Full Press Release Details
Our business is subject to various risks, including those described
below. You should carefully consider these risk factors, together with all of the other information included in our Annual Report on Form 10-K for the year ended December 31, 2011 and Quarterly Report on Form 10-Q for the quarter ended
September 30, 2012. Any of these risks could materially adversely affect our business, operating results and financial condition.
Risks Related to Our Financial Condition and Need for Additional Capital
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We are a development stage company with limited operating history. To date, we have focused primarily on developing our lead product candidate, the
Sufentanil NanoTab PCA System, or the NanoTab System or ARX-01. We have three additional product candidates, the Sufentanil NanoTab BTP Management System, or ARX-02, the Sufentanil/Triazolam NanoTab, or ARX-03, and Sufentanil Single-Dose Acute Pain
NanoTab, or ARX-04. We have incurred significant net losses in each year since our inception in July 2005 and as of September 30, 2012, we had an accumulated deficit of $111.5 million.
We have devoted most of our financial resources to research and development, including our non-clinical development activities and clinical trials. To date, we have financed our operations primarily
through the sale of equity securities and debt. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. To date, none of our product candidates have been commercialized, and if
our product candidates are not successfully developed or commercialized, or if revenues are insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to
market our product candidates in the United States, our revenues are also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success.
We expect to continue to incur substantial and increased expenses as we expand our research and development activities and advance our clinical programs.
We also expect an increase in our expenses associated with preparing for the potential commercialization of the NanoTab System. As a result of the foregoing, we expect to continue to incur significant and increasing operating losses and negative
cash flows for the foreseeable future.
We have never generated any product or commercial revenue and may never be profitable.
Our ability to generate revenue from commercial sales and achieve profitability depends on our ability, alone or with collaborators,
to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our product candidates. Other than the revenue received from the US Army Medical Research and Materiel Command, or USAMRMC, for research
and development reimbursement under the terms of the grant for ARX-04 we received from the USAMRMC, we do not anticipate generating revenues from sales of our product candidates for the foreseeable future, if ever. Our ability to generate future
revenues from product sales depends heavily on our success in:
Because of the numerous risks and uncertainties associated
with pharmaceutical product development, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we
are required by the United States Food and Drug Administration, or FDA, to perform trials in addition to those that we currently anticipate.
Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing
any approved product candidate. Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations.
We have a limited operating history that may make it difficult to predict our future performance or evaluate our business and prospects.
We were incorporated in 2005. Since inception, our operations have been primarily limited to organizing and staffing our company,
developing our technology and undertaking preclinical studies and clinical trials for our product candidates. We
have not yet obtained regulatory approval for any of our product candidates. Consequently, any predictions you make about our future success or viability or evaluation of our business and
prospects may not be accurate.
We will require substantial additional capital and may be unable to raise capital, which would force us
to delay, reduce or eliminate our product development programs and could cause us to cease operations.
Developing pharmaceutical
products, including conducting preclinical studies and clinical trials, is expensive. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our clinical
programs, including our ongoing Phase 3 NanoTab System clinical trials. As of September 30, 2012, we had working capital of $13.1 million.
We believe that our current cash, cash equivalents and investment balances, together with the anticipated net proceeds from our recently-announced public
offering of common stock, will be sufficient to fund our current operations through the end of the second quarter of 2014. We may be able to extend this time period to the extent that we can access additional capital through equity offerings,
including our Sales Agreement with MLV. However, we will need to raise substantial additional funds to support our future operations, and such funding may not be available to us on acceptable terms, or at all. Additionally, changing circumstances
beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, we believe that our existing cash resources, together with the anticipated net proceeds from our recently-announced public offering of common
stock, based on our current estimates of clinical trial expenditures and enrollment pace, are adequate to complete our ongoing NanoTab System Phase 3 clinical trials, to submit our planned New Drug Application, or NDA, to the FDA for the NanoTab
System, and to begin preparation for commercialization and manufacturing of the NanoTab System in the United States. However, our clinical trials may encounter technical, enrollment or other difficulties that could increase our development costs
more than we expected. Even if we are able to submit an NDA, the FDA could require us to complete further studies, which would require additional capital before we receive our regulatory approval, if at all. In any event, we will require substantial
additional capital to obtain regulatory approval for, and to commercialize, our product candidates, including the NanoTab System. Raising funds in the current economic environment, when the capital markets have been affected by the global recession,
may present additional challenges. To raise capital, we may seek to sell additional equity or debt securities, obtain a credit facility or enter into product development, license or distribution agreements with third parties or divest one or more of
our product candidates. Any product development, licensing, distribution or sale agreements that we enter into may require us to relinquish valuable rights. We may not be able to obtain sufficient additional funding or enter into a strategic
transaction in a timely manner.
Securing additional financing may divert our management from our day-to-day activities, which may adversely
affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional
capital when required or on acceptable terms, we may be required to:
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will not be
able to continue our planned level of operations beyond the second quarter of 2014 and will not have sufficient capital to complete the regulatory approval process for the NanoTab System in the United States, which would have a material adverse
effect on our business, operating results and prospects. If adequate funds are not available, we would be required to reduce our workforce, delay, reduce the scope of or eliminate one or more of our research and development programs in advance of
the date on which we exhaust our cash resources to ensure that we have sufficient capital to meet our obligations and continue on a path designed to preserve stockholder value.
We may sell additional equity or debt securities to fund our operations, which may result in dilution to our stockholders and impose restrictions on our business.
In order to raise additional funds to support our operations, we may sell additional equity or debt securities, including under our Sales Agreement with
MLV, which would result in dilution to all of our stockholders or impose restrictive covenants that adversely impact our business. The sale of additional equity or convertible debt securities would result in the issuance of additional shares of our
capital stock and dilution to all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license intellectual
property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to expand our operations or otherwise capitalize on our business
opportunities, our business, financial condition and results of operations could be materially adversely affected and we may not be able to meet our debt service obligations.
We might be unable to service our current debt due to a lack of cash flow and might be subject to default.
In June 2011, we entered into a loan and security agreement with Hercules Technology II, L.P. and Hercules Technology Growth Capital, Inc., collectively referred to as Hercules, under which we borrowed
$20.0 million in two tranches of $10.0 million each, represented by secured convertible term promissory notes. The interest rate is 8.50%, with the initial 12 months of the facility requiring interest only payments. The notes issued pursuant to the
loan and security agreement mature on December 1, 2014. Since entering into the agreement with Hercules, we have been making monthly interest-only payments to Hercules of approximately $140,000 per month until June 30, 2012. According to
the terms of the Hercules agreement, beginning on July 1, 2012, we began repaying Hercules principal, with equal monthly payments of $742,000, consisting of both principal and interest payments until the maturity date of the loan. As of
September 30, 2012, the outstanding principal owed to Hercules was $18.2 million. We granted Hercules a first priority security interest in substantially all of our assets, with the exception of our intellectual property, where the security
interest is limited to proceeds of intellectual property.
If we do not make the required payments when due, either at maturity, or at
applicable installment payment dates, or if we breach the agreement or become insolvent, Hercules could elect to declare all amounts outstanding, together with accrued and unpaid interest and penalty, to be immediately due and payable. In order to
continue our planned operations and satisfy our debt obligations with Hercules, we will need to raise additional capital in the future. Additional capital may not be available in terms acceptable to us, or at all. Even if we were able to repay the
full amount in cash, any such repayment could leave us with little or no working capital for our business. If we are unable to repay those amounts, Hercules will have a first claim on our assets pledged under the loan agreement. If Hercules should
attempt to foreclose on the collateral, it is unlikely that there would be any assets remaining after repayment in full of such secured indebtedness. Any default under the loan agreement and resulting foreclosure would have a material adverse effect
on our financial condition and our ability to continue our operations.
Risks Related to Clinical Development and Regulatory Approval
We depend substantially on the success of our NanoTab System, which is still under clinical development, and may not obtain
regulatory approval or be successfully commercialized.
We have not marketed, distributed or sold any products. The success of our
business depends primarily upon our ability to develop and commercialize the NanoTab System for the treatment of post-operative pain. We recently completed the first of three planned Phase 3 NanoTab System clinical trials, with two Phase 3 NanoTab
System clinical trials ongoing.
Contingent upon receipt of successful data from the remaining two Phase 3 clinical trials, we intend to
submit an NDA for the NanoTab System to the FDA in the third quarter of 2013. There is no guarantee that the remaining two Phase 3 NanoTab System clinical trials, Human Factors studies, or any of the remaining two pharmacokinetic studies, or PK
studies, or non-clinical trial to be included in the planned NDA, will be completed on schedule or if at all, or if completed, will be successful. Even if we are able to submit an NDA, the FDA could require us to complete further studies, which
could delay or preclude any approval of the NDA and would require us to obtain significant additional funding.
Any delay in obtaining, or
inability to obtain, regulatory approval would prevent us from commercializing the NanoTab System, generating revenues and achieving profitability. If any of these events occur, we may be forced to abandon our development efforts for the NanoTab
System, which would have a material adverse effect on our business and could potentially cause us to cease operations.
substantially on the successful completion of Phase 3 clinical trials for our product candidates. The positive clinical results obtained to date for our product candidates may not be repeated in the future.
In November 2012, we announced positive top-line data from our active comparator NanoTab System Phase 3 clinical trial; however, subsequent analyses of
the remaining data set may lead to different, including less favorable, interpretations of the results than the analyses conducted to date or may identify important implications of the trial that are not currently known, or be subject to differing
interpretations by the regulatory agencies. In addition, we are still awaiting conclusion and results of our two remaining NanoTab System Phase 3 clinical trials, which are expected to be released during the first quarter of 2013. There is no
guarantee that the results of these remaining two Phase 3 clinical trials will be positive, and the positive results in first Phase 3 clinical trial are not an indication or guarantee that the other Phase 3 clinical trials results will be positive.
Our product candidates are subject to the risks of failure inherent in pharmaceutical and medical device development. Before obtaining
regulatory approval for the commercial sale of any product candidate, we must successfully complete all
required Phase 3 clinical trials. Negative or inconclusive results of a Phase 3 clinical trial could cause the FDA to require that we repeat it or conduct additional clinical trials. Even if we
believe that the data from required Phase 3 clinical trials is positive, the FDA could analyze our data using alternative imputation strategies and determine that any trial was negative or inconclusive. Furthermore, while we have completed multiple
Phase 2 clinical trials for the NanoTab System, ARX-02 and ARX-03 and have obtained positive safety and efficacy results for our sufentanil-based product candidates during our prior clinical trials, we cannot be certain that these results will be
duplicated when our product candidates are tested in a larger number of patients in our Phase 3 clinical trials, including in our ongoing Phase 3 clinical trials of the NanoTab System.
Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product
We have experienced and may in the future experience delays in clinical trials of our product candidates. We are conducting
three Phase 3 clinical trials for the NanoTab System, and recently announced top-line results from the first such Phase 3 clinical trial. The other two remaining Phase 3 clinical trials are currently underway. In November 2012, we initiated a Phase