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Dermata Therapeutics, Inc.

Dermata Therapeutics, Inc.DRMAEarnings & Financial Report

Nasdaq · Health Care · Pharmaceutical Preparations

Dermata Therapeutics, Inc. is a clinical-stage biopharmaceutical firm developing novel targeted therapies for dermatological diseases including acne, psoriasis and inflammatory skin disorders. It serves U.S. patients and healthcare providers, advancing pipeline candidates through trials to address unmet dermatological care needs.

What changed in Dermata Therapeutics, Inc.'s 10-K — 2021 vs 2022

Top changes in Dermata Therapeutics, Inc.'s 2022 10-K

421 paragraphs added · 437 removed · 311 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

131 edited+39 added−43 removed258 unchanged
In June 2020, we completed a randomized, double-blind, multicenter, placebo-controlled Phase 2b clinical trial of DMT310 for the once weekly treatment of moderate-to-severe acne.
DMT310 Moderate-to-Severe Acne. In June 2020, we completed a randomized, double-blind, multicenter, placebo-controlled Phase 2b clinical trial of DMT310 for the once weekly treatment of moderate-to-severe acne.
These physicians graded results were supported by objective analysis provided by Canfield Scientific’s VISIA and PRIMOS visual analysis camera systems. Based on these results, we are actively seeking a partner with a botulinum toxin to continue development of DMT410 in a larger placebo-controlled Phase 2 trial where we can study multiple doses of botulinum toxin applied to the entire face.
These physicians graded results were supported by objective analysis provided by Canfield Scientific’s VISIA and PRIMOS visual analysis camera systems. Based on these results, we are actively seeking to partner with a botulinum toxin to continue development of DMT410 in a larger placebo-controlled Phase 2 trial where we can study multiple doses of botulinum toxin applied to the entire face.
Due to acne’s negative impact on a patient’s quality of life and negative impact on facial aesthetic, patients suffering from acne tend to be highly motivated to treat their acne and we believe more willing to pay more out-of-pocket for higher priced and highly effective treatments.
Due to acne’s negative impact on a patient’s quality of life and negative impact on facial aesthetic, patients suffering from acne tend to be highly motivated to treat their acne and we believe willing to pay more out-of-pocket for higher priced and highly effective treatments.
DMT410 Phase 1b— Upper Facial Lines In November 2020, we enrolled our first patient in a Phase 1b open-label, POC trial of DMT410 for the treatment of upper facial lines along with multiple other aesthetic skin conditions that are affected by delivery of toxin to the dermis such as pore size, sebum production, brightness, luminosity, fine lines, and Global Aesthetic Improvement.
DMT410 Phase 1b— Aesthetic Conditions In November 2020, we enrolled our first patient in a Phase 1b open-label, POC trial of DMT410 for the treatment of upper facial lines along with multiple other aesthetic skin conditions that are affected by delivery of toxin to the dermis such as pore size, sebum production, brightness, luminosity, fine lines, and Global Aesthetic Improvement.
Intellectual Property Overview Our commercial success depends in part on our ability to obtain and maintain proprietary protection for DMT310, DMT410 and any of our future product candidates, medical devices, methodologies, assays, drug development technologies, harvesting procedures, know-how; to operate without infringing on or otherwise violating the proprietary rights of others; and to prevent others from infringing or otherwise violating our proprietary rights.
Intellectual Property Overview Our commercial success depends in part on our ability to obtain and maintain proprietary protection for DMT310, DMT400, DMT410 and any of our future product candidates, medical devices, methodologies, assays, drug development technologies, harvesting procedures, know-how; to operate without infringing on or otherwise violating the proprietary rights of others; and to prevent others from infringing or otherwise violating our proprietary rights.
We believe most botulinum toxin companies remain interested in developing a topical means of administering botulinum toxin that is less painful, easy to apply, provides wider coverage of toxin, and limits potential distant spread of toxin, but no product has yet been successfully developed. 19 Table of Contents Our Solution for the Treatment of Aesthetic Skin Conditions We believe a product candidate like DMT410, which may be able to successfully deliver botulinum toxin to the dermis covering a larger facial area than injections, would provide a new treatment option for a variety of aesthetic skin conditions, such as reduction in pore size, sebum production, and fine lines, and improvement in skin luminosity and brightness, thus potentially expanding the market for uses of botulinum toxin beyond injections into the muscle for treatment of deep lines.
We believe most botulinum toxin companies remain interested in developing a topical means of administering botulinum toxin that is less painful, easy to apply, provides wider coverage of toxin, and limits potential distant spread of toxin, but no product has yet been successfully developed. 17 Table of Contents Our Solution for the Treatment of Aesthetic Skin Conditions We believe a product candidate like DMT410, which may be able to successfully deliver botulinum toxin to the dermis covering a larger facial area than injections, would provide a new treatment option for a variety of aesthetic skin conditions, such as reduction in pore size, sebum production, and fine lines, and improvement in skin luminosity and brightness, thus potentially expanding the market for uses of botulinum toxin beyond injections into the muscle for treatment of deep lines.
DMT310 Phase 1a Clinical Results for Psoriasis We recently completed a Phase 1a POC trial of DMT310 for the treatment of mild-to-moderate psoriasis. This was an open-label, multi-center, 12-week study in 30 mild-to-moderate psoriasis patients with psoriatic lesions coving between 2-30% of body surface area.
DMT310 Phase 1a Clinical Results for Psoriasis We completed a Phase 1a POC trial of DMT310 for the treatment of mild-to-moderate psoriasis. This was an open-label, multi-center, 12-week study in 30 mild-to-moderate psoriasis patients with psoriatic lesions coving between 2-30% of body surface area.
We intend to seek patent term extensions in any jurisdiction where these are available and where we also have a patent that may be eligible; however there is no guarantee that the applicable authorities, including the United State Patent and Trademark Office and United States FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. 33 Table of Contents Other Intellectual Property In addition to patent protection, we also rely heavily on trade secrets, including unpatented know-how, technology innovation, technical specifications and assays and other proprietary information in attempting to develop and maintain our competitive advantage.
We intend to seek patent term extensions in any jurisdiction where these are available and where we also have a patent that may be eligible; however there is no guarantee that the applicable authorities, including the United State Patent and Trademark Office and United States FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. 28 Table of Contents Other Intellectual Property In addition to patent protection, we also rely heavily on trade secrets, including unpatented know-how, technology innovation, technical specifications and assays and other proprietary information in attempting to develop and maintain our competitive advantage.
Four weeks after one treatment with DMT410, patients exhibited reduction in sweat production. The clinical endpoints for this trial included (i) percent of patients with greater than 50% reduction in gravimetrically measured sweat production from baseline, (ii) percent of patients with gravimetric sweat production less than 50mg, and (iii) percent change in gravimetric sweat production.
Four weeks after one treatment with DMT410, patients exhibited a reduction in sweat production. The clinical endpoints for this trial included (i) percent of patients with greater than 50% reduction in gravimetrically measured sweat production from baseline, (ii) percent of patients with gravimetric sweat production less than 50mg, and (iii) percent change in gravimetric sweat production.
DMT400 for the Topical Delivery of Macromolecules DMT400 is our combination treatment regimen that utilizes the unique mechanical features of our Spongilla technology to facilitate the intradermal delivery of macromolecules, such as botulinum toxin, monoclonal antibodies or dermal fillers, by topical application rather than with injections.
DMT400 for the Topical Delivery of Macromolecules DMT400 is our combination treatment regimen that utilizes the unique mechanical features of our Spongilla technology to facilitate the intradermal delivery of macromolecules, such as botulinum toxin, monoclonal antibodies, dermal fillers, or vaccines, by topical application rather than with injections.
DMT410 was initially tested in a Phase 1b POC trial of ten (10) patients with primary axillary hyperhidrosis to determine if our Spongilla sponge powder could successfully facilitate the intradermal delivery of botulinum toxin and potentially other macromolecules.
DMT410 was initially tested in a Phase 1b POC trial of ten (10) patients with primary axillary hyperhidrosis to determine if our sponge powder could successfully facilitate the intradermal delivery of botulinum toxin and potentially other macromolecules.
We received top-line data from this study in the November 2021, and believe that we achieved results in multiple aesthetic endpoints sufficient to warrant further investigation of DM410 for the treatment of various aesthetic skin conditions. 28 Table of Contents The endpoints for this trial were: • Portion of patients achieving a grade of none or mild on the investigator’s assessment of lateral canthal, forehead, and glabellar lines based on the Facial Wrinkle Scale (FWS), which consists of a 5-point scale with 0 being none and 1 being almost none.
We received top-line data from this study in the November 2021, and believe that we achieved results in multiple aesthetic endpoints sufficient to warrant further investigation of DM410 for the treatment of various aesthetic skin conditions. 23 Table of Contents The endpoints for this trial were: · Portion of patients achieving a grade of none or mild on the investigator’s assessment of lateral canthal, forehead, and glabellar lines based on the Facial Wrinkle Scale (FWS), which consists of a 5-point scale with 0 being none and 1 being almost none.
We also believe these markets have not experienced the same level of development and advances as other markets, as there have been few novel or innovative topical products recently approved other than reformulations or combinations of existing compounds.
We also believe these markets have not experienced the same level of development and advances as other markets, as there have been few innovative topical products recently approved other than reformulations or combinations of existing compounds.
In addition, in our recent Phase 2b acne trial, on average, patients experienced an approximately 45% reduction in inflammatory acne lesions after just four treatments, with continued improvement of up to 62% reduction at 12 weeks.
In addition, in our Phase 2b acne trial, on average, patients experienced an approximately 45% reduction in inflammatory acne lesions after just four treatments, with continued improvement of up to 62% reduction of inflammatory lesions at 12 weeks.
Four weeks after one treatment with DMT410, 80% of patients experienced a decrease in gravimetric sweat production greater than 50%, 85% of patients experienced gravimetric sweat production of less than 50mg, and patients had an average decrease in gravimetric sweat production of 75% from baseline.
Four weeks after one treatment with DMT410, 80% of patients experienced a decrease in gravimetric sweat production greater than 50%, 85% of patients recorded gravimetric sweat production of less than 50mg, and patients had an average decrease in gravimetric sweat production of 75% from baseline.
We believe the combination of a prescription based and cash-pay based product lines is an attractive business opportunity, as it incorporates multiple aspects of the dermatology market that move independent of the greater healthcare market.
We believe the combination of prescription based and cash-pay based product lines is an attractive business opportunity, as it incorporates multiple aspects of the dermatology market that move independent of the greater healthcare market.
Therefore, a topical product that can inhibit the IL-17 pathway in the skin with minimal systemic exposure would be an ideal option for both physicians and patients. 15 Table of Contents Based on clinical and non-clinical data generated to date for DMT310, and anecdotal evidence of DMT310’s effect on psoriatic lesions, we completed a Phase 1b, open label, POC study in mild-to-moderate psoriasis patients in October 2021.
Therefore, a topical product that can inhibit the IL-17 pathway in the skin with minimal systemic exposure would be an ideal option for both physicians and patients. 14 Table of Contents Based on clinical and non-clinical data generated to date for DMT310, and anecdotal evidence of DMT310’s effect on psoriatic lesions, we completed a Phase 1b, open label, POC study in mild-to-moderate psoriasis patients in October 2021.
See “Business—Material Agreements— Supply Agreement between Dermata Therapeutics LLC and Reka-Farm LLC ” for more information regarding our supply of Spongilla . 30 Table of Contents Development and commercial quantities of any drug product candidates that we may develop will need to be harvested, manufactured in facilities, and processed in compliance with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval.
See “Business—Material Agreements— Supply Agreement between Dermata Therapeutics LLC and Reka-Farm LLC ” for more information regarding our supply of Spongilla . 25 Table of Contents Development and commercial quantities of any drug product candidates that we may develop will need to be harvested, manufactured in facilities, and processed in compliance with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval.
To date, the $750,000 milestone payment made in connection with the First License Amendment is the total amount paid to Villani in connection with the License. 34 Table of Contents On July 30, 2021, we entered into a Second Amendment to the License and Settlement Agreement (or, the Second License Amendment), whereby, for the settlement of certain disputes arising under the First License Amendment, we agreed to exchange the shares of Series 1c Preferred Stock owned by Villani for an increase of milestone payments and royalty rates due to Villani under the License Agreement.
To date, the $750,000 milestone payment made in connection with the First License Amendment is the total amount paid to Villani in connection with the License. 29 Table of Contents On July 30, 2021, we entered into a Second Amendment to the License and Settlement Agreement (or, the Second License Amendment), whereby, for the settlement of certain disputes arising under the First License Amendment, we agreed to exchange the shares of Series 1c Preferred Stock owned by Villani for an increase of milestone payments and royalty rates due to Villani under the License Agreement.
Patients were required to apply the product, whether DMT310 or placebo, to the entire face, once weekly for 12 weeks with the first two weeks of treatment applied in office under the supervision of trained study staff, then the remaining 10 weekly treatments were applied at home by the patient. 20 Table of Contents The primary clinical endpoints of the trial included the absolute reduction in inflammatory lesions from baseline.
Patients were required to apply the product, whether DMT310 or placebo, to the entire face, once weekly for 12 weeks with the first two weeks of treatment applied in office under the supervision of trained study staff, then the remaining 10 weekly treatments were applied at home by the patient. 18 Table of Contents The primary clinical endpoints of the trial included the absolute reduction in inflammatory lesions from baseline.
While we are unaware of any potential similar competitive topical products to DMT310 for the treatment of acne, psoriasis, and rosacea, it is possible that such potentially similar competitive products are currently being developed. 31 Table of Contents We are also in early stages of clinical development for DMT410 for treating various medical and aesthetic skin conditions and diseases, and if we obtain marketing approval in the future, we will compete with traditional therapies, such as topical products, oral products, in-office procedures, such as botulinum toxin injections, off-label drugs, over the counter medication and homeopathic remedies, as well as additional new entrants to the applicable markets.
While we are unaware of any potential similar competitive topical products to DMT310 for the treatment of acne and psoriasis, it is possible that such potentially similar competitive products are currently being developed. 26 Table of Contents We are also in early stages of clinical development for DMT410 for treating various medical and aesthetic skin conditions and diseases, and if we obtain marketing approval in the future, we will compete with traditional therapies, such as topical products, oral products, in-office procedures, such as botulinum toxin injections, off-label drugs, over the counter medication and homeopathic remedies, as well as additional new entrants to the applicable markets.
We believe these organic compounds can travel through the newly created microchannels into the dermis and sebaceous gland where both inflammatory and non-inflammatory acne lesions originate. DMT310 targets treatment of the multiple facets of acne by combining the substantial mechanical and chemical activity of Spongilla into an easy to apply product that only needs to be applied once weekly.
We believe these organic compounds can travel through the newly created microchannels into the dermis and sebaceous glands where both inflammatory and non-inflammatory acne lesions originate. DMT310 targets treatment of the multiple facets of acne by combining the substantial mechanical and chemical activity of Spongilla into an easy to apply product that only needs to be applied once weekly.
Plaque psoriasis is a chronic, inflammatory skin disease that comprises approximately 80% of the psoriasis market as of 2019, according to Fortune Business Insights Market Research Report, with a majority of patients having mild-to-moderate disease which makes them less likely to receive an approved biologic treatment, that are only indicated for patients with moderate to severe disease, as a first line therapy.
Plaque psoriasis is a chronic, inflammatory skin disease that comprises approximately 80% of the psoriasis market as of 2019, according to Fortune Business Insights Market Research Report, a majority of patients have mild-to-moderate disease which makes them less likely to receive an approved biologic treatment, that are only indicated for patients with moderate to severe disease, as a first line therapy.
Traditionally, locals would harvest small amounts of Spongilla for its perceived medicinal properties and use it as a folk medicine to treat a variety of inflammatory conditions, including arthritis. Over the last 18 years, our exclusive supplier has refined its harvesting methods and procedures and is now capable of supplying a high quality raw material.
Traditionally, locals would harvest small amounts of Spongilla for its perceived medicinal properties and use it as a folk medicine to treat a variety of inflammatory conditions, including arthritis. Over the last 20 years, our exclusive supplier has refined its harvesting methods and procedures and is now capable of supplying a high-quality raw material.
We are currently in the process of designing a Phase 2 study of DMT310 for the treatment of psoriasis. The Phase 2 study will be a larger randomized, double-blind, placebo control study of DMT310 for the treatment of psoriasis.
We are in the process of designing a Phase 2 study of DMT310 for the treatment of psoriasis. The Phase 2 study will be a larger randomized, double-blind, placebo control study of DMT310 for the treatment of psoriasis.
Image 2: Siliceous Spicules Present in Spongilla After harvesting and further processing in the U.S., the shape and size of our spicules make them the ideal mechanism to penetrate the stratum corneum, the skins barrier, and temporarily create a micro-channel into the dermis without penetrating into subcutaneous tissue, where the larger blood vessels are located.
Image 2: Siliceous Spicules Present in Spongilla After harvesting and further processing in the U.S., the form and size of our spicules make them the ideal mechanism to penetrate the stratum corneum, the skins barrier, and temporarily create a micro-channel into the dermis without penetrating into subcutaneous tissue, where the larger blood vessels are located.
Patients can suffer substantial psychological impacts from their disease, including, social stigmas, feelings of rejections and shame, discrimination in the workplace, and reduced productivity, among many others. These patients are commonly looking for a safe and effective product to treat their disease. 14 Table of Contents Limitations of Current Standard of Care.
Patients can suffer substantial psychological impacts from their disease, including, social stigmas, feelings of rejections and shame, discrimination in the workplace, and reduced productivity, among many others. These patients are commonly looking for a safe and effective product to treat their disease. 13 Table of Contents Limitations of Current Standard of Care.
Although reduction in non-inflammatory lesions was a secondary endpoint of this trial, it is a required metric for the Phase 3 acne studies necessary for FDA approval. 21 Table of Contents Image 3: Mean reduction of inflammatory and non-inflammatory lesions from baseline until end of study, or week 12, for both DMT310 and Placebo Image 4.
Although reduction in non-inflammatory lesions was a secondary endpoint of this trial, it is a required metric for the Phase 3 acne studies necessary for FDA approval. Image 3: Mean reduction of inflammatory and non-inflammatory lesions from baseline until end of study, or week 12, for both DMT310 and Placebo 19 Table of Contents Image 4.
Image 9: Local Tolerability 27 Table of Contents DMT310 next steps for psoriasis We are pleased with data already seen in our Phase 1 POC trial, especially seeing a reduction in itch as that is one of the main complaints of patients suffering from psoriasis.
Image 9: Local Tolerability 22 Table of Contents DMT310 next steps for psoriasis We are pleased with data already seen in our Phase 1 POC trial, especially seeing a reduction in itch as that is one of the main complaints of patients suffering from psoriasis.
Based on knowledge gained from over almost 18 years of harvesting Spongilla , our supplier has learned the necessary environmental conditions and Spongilla characteristics that must be present for optimal raw material harvest and to ensure the raw material contains the necessary properties for an effective pharmaceutical product.
Based on knowledge gained from over almost 20 years of harvesting Spongilla , our supplier has learned the necessary environmental conditions and Spongilla characteristics that must be present for optimal raw material harvest and to ensure the raw material contains the necessary properties for an effective pharmaceutical product.
Thus, we believe that a topical product that needs to be applied only once weekly with a quicker time to perceived treatment effect and fewer tolerability issues has the opportunity to exhibit greater treatment success due to improved patient adherence leading to loyal and repeat users.
Thus, we believe that a topical product that only needs to be applied once weekly with a quicker time to perceived treatment effect and fewer tolerability issues has the opportunity to exhibit greater treatment success due to improved patient compliance leading to loyal and repeat users.
This targeted delivery to the dermis rather than delivery to the systemic circulation, may decrease the systemic spread of these macromolecules thus potentially reducing side effects seen with injections, while increasing targeted application to where the disease resides. 17 Table of Contents DMT410 for the Treatment of Primary Axillary Hyperhidrosis We initially tested our DMT400 treatment with our DMT410 program, which consists of a topical application of our proprietary sponge powder followed by a topical application of botulinum toxin.
This targeted delivery to the dermis rather than delivery to the systemic circulation, may decrease the systemic spread of these macromolecules thus potentially reducing side effects seen with injections, while increasing targeted application to where the disease resides. 15 Table of Contents DMT410 for the Treatment of Primary Axillary Hyperhidrosis We initially tested our DMT400 treatment with our DMT410 program, which consists of a topical application of our proprietary sponge powder followed by a topical application of botulinum toxin, a macromolecule.
DMT400 Our DMT400 portfolio includes two families owned by Dermata. The first family consists of pending applications in the U.S., Canada, and Japan covering our sponge powder in combination with many approved and development stage monoclonal antibodies for the treatment of skin diseases.
DMT400 Our DMT400 portfolio includes three families owned by Dermata. The first family consists of pending applications in the U.S., Canada, and Japan covering our sponge powder in combination with many approved and development stage monoclonal antibodies for the treatment of skin diseases.
While there are other types of freshwater and marine sponges, many of their spicules can be covered in barbs or hooks which we believe would get stuck in the skin or are blunt on each end, making skin penetration difficult.
While there are other types of freshwater and marine sponges, many of their spicules can be covered in barbs or hooks which we believe would get stuck in the skin or contain spicules that are blunt on each end, making skin penetration difficult.
To date, we have completed an open-label Phase 1b POC clinical trials of DMT410 for the treatment of axillary hyperhidrosis and an open-label Phase 1b POC clinical trial in multiple aesthetic skin conditions. The Phase 1b POC trial for axillary hyperhidrosis consisted of 10 patients receiving one treatment of DMT410 on each axilla.
To date, we have completed an open-label Phase 1b POC clinical trial of DMT410 for the treatment of axillary hyperhidrosis and an open-label Phase 1b POC clinical trial in multiple aesthetic skin conditions. The Phase 1b POC trial for axillary hyperhidrosis consisted of 10 patients receiving one treatment of DMT410 to each axilla.
Image 10: Aesthetic Endpoints 29 Table of Contents In addition to the physician measured endpoints, we also utilized Canfield Scientific’s 2-dimensional VISIA and 3-dimensional PRIMOS imaging technologies to gather additional objective data on some of the key endpoints.
Image 10: Aesthetic Endpoints 24 Table of Contents In addition to the physician measured endpoints, we also utilized Canfield Scientific’s 2-dimensional VISIA and 3-dimensional PRIMOS imaging technologies to gather additional objective data on some of the key endpoints.
Proper use and application schedules are particularly important for topical acne products and poor patient adherence may lead to reduced treatment effect and ultimately discontinuation of treatment due to lack of effect. Many current acne products, such as retinoids, must be applied at least once-a-day and may cause significant stinging, burning, and peeling after each application.
Proper use and application schedules are particularly important for topical acne products and poor patient adherence may lead to reduced treatment effect and ultimately discontinuation of treatment by the patient due to the lack of effect. Many current acne products, such as retinoids that must be applied at least once-a-day, may cause significant stinging, burning, and peeling after each application.
Patents in this patent family, if granted, are expected to expire in 2039, absent any patent term adjustments or extensions. 32 Table of Contents DMT410 Our DMT410 portfolio includes two families owned by Dermata.
Patents in this patent family, if granted, are expected to expire in 2039, absent any patent term adjustments or extensions. 27 Table of Contents DMT410 Our DMT410 portfolio includes two families owned by Dermata.
If approved by the FDA, we believe the combination of the mechanical and chemical properties of DMT310 has the potential for a more rapid time to treatment effect with fewer treatments, less side effects and better tolerability than other currently marketed topical acne products. DMT310 for Treatment of Acne Vulgaris Market Opportunity .
If approved by the FDA, we believe the combination of the mechanical and chemical properties of DMT310 has the potential for a more rapid time to treatment effect with fewer treatments, less side effects and better tolerability than other currently marketed topical acne products. 11 Table of Contents DMT310 for Treatment of Acne Vulgaris Market Opportunity .
Supply Agreement between Dermata Therapeutics LLC and Reka-Farm LLC On February 27, 2020, we entered into an exclusive Supply Agreement (or, the Supply Agreement) with Reka-Farm, LLC (or, Reka-Farm), whereby Reka-Farm will supply us with the Spongilla raw materials necessary for use in the development of our product candidates. The Supply Agreement has an indefinite term unless and until terminated.
Supply Agreement between the Company and Reka-Farm LLC On February 27, 2020, we entered into an exclusive Supply Agreement (or, the Supply Agreement) with Reka-Farm, LLC (or, Reka-Farm), whereby Reka-Farm will supply us with the Spongilla raw materials necessary for use in the development of our product candidates. The Supply Agreement has an indefinite term unless and until terminated.
We believe this caused a placebo response rate that was much higher than the placebo response rates seen in other topical Phase 2 acne trials. As a result of the inadequate placebo, we developed a new proprietary placebo formulation for our Phase 2b clinical trial. 25 Table of Contents Once weekly vs.
We believe this caused a placebo response rate that was much higher than the placebo response rates seen in other topical Phase 2 acne trials. As a result of the inadequate placebo, we developed a new proprietary placebo formulation for our Phase 2b clinical trial. Once weekly vs.
Limitations of Current Standard of Care . While current treatment options may be effective for some patients, there are many limitations and drawbacks of current acne products which cause poor patient adherence.
Limitations of Current Standard of Care . While current treatment options may be effective for some patients, there are many limitations and drawbacks of current acne products which cause poor patient compliance.
DMT310 for the Treatment of Mild-to-Moderate Psoriasis We believe that DMT310 could also be an effective treatment for mild-to-moderate psoriasis based on the data received from our recently completed Phase 1b POC trial and the in-vitro effect seen on the down regulation of IL-17A and IL-17F, as well as its ease of application to mild-to-moderate psoriatic lesions with smaller surface areas.
DMT310 for the Treatment of Mild-to-Moderate Psoriasis We believe that DMT310 could also be an effective treatment for mild-to-moderate psoriasis based on the clinical data received from our recently completed Phase 1b POC trial and the in-vitro effect DMT310 has shown on the down regulation of IL-17A and IL-17F, as well as its ease of application to mild-to-moderate psoriatic lesions with smaller surface areas.
More recently, topical anticholinergics have been investigated by companies such as Brickell Biotech, Inc. and Journey Medical Corporation (formerly developed by Dermira, Inc.), but we believe they tend to have the same side effects as systemic anticholinergics which are used off-label. These side effects include dry mouth, dry eyes, blurred vision, headache, urinary retention, among others.
More recently, topical anticholinergics have been investigated by companies such as Fresh Tracks, Inc. and Journey Medical Corporation (formerly developed by Dermira, Inc.), but we believe they tend to have the same side effects as systemic anticholinergics which are used off-label. These side effects include dry mouth, dry eyes, blurred vision, headache, urinary retention, among others.
DMT310 showed statistically significant improvement versus placebo for all three endpoints (inflammatory lesion counts, non-inflammatory lesion counts, and the Investigators Global Assessment), after only four topical treatments and continued until the end of study at week 12.
DMT310 showed statistically significant improvement versus placebo for all three endpoints (inflammatory lesion counts, non-inflammatory lesion counts, and the Investigators Global Assessment), after only four topical treatments and continued to statistically separate from placebo until the end of study at week 12.
We believe this trial provides further evidance of the ability for DMT410 to topically deliver botulinum toxin into the dermis for skin conditions and diseases.
We believe this trial provides further evidence of the ability for DMT410 to topically deliver botulinum toxin into the dermis for skin conditions and diseases.
We believe that teenagers, who make up the largest segment of the acne market, become impatient with the lack of rapid perceived effect leading to premature discontinuation of treatment. The lack of rapid treatment effect, side effects, and onerous application schedules all greatly contribute to patient compliance issues and could ultimately lead to treatment failure.
We believe that teenagers, who make up the largest segment of the acne market, become impatient with the lack of rapid perceived effect leading to premature discontinuation of treatment. The lack of rapid treatment effect, side effects, and onerous application schedules all greatly contribute to patient compliance issues and could ultimately lead to treatment failure for current topical therapies.
This result was not unexpected as BOTOX is only approved for injections into the muscle and we did not believe that we would see any potential distant spread of toxin outside of the dermis.
This result was not unexpected as BOTOX is only approved for injections into the muscle for these indications and we did not believe that we would see any potential distant spread of toxin outside of the dermis to the muscle.
Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), papulopustular rosacea (or rosacea), hyperhidrosis and various aesthetic indications, affect millions of people worldwide each year, and may negatively impact their quality of life and emotional well-being.
Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), hyperhidrosis, and various aesthetic indications, affect millions of people worldwide each year which may negatively impact their quality of life and emotional well-being.
We believe this rapid visible response encouraged patients to continue to adhere to the once weekly application schedule leading to a continued reduction in their lesions until the end of trial at week 12.
We believe this rapid visible response encouraged patients to continue to comply with the once weekly application schedule leading to a continued reduction in their lesions until the end of trial at week 12.
We believe this leaves a wide gap in the market for a product that combines the efficacy of botulinum toxin with the safety and tolerability profile of topical therapies. We believe DMT410, if successfully commercialized, could address this market opportunity. Our Solution for Primary Axillary Hyperhidrosis.
We believe this leaves a wide gap in the market for a product that combines the efficacy of botulinum toxin with the safety and tolerability profile of topical therapies. We believe DMT410, if successfully commercialized, could address this underserved market opportunity. 16 Table of Contents Our Solution for Primary Axillary Hyperhidrosis.
All currently approved topical therapies for the treatment of acne must be applied once or twice a day to allow an accumulation of product within the skin to effectively treat the disease.
All currently approved topical therapies for the treatment of acne must be applied once or twice a day to allow an accumulation of the active ingredient within the skin to effectively treat the disease.
With our anticipated once weekly treatment schedule, we believe we can become a leader in the space with a product candidate derived from a natural sponge that may improve patient compliance with minimal side effects and a rapid time to treatment effect, as seen in our multiple clinical trials in acne and psoriasis.
With our anticipated once weekly treatment schedule and product candidate derived from a natural source, we believe we can become a leader in the space that may improve patient compliance with minimal side effects and a rapid time to treatment effect, as seen in our multiple clinical trials in acne, psoriasis, hyperhidrosis and aesthetic conditions.
We announced top-line results in October 2021, and based on the efficacy, safety and tolerability profile seen in the POC trial we initiated additional work to better inform the clinical trial design prior to moving into a larger Phase 2, placebo-controlled, clinical trial, which is anticipated to begin in 2022.
We announced top-line results in October 2021, and based on the efficacy, safety and tolerability profile seen in the POC trial we initiated additional work to better inform the clinical trial design prior to moving into a larger Phase 2, placebo-controlled, clinical trial.
Percent reduction of inflammatory and non-inflammatory lesions from baseline until end of study, or week 12, for both DMT310 and Placebo 22 Table of Contents Image 5.
Percent reduction of inflammatory and non-inflammatory lesions from baseline until end of study, or week 12, for both DMT310 and Placebo Image 5.
The combination of these environmental conditions, the proprietary harvesting protocols developed with our supplier, and our post-harvest processing procedures produce a pharmaceutical product candidate that optimizes the mechanical component as well as the chemical components of the sponge for a product candidate with multiple mechanisms of action for the treatment of inflammatory skin conditions.
The combination of these environmental conditions, the proprietary harvesting protocols developed with our exclusive supplier, and our post-harvest processing procedures produce a pharmaceutical product candidate that optimizes the mechanical components as well as the chemical components of the sponge to create a product candidate with multiple mechanisms of action for the treatment of inflammatory skin conditions and aesthetic applications.
Our Spongilla technology is a multifactorial, naturally-derived product that is processed from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is mixed with a fluidizing agent immediately prior to application by the patient to form an easily applicable paste.
Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is mixed with a fluidizing agent immediately prior to application to form an easily applicable paste.
Also during in-vitro studies of DMT310’s organic compounds, we observed the inhibition of lipogenesis of sebocytes, which may translate to a reduction in sebum (an oily and waxy substance produced by the human body’s sebaceous glands) production and oiliness of the skin in patients, which has been noted by a number of clinical investigators in our previous acne studies.
Also, during in vitro studies of DMT310’s organic compounds, we observed the inhibition of the lipogenesis of sebocytes, which may translate to a reduction in sebum (an oily and waxy substance produced by the human body’s sebaceous glands) production and the oiliness of the skin in patients, which was observed by a number of clinical investigators in our Phase 2 acne studies.
We believe this treatment application will enable the topical delivery of botulinum toxin into the dermis for the treatment of a variety of medical diseases, including for the treatment of hyperhidrosis, acne, and rosacea, as well as improving skin, luminosity, brightness, and reducing pore size and count, and fine lines.
We believe this treatment application will enable the topical delivery of botulinum toxin into the dermis for the treatment of a variety of medical diseases, including for the treatment of hyperhidrosis, acne, and acne scars, as well as improving the skin’s luminosity, brightness, and reducing pore size and count, fine lines, and sebum production.
Thus, DMT310 may provide a method to topically deliver targeted anti-inflammatory therapy directly to psoriatic lesions with good local tolerability in an easy to apply regimen. Market Opportunity. Patients are either underdiagnosed, undertreated or left untreated. This leaves patients seeking new treatment options.
Thus, DMT310 may provide a method to topically deliver targeted anti-inflammatory therapy directly to psoriatic lesions with good local tolerability in an easy to apply regimen. Market Opportunity. Currently patients with mild-to-moderate disease are either underdiagnosed, undertreated or untreated. This leaves patients seeking new and effective treatment options.
Employees As of the date of this report, we have eight full time employees, with three employees working in the general and administrative department, two engaged in non-clinical and clinical development, two working in the chemistry, manufacturing and controls department, and one employee working in the regulatory affairs and quality control department. 35 Table of Contents
Human Capital Resources As of the date of this report, we have eight full time employees, with three employees working in the general and administrative department, two engaged in non-clinical and clinical development, two working in the chemistry, manufacturing and controls department, and one employee working in the regulatory affairs and quality control department.
Based on the results seen from this study we believe we were successful in delivering active botulinum toxin to the dermis for the treatment of hyperhidrosis. Market Opportunity . Hyperhidrosis is a life-altering disorder of excessive sweating out of proportion with thermoregulatory requirements.
Based on the results seen from this study we believe we were successful in delivering active botulinum toxin to the dermis for the treatment of primary axillary hyperhidrosis and potentially other skin conditions. Market Opportunity . Hyperhidrosis is a life-altering disorder of excessive sweating out of proportion with thermoregulatory requirements.
We expect this Phase 3 program to include two, multi-center, placebo-controlled trials with identical clinical endpoints to our recently successful Phase 2b clinical trial of DMT310 for the treatment of moderate-to-severe acne. We expect to report top-line data from this program in 2024 and, assuming positive results, file a new drug application, or NDA, with the FDA shortly thereafter.
We expect this Phase 3 program to include two, multi-center, placebo-controlled trials with identical clinical endpoints to our recently successful Phase 2b clinical trial of DMT310 for the treatment of moderate-to-severe acne. Once we receive top-line results from both Phase 3 studies, assuming positive results, we plan to file a new drug application, or NDA, with the FDA shortly thereafter.
Overview We are a clinical-stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe represent significant market opportunities because current therapies are inadequate or non-existent.
Overview We are a clinical-stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe represent significant market opportunities.
These patents are expected to expire between 2022 and 2023, absent any patent term adjustments or extensions. Based on the anticipated timing of any potential FDA approval of DMT310 for acne, the patents that expire in 2022 and 2023 are not material to our business, as we do not expect these patents to provide any protection for our product candidates.
Based on the anticipated timing of any potential FDA approval of DMT310 for acne, the patents that expire in 2022 and 2023 are not material to our business, as we do not expect these patents to provide any protection for our product candidates.
The mechanical components of the Spongilla powder consist of many microscopic siliceous spicules that, when massaged into the skin, penetrate the stratum corneum (the skin’s outermost protective layer) and create microchannels into the dermis where many facets of inflammatory skin diseases reside.
The mechanical components of the Spongilla powder consist of many microscopic siliceous, needle-like spicules that, when massaged into the skin, penetrate the stratum corneum (the skin’s outermost protective layer) and create microchannels into the dermis where pro-inflammatory cytokines and bacteria reside.
According to the American Academy of Dermatology, in 2020 there were approximately 18,000 dermatologists in the U.S. We plan to target a subset of these dermatologists, who are larger prescribers of competitive products and who treat a large percentage of patients with our approved indications by creating a targeted sales force, to cover a significant portion of our target physicians.
According to the American Academy of Dermatology, in 2020 there were approximately 18,000 dermatologists in the U.S., and we plan to target a subset of these dermatologists, who are larger prescribers of competitive products and who treat a large percentage of patients with our approved indications.
DMT310 is designed to be applied only once a week, rather than once or twice a day. We believe a once weekly schedule may be conducive to high patient compliance.
DMT310 is designed to be applied only once a week, rather than once or twice a day. We believe a once weekly schedule may be conducive to high patient compliance as it is less onerous for the patient.
There can be no assurance that DMT410 will receive FDA approval for hyperhidrosis. 18 Table of Contents DMT410 for the Treatment of Aesthetic Conditions In addition to the use of DMT410 in the treatment of hyperhidrosis and other medical dermatology conditions such as acne and rosacea, based on the data from our recent Phase 1b POC trial of DMT410 for the treatment of multiple aesthetic skin conditions such as pore size, sebum production, fine lines, luminosity, and brightness of the skin, we believe DMT410 has an opportunity to be used for the treatment of multiple aesthetic skin conditions.
DMT410 for the Treatment of Aesthetic Conditions In addition to the use of DMT410 in the treatment of hyperhidrosis and other medical dermatology conditions such as acne, based on the data from our recent Phase 1b POC trial of DMT410 for the treatment of multiple aesthetic skin conditions such as pore size, sebum production, fine lines, luminosity, and brightness of the skin, we believe DMT410 has an opportunity to be used for the treatment of multiple aesthetic skin conditions.
While a majority of these indications are first treated with topical products, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction stemming from slow and modest response rates, early onset of negative side effects, onerous application schedules and typically long duration of therapy.
A majority of these indications are first treated with topical therapy, however, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction. This is primarily due to slow and modest response rates, early onset of negative side effects, daily application schedules and long duration of therapy.
Unlike a derma roller or other microneedle technology, our unique spicules remain in the skin for one to two days allowing the microchannel to remain open rather than close, as they would after using a derma roller, during which time a macromolecule can be applied topically to the skin.
Unlike a derma roller or other microneedle technology, our unique spicules remain in the skin for one to two days allowing the microchannel to remain open rather than close up, as they would after using a derma roller.
The U.S. prescription acne market had approximately $2.3 billion in prescription pharmaceutical sales in 2019, according to IQVIA Inc. market data. 12 Table of Contents Most patients experience some form of acne during their teenage years and for some, their acne may diminish over time, or at least tends to decrease by age 25.
The U.S. prescription acne market had approximately $2.6 billion in prescription pharmaceutical sales in 2016 and is expected to reach approximately $3.8 billion in 2026 according to GlobalData Inc. market data. Most patients experience some form of acne during their teenage years and for some, their acne may diminish over time, or at least tends to decrease by age 25.
We believe these results support that DMT410 may aid in the topical delivery of botulinum toxin into the dermis for a treatment effect similar to multiple injections of botulinum toxin.
We believe these results support that DMT410 may aid in the topical delivery of botulinum toxin into the dermis for a treatment effect similar to multiple intradermal injections of botulinum toxin. With DMT410, we believe botulinum toxin may be applied topically to penetrate the skin into the dermis without the need for multiple injections.
DMT310 next steps for acne We are currently preceding with the necessary non-clinical and pharmacokinetic studies and once complete we plan to schedule an End of Phase 2 meeting with the FDA in the first half of 2023 to discuss and finalize the protocol for the Phase 3 clinical trials in moderate-to-severe acne.
DMT310 next steps for acne We are currently preceding with the necessary non-clinical and pharmacokinetic studies and once complete we plan to schedule an End of Phase 2 meeting with the FDA in the first half of 2023 to discuss and finalize the protocol for the Phase 3 program in moderate-to-severe acne. 21 Table of Contents Once we are able to hold an End of Phase 2 meeting with the FDA and we receive approval to proceed with Phase 3, we plan to initiate a pivotal Phase 3 program for DMT310 for the treatment of moderate-to-severe acne.
Our lead product candidate DMT310, is intended to utilize our Spongilla technology for a once weekly treatment of a variety of skin diseases with our initial focus being for the treatment of acne vulgaris.
Our lead product candidate, DMT310, is intended to utilize our Spongilla technology for once weekly treatment of a variety of skin diseases, with our initial focus being the treatment of acne vulgaris, which has a U.S. market size of approximately 50 million patients.
We believe that the penetration of the spicules cause opening of microchannels which allow oxygen to enter pilosebaceoius glands, helping to kill C. acnes , which grow in an anaerobic environment ( C. acnes is the bacteria that cause inflammatory lesions in acne patients). The spicules also cause turnover of the top layer of dead skin, increasing collagen production.
We believe that the penetration of the spicules also leads to the opening of microchannels, which allow oxygen to enter pilosebaceous glands, helping to kill C. acnes , which grow in an anaerobic (without oxygen) environment ( C. acnes is the bacteria that cause inflammatory lesions in acne patients).
If we can successfully develop our product candidates, receive FDA approval, develop a concentrated prescribing base of dermatologists, and utilize our management’s prior experience, we believe we have the ability to build a commercial organization to develop and commercialize treatment options in our core areas of focus within the dermatology space.
If we can successfully develop our product candidates, receive FDA approval, develop a concentrated prescribing base of dermatologists, and utilize our management’s prior experience, we believe we have the ability to build a commercial organization to develop and commercialize treatment options in our core areas of focus within the dermatology space. 5 Table of Contents Our Clinical Development Pipeline and Product Candidates Our clinical development pipeline currently consists of DMT310 and DMT410, each in development for multiple skin diseases and conditions.
Based on the data in our Phase 1b POC trial, the in-vitro data of DMT310’s reduction of IL-17A and IL-17F, and the anti-inflammatory effects we observed in its Phase 2b trial for acne, we believe DMT310 may be used as a first-line therapy for patients suffering from mild-to-moderate psoriasis who are not candidates for biologic treatments. 6 Table of Contents In October 2021, we announced top-line results from our Phase 1b POC trial of DMT310 for the treatment of 30 mild-to-moderate patients with psoriatic lesions covering between 2% to 30% of their body surface area.
Based on the data in our Phase 1b POC trial, the in-vitro data of DMT310’s reduction of IL-17A and IL-17F, and the anti-inflammatory effects we observed in its Phase 2b trial for acne, we believe DMT310 may be used as a first-line therapy for patients suffering from mild-to-moderate psoriasis who are not candidates for biologic treatments.
The physician then expresses botulinum toxin from a syringe in precise amounts and onto the patient’s skin. The botulinum toxin is then massaged into the treatment area to take advantage of the microchannels created by Spongilla’s spicules, which allows the botulinum toxin to penetrate the stratum corneum and enter the dermis.
The botulinum toxin is then massaged into the treatment area to take advantage of the microchannels created by Spongilla’s spicules, which allows the botulinum toxin to penetrate the stratum corneum and enter the dermis.
We believe the combination of Spongilla’s mechanical and chemical components (which we believe have demonstrated, in-vitro, anti-microbial and anti-inflammatory properties), add to the versatility of our Spongilla technology platform, allowing for application in the treatment of a wide variety of medical and aesthetic skin conditions and diseases.
We believe the combination of Spongilla’s mechanical and chemical components (which we believe have demonstrated, in-vitro , anti-microbial and anti-inflammatory properties), add to the versatility of our Spongilla technology platform’s effectiveness as a singular product, in the treatment of a wide variety of medical skin diseases like acne and psoriasis.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Clinical drug development for our product candidates is very expensive, time-consuming and uncertain. Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization. Clinical drug development for our product candidates is very expensive, time-consuming, difficult to design and implement and its outcome is inherently uncertain.
Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization. Clinical drug development for our product candidates is very expensive, time-consuming, difficult to design and implement and its outcome is inherently uncertain.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval or other products with the same or related active ingredients, a number of potentially negative consequences could result, including: · regulatory authorities may withdraw their approval of the product; · regulatory authorities may require a recall of the product or we or our potential partners may voluntarily recall a product; · regulatory authorities may require the addition of warnings or contraindications in the product labeling, narrowing of the indication in the product label or field alerts to physicians and pharmacies; · we may be required to create a medication guide outlining the risks of such side effects for distribution to patients or institute a REMS; · we may have limitations on how we promote the product; · we may be required to change the way the product is administered or modify the product in some other way; the FDA or applicable foreign regulatory authority may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product; · the FDA or applicable foreign regulatory authority may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product · sales of the product may decrease significantly; · we could be sued and held liable for harm caused to patients; and · our brand and reputation may suffer. 51 Table of Contents Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us or our potential partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval or other products with the same or related active ingredients, a number of potentially negative consequences could result, including: · regulatory authorities may withdraw their approval of the product; · regulatory authorities may require a recall of the product or we or our potential partners may voluntarily recall a product; · regulatory authorities may require the addition of warnings or contraindications in the product labeling, narrowing of the indication in the product label or field alerts to physicians and pharmacies; · we may be required to create a medication guide outlining the risks of such side effects for distribution to patients or institute a REMS; · we may have limitations on how we promote the product; · we may be required to change the way the product is administered or modify the product in some other way; the FDA or applicable foreign regulatory authority may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product; · the FDA or applicable foreign regulatory authority may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product · sales of the product may decrease significantly; · we could be sued and held liable for harm caused to patients; and · our brand and reputation may suffer. 47 Table of Contents Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us or our potential partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.
The degree and rate of adoption of our current or future product candidates, if approved, will depend on a number of factors, including: · the clinical indications for which the product is approved and patient demand for approved products that treat those indications; · the effectiveness of our product as compared to other available therapies; · the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors for any of our product candidates that may be approved; · the cost of treatment with our product candidates in relation to alternative treatments and willingness to pay for the product, if approved, on the part of patients; · acceptance by physicians, major operators of clinics and patients of the product as a safe and effective treatment; · physician and patient willingness to adopt a new therapy, including for DMT310, a sponge product, over other available therapies to treat approved indications; · patients’ perception of a product derived from a freshwater sponge as one for which will provide medical treatment; · overcoming any biases physicians or patients may have toward particular therapies for the treatment of approved indications; · proper training and administration of our product candidates by physicians and medical staff; · patient satisfaction with the results and administration of our product candidates and overall treatment experience; · the willingness of patients to pay for certain of our product candidates relative to other discretionary items, especially during economically challenging times; · the revenue and profitability that our product candidate may offer a physician as compared to alternative therapies; · the prevalence and severity of any side effects of our product candidates; · limitations or warnings contained in the FDA-approved labeling for our product candidates; · any FDA requirement to undertake a risk evaluation and mitigation strategy, or REMS; · the effectiveness of our sales, marketing and distribution efforts; · our ability to maintain sufficient quantities of supply to meet demand; · adverse publicity about our product candidates or favorable publicity about competitive products; and · potential product liability claims.
The degree and rate of adoption of our current or future product candidates, if approved, will depend on a number of factors, including: · the clinical indications for which the product is approved and patient demand for approved products that treat those indications; · the effectiveness of our product as compared to other available therapies; · the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors for any of our product candidates that may be approved; · the cost of treatment with our product candidates in relation to alternative treatments and willingness to pay for the product, if approved, on the part of patients; · acceptance by physicians, major operators of clinics and patients of the product as a safe and effective treatment; · physician and patient willingness to adopt a new therapy, including for DMT310, a sponge product, over other available therapies to treat approved indications; · patients’ perception of a product derived from a freshwater sponge as one for which will provide medical treatment; · overcoming any biases physicians or patients may have toward particular therapies for the treatment of approved indications; 43 Table of Contents · proper training and administration of our product candidates by physicians and medical staff; · patient satisfaction with the results and administration of our product candidates and overall treatment experience; · the willingness of patients to pay for certain of our product candidates relative to other discretionary items, especially during economically challenging times; · the revenue and profitability that our product candidate may offer a physician as compared to alternative therapies; · the prevalence and severity of any side effects of our product candidates; · limitations or warnings contained in the FDA-approved labeling for our product candidates; · any FDA requirement to undertake a risk evaluation and mitigation strategy, or REMS; · the effectiveness of our sales, marketing and distribution efforts; · our ability to maintain sufficient quantities of supply to meet demand; · adverse publicity about our product candidates or favorable publicity about competitive products; and · potential product liability claims.
In addition, regardless of merit or eventual outcome, product liability claims may result in: · withdrawal of clinical trial participants; · termination of clinical trial sites or entire trial programs; · inability to gain regulatory approval of our product candidates; · the inability to commercialize our product candidates; · decreased demand for our product candidates; · impairment of our business reputation; · product recall or withdrawal from the market or labeling, marketing or promotional restrictions; · substantial costs of any related litigation or similar disputes; · distraction of management’s attention and other resources from our primary business; · substantial monetary awards to patients or other claimants against us that may not be covered by insurance; or · loss of revenue. 52 Table of Contents We currently maintain product liability insurance coverage, which may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer.
In addition, regardless of merit or eventual outcome, product liability claims may result in: · withdrawal of clinical trial participants; · termination of clinical trial sites or entire trial programs; · inability to gain regulatory approval of our product candidates; · the inability to commercialize our product candidates; · decreased demand for our product candidates; · impairment of our business reputation; · product recall or withdrawal from the market or labeling, marketing or promotional restrictions; · substantial costs of any related litigation or similar disputes; · distraction of management’s attention and other resources from our primary business; · substantial monetary awards to patients or other claimants against us that may not be covered by insurance; or · loss of revenue. 48 Table of Contents We currently maintain product liability insurance coverage, which may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer.
We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Our portfolio of product candidates includes one mid-stage product candidate, DMT310, a once weekly topical, naturally-derived product candidate for the treatment of acne. rosacea, and psoriasis, and an early-stage candidate, DMT410, a combination treatment regimen to aid in the topical delivery of botulinum toxin for the treatment of hyperhidrosis and aesthetic skin conditions.
Our portfolio of product candidates includes one mid-stage product candidate, DMT310, a once weekly topical, naturally derived product candidate for the treatment of acne and psoriasis, and an early-stage candidate, DMT410, a combination treatment regimen to aid in the topical delivery of botulinum toxin for the treatment of hyperhidrosis and aesthetic skin conditions.
The market price for our common stock and Warrants may be volatile and subject to wide fluctuations in response to factors including the following: • actual or anticipated fluctuations in our quarterly or annual operating results; • actual or anticipated changes in the pace of our corporate achievements or our growth rate relative to our competitors; • failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; • issuance of new or updated research or reports by securities analysts; • share price and volume fluctuations attributable to inconsistent trading volume levels of our common stock or Warrants; • additions or departures of key management or other personnel; • disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; • announcement or expectation of additional debt or equity financing efforts; • sales of our common stock or Warrants by us, our insiders or our other stockholders; and • general economic, market or political conditions in the United States or elsewhere (including, without limitation, conditions arising out the COVID-19 pandemic).
The market price for our common stock and Warrants may be volatile and subject to wide fluctuations in response to factors including the following: · actual or anticipated fluctuations in our quarterly or annual operating results; 74 Table of Contents · actual or anticipated changes in the pace of our corporate achievements or our growth rate relative to our competitors; · failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; · issuance of new or updated research or reports by securities analysts; · share price and volume fluctuations attributable to inconsistent trading volume levels of our common stock or Warrants; · additions or departures of key management or other personnel; · disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; · announcement or expectation of additional debt or equity financing efforts; · sales of our common stock or Warrants by us, our insiders or our other stockholders; and · general economic, market or political conditions in the United States or elsewhere (including, without limitation, conditions arising out the COVID-19 pandemic).
Accordingly, there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business, financial condition, operating results and prospects. 66 Table of Contents Manufacturing and supply of the APIs and other substances and materials used in our product candidates is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after products have been manufactured and distributed.
Accordingly, there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business, financial condition, operating results, and prospects. 63 Table of Contents Manufacturing and supply of the APIs and other substances and materials used in our product candidates is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after products have been manufactured and distributed.
In particular, the market prices of clinical-stage companies like ours have been highly volatile due to factors, including, but not limited to: • any delay or failure in a clinical trial for our product candidates or receive approval from the FDA and other regulatory agents; 77 Table of Contents • developments or disputes concerning our product candidate’s intellectual property rights; • our or our competitors’ technological innovations; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies or patents; • failure to complete significant transactions or collaborate with vendors in manufacturing our product; and • proposals for legislation that would place restrictions on the price of medical therapies.
In particular, the market prices of clinical-stage companies like ours have been highly volatile due to factors, including, but not limited to: · any delay or failure in a clinical trial for our product candidates or receive approval from the FDA and other regulatory agents; · developments or disputes concerning our product candidate’s intellectual property rights; · our or our competitors’ technological innovations; · fluctuations in the valuation of companies perceived by investors to be comparable to us; · announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies or patents; · failure to complete significant transactions or collaborate with vendors in manufacturing our product; and · proposals for legislation that would place restrictions on the price of medical therapies.
Our corporate governance documents include provisions: • classifying our board of directors into three classes; • authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock; • limiting the liability of, and providing indemnification to, our directors and officers; 80 Table of Contents • limiting the ability of our stockholders to call and bring business before special meetings; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and • providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
Our corporate governance documents include provisions: · classifying our board of directors into three classes; · authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock; · limiting the liability of, and providing indemnification to, our directors and officers; · limiting the ability of our stockholders to call and bring business before special meetings; · requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; · controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and · providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in its report on our audited annual financial statements as of and for the years ended December 31, 2021 and December 31, 2020, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in its report on our audited annual financial statements as of and for the years ended December 31, 2022, and December 31, 2021, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern.
We do not currently carry biological or hazardous waste insurance coverage. 57 Table of Contents Our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We do not currently carry biological or hazardous waste insurance coverage. 53 Table of Contents Our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following: • delays in the commencement, enrollment and the timing of clinical testing for our product candidates; • the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; • any delays in regulatory review and approval of product candidates in clinical development; • the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time; • the cost of manufacturing our product candidates, which may vary depending on FDA guidelines and requirements, and the quantity of production; 67 Table of Contents • our ability to obtain additional funding to develop our product candidates; • expenditures that we will or may incur to acquire or develop additional product candidates and technologies; • the level of demand for our product candidates, should they receive approval, which may vary significantly; • potential side effects of our product candidates that could delay or prevent commercialization or cause an approved drug to be taken off the market; • the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our product candidates, if approved; • our dependency on third-party manufacturers to supply or manufacture our product candidates; • our ability to establish an effective sales, marketing and distribution infrastructure in a timely manner; • market acceptance of our product candidates, if approved, and our ability to forecast demand for those product candidates; • our ability to receive approval and commercialize our product candidates outside of the United States; • our ability to establish and maintain collaborations, licensing or other arrangements; • our ability and third parties’ abilities to protect intellectual property rights; • costs related to and outcomes of potential litigation or other disputes; • our ability to adequately support future growth; • our ability to attract and retain key personnel to manage our business effectively; • potential liabilities associated with hazardous materials; • our ability to maintain adequate insurance policies; and • future accounting pronouncements or changes in our accounting policies.
Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following: · delays in the commencement, enrollment and the timing of clinical testing for our product candidates; · the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; · any delays in regulatory review and approval of product candidates in clinical development; · the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time; · the cost of manufacturing our product candidates, which may vary depending on FDA guidelines and requirements, and the quantity of production; · our ability to obtain additional funding to develop our product candidates; · expenditures that we will or may incur to acquire or develop additional product candidates and technologies; · the level of demand for our product candidates, should they receive approval, which may vary significantly; · potential side effects of our product candidates that could delay or prevent commercialization or cause an approved drug to be taken off the market; · the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our product candidates, if approved; · our dependency on third-party manufacturers to supply or manufacture our product candidates; · our ability to establish an effective sales, marketing and distribution infrastructure in a timely manner; · market acceptance of our product candidates, if approved, and our ability to forecast demand for those product candidates; · our ability to receive approval and commercialize our product candidates outside of the United States; · our ability to establish and maintain collaborations, licensing or other arrangements; · our ability and third parties’ abilities to protect intellectual property rights; · costs related to and outcomes of potential litigation or other disputes; · our ability to adequately support future growth; · our ability to attract and retain key personnel to manage our business effectively; · potential liabilities associated with hazardous materials; · our ability to maintain adequate insurance policies; and · future accounting pronouncements or changes in our accounting policies. 65 Table of Contents Our operating results and liquidity needs could be negatively affected by market fluctuations and economic downturn.
We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” 78 Table of Contents We cannot predict if investors will find our common stock or Warrants less attractive if we choose to rely on these exemptions.
We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.” We cannot predict if investors will find our common stock or Warrants less attractive if we choose to rely on these exemptions.
The reports of our independent registered public accounting firm for the fiscal years ended December 31, 2021 and 2020 contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
The reports of our independent registered public accounting firm for the fiscal years ended December 31, 2022 and 2021 contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
Further, the perception that we may be unable to continue as a going concern may impede our ability to raise additional funds or operate our business due to concerns regarding our ability to discharge our contractual obligations. 39 Table of Contents Changes in tax laws may materially adversely affect our business financial condition, results of operations and cash flows.
Further, the perception that we may be unable to continue as a going concern may impede our ability to raise additional funds or operate our business due to concerns regarding our ability to discharge our contractual obligations. Changes in tax laws may materially adversely affect our business financial condition, results of operations and cash flows.
If we cannot successfully execute any one of the foregoing, our business may fail and your investment will be adversely affected. We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We are not currently profitable, and we may never achieve or sustain profitability.
If we cannot successfully execute any one of the foregoing, our business may fail and your investment will be adversely affected. 32 Table of Contents We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We are not currently profitable, and we may never achieve or sustain profitability.
Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations. 76 Table of Contents Our proprietary information may be lost, or we may suffer security breaches.
Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations. Our proprietary information may be lost, or we may suffer security breaches.
Patents have a limited duration. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.
In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.
The market price of our common stock is highly volatile, and since our initial public offering in August 2021, the market price of our common stock has ranged from $0.91 to $6.95 per share.
The market price of our common stock is highly volatile, and since our initial public offering in August 2021, the market price of our common stock has ranged from $0.162 to $6.95 per share.
The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs. In addition, FDA regulations and guidance may be revised or reinterpreted by the FDA in ways that may significantly affect our business and our products.
The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs. 51 Table of Contents In addition, FDA regulations and guidance may be revised or reinterpreted by the FDA in ways that may significantly affect our business and our products.
The amount and timing of our future funding requirements will depend on many factors, including: · the timing, rate of progress and cost of any preclinical and clinical trials and other product development activities for our current and any future product candidates that we develop, in-license or acquire; · the results of the clinical trials for our product candidates in the United States and any foreign countries; · the timing of, and the costs involved in, FDA approval and any foreign regulatory approval of our product candidates, if at all; · the number and characteristics of any additional future product candidates we develop or acquire; · our ability to establish and maintain strategic collaborations, licensing, co-promotion or other arrangements and the terms and timing of such arrangements; · the cost of commercialization activities if our current or any future product candidates are approved for sale, including manufacturing, marketing, sales and distribution costs; · the degree and rate of market acceptance of any approved products; · costs under our third-party manufacturing and supply arrangements for our current and any future product candidates and any products we commercialize; · costs and timing of completion of any additional outsourced commercial manufacturing or supply arrangements that we may establish; 38 Table of Contents · costs of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights associated with our product candidates; · costs associated with prosecuting or defending any litigation that we are or may become involved in and any damages payable by us that result from such litigation; · costs associated with any product recall that could occur; · costs of operating as a public company; · the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments; · costs associated with any acquisition or in-license of products and product candidates, technologies or businesses; and · personnel, facilities and equipment requirements.
We will need to raise additional capital to fund our operations and continue to support our planned development and commercialization activities. 33 Table of Contents The amount and timing of our future funding requirements will depend on many factors, including: · the timing, rate of progress and cost of any preclinical and clinical trials and other product development activities for our current and any future product candidates that we develop, in-license or acquire; · the results of the clinical trials for our product candidates in the United States and any foreign countries; · the timing of, and the costs involved in, FDA approval and any foreign regulatory approval of our product candidates, if at all; · the number and characteristics of any additional future product candidates we develop or acquire; · our ability to establish and maintain strategic collaborations, licensing, co-promotion or other arrangements and the terms and timing of such arrangements; · the cost of commercialization activities if our current or any future product candidates are approved for sale, including manufacturing, marketing, sales and distribution costs; · the degree and rate of market acceptance of any approved products; · costs under our third-party manufacturing and supply arrangements for our current and any future product candidates and any products we commercialize; · costs and timing of completion of any additional outsourced commercial manufacturing or supply arrangements that we may establish; · costs of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights associated with our product candidates; · costs associated with prosecuting or defending any litigation that we are or may become involved in and any damages payable by us that result from such litigation; · costs associated with any product recall that could occur; · costs of operating as a public company; · the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments; · costs associated with any acquisition or in-license of products and product candidates, technologies or businesses; and · personnel, facilities and equipment requirements.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our securities could decrease, which could cause the price of our securities and trading volume to decline. 79 Table of Contents Future sales of our common stock, Warrants or securities convertible into our common stock may depress our stock price.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our securities could decrease, which could cause the price of our securities and trading volume to decline. Future sales of our common stock, Warrants or securities convertible into our common stock may depress our stock price.
Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. For example, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law.
Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. 68 Table of Contents For example, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law.
Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. 82 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The laws and regulations that may affect our ability to operate include: · the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce either the referral of an individual or in return for the purchase, lease, or order of any good, facility item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as the Medicare and Medicaid programs; · federal civil and criminal false claims laws and civil monetary penalty laws, including, for example, the federal civil False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; · the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; · HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; · the federal physician sunshine requirements under the Affordable Care Act, which require manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and · state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. 56 Table of Contents Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
The laws and regulations that may affect our ability to operate include: · the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce either the referral of an individual or in return for the purchase, lease, or order of any good, facility item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as the Medicare and Medicaid programs; · federal civil and criminal false claims laws and civil monetary penalty laws, including, for example, the federal civil False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; · the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; 52 Table of Contents · HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; · the federal physician sunshine requirements under the Affordable Care Act, which require manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and · state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
This could be expensive, time consuming and its success uncertain, leading to delays in filing of the NDA. 58 Table of Contents Risks Related to Our Dependence on Third Parties We are dependent on one supplier for the raw material used to produce DMT310 and DMT410.
This could be expensive, time consuming and its success uncertain, leading to delays in filing of the NDA. Risks Related to Our Dependence on Third Parties We are dependent on one supplier for the raw material used to produce DMT310 and DMT410.
If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates. We rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture.
If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates. 57 Table of Contents We rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture.
Such a lawsuit could also divert the time and attention of our management. Our Warrants may not have any value. There can be no assurance that the market price of our common stock will ever equal or exceed the exercise price of our outstanding Warrants.
Such a lawsuit could also divert the time and attention of our management. 75 Table of Contents Our Warrants may not have any value. There can be no assurance that the market price of our common stock will ever equal or exceed the exercise price of our outstanding Warrants.
Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets. 41 Table of Contents Our business is dependent on the successful development, regulatory approval and commercialization of our product candidates, in particular DMT310.
Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets. 36 Table of Contents Our business is dependent on the successful development, regulatory approval and commercialization of our product candidates, in particular DMT310 and DMT410.
This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials. We may be unable to obtain regulatory approval for DMT310, or our early-stage product candidates under applicable regulatory requirements.
This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials. 40 Table of Contents We may be unable to obtain regulatory approval for DMT310, or our early-stage product candidates under applicable regulatory requirements.
If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have an adverse effect on our business. 72 Table of Contents If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business.
If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have an adverse effect on our business. If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business.
Our operating results and liquidity needs could be negatively affected by market fluctuations and economic downturn. Our operating results and liquidity could be negatively affected by economic conditions generally, both in the United States and elsewhere around the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions.
Our operating results and liquidity could be negatively affected by economic conditions generally, both in the United States and elsewhere around the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions.
Additionally, although we plan to market our products primarily in the United States, our partners have extensive global operations, indirectly exposing us to risk. 68 Table of Contents Our business and operations would suffer in the event of failures in our internal computer systems.
Additionally, although we plan to market our products primarily in the United States, our partners have extensive global operations, indirectly exposing us to risk. Our business and operations would suffer in the event of failures in our internal computer systems.
As a newly public company, we have designed a control environment as required of public companies under the rules and regulations of the SEC. Proper systems of internal controls over financial accounting and disclosure controls and procedures are critical to the operation of a public company.
As a newly public company, we have designed a control environment as required of public companies under the rules and regulations of the SEC. 76 Table of Contents Proper systems of internal controls over financial accounting and disclosure controls and procedures are critical to the operation of a public company.
For example: • we might not have been the first to invent or the first to file the inventions covered by each of our pending patent applications and issued patents; • others may independently develop similar or alternative technologies or duplicate any of our technologies; • the patents of others may have an adverse effect on our business; • any patents we obtain or our licensors’ issued patents may not encompass commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties; • any patents we obtain on our in-licensed issued patents may not be valid or enforceable; and • we may not develop additional proprietary technologies that are patentable. 70 Table of Contents Patents have a limited lifespan.
For example: · we might not have been the first to invent or the first to file the inventions covered by each of our pending patent applications and issued patents; · others may independently develop similar or alternative technologies or duplicate any of our technologies; · the patents of others may have an adverse effect on our business; · any patents we obtain or our licensors’ issued patents may not encompass commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties; · any patents we obtain on our in-licensed issued patents may not be valid or enforceable; and · we may not develop additional proprietary technologies that are patentable.
In addition, we, any partner with which we currently or may in the future collaborate, the FDA, an IRB or other regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including: · discovery of safety or tolerability concerns, such as serious or unexpected toxicities or side effects or exposure to otherwise unacceptable health risks, experienced by study participants or other safety issues; · lack of effectiveness of any product candidate during clinical trials or the failure of our product candidates to meet specified endpoints; · slower than expected rates of subject recruitment and enrollment rates or inability to enroll a sufficient number of patients in clinical trials resulting from numerous factors, including the prevalence of other companies’ clinical trials for their product candidates for the same indication, or clinical trials for indications for which patients do not as commonly seek treatment; · delays or difficulties in our clinical trials due to quarantines or other restrictions resulting from the COVID-19 pandemic; · difficulty in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason; · difficulty in obtaining IRB approval for studies to be conducted at each clinical trial site; · delays in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials; · difficulty or inability to find a partner that will allow us to test their product for our DMT410 program; · inadequacy of or changes in our manufacturing process or the product formulation or method of delivery; · changes in applicable laws, regulations and regulatory policies; · delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective CROs, clinical trial sites and other third-party contractors; · inability to add a sufficient number of clinical trial sites; · uncertainty regarding proper formulation and dosing; · failure by us, our employees, our CROs or their employees or other third-party contractors to comply with contractual and applicable regulatory requirements or to perform their services in a timely or acceptable manner; · failure by us, our employees, our CROs or their employees or any partner with which we may collaborate or their employees to comply with applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for drug and biologic products; · scheduling conflicts with participating clinicians and clinical institutions; · failure to design appropriate clinical trial protocols; · insufficient data to support regulatory approval; · inability or unwillingness of medical investigators to follow our clinical protocols; or · difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data. 44 Table of Contents In the case of our topical product candidates, we are seeking to deliver sufficient concentrations of the active pharmaceutical ingredient, or API, through the skin barrier to the targeted dermal tissue to achieve the intended therapeutic effect.
In addition, we, any partner with which we currently or may in the future collaborate, the FDA, an IRB or other regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including: · discovery of safety or tolerability concerns, such as serious or unexpected toxicities or side effects or exposure to otherwise unacceptable health risks, experienced by study participants or other safety issues; · lack of effectiveness of any product candidate during clinical trials or the failure of our product candidates to meet specified endpoints; · slower than expected rates of subject recruitment and enrollment rates or inability to enroll a sufficient number of patients in clinical trials resulting from numerous factors, including the prevalence of other companies’ clinical trials for their product candidates for the same indication, or clinical trials for indications for which patients do not as commonly seek treatment; · delays or difficulties in our clinical trials due to quarantines or other restrictions resulting from the COVID-19 pandemic; · difficulty in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason; · difficulty in obtaining IRB approval for studies to be conducted at each clinical trial site; · delays in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials; · difficulty or inability to find a partner that will allow us to test their product for our DMT410 program; · inadequacy of or changes in our manufacturing process or the product formulation or method of delivery; 39 Table of Contents · changes in applicable laws, regulations and regulatory policies; · delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective CROs, clinical trial sites and other third-party contractors; · inability to add a sufficient number of clinical trial sites; · uncertainty regarding proper formulation and dosing; · failure by us, our employees, our CROs or their employees or other third-party contractors to comply with contractual and applicable regulatory requirements or to perform their services in a timely or acceptable manner; · failure by us, our employees, our CROs or their employees or any partner with which we may collaborate or their employees to comply with applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for drug and biologic products; · scheduling conflicts with participating clinicians and clinical institutions; · failure to design appropriate clinical trial protocols; · insufficient data to support regulatory approval; · inability or unwillingness of medical investigators to follow our clinical protocols; or · difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data.
In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future partners. 62 Table of Contents Future collaborations we may enter into may involve the following risks: · collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations; · collaborators may not perform their obligations as expected; · changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, may divert resources or create competing priorities; · collaborators may delay discovery and preclinical development, provide insufficient funding for product development of targets selected by us, stop or abandon discovery and preclinical development for a product candidate, repeat or conduct new discovery and preclinical development for a product candidate; · collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed than ours; · product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the development of our product candidates; · disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the discovery, preclinical development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; · collaborators may not properly maintain or defend our intellectual property rights or intellectual property rights licensed to us or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; · collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and · collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.
Future collaborations we may enter into may involve the following risks: · collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations; · collaborators may not perform their obligations as expected; · changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, may divert resources or create competing priorities; · collaborators may delay discovery and preclinical development, provide insufficient funding for product development of targets selected by us, stop or abandon discovery and preclinical development for a product candidate, repeat or conduct new discovery and preclinical development for a product candidate; 59 Table of Contents · collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed than ours; · product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the development of our product candidates; · disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the discovery, preclinical development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; · collaborators may not properly maintain or defend our intellectual property rights or intellectual property rights licensed to us or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; · collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and · collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.
We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our drugs. We believe that our existing cash, together with interest thereon, will be sufficient to fund our operations into the fourth quarter of 2022.
We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our drugs. We believe that our existing cash, together with interest thereon, will be sufficient to fund our operations into the third quarter of 2023.
Food and Drug Administration, or the FDA, or similar foreign regulatory agencies to conduct additional clinical trials beyond those planned to support the approval and commercialization of our product candidates or any future product candidates; · acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our product candidates by the FDA and similar foreign regulatory authorities; · our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities, the safety and efficacy of our product candidates or any future product candidates; · our ability to develop a suitable drug product release assay; · our ability to identify an active compound within the drug product that can be detected in a pharmacokinetics study; · the prevalence, duration and severity of potential side effects experienced in connection with our product candidates or future approved products, if any; · the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; · achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual obligations and with all regulatory requirements applicable to our product candidates or any future product candidates or approved products, if any; · the ability of third parties with whom we contract to manufacture clinical trial and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices, or cGMP, or good agricultural and collection practices, or GACP; · a continued acceptable safety profile during clinical development and following approval of our product candidates or any future product candidates; · our ability to successfully commercialize our product candidates or any future product candidates in the United States and internationally, if approved for marketing, sale and distribution in such countries and territories, whether alone or in collaboration with others; · acceptance by physicians, patients and payors of the benefits, safety and efficacy of our product candidates or any future product candidates, if approved, including relative to alternative and competing treatments; · our ability to comply with numerous post-approval regulatory requirements; · our and our partners’ ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates; · our and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and · our ability to in-license or acquire additional product candidates or commercial-stage products that we believe we can successfully develop and commercialize. 42 Table of Contents If we are unable to achieve one or more of the above factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays and increased costs or an inability to obtain regulatory approvals or commercialize our product candidates.
Food and Drug Administration, or the FDA, or similar foreign regulatory agencies to conduct additional clinical trials beyond those planned to support the approval and commercialization of our product candidates or any future product candidates; · acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our product candidates by the FDA and similar foreign regulatory authorities; · our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities, the safety and efficacy of our product candidates or any future product candidates; · our ability to develop a suitable drug product release assay; · our ability to identify an active compound within the drug product that can be detected in a pharmacokinetics study; · the prevalence, duration and severity of potential side effects experienced in connection with our product candidates or future approved products, if any; · the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; · achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual obligations and with all regulatory requirements applicable to our product candidates or any future product candidates or approved products, if any; · the ability of third parties with whom we contract to manufacture clinical trial and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices, or cGMP, or good agricultural and collection practices, or GACP; · a continued acceptable safety profile during clinical development and following approval of our product candidates or any future product candidates; · our ability to successfully commercialize our product candidates or any future product candidates in the United States and internationally, if approved for marketing, sale and distribution in such countries and territories, whether alone or in collaboration with others; 37 Table of Contents · acceptance by physicians, patients and payors of the benefits, safety and efficacy of our product candidates or any future product candidates, if approved, including relative to alternative and competing treatments; · our ability to comply with numerous post-approval regulatory requirements; · our and our partners’ ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates; · our and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and · our ability to in-license or acquire additional product candidates or commercial-stage products that we believe we can successfully develop and commercialize.
The FDA or the applicable foreign regulatory body may: · disagree with the design or implementation of one or more clinical trials; · not deem a product candidate safe and effective for its proposed indication, or may deem a product candidate’s safety or other perceived risks to outweigh its clinical or other benefits; · not find the data from preclinical studies and clinical trials sufficient to support approval, or the results of clinical trials may not meet the level of statistical or clinical significance required by the FDA or the applicable foreign regulatory body for approval; · disagree with our interpretation of data from preclinical studies or clinical trials performed by us or third parties, or with the interpretation of any partner with which we may collaborate; · determine the data collected from clinical trials may not be sufficient to support the submission of an NDA, or other applicable regulatory filing; · require additional preclinical studies or clinical trials; · identify deficiencies in the formulation, quality control, labeling or specifications of our current or future product candidates; · require clinical trials in pediatric patients in order to establish pharmacokinetics or safety for this more drug-sensitive population; · grant approval contingent on the performance of costly additional post-approval clinical trials; · approve our current or any future product candidates for a more limited indication or a narrower patient population than we originally requested or with strong warnings that may affect marketability; · not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates; · not approve of the manufacturing processes, controls or facilities of third-party manufacturers or testing labs with which we contract; · consider our products a device instead of a drug requiring a different approval process and manufacturing needs; · consider one of our products a combination product instead of a singular drug requiring additional clinical trials or increased number of patients per study, or · change its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval. 46 Table of Contents There have been only two products approved by the FDA under the botanical guidance and none in the indication for acne vulgaris with both approved products’ active ingredient coming from an extract of a plant.
The FDA or the applicable foreign regulatory body may: · disagree with the design or implementation of one or more clinical trials; · not deem a product candidate safe and effective for its proposed indication, or may deem a product candidate’s safety or other perceived risks to outweigh its clinical or other benefits; · not find the data from preclinical studies and clinical trials sufficient to support approval, or the results of clinical trials may not meet the level of statistical or clinical significance required by the FDA or the applicable foreign regulatory body for approval; · disagree with our interpretation of data from preclinical studies or clinical trials performed by us or third parties, or with the interpretation of any partner with which we may collaborate; · determine the data collected from clinical trials may not be sufficient to support the submission of an NDA, or other applicable regulatory filing; · require additional preclinical studies or clinical trials; 41 Table of Contents · identify deficiencies in the formulation, quality control, labeling or specifications of our current or future product candidates; · require clinical trials in pediatric patients in order to establish pharmacokinetics or safety for this more drug-sensitive population; · grant approval contingent on the performance of costly additional post-approval clinical trials; · approve our current or any future product candidates for a more limited indication or a narrower patient population than we originally requested or with strong warnings that may affect marketability; · not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates; · not approve of the manufacturing processes, controls or facilities of third-party manufacturers or testing labs with which we contract; · consider our products a device instead of a drug requiring a different approval process and manufacturing needs; · consider one of our products a combination product instead of a singular drug requiring additional clinical trials or increased number of patients per study, or · change its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval.
For those countries where we do not have granted patents, we may not have any ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors.
The covered technology and the scope of coverage vary from country to country. For those countries where we do not have granted patents, we may not have any ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors.
We incurred net losses of approximately $7.9 million and approximately $3.2 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of approximately $36 million. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue, if any.
We incurred net losses of approximately $9.6 million and approximately $7.9 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of approximately $45.6 million. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue, if any.
If we, our partners, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may: · impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses; · mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners; · require us or our partners to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; · issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available; · commence criminal investigations and prosecutions; · impose injunctions, suspensions or revocations of necessary approvals or other licenses; · impose other civil or criminal penalties; · suspend any ongoing clinical trials; · delay or refuse to approve pending applications or supplements to approved applications filed by us or our potential partners; · refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States; · suspend or impose restrictions on operations, including costly new manufacturing requirements; or · seize or detain products or require us or our partners to initiate a product recall. 50 Table of Contents The regulations, policies or guidance of the FDA and other applicable government agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities.
If we, our partners, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may: · impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses; · mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners; · require us or our partners to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; · issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available; · commence criminal investigations and prosecutions; · impose injunctions, suspensions or revocations of necessary approvals or other licenses; · impose other civil or criminal penalties; · suspend any ongoing clinical trials; · delay or refuse to approve pending applications or supplements to approved applications filed by us or our potential partners; · refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States; · suspend or impose restrictions on operations, including costly new manufacturing requirements; or · seize or detain products or require us or our partners to initiate a product recall.
To manage our operations, growth and various projects effectively requires that we: · continue to improve our operational, financial, management and regulatory compliance controls and reporting systems and procedures; · attract and retain sufficient numbers of talented employees; · develop a marketing, sales and distribution capability; · manage our commercialization activities for our product candidates effectively and in a cost-effective manner; · establish and maintain relationships with development and commercialization partners; · manage our preclinical and clinical trials effectively; · manage our third-party supply and manufacturing operations effectively and in a cost-effective manner, while increasing production capabilities for our current product candidates to commercial levels; and · manage our development efforts effectively while carrying out our contractual obligations to partners and other third parties.
We will need to further expand our chemistry and manufacturing team, clinical team, managerial, operational, financial, and other resources to support our planned research, development and commercialization activities. 60 Table of Contents To manage our operations, growth and various projects effectively requires that we: · continue to improve our operational, financial, management and regulatory compliance controls and reporting systems and procedures; · attract and retain sufficient numbers of talented employees; · develop a marketing, sales and distribution capability; · manage our commercialization activities for our product candidates effectively and in a cost-effective manner; · establish and maintain relationships with development and commercialization partners; · manage our preclinical and clinical trials effectively; · manage our third-party supply and manufacturing operations effectively and in a cost-effective manner, while increasing production capabilities for our current product candidates to commercial levels; and · manage our development efforts effectively while carrying out our contractual obligations to partners and other third parties.
In addition, if we need a new or additional suppliers, it may take a substantial amount of time and financial resources to identify any additional supplier(s) who can supply our required raw materials in the quality and quantity required for our pre-clinical and we may not be able to negotiate new agreements with an alternate or new supplier on terms that we deem commercially reasonable or at all, and the failure by us to enter into such agreements could harm our financial condition, business, clinical trials and prospects. 59 Table of Contents Our business may be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine.
In addition, if we need a new or additional suppliers, it may take a substantial amount of time and financial resources to identify any additional supplier(s) who can supply our required raw materials in the quality and quantity required for our pre-clinical and we may not be able to negotiate new agreements with an alternate or new supplier on terms that we deem commercially reasonable or at all, and the failure by us to enter into such agreements could harm our financial condition, business, clinical trials and prospects.
If we commercialize DMT310 or our other product candidates in foreign markets, we would be subject to additional risks and uncertainties, including: · our customers’ ability to obtain market access and appropriate reimbursement for our product candidates in foreign markets; · our inability to directly control commercial activities because we are relying on third parties; · the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements; · different medical practices and customs in foreign countries affecting acceptance in the marketplace · import or export licensing requirements; · longer accounts receivable collection times; · longer lead times for shipping; · language barriers for technical training; · reduced protection of intellectual property rights in some foreign countries; · foreign currency exchange rate fluctuations; and · the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
If we commercialize DMT310 or our other product candidates in foreign markets, we would be subject to additional risks and uncertainties, including: · our customers’ ability to obtain market access and appropriate reimbursement for our product candidates in foreign markets; · our inability to directly control commercial activities because we are relying on third parties; · the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements; · different medical practices and customs in foreign countries affecting acceptance in the marketplace · import or export licensing requirements; · longer accounts receivable collection times; · longer lead times for shipping; · language barriers for technical training; · reduced protection of intellectual property rights in some foreign countries; · foreign currency exchange rate fluctuations; and · the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute. 54 Table of Contents Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.
In addition, recent health care reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it.
For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it.
Even if we are able to obtain supply, we and our supplier are exposed to a number of environmental and geopolitical risks, including: · risk of contamination being introduced in the Volga river, thereby polluting the spongilla lacustris population through environmental factors that we cannot control, which could result in new impurities or reduced supply of raw materials; · loss of Spongilla lacustris habitat and other similar environmental risks to the sponge population whether due to climate change, over-development, or otherwise; · risk of disease in the Spongilla lacustris geographic area where harvested; · risk of trade issues between the U.S. and Russia; · restrictions on trade of certain items between the U.S. and Russia; · restriction on means of payment with Russian entities; and · other unforeseen geopolitical factors that limit our ability access our supply of raw material.
The portion of the Volga river delta where the sponge grows could also become contaminated from pollutants, which could contaminate the sponge to be harvested by our supplier, making it unusable in humans, impacting our ability to manufacture and supply DMT310 and DMT410. 55 Table of Contents Even if we are able to obtain supply, we and our supplier are exposed to a number of environmental and geopolitical risks, including: · risk of contamination being introduced in the Volga river, thereby polluting the spongilla lacustris population through environmental factors that we cannot control, which could result in new impurities or reduced supply of raw materials; · loss of Spongilla lacustris habitat and other similar environmental risks to the sponge population whether due to climate change, over-development, or otherwise; · risk of disease in the Spongilla lacustris geographic area where harvested; · risk of trade issues between the U.S. and Russia; · restrictions on trade of certain items between the U.S. and Russia; · restriction on means of payment with Russian entities; and · other unforeseen geopolitical factors that limit our ability access our supply of raw material.
In addition, these agreements typically restrict the ability of our employees, consultants, collaborators, contractors and advisors to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights.
The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. 72 Table of Contents In addition, these agreements typically restrict the ability of our employees, consultants, collaborators, contractors and advisors to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights.
If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.
If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us.
Any provision of our amended and restated certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock or Warrants, and could also affect the price that some investors are willing to pay for our common stock and Warrants.
Any provision of our amended and restated certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock or Warrants, and could also affect the price that some investors are willing to pay for our common stock and Warrants. 78 Table of Contents Our ability to use our net operating loss carryforwards may be limited.
If any of our current or future product candidates are approved for use but fail to achieve the broad degree of physician and patient adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business. 48 Table of Contents We intend to seek NCE exclusivity for DMT310 and future product candidates, and we may be unsuccessful in obtaining such exclusivity.
If any of our current or future product candidates are approved for use but fail to achieve the broad degree of physician and patient adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.
Revenue from our current and potential future collaborations is uncertain because milestones or other contingent payments under our agreements may not be achieved or received. 37 Table of Contents As of December 31, 2021, we had capital resources consisting of cash of $10.8 million.
Revenue from our current and potential future collaborations is uncertain because milestones or other contingent payments under our agreements may not be achieved or received. As of December 31, 2022, we had capital resources consisting of cash and cash equivalents of $6.2 million.
We have not yet obtained regulatory approvals for any of our product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market.
Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market.
As part of our business strategy, we intend to seek new chemical entity, or NCE, exclusivity for DMT310 or future product candidates.
We intend to seek NCE exclusivity for DMT310 and future product candidates, and we may be unsuccessful in obtaining such exclusivity. As part of our business strategy, we intend to seek new chemical entity, or NCE, exclusivity for DMT310 or future product candidates.
Our ability to use our net operating loss carryforwards may be limited As of December 31, 2021, we had net operating loss carryforwards, or NOLs, of approximately $5.0 million for federal income tax purposes and no NOL carryforward for state income tax purposes. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured.
As of December 31, 2022, we had net operating loss carryforwards, or NOLs, of approximately $9.2 million for federal income tax purposes and approximately $5.0 million for state income tax purposes. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured.
Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market a product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates. The issued U.S. patents relating to DMT310 will expire between 2022 and 2023.
Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market a product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates.
We are also not permitted to market any of our current product candidates in any foreign countries until we or our partners receive the requisite approval from the applicable regulatory authorities of such countries. 45 Table of Contents To gain approval to market a new drug such as DMT310 or DMT410, the FDA and/or foreign regulatory authorities must receive, among other things, preclinical and clinical data that adequately demonstrate the safety, purity, potency, efficacy and compliant manufacturing of the drug product for the intended indication applied for in an NDA, or other applicable regulatory filing.
To gain approval to market a new drug such as DMT310 or DMT410, the FDA and/or foreign regulatory authorities must receive, among other things, preclinical and clinical data that adequately demonstrate the safety, purity, potency, efficacy and compliant manufacturing of the drug product for the intended indication applied for in an NDA, or other applicable regulatory filing.
Additionally, if the outcomes of these studies are not satisfactory to the FDA, we may be required to conduct the entire pharmacokinetic development plan again, which could result in additional development costs and a delay in our development timeline, in which case our business could be materially harmed.
Additionally, if the outcomes of these studies are not satisfactory to the FDA, we may be required to conduct the entire pharmacokinetic development plan again, which could result in additional development costs and a delay in our development timeline, in which case our business could be materially harmed. 38 Table of Contents Clinical drug development for our product candidates is very expensive, time-consuming and uncertain.
Any product candidates that we commercialize, or that any partner with which we may collaborate commercializes, will be subject to ongoing and continued regulatory review. Even after we or our partners achieve U.S. regulatory approval for a product candidate, if any, we or our partners will be subject to continued regulatory review and compliance obligations.
Even after we or our partners achieve U.S. regulatory approval for a product candidate, if any, we or our partners will be subject to continued regulatory review and compliance obligations.
Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management.
Even if we are successful, domestic, or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management.
The exclusive forum provision is limited to the extent permitted by law, and it will not apply to claims arising under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or for any other federal securities laws which provide for exclusive federal jurisdiction.
The exclusive forum provision is limited to the extent permitted by law, and it will not apply to claims arising under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or for any other federal securities laws which provide for exclusive federal jurisdiction. 79 Table of Contents Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
In the United States, the natural expiration of a patent is generally 20 years from its earliest non-provisional priority application filing date. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates.
Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years from its earliest non-provisional priority application filing date. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited.
Upon the expiration or loss of any patent protection for any of our product candidates that are approved, or upon the “at-risk” launch, despite pending patent infringement litigation against the generic product or its equivalent, by a generic competitor of a generic version of any of our product candidates that are approved, which may be sold at significantly lower prices than our approved product candidates, we could lose a significant portion of sales of that product in a short period of time, which would adversely affect our business, financial condition, operating results and prospects. 49 Table of Contents It is unknown how the FDA or any regulatory authority will view an attempted generic version of DMT310 because it is a derived from a natural material that refers to principles of the botanical guidance.
Upon the expiration or loss of any patent protection for any of our product candidates that are approved, or upon the “at-risk” launch, despite pending patent infringement litigation against the generic product or its equivalent, by a generic competitor of a generic version of any of our product candidates that are approved, which may be sold at significantly lower prices than our approved product candidates, we could lose a significant portion of sales of that product in a short period of time, which would adversely affect our business, financial condition, operating results and prospects.
Also, the scope of our right to exclude during any patent term extension period may be limited or may not cover a competitor’s product or product use. As a result, our revenue from applicable products could be reduced, possibly materially.
Also, the scope of our right to exclude during any patent term extension period may be limited or may not cover a competitor’s product or product use.
Because we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results and prospects could suffer in the same manner as if we were sued directly.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our ability to raise additional funds or otherwise adversely affect our business, financial condition, operating results, and prospects. 71 Table of Contents Because we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results, and prospects could suffer in the same manner as if we were sued directly.
Some of these risks include: · We are a pre-revenue company with a limited operating history; · We may not be able to successfully develop or commercialize new product candidates or do so on a timely or cost-effective basis; · Our business may be negatively affected by the impacts of COVID-19; · Our business may be negatively affected by ongoing litigation; · We depend on a limited number of product candidates and our business could be materially adversely affected if one or more of our key product candidates do not perform as well as expected and do not receive regulatory approval; · Our profitability depends on our major customers, and if our relationships with them do not continue as expected, our business, prospects and results of operations could materially suffer; · We are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes; · Our competitors and other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, and any unfavorable outcome of such litigation could have a material adverse effect on our business; · We may experience failures of or delays in clinical trials which could jeopardize or delay our ability to obtain regulatory approval and commence product sales; · We face intense competition from both brand and generic companies which could limit our growth and adversely affect our financial results; · We are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations; · We may not be able to develop or maintain sales capabilities or effectively market or sell any products that we may successfully commercialize; · Manufacturing or quality control problems may damage our reputation, require costly remedial activities, or otherwise negatively impact our business; · Our profitability will depend on coverage and reimbursement by third-party payors, and healthcare reform and other future legislation may lead to reductions in coverage or reimbursement levels; · We face risks related to health epidemics and outbreaks, including the COVID-19 pandemic, which could significantly disrupt our preclinical studies and clinical trials, and therefore our receipt of necessary regulatory approvals could be delayed or prevented; · We currently, and may in the future need to, license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms; · We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop, manufacture and market our products and product candidates; · If we fail to comply with our obligations under any of our third-party agreements, we could lose license rights that are necessary to develop our product candidates; and · Our directors, executive officers and certain stockholders (one of which is an affiliate of our Chief Executive Officer) own a significant percentage of our common stock and, if they choose to act together, will be able to exert significant control over matters subject to stockholder approval. 36 Table of Contents Risks Related to Our Financial Position and Need for Capital We are a clinical stage pharmaceutical company with a limited operating history.
Some of these risks include: · We are a pre-revenue company with a limited operating history; · We may not be able to successfully develop or commercialize our product candidates or do so on a timely or cost-effective basis; · Our business may be negatively affected by the impacts of COVID-19; · We depend on a limited number of product candidates and our business could be materially adversely affected if one or more of our key product candidates do not perform as well as expected and do not receive regulatory approval; · The market for our product candidates, including DMT 310 and DMT 410, may not be as large as we expect; · Our competitors and other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, and any unfavorable outcome of such litigation could have a material adverse effect on our business; · We may experience failures of or delays in clinical trials which could jeopardize or delay our ability to obtain regulatory approval and commence product sales; · We face intense competition from both brand and generic companies which could limit our growth and adversely affect our financial results; · We are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations; · We may not be able to develop or maintain sales capabilities or effectively market or sell any products that we may successfully commercialize; · Manufacturing or quality control problems may damage our reputation, require costly remedial activities, or otherwise negatively impact our business; · Our profitability will depend on coverage and reimbursement by third-party payors, and healthcare reform and other future legislation may lead to reductions in coverage or reimbursement levels; · We currently, and may in the future need to, license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms; · We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop, manufacture and market our products and product candidates; · The raw material for our product candidates, DMT310 and DMT410, is derived from naturally occurring ingredients that grow only in limited areas that need to be harvested annually.
Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects.
Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects. 50 Table of Contents Healthcare legislative or regulatory reform measures, including government restrictions on pricing and reimbursement, may have a negative impact on our business and results of operations.
We are unable to predict what tax proposals may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall effective tax rates in the future in jurisdictions where we have operations, and increase the complexity, burden and cost of tax compliance.
We are unable to predict what tax proposals may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall effective tax rates in the future in jurisdictions where we have operations, and increase the complexity, burden and cost of tax compliance. 35 Table of Contents Risks Related to Development, Regulatory Approval and Commercialization We face risks related to health epidemics and outbreaks, including COVID-19, which could significantly disrupt our preclinical studies and clinical trials.
Any of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, which could harm our business, financial condition, operating results and prospects.
Any of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, which could harm our business, financial condition, operating results and prospects. 64 Table of Contents Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations.
Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.
Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential know-how is expensive, time consuming and unpredictable.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval. 54 Table of Contents Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
We intend to in-license, acquire, develop and market additional products and product candidates and we may in-license or acquire commercial-stage products or engage in other strategic transactions. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical companies, academic scientists and other researchers to sell or license products or technology to us.
Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical companies, academic scientists, and other researchers to sell or license products or technology to us.
Patient enrollment is affected by other factors including: · the severity of the disease under investigation; · the eligibility criteria for the study in question; · the perceived risks and benefits of the product candidate under study; · the efforts to facilitate timely enrollment in clinical trials; · the patient referral practices of physicians; · he ability to monitor patients adequately during and after treatment; · the proximity and availability of clinical trial sites for prospective patients; and · factors we may not be able to control, such as potential pandemics that may limit subjects, principal investigators or staff or clinical site availability (e.g., the outbreak of COVID-19). 47 Table of Contents Even if our current product candidates or any future product candidates obtain regulatory approval, they may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.
In addition, some of our competitors are currently conducting clinical trials for product candidates that treat the same indications as DMT310, and patients who are otherwise eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. 42 Table of Contents Patient enrollment is affected by other factors including: · the severity of the disease under investigation; · the eligibility criteria for the study in question; · the perceived risks and benefits of the product candidate under study; · the efforts to facilitate timely enrollment in clinical trials; · the patient referral practices of physicians; · he ability to monitor patients adequately during and after treatment; · the proximity and availability of clinical trial sites for prospective patients; and · factors we may not be able to control, such as potential pandemics that may limit subjects, principal investigators or staff or clinical site availability (e.g., the outbreak of COVID-19).
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities.
We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all. 62 Table of Contents Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities.
The disruptions to the global economy in 2020 and into 2021 have impeded global supply chains, resulting in longer lead times and also increased critical component costs and freight expenses.
Disruptions in the global economy and supply chains may have a material adverse effect on our business, financial condition and results of operations. The disruptions to the global economy in 2020 and into 2021 have impeded global supply chains, resulting in longer lead times and also increased critical component costs and freight expenses.
We may in the future conduct clinical trials for our product candidates outside the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials. We may in the future choose to conduct one or more of our clinical trials outside the United States, including in Canada, Europe and South America.
We may in the future choose to conduct one or more of our clinical trials outside the United States, including in Canada, Europe and South America.
If we do not obtain NCE exclusivity for DMT310, or if a competitor obtains NCE exclusivity for a similar product before we submit and receive approval of an NDA for DMT310, our ability to commence sales and generate revenue would be adversely affected.
If we do not obtain NCE exclusivity for DMT310, or if a competitor obtains NCE exclusivity for a similar product before we submit and receive approval of an NDA for DMT310, our ability to commence sales and generate revenue would be adversely affected. 44 Table of Contents Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.

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Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES Our mailing address is 3525 Del Mar Heights Rd., #322, San Diego, California 92130. All of our employees and consultants work remotely because of the COVID-19 pandemic. Previously, we leased office space in San Diego, California; however, we elected not to renew the lease during 2019.
ITEM 2. PROPERTIES Our mailing address is 3525 Del Mar Heights Rd., #322, San Diego, California 92130. All of our employees work remotely because of the COVID-19 pandemic. Previously, we leased office space in San Diego, California; however, we elected not to renew the lease during 2019.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations. ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable. 83 Table of Contents PART II
Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations. ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable. 80 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Item 4. Mine Safety Disclosures 83 Part II 84 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 84 Item 6. Reserved 85 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 86
Item 4. Mine Safety Disclosures 80 Part II 81 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 81 Item 6. [Reserved] 81 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 82

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Holders As of December 31, 2021, there were approximately 92 stockholders of record of our Common Stock. This number does not include beneficial owners whose shares were held in street name.
Holders As of December 31, 2022, there were approximately 71 stockholders of record of our Common Stock. This number does not include beneficial owners whose shares were held in street name.
Removed
Use of Proceeds from Registered Securities On August 12, 2021, our registration statement on Form S-1 (Registration No. 333-256997) was declared effective by the SEC for our initial public offering pursuant to which we sold an aggregate of 2,571,428 units consisting of 2,571,428 shares of common stock and Warrants to purchase up to 2,571,428 shares of common stock at a price to the public of $7.00 per unit, for an aggregate offering of approximately $18.0 million.
Removed
Maxim Group LLC acted as the sole book-running manager for the offering. On August 17, 2021, we closed the sale of the units, resulting in net proceeds to us of approximately $15.4 million after deducting underwriting discounts and commissions and other offering expenses.
Removed
No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates.
Removed
There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on August 16, 2021 pursuant to Rule 424(b).
Removed
Recent Sales of Unregistered Securities During the period covered by this Form 10-K, or such period as described below, we made sales of the following unregistered securities: Original Issuances of Stock On March 24, 2021, we converted from a limited liability company to a Delaware corporation and we changed our name to Dermata Therapeutics, Inc., resulting in a new capital structure consisting of common stock and preferred stock, each having a par value of $0.0001.
Removed
This conversion resulted in conversion of the prior Dermata members’ interests into an aggregate of 65,823,015 shares of our preferred stock (which converted into 3,813,973 shares of common stock upon the closing of our initial public offering), and 1,911,009 shares of our common stock.
Removed
In connection with our conversion to a Delaware corporation, we also issued warrants exercisable for 1,419,228 shares of our preferred stock (or the Preferred Stock Warrants), and warrants exercisable for 65,303 shares of our common stock (or the Common Stock Warrants).
Removed
The Preferred Stock Warrants have an exercise price of $1.00 per share and the Common Stock Warrants have a weighted average exercise price of $5.82 per share. 84 Table of Contents Convertible Promissory Note Offering In July 2020, we held the first closing of the Notes for an aggregate principal amount of $2,330,000, including $500,000 from Proehl Investment Ventures, LLC.
Removed
In October 2020, we held the second closing of the Notes for an aggregate principal amount of $670,000, including $420,000 from Proehl Investment Ventures, LLC.
Removed
In February 2021, we held the third closing of the Notes for an aggregate principle amount of $1,556,000, including $825,000 from Proehl Investment Ventures, LLC, $100,000 from the Sean Michael Proehl Irrevocable Trusts Dated December 18, 2020, and $250,000 from Hale Biopharma Ventures, LLC.
Removed
On March 15, 2021, we completed the conversion of$4,391,000 of Notes into 5,379,247 Series 1d Preferred Units. At that time Proehl Investment Ventures, LLC, Sean Michael Proehl Irrevocable Trusts Dated December 18, 2020 and Hale Biopharma Ventures, LLC held an aggregate principal amount of $1,745,000, $100,000 and $250,000 of Notes, respectively. Mr.
Removed
Proehl, our President and Chief Executive Officer and a member of the board of directors, is the managing member of Proehl Investment Ventures, LLC and the trustee of Sean Michael Proehl Irrevocable Trusts Dated December 18, 2020. Mr. Hale, a member of the board of directors, is the managing member of Hale Biopharma Ventures, LLC.
Removed
In addition, Wendell Wierenga, a member of our board of directors, held $45,000 principal amount of the Notes. Each of Messrs.
Removed
Proehl, Hale and Wierenga converted their aggregate principal amounts of Notes into Series 1d Preferred Units on March 15, 2021, which units were subsequently converted into shares of our Series 1d Preferred Stock in connection with our conversion to a Delaware corporation. The shares of Series 1d Preferred Stock held by Mr.
Removed
Proehl, Hale and Wierenga automatically converted into 291,831, 39,180 and 7,142 shares of common stock, respectively, upon the completion of our initial public offering, at a conversion price equal to $5.60 (80% of the initial offering price).
Removed
The Notes had an interest rate of 4.0% per annum, were unsecured, had a maturity date of December 31, 2021 and provided for conversion into our common stock upon the earlier of (i) qualified Series A Financing (as defined in the Notes) which resulted in aggregate gross proceeds to the Company of at least Ten Million Dollars ($10,000,000), or (ii) the closing of our initial public offering.
Removed
At the closing of our initial public offering the aggregate principal amount and all accrued but unpaid interest on the Notes automatically converted into an aggregate of 32,219 shares of our common stock at a conversion price of $5.60 per share (which was 80% of the initial offering price).
Removed
Stock Options On March 24, 2021, in connection with our conversion from a limited liability company to a Delaware corporation, we issued common stock options exercisable for an aggregate of 398,199 shares of our common stock. These options have an exercise price of $5.74 per share.
Removed
Underwriter Warrants Upon the closing of our initial public offering, we issued to the underwriters warrants exercisable for a period of five years from the closing of the initial public offering which entitle the underwriters to purchase 128,571 of shares of common stock, at an exercise price equal to 115% of the public offering price, or $8.05 per share.
Removed
The warrants will not be exercisable until February 12, 2022.
Removed
Securities Act Exemptions We deemed the offers, sales and issuances of the securities described above under “Original Issuances of Stock,” “Convertible Promissory Note Offering” and “Underwriter Warrants” to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, relative to transactions by an issuer not involving a public offering.
Removed
All purchasers of securities in transactions exempt from registration pursuant to Regulation D represented to us that they were accredited investors and were acquiring the shares for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time.
Removed
The purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.
Removed
We deemed the grants of stock options and issuances of common stock upon exercise of such options described above under “Stock Options” to be exempt from registration under the Securities Act in reliance on Rule 701 of the Securities Act as offers and sales of securities under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701.
Removed
Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Financing activities Cash provided by financing activities of $16.0 million for the year ended December 31, 2021 was the result of net proceeds of $15.4 million from our initial public offering, $1.6 million from the issuance of convertible subordinated promissory notes, proceeds of $0.6 million from the issuance of Series 1d Preferred Units, offset by $1.0 million payment for the redemption of 5,221,156 shares of Series 1c preferred stock and $0.6 million of principal and final payments on debt.
Cash provided by financing activities of $16.0 million for the year ended December 31, 2021, was the result of net proceeds of $15.4 million from our initial public offering, $1.6 million from the issuance of convertible subordinated promissory notes, proceeds of $0.6 million from the issuance of Series 1d Preferred Units, offset by $1.0 million payment for the redemption of 5,221,156 shares of Series 1c preferred stock and $0.6 million of principal and final payments on debt.
We anticipate we will incur net losses for the next several years as we complete clinical development of DMT310 for the treatment of acne, psoriasis and rosacea and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions.
We anticipate we will incur net losses for the next several years as we complete clinical development of DMT310 for the treatment of acne and psoriasis and continue research and development of DMT410 for the treatment of aesthetic and medical skin conditions.
Future Capital Requirements We plan to focus in the near term on the development, regulatory approval, and potential commercialization of DMT310 for the treatment of acne, psoriasis, and rosacea.
Future Capital Requirements We plan to focus in the near term on the development, regulatory approval, and potential commercialization of DMT310 for the treatment of acne and psoriasis.
Components of Results of Operations Revenue We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products in the near future until we obtain regulatory approval of, and commercialize, our product candidates. 88 Table of Contents Operating Expenses Research and Development Expenses Research and development activities are central to our business model.
Components of Results of Operations Revenue We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products in the near future until we obtain regulatory approval of, and commercialize, our product candidates. 84 Table of Contents Operating Expenses Research and Development Expenses Research and development activities are central to our business model.
Since inception, we have raised an aggregate of approximately $46.9 million of gross proceeds from the sale of our debt and equity securities, including the securities sold in our IPO. We have not generated any revenue to date and have incurred significant operating losses.
Since inception, we have raised an aggregate of approximately $51.9 million of gross proceeds from the sale of our debt and equity securities, including the securities sold in our IPO. We have not generated any revenue to date and have incurred significant operating losses.
However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. 91 Table of Contents We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.
However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.
Product commercialization will take several years and millions of dollars in development costs. 89 Table of Contents General and Administrative Expenses General and administrative expenses consist principally of salaries and related costs for personnel in executive and administrative functions, travel expenses and recruiting expenses.
Product commercialization will take several years and millions of dollars in development costs. 85 Table of Contents General and Administrative Expenses General and administrative expenses consist principally of salaries and related costs for personnel in executive and administrative functions, travel expenses and recruiting expenses.
Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), papulopustular rosacea (or rosacea), hyperhidrosis, and various aesthetic indications affect millions of people worldwide each year and may negatively impact their quality of life and emotional well-being.
Dermatological diseases such as acne vulgaris (or acne), psoriasis vulgaris (or psoriasis), hyperhidrosis, and various aesthetic indications, affect millions of people worldwide each year which may negatively impact their quality of life and emotional well-being.
If we are unable to raise sufficient additional capital, we may need to substantially curtail our planned operations and the pursuit of our growth strategy. We may raise additional capital through the sale of equity or convertible debt securities.
If we are unable to raise sufficient additional capital, we may need to substantially curtail our planned operations and the pursuit of our growth strategy. 90 Table of Contents We may raise additional capital through the sale of equity or convertible debt securities.
We may seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all.
We will need additional financing to support our operations. We may seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all.
References in the following discussion to “we”, “our”, “us”, “Dermata”, or “the Company”, refer to Dermata Therapeutics, Inc. formerly known as Dermata Therapeutics, LLC. Overview We are a clinical stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe have significant unmet needs.
References in the following discussion to “we”, “our”, “us”, “Dermata”, or “the Company”, refer to Dermata Therapeutics, Inc. formerly known as Dermata Therapeutics, LLC. Overview We are a clinical-stage medical dermatology company focused on identifying, developing, and commercializing innovative pharmaceutical product candidates for the treatment of medical and aesthetic skin conditions and diseases we believe represent significant market opportunities.
We believe that our existing cash will be sufficient to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based this estimate of cash runway on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: · complete development of DMT310 for the treatment of acne, including non-clinical studies and Phase 3 clinical trials; · prepare and file for regulatory approval of DMT310 for the treatment of moderate to severe acne; · continue development of DMT310 for the treatment of rosacea, including a Phase 2 clinical trial and Phase 3 clinical trials; · continue development of DMT310 for the treatment of psoriasis, including a Phase 2 clinical trial and Phase 3 clinical trials; · identify a botulinum toxin partner for DMT410 for the treatment of aesthetic and medical skin conditions; · prepare for commercialization of DMT310, if approved, including the hiring of sales and marketing personnel; · begin to manufacture our product candidates for Phase 2 and Phase 3 trials and commercial sale; · hire additional research and development and selling, general and administrative personnel; · maintain, expand, and protect our intellectual property portfolio; and · incur additional costs associated with operating as a public company. 87 Table of Contents We will need additional financing to support our operations.
We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: · complete development of DMT310 for the treatment of acne, including non-clinical studies and Phase 3 clinical trials; · prepare and file for regulatory approval of DMT310 for the treatment of moderate-to-severe acne; · continue development of DMT310 for the treatment of psoriasis, including a Phase 2 clinical trial and Phase 3 clinical trials, pending additional finances or strategic partner; · identify a botulinum toxin partner for DMT410 for the treatment of aesthetic and medical skin conditions; · prepare for commercialization of DMT310, if approved, including the hiring of sales and marketing personnel; · begin to manufacture our product candidates for Phase 2 and Phase 3 trials and commercial sale; · hire additional research and development and selling, general and administrative personnel; · maintain, expand, and protect our intellectual property portfolio; and · incur additional costs associated with operating as a public company.
We incurred net losses of $7.9 million and $3.2 million for the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of $36 million at December 31, 2021. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenue from our product candidates currently in development.
We incurred net losses of $9.6 million and $7.9 million for the years ended December 31, 2022, and 2021, respectively, and had an accumulated deficit of $45.6 million at December 31, 2022. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenue from our product candidates currently in development.
Our Spongilla technology is a multifactorial, naturally derived product that is processed from a wholly naturally grown freshwater sponge, Spongilla lacustris or Spongilla, which is processed into a powder and is mixed with a fluidizing agent immediately prior to application by the patient to form an easily applicable paste.
Our Spongilla technology is derived from a naturally grown freshwater sponge, Spongilla lacustris or Spongilla , which is processed into a powder that is mixed with a fluidizing agent immediately prior to application to form an easily applicable paste.
While a majority of these indications are first treated with topical products, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction with slow and modest response rates, early onset of negative side effects, onerous application schedules and typically long duration of therapy.
A majority of these indications are first treated with topical therapy; however, many patients frequently switch treatments or discontinue treatment altogether due to patient dissatisfaction. This is primarily due to slow and modest response rates, early onset of negative side effects, daily application schedules and long duration of therapy.
Liquidity and Capital Resources Since our inception, we have not generated any revenue or commercialized any products. As of December 31, 2021, our cash totaled $10.8 million and we had an accumulated deficit of $36 million. For the year ended December 31, 2021 and 2020, we used cash of $5.7 million and $4.0 million, respectively, in operations.
Liquidity and Capital Resources Since our inception, we have not generated any revenue or commercialized any products. As of December 31, 2022, our cash and cash equivalents totaled $6.2 million, and we had an accumulated deficit of $45.6 million. For the year ended December 31, 2022, and 2021, we used cash of $8.8 million and $5.7 million, respectively, in operations.
While there are multiple current treatment options for these indications on the market, we believe that most have significant drawbacks, including underwhelming treatment results, cumbersome application regimens and varying negative side effects leading to a lack of patient compliance.
While there are multiple current treatment options for these indications on the market, we believe that most have significant drawbacks, including underwhelming efficacy, cumbersome application regimens and varying negative side effects, all of which we believe lead to decreased patient compliance.
On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses and the fair value of units and common stock. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses and the fair value of units and common stock. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances.
Debt financing, if available, would result in increased fixed payment obligations and 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.
If we raise additional funds by issuing equity securities, our stockholder will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and 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.
Our net loss was $7.9 million and $3.2 million for the years ended December 31, 2021 and 2020, respectively, and as of December 31, 2021, we had an accumulated deficit of $36 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future.
Our net losses were $9.6 million and $7.9 million for years ended December 31, 2022, and 2021, respectively, and as of December 31, 2022, we had an accumulated deficit of $45.6 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future.
We recognize interest and penalties related to unrecognized tax benefits, if any, within income tax expense.
We recognize interest and penalties related to unrecognized tax benefits, if any, within income tax expense. Any accrued interest and penalties are included within the related tax liability.
These uncertainties raise substantial doubt about our ability to continue as a going concern for 12 months after the issuance date of our financial statements. The accompanying financial statements have been prepared on a going concern basis.
Further, our future operations are dependent on the success of the Company’s efforts to raise additional capital. These uncertainties raise substantial doubt about our ability to continue as a going concern for 12 months after the issuance date of our financial statements. The accompanying financial statements have been prepared on a going concern basis.
While our significant accounting policies are more fully described in Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.
Actual results may differ from these estimates under different assumptions or conditions. 86 Table of Contents While our significant accounting policies are more fully described in Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.
Cash Flows The following table summarizes our cash flows from operating and financing activities: Year Ended December 31, 2021 2020 Statements of cash flows data: Total net cash provided by (used in): Operating activities $ (5,693,392 ) $ (4,028,541 ) Financing activities $ 15,961,798 $ 2,567,139 Increase (decrease) in cash $ 10,268,406 $ (1,461,402 ) 93 Table of Contents Operating activities Cash used in operations of $5.7 million for the year ended December 31, 2021 was the result of the net loss of $7.9 million and an increase in prepaid expenses and other current assets of $0.7 million, offset by non-cash stock-based compensation of $1.9 million and an increase in accounts payable and accrued and other current liabilities of $1.0 million.
Cash Flows The following table summarizes our cash flows from operating and financing activities: Year Ended December 31, 2022 2021 Statements of cash flows data: Total net cash provided by (used in): Operating activities $ (8,834,164 ) $ (5,693,392 ) Financing activities $ 4,276,652 $ 15,961,798 Increase (decrease) in cash and cash equivalents $ (4,557,512 ) $ 10,268,406 Operating activities Cash used in operations of $8.8 million for the year ended December 31, 2022, was the result of the net loss of $9.6 million and a decrease in accounts payable and accrued and other current liabilities of $0.3 million, offset by non-cash stock-based compensation of $0.9 million and a decrease in prepaid expenses and other current assets of $0.2 million.
Any accrued interest and penalties are included within the related tax liability. 90 Table of Contents Critical Accounting Policies and Significant Judgments and Estimates We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Policies and Significant Judgments and Estimates We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, legal and other regulatory expenses, and administrative and overhead costs.
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support development of our drug candidates.
If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. 91 Table of Contents Going Concern Since inception we have been engaged in organizational activities, including raising capital and research and development activities.
The combination of these ideal environmental conditions, the proprietary harvesting protocols developed with our supplier, and our post-harvest processing procedures optimize the mechanical component as well as the chemical components of Spongilla for product candidates with multiple mechanisms of action for the treatment of inflammatory skin conditions.
The combination of these environmental conditions, the proprietary harvesting protocols developed with our exclusive supplier, and our post-harvest processing procedures produce a pharmaceutical product candidate that optimizes the mechanical components as well as the chemical components of the sponge to create a product candidate with multiple mechanisms of action for the treatment of inflammatory skin conditions and aesthetic applications.
Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed. 87 Table of Contents Fair Value of Common Stock and Stock-based Compensation Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.
Given the limitations with current topical therapies and the restricted usability of systemic therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for effective topical products that satisfy their dermatological and lifestyle needs.
Given the limitations with current topical therapies, we believe there is a significant opportunity to address the needs of frustrated patients searching for topical products that satisfy their dermatological and lifestyle needs. Our two product candidates, DMT310 and DMT410, both incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions.
As a result, we expect to report higher general and administrative expenses in 2022. Interest Expense Interest expense has consisted primarily of interest expense on our previously outstanding convertible debt and loan with Silicon Valley Bank, amortization of debt discount costs, and interest on milestone payments under the License Amendment and Settlement Agreement.
Interest Expense Interest expense has consisted primarily of interest expense on our previously outstanding convertible debt and loan with Silicon Valley Bank, amortization of debt discount costs, and interest on milestone payments under the License Amendment and Settlement Agreement. Interest Income Interest income consists of interest income earned on cash equivalents from interest bearing demand accounts.
Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement.
Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar strategic business transaction.
We believe these two DMT410 trials indicate we have been able to topically deliver botulinum toxin into the dermis after the application of our Spongilla technology. 86 Table of Contents We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target topical delivery of chemical compounds into the dermis for maximum treatment effect for a variety of inflammatory skin diseases.
We believe our Spongilla technology platform will enable us to develop and formulate singular and combination products that are able to target the topical delivery of chemical compounds into the dermis for a variety of dermatology indications.
Going Concern Since inception we have been engaged in organizational activities, including raising capital and research and development activities. We have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis.
We have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. We are subject to those risks associated with any pre-clinical stage pharmaceutical company that has substantial expenditures for research and development.
Our future funding requirements will be heavily determined by the resources needed to support development of our drug candidates. 94 Table of Contents As a publicly traded company, we will incur significant legal, accounting, and other expenses that we were not required to incur as a private company.
As a publicly traded company, we will incur significant legal, accounting, and other expenses that we were not required to incur as a private company.
While expected to be temporary, these disruptions may negatively impact our results of operations, financial condition, and liquidity in 2022, and potentially beyond. 96 Table of Contents Recently Issued Accounting Standards For a discussion of recent accounting pronouncements, please see the Summary of Significant Accounting Policies in the Notes to our financial statements included elsewhere in this Annual Report.
Our primary source of capital has been the issuance of debt and equity securities. Recently Issued Accounting Standards For a discussion of recent accounting pronouncements, please see the Summary of Significant Accounting Policies in the Notes to our financial statements included elsewhere in this Annual Report.
We reported that 80% of patients achieved a reduction in gravimetric sweat production greater than 50%, four weeks after treatment. Based on the results of this trial, we initiated a Phase 1 POC trial of DMT410 for the intradermal treatment of multiple aesthetic skin conditions.
We first tested DMT410 in a Phase 1 POC trial of axillary hyperhidrosis patients, which saw 80% of patients achieve a reduction in gravimetric sweat production greater than 50% four weeks after a single treatment.
In November 2021, we announced top-line results from this trial where we obtained data that we believe warrants further investigation of this program.
In November 2021, we announced top-line results from this trial, where we saw promising data that we believe warrants further investigation of DMT410. We are currently in the process of discussing partnering opportunities with botulinum toxin companies to move the DMT410 program into Phase 2 studies.
We are subject to those risks associated with any pre-clinical stage pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that our research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable.
There can be no assurance that our research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, we operate in an environment of rapid technological change and is largely dependent on the services of our employees and consultants.
All of such securities were exchanged for shares of our capital units in connection with our conversion from a limited liability company to a corporation in March 2021. 92 Table of Contents Comparison of the Years Ended December 31, 2021 and 2020 The following table summarizes our results of operations for the years ended December 31, 2021 and 2020, respectively: Year Ended December 31, 2021 2020 Difference Operating expenses: Research and development $ 3,459,340 $ 1,607,819 $ 1,851,521 General and administrative 4,397,524 1,565,034 2,832,490 Total operating expenses 7,856,864 3,172,853 4,684,011 Losses from operations (7,856,864 ) (3,172,853 ) (4,684,011 ) Other income and expenses: Gain from forgiveness of Paycheck Protection Plan loan - (133,592 ) 133,592 Interest expense, net 45,613 197,269 (151,656 ) Net loss $ (7,902,477 ) $ (3,236,530 ) $ (4,665,947 ) Research and Development Expenses Research and development expenses increased by $1.9 million from $1.6 million for the year ended December 31, 2020 to $3.5 million for the year ended December 31, 2021.
Comparison of the Years Ended December 31, 2022, and 2021 The following table summarizes our results of operations for the years ended December 31, 2022, and 2021, respectively: Year Ended December 31, 2022 2021 Difference Operating expenses: Research and development $ 5,651,041 $ 3,459,340 $ 2,191,701 General and administrative 4,023,445 4,397,524 (374,079 ) Total operating expenses 9,674,486 7,856,864 1,817,622 Losses from operations (9,674,486 ) (7,856,864 ) (1,817,622 ) Other income and expenses: Interest (income) expense, net (63,573 ) 45,613 (109,186 ) Net loss $ (9,610,913 ) $ (7,902,477 ) $ (1,708,436 ) 88 Table of Contents Research and Development Expenses Research and development expenses increased by approximately $2.2 million from $3.5 million for the year ended December 31, 2021, to $5.7 million for the year ended December 31, 2022.
The increase was the result of increased salaries, benefits, and stock-based compensation of $1.3 million and increased clinical trial and manufacturing costs of $0.6 million. General and Administrative Expenses General and administrative expenses increased by $2.8 million from $1.6 million for the year ended December 31, 2020 to $4.4 million for the year ended December 31, 2021.
General and Administrative Expenses General and administrative expenses decreased by $0.4 million from $4.4 million for the year ended December 31, 2021, to $4.0 million for the year ended December 31, 2022.
Cash used in operations of $4.0 million for the year ended December 31, 2020 was the result of the net loss of $3.2 million, payment of $0.5 million for a license and settlement liability, as well as an increase in accounts payable and accrued and other current liabilities of $0.3 million.
Cash used in operations of $5.7 million for the year ended December 31, 2021, was the result of the net loss of $7.9 million and an increase in prepaid expenses and other current assets of $0.7 million, offset by non-cash stock-based compensation of $1.9 million and an increase in accounts payable and accrued and other current liabilities of $1.0 million. 89 Table of Contents Financing activities Cash provided by financing activities of $4.3 million for the year ended December 31, 2022, was the result of the net proceeds received from the issuance of common stock and warrants issued in April 2022 from a private placement of the Company’s securities.
Our lead product candidate DMT310, utilizes our Spongilla technology for a once weekly treatment of a variety of skin diseases. Our initial focus is the treatment of acne vulgaris. However, due to the multiple mechanisms of action and anti-inflammatory effect seen with DMT310, we have moved into clinical trials of two additional indications, psoriasis and rosacea.
Our lead product candidate, DMT310, is intended to utilize our Spongilla technology for once weekly treatment of a variety of skin diseases, with our initial focus being the treatment of acne vulgaris, which has a U.S. market size of approximately 50 million patients.
The increase resulted from increased salaries, benefits, and stock-based compensation of $1.3 million as well as increased legal, professional, and public company costs of $1.5 million, including increased insurance costs of $0.5 million, resulting from us incurring additional expenses as a public company in 2021.
The decrease in general and administrative expenses was the result of $0.8 million in decreased stock-based compensation expense, $0.2 million of decreased legal costs, and $0.1 million of decreased employee and personnel expenses, offset by increased insurance costs of $0.5 million and increased public company costs of $0.2 million.
We believe the combination of these mechanical and chemical components make our platform versatile for the treatment of a wide variety of medical and aesthetic skin conditions and diseases. We have a limited operating history.
We believe the combination of Spongilla’s mechanical and chemical components (which we believe have demonstrated, in-vitro , anti-microbial and anti-inflammatory properties), add to the versatility of our Spongilla technology platform’s effectiveness as a singular product, in the treatment of a wide variety of medical skin diseases like acne and psoriasis,.
DMT410 consists of one treatment of our proprietary sponge powder followed by topical application of botulinum toxin for delivery into the dermis. We first tested this program in a Phase 1 POC trial of axillary hyperhidrosis patients, which was completed in July 2019.
DMT410 is intended to consist of one treatment of our proprietary sponge powder followed by one topical application of botulinum toxin for delivery into the dermis. Currently, botulinum toxin is only approved to be delivered to the dermis by intradermal injections, which can be painful for the patient and time-consuming for the physician.
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For diseases like psoriasis, a small percentage of patients may be candidates for biologic or systemic therapies, but these patients are typically required to try topical or oral treatment options prior to qualifying for these expensive systemic therapies.
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We also believe the mechanical properties of our Spongilla technology allows for the intradermal delivery of a variety of large molecules, like botulinum toxins, monoclonal antibodies, or dermal fillers, to target treatment sites, through topical application without the need for needles.
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Our two product candidates, DMT310 and DMT410, incorporate our proprietary, multifaceted, Spongilla technology to topically treat a variety of dermatological conditions.
Added
We have shown DMT310’s ability to treat the multiple causes of acne in a Phase 2b study where we initially saw a 45% reduction in inflammatory lesions after four treatments, with statistically significant improvements at all time points for all three primary endpoints throughout the study (reduction in inflammatory lesions, reduction in non-inflammatory lesions, and improvement in Investigator Global Assessment).
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In October 2021, we completed a Phase 1b proof of concept, or POC, trial in psoriasis and in November 2021 we initiated a Phase 2 clinical trial of DMT310 for the treatment of rosacea. Our second product candidate utilizing our Spongilla technology is our combination treatment, DMT410.
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Based on this Phase 2b data we are currently preparing for an end of phase 2 meeting with the FDA to finalize requirements prior to initiating a phase 3 program in the second half of 2023.
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One mechanism of our technology is its mechanical ability to allow for the intradermal delivery of a variety of large and small molecules through microchannels to a targeted treatment site via topical application. In addition to its mechanical components, the Spongilla technology also utilizes multiple naturally occurring chemical compounds that we believe have demonstrated in-vitro anti-microbial, and anti-inflammatory properties.
Added
In addition, based on the multiple mechanisms of action and anti-inflammatory effect seen with DMT310 acne trial, we completed a Phase 1b proof of concept, or POC, trial in psoriasis where we saw encouraging results warranting further investigation. 82 Table of Contents DMT310 consists of two grams of powder processed from the naturally grown freshwater sponge, Spongilla lacustris.
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COVID-19 Update In December 2019, there was an outbreak of a novel strain of coronavirus, or COVID-19. In March 2020, the World Health Organization declared COVID-19 a pandemic.
Added
The patient mixes the powder with a fluidizing agent (hydrogen peroxide) immediately prior to application by the patient to form an easy-to-apply paste. The paste is applied similar to a mud mask and is left on the skin for approximately ten to fifteen minutes, after which time it is washed off with water.
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The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets.
Added
Due to the unique combination of DMT310’s mechanical components and chemical components, and based on our Phase 2 acne data, we believe patients will only need to apply DMT310 once-weekly to produce a desired treatment effect.
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The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or mitigate its impact and the economic impact on local, regional, national and international markets.
Added
The mechanical components of the Spongilla powder consist of many microscopic siliceous, needle-like spicules that, when massaged into the skin, penetrate the stratum corneum (the skin’s outermost protective layer) and create microchannels into the dermis where pro-inflammatory cytokines and bacteria reside.
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Our assessment to date continues to support that we have not experienced any material delays or significant financial impacts directly related to the pandemic other than some minor disruptions to preclinical studies and clinical operations, including some disruptions in our manufacturing supply chain that affected and may continue to affect our drug supply, patient enrollment in some of our clinical trials and delays in collecting, receiving and analyzing data from patients enrolled in our clinical trials for DMT310 due to limited staff at our clinical trial sites.
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We believe that the penetration of the spicules also leads to the opening of microchannels, which allow oxygen to enter pilosebaceous glands, helping to kill C. acnes , which grow in an anaerobic (without oxygen) environment ( C. acnes is the bacteria that cause inflammatory lesions in acne patients).
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We will continue to monitor the overall impact of the COVID-19 pandemic on our business, financial condition, liquidity, assets and operations, including our personnel, programs, expected timelines, expenses, third-party contract manufacturing, contract research organizations and clinical trials.
Added
The spicules also cause rejuvenation of the top layer of dead skin, thereby increasing collagen production. Additionally, we believe the newly created microchannels provide a conduit for DMT310’s naturally occurring chemical compounds to be delivered to the dermis and pilosebaceous glands, helping to kill the C. acnes and fight inflammation .
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While our third-party contract manufacturers have been operating at or near normal levels and while we have not experienced any major interruptions to our contract manufacturers’ processes, it is possible that the pandemic and response efforts may have an impact in the future on our third-party contract manufacturers’ ability to produce quantities of our product candidates for preclinical testing and clinical trials.
Added
In addition to these anti-microbial compounds, DMT310 also appears to have anti-inflammatory chemical compounds, as demonstrated in in vitro experiments, that inhibit inflammation through the reduction of C.acnes stimulated IL-8 production and by inhibiting IL-17A and IL-17F expression in human cell lines.
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In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the pandemic.
Added
Also, during in vitro studies of DMT310’s organic compounds, we observed the inhibition of the lipogenesis of sebocytes, which may translate to a reduction in sebum (an oily and waxy substance produced by the human body’s sebaceous glands) production and the oiliness of the skin in patients, which was observed by a number of clinical investigators in our Phase 2 acne studies.
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Certain of our clinical trial sites have experienced, and others may experience in the future, delays in collecting, receiving and analyzing data from patients enrolled in our clinical trials for due to limited staff at such sites, limitation or suspension of on-site visits by patients, or patients’ reluctance to visit the clinical trial sites during the pandemic.
Added
We believe the combination of these biological and mechanical effects could be important factors in treating multiple inflammatory skin diseases, as seen in our clinical trials. Our second product candidate utilizing our Spongilla technology is DMT410, our combination treatment.
Removed
We and our contract research organizations may also need to make certain adjustments to the operation of our clinical trials in an effort to ensure the monitoring and safety of patients and minimize risk to trial integrity during the pandemic and generally.
Added
However, we believe DMT410’s ability to topically deliver botulinum toxin into the dermis could have similar levels of efficacy to existing delivery techniques, with fewer tolerability issues, and a quicker application time, possibly replacing the need for intradermal injections.
Removed
We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including having all of our employees to work remotely, suspending all non-essential travel worldwide for our employees and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business.
Added
With almost 40% of the hyperhidrosis market currently being treated with intradermal injections of botulinum toxin, we believe there could be significant opportunity for DMT410 to break into this market and replace intradermal injections of botulinum toxin.
Removed
We cannot presently predict the scope and severity of the planned and potential shutdowns or disruptions of businesses and government agencies, such as the Securities and Exchange Commission, or the SEC, or FDA.
Added
Based on DMT410’s ability to effectively deliver botulinum toxin to the dermis as observed in the Phase 1 axillary hyperhidrosis trial, we also conducted a Phase 1 POC trial of DMT410 for the treatment of multiple aesthetic skin conditions, including reduction of pore size, sebum production, and fine lines, among others.
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Fair Value of Common Stock and Stock-based Compensation Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.
Added
The COVID-19 pandemic continues to have a major impact in the US and around the world. The availability of vaccines holds promise for the future, though new variants of the virus and potential waning immunity from vaccines may result in continued impact from this pandemic in the future, which could adversely impact our operations.
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Other income and expenses Other income and expenses decreased by $18,064 from $63,677 for the year ended December 31, 2020 to $45,613 for the year ended December 31, 2021. The decrease was the result of decreased interest expense of $151,656 offset by the gain from the forgiveness of the Paycheck Protection Plan loan of $133,592.

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