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What changed in Eton Pharmaceuticals, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Eton Pharmaceuticals, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+210 added−215 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-16)

Top changes in Eton Pharmaceuticals, Inc.'s 2023 10-K

210 paragraphs added · 215 removed · 158 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

51 edited+14 added−23 removed68 unchanged
Biggest changeET-400 - Eton expects to submit a new drug application for the adrenal insufficiency product by the end of 2023, which could allow for an approval and launch of the product in 2024. ZENEO® Hydrocortisone Autoinjector - Our ZENEO® hydrocortisone autoinjector product candidate is a proprietary needle-free autoinjector under development for the treatment of adrenal crisis.
Biggest changeZENEO ® Hydrocortisone Autoinjector – Our ZENEO® hydrocortisone autoinjector product candidate is a proprietary needle-free autoinjector under development for the treatment of adrenal crisis. We expect to submit a New Drug Application (“NDA”) for the product in 2025, which could allow for FDA approval in 2026.
A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND process. Clinical trials are usually conducted in three phases. Phase 1 clinical trials are normally conducted in small groups of healthy volunteers to assess safety of various dosing regimens and pharmacokinetics.
A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND process. Clinical trials are usually conducted in three phases. Phase 1 clinical trials are conducted in small groups of healthy volunteers to assess safety of various dosing regimens and pharmacokinetics.
Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries. The U.S. government has increased its enforcement activity regarding illegal marketing practices domestically and internationally.
Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries. The U.S. government has increased its enforcement activity regarding marketing practices domestically and internationally.
FDA released such implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada.
The FDA released such implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada.
Some examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies.
Some examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation, or indication. The Hatch-Waxman Amendments permit applicants to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies.
We do not have complete control over these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products. ● It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights. ● Changes in either U.S. or foreign patent law or interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products. ● Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts. ● Others may claim an ownership interest in our intellectual property, which could expose us to litigation and have an adverse effect on our prospects. ● We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers. 14
We do not have complete control over these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products. ● It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights. ● Changes in either U.S. or foreign patent law or interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products. ● Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts. ● Others may claim an ownership interest in our intellectual property, which could expose us to litigation and have an adverse effect on our prospects. ● We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers. 13 Table of Contents
Intellectual Property Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on our trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.
Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on our trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.
Most recently, on August 16, 2022, President Biden signed the Inflation Reduction Act (“IRA”) which provides for (i) the government to set or negotiate prices for select high-cost Medicare Part D (beginning in 2026) and Medicare Part B drugs (beginning in 2028) that are more than nine years (for small-molecule drugs) or 13 years (for biological products) from their FDA approval, (ii) manufacturers to pay a rebate for Medicare Part B and Part D drugs when prices increase faster than inflation beginning in 2022 for Medicare Part D and 2023 for Medicare Part B drugs, and (iii) Medicare Part D redesign which replaces the current coverage gap provisions and establishes a $2,000 cap for out-of-pocket limits costs for Medicare beneficiaries beginning in 2025, with manufacturers being responsible for 10% of costs up to the $2,000 cap and 20% after that cap is reached.
In August 2022, President Biden signed the Inflation Reduction Act (“IRA”) which provides for (i) the government to set or negotiate prices for select high-cost Medicare Part D (beginning in 2026) and Medicare Part B drugs (beginning in 2028) that are more than nine years (for small-molecule drugs) or 13 years (for biological products) from their FDA approval, (ii) manufacturers to pay a rebate for Medicare Part B and Part D drugs when prices increase faster than inflation beginning in 2022 for Medicare Part D and 2023 for Medicare Part B drugs, and (iii) Medicare Part D redesign which replaces the current coverage gap provisions and establishes a $2,000 cap for out-of-pocket limits costs for Medicare beneficiaries beginning in 2025, with manufacturers being responsible for 10% of costs up to the $2,000 cap and 20% after that cap is reached.
Manufacturing and Suppliers We rely on third-party contract manufacturing organizations (“CMOs”) to manufacture our products. All of our finished product manufacturing partners are based in the United States or Europe. We seek to work with CMOs that have a long history of quality and FDA compliance.
Manufacturing and Suppliers We rely on third-party contract manufacturing organizations (“CMOs”) to manufacture our products. The majority of our finished product manufacturing partners are based in the United States or Europe. We seek to work with CMOs that have a long history of quality and FDA compliance.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Health Care Reform Law on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” The Bipartisan Budget Act of 2018, among other things, amended the Health Care Reform Law, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) included a provision which repealed the tax-based shared responsibility payment imposed by the Health Care Reform Law on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” The Bipartisan Budget Act of 2018, among other things, amended the Health Care Reform Law to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”.
We and the third-party manufacturers on which we rely for the manufacture of our product candidates and their respective components (including the active pharmaceutical ingredient (“API”)) are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP.
We and the third-party manufacturers on which we rely for the manufacture of our product candidates and their respective components (including the active pharmaceutical ingredient (“API”)) are subject to requirements that drugs be manufactured, packaged, and labeled in conformity with GMP.
We periodically utilize outside consultants on an as-needed basis, including medical consultants and product telesales services. Corporate and Other Information We were incorporated under the laws of the state of Delaware in April 2017. Our principal executive offices are located at 21925 W. Field Parkway, Suite 235, Deer Park, Illinois, 60010, and our telephone number is (847) 787-7361.
We periodically utilize outside consultants on an as-needed basis, including medical consultants. Corporate and Other Information We were incorporated under the laws of the state of Delaware in April 2017. Our principal executive offices are located at 21925 W. Field Parkway, Suite 235, Deer Park, Illinois, 60010, and our telephone number is (847) 787-7361.
There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. ● On May 23, 2019, CMS published a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. 11 Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics.
There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. ● On May 23, 2019, CMS published a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. 10 Table of Contents Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics.
All products are manufactured in compliance with current Good Manufacturing Processes (“cGMP”), and our internal quality system requires us to enter quality agreements with and audit all of our manufacturers prior to commercializing the product.
All products are manufactured in compliance with current Good Manufacturing Processes (“GMP”), and our internal quality system requires us to enter quality agreements with and audit all of our manufacturers prior to commercializing the product.
Additionally, in the United States, we must follow rules and regulations established by the FDA requiring the presentation of data indicating that our products are safe and efficacious and are manufactured in accordance with cGMP regulations.
Additionally, in the United States, we must follow rules and regulations established by the FDA requiring the presentation of data indicating that our products are safe and efficacious and are manufactured in accordance with GMP regulations.
Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether or not a trial may move forward at designated check-points based on access to certain data from the study.
Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether or not a trial may move forward at designated checkpoints based on access to certain data from the study.
Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record-keeping requirements.
Also, quality control and manufacturing procedures must continue to conform to GMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with GMP, which imposes extensive procedural, substantive and record-keeping requirements.
If the Orange Book certifications outlined above are not accomplished, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized. 8 Section 505(j) Abbreviated New Drug Applications The 505(j) pathway is used for product candidates that are therapeutically equivalent to an approved product.
If the Orange Book certifications outlined above are not accomplished, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized. 7 Table of Contents Section 505(j) Abbreviated New Drug Applications The 505(j) pathway is used for product candidates that are therapeutically equivalent to an approved product.
To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements.
To comply with GMP requirements, manufacturers must continue to spend time, money, and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping, and other requirements.
Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors. 10 Decreases in third-party reimbursement for our products or a decision by a third-party payor to not cover our products could reduce physician usage of the products and have a material adverse effect on our sales, results of operations and financial condition.
Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors. 9 Table of Contents Decreases in third-party reimbursement for our products or a decision by a third-party payor to not cover our products could reduce physician usage of the products and have a material adverse effect on our sales, results of operations and financial condition.
Risk Factor Summary You should carefully consider the risks set forth in the section of this Annual Report of Form 10-K entitled “Risk Factors” beginning on page 16 of this Annual Report, including, but not limited to, the following: ● We are a specialty pharmaceutical company with a limited operating history, and it is difficult for potential investors to evaluate our business. ● We may have significant research, regulatory and development expenses as we advance our product candidates. ● We may need to grow the size of our organization, and we may experience difficulties in managing this growth. ● If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. ● We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions. ● We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. ● Sales of counterfeits of any of our product candidates, as well as unauthorized sales of any of our product candidates, may have adverse effects on our revenues, business and results of operations and damage our brand and reputation. ● We have entered into several arrangements with related parties for the development and marketing of certain product candidates and these arrangements present potential conflicts of interest. ● We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively. ● Our competitors may obtain FDA or other regulatory approval for comparable products more rapidly than we may obtain approval for ours, and the risk of our competitors doing so may lead us to develop drug candidates without disclosing certain information with regard to such candidates. ● If we are not able to obtain any required regulatory approvals for our product candidates, we will not be able to commercialize our product candidate and our ability to generate revenue will be limited. 13 ● If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful. ● An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval of our product candidate. ● Even if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product, and the revenue that we generate from its sales, if any, may be limited. ● We are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.
Risk Factors Summary You should carefully consider the risks set forth in the section of this Annual Report of Form 10-K entitled “Risk Factors” beginning on page 14 of this Annual Report, including, but not limited to, the following: ● We may have significant research, regulatory and development expenses as we advance our product candidates. ● We may need to grow the size of our organization, and we may experience difficulties in managing this growth. ● If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. ● We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions. ● We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. ● Sales of counterfeits of any of our product candidates, as well as unauthorized sales of any of our product candidates, may have adverse effects on our revenues, business and results of operations and damage our brand and reputation. ● We have entered into several arrangements with related parties for the development and marketing of certain product candidates and these arrangements present potential conflicts of interest. ● We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively. ● Our competitors may obtain FDA or other regulatory approval for comparable products more rapidly than we may obtain approval for ours, and the risk of our competitors doing so may lead us to develop drug candidates without disclosing certain information with regard to such candidates. ● If we are not able to obtain regulatory approvals for our product candidates, we will not be able to commercialize our product candidate and our ability to generate revenue will be limited. 12 Table of Contents ● If the FDA concludes that our product candidates do not satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful. ● An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval of our product candidate. ● Even if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product, and the revenue that we generate from its sales, if any, may be limited. ● We are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.
After the FDA evaluates the NDA and inspects manufacturing facilities where the drug product and/or its API will be produced, it will either approve commercial marketing of the drug product with prescribing information for specific indications or issue a CRL indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA.
After the FDA evaluates the NDA and inspects manufacturing facilities where the drug product and/or its API will be produced, it will either approve commercial marketing of the drug product with prescribing information for specific indications or issue a Complete Response Letter (“CRL”) indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA.
An institutional review board (“IRB”) generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
An IRB generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
At a federal level, President Biden signed an Executive Order on July 9, 2021, affirming the administration’s policy to (i) support legislative reforms that would lower the prices of prescription drug and biologics, including by allowing Medicare to negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-cost generic drugs and biosimilars; and (ii) support the enactment of a public health insurance option.
In July 2021, President Biden signed an Executive Order affirming the administration’s policy to (i) support legislative reforms that would lower the prices of prescription drug and biologics, including by allowing Medicare to negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-cost generic drugs and biosimilars; and (ii) support the enactment of a public health insurance option.
Additionally, our product candidates could be subject to labeling and other restrictions and withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates. ● Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products. ● Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain. ● Our future growth may depend, in part, on our ability to penetrate international markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. ● If we market any of our products or product candidates in a manner that violates health care fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties. ● We may not be able to establish agreements with third parties with whom we wish to collaborate and, if we are able to establish them, we may not be able to establish them on commercially reasonable terms, which could result in alterations or delays of our development and commercialization plans. ● We expect to rely on third parties to conduct clinical trials for our product candidates.
Additionally, our product candidates could be subject to labeling and other restrictions and withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates. ● Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products. ● Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain. ● If we market any of our products or product candidates in a manner that violates health care fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties. ● We may not be able to establish agreements with third parties with whom we wish to collaborate and, if we are able to establish them, we may not be able to establish them on commercially reasonable terms, which could result in alterations or delays of our development and commercialization plans. ● We expect to rely on third parties to conduct clinical trials for our product candidates.
Healthcare Laws and Compliance Requirements For products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following: ● The U.S.
Healthcare Laws and Compliance Requirements Products distributed in the United States are also subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following: ● The U.S.
False Claims Act, can be enforced by individuals, on behalf of the government, through civil whistleblower or qui tam actions, and the civil monetary penalties law, prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government 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 Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which prohibits, among other things, executing a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services; ● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and 9 ● Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information related to drug pricing; state and local laws requiring the registration of pharmaceutical sales and medical representatives; and state and foreign laws, such as the General Data Protection Regulation (EU) 2016/679, governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
False Claims Act, can be enforced by individuals, on behalf of the government, through civil whistleblower or qui tam actions, and the civil monetary penalties law, prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government 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 Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which prohibits, among other things, executing a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services; ● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and ● Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information related to drug pricing; state and local laws requiring the registration of pharmaceutical sales and medical representatives; and state and foreign laws, such as the General Data Protection Regulation (EU) 2016/679, governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. 8 Table of Contents Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
Healthcare Reform In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the health-care system that could prevent or delay marketing approval pharmaceutical products, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates.
Healthcare Reform In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the health-care system that could prevent or delay marketing approval pharmaceutical products, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates.
Betaine Anhydrous for Oral Solution - Our Betaine Anhydrous product is an FDA-approved generic version of Cystadane® for the treatment of homocystinuria, a rare inherited condition that is estimated to impact less than 2,000 patients in the United States. We acquired the product in September 2022 and expect to relaunch in early 2023.
Betaine Anhydrous for Oral Solution – Our Betaine Anhydrous product is an FDA-approved generic version of Cystadane® for the treatment of homocystinuria, a rare inherited condition that is estimated to impact fewer than 2,000 patients in the United States. We acquired the product in September 2022 and launched the product in May 2023.
Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates. 12 Employees We currently have 28 full-time employees, eight of whom are engaged in research and development activities, 16 are engaged in sales/marketing operations and four of whom are engaged in general corporate and strategy roles.
Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates. 11 Table of Contents Employees We currently have 30 full-time employees, 9 of whom are engaged in research and development activities, 16 are engaged in sales and marketing operations and 5 of whom are engaged in general corporate and strategy roles.
Research and Development We currently have eight employees that support our product research and development activities. In addition, we utilize external sources for various product development activities, including the resources of our product development partners for certain product candidates and through the use of contract laboratory services on a fee for service model.
In addition, we utilize external sources for various product development activities, including the resources of our product development partners for certain product candidates and through the use of contract laboratory services on a fee for service model.
While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Health Care Reform Law have been signed into law.
While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Health Care Reform Law have been signed into law and became effective in January 2019.
The product is the first and only FDA-approved granule hydrocortisone formulation for the treatment of AI designed for use in children. We acquired U.S. marketing rights to the product in March 2020 and launched ALKINDI SPRINKLE® in December 2020 with a sales force targeting pediatric endocrinologists.
The product is the first and only FDA-approved granule hydrocortisone formulation designed to help provide accurate dosing for newborns and children with adrenal insufficiency. We acquired U.S. marketing rights to the product in March 2020 and launched ALKINDI SPRINKLE® in December 2020 with a sales force targeting pediatric endocrinologists.
FDA Market Approval Process The steps required to be taken before a new drug may be marketed in the United States generally include: ● completion of pre-clinical laboratory and animal testing; ● completion of required chemistry, manufacturing and controls testing; ● the submission to the FDA of an investigational new drug or IND, the application for which must be evaluated and found acceptable by the FDA before human clinical trials may commence; ● performance of adequate and well-controlled human clinical trials to establish the safety, pharmacokinetics and efficacy of the proposed drug for its intended use; ● submission and approval of an NDA; and ● agreement with FDA of the language on the package insert.
FDA Market Approval Process The steps required to be taken before a new drug may be marketed in the United States generally include: ● completion of pre-clinical laboratory and animal testing under current good laboratory practices; ● completion of required chemistry, manufacturing and controls testing; ● submission to the FDA of an Investigational New Drug (“IND”) application, which must be evaluated and found acceptable by the FDA before human clinical trials may commence; ● performance of adequate and well-controlled human clinical trials to establish the safety, pharmacokinetics and efficacy of the proposed drug for its intended use; ● approval by an independent institutional review board (“IRB”) or ethics committee before each human clinical trial may be initiated; ● submission and approval of an NDA by the FDA; and ● compliance with any post-approval requirements, including agreement with FDA of the language on the package insert.
The Health Care Reform Law, among other things, imposed reporting requirements on manufacturers related to drug samples and financial relationships with physicians and teaching hospitals, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, and established a Medicare Part D coverage gap discount program.
In March 2010, then President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Health Care Reform Law”), which, among other things, imposed reporting requirements on manufacturers related to drug samples and financial relationships with physicians and teaching hospitals, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, and established a Medicare Part D coverage gap discount program.
We vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments. Our business is not dependent, however, upon any single patent, trademark or contract. 5 ALKINDI SPRINKLE® is protected by three issued patents that extend to 2034. We intend to seek patent protection on our internally developed products as circumstances warrant.
We vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments. Our business is not dependent, however, upon any single patent, trademark, or contract. 4 Table of Contents ALKINDI SPRINKLE® is protected by three issued patents that extend to 2034.
We believe there are approximately 10,000 children currently suffering from AI in the United States. ALKINDI SPRINKLE® is protected by three issued patents that extend to 2034. In January 2021, we announced the acquisition of Canadian rights to ALKINDI SPRINKLE®. Carglumic Acid tablets - Our Carglumic Acid product is an FDA-approved generic version of Carbaglu®.
We believe there are approximately 10,000 children currently suffering from AI in the United States. ALKINDI SPRINKLE® is protected by three issued patents that extend to 2034. Carglumic Acid tablets – Our Carglumic Acid product is an FDA-approved generic version of Carbaglu®. Our product is approved for the treatment of acute and chronic hyperammonemia due to NAGS deficiency.
We typically avoid participating in broker led transactions of auction processes. ● Regulatory expertise – our knowledge and experience gaining FDA approval, and particularly our knowledge within the 505(b)(2) regulatory pathway, provides drug sponsors with the opportunity to leverage existing data or literature to drastically expedite drug development timelines and reduce investment.
We typically avoid participating in broker led transactions of auction processes. ● Regulatory expertise – our knowledge and experience in gaining FDA approval, and particularly our knowledge within the 505(b)(2) regulatory pathway, provides drug sponsors with the opportunity to leverage existing data or literature to drastically expedite drug development timelines and reduce investment. ● Established commercial operations – our sales and marketing teams have developed strong relationships with healthcare professionals and patient advocacy groups in multiple therapeutic areas.
Such post-marketing testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and efficacy after approval. 7 If the FDA approves one of our product candidates, we will be required to comply with a number of post-approval regulatory requirements.
Such post-marketing testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and efficacy after approval. 6 Table of Contents If the FDA approves one of our product candidates, we will be required to comply with post-approval regulatory requirements, including record-keeping requirements and reporting of adverse reactions and production problems, and updated safety and efficacy information.
Phase 3 clinical trials are usually multi-center, double-blind controlled trials in larger numbers of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug. 6 Clinical trials must be conducted in accordance with the FDA’s Good Clinical Practices (“cGCP”) requirements.
Phase 3 clinical trials are usually multi-center, double-blind controlled trials in larger numbers of subjects to assess as fully as possible both the safety and effectiveness of the drug, establish the overall risk-benefit of the product candidate, and provide adequate information for the labeling of the product. 5 Table of Contents Clinical trials must be conducted in accordance with the FDA’s current Good Clinical Practices (“GCP”) requirements.
The Company is developing dehydrated alcohol injection, which has received Orphan Drug Designation for the treatment of methanol poisoning, ZENEO® hydrocortisone autoinjector for the treatment of adrenal crisis, and ET-400. ALKINDI SPRINKLE® (hydrocortisone granules) - This product was approved by the FDA in September 2020 as a replacement therapy for Adrenocortical Insufficiency (“AI”) in children under 17 years of age.
The Company has three additional product candidates in late-stage development: ET-400, ET-600, and ZENEO® hydrocortisone autoinjector. ALKINDI SPRINKLE ® (hydrocortisone granules) – This product was approved by the FDA in September 2020 as a replacement therapy for Adrenocortical Insufficiency (“AI”) in children under 17 years of age.
Our product is approved for the treatment of acute and chronic hyperammonemia due to N-acetylglutamate Synthase (NAGS) deficiency. We acquired marketing rights to the product in October 2021 and launched the product in December 2021. We promote the product with our internal sales force.
We acquired marketing rights to the product in October 2021 and launched the product in December 2021. We promote the product with our internal sales force.
The Company currently has three commercial rare disease products, ALKINDI SPRINKLE® for the treatment of adrenocortical insufficiency, Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency, and Betaine Anhydrous for the treatment of homocystinuria and has three additional product candidates in late-stage development.
The Company currently has four commercial rare disease products, ALKINDI SPRINKLE® for the treatment of adrenocortical insufficiency; Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthas e (“NAGS”) deficiency ; Betaine Anhydrous for the treatment of homocystinuria; and Nitisinone for the treatment of hereditary tyrosinemia type 1 (HT-1).
Eton Pharmaceuticals Products Summary Product Eton Category Indication FDA Status Carglumic Acid Tablets Orphan Drug NAGS deficiency Commercial ALKINDI SPRINKLE® Orphan Drug Adrenal Insufficiency Commercial Betaine Anhydrous Orphan Drug Homocystinuria Commercial Dehydrated Alcohol Injection Orphan Drug Methanol Poisoning Filed ET-400 Orphan Drug Adrenal Insufficiency Submission Expected in 2023 ZENEO® Hydrocortisone Orphan Drug Adrenal Crisis Submission Expected in 2024 4 Goals and Strengths Our goal is to become a leading profitable pharmaceutical company that brings innovative treatments to rare disease patients.
Eton Pharmaceuticals Products Summary Product Eton Category Indication FDA Status Carglumic Acid Tablets Metabolic NAGS deficiency Commercial ALKINDI SPRINKLE® Endocrinology Adrenal Insufficiency Commercial Betaine Anhydrous Metabolic Homocystinuria Commercial Nitisinone Metabolic Tyrosinemia Type 1 Commercial ET-400 Pending Pending Submission Expected in 2024 ET-600 Endocrinology Diabetes Insipidus Submission Expected in 2025 ZENEO® Hydrocortisone Endocrinology Adrenal Crisis Submission Expected in 2025 3 Table of Contents Goals and Strengths Our goal is to become a leading profitable pharmaceutical company focused on developing and commercializing treatments for rare diseases.
Implementation of the IRA is expected to be carried out through upcoming actions by regulatory authorities, the outcome of which is uncertain.
Implementation of the IRA is expected to be carried out through upcoming actions by regulatory authorities, the outcome of which is uncertain. In August 2023, the Biden Administration published the first ten medicines subject to the Medicare Drug Price Negotiation Program.
Item 1. Business Overview Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing innovative products to address unmet needs in patients suffering from rare diseases.
Item 1. Business About Eton Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal, and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product.
The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product.
As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act. These regulatory requirements impact our operations and differ from one country to another, so that securing the applicable regulatory approvals of one country does not imply the approval of another country.
As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act.
Sales and Marketing We currently commercialize three orphan products under our own label with our internal infrastructure and sales force. We currently commercialize ALKINDI SPRINKLE®, Carglumic Acid, and Betaine Anhydrous in the United States. These products are distributed to patients via specialty pharmacies, which support customer service and reimbursement activities.
These relationships allow us to commercialize new products quickly and effectively. Sales and Marketing We currently commercialize four orphan products under our own label with our internal infrastructure and sales force. We market and sell our ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone in the United States consistent with applicable laws.
After a safe dose has been established, in Phase 2 clinical trials the drug is administered to small populations of sick patients to look for initial signs of efficacy in treating the targeted disease or condition and to continue to assess safety.
After a safe dose has been established, in Phase 2 clinical trials the drug is administered to a limited patient population with the target disease or condition to identify possible adverse events and safety risks, to conduct a preliminary evaluation of the efficacy of the product candidate in treating the targeted disease or condition.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors. In June 2016, the electorate in the UK voted in favor of leaving the EU (commonly referred to as “Brexit”), and the UK formally left the EU on January 31, 2020.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors. There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal, and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.
Removed
Dehydrated Alcohol Injection - Our dehydrated alcohol injection product candidate is currently under review with the FDA for the treatment of methanol poisoning. The application has been assigned a Target Action Date of June 27, 2023. The product was granted Orphan Drug Designation in 2020. We believe the dehydrated alcohol injection market is more than $70 million annually.
Added
Nitisinone – Our Nitisinone product is an FDA-approved generic version of Orfadin® for the treatment of tyrosinemia type 1, an ultra-rare inherited condition that is estimated to impact fewer than 500 patients in the United States. We acquired the product in October 2023 and launched the product in February 2024.
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We acquired U.S. marketing rights to the product candidate from Crossject in June 2021. Currently patients suffering from adrenal crisis typically use Solu-Cortef, a lyophilized hydrocortisone injection kit that must be reconstituted prior to delivery. The current market for Solu-Cortef is more than $85 million annually based on IQVIA data. We believe our needle-free autoinjector will be preferred by patients.
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ET-400 – Eton expects to submit a new drug application for the product during 2024, which could allow for an approval and launch of the product in 2025. ET-600 – Eton expects to submit a new drug application for the diabetes insipidus product during 2025, which could allow for an approval and launch of the product in early 2026.
Removed
We expect to submit a New Drug Application (“NDA”) for the product in 2024, which could allow for FDA approval in 2025. 3 In addition, the Company is entitled to royalties or milestone payments from five FDA-approved products and one product candidate under development that the Company developed and out-licensed.
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These products are distributed to patients via specialty pharmacies, which support customer service and reimbursement activities. Research and Development We currently have nine employees that support our product research and development (“R&D”) priorities and strategy.
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The products are Alaway® Preservative Free, EPRONTIA®, Cysteine Hydrochloride, ZONISADE™, Biorphen®, and Lamotrigine for Oral Suspension. Alaway® Preservative Free (ketotifen fumarate) - Alaway Preservative Free is the first and only preservative-free ophthalmic product FDA-approved for the treatment of allergic conjunctivitis. The Company sold the product rights to Bausch Health in February 2019.
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Our R&D priorities include: ● developing, manufacturing and delivering a pipeline of innovative products to patients living with rare diseases; ● advancing our capabilities that can position us for long-term R&D leadership; and ● pursuing multiple development pathways through acquisitions, joint ventures, partnerships, and product licensing with creativity, flexibility and urgency to deliver innovative products to patients as quickly as possible.
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Bausch Health is responsible for commercialization of the product which was launched in February 2021 and we receive a twelve percent royalty on the product’s net sales. EPRONTIA® (topiramate oral solution) - EPRONTIA® is the only FDA-approved liquid formulation of topiramate.
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Intellectual Property Our success depends in part on our ability to obtain patents, to protect trade secrets, to operate without infringing upon the proprietary rights of others and to prevent others from infringing on our proprietary rights.
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It is approved for three indications, including: monotherapy for treatment of partial-onset or primary general tonic-clonic seizures in patients two years of age and older; adjunctive therapy for treatment of partial-onset seizures, including seizures associated with Lennox-Gastaut syndrome in patients two years of age and older; and as a preventive treatment of migraine in patients 12 years of age and older.
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ET-400 is protected by an issued patent that extends to 2043, and there are additional patent applications related to this product and ET-600 under review with the U.S. Patent and Trademark Office (“USPTO”). In June 2021, we acquired U.S. marketing rights from Crossject to the ZENEO® hydrocortisone autoinjector.
Removed
The product was approved in November 2021 and launched by Azurity Pharmaceuticals, Inc. (“Azurity”) in December 2021. Cysteine Hydrochloride - Cysteine hydrochloride is an FDA-approved generic form of EXELA Pharma Sciences’ Elcys® product indicated for use as an additive to amino acid solutions to meet the nutritional requirements of newborn infants. The product is now owned by Dr.
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We intend to seek patent protection on our internally developed products as circumstances warrant. Government Regulation The FDA and comparable regulatory agencies in federal, state and local jurisdictions impose substantial requirements upon the development, manufacture, and marketing of pharmaceutical products. These agencies regulate the research, testing, manufacture, quality, control, storage, distribution, marketing and sale of our pharmaceutical products.
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Reddy’s Laboratories S.A. (“Dr. Reddy’s”). ZONISADE™ (zonisamide oral suspension) - The product is an FDA-approved innovative liquid formulation of zonisamide for the treatment of partial seizures in patients with epilepsy. The product was approved in July 2022. Biorphen® - Biorphen is the first and only FDA-approved formulation of ready-to-use phenylephrine injection.
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The testing and approval process require substantial time, effort, and financial resources, and we cannot be certain that any approval will be granted on a timely basis, if at all.
Removed
Biorphen is indicated for the treatment of clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia. The product was approved in October 2019 and launched in December 2019. The product is marketed by Dr. Reddy’s. Lamotrigine for Oral Suspension - The product is an innovative liquid formulation of lamotrigine under development for the treatment of epilepsy.
Added
Preclinical development of a drug candidate can take several years to complete, with no guarantee that an IND based on those studies will become effective to even permit clinical testing to begin.
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The product’s NDA was previously submitted to the FDA and received a Complete Response Letter (“CRL”) in May 2022. Azurity is working on addressing the items identified in the CRL in order to resubmit the product’s NDA.
Added
Even though several of our pharmaceutical product candidates utilize active drug ingredients that are commercially marketed in the United States in other dosage forms, we need to establish safety and effectiveness of those active ingredients in the formulation and dosage forms that we are developing.
Removed
In our royalty product category, the products are commercialized by our partners. Bausch Health is responsible for all sale and marketing activities related to Alaway Preservative Free, and Azurity is responsible for all sales and marketing activities related to EPRONTIA®, ZONISADE™, and lamotrigine suspension. In all cases we receive a royalty on net sales of the products.
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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 expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
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Government Regulations and Funding Pharmaceutical companies are subject to extensive regulation by foreign, federal, state and local agencies, such as the FDA, and various European regulatory authorities. The manufacture, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the United States and various foreign countries.
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In addition, there will be a new Medicare manufacturer discount program agreement expected to be signed in March 2024 that will change our discounting obligations for all medicines in Medicare, with few exceptions, beginning in 2025. The Medicare Drug Price Negotiation Program is currently subject to legal challenges and therefore, the outcome of the Program remains uncertain.
Removed
The approval procedures involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources.
Added
We continue to evaluate the impact of the IRA on our business, operations and financial condition and results as the full effect of the IRA on our business and the pharmaceutical industry remains uncertain.
Removed
We would be required to report, among other things, certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our products.
Added
We expect that states will continue to seek cost cutting, which may focus on managed care capitation payments, supplemental rebates, and/or formulary management.
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Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares .
Biggest changeIf some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile. 40 Table of Contents If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our product development and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy.
System failures, accidents or security breaches could cause interruptions in our operations, and result in a material disruption of our product development and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy.
The market price of our shares on the Nasdaq Global Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to: ● actual or anticipated variations in our and our competitors’ results of operations and financial condition; ● market acceptance of our products; ● the mix of products that we sell and related services that we provide; ● changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts; ● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”); ● changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts; ● development of technological innovations or new competitive products by others; ● announcements of technological innovations or new products by us; ● publication of the results of preclinical or clinical trials for our other product candidates; ● failure by us to achieve a publicly announced milestone; 41 ● delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products; ● developments concerning intellectual property rights, including our involvement in litigation brought by or against us; ● regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products; ● changes in the structure of healthcare payment systems; ● changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses; ● changes in our expenditures to promote our products; ● our sale or proposed sale, or the sale by our significant stockholders, of our shares or other securities in the future; ● changes in key personnel; ● success or failure of our research and development projects or those of our competitors; ● the trading volume of our shares; and ● general economic and market conditions and other factors, including factors unrelated to our operating performance.
The market price of our shares on the Nasdaq Global Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to: ● actual or anticipated variations in our and our competitors’ results of operations and financial condition; ● market acceptance of our products; ● the mix of products that we sell and related services that we provide; ● changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts; ● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”); ● changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts; ● development of technological innovations or new competitive products by others; ● announcements of technological innovations or new products by us; ● publication of the results of preclinical or clinical trials for our other product candidates; ● failure by us to achieve a publicly announced milestone; ● delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products; ● developments concerning intellectual property rights, including our involvement in litigation brought by or against us; ● regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products; ● changes in the structure of healthcare payment systems; ● changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses; ● changes in our expenditures to promote our products; ● our sale or proposed sale, or the sale by our significant stockholders, of our shares or other securities in the future; ● changes in key personnel; ● success or failure of our research and development projects or those of our competitors; ● the trading volume of our shares; and ● general economic and market conditions and other factors, including factors unrelated to our operating performance.
Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we will have adequate resources to enforce these trademarks. Changes in either U.S. or foreign patent law or interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products .
Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we will have adequate resources to enforce these trademarks. Changes in either U.S. patent law or interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products .
On December 14, 2018, a Texas U.S. District Court Judge ruled that the Health Care Reform Law is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. On June 17, 2021, the U.S. Supreme Court overturned the 2018 Texas U.S. District Court decision.
On December 14, 2018, a Texas U.S. District Court Judge ruled that the Health Care Reform Law is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. In June 2021, the U.S. Supreme Court overturned the 2018 Texas U.S. District Court decision.
The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to: ● the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold; ● subjects for clinical testing failing to enroll or remain in our trials at the rate we expect; ● a facility manufacturing any of our product candidates being ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross-contaminations of product candidates in the manufacturing process; ● any changes to our manufacturing process that may be necessary or desired; ● subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing clinical studies; ● subjects experiencing severe or unexpected drug-related adverse effects; ● reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns; ● third-party clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, cGMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner; 32 ● inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications; ● third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications; ● one or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; ● deviations of the clinical sites from trial protocols or dropping out of a trial; ● adding new clinical trial sites; ● the inability of the CRO to execute any clinical trials for any reason; and ● government or regulatory delays or “clinical holds” requiring suspension or termination of a trial.
The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to: ● the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold; ● subjects for clinical testing failing to enroll or remain in our trials at the rate we expect; ● a facility manufacturing any of our product candidates being ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of GMP requirements or other applicable requirements, or cross-contaminations of product candidates in the manufacturing process; ● any changes to our manufacturing process that may be necessary or desired; ● subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing clinical studies; ● subjects experiencing severe or unexpected drug-related adverse effects; ● reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns; ● third-party clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, GMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner; 31 Table of Contents ● inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications; ● third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications; ● one or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; ● deviations of the clinical sites from trial protocols or dropping out of a trial; ● adding new clinical trial sites; ● the inability of the CRO to execute any clinical trials for any reason; and ● government or regulatory delays or “clinical holds” requiring suspension or termination of a trial.
Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following: ● the results of any required toxicology studies may not support the submission of an IND for our product candidates; ● the FDA or comparable foreign regulatory authorities or Institutional Review Boards (“IRB”), may disagree with the design or implementation of our clinical trials; ● we may not be able to provide acceptable evidence of our product candidates’ safety and efficacy; 19 ● the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing approval; ● the dosing of our product candidates in any required clinical trial may not be at an optimal level; ● the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing approval; ● the dosing of our product candidates in any required clinical trial may not be at an optimal level; ● patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates; ● the data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; ● the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and ● the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical data insufficient for approval.
Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following: ● the results of any required toxicology studies may not support the submission of an IND for our product candidates; ● the FDA or comparable foreign regulatory authorities or Institutional Review Boards (“IRB”), may disagree with the design or implementation of our clinical trials; ● we may not be able to provide acceptable evidence of our product candidates’ safety and efficacy; 18 Table of Contents ● the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing approval; ● the dosing of our product candidates in any required clinical trial may not be at an optimal level; ● the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing approval; ● the dosing of our product candidates in any required clinical trial may not be at an optimal level; ● patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates; ● the data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; ● the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and ● the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical data insufficient for approval.
Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current cGCP regulations for any clinical trials that we conduct post-approval.
Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current GCP regulations for any clinical trials that we conduct post-approval.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. 28 Over the past few years, several pharmaceutical and other health care companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. 27 Table of Contents Over the past few years, several pharmaceutical and other health care companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders .
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders .
There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all.
There may also be issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all.
The Health Care Reform Law, among other things, imposed reporting requirements on manufacturers related to drug samples and financial relationships with physicians and teaching hospitals, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, and established a Medicare Part D coverage gap discount program. 26 Some of the provisions of the Health Care Reform Law have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the Health Care Reform Law, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Health Care Reform Law.
The Health Care Reform Law, among other things, imposed reporting requirements on manufacturers related to drug samples and financial relationships with physicians and teaching hospitals, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, and established a Medicare Part D coverage gap discount program. 25 Table of Contents Some of the provisions of the Health Care Reform Law have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the Health Care Reform Law, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Health Care Reform Law.
The existence of comprehensive privacy laws in different states in the country makes our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for noncompliance. 34 Further, regulations promulgated pursuant to HIPAA imposes privacy, security and breach notification obligations on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered entities, and their covered subcontractors.
The existence of comprehensive privacy laws in different states in the country makes our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for noncompliance. 33 Table of Contents Further, regulations promulgated pursuant to HIPAA imposes privacy, security and breach notification obligations on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered entities, and their covered subcontractors.
In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.
In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with GMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.
Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturers’ compliance with these regulations and standards.
Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with GMPs and similar regulatory requirements. We will not have control over our contract manufacturers’ compliance with these regulations and standards.
If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.
If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.
Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. 37 Moreover, proceedings to enforce our patent rights, or those of our licensors or partners, in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our in-licensed patents, or any patents that we may own in the future, at risk of being invalidated or interpreted narrowly, could put our owned or in-licensed patent applications at risk of not issuing and could provoke third parties to assert claims against us.
Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. 36 Table of Contents Moreover, proceedings to enforce our patent rights, or those of our licensors or partners, in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our in-licensed patents, or any patents that we may own in the future, at risk of being invalidated or interpreted narrowly, could put our owned or in-licensed patent applications at risk of not issuing and could provoke third parties to assert claims against us.
Failure to obtain regulatory marketing approval for our product candidates will prevent us from commercializing the product candidate, and our ability to generate sufficient revenue will be materially impaired. 20 If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful .
Failure to obtain regulatory marketing approval for our product candidates will prevent us from commercializing the product candidate, and our ability to generate sufficient revenue will be materially impaired. 19 Table of Contents If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful .
Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our product candidates. 29 If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements.
Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our product candidates. 28 Table of Contents If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements.
An adverse decision in patent litigation could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline. 22 Even if we receive regulatory approval for our additional product candidates, we may not be able to successfully commercialize these products, and the revenue that we generate from those sales, if any, may be limited .
An adverse decision in patent litigation could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline. 21 Table of Contents Even if we receive regulatory approval for our additional product candidates, we may not be able to successfully commercialize these products, and the revenue that we generate from those sales, if any, may be limited .
Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business, financial condition, results of operations or prospects. 35 Risks Relating to Our Intellectual Property Rights We will depend on rights to certain pharmaceutical compounds that have been acquired by us.
Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business, financial condition, results of operations or prospects. 34 Table of Contents Risks Relating to Our Intellectual Property Rights We will depend on rights to certain pharmaceutical compounds that have been acquired by us.
While some of these and other proposed measures may require additional authorization to become effective, Congress and government administration officials have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. 27 The policies of the FDA or similar regulatory authorities may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
While some of these and other proposed measures may require additional authorization to become effective, Congress and government administration officials have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. 26 Table of Contents The policies of the FDA or similar regulatory authorities may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
Congress, the federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing in-licensed patents and patents that we might obtain in the future. 38 Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts .
Congress, the federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing in-licensed patents and patents that we might obtain in the future. 37 Table of Contents Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts .
If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization and require significantly greater expenditures. 31 If any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements with alternative CROs or clinical sites.
If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization and require significantly greater expenditures. 30 Table of Contents If any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements with alternative CROs or clinical sites.
Similar requirements exist in many of these areas in other countries. 24 In addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products.
Similar requirements exist in many of these areas in other countries. 23 Table of Contents In addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products.
If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed. 25 Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products.
If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed. 24 Table of Contents Significant additional labeling or warning requirements or limitations on the availability of our products may inhibit sales of affected products.
We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. 16 We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions .
We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. 15 Table of Contents We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions .
Any product candidates that we successfully develop and commercialize will compete with existing products and new products that may become available in the future. 18 There are products already approved for all of the indications we are targeting. Many of these approved products are well established therapies and are widely accepted by physicians, patients and third-party payors.
Any product candidates that we successfully develop and commercialize will compete with existing products and new products that may become available in the future. 17 Table of Contents There are products already approved for all of the indications we are targeting. Many of these approved products are well established therapies and are widely accepted by physicians, patients and third-party payors.
The existence and any increase in production or sales of counterfeit products or unauthorized sales could negatively impact our revenues, brand reputation, business and results of operations. 17 Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization We depend entirely on the success of current approved products and our new product candidates.
The existence and any increase in production or sales of counterfeit products or unauthorized sales could negatively impact our revenues, brand reputation, business and results of operations. 16 Table of Contents Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization We depend entirely on the success of current approved products and our new product candidates.
Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. 23 In addition, even if we obtain regulatory approvals for our product candidates, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully.
Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. 22 Table of Contents In addition, even if we obtain regulatory approvals for our product candidates, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully.
We and our CROs will be required to comply with cGCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign equivalents enforce these cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites.
We and our CROs will be required to comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign equivalents enforce these GCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites.
We will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners for compliance with cGMPs for manufacture of both active drug substances and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates.
We will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners for compliance with GMPs for manufacture of both active drug substances and finished drug products. These GMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates.
There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability. 39 Others may claim an ownership interest in our intellectual property, which could expose us to litigation and have an adverse effect on our prospects .
There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability. 38 Table of Contents Others may claim an ownership interest in our intellectual property, which could expose us to litigation and have an adverse effect on our prospects .
We cannot assure you that, upon inspection, the FDA or other regulatory authorities will determine that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with products produced under cGMP regulations and will require a large number of test subjects.
We cannot assure you that, upon inspection, the FDA or other regulatory authorities will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be conducted with products produced under GMP regulations and will require a large number of test subjects.
If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. 44 Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable .
If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. 41 Table of Contents Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable .
Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug. 21 The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.
Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug. 20 Table of Contents The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.
Any unanticipated disruption to a contract manufacturer caused by problems at suppliers could delay shipment of Biorphen or any of our product candidates, increase our cost of goods sold and result in lost sales.
Any unanticipated disruption to a contract manufacturer caused by problems at suppliers could delay shipment of any of our approved products or product candidates in development, increase our cost of goods sold and result in lost sales.
Any future clinical trial results for our product candidates may not be successful. 33 In addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our product candidates.
Any future clinical trial results for our product candidates may not be successful. 32 Table of Contents In addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our product candidates.
The terms of any arrangements that we may establish may also not be favorable to us. 30 Agreements with third parties are complex and time-consuming to negotiate and document.
The terms of any arrangements that we may establish may also not be favorable to us. 29 Table of Contents Agreements with third parties are complex and time-consuming to negotiate and document.
As of March 7, 2023, we had 25,458,057 shares of common stock outstanding, all of which, other than shares held by our directors and certain officers, are eligible for sale in the public market, subject in some cases to compliance with the requirements of Rule 144, including volume limitations and manner of sale requirements.
As of March 5, 2024, we had 25,688,062 shares of common stock outstanding, all of which, other than shares held by our directors and certain officers, are eligible for sale in the public market, subject in some cases to compliance with the requirements of Rule 144, including volume limitations and manner of sale requirements.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. Significant disruptions of IT systems or breaches of information security could adversely affect our business.
(“Harrow”), our former parent company, holds approximately 7.8% of our outstanding common stock as of March 7, 2023.
(“Harrow”), our former parent company, holds approximately 7.7% of our outstanding common stock as of March 5, 2024.
Provisions in our amended and restated certificate of incorporation provide that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: ● any derivative action or proceeding brought on our behalf; ● any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers or other employees; ● any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of Delaware law or our charter documents; or 45 ● any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, but excluding actions to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Provisions in our amended and restated certificate of incorporation provide that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: ● any derivative action or proceeding brought on our behalf; ● any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers or other employees; ● any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of Delaware law or our charter documents; or ● any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, but excluding actions to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. 42 Table of Contents In addition, unless we consent in writing to the selection of an alternative forum, the Federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
The stock market in general, and early stage public companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies.
The trading price of our common stock has fluctuated significantly in the past and is likely to be volatile. The stock market in general, and early stage public companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies.
In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the U.S.
In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement.
While we intend to require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may have rights.
While we require and continue to intend to require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information.
Such proceedings could result in revocation or amendment of our patents or our licensors’ patents in such a way that they no longer cover product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of our patents or our licensors’ patents in such a way that they no longer cover product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. We rely on technology developed, supplied, and/or maintained by third parties that may make us vulnerable to “supply chain” style cyber-attacks.
Ownership portions held by our executives and directors, as well as by our former parent company, Harrow Health, Inc., may limit our stockholders’ ability to influence corporate matters . Our directors and executive officers beneficially own approximately 5.0% of our common stock. Additionally, Harrow Health, Inc.
However, a court may determine that this provision is unenforceable. Ownership portions held by our executives and directors, as well as by our former parent company, Harrow Health, Inc., may limit our stockholders ’ ability to influence corporate matters . Our directors and executive officers beneficially own approximately 14.9% of our common stock. Additionally, Harrow Health, Inc.
If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are not favorable to us.
If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are not favorable to us. 39 Table of Contents The trading price of the shares of our common stock may continue to be volatile, and purchasers of our common stock could incur substantial losses.
As a result, you may not be able to sell your shares of our common stock in short time periods, or possibly at all, and the price per share of our common stock may fluctuate significantly. 40 Future capital raises may dilute our existing stockholders’ ownership, could depress the market price for our common stock and have other adverse effects on our operations .
As a result, you may not be able to sell your shares of our common stock in short time periods, or possibly at all, and the price per share of our common stock may fluctuate significantly.
Under the Tax Act, federal NOLs incurred in taxable years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning before December 31, 2017, is limited. We filed in GA, IL, MN and TN for 2021. Only GA conforms to the Tax Act.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. Under the Tax Act, federal NOLs incurred in taxable years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning before December 31, 2017, is limited.
As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for our product candidates and could seriously harm our business.
These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for our product candidates and could seriously harm our business.
If we cannot maintain the confidentiality of our proprietary technology and other confidential information, our ability to receive patent protection and our ability to protect valuable information owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable.
If we cannot maintain the confidentiality of our proprietary technology and other confidential information, our ability to receive patent protection and our ability to protect valuable information owned by us may be imperiled.
We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend.
We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to receive cash dividends on our common stock, and any return to stockholders will therefore be limited to the appreciation of their stock.
If we are unable to generate revenues from our approved products and new product candidates, our ability to create stockholder value will be limited .
If we are unable to generate revenues from our approved products and new product candidates, our ability to create stockholder value will be limited . We may not be successful in obtaining acceptance from the FDA or comparable foreign regulatory authorities to start our clinical trials.
We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed by us, or that we will not be involved in interference, opposition or invalidity proceedings before U.S. or foreign patent offices. 36 Additionally, if we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering any product candidate, the defendant could counterclaim that the patent covering any other product candidate is invalid and/or unenforceable.
These efforts by us may not be successful. 35 Table of Contents Additionally, if we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering any product candidate, the defendant could counterclaim that the patent covering any other product candidate is invalid and/or unenforceable.
The trading market for our shares will rely in part on the research and reports that equity research analysts publish about us and our business, if at all. We do not have control over these analysts, and we do not have commitments from them to write research reports about us.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our shares, the price of our shares could decline . The trading market for our shares will rely in part on the research and reports that equity research analysts publish about us and our business, if at all.
We have not paid dividends in the past and have no immediate plans to pay dividends, so any returns will be limited to the value of our stock. We plan to reinvest all of our earnings, to the extent we have earnings, to cover operating costs and otherwise become and remain competitive.
We plan to reinvest all of our earnings, to the extent we have earnings, to cover operating costs and otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future.
IL and TN do not conform (their NOL will expire if not used and there is no limit deduction on their NOL). MN does conform with the 80% of taxable income limitation section of the Tax Act but not the indefinite carryforward section. MN NOL will expire if not used.
MN does conform with the 80% of taxable income limitation section of the Tax Act for the years 2018 through 2022 and has a 70% limitation for 2023, but not the indefinite carryforward section. MN NOL will expire if not used.
If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.
If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business. We are a “ smaller reporting company ” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class.
In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs.
Such a loss of patent protection would have a material adverse impact on our business. In the future, we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect.
Such a loss of patent protection would have a material adverse impact on our business. We also rely on our know-how, trade secrets, and continuing technological innovation to develop and maintain our proprietary position. However, know-how and trade secrets are difficult to protect.
Our future financial performance and our ability to commercialize our product candidates and any other future product candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth. 15 If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates .
Our future financial performance and our ability to commercialize our product candidates and any other future product candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.
Our commercial success will depend, in part, on obtaining and maintaining patent protection for our technologies, products and processes, successfully defending these patents against third-party challenges and successfully enforcing these patents against third-party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved.
Our commercial success depends, in part, on obtaining and maintaining patent protection for our technologies, products and processes, successfully defending these patents against third-party challenges and successfully enforcing these patents against third-party competitors.
Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. In the United States, the Medicare Modernization Act (“MMA”) changed the way Medicare covers and pays for pharmaceutical products.
Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. For additional information on legislative and regulatory changes, see the Item 1. Business—Healthcare Reform section.
Patent and Trademark Office (“USPTO”), or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings.
Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation.
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition. Risks Relating to Our Business We are a specialty pharmaceutical company with a limited operating history, and it is difficult for potential investors to evaluate our business.
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition. Risks Relating to Our Business We may need to grow the size of our organization, and we could experience difficulties in managing this growth .
Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of any of our product candidates or any future product candidate.
Additionally, because patent applications are maintained in secrecy until the application is published, we cannot be certain that we were the first to make inventions or file for protection of inventions set forth in our patents or patent applications.
Patent and patent applications relating to our product candidates and related technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies.
Our patents or patent applications, or those licensed to us, if issued, may be challenged, invalidated or circumvented, and the rights granted thereunder may not provide proprietary protection or competitive advantages to us against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies or duplicate any technology developed by us.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
As a result of our reduced disclosure requirements, the information we provide stockholders will be different than the information that is available with respect to other public companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions.
This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it .
This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. We have not paid dividends in the past and have no immediate plans to pay dividends, so any returns will be limited to the value of our stock.
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We are a specialty pharmaceutical company founded in April 2017 and have commenced revenue-producing operations and our historical operations have primarily consisted of the preliminary formulation, testing and development of our various product candidates. Our limited operating history makes it difficult for potential investors to evaluate our initial product candidates or our prospective operations.
Added
We focus on rare diseases, which may create additional risks and challenges, including that the target patient populations of our products and product candidates may be small. Because we focus on developing drugs as treatments for rare diseases, we may seek orphan drug, breakthrough therapy or fast track designations for our product candidates.
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As an early-stage company, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new business. Further, biopharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk and is a capital-intensive business.
Added
Often, regulatory authorities have broad discretion in determining whether or not to grant such designations. We cannot guarantee that our product candidates will receive orphan drug status from the FDA or equivalent designations from other regulatory authorities.
Removed
Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of product development and commercialization, especially clinical-stage biopharmaceutical companies such as ours.
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Even with an orphan drug designation for our current and potential future product candidates, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products.
Removed
As a company with a limited operating history, we may be unable to: ● successfully implement or execute our current business plan or develop a business plan that is sound; ● successfully complete clinical trials and obtain regulatory approval for the marketing of our additional product candidates; ● successfully contract for the manufacture of our clinical drug products and establish a commercial drug supply; ● secure market exclusivity or adequate intellectual property protection for our product candidates; ● attract and retain an experienced management and advisory team; or ● raise sufficient funds in the capital markets to effectuate our business plan, including clinical development, regulatory approval and ongoing commercialization for our product candidates.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLegal Proceedings None. Item 4. Mine Safety Disclosures Not applicable. 46 PART II
Biggest changeLegal Proceedings None. Item 4. Mine Safety Disclosures Not applicable. 44 Table of Contents PART II
Item 2. Properties We conduct all of our administrative activities for Eton Pharmaceuticals, Inc. at our 5,507 square foot leased office space located at 21925 W. Field Parkway, Suite 235, Deer Park, Illinois 60010. The lease for this facility expires on March 31, 2025. We consider our current facilities suitable and adequate to meet our current needs. Item 3.
Item 2. Properties We conduct all of our administrative activities for Eton Pharmaceuticals, Inc. at our 5,507 square foot leased office space located at 21925 W. Field Parkway, Suite 235, Deer Park, Illinois 60010. The lease for this facility expires in March 2025. We consider our current facilities suitable and adequate to meet our current needs. Item 3.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the Nasdaq Global Market under the symbol “ETON.” The closing price of our common stock on the Nasdaq Global Market on December 30, 2022, the last trading date in 2022, was $2.82 per share.
Biggest changeItem 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the Nasdaq Global Market under the symbol “ETON.” The closing price of our common stock on the Nasdaq Global Market on December 29, 2023, the last trading date in 2023, was $4.38 per share.
Record Holders As of March 7, 2023, we had 8 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Record Holders As of March 5, 2024, we had six holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. The closing price per share of our common stock on March 7, 2023 was $3.99. Dividends We have never declared or paid a cash dividend on our common stock.
This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. The closing price per share of our common stock on March 5, 2024 was $4.38. Dividends We have never declared or paid a cash dividend on our common stock.
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Purchases of Equity Securities None. Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

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

27 edited+7 added−13 removed29 unchanged
Biggest changeOur 2022 gross profit of $14.3 million was down from $19.0 million in 2021, as a result of lower licensing revenue. For the years ended December 31, 2022 and 2021, we incurred $4.0 million and $6.2 million of research and development (“R&D”) expenses, respectively, and $18.6 million and $14.3 million of general and administrative (“G&A”) expenses, respectively.
Biggest changeFor the years ended December 31, 2023 and 2022, we incurred $3.3 million and $4.0 million of R&D expenses, respectively, and $18.9 million and $18.6 million of general and administrative (“G&A”) expenses, respectively. The $0.7 million decrease in R&D was driven by hospital products development in 2022 that were sold and therefore did not recur in 2023.
While our significant accounting policies are described in more detail in Note 3 to our financial statements included herein, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. 49 Revenue Recognition We account for contracts with our customers in accordance with Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers.
While our significant accounting policies are described in more detail in Note 3 to our financial statements included herein, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. 47 Table of Contents Revenue Recognition for Contracts with Customers We account for contracts with our customers in accordance with Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers.
The Company stores its ALKINDI SPRINKLE® and Carglumic Acid inventory at its pharmacy distributor customer location, and sales are recorded when stock is pulled and shipped to fulfill specific patient orders. The Company recognizes revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location.
The Company stores its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone inventory at its pharmacy distributor customer locations, and sales are recorded when stock is pulled and shipped to fulfill specific patient orders. The Company recognizes revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location.
The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays, although ALKINDI SPRINKLE® and Carglumic Acid sales are not subject to returns.
The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays, although ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone sales are not subject to returns.
The Company has no significant obligations to wholesalers to generate pull-through sales. 50 For its ALKINDI SPRINKLE® and Carglumic Acid products, the Company bills at the initial product list price which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues at the date of sale/shipment.
The Company has no significant obligations to wholesalers to generate pull-through sales. 48 Table of Contents For its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone products, the Company bills at the initial product list price which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues at the date of sale/shipment.
Since the formation of our company in 2017, we have used our expertise in business development, regulatory, and product development to assemble a diversified portfolio of rare disease products. 47 Results of Operations To date, we have realized revenues from the sale of our neurology products portfolio to Azurity in 2021, a licensing arrangement on our EM-100 product that was sold to Bausch Health, the launch of our Biorphen®, ALKINDI SPRINKLE®, and Carglumic Acid products in December 2019, December 2020, and December 2021, respectively, and also from the sale of our hospital products portfolio to Dr.
Since the formation of our company in 2017, we have used our expertise in business development, regulatory, and product development to assemble a diversified portfolio of rare disease products. 45 Table of Contents Results of Operations To date, we have realized revenues from the sale of our neurology products portfolio in 2021, a licensing arrangement on our EM-100 product that was sold to Bausch Health, and the launch of our Biorphen®, ALKINDI SPRINKLE®, and Carglumic Acid products in December 2019, December 2020, and December 2021, respectively.
At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.
At contract inception, once we determine the contract falls within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.
The Company sells its ALKINDI SPRINKLE® and Carglumic Acid product to one pharmacy distributor customer which provides order fulfilment and inventory storage/distribution services. The Company may sell products in the U.S. to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers.
The Company sells its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone products to pharmacy distributor customers which provide order fulfilment and inventory storage/distribution services. The Company may sell products in the U.S. to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers.
We incurred a net loss of $2.0 million and $28.0 million for the years ended December 31, 2021 and 2020, respectively. 48 General and Administrative Expenses G&A expenses consisted primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional fees, business insurance and FDA fees.
We incurred a net loss of $9.0 million and $2.0 million for the years ended December 31, 2022 and 2021, respectively. 46 Table of Contents General and Administrative Expenses G&A expenses consisted primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional fees, business insurance and FDA fees.
The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs.
The Company estimates the fair value of stock-based option awards using the BSM. The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs.
For a complete discussion of forward-looking statements, see the section above entitled “Forward Looking Statements.” Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption “Item 1A.
The following discussion contains forward-looking statements that involve risks and uncertainties. For a complete discussion of forward-looking statements, see the section above entitled “ Forward Looking Statements. ” Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption “ Item 1A.
The expected term of stock options granted is based on vesting periods and the contractual life of the options. Expected volatilities are based on comparable companies’ historical volatility along with a limited weighting included for our own volatility subsequent to our IPO, which we believe represents the most accurate basis for estimating expected future volatility under the current conditions.
The expected term of stock options granted is based on vesting periods and the contractual life of the options. Expected volatilities are based on the Company's historical volatility subsequent to our IPO, which we believe represents the most accurate basis for estimating expected future volatility under the current conditions.
Cash Flows The following table sets forth a summary of our cash flows for the years ended December 31, 2022, 2021 and 2020 (amounts are in thousands): Year ended December 31, 2022 Year ended December 31, 2021 Year ended December 31, 2020 Net cash provided by (used in) operating activities $ 4,821 $ (4,721 ) $ (22,346 ) Net cash used in investing activities (2,788 ) (2,559 ) (50 ) Net cash flows (used in) provided by financing activities (134 ) 391 31,625 Net change in cash and cash equivalents $ 1,899 $ (6,889 ) $ 9,229 The decrease in cash used in operating activities is primarily a result of increased revenue.
Cash Flows The following table sets forth a summary of our cash flows for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year ended Year ended Year ended December 31, 2023 December 31, 2022 December 31, 2021 Net cash provided by (used in) operating activities $ 6,815 $ 4,821 $ (4,721 ) Net cash used in investing activities (775 ) (2,788 ) (2,559 ) Net cash flows (used in) provided by financing activities (957 ) (134 ) 391 Net change in cash and cash equivalents $ 5,083 $ 1,899 $ (6,889 ) The increase in cash provided by operating activities is primarily a result of increased revenue.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis together with our financial statements and the related notes thereto included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties.
Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis together with our financial statements and the related notes thereto included in “ Item 8. Financial Statements and Supplementary Data ” in this Annual Report on Form 10-K.
The guidance under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting period of the equity awards. Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed.
Stock-Based Compensation The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation. The guidance under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting period of the equity awards.
The majority of our spend in R&D is to third parties we contract with to develop and test our products in addition to development partner milestone payments.
Research and Development Expenses We currently have nine employees that support our overall product development function. The majority of our spend in R&D is to third parties we contract with to develop and test our products and development of partner milestone payments.
At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model (“BSM”). We estimate the fair value of stock-based option awards to our using the BSM.
Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model (“BSM”).
Risk Factors.” Overview We are an innovative pharmaceutical company focused on developing, acquiring, and commercializing innovative products to address unmet needs in patients suffering from rare diseases.
Risk Factors. ” Overview We are an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases.
Following our IPO, we use the closing stock price on the date of grant for the fair value of the common stock. Research and Development Expenses R&D expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include salaries, benefits and stock-based compensation and other costs to support our R&D operations.
We account for forfeitures as they occur. 49 Table of Contents Research and Development Expenses R&D expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include salaries, benefits and stock-based compensation and other costs to support our R&D operations.
The $2.2 million decrease in R&D was driven by milestone payments on a number of our products in development in 2021 that did not recur in 2022. The $4.3 million increase in G&A expenses was primarily due to personnel additions and increased sales & marketing spending to support our growing business.
For the years ended December 31, 2022 and 2021, we incurred $4.0 million and $6.2 million of R&D expenses, respectively, and $18.6 million and $14.3 million of G&A expenses, respectively. The $2.2 million decrease in R&D was driven by milestone payments on a number of our products in development in 2021 that did not recur in 2022.
Liquidity and Capital Resources As of December 31, 2022, we had total assets of $25.0 million, cash and cash equivalents of $16.3 million and working capital of $13.5 million. We believe that our existing funding and revenues from our approved products will be sufficient for at least the next twelve months of our operations.
We believe that our existing funding and revenues from our approved products will be sufficient for at least the next twelve months of our operations.
The majority of our spend in R&D was to third parties we contracted with to develop and test our products in addition to development partner milestone payments. We closed our R&D facility in May 2021.
We anticipate that our G&A expenses will increase to support our business growth. Research and Development Expenses We had eight employees that supported our overall product development function. The majority of our spend in R&D was to third parties we contracted with to develop and test our products in addition to development partner milestone payments.
Net revenue of $21.8 million in 2021 included $19.0 million of licensing revenue, primarily consisting of $17.0 million from Azurity on three neurology products sold to them at the beginning of 2021. Net product revenue of $11.3 million in 2022 increased by $8.4 million from $2.8 million in 2021 as a result of growth in ALKINDI SPRINKLE® and Carglumic Acid.
Net revenues of $21.8 million in 2021 included $19.0 million of licensing revenue, including $17.0 million from our neurology products sold to Azurity. Our 2022 gross profit of $14.3 million was down from $19.0 million in 2021, primarily as a result of decreased licensing revenue.
We incurred a net loss of $9.0 million and $2.0 million for the years ended December 31, 2022 and 2021, respectively. General and Administrative Expenses G&A expenses consist primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional fees, business insurance and FDA fees associated with approved products.
General and Administrative Expenses G&A expenses consist primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional fees, business insurance and FDA fees associated with approved products. We anticipate that our G&A expenses will increase to support our business growth, particularly with respect to sales and marketing activities and additional personnel.
Reddy’s in 2022. We anticipate successfully growing sales of our commercialized products and commercializing additional product candidates in 2023 and beyond.
We anticipate successfully growing sales of our commercialized products and commercializing additional product candidates in 2024 and beyond. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net revenues of $31.6 million in 2023 included $5.5 million of licensing revenue from the sale of our neurology product royalty streams to Azurity in June 2023.
Investing activities in 2022 and 2021 consist primarily of licensing fees for Betaine and Carglumic Acid respectively. Financing activities in 2020 consisted of a follow-on common stock offering in October 2020. Critical Accounting Policies Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
See Note 5 — Debt for additional notes to Financial Statement. Critical Accounting Policies Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The $7.9 million decrease in R&D was driven by significant milestone payments on a number of our products in development in 2020 that did not recur in 2021. The $1.7 million increase in G&A expenses was primarily due to personnel additions and increased professional/consulting spending to support our growing business.
The $4.3 million increase in G&A expenses was primarily due to personnel additions and increased sales and marketing initiatives to support our growing business.
Removed
We anticipate that our G&A expenses will increase to support our business growth – particularly with respect to sales and marketing for additional personnel and promotional expenses. Research and Development Expenses We currently have eight employees that support our overall product development function.
Added
We also realized revenue from the sale of our hospital products portfolio to Dr. Reddy’s Laboratories S.A. (“Dr. Reddy's”) in 2022, the launch of our Betaine Anhydrous and product in May 2023, the sale of our neurology product royalty streams to Azurity in June 2023, and the launch of our Nitisinone product in February 2024.
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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Net revenues of $21.8 million in 2021 included $19.0 million of licensing revenue, including $17.0 million from Azurity on three neurology products sold to them at the beginning of the year. Revenues were nominal in 2020 for Biorphen and reflected the launch of ALKINDI SPRINKLE® late in mid-December.
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Net revenue of $21.3 million in 2022 included $10.0 million of licensing revenue, consisting of $5.0 million from Azurity on the launch of Zonisamide and $5.0 million from the hospital products sale to Dr. Reddy’s.
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Our 2021 gross profit of $19.0 million was up significantly as the prior year negative gross profit level was adversely impacted by Biorphen price discounts and a reserve charge to cost of sales for certain slow-moving Biorphen inventory that we did not believe we would be able to sell before its expiry date.
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Net product revenue of $26.1 million in 2023 increased by $14.9 million from $11.3 million in 2022 primarily as a result of growth in ALKINDI SPRINKLE® and Carglumic Acid.
Removed
For the years ended December 31, 2021 and 2020, we incurred $6.2 million and $14.1 million of research and development (“R&D”) expenses, respectively, and $14.3 million and $12.6 million of general and administrative (“G&A”) expenses, respectively.
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Our 2023 gross profit of $21.1 million was up from $14.3 million in 2022 primarily as a result of growth in ALKINDI SPRINKLE® and Carglumic Acid, as well as the sale of our neurology product royalty streams to Azurity.
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We anticipate that our G&A expenses will increase to support our business growth – particularly with respect to sales and marketing for additional personnel and promotional expenses. Research and Development Expenses We had seven employees that supported our overall product development function.
Added
The $0.3 million increase in G&A expenses was primarily due to personnel additions to support our growing business. We incurred a net loss of $0.9 million and $9.0 million for the years ended December 31, 2023 and 2022, respectively.
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In addition, the Company anticipates it will continue to receive revenues from product licensing agreements where it has contracted for milestone payments and royalties from products it has developed or acquired. Stock-Based Compensation We account for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation.
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We closed our internal R&D facility in May 2021. Liquidity and Capital Resources As of December 31, 2023, we had total assets of $31.7 million, cash and cash equivalents of $21.4 million and working capital of $10.6 million.
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We account for forfeitures as they occur. 51 Prior to our initial public offering in November 2018, the fair value of the shares of common stock underlying our stock-based awards was determined by our board of directors, with input from management.
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Investing activities in 2023 consist of licensing fees for Nitisinone, while investing activities in 2022 and 2021 consist primarily of licensing fees for Betaine and Carglumic Acid, respectively. The increase in cash used in financing activities is primarily the result of scheduled payments on our outstanding loan to SWK Holdings.
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Because there had been no public market for our common stock prior to the IPO, our board of directors had determined the fair value of the common stock on the grant-date of the stock-based award by considering a number of objective and subjective factors, including enterprise valuations of our common stock performed by an unrelated third-party specialist, valuations of comparable companies, sales of our convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of our capital stock, and general and industry-specific economic outlook.
Removed
JOBS Act Transition Period In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Removed
Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
Removed
We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Removed
Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.
Removed
We will remain an emerging growth company until the earlier to occur of (1) the last day of the fiscal year (a) December 31, 2023, which is the end of the fiscal year following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. 52

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not believe we have any material exposure to interest rate risk due to the extremely low interest rate environment and the short duration of the invested funds we hold. Declines in interest rates would reduce our investment income but would not have a material effect on our financial condition or results of operations.
Biggest changeWe do not believe we have any material exposure to interest rate risk in the current interest rate environment and the short duration of the invested funds we hold. Declines in interest rates would reduce our investment income but would not have a material effect on our financial condition or results of operations.
As of December 31, 2022, our cash equivalents only included cash deposits at our bank. From time to time, we do have cash investments in short-term money market or U.S. treasury bills.
As of December 31, 2023, our cash equivalents only included cash deposits at our bank. From time to time, we do have cash investments in short-term money market or U.S. treasury bills.

Other ETON 10-K year-over-year comparisons