conducted, which may result in unexpected costs, or the discontinuation of such clinical trials altogether;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of any clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;
risk that participants enrolled in any clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;
interruptions or delays in preclinical studies due to restricted or limited operations at research and development laboratory facilities;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; and
refusal of the FDA to accept data from clinical trials in affected geographies.
The COVID-19 pandemic continues to evolve. The extent to which the pandemic impacts our business, preclinical studies and any clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
The results of our clinical trials may not support the intended use of M207 or any other product candidates we may develop.
We cannot be certain that the results from any completed clinical trial or any future clinical trial, if completed as planned, will support the intended use of our products. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe and effective in humans for their intended uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay the submission of an NDA with the FDA and, ultimately, our ability to commercialize our product candidates and generate revenues. In addition, our clinical trials to date have involved small subject populations. Because of the small sample sizes, the results of these clinical trials may not be indicative of future results.
Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.
Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical trials. In addition, data obtained from trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical testing, early clinical trials and even later stage clinical trials, such as our phase 2/3 ZOTRIP trial, does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Frequently, product candidates that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. While members of our management team have experience in designing clinical trials, we have limited experience in designing clinical trials and we may be unable to design and execute a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. If our product candidates are found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for them and our business would be harmed.
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We may in the future conduct clinical trials for product candidates in sites around the world, and government regulators, including the FDA in the United States, may choose to not accept data from trials conducted in such locations.
We have conducted, and may in the future choose to conduct, one or more of our clinical trials outside the United States. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in current or future product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction.
In addition, the conduct of clinical trials outside the United States could have a significant negative impact on us. Risks inherent in conducting international clinical trials include:
foreign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;
administrative burdens of conducting clinical trials under multiple foreign regulatory schema;
foreign exchange fluctuations; and
diminished protection of intellectual property in some countries.
We will not be able to sell our products if we do not obtain required United States regulatory approvals.
We cannot assure you that we will receive the approvals necessary to commercialize M207 or any product candidate we acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the United States. In order to obtain FDA approval of any product candidate, we expect that we will have to submit to the FDA an NDA demonstrating that the product candidate is safe for humans and effective for its intended indication and indicated use. This demonstration requires significant research and animal tests, which are referred to as preclinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our product candidates will ultimately be considered safe for humans and effective for indicated uses by the FDA. The FDA has substantial discretion in the drug approval process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during its regulatory review. Delays in obtaining regulatory approvals may:
delay commercialization of, and our ability to derive product revenues from, our products;
impose costly procedures on us; and
diminish any competitive advantages that we may otherwise enjoy.
We may never obtain regulatory approval for any of our product candidates. Failure to obtain approval of any of our product candidates will severely undermine our business by leaving us without a saleable product, and therefore without any source of revenues, unless other products can be developed. There is no guarantee that we will ever be able to develop or acquire another product.
Even if M207 or any other product candidates we develop in the future receive regulatory approval, our business is subject to extensive regulatory requirements which include ongoing and continued regulatory review, which may result in significant expense and limit our ability to commercialize our products.
Any regulatory approvals that we may receive for our product candidates will require the submission of reports to regulatory authorities and surveillance to monitor the safety and efficacy of the product candidate, may contain significant
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limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements. For example, the FDA may require a REMS in order to approve our product candidates, which could entail requirements for a medication guide, physician training and communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or foreign regulatory authorities approve our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, current good manufacturing practice (“cGMP”) requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP regulations and standards.
We may also be subject, directly or indirectly through our customers and partners, to various fraud and abuse laws, including, without limitation, the U.S. Anti-Kickback Statute, U.S. False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the U.S. Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws and similar requirements in other countries.
With respect to sales and marketing activities by us or any future partner, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. In addition, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for our products, physicians may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions, including revocation of its marketing approval. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.
In addition, later discovery of previously unknown problems with our product candidates, manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing clinical trials;
warning or untitled letters;
withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenue;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing
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requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action, and we may not achieve or sustain profitability.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs, or modifications to approved drugs, to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government shut down and certain regulatory agencies, such as the FDA, had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, in March 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, in July 2020, the FDA resumed certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA utilized this risk-based assessment system to assist in determining when and where it was safest to conduct prioritized domestic inspections. Additionally, on April 15, 2021, the FDA began conducting voluntary remote interactive evaluations of certain drug manufacturing facilities and clinical research sites in circumstances where the FDA determines that such remote evaluation would be appropriate based on mission needs and travel limitations. In July 2021, the FDA resumed standard inspectional operations of domestic facilities. Since that time, the FDA has continued to monitor and implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions or conduct necessary site inspections, including any such inspections that may be required for the FDA to review any NDA resubmission for M207, which could have a material adverse effect on our business.
We or any of our current or future partners may choose not to continue developing a product or product candidate at any time during development, or commercialize it after approval, which would reduce or eliminate our potential return on investment for that product or product candidate.
At any time, we or any partners with whom we currently collaborate or collaborate with in the future may decide to discontinue the development of a marketed product or product candidate or not to continue commercializing a marketed product or a product candidate for a variety of reasons, including the appearance of new technologies that make our product obsolete, insufficient funding or resources, the position of our partner in the market, competition from another product, or changes in or failure to comply with applicable regulatory requirements. For example, in April 2022 we decided to suspend development of M207 to preserve our capital and resources. If we or our partners terminate a program in which we have invested significant resources, we will not receive any return on our investment, and we will have lost the opportunity to allocate those resources to potentially more productive uses. If one of our future partners terminates a development program or ceases to market an approved or commercial product, we will not receive any future milestone payments or royalties relating to that program or product under a partnership agreement with that party.
Our long-term growth will be limited unless we successfully develop a pipeline of additional product candidates.
Our long-term growth will be limited unless we successfully develop a pipeline of additional product candidates. We do not have internal new drug discovery capabilities, and our primary focus is on developing improved transdermal drug delivery systems by reformulating drugs previously approved by the FDA using our proprietary technologies.
If we are unable to expand our product candidate pipeline and obtain regulatory approval for our product candidates on the timelines we anticipate, we will not be able to execute our business strategy effectively and our ability to substantially grow our revenues will be limited, which would harm our long-term business, results of operations, financial condition and prospects.
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Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance, or result in significant negative consequences following market approval, if any.
Any product candidates we develop may have undesirable side effects or have characteristics that are unexpected. These could be attributed to the active ingredient or class of drug or to our unique formulation of our product candidates, or other potentially harmful characteristics. Such characteristics could cause us, our IRBs, clinical trial sites, the FDA or other regulatory authorities to interrupt, delay or halt clinical trials, including the imposition of clinical holds, and could result in a more restrictive label or delay, denial or withdrawal of regulatory approval, which may harm our business, financial condition and prospects significantly.
In addition, if a product candidate receives marketing approval, and we or others later identify serious adverse events or undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:
regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;
we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
we may be required to implement REMS, which could result in substantial cost increases and have a negative impact on our ability to commercialize the product;
we may be required to limit the patients who can receive the product;
we may be subject to limitations on how we promote the product;
sales of the product may decrease significantly;