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| PART I |
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| Item 1. Business | 1 |
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| Item 1A. Risk Factors | 9 |
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| Item 1B. Unresolved Staff Comments | 40 |
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| Item 1C. Cybersecurity | 40 |
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| Item 2. Properties | 42 |
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| Item 3. Legal Proceedings | 42 |
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| Item 4. Mine Safety Disclosures | 42 |
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| PART II |
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| Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 43 |
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| Item 6. Reserved | 43 |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 |
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| Item 7A. Quantitative and Qualitative Disclosures about Market Risk | 57 |
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| Item 8. Financial Statements and Supplementary Data | 57 |
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| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 57 |
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| Item 9A. Controls and Procedures | 57 |
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| Item 9B. Other Information | 60 |
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| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 60 |
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| PART III |
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| Item 10. Directors, Executive Officers and Corporate Governance | 60 |
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| Item 11. Executive Compensation | 65 |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 76 |
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| Item 13. Certain Relationships and Related Transactions, and Director Independence | 78 |
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| Item 14. Principal Accounting Fees and Services | 78 |
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| PART IV |
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| Item 15. Exhibits, Financial Statement Schedules | 80 |
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| SIGNATURES | 84 |
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All references to “Petros,” the “Company,” “we,” “us” and “our” in this Annual Report on Form 10-K (this “Form 10-K”) refer to Petros Pharmaceuticals, Inc. and its consolidated subsidiaries.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K may contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based upon management’s assumptions, expectations, projections, intentions and beliefs about future events. In some cases, predictive, future-tense or forward-looking words such as “intend,” “plan,” “predict,” “may,” “will,” “project,” “target,” “strategy,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” “forecast,” “should” and similar expressions, whether in the negative or affirmative, that reflect our current views with respect to future events and operational, economic and financial performance are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. Such forward-looking statements are only predictions, and actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of risks and uncertainties, including, without limitation, Petros’ ability to execute on its business strategy, including its plans to develop and commercialize Stendra (R) OTC; Petros’ ability to comply with obligations as a public reporting company; Petros’ ability to maintain compliance with the Nasdaq Stock Market’s listing standards; the ability of Petros to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002; the risk that the financial performance of Petros may not be as anticipated by the merger transactions that resulted in the Company’s creation; risks resulting from Petros’ status as an emerging growth company, including that reduced disclosure requirements may make shares of Petros’ common stock, par value $0.0001 per share ( “Common Stock”) less attractive to investors; risks related to Petros’ ability to continue as a going concern; risks related to Petros’ history of incurring significant losses; risks related to Petros’ dependence on the commercialization of a single product, Stendra®; risks related to Petros’ ability to obtain regulatory approvals for, or market acceptance of, any of its products or product candidates. Additional factors that could cause actual results to differ materially from the results anticipated in these forward-looking statements are described in this Annual Report, including under the section entitled “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission (the “SEC”). We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Petros cautions readers that the forward-looking statements included in, or incorporated by reference into, this Annual Report on Form 10-K represent our beliefs, expectations, estimates and assumptions only as of the date hereof and are not intended to give any assurance as to future results. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, Petros cannot assess the effect of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.
Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim any obligation to update the forward-looking statements contained in, or incorporated by reference into, this Annual Report to reflect any new information or future events or circumstances or otherwise, except as required by the federal securities laws.
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We are subject to a variety of risks and uncertainties. The following is a summary of the principal risks that we deem material to an investment in our securities, all of which are more fully described in, and should be read in conjunction with the section titled “Risk Factors” below.
Risks Related to Petros’ Capital Requirements and Financing
| ● | Our consolidated financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order to continue as a going concern. |
| ● | Petros has incurred significant losses and may continue to experience losses in the future. We expect to require additional capital in the future in order to develop our products, fund operations, and otherwise implement our business strategy. If we do not obtain any such additional financing, it may be difficult to effectively realize our long-term strategic goals and objectives. Any additional capital raised through the sale of equity or equity-backed securities may dilute our stockholders’ ownership percentages and could also result in a decrease in the market value of our equity securities. |
| ● | Petros’ consolidated balance sheet contains significant amounts of intangible assets. Petros recorded a significant intangible asset impairment charge related to the Stendra ® product in 2022. Should net revenue not meet projections through the December 2029 estimated useful life of the Stendra ® product, Petros may need to record additional impairment charges. |
Risks Related to Petros’ Business, Industry and Operations
| ● | Public health crises could adversely affect our business, financial condition and results of operations. |
| ● | The timing and probability of obtaining sufficient capital depends, in part, on expanding the use of Stendra® and continuing to invest in research and development pursuant to our Non-Prescription / Over-The-Counter (“OTC”) strategies related to Stendra®, which we believe has the potential to dramatically increase product sales in the future. Should Petros not be successful with our OTC strategies, it would have a material adverse impact on our operations and financial condition. Projections rely on the ability to sell Stendra® in the OTC market. |
| ● | We depend on a limited number of customers for a significant portion of our sales and the loss of, or a significant shortfall in demand from, these customers could have a material adverse effect on our financial condition and operating results. |
| ● | We are subject to ongoing obligations under a settlement agreement relating to the termination of a commercial supply agreement with Vivus. |
| ● | We may experience delays or problems in the supply of Stendra® if Patheon experiences delays in or fails to establish and validate its ability to manufacture supply of the Company’s Stendra® product, which could materially and adversely affect our ability to obtain sufficient quantity of Stendra® API to meet market demand. |
| ● | Petros is subject to ongoing obligations under a settlement agreement relating to the termination of a commercial supply agreement with Vivus. |
| ● | Petros is substantially dependent on a limited number of commercial products. Any difficulties or delays in product manufacturing, regulatory compliance, sales or marketing could affect Petros’ future results. |
| ● | The FDA may determine that Petros’ products or product candidates have undesirable side effects that could result in regulatory action, impede commercialization, or delay or prevent their regulatory approval. |
| ● | Petros relies on third parties for the supply of the raw materials necessary to develop and manufacture its products. |
| ● | Petros relies on third - party contract manufacturers to produce commercial quantities of its products. |
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| ● | Petros may experience pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue and future profitability, if achieved. |
| ● | Products may face competition from generic drug products and other similar drug products. |
| ● | The business that Petros conducts outside the United States may be adversely affected by international risk and uncertainties. |
| ● | Petros has concluded that there are material weaknesses in its internal control over financial reporting, which, if not remediated, could materially adversely affect its ability to timely and accurately report its results of operations and financial condition. The accuracy of Petros’ financial reporting depends on the effectiveness of its internal controls over financial reporting. |
| ● | Cyberattacks and other data security breaches could compromise our proprietary and confidential information, which could harm our business and reputation or cause us to incur increased expenses to address any such breaches. |
Risks Related to Government Regulation and Legal Proceedings
| ● | Our approved drug products are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Regulatory approval is limited by the FDA to those specific indications and conditions for which approval has been granted. We may be subject to fines, penalties, injunctions, or other enforcement actions if regulatory authorities determine that we are promoting any products for unapproved or “off-label” uses, resulting in reputational and business damage. |
| ● | Petros and its flagship pharmaceutical asset, Stendra®, is subject to the guidelines, standards and processes governed by the FDA for prescription to OTC switches, a significant value initiative for the organization. This process presents a potentially formidable rate limiting factor that may delay, halt or disrupt program development. |
| ● | Petros’ medical devices are subject to stringent regulatory oversight and any adverse regulatory action may adversely affect our financial condition and business operations. |
| ● | Petros relies on third-party contract manufacturers to produce commercial quantities of our products and on third parties to conduct, supervise, and monitor preclinical studies and clinical trials. |
| ● | Petros’ relationships with prescribers, purchasers, third-party payers and patients are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, any violation of which could expose it to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings. |
| ● | Petros’ marketing and advertising are regulated by the FDA, Federal Trade Commission and State and County Attorneys General, and it may face enforcement and litigation specifically related to the nature and sales channels of its products. |
Risks Related to Petros’ Intellectual Property
| ● | Petros’ license agreement for Stendra® is a sublicense that is dependent on Vivus’ license agreement with a third party. |
| ● | Vivus has granted a license to Hetero USA, Inc. and Hetero Labs Limited to manufacture and commercialize the generic version of Stendra® in the United States once it comes off patent. |
| ● | We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming. If we fail to protect our intellectual property rights, its ability to pursue the development of its products would be negatively affected. If we infringe the rights of third parties, we could be prevented from selling products and forced to pay damages and defend against litigation. |
| ● | Petros may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. |
| ● | Changes in trends in the pharmaceutical and medical device industries, including changes to market conditions, could adversely affect Petros’ operating results. |
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Risks Related to Petros’ Common Stock
| ● | We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our consolidated financial statements not being comparable to those of other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors. |
| ● | Our stock price may be volatile, and sales of a substantial number of shares of our common stock, or the perception that such sales may occur, may adversely impact the price of our common stock. |
| ● | Our largest shareholder maintains the ability to significantly influence all matters submitted to Petros’ stockholders for approval. |
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