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| PART I | | | 6 |
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| Item 1. | Business | | 6 |
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| Item 1A. | Risk Factors | | 24 |
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| Item 1B. | Unresolved Staff Comments | | 60 |
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| Item 1C. | Cybersecurity | | 60 |
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| Item 2. | Properties | | 61 |
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| Item 3. | Legal Proceedings | | 62 |
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| Item 4. | Mine Safety Disclosures | | 62 |
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| PART II | | | 63 |
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | 63 |
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| Item 6. | Reserved | | 63 |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 63 |
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | | 70 |
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| Item 8. | Financial Statements and Supplementary Data | | 70 |
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | 70 |
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| Item 9A. | Controls and Procedures | | 70 |
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| Item 9B. | Other Information | | 71 |
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| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. | | 71 |
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| PART III | | | 72 |
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| Item 10. | Directors, Executive Officers and Corporate Governance | | 72 |
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| Item 11. | Executive Compensation | | 72 |
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | 72 |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence | | 72 |
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| Item 14. | Principal Accountant Fees and Services | | 72 |
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| PART IV | | | 73 |
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| Item 15. | Exhibits, Financial Statement Schedules | | 73 |
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect,” “will,” “could,” “project,” “should,” “intend” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in or implied by these forward-looking statements due to a variety of factors, including, without limitation:
| ● | the fact that our products and future product candidates are subject to time and cost intensive regulation and clinical testing and as a result may never be successfully developed or commercialized; |
| ● | a substantial portion of our sales derive from products that may become subject to third-party generic competition because their period of exclusivity has ended or they are without patent protection, subjecting them to the potential introduction of new competitor products and/or an increase in market share of existing competitor products, either of which could have a significant adverse impact on our operating income; |
| ● | we operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations; |
| ● | our revenue is dependent mainly upon sales of our dermatology products and any setback relating to the sale of such products could impair our operating results; |
| ● | competition could limit our products’ commercial opportunity and profitability, including competition from manufacturers of generic versions of our products; |
| ● | the risk that our products do not achieve broad market acceptance, including by government and third-party payors; |
| ● | our reliance on third parties for several aspects of our operations; |
| ● | our dependence on our ability to identify, develop, and acquire or in-license products and integrate them into our operations, at which we may be unsuccessful; |
| ● | the dependence of the success of our business, including our ability to finance our company and generate additional revenue, on the successful commercialization of EmrosiTM (Minocycline Hydrochloride Extended Release Capsules, 40 mg), formerly referred to as DFD-29 (“Emrosi”) and the successful development, regulatory approval and commercialization any future product candidates that we may develop, in-license or acquire; |
| ● | clinical drug development is very expensive, time consuming, and uncertain and our clinical trials may fail to adequately demonstrate the safety and efficacy of our current or any future product candidates; |
| ● | our competitors could develop and commercialize products similar or identical to ours; |
| ● | risks related to the protection of our intellectual property and our potential inability to maintain sufficient patent protection for our technology and products; |
| ● | our business and operations would suffer in the event of computer system failures, cyber-attacks, or deficiencies in our or our third parties’ cybersecurity; |
| ● | the effects of major public health issues, epidemics or pandemics on our product revenues and any future clinical trials; |
| ● | our potential need to raise additional capital; |
| ● | the substantial doubt expressed about our ability to continue as a going concern; |
| ● | Fortress Biotech, Inc. (“Fortress”) controls a voting majority of our common stock, which could be detrimental to our other stockholders; and |
The forward-looking statements contained in this report reflect our views and assumptions as of the effective date of this report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
SUMMARY OF RISK FACTORS
Our business is subject to a number of risks which you should be aware of before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in our common stock and are not the only risks we face. These risks are more fully described in the section titled “Risk Factors” of this report on Form 10-K and include the following:
Risks Related to Our Business, Industry and Existing Operating Revenue Stream
| ● | Our products and future product candidates are subject to time and cost intensive regulation and clinical testing. As a result, they may never be successfully developed or commercialized. Further, any approved product may be subject to post-marketing requirements, including studies or clinical trials, the results of which could cause such product to be withdrawn from the market. |
| ● | A substantial portion of our sales derive from products that may become subject to third-party generic competition because their period of exclusivity has ended or they are without patent protection, subjecting them to the potential introduction of new competitor products and/or an increase in market share of existing competitor products, either of which could have a significant adverse impact on our operating income. |
| ● | We operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations. |
| ● | Our revenue is dependent mainly upon sales of our dermatology products and any setback relating to the sale of such products could impair our operating results. |
| ● | Our competitors may develop treatments for our products’ target indications, which could limit our products’ commercial opportunity and profitability. |
Risks Related to Our Reliance on Third Parties
| ● | We rely on third parties for several aspects of our operations, which limits our control over product development, marketing, manufacturing, and sale processes and may hinder our ability to develop and commercialize our products in a cost-effective and timely manner. |
Risks Related to Our Growth
| ● | Our future growth may depend on our ability to identify, develop, and acquire or in-license products and integrate them into our operations, at which we may be unsuccessful. |
| ● | We may expend resources on unsuccessful product candidates or indications and may fail to capitalize on more profitable or successful product candidates or indications. |
| ● | There is substantial doubt regarding our ability to continue as a going concern. We may need to raise additional funding (which may not be available on acceptable terms to the Company, or at all) and/or to delay, limit or terminate certain of our product development and commercialization efforts or other operations. |
Risks Related to Development and Regulatory Approval of Future Product Candidates
| ● | The success of our business, including our ability to finance our company and generate additional revenue, may depend on the successful development and regulatory approval of any future product candidates that we may develop, in-license or acquire. |
| ● | Clinical drug development is very expensive, time consuming, and uncertain. Our clinical trials may fail to adequately demonstrate the safety and efficacy of future product candidates, which could prevent or delay regulatory approval and commercialization. |
| ● | We expect to rely on third-party contract research organizations (“CROs”) and other third parties to conduct and oversee our clinical trials, other aspects of our product development and our regulatory submission process for our product candidates. If these third parties do not meet our requirements, conduct the trials as required or otherwise provide services as anticipated, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or successfully commercialize, any future product candidates when expected or at all. |
Risks Pertaining to Intellectual Property, Generic Competition and Paragraph IV Litigation
| ● | If we are unable to maintain sufficient patent protection for our technology and products, our competitors could develop and commercialize products similar or identical to ours. |
| ● | Any dispute with licensors may affect our ability to develop or commercialize future product candidates. |
| ● | Generic drug companies may submit applications seeking approval to market generic versions of our products. |
| ● | In connection with these applications, generic drug companies may seek to challenge the validity and enforceability of our patents through litigation and/or with the U.S. Patent and Trademark Office (“USPTO”). Such challenges may subject us to costly and time-consuming litigation and/or USPTO proceedings. |
| ● | As a result of the loss of any patent protection from such litigation or USPTO proceedings, or the “at-risk” launch by a generic competitor of our products, our products could be sold at significantly lower prices, and we could lose a significant portion of sales of that product in a short period of time, which could adversely affect our business, financial condition, operating results and prospects. |
Risks Related to our Platform and Data
| ● | Our business and operations would suffer in the event of computer system failures, cyber-attacks, or deficiencies in our or our third parties’ cybersecurity. |
Risks Related to Our Finances and Capital Requirements
| ● | Due to the numerous risks and uncertainties associated with pharmaceutical product development, we may incur losses and may be unable to maintain profitability. |
| ● | If we are unable to raise capital as needed, we may be forced to delay, reduce, or eliminate our operations. |
Risks Relating to Owning our Common Stock
| ● | Our operating results have fluctuated in the past and we expect them to continue to do so. Any such fluctuation may cause our performance to fall below expectations, and our stock price may suffer. |
Risks Related to our Relationship with Fortress
| ● | Fortress controls a voting majority of our common stock, which could be detrimental to our other shareholders. Further, Fortress’ ownership qualifies us as a “controlled company” under the Nasdaq listing standards. |
| ● | Fortress’ financial obligations and any potential risk of default may adversely affect the Company or constrain our ability to take certain actions. |
