Item
1. Business
Overview
We
were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. Since our inception,
we have focused on the development of therapeutic products that modulate the gut microbiome to treat gastrointestinal diseases.
Our only product candidate, RP-G28, is an orally administered, high purity galacto-oligosaccharide (“GOS”), for the
treatment of lactose intolerance (“LI”), a condition that affects millions of people worldwide. RP-G28 is designed
to selectively stimulate the growth of lactose-metabolizing bacteria in the colon, thereby effectively adapting the gut microbiome
to assist in digesting lactose (the sugar found in milk) that reaches the large intestine.
Our
first prototype LI product, Lactagen™, was
an alternative LI treatment method with a mechanism of action similar to RP-G28. In 2004, clinical testing was conducted with
Lactagen, which included a 61-subject double-blind placebo controlled clinical trial. The results were published in the Federation
of American Societies for Experimental Biology in May 2005.
In
early 2008, we initiated a prescription drug development program by developing RP-G28, an improved, second-generation version
of Lactagen, based on the belief that if we were successful in gaining approval from the U.S. Food and Drug Administration
(“FDA”), we would be able to make stronger claims of both efficacy and safety, garner more medical community support
and reach a wider market in the effort to treat LI.
In
November 2010, we were awarded a grant from the United States government’s Health Care Bill program, the Qualifying
Therapeutic Discovery Project, to help fund the development of RP-G28. This grant program provides support for innovative
projects that are determined by the U.S. Department of Health and Human Services to have reasonable potential to result in new
therapies that treat areas of unmet medical need and/or prevent, detect or treat chronic or acute diseases and conditions.
In
November 2011, we completed a Phase 2a clinical trial of RP-G28. Positive trends were seen when the entire per protocol
study population was analyzed, including some statistically significant subgroup. The combined data demonstrated proof of concept
and suggested that RP-G28 administration produced a positive therapeutic effect. RP-G28 was also well tolerated with no significant
study-drug related adverse effects.
In
October 2016, we completed a Phase 2b multi-center, randomized, double-blind, placebo-controlled, parallel group trial
of RP-G28. Topline results of the trial were announced in March 2017. Results showed a clinically meaningful benefit to subjects
in the reduction of LI symptoms across a variety of outcome measures. The majority of analyses showed positive outcome measures
and the robustness of the data point to a clear drug effect. Treatment patients not only reported meaningful reduced symptoms,
but also 30 days after taking the treatment, patients reported adequate relief from LI symptoms and satisfaction with the results
of the treatment, with RP-G28 preventing or treating their LI symptoms. Greater milk and dairy product consumption was also reported
by patients.
In
August 2017, we held an End-of-Phase 2 meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products. The
purpose of the meeting was to obtain the FDA’s feedback on our Phase 3 program. We reached general consensus with the FDA
on certain elements of our Phase 3 program and clear guidance and recommendations on many necessary components of our Phase 3
program; including the clinical, non-clinical, and chemistry, manufacturing and controls (“CMC”) requirements needed
to support a new drug application (“NDA”) submission.
In
June 2018, we initiated the first pivotal Phase 3 clinical trial of RP-G28. Called “Liberatus”, this study
was to determine the efficacy, safety and tolerability of RP-G28 to treat LI when compared to placebo. The study was a multicenter,
randomized, double-blind, placebo-controlled, parallel-group study conducted in the United States. Trial enrollment exceeded expectations,
concluding with approximately 557 subjects randomized. More than 30 U.S. sites participated in the study. The protocol design
included a 2-week screening period that included one week of study drug administration, a randomized 30-day study drug treatment
period and a 90-day “real world experience” period to assess study drug response and durability of effect after treatment
as patients consumed their normal diets including dairy products. The primary endpoint of the study was the mean change in LI
symptom composite score 30-days post-treatment compared to baseline. Secondary endpoints were to examine the safety, tolerability
and meaningfulness of treatment benefit with RP-G28 and the durability of effect of treatment with RP-G28 on reduction of LI symptoms
after real-world lactose exposure. The study utilized the prior validated symptom assessment measure and patient questionnaires
to capture relevant outcomes. In addition, risk-based data review was used to monitor and assess potential protocol deviations
and site quality indicators.
We
completed enrollment of our Liberatus Phase 3 clinical trial of RP-G28 in March 2019 and last patient visit in July 2019. In September
2019, we announced that our Phase 3 clinical trial of RP-G28 for LI failed to demonstrate statistical significance in its pre-specified
primary and secondary endpoints.
On October 7, 2019,
we announced publicly that we had engaged A.G.P./Alliance Global Partners (“AGP”) as a financial advisor to explore
and evaluate potential strategic alternatives, as we continued to analyze the results of the trial to better understand the data
and clinical outcome to assess a path forward for RP-G28. All further development efforts for RP-G28 have been suspended, until
such time as we determine a path forward.
On
January 15, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qualigen, pursuant
to which a wholly-owned subsidiary of Ritter (the “Merger Sub”) will merge with and into Qualigen, with Qualigen surviving
as a wholly-owned subsidiary of Ritter Pharmaceuticals, Inc. (“Ritter”)
If
the merger is consummated, the combined company does not intend to continue the clinical development of RP-G28. Pursuant to the
terms of the Merger Agreement, at the Effective Time, Ritter, John Beck, as the initial CVR Holders’ Representative, and
Andrew Ritter, in his capacity as a consultant to Ritter, will enter into the CVR Agreement, pursuant to which, each Ritter Stockholder
of record as of immediately prior to the Effective Time (after giving effect to the exercise of any outstanding Ritter stock options
or warrants and the conversion of any outstanding Ritter preferred stock, but not to be adjusted for any reverse split to be effected
in connection with the merger) will receive one CVR for each share of Ritter capital stock held by such stockholder, entitling
the holder to receive the net proceeds, if any, from a Legacy Monetization that is entered into during the period beginning on
the date the Merger Agreement was signed and ending on the third anniversary of the closing date of the Merger. Under the CVR
Agreement, the combined company agreed to commit up to $350,000 (subject to reduction pursuant to the terms of the Merger Agreement)
for certain expenses to be incurred by Ritter in pursuing and closing any Legacy Monetization. The CVRs will not be transferable
by the CVR Holders, except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not
accrue interest and will not be registered with the SEC or listed for trading on any exchange. The CVRs will terminate on the
CVR Termination Date. No payments with respect to the CVRs will be payable in respect of any Legacy Monetization proceeds actually
received after the CVR Termination Date by Ritter. From and after the CVR Termination Date, any further proceeds received by Ritter
arising from any Legacy Monetization will be retained by Ritter and will not be distributed to the CVR Holders.
We
may not be successful in completing the merger. If the merger is not completed, we may seek to pursue the development and commercialization
of RP-G28 as either a prescription drug, OTC product or dietary supplement for the consumer healthcare industry, which would,
in any case, require significant additional funding. If we are unable to obtain funding for the development of RP-G28, whether
through potential collaborative, partnering or other strategic arrangements or otherwise, we will likely be required to cease
operations. See “Risk Factors—Our business has been entirely dependent on the success of RP-G28, its only product
candidate. The failure of RP-G28 to demonstrate statistical significance in its pre-specified primary and secondary endpoints
in our Liberatus Phase 3 clinical trial has severely diminished our prospects to continue as a going concern. If the merger is
not completed, we may seek to recommence the development and commercialization of RP-G28 as a prescription drug (which may require
the filing of a new investigational new drug (“IND”) or explore its potential development as an OTC product or a dietary
supplement for the consumer healthcare industry, which would, in any case, require significant additional funding. If we are unable
to obtain funding for and to advance the development of RP-G28, we would likely be required to cease operations. Even if we are
able to obtain funding for and to advance the development of RP-G28 (as either a prescription drug, OTC product or dietary supplement),
we may never receive marketing approval for, or successfully commercialize, RP-G28 for any indication.”
The
Gut Microbiome
The
human gut is a relatively under-explored ecosystem providing an opportunity for using dietary intervention strategies to reduce
the impact of digestive disorders and gastrointestinal disease. The human body carries about 100 trillion microorganisms in the
intestines, which is 10 times greater than the number of cells in the human body. This microbial population is responsible for
a number of beneficial activities such as fermentation, strengthening the immune system, preventing growth of pathogenic bacteria,
providing nutrients, and providing hormones. The increasing knowledge of how these microbial populations impact human health provides
opportunities for novel therapies to treat an assortment of diseases such as neurological disease, cardiovascular disease, obesity,
irritable bowel syndrome, inflammatory bowel disease, colon cancer, allergies, autism and depression.
Lactose
Intolerance (LI)
LI
is a common condition attributed to the absence or insufficient levels of the naturally-occurring enzyme lactase in the body.
Lactase is needed to properly digest lactose, a complex sugar found in milk, milk-containing foods and other dairy products.
Studies
have suggested that LI is a widespread condition affecting over one billion people worldwide and over 40 million people in the
United States (or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating moderate to severe
symptoms. Current annual spending on OTC LI aids in the United States has been estimated at approximately $2.45 billion. However,
these options are limited and there is no long-term treatment available.
Unlike
many common gastrointestinal conditions, such as irritable bowel syndrome, inflammatory bowel diseases, gastroesophageal reflux
disease, or dyspepsia (among many others), LI symptoms can be completely abated by avoiding dietary lactose. In this regard, LI
is an avoidance condition, similar to celiac sprue, food intolerances, or various environmental allergies. However, dairy avoidance
may lead to inadequate calcium and vitamin D intake, which can predispose individuals to decreased bone accrual, osteoporosis,
hypertension, rickets, osteomalacia, and possibly certain cancers. Although supplements and calcium-rich foods are available,
the 2010 National Institutes of Health conference on LI highlighted the long-term consequences of dairy avoidance demonstrating
both the importance of treating the condition and the need to find improved solutions for patients.
Diagnosis
LI
is often diagnosed by evaluating an individual’s clinical history, which reveals a relationship between lactose ingestion
and onset of symptoms. Hydrogen breath tests, milk challenges and short-term dairy avoidance dieting may also be utilized to diagnose
LI. Further tests can be conducted to rule out other digestive diseases or conditions, including stool examination to document
the presence of a parasite, blood tests to determine the presence of celiac disease, and intestinal biopsies to determine mucosal
problems leading to malabsorption, such as inflammatory bowel disease or ulcerative colitis.
Health
Consequences
Substantial
evidence indicates that LI is a major factor in limiting calcium intake in the diet of individuals who are lactose intolerant.
Several studies have shown that LI patients had an average calcium intake of only 300-388 mg/day, significantly less than the
1000-1200 mg/day adult dietary recommended levels.
At
the 2010 National Institute of Health (“NIH”) Consensus Development Conference: LI and Health, the NIH highlighted
numerous health risks tied to reduced calcium intake in those suffering from LI such as: osteoporosis; hypertension; and low bone
density. Adequate calcium intake is essential to reducing the risks of osteoporosis and hypertension. In addition, chronic
calcium depletion has been linked to increased arterial blood pressure, thereby establishing a relationship between hypertension
and low calcium intake. Moreover, there is evidence of a correlation between calcium intake and both colon and breast cancer.
RP-G28
Overview
RP-G28
is a novel, highly-purified GOS, which is synthesized enzymatically. The product was being developed for the treatment of LI,
to be taken orally (a powder solution mixed in water) for 30 consecutive days. The proposed mechanism of action of RP-G28 is to
selectively increase the intestinal growth and colonization of strains of bacteria that preferentially metabolize lactose to compensate
for a patient’s intrinsic inability to digest lactose. Once this colonization of beneficial bacteria has occurred, it is
hypothesized that patients will continue to tolerate lactose so long as they maintain their beneficial microflora balance.
Galacto-oligosaccharides
(GOS)
RP-G28
is a >95% purified GOS product derived from a commercially available GOS food ingredient, which is designated as “generally
recognized as safe” (“GRAS”) by the FDA. GOS refers to a group of compounds containing β-linkages of 1
to 6 galactose units with a single glucose on the compound’s terminal end and are found at low levels in human milk. GOS
is purified to a pharmaceutical grade by minimizing residual glucose, lactose, galactose and other impurities. Further processing
includes ultra-filtration, nano-filtration, decolorization, deionization, and concentration to yield GOS 95 syrup, which is the
starting material for RP-G28.
GOS
products resist hydrolysis, or chemical breakdown, by salivary and intestinal enzymes of the upper digestive system because of
the configuration of their glycosidic bonds and thus reach the colon virtually intact. The undigested GOS enhances the growth
of beneficial, lactose-metabolizing colonic bacteria that already exist in the subject’s digestive track, including multiple
species and strains of bifidobacteria and lactobacilli. Once colonies of these bacteria have increased, continued lactose exposure
should maintain tolerability of lactose without further exposure to RP-G28 so long as the beneficial microflora balance is maintained.
While
formal nonclinical studies evaluating the safety of RP-G28 have not been performed, other commercially available GOS products
have been successfully evaluated in acute and repeat-dose general toxicology studies, reproductive toxicology studies, juvenile
toxicology studies, genetic toxicology studies and in long-term safety studies.
Clinical
studies of GOS products were reviewed as part of the safety evaluation to support the IND for RP-G28. These include studies in
adults (including pregnant women and geriatrics), children, infants and newborns (preterm and full term). The safety of GOS products
in humans has been evaluated in 1,316 adults at doses of 2.5 to 20 g/day for up to 12 months, and in 1,125 children > 1 year
of age at doses of 2.0 to 12 g/day for up to 1 year. Overall, no safety concerns attributable to the consumption of GOS were reported.
Where side effects were observed, they were typically mild and limited to increased flatulence, abdominal discomfort, and changes
in stool consistency and frequency; however, effects were not consistently observed in all studies. Similar observations of increased
flatulence have been reported following the consumption fructo-oligosaccharides (FOS) (15 g/day) over a 7-day period (Alles, 1996),
and this symptom represents a localized effect that is expected in association with the consumption of indigestible fiber in large
quantities. There were no reports of events in other System Organ Class suggestive of systemic toxicity.
The
significance of a higher purity GOS, namely RP-G28, was highlighted in a 2010 study by Klaenhammer. The in-vitro study concluded
that RP-G28 promoted growth of lactobacilli and bifidobacteria but did not promote multiple strains of E. coli. In contrast, lower
purity GOS stimulated both bifidobacteria as well as the strains of E. coli evaluated. As seen below in Figure 1, NCK 430 (E.
coli) grew in the presence of low purity GOS (GOS 2). Alternatively, the higher purity GOS (RP-G28/GOS 1) did not promote the
growth of E. coli.
Figure
1
Mechanism
of Action
RP-G28
is understood to resist hydrolysis, or chemical breakdown, by salivary and intestinal enzymes of the upper digestive system because
of the configuration of their glycosidic bonds and thus reach the colon virtually intact. The product is then broken down intracellularly
by galactosidases, and eventually β-galactosidase hydrolyzes the terminal lactose generating a new nutrition supply for lactose
digesting bacteria strains. This leads to selective alterations in the composition and activity of the microbiome favoring the
growth of lactose-metabolizing bacteria, including species of Bifidobacteria and Lactobacilli (30). In our Phase 2a Clinical
Trial (G28-001), shifts in the fecal microbiome in 82% of participants on treatment and increases in relative abundance of both
Bifidobacteria and Lactobacilli were reported. RP-G28 had a bifidogenic effect in 90% of responders, which included species Bifidobacterium
longum, Bifidobacterium adolenscentis, Bifidobacterium catenulatum, Bifidobacterium breve, and Bifidobacterium dentium (30). The
understood mechanism of action is that by increasing lactose-metabolizing bacteria, less undigested lactose is fermented, and
thus reduces gas production and related LI symptoms. Data correlating bacterial taxa and symptom metadata support this proposed
hypothesis. In the Phase 2a study, microbiome changes correlated with clinical outcomes of improved lactose tolerance in which
an increase in Bifidobacterium was associated with decreased pain and cramping outcomes.
Market
Opportunity
Unmet
Medical Needs
LI
is a challenging condition to manage. According to a market research study conducted by Objective Insights in April 2012, approximately
60% of lactose intolerant sufferers reported experiencing symptoms daily, or bi-weekly. Not only can symptoms be painful and embarrassing,
they can also dramatically affect one’s quality of life, social activities, and health. Currently there are few reliable,
or effective, treatments available that provide consistent or satisfactory relief.
Currently,
there is no approved prescription treatment for LI. Most persons with LI attempt to avoid ingestion of milk and dairy products
while others substitute non-lactose-containing foods in their diet. However, complete avoidance of lactose-containing foods is
difficult to achieve (especially for those with moderate to severe symptoms) and can lead to significant long-term morbidity (i.e.,
dietary deficiencies of calcium and vitamin D).
Treatment
Options
Doctors
generally recommend the following treatments for the management of LI: (1) dairy avoidance; (2) lactase supplements; (3) probiotics/dietary
supplements; and (4) dairy substitutes/lactose free products. Despite educating their patients on all viable treatment options,
physicians generally tend to advise their patients to refrain from consuming any dairy products whatsoever. However, in a 2008
survey conducted by Engage Health, 47% of LI sufferers reported that this method was not effective (largely due to hidden dairy
products in ingredients), and only 30% of LI sufferers reported lactase supplements as being effective in managing their LI.
A 2019 survey conducted by Cadence Communications and Research found that while these treatment options can be effective for
mildly symptomatic patients, up to 50% of moderate to severe patients continue to experience symptoms after treatment, according
to physicians. Further, while probiotics/dietary supplements have been demonstrated to aid and support one’s digestive system,
helping break down general foods consumed, they don’t directly help with LI. The 2008 survey by Engage Health suggests that
the majority of LI patients are dissatisfied with current treatment options.
Patients
Unsatisfied with Current Management Options
Growing
Prevalence and Awareness
LI
prevalence continues to increase in both the developed and developing world. It has been estimated that gastroenterologists see
approximately 15 new patients with LI each month. Education and awareness have increased, and diets in both the developed and
developing world have changed greatly over the past decade to include more dairy-based goods. As the populace is growing older,
the prevalence of LI also increases because more people tend to develop LI later in life. Increased education and diagnosis is
making more people aware of their allergies and digestive conditions. Physicians may compound the growth of LI prevalence and
its associated disorders by recommending individuals avoid dairy products, a practice which, in and of itself, may increase severity
of the intolerance.
Clinical
and Regulatory
Type
C Meeting with the FDA
In
February 2013, we held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products. The
purpose of the meeting was to obtain the FDA’s feedback on the planned Phase 2 program and Phase 3 programs, inform the
FDA of our ongoing development plans, gain feedback on relevant clinical trial design and end points related to patient
meaningful benefits, and to inform the FDA of the status of our product characterization
IND
Application/Phase 1
The
IND for RP-G28 was activated initially to support a Phase 2a safety, tolerability and efficacy study in lactose intolerant patients.
Standard Phase 1 single and repeat dose safety and tolerability studies in healthy volunteers were not needed because other GOS
products that contain similar GOS constituents are generally regarded as safe and therefore supported the safety of RP-G28 in
humans. The IND was inactivated on February 21, 2020, as a result of our determination not to proceed with the clinical
development of RP-G28 in light of the anticipated merger.
In
2018, a Phase 1 study was conducted to understand the potential for systemic absorption of RP-G28 and any impact the presence
of food may have on the pharmacokinetic profile of RP-G28. Additional Phase 1 studies may be required prior to any filing of an
NDA based on the results of future in-vitro studies and discussions with the FDA.
Phase
2a Clinical Trial
In
November 2011, we completed a double-blinded, randomized, multi-center, placebo-controlled Phase 2a clinical trial to validate
the efficacy, safety and tolerability of RP-G28 compared to placebo. We evaluated RP-G28 in 62 patients with LI over a
treatment period of 35 consecutive days. Post-treatment, subjects reintroduced dairy into their diets and were followed for an
additional 30 days to evaluate lactose digestion, as measured by hydrogen production and symptom improvements. The primary endpoints
included tracking patients’ gastrointestinal symptoms via a patient-reported symptom assessment instrument (a Likert Scale,
measuring individual symptoms of flatulence, bloating, cramping, abdominal pain and diarrhea, on a scale of 0 (none) to 10 (worst))
at baseline, day 36 and day 66; as well as the measurement of hydrogen gas levels in their breath following a 25-gram lactose
challenge.
Positive
trends were seen when the entire per protocol study population was analyzed, including some statistically significant subgroup
analyses. Although there were few primary and secondary efficacy endpoints with statistically significant results, which we
believe were due to the small cohort size, the combined data suggest that RP-G28 administration produced a positive therapeutic
effect. RP-G28 was also well tolerated with no significant study-drug related adverse effects.
The
clinical results of our Phase 2a study were published in Nutrition Journal in a manuscript entitled “Improving
lactose digestion and symptoms of LI with a novel galacto-oligosaccharide (RP-G28): a randomized, double-blind clinical trial.”
The microbiome results were published in the Proceedings of the National Academy of Science in a manuscript entitled “Impact
of short-chain galacto-oligosaccharides on the gut microbiome of lactose-intolerant individuals.”
Phase
2b Clinical Trial
In
March 2016, we began enrollment in a multi-center, randomized, double-blind, placebo-controlled, parallel-group Phase 2b
clinical trial to validate the efficacy, safety and tolerability of two dosing regimens of RP-G28 compared to a placebo in 368
patients with moderate to severe LI.
Two
hundred and forty-seven (247) patients received RP-G28 while 121 patients received placebo. Twenty-four (24) patients were discontinued
prematurely from the study and 344 (91.2%) completed the study.
The
trial assessed patients with LI symptoms as measured on a Likert scale after a lactose challenge. Entry criteria in the Phase
2b trial included a hydrogen breath test to validate lactase deficiency. The Phase 2b trial design included a screening period,
a 30-day course treatment period, and a 30-day post-treatment “real world” observation period during which subjects
were followed while lactose containing food products were re-introduced into their diets. The study was designed to escalate the
dose beyond the 15 gm/day dose level evaluated in the Phase 2a study. Study subjects abstained from lactose containing food products
and were then randomized evenly (1:1:1) to receive one of two doses of RP-G28 or placebo for 30 days.
The
primary endpoint for the Phase 2b clinical trial was a LI symptom composite score response at day 31. A response was based on
change from baseline (Day -7, visit 1) to end of treatment period at day 31 (visit 5), combined average of four maximum symptom
scores taken over 0.5, 1, 2, 3, 4, and 5 hours for each symptom (abdominal pain, cramping, bloating, and gas movement) after a
lactose challenge test. A response was defined as a 4-point or greater decrease from baseline or a composite score of zero at
day 31. The Phase 2b trial further required the collection of fecal samples from patients enrolled to evaluate the baseline and
changes to the patient’s microbiome that correlate to symptom reduction and lactose tolerance.
We
held a Type C meeting with the FDA in March 2017, to discuss our development plans and Phase 2b clinical trial. The focus of the
meeting was to obtain the FDA’s feedback on our Phase 2b clinical trial, including our Statistical Analysis Plan (“SAP”),
prior to unblinding any data.
Topline
results of the Phase 2b clinical trial were announced in March 2017. Due to inconsistent data results from one study site, the
data from this site was excluded from the primary analysis population (Efficacy Subset mITT, n=296). After excluding the data
from the one anomalous study site, results showed a clinically meaningful benefit to subjects in the reduction of LI symptoms
across a variety of outcome measures. The majority of analyses showed positive outcome measures and the robustness of the data
point to a clear drug effect. Treatment patients not only reported meaningful reduced symptoms, but also 30-days after taking
the treatment, patients reported adequate relief from LI symptoms and satisfaction with the results of the treatment, with RP-G28
preventing or treating their LI symptoms. Greater milk and dairy product consumption was also reported by patients.
In
the Efficacy Subset mITT Analysis group, the primary endpoint met statistical significance, (39.7% of the pooled dosing group
compared to 25.8% of the placebo group responded (p=0.0159)). Because the primary analysis was statistically significant, the
primary endpoint comparison between the high dose group and the placebo group was then tested and also met statistical significance
(38.1% of the high dose group, compared to 25.8% of the placebo group responded (p=0.0294)). The comparison between the low dose
group and the placebo group further met statistical significance (p=0.0434).
In
the entire study population (mITT population), including patients from the excluded study site, taking at least one dose of drug
(n=368), the comparison between the pooled treatment groups and the placebo group narrowly missed statistical significance (p=0.0618),
(40.1% of the pooled treatment group responded compared to 31.4% of the placebo group). Both low dose and high dose group arms
demonstrated a higher proportion of responders than the placebo group.
In
the Efficacy Subset Per-protocol population (Efficacy Subset PP), significant and meaningful symptom improvement was consistently
seen across key individual LI symptoms by patients reporting a ≥4-point improvement from baseline (proportion of subjects on
treatment that reported improvement in severity of each symptom). Of the treatment patients, 56.1% reported significant improvement
in abdominal pain compared to 45.7% in the placebo group (p=0.1046). Of the treatment patients, 54.5% reported statistically significant
improvement in cramping compared to 40.2% in the placebo group (p=0.0257). Of the treatment patients, 55% reported statistically
significant improvement in bloating compared to 41.3% in the placebo group (p=0.0282). Finally, 44.4% of treatment patients reported
significant improvement in gas movement compared to 32.6% in the placebo group (p=0.0599). See Figure 4 below.
Figure
4
In
a more stringent assessment, many patients reported that they experienced complete elimination of LI symptoms, scoring a 0 out
of 10 on a Likert pain scale post-treatment (Efficacy Subset PP). Of the treatment patients, 37.0% reported complete elimination
of abdominal pain compared to 21.7% in the placebo group (p=0.0144). Of the treatment patients, 34.9% reported complete elimination
of cramping compared to 16.3% in the placebo group (p=0.0020). Of the treatment patients, 29.6% reported complete elimination
of bloating compared to 16.3% in the placebo group (p=0.015). Of the treatment patients, 16.4% reported complete elimination of
gas movement compared to 2.2% in the placebo group (p=0.0005). Symptoms of abdominal pain, cramping, bloating and gas movement
were then combined into a composite endpoint representing the key symptoms of LI. Of the treatment patients, 13% experienced complete
elimination of LI symptoms compared to 2% in the placebo group (p=0.004). See Figure 5 below.
Figure
5
Observing
global patient-reported assessments (Efficacy Subset PP) on multiple aspects of their symptom severity and treatment benefit experience
30 days after treatment and adding dairy and milk products back into their diets, 81.9% of treatment patients reported no or mild
LI symptoms compared to 63.7% in the placebo group (p=0.0013). Of the treatment patients, 66.3% reported being very or extremely
satisfied with RP-G28 preventing or treating their LI symptoms compared to 51.6% in the placebo group (p=0.0302).
Of
the treatment patients, 83.2% reported adequate relief from LI symptoms compared to 72.5% in the placebo group (p=0.042). Of the
treatment patients, 39.7% reported much or very much improvement in their LI symptoms compared to 25.3% in the placebo group (p=0.0343).
See Figure 6 below.
Figure
6
Further,
a real-world milk intake assessment was conducted on treatment and placebo group patients (Efficacy Subset PP). At baseline, LI
patients reported consuming 0.2 cups/d of milk. After RP-G28, treatment patients increased their milk consumption to 1.5 cups/d
of milk, consuming 1.3 cups/d more of milk (p=0.0084), 39% more milk consumed per day than placebo patients reported consuming
(See Figure 7 below). We believe this is significant because the USDA recommends healthy individuals to consume 1.5 cups/d
of milk. Overall, 62% of treatment patients consumed ≥1 cups/d of milk after being treated (p=0.0095). The increase in milk
consumption is meaningful for dairy avoiders because it reflects increased lactose tolerance and may lead to more dietary calcium
intake post-treatment as milk contains a higher percentage of one’s daily intake of calcium.
Figure
7
No
serious adverse events related to treatment were reported and the number of adverse events reported was similar between treatment
and placebo groups.
End-of-Phase
2 Meeting with the FDA
In
August 2017, we held an End-of-Phase 2 meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products. The
purpose of the meeting was to obtain the FDA’s feedback on our planned Phase 3 program. We reached general consensus with
the FDA on certain elements of our Phase 3 program and received clear guidance and recommendations on many necessary components
of our Phase 3 program; including the clinical, non-clinical, and CMC requirements needed to support an NDA. We incorporated much
of this guidance into our Phase 3 program.
Given
the established safety profile of GOS in humans and the lack of significant safety concerns with RP-G28 administered to subjects
in the Phase 2a and Phase 2b clinical trials, it was agreed with the FDA that no additional non-clinical safety studies would
be required to support continued evaluation of RP-G28 in the Phase 3 program. The FDA also agreed that no rat fertility, rat peri-post
natal reproductive toxicity, genotoxicity or, importantly, rodent carcinogenicity studies would be needed for the NDA submission.
The
FDA recommended that we continue to evaluate females of child-bearing potential who are willing to use appropriate contraception
throughout the duration of any study. ICH-compliant embryo-fetal development toxicology studies of RP-G28 in the rat and rabbit
may be needed to support an NDA submission. Additional general toxicity studies may also need to be conducted for an NDA submission.
The
requirement for additional in-vitro fertility, peri-post natal reproductive toxicity, genotoxicity or carcinogenicity studies
may be reassessed by the FDA in the future based on subsequent events or changes in the agency’s NDA submission requirements.
Phase
3 Clinical Trial (“Liberatus”)
In
June 2018, we began enrollment in the first pivotal Phase 3 clinical trial of RP-G28, known as Liberatus. The purpose of
this study was to determine the efficacy, safety and tolerability of RP-G28 to treat LI when compared to placebo. The study was
a multicenter, randomized, double-blind, placebo-controlled, parallel-group study conducted in the United States. The protocol
design included a two-week screening period that included one week of study drug administration, a randomized 30-day study drug
treatment period and a 90-day “real world experience” period to assess study drug response and durability of effect
after treatment, as patients consume their normal diets including dairy products. There was a second randomized, 30-day, study
drug treatment period to assess safety and efficacy of a repeat round of therapy. The primary endpoint of the study was the mean
change in LI symptom composite score 30-days post-treatment compared to baseline. Secondary endpoints were to examine the safety,
tolerability and meaningfulness of treatment benefit with RP-G28 and the durability of effect of treatment with RP-G28 on reduction
of LI symptoms after real-world lactose exposure. The study utilized the prior validated symptom assessment measure and patient
questionnaires to capture relevant outcomes. In addition, risk-based data review was used to monitor and assess potential protocol
deviations and site quality indicators.
In
March 2019, we announced that we had completed, ahead of schedule, enrollment in Liberatus. Trial enrollment exceeded
expectations, concluding with approximately 557 subjects randomized. More than 30 U.S. sites participated in the study. No single
site enrolled more than 10.2% of the total population, and 43% of sites enrolled at least 15 subjects. Demographics, even though
blinded, indicated a broad population distribution with gender balance and ethnic diversity. No safety signals were reported,
which was consistent with the well-tolerated safety and tolerability profile seen in earlier clinical studies.
On
September 12, 2019, we announced publicly that its Liberatus Phase 3 clinical trial of RP-G28 in LI had failed to demonstrate
statistical significance in its pre-specified primary and secondary endpoints. Top-line data from the 557-subject Phase 3 clinical
trial indicated that RP-G-28 provided significant symptom improvements in patients; however, there was no, or little difference
compared to the placebo. In the primary endpoint, measuring LI symptom reduction at day 61 (30 days post-treatment) compared to
baseline, the treatment group reported a 3.159 mean reduction compared to a reported 3.420 mean reduction in the placebo group
(p-value, one-sided = 0.106). In addition, RP-G28 missed its first secondary endpoint of responders with a meaningful treatment
benefit: 36.2% of treatment group compared to 34.1% of placebo group (p-value, one-sided = 0.284). The remaining secondary endpoints
also missed statistical significance with treatment and placebo groups generally reporting similar results to each other. RP-G28
was generally well-tolerated, with placebo and treatment groups reporting similar safety profiles. In light of these results,
we also announced that we planned to continue in the near term to analyze the results of the trial to better understand
the data and clinical outcomes to assess a path forward, and publicly announced that our board of directors was conducting
a review of a range of strategic alternatives.
We
inactivated the IND for RP-G28 on February 21, 2020, as a
result of our determination not to proceed with the clinical development of RP-G28 in light of the anticipated merger.
Manufacturing
We
do not own or operate manufacturing facilities. We have
an exclusive worldwide agreement (the “Supply Agreement”) with Ricerche Sperimentali Montale SpA (“RSM”)
pursuant to which RSM manufactures a higher purity form of GOS (referred to as “Improved GOS”) in connection with
our clinical and nonclinical studies. RSM has also agreed that it will not, except as necessary for RSM to perform its
obligations under the Supply Agreement, market or sell Improved GOS, or any galacto-oligosaccharides that are of greater purity
to any third-party.
Pursuant
to the terms of the Supply Agreement, as amended on July 24, 2015, we purchased the exclusive worldwide assignment of all right,
title and interest to the Improved GOS (the “Improved GOS IP”) on July 30, 2015 for $800,000. We also issued 100,000
shares of our common stock to RSM pursuant to a stock purchase agreement.
Under
the terms of the Supply Agreement, as amended, if we fail to make any future option payment required under the terms of the Supply
Agreement, we may be required to return the Improved GOS IP to RSM. The terms of the Supply Agreement, as amended, require us
to pay RSM $400,000 within 10 days following FDA approval of a new drug application for the first product owned or controlled
by us using Improved GOS as its active pharmaceutical ingredient.
Commercialization
We
have not established a commercial organization or distribution capabilities. If the merger is not completed and RP-G28 is ultimately
approved by the necessary regulatory authorities, our plan would be to evaluate a possible partnership to commercialize RP-G28
for the treatment of LI in patients in the United States and/or Europe. Outside of the United States and Europe, subject to obtaining
necessary marketing approvals, we would likely seek to commercialize RP-G28 through distribution or other collaboration arrangements
for patients suffering from LI.
Competition
The
biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we are unaware of any drug candidate,
other than RP-G28, that is in advanced clinical trials for treating LI, other biopharmaceutical companies may be able to develop
compounds or drugs that are able to achieve similar or better results. Our potential competitors, if the merger is not completed
and we elect to continue the development of RP-G28, would include major multinational pharmaceutical companies, established biotechnology
companies, specialty pharmaceutical companies and universities and other research institutions. Some of the pharmaceutical and
biotechnology companies we expect we would compete with include publicly-traded microbiome-based development companies such as
Synlogic, Inc., Seres Therapeutics, Inc., Evelo Biosciences, Inc. and Synthetic Biologics, Inc. Smaller or early-stage companies
could also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.
We would also compete with providers of a wide variety of lactase supplements (the most widely used supplement in the United States
being Lactaid®), probiotic/dietary supplements, and lactose-free and dairy-free products. We believe that the key
competitive factors that would affect the development and commercial success of any approved product candidates are efficacy,
safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
Intellectual
Property
We
have sought patent protection in the United States and internationally for uses of RP-G28 and our discovery programs, and any
other inventions to which we have rights, where available and when appropriate. Our policy has been to pursue, maintain and defend
patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements
that are commercially important to the development of its business. We have also relied on trade secrets that may be important
to the development of our business. We do not have composition of matter patent protection in the United States for RP-G28, which
may result in competitors being able to offer and sell products so long as these competitors do not infringe any other patents
that we hold, including patents directed to oral dosage forms containing RP-G28, methods of manufacturing purified RP-G28, or
methods of using RP-G28.
Patents
and Proprietary Rights Covering RP-G28
Our
intellectual property portfolio directed to RP-G28 contains
more than 15 issued patents relating to RP-G28 dosage forms, or to uses of RP-G28. That portfolio also includes at least ten other
related, pending patent applications in the United States and worldwide. We also own a patent family-including claims generally
directed to processes for producing an improved form of galacto-oligosaccharides (GOS) mixtures (higher purity); this family includes
issued patents in United States (not expiring until 2030), Europe (validated in Germany, France, the Netherlands, Great Britain,
Ireland, and Switzerland, not expiring until 2030), Italy (not expiring until 2029), and China, India, Japan, and Korea (not expiring
until 2030), as well as applications pending in the United States and other jurisdictions. This portfolio includes patents and
proprietary rights related to:
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U.S.
Patent No. 8,486,668, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to methods for treating LI comprising administering, for a predetermined number of days, a high
purity galacto-oligosaccharides (GOS) pharmaceutical composition, and wherein the administration leads to a persistent decrease
in at least one symptom of LI;
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U.S.
Patent No. 8,492,124, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to methods for treating LI comprising administering, for a predetermined number of days, a controlled
release pharmaceutical composition that contains galacto-oligosaccharides (GOS), but does not contain a probiotic;
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U.S.
Patent No. 8,785,160, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to methods for treating LI comprising administering a hydrogen breath test, diagnosing LI based
upon the hydrogen breath test, and administering a high purity galacto-oligosaccharides (GOS) pharmaceutical composition;
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U.S.
Patent No. 9,200,303, which has a current expiry date of August 6, 2030 (subject to the payment of maintenance fees), includes
claims generally directed to the processes for producing ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions
by utilizing sequential microbiological purifications;
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U.S.
Patent No. 9,370,532, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to methods for preventing or reducing diarrhea associated with LI, and methods for the reduction
of severity of diarrhea associated with LI, comprising administering a high purity galacto-oligosaccharides (GOS) having 1-10%
by weight pentasaccharides and at least a 45% by weight trisaccharides;
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U.S.
Patent No. 9,579,340, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to an oral dosage form comprising a GOS composition having 95% or more galacto-oligosaccharides
(GOS) by weight and less than 5% digestible saccharides by weight, and having 45% by weight trisaccharides;
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U.S.
Patent No. 9,775,860, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to methods of improving gastrointestinal health, including heartburn, stomach upset, bloating, diarrhea,
constipation, or gas by administering a composition having 95% or more GOS by weight and less than 5% digestible saccharides
by weight, and having at least 45% by weight trisaccharides;
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U.S.
Patent No. 9,592,248, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to an oral dosage form having one or more dosing units, each having 0.1 to 10 g of a liquid GOS
composition in a gelatin capsule, where the GOS composition has at least about 95% GOS by weight, less than about 5% digestible
saccharides by weight, and at least 45% by weight trisaccharides;
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U.S.
Patent No. 9,808,481, which has a current expiry date of February 17, 2030 (subject to payment of maintenance fees), includes
claims generally directed to a GOS composition having at least 95% by weight GOS and 5% or less by weight digestible saccharides,
and having about 5-25% pentasaccharides;
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European
Patent No. 2400839, validated in six European countries (Germany, Spain, the Netherlands, Great Britain, Italy, and France,
which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes claims generally directed to
the use of a high purity galacto-oligosaccharides (GOS) to treat LI;
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United
Kingdom Patent No. GB2480042, which has a current expiry date of February 16, 2030 (subject to payment of annuities), includes
claims generally directed to a solid oral unit-dosage form of a high purity galacto-oligosaccharides (GOS);
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Australian
Patent No. 2010218439, which has a current expiry date of February 16, 2030 (subject to payment of annuities), includes claims
generally directed to a solid oral unit-dosage form of a high purity galacto-oligosaccharides (GOS);
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Israel
Patent No. 214806, which has a current expiry date of February 16, 2030 (subject to payment of annuities), includes claims
generally directed to the use of a high purity galacto-oligosaccharides (GOS) to treat LI;
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Philippines
Patent No. 1-2011-501682, which has a current expiry date of February 16, 2030 (subject to payment of annuities), includes
claims generally directed to a solid oral unit-dosage form of a high purity galacto-oligosaccharides (GOS);
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Canadian
Patent No. CA2752800, which has a current expiry date of February 16, 2030 (subject to payment of annuities), includes claims
generally directed to the daily use of GOS compositions to increase lactose tolerance or to treat LI;
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Japanese
Patent No. JP6105680, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes claims
generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications;
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European
Patent No. EP 2,462,234, validated in six European countries, including Germany, Great Britain, and France, which has a current
expiry date of August 6, 2030 (subject to payment of annuities), includes claims generally directed to the processes for producing
preparing ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing sequential microbiological purifications;
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Italian
Patent No. IT 1,395,068, which has a current expiry date of August 7, 2029 (subject to the payment of annuities), includes
claims generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications;
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Chinese
Patent No. ZL 201080035013.2, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes
claims generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications;
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Indian
Patent No. 303745, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes claims generally
directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing sequential
microbiological purifications; and
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Korean
Patent No. 10-1776164, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes claims
generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications.
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We
also have patent applications still pending in the
United States, Europe, Japan and other jurisdictions, and, if they issue as patents, will not expire until at least 2030, and
include claims generally directed to (i) oral dosage forms of a higher purity galacto-oligosaccharides (GOS), (ii) use of galacto-oligosaccharides
(GOS) for treating LI, (iii) methods of preventing or reducing certain symptoms of LI using galacto-oligosaccharides (GOS) dosage
forms, (iv) methods of improving gastrointestinal health using galacto-oligosaccharides (GOS) dosage forms and (v) methods for
assessing efficacy of an oligosaccharide mixture in improving gastrointestinal health by measuring a change in at least one abdominal
symptom.
Trade
Secrets
In
addition to patents, we have relied on trade secrets and know-how to develop and maintain our competitive position. Trade secrets
and know-how can be difficult to protect. We have sought to protect our proprietary processes, in part, by confidentiality agreements
and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners.
These agreements are designed to protect our proprietary information. We have also sought to preserve the integrity and confidentiality
of its data, trade secrets and know-how by maintaining physical security of its premises and physical and electronic security
of its information technology systems.
Government
Regulation and Product Approval
Governmental authorities
in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the
research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and
export and import of products. Any product candidate must be approved by the FDA through the NDA process before it may be legally
marketed in the United States and by the European Medicines Agency (“EMA”) through the Marketing Authorization
Application (“MAA”) process before it may be legally marketed in Europe. Product candidates are subject to similar
requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent
compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time
and financial resources.
United
States Government Regulation
NDA
Approval Processes
In
the United States, the FDA regulates drugs under the FDCA and implemented regulations. Failure to comply with the applicable FDA
requirements at any time during the product development process or approval process, or after approval, may subject an applicant
to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:
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refusal
to approve pending applications;
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withdrawal
of an approval;
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imposition
of a clinical hold;
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warning
letters;
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product
seizures and/or condemnation and destruction;
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total
or partial suspension of production or distribution; or
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injunctions,
fines, disgorgement, or civil or criminal penalties.
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The
process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion
of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices (“GLPs”)
or other applicable regulations;
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submission
to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance
of adequate and well-controlled human clinical trials according to GCPs, to establish the safety and efficacy of the proposed
drug for its intended use;
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submission
to the FDA of a marketing application such as an NDA;
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satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with cGMPs to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength,
quality and purity; and
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FDA
review and approval of the marketing application.
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Once
a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical
tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. A sponsor of an
IND must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA
as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results
of the nonclinical studies, the IND will also include a clinical protocol detailing, among other things, the objectives of the
clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase
lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the
FDA, within the 30-day time period, notifies the sponsor of a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an
IND, and may affect one or more specific studies or all studies conducted under the IND.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must
be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion
criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as an amendment
to the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually in the IND
Annual Report. Sponsors must also report to the FDA, within required timelines, serious and unexpected adverse reactions, any
clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation
brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to
the drug. An IRB at each institution participating in the clinical trial must review and approve the protocol before a clinical
trial commences at that institution and must also approve the information regarding the trial and the consent form that must be
provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise
comply with IRB regulations.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase
1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially
when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often
conducted in patients.
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Phase
2. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage. Although there are no statutory or regulatory definitions for Phase 2a and Phase 2b, Phase 2a is commonly
used to describe a Phase 2 clinical trial designed to evaluate efficacy, adverse effects and safety risks and Phase 2b is
commonly used to describe a subsequent Phase 2 clinical trial that also evaluates dosage tolerance and optimal dosage.
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Phase
3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population
at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of
the product and provide an adequate basis for product labeling.
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Human
clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or
the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects
or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the
drug has been associated with unexpected serious harm to patients.
During
the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior
to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings with the FDA may be granted at other
times during the development program when requested.
Concurrent
with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about
the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product
in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the
drug and the manufacturer must develop methods for testing the identity, strength, quality, purity and potency of the drug. Additionally,
appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the drug candidate
does not undergo unacceptable deterioration over its proposed shelf-life.
The
results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part
of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver
of such fees may be obtained under specified circumstances. The FDA has 60 days from its receipt of an NDA to determine whether
the application will be accepted for filing based on the agency’s threshold determination of whether it is sufficiently
complete to permit substantive review. It may request additional information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the
FDA accepts it for filing.
Once
the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug
representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may
refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data.
Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA
reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its
manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee,
but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where
the product is manufactured and tested.
Patent
Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of any FDA marketing approval of RP-G28, one of our U.S. patents may be eligible
for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the
Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining
term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally
one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission
date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension
and the application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office,
in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. We could
apply for restorations of patent term for some of its currently owned or licensed patents to add patent life beyond their current
expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant
NDA.
Market
exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not accept for review an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA submitted
by another company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, an application may be submitted after four years if it contains a certification of patent
invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement
to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the
applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages
or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations
and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity
will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct
or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Pediatric
Exclusivity and Pediatric Use
Under
the Best Pharmaceuticals for Children Act (“BPCA”), certain drugs may obtain an additional six months of exclusivity,
if the sponsor submits information requested in writing by the FDA (a Written Request) relating to the use of the active moiety
of the drug in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it
determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may
not produce health benefits in that population.
We
have not received a Written Request for such pediatric studies,
although we could ask the FDA to issue a Written Request for such studies in the future. To receive the six-month pediatric
market exclusivity, we would have to receive a Written Request from the FDA, conduct the requested studies in accordance
with a written agreement with the FDA or, if there is no written agreement, in accordance with commonly accepted scientific principles,
and submit reports of the studies. A Written Request may include studies for indications that are not currently in the labeling
if the FDA determines that such information will benefit the public health. The FDA will accept the reports upon its determination
that the studies were conducted in accordance with and are responsive to the original Written Request or commonly accepted scientific
principles, as appropriate, and that the reports comply with the FDA’s filing requirements.
In
addition, the Pediatric Research Equity Act (“PREA”) requires all applications (or supplements to an application)
submitted under section 505 of the FDCA (21 U.S.C. §355) for a new active ingredient, new indication, new dosage form, new
dosing regimen or new route of administration to contain a pediatric assessment unless the applicant has obtained a waiver or
deferral. It also authorizes the FDA to require holders of approved NDAs for marketed drugs to conduct pediatric studies under
certain circumstances. In general, PREA applies only to those drugs developed for diseases and/or conditions that occur in both
the adult and pediatric populations. Products intended for pediatric-specific indications will be subject to the requirements
of PREA only if they are initially developed for a subset of the relevant pediatric population.
As
part of the Food and Drug Administration Safety and Innovation Act, Congress reauthorized both BPCA and PREA, which were slated
to expire on September 30, 2012, and made both laws permanent.
Orphan
Drugs
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition,
defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of
developing and making available the drug or biologic in the United States will be recovered from sales in the United States for
that drug or biologic.
If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for
the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA
may not approve any other applications, including a full NDA, to market the same product for the same indication for seven years,
except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the
FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same
drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for
certain research and a waiver of the NDA application user fee.
A
designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. Orphan drug exclusive marketing rights in the United States also may be lost if the
FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition.
If
the merger is not completed and we elect to continue the development of RP-G28, we may
explore orphan drug designation for RP-G28 for any orphan indication in which there is a medically plausible basis for treatment
of the indication through colonic adaptation of gut bacteria.
Post-approval
Requirements
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions
on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review
and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that
have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA,
including, among other things:
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compliance
with cGMPs;
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record-keeping
requirements;
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reporting
of adverse experiences with the drug;
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providing
the FDA with updated safety and efficacy information;
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drug
sampling and distribution requirements;
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notifying
the FDA and gaining its approval of specified manufacturing or labeling changes; and
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complying
with FDA promotion and advertising requirements.
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Drug
manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some
state agencies for compliance with cGMP and other laws.
We
have relied on third parties for the production of clinical
and commercial quantities of our products. Future FDA and state inspections could identify compliance issues at the facilities
of our contract manufacturers that could disrupt production or distribution or require substantial resources to correct.
From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions
governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance
are often revised or reinterpreted by the agency in ways that may significantly affect a business and its products. It is impossible
to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact
of such changes, if any, may be.
Regulation
Outside of the United States
In
addition to regulations in the United States, we are subject to regulations of other countries governing clinical trials and commercial
sales and distribution of its products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable
regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and
approval of the regulators of such countries or economic areas, such as the EU, before we may market products in those countries
or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under
EU regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure.
The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS,
cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides for the
grant of a single marketing authorization that is valid for all EU member states. The decentralized procedure provides for mutual
recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit
an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member
state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed
points are eventually referred to the European Commission, whose decision is binding on all member states.
Reimbursement
If
RP-G28 or any other future product candidate is approved by regulatory authorities, sales of such product will depend, in part,
on the extent to which the costs of such products will be covered by third-party payors, such as government health programs, commercial
insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical
products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments
and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have
shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement
and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption
of more restrictive policies in jurisdictions with existing controls and measures, could further limit net revenue and results.
If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not
cover our products after approved as a benefit under their plans or, if they do, the level of payment may not be sufficient
to allow us to sell our products on a profitable basis.
The
MMA imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D,
Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient
prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a
supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription
drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary
that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include
drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category
or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee.
Government payment for some of the costs of prescription drugs may increase demand for any of our products that receive marketing
approval. However, any negotiated prices for our products covered by a Part D prescription drug plan would likely be lower than
the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private
payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment
that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The
American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different
treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the
Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research
and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended
to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the
sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also
possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect
the sales of Ritter’s product candidates. If third-party payors do not consider our products to be cost-effective
compared to other available therapies, they may not cover Ritter’s products as a benefit under their plans or, if they do,
the level of payment may not be sufficient to allow Ritter to sell its products on a profitable basis.
The Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the
“ACA”), enacted in March 2010, substantially changed the way healthcare is financed by both government health
plans and private insurers. The ACA was designed to expand coverage for the uninsured while at the same time containing overall
healthcare costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates
for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare Part D program.
The
broader paradigm shift caused by the ACA towards performance-based reimbursement, and the launch of several value-based purchasing
initiatives, have also placed demands on the pharmaceutical industry to offer products with proven real-world outcomes data and
a favorable economic profile. Ritter cannot predict the full impact of the ACA on pharmaceutical companies, as many of the ACA
reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred. Since
January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain
requirements mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all
or part of the ACA. While Congress has not passed repeal legislation, the Tax Cuts and Jobs Act of 2017 includes a provision repealing,
effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA 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”. Congress
may consider other legislation to repeal or replace elements of the ACA, all of which adds to the uncertainty of the legislative
changes enacted as part of the ACA.
In
addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member
states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and
to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product
or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product
on the market. Historically, products launched in the EU do not follow price structures of the United States and generally tend
to be significantly lower.
Employees
As of March 25, 2020,
we had five employees, all of whom were full time employees. None of our employees are represented by a labor union or subject
to a collective bargaining agreement.
Corporate
Information
We
were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. In September
2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc.
We
completed our initial public offering in June 2015. Our common stock is currently traded on the Nasdaq Capital Market under the
trading symbol “RTTR”.
Available
Information
We
file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements
and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934,
as amended, with the SEC. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding Ritter Pharmaceuticals, Inc. and other companies that file materials with the SEC electronically.
As soon as practicable after filing with the SEC, Ritter also makes copies of its reports on Form 10-K, Forms 10-Q and Forms 8-K
available to the public, free of charge, through the investor relations tab on its web site, http://www.ritterpharmaceuticals.com/investors.
Item
1A. Risk Factors
We
operate in a dynamic and rapidly changing business environment that involves multiple risks and substantial uncertainty. The following
discussion addresses risks and uncertainties that could cause, or contribute to causing, actual results to differ from expectations
in material ways. In evaluating our business, investors should pay particular attention to the risks and uncertainties described
below and in other sections of this Annual Report and in our subsequent filings with the SEC. These risks and uncertainties, or
other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations,
cash flows and financial condition. The trading price of our common stock could also decline due to any of these risks, and you
could lose all or part of your investment. The following information should be read in conjunction with Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes
included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report.
Risks
Related to the Merger
Failure
to complete the merger may result in our having to paying a termination fee to Qualigen and could significantly harm the market
price of our common stock and negatively affect our future business and operations of each company.
If
the merger is not completed and the Merger Agreement is terminated under certain circumstances, we may be required to pay Qualigen
a termination fee of $100,000. Even if a termination fee is not payable in connection with a termination of the Merger Agreement,
we will have incurred significant fees and expenses, most of which must be paid whether or not the merger is completed. Further,
if the merger is not completed, it could significantly harm the market price of our common stock and will likely result our being
involuntarily delisted from Nasdaq. See section entitled “Risk Factors–Our failure to meet the continued listing
requirements of Nasdaq could result in a delisting of our common stock and the termination of the Merger Agreement by Qualigen.”
In
addition, if the Merger Agreement is terminated and our board of directors determines to seek another business combination,
there can be no assurance that we will be able to find a partner and close an alternative transaction on terms that are as favorable
or more favorable than the terms set forth in the Merger Agreement. See the section entitled “Risk Factors—If the
merger is not completed, we may be unsuccessful in completing an alternative transaction on terms that are as favorable as the
terms of the merger with Qualigen, or at all, and we may otherwise be unable to continue to operate our business. Our board of
directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution
to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved
for commitments and contingent liabilities.”
The
issuance of our common stock to Qualigen stockholders pursuant to the Merger Agreement and the resulting change in control resulting
from the merger must be approved by our stockholders (pursuant to Nasdaq rules) along with certain other matters, and the Merger
Agreement and transactions contemplated thereby must be approved by the Qualigen’s stockholders. Failure to obtain these
approvals would prevent the closing of the merger.
Before
the merger can be completed, the stockholders of each of Ritter and Qualigen must approve the merger. Failure to obtain the required
stockholder approvals may result in a material delay in, or the abandonment of, the merger. Any delay in completing the merger
may materially adversely affect the timing and benefits that are expected to be achieved from the merger and could result in our
being involuntarily delisted from Nasdaq. See “Risk Factors–Our failure to meet the continued listing requirements
of Nasdaq could result in a delisting of our common stock and the termination of the Merger Agreement by Qualigen.”
The
merger may be completed even though certain events occur prior to the closing that materially and adversely affect Ritter
or Qualigen.
The
Merger Agreement provides that either Ritter or Qualigen can refuse to complete the merger if there is a material adverse change
affecting the other party between January 15, 2020, the date of the Merger Agreement, and the closing. However, certain
types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material
adverse effect on Ritter or Qualigen, including:
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general
business or economic conditions affecting the industries in which Qualigen or Ritter, as applicable, operates, except to the
extent they disproportionately affect Ritter or Qualigen, taken as a whole, relative to other similarly situated companies
in the industries in which Ritter and Qualigen operate;
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any
acts of war, armed hostilities or terrorism, except to the extent they disproportionately affect Ritter or Qualigen, taken
as a whole, relative to other similarly situated companies in the industries in which Ritter and Qualigen operate;
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any
changes in financial, banking or securities markets, except to the extent they disproportionately affect Ritter or Qualigen,
taken as a whole, relative to other similarly situated companies in the industries in which Ritter and Qualigen operate;
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with
respect to Ritter, any change in the stock price or trading volume of Ritter common stock (it being understood, however, that
any underlying effect that may have caused or contributed to such change may be taken into account in determining whether
a material adverse effect has occurred, unless such effects are otherwise excepted from causing a material adverse effect
under the Merger Agreement);
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failure
to meet internal or analysts’ expectations or projections or the results of operations;
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with
respect to Ritter, any clinical trial programs or studies, including any adverse data, event or outcome arising out of or
related to any such programs or studies;
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any
change in, or any compliance with or action taken for the purpose of complying with, any applicable laws or generally accepted
accounting principles in the United States (“GAAP”, or interpretations thereof;
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any
effect resulting from the announcement or pendency of the Merger Agreement, merger or any related transactions;
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with
respect to Ritter, continued losses from operations or decreases in its cash balances; and
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any
effect resulting from the taking of any action by Ritter or Qualigen specifically required to be taken by the Merger Agreement;
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If
adverse changes occur and we still complete the merger, the market price of the combined company’s common stock may suffer.
This in turn may reduce the value of the merger to the stockholders of Ritter, Qualigen or both.
Some of our officers and directors
have interests in the merger that are different from those of our stockholders and that may influence them to support or approve
the merger without regard to the interests of our stockholders.
Certain
of our officers and directors participate in arrangements that provide them with interests in the merger that are different from
the interests of our stockholders.
For
example, we have entered into executive severance and change of control agreements with our executive officers that will result
in the receipt by such executive officers of cash severance payments, vesting of equity awards and other benefits in the event
of a covered termination of employment of each executive officer’s employment in connection with a change of control of
Ritter.
The CVR Agreement provides
that our legacy executives, if any, who assisted a particular Legacy Monetization on behalf of Parent, will be entitled to
receive a cash bonus, in an amount equal in the aggregate to 30% of the net proceeds of such Legacy Monetization (a “Success
Bonus”) which shall be allocated among the Legacy Executives in accordance with, during the Consultant Term, the sole, good-faith
discretion of the Consultant or, after expiration or termination of the Consultant Term, the sole, good-faith discretion of the
CVR Holders’ Representative.
These
interests, among others, may influence our officers and directors to support or approve the merger.
The
market price of our common stock following the merger may decline as a result of the merger.
The
market price of our common stock may decline as a result of the merger for a number of reasons, including if:
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investors
react negatively to the prospects of the combined company’s product candidates, business and financial condition following
the merger;
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the
effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial
or industry analysts; or
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the
combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial
or industry analysts.
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Capital Anstalt will own a large percentage of
the combined company, which may dissuade others from investing in Ritter. The Investor may also have different interests than
other stockholders of the combined company following the merger.
Alpha Capital Anstalt (the “Investor’) is expected to
own securities representing in excess of 25% of the fully-diluted outstanding securities of Ritter as of immediately after the
merger. Although the derivative securities of Ritter owned after the merger by the Investor will be subject to a 9.9% “blocker”
provision (meaning that they will not be convertible or exercisable to the extent that conversion or exercise results in the Investor
owning, following the conversion or exercise, more than 9.9% of Ritter common stock), the Investor’s ownership may have an
impact on the future willingness of other persons to invest in Ritter. The Investor may have different interests and goals than
other stockholders, and its sales of our common stock could depress our stock market price.
Our
securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of,
the combined company following the Closing as compared to their current ownership and voting interest in our company.
If
the proposed merger is completed, our current securityholders will own a smaller percentage of the combined company than their
current ownership in Ritter prior to the merger. Applying the current estimate of the exchange ratio, the pre-merger Ritter securityholders
are expected to own approximately 7.5% of the combined company, on a fully diluted basis, Accordingly, the issuance of shares
of our common stock to Qualigen stockholders in the merger will reduce significantly the relative voting power of each share of
common stock held by our current stockholders. Consequently, our stockholders as a group will have less influence over the management
and policies of the combined company after the merger than prior to the merger.
Our
stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection
with the merger.
If
the combined company is unable to realize the strategic and financial benefits currently anticipated from the merger, our stockholders
will have experienced substantial dilution of their ownership interests without receiving the expected commensurate benefit, or
only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the expected
strategic and financial benefits currently anticipated from the merger.
The
combined company will need to raise additional capital by issuing securities or debt or through licensing or other strategic arrangements,
which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact
its proprietary rights.
The
combined company may be required to raise additional funds sooner than currently planned. If either or both of Ritter or Qualigen
hold less cash at the time of the Closing than the parties currently expect, the combined company will need to raise additional
capital sooner than expected. Additional financing may not be available to the combined company when it needs it or may not be
available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities,
such an issuance may cause significant dilution to the combined company’s stockholders’ ownership and the terms of
any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined
company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on
additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its
ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional
funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined
company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to
the combined company.
During
the pendency of the merger, we may not be able to enter into a business combination with another party at a favorable price
because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants
in the Merger Agreement impede our ability to make acquisitions, subject to certain exceptions relating to fiduciary duties, or
to complete other transactions that would endanger the listing of our common stock on Nasdaq. As a result, if the merger is not
completed, we may be at a disadvantage to our competitors during such period. In addition, while the Merger Agreement is in effect,
we are generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such
as a merger, sale of assets, or other business combination with any third-party that would endanger the listing of our common
stock on Nasdaq, subject to certain exceptions relating to fiduciary duties. Any such transactions could be favorable to our stockholders.
Certain
provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals to us, including
proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The
terms of the Merger Agreement prohibit us from soliciting alternative takeover proposals or cooperating with persons making unsolicited
takeover proposals, except in limited circumstances when our board of directors determines in good faith that an unsolicited alternative
takeover proposal is or is reasonably likely to lead to a superior takeover proposal and that failure to cooperate with the proponent
of the proposal would be reasonably likely to be inconsistent with our board of director’s fiduciary duties. Any such transactions
could be favorable to our stockholders.
If
the conditions to the merger are not met, or the Merger Agreement is terminated pursuant to the conditions set forth in the Merger
Agreement, the merger will not occur and it is likely that we will be involuntarily delisted from Nasdaq.
There
can be no assurances that the necessary stockholder approvals will be obtained to complete the merger. Failure to obtain stockholder
approval may result in a material delay in, or the abandonment of, the merger. Even if the merger is approved by Ritter stockholders
and Qualigen stockholders, certain other specified conditions set forth in the Merger Agreement must be satisfied or waived to
complete the merger. The Merger Agreement may also be terminated by the parties in certain circumstances, including, without limitation,
by Qualigen if we fail to maintain our listing on Nasdaq. We cannot assure you that all of the conditions will be satisfied or
waived, or that the Merger Agreement will not be terminated prior to the closing. If the conditions are not satisfied or waived,
or the Merger Agreement is terminated, the merger will not occur or will be delayed, and we may lose some or all of the intended
benefits of the merger. If the merger is not consummated, it is also likely that we will be involuntarily delisted from Nasdaq.
See “Risk Factors–Our failure to meet the continued listing requirements of Nasdaq could result in a delisting
of our common stock and the termination of the Merger Agreement by Qualigen.”
Litigation
relating to the merger could require us to incur significant costs and suffer management distraction, and could delay or
enjoin the merger.
We
could be subject to demands or litigation related to the merger,
whether or not the merger is consummated. Such actions may create uncertainty relating to the merger, or delay or enjoin the merger,
result in substantial costs to us and divert management time and resources.
Risks
Related to the Proposed Reverse Stock Split
The
proposed reverse stock split may not increase the combined company’s stock price over the long-term.
One
of the proposals to be voted on at the special meeting to vote on the merger, is a proposal to approve a reverse stock split of
our outstanding common stock immediately prior to the merger. One of the purposes of the proposed reverse stock split is to increase
the per-share market price of our common stock in order to comply with the continued listing requirements of Nasdaq. It cannot
be assured, however, that the proposed reverse stock split will accomplish this objective for any meaningful period of time. While
it is expected that the reduction in the number of our outstanding shares will proportionally increase the market price of our
common stock, it cannot be assured that the proposed reverse stock split will increase the market price of our common stock by
a multiple of the proposed reverse stock split ratio, or result in any permanent or sustained increase in the market price of
our common stock, which is dependent upon many factors, including the combined company’s business and financial performance,
general market conditions and prospects for future success. Thus, while the stock price of the combined company might meet the
continued listing requirements of Nasdaq, it cannot be assured that it will continue to do so.
The
proposed reverse stock split may decrease the liquidity of the combined company’s common stock.
Although
our board of directors believes that the anticipated increase in the market price of the combined company’s common stock
could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could
also be adversely affected by the reduced number of shares outstanding after the proposed reverse stock split. The reduction in
the number of outstanding shares may lead to reduced trading and a smaller number of market makers for our common stock.
The
proposed reverse stock split may lead to a decrease in the combined company’s overall market capitalization.
Should
the market price of the combined company’s common stock decline after the proposed reverse stock split, the percentage decline
may be greater, due to the smaller number of shares outstanding, than it would have been prior to the proposed reverse stock split.
A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s
overall market capitalization. If the per share market price does not increase in proportion to the proposed reverse stock split
ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share
stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly,
it cannot be assured that the total market value of the combined company’s common stock will remain the same after the proposed
reverse stock split is effected, or that the proposed reverse stock split will not have an adverse effect on the stock price of
our common stock due to the reduced number of shares outstanding after the proposed reverse stock split.
Risks
Related to Our Financial Condition and Our Need for Additional Financing, and Additional Risks Related to the Merger
There
is no assurance that the merger will be completed in a timely manner or at all. If the merger is not completed, our business
could suffer materially and our stock price could decline, and we will likely be involuntarily delisted from Nasdaq.
The
closing of the merger is subject to the satisfaction or waiver of a number of closing conditions, as described above, including
the required approvals by Ritter stockholders and Qualigen stockholders and other customary closing conditions. See the risk factors
above titled, “The issuance of our common stock to Qualigen stockholders pursuant to the Merger Agreement and the resulting
change in control from the merger (pursuant to Nasdaq rules) along with certain other matters must be approved by our stockholders,
and the Merger Agreement and transactions contemplated thereby must be approved by the Qualigen stockholders. Failure to obtain
these approvals would prevent the closing of the merger.” If the conditions are not satisfied or waived, the merger
may be materially delayed or abandoned. If the merger is not consummated, our ongoing business may be adversely affected and,
without realizing any of the benefits of having consummated the merger, we will be subject to a number of risks, including the
following:
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we
have incurred and expect to continue to incur significant expenses related to the merger even if the merger is not consummated;
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we
could be obligated to pay Qualigen a termination fee of
$100,000 under certain circumstances set forth in the Merger Agreement;
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the
market price of our common stock may decline to the extent that the current market price reflects a market assumption
that the merger will be completed; and
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matters
relating to the merger have required and will continue to require substantial commitments of time and resources by our
remaining management and employees, which could otherwise have been devoted to other opportunities that may have been
beneficial to us.
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We
also could be subject to litigation related to any failure to consummate the merger or to perform our obligations under the Merger
Agreement. If the merger is not completed, these risks may materialize and may adversely affect our business, financial condition
and the market price of our common stock. If the merger is not consummated, it is also likely that we will be involuntarily delisted
from Nasdaq. See “Risk Factors–Our failure to meet the continued listing requirements of Nasdaq could result in
a delisting of our common stock and the termination of the Merger Agreement by Qualigen.”
If
the merger is not completed, we may be unsuccessful in completing an alternative transaction on terms that are as favorable as
the terms of the merger with Qualigen, or at all, and we may otherwise be unable to continue to operate our business. Our board
of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution
to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved
for commitments and contingent liabilities.
Our
assets currently consist primarily of cash, cash equivalents and short-term investments, our RP-G28 assets, our listing on the
Nasdaq Capital Market and the Merger Agreement with Qualigen. While we have entered into the Merger Agreement with Qualigen, the
closing of the merger may be delayed or may not occur at all and there can be no assurance that the merger will deliver the anticipated
benefits we expect or enhance stockholder value. If we are unable to consummate the merger, our board of directors may elect to
pursue an alternative strategy, one of which may be a strategic transaction similar to the merger. If the merger is not consummated,
it is likely that we will be involuntarily delisted from Nasdaq, which may make it more difficult for us to complete an alternative
transaction. Attempting to complete an alternative transaction like the merger will be costly and time consuming, and we can make
no assurances that such an alternative transaction would occur at all.
If
the merger is not consummated, our board of directors may elect to continue our operations to determine if we can identify a path
forward for RP-G28. We may seek to recommence the development and commercialization of RP-G28 as a prescription drug (which may
require the filing of a new IND), or explore its potential development as an OTC product or dietary supplement for the consumer
healthcare industry. However, our existing capital resources will not be adequate to enable us to conduct and complete any additional
clinical trials that would be required to obtain the necessary regulatory approvals to commercialize RP-G28. We would need significant
additional funding to initiate and complete any additional clinical trials of RP-G28 and to otherwise further the development
of our RP-G28 program.
If
the merger is not completed and we are unable to raise sufficient additional funds for the continued development of RP-G28, whether
through potential collaborative, partnering or other strategic arrangements or otherwise, or if we otherwise determine to discontinue
the development of our RP-G28 program, we will likely determine to cease operations.
If
our board of directors pursues a dissolution and liquidation, the amount of cash available for distribution to our stockholders
will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution
will be reduced as we continue to fund our operations. In addition, if our board of directors were to approve and recommend, and
our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our
outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions
in liquidation to our stockholders. Our commitments and contingent liabilities may include severance obligations, regulatory and
clinical obligations, and certain fees and expenses related to the merger. As a result of this requirement, a portion of our assets
may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims
related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation
with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly,
our stockholders could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding
up.
The
issuance of shares of our common stock to Qualigen stockholders in the merger will substantially dilute the voting power
of our current stockholders.
If
the merger is completed, pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on
a fully-diluted basis. Accordingly, the issuance of shares of our common stock to Qualigen stockholders in the merger will reduce
significantly the relative voting power of each share of common stock held by our current stockholders. Consequently, our stockholders
as a group will have significantly less influence over the management and policies of the combined company after the merger than
prior to the merger. These estimates are based on the anticipated exchange ratio and are subject to adjustment as provided in
the Merger Agreement.
Ritter
stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.
The
right of our stockholders to receive any future payment for or derive any value from the CVRs will be contingent solely upon our
ability to monetize all or any part of our current business or all or any part of our intellectual property or technology through
a Legacy Monetization within the time periods specified in the CVR Agreement and the consideration received being greater than
the amounts permitted to be retained or deducted by us (including the success bonus contemplated by the CVR Agreement) under the
CVR Agreement. There is currently no third-party sale or transaction involving RP-G28 planned or contemplated and there is no
guarantee that we will be able to find a buyer or strategic partner for these assets, particularly in light of our failed Liberatus
Phase 3 clinical trial. If a Legacy Monetization is not achieved within the time periods specified in the CVR Agreement or the
consideration received is not greater than the amounts permitted to be retained or deducted by us, no payments will be made under
the CVR Agreement, and the CVRs will expire valueless. Qualigen has agreed to commit up to $350,000 to support our pursuit of
a Legacy Monetization, subject to reductions.
Following
the Effective Time, neither Ritter nor Qualigen will have any obligation to develop RP-G28, or to expend any effort or resources
to divest or otherwise monetize RP-G28. If the up to $350,000 (or any such reduced amount) is insufficient to fund the expenses
incurred in connection with a Legacy Monetization, neither Ritter nor Qualigen will have any obligation to provide further funding.
Furthermore,
the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the
CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment
in full of all current or future senior obligations of the combined company.
The
tax treatment of the CVRs is uncertain.
The
tax treatment of the CVRs is uncertain. There is no authority directly on point addressing the U.S. federal income tax treatment
of contingent value rights with characteristics similar to the CVRs. Therefore, it is possible that the issuance of the CVRs may
be treated as a distribution of equity with respect to our stock, as an “open transaction,” or as a “debt instrument”
for U.S. federal income tax purposes, and such questions are inherently factual in nature.
We
have incurred losses since inception, and we anticipate that we will continue to incur losses for the foreseeable future.
Our
net losses were $10.1 million for the year ended December 31, 2019. As of December 31, 2019, we had an accumulated deficit of
$80.3 million. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’
equity and working capital. We expect to continue to incur significant expenses and increased operating losses for the foreseeable
future.
We
have financed our operations primarily through the issuance and sale of common stock and warrants in public and private offerings,
and have devoted substantially all of our financial resources and efforts on research and development, including clinical development
of RP-G28. However, in September 2019 we announced that our Liberatus Phase 3 clinical trial
of RP-G28 for LI failed to demonstrate statistical significance in its pre-specified primary and secondary endpoints. The
failure of the Liberatus Phase 3 clinical trial to achieve its endpoints has significantly depressed our stock price and has severely
harmed our ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements
for its RP-G28 assets, and consequently, our prospects to continue as a going concern have been severely diminished.
To
become and remain profitable, we must develop and eventually commercialize a product with market potential, which would require
us to raise additional capital. Currently, we have no ongoing collaborations for the development and commercialization of RP-G28
or any other product candidate and have limited sources of revenue. If the merger is not completed and we are unable to raise
sufficient additional funds for the continued development of our RP-G28 program, whether through potential collaborative, partnering
or other strategic arrangements or otherwise, or if we otherwise determine to discontinue the development of our RP-G28 program,
we will likely determine to cease operations.
Even
if we are able to raise additional funds to permit the continued development of RP-G28 or another product candidate, if we and/or
any potential collaborators are unable to develop and commercialize RP-G28 or another product candidate, if development is further
delayed or is eliminated, or if sales revenue from any product upon receiving marketing approval, if ever, is insufficient, we
may never become profitable and it will not be successful.
We
are substantially dependent on our remaining employees to facilitate the consummation of the merger.
As
of the date of this Annual Report, we have only five full-time employees. Our ability to successfully complete the merger depends
in large part on our ability to retain our remaining personnel. Despite our efforts to retain these employees, one or more may
terminate their employment with us on short notice. The loss of the services of these employees could potentially harm our ability
to consummate the merger, to run our day-to-day business operations, and to continue to fulfill our reporting obligations as a
public company.
The
pendency of the merger could have an adverse effect on the trading price of our common stock and our business, financial condition
and prospects.
The
pendency of the merger could disrupt our business in many ways, including:
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the
attention of our remaining management and employees may be directed toward the completion of the merger and related
matters and may be diverted from our day-to-day business operations; and
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third
parties may seek to terminate or renegotiate their relationships with us as a result of the merger, whether pursuant
to the terms of their existing agreements with us or otherwise.
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The
occurrence of these events or others resulting from the proposed merger could adversely affect the trading price of our
common stock or harm its business, financial condition and prospects.
Risks
Related to Regulatory Approval Status of RP-G28 and Ongoing Regulatory Requirements if the Merger is not Completed
Our
business has been entirely dependent on the success of RP-G28, our only product candidate. The failure of RP-G28 to demonstrate
statistical significance in its pre-specified primary and secondary endpoints in our Liberatus Phase 3 clinical trial has severely
diminished our prospects to continue as a going concern. If the merger is not completed, we may seek to recommence the development
and commercialization of RP-G28 as either a prescription drug (which may require the filing of a new IND), or explore its potential
development as an OTC product or a dietary supplement for the consumer healthcare industry, which would, in any case, require
significant additional funding. If we are unable to obtain funding for and to advance the development of RP-G28, we would likely
be required to cease operations. Even if we are able to obtain funding for and to advance the development of RP-G28 (as either
a prescription drug, OTC product or dietary supplement), we may never receive marketing approval for, or successfully commercialize,
RP-G28 for any indication.
We
currently have only one product candidate, RP-G28, previously in clinical development as a prescription drug, and our business
has depended on RP-G28’s successful clinical development, regulatory approval and commercialization. In September 2019,
we announced that our Liberatus Phase 3 clinical trial of RP-G28 for lactose intolerance failed to demonstrate statistical significance
in its primary and secondary endpoints.
The
failure of the Liberatus trial to achieve its primary and secondary endpoints has significantly depressed our stock price and
has severely harmed our ability to raise additional capital and to secure potential collaborative, partnering or other strategic
arrangements for our RP-G28 assets, and consequently, our prospects to continue as a going concern have been severely diminished.
Following
the Effective Time, neither Ritter nor Qualigen will have any obligation to continue the development of RP-G28, or to expend
any funds or efforts with respect to RP-G28. Pursuant to the terms of the CVR Agreement, Qualigen has agreed to commit up to $350,000
(subject to possible reduction pursuant to the terms of the Merger Agreement) to support our continued pursuit of a Legacy
Monetization. If the up to $350,000 (or any such reduced amount) is insufficient to fund the expenses incurred in connection with
a Legacy Monetization, however, neither Ritter nor Qualigen will have any obligation to provide further funding.
Even
if we were to obtain the additional funding necessary to advance the development of RP-G28 (as a prescription drug, OTC
product or dietary supplement), including through a strategic partnership, the process for obtaining regulatory approval
or completing the regulatory process necessary to commercialize RP-G28 could be extensive and lengthy. There can be no guarantee
that we would ever obtain the regulatory approvals or the regulatory hurdles necessary to commercialize RP-G28 in these
ways.
To
commercialize RP-G28 as a prescription drug or OTC product,
we will need to demonstrate to the FDA the safety and efficacy of RP-G28 for its intended use. Additional clinical testing
is expensive, time consuming and uncertain as to outcome. OTC drugs must generally either receive premarket approval by the FDA
through the NDA process or conform to a “monograph” for a particular drug category, as established by the FDA’s
OTC Drug Review. These monographs specify conditions whereby OTC drug ingredients are generally recognized as safe and effective,
and not misbranded. Certain OTC drugs may remain on the market without an NDA approval until a monograph for its class of drugs
is finalized as a regulation. However, once the FDA has made a final determination on the status of an OTC drug category, such
products must either be the subject of an approved NDA or comply with the appropriate monograph for an OTC drug. No assurance
can be given that RP-G28 may be sold as an OTC drug product under and NDA or under the FDA’s OTC monograph product regulations.
Of the large number of drugs in development in the United States, only a small percentage of drugs successfully complete the FDA
regulatory process and are commercialized. Accordingly, even if we are able to complete development of RP-G28, we
cannot assure you that RP-G28 will ever be commercialized.
If
the merger is not completed, we may also seek to explore the development and commercialization of RP-G28 as a dietary supplement.
A dietary supplement is a product taken by mouth that contains a “dietary ingredient” intended to supplement the diet.
The “dietary ingredients” in these products may include: vitamins, minerals, herbs or other botanicals, amino acids,
and substances such as enzymes, organ tissues, glandulars, and metabolites. Dietary supplements can also be extracts or concentrates,
and may be found in many forms such as tablets, capsules, soft gels, gel caps, liquids, or powders. Whatever their form may be,
the Dietary Supplement Health and Education Act (“DSHEA”) places dietary supplements in a special category under the
general umbrella of “foods,” not drugs, and requires that every supplement be labeled a dietary supplement. The DSHEA
created a new regulatory framework for the safety and labeling of dietary supplements. Under DSHEA, a firm is responsible for
determining that the dietary supplements it manufactures or distributes are safe and that any representations or claims made about
them are substantiated by adequate evidence to show that they are not false or misleading. This means that dietary supplements
do not need approval from the FDA before they are marketed. Except in the case of a new dietary ingredient, where pre-market review
for safety data and other information is required by law, a firm does not have to provide the FDA with the evidence it relies
on to substantiate safety or effectiveness before or after it markets its products.
RP-G28
is a >95% purified GOS, product derived from a commercially available GOS food ingredient, which is designated as “generally
recognized as safe” (“GRAS”) by the FDA. In 2016, the FDA published an updated draft guidance, which is intended,
among other things, to help manufacturers and distributors of dietary supplement products determine when they are required to
file with the FDA a New Dietary Ingredient (“NDI”), notification with respect to a dietary supplement product. In
this draft guidance, the FDA highlighted the necessity for marketers of dietary supplements to submit NDI notifications as an
important preventive control to ensure that consumers are not exposed to potential unnecessary public health risks in the form
of new ingredients with unknown safety profiles. Ritter cannot provide any assurance that if it decided to pursue RP-G28 as a
dietary supplement, it would not be required to submit an NDI notification. If the FDA were to conclude that we should
have filed an NDI notification, then we could be subject to enforcement actions by the FDA. Such enforcement actions could
include product seizures and injunctive relief being granted against us, any of which would harm its business.
Additional
or more stringent regulations of dietary supplements and other products have been considered from time to time. In recent years,
there has been increased pressure in the United States and other markets to increase regulation of dietary supplements. New regulations,
or new interpretations of those regulations, could impose additional restrictions, including requiring reformulation of some products
to meet new standards, recalls or discontinuance of some products not able to be reformulated, additional record-keeping requirements,
increased documentation of the properties of some products, additional or different labeling, additional scientific substantiation,
additional adverse event reporting, or other new requirements.
RP-G28
may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received, require it to be
taken off the market, require us to include safety warnings or otherwise limit sales.
If
the merger is not completed and we elect to recommence the development and commercialization of RP-G28 as a prescription
drug (which may require the filing of a new IND) or explore its potential development as an OTC product or a dietary supplement
for the consumer healthcare industry, and we are able to obtain the necessary funding for such development, the detection
of any undesirable side effects could delay or prevent marketing approval or commercialization. Alternatively, if we are
able to identify and secure a Legacy Monetization for RP-G28, and undesirable side effects of RP-G28 are later identified, we
could face seller liability.
There
were no notable differences observed between placebo-treated subjects and RP-G28-treated subjects in the Phase 3 clinical trial.
However, unforeseen side effects from RP-G28 could arise at any time during clinical development or, if approved, after RP-G28
has been marketed. Any undesirable or unacceptable side effects associated with RP-G28 could interrupt, delay or halt clinical
trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, and could
impact our ability to attract potential third-party collaborators, or could result in our facing seller liability
in the event RP-G28 is sold to another party.
Even
if we receive regulatory approval for RP-G28, we may still face future development and regulatory difficulties.
RP-G28,
if approved (as either a prescription drug or OTC product) or launched as a dietary supplement, will be subject to ongoing regulatory
requirements for labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market
information. In addition, products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA
and EMA requirements and requirements of other similar agencies, including ensuring
that quality control and manufacturing procedures conform to applicable current good manufacturing practice (“cGMPs”),
whether governing drugs or dietary supplements. Accordingly, we and others with whom we works must continue to expend time, money
and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required
to report certain adverse reactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply
with certain requirements concerning advertising and promotion for its products. Promotional communications with respect to prescription
drugs are subject to a variety of legal and regulatory restrictions by the FDA and must be consistent with the information in
the product’s approved label. Accordingly, we may not promote its approved products, if any, for indications or uses for
which they are not approved. Similarly, the U.S. Federal Trade Commission (the “FTC”) exercises jurisdiction over
the advertising of OTC product and dietary supplements and has instituted numerous enforcement actions against OTC product and
supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading
advertising claims. Our failure to comply with applicable regulations could result in substantial monetary penalties, which could
have a material adverse effect on our financial condition or results of operations.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the
market. If RP-G28, or any product candidate we develop in the future, fails to comply with applicable regulatory requirements,
a regulatory agency may:
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issue
warning letters;
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mandate
modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require
us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include
imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for
noncompliance;
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impose
other administrative or judicial civil or criminal penalties;
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withdraw
regulatory approval;
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refuse
to approve pending applications or supplements to approved applications filed by us or our potential future
collaborators;
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impose
restrictions on operations, including costly new manufacturing requirements; or
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detain,
seize and/or condemn and destroy products.
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If
we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws,
we may be subject to civil or criminal penalties.
In
addition to FDA and FTC restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare
laws, commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing
practices in the pharmaceutical and supplement industry. Other jurisdictions such as Europe have similar laws. These laws include
false claims and anti-kickback statutes. If we market our products and our products are paid for by governmental programs, it
is possible that some of our business activities could be subject to challenge under one or more of these laws.
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. The federal healthcare
program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers
on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most
states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to
items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative,
civil and criminal sanctions may be imposed under these federal and state laws.
Over
the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety
of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other
monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement
rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce
liability for Medicaid rebates.
Risks
Related to Dependence on Third Parties
Any
collaborative arrangements that we establish in the future may not be successful or we may otherwise not realize the anticipated
benefits from these collaborations. In addition, any future collaborative arrangements may place the development and commercialization
of our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable
to us.
If
the merger with Qualigen is not completed, we may continue to seek partnering, collaborative or similar strategic arrangements
with third parties to develop and commercialize RP-G28 either as a prescription drug or OTC product or as a dietary supplement,
but we may be unsuccessful in locating a third-party collaborator to develop and market RP-G28. If we are able to locate a third-party
collaborator, the collaboration may not be successful or we may otherwise not realize the anticipated benefits from such collaboration.
Dependence
on collaborative arrangements subjects us to a number of risks, including:
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we
may not be able to control the
amount and timing of resources that our potential collaborators may devote to RP-G28;
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potential
collaborations may experience financial difficulties or changes in business focus;
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we
may be required to relinquish important rights such as
marketing and distribution rights;
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should
a collaborator fail to develop or commercialize RP-G28, we may not receive any future milestone payments and will not
receive any royalties for RP-G28;
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business
combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s
willingness or ability to complete its obligations under any arrangement;
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under
certain circumstances, a collaborator could move forward with a competing product candidate developed either independently
or in collaboration with others, including our competitors; and
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collaborative
arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing
RP-G28.
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Any
delay or disruption in the manufacture and supply of any product may negatively impact our operations.
We
do not intend to manufacture any product that is offered for sale. We currently have an agreement with RSM, our contract manufacturer,
for the production of Improved GOS, the active pharmaceutical ingredient in RP-G28, and the formulation of sufficient quantities
of Improved GOS for the clinical and nonclinical studies that we believe we will need to conduct prior to seeking regulatory approval
for RP-G28 if we decide to pursue the development of RP-G28. However, we do not have agreements for commercial supplies of RP-G28
and we may not be able to reach agreement with RSM or any other contract manufacturer for sufficient supplies to commercialize
RP-G28 if it is approved or any other product candidate we may develop in the future.
Reliance
on third-party manufacturers entails risks, to which we would not be subject if it manufactured its products itself, including:
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the
possibility that we are unable to enter into a manufacturing agreement with third parties to manufacture RP-G28 or
any other product candidate we may develop in the future;
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the
possible breach of the manufacturing agreements by third parties because of factors beyond our control; and
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the
possible termination or nonrenewal of manufacturing agreements by the third parties before we are able to arrange for
a qualified replacement third-party manufacturer.
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Any
of these factors could cause the delay of approval or commercialization of RP-G28 or any other product candidate we may develop
in the future (in the event the merger is not completed), or cause us to incur higher costs. Furthermore, if RP-G28 or another
product candidate is approved and contract manufacturers fail to deliver the required commercial quantities of finished product
on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable
of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would
likely be unable to meet demand for our product and could lose potential revenue. It may take several years to establish an alternative
source of supply for RP-G28 or any other product candidate and to have any such new source approved by the government agencies
that regulate our products. In the event we do need to identify alternative manufacturing partners, we may have to secure licenses
to manufacturing and/or purification technologies, including third-party patent licenses, to allow us to manufacture RP-G28 or
any other product candidate that is suitable for the late-stage regulatory review process and/or adequate to manufacture commercial
quantities for such product candidate.
We
have historically depended on third-party contractors for a substantial portion of our operations and may not be able to control
our work as effectively as if we performed these functions itself.
If
the merger is not completed and we elect to continue the clinical development of RP-G28 (as either a prescription drug, OTC product
or dietary supplement) we will continue to outsource substantial portions of our operations to third-party service providers,
including the conduct of preclinical studies and clinical trials, collection and analysis of data, and manufacturing. Our agreements
with third-party service providers and contract research organizations (“CROs”) are on a study-by-study and project-by-project
basis. Typically, we may terminate the agreements with notice and would be responsible for the supplier’s previously incurred
costs. In addition, any CRO that we retain will be subject to the FDA’s and EMA’s regulatory requirements and similar
standards outside of the United States and Europe and we do not have control over compliance with these regulations by these providers.
Consequently, if these providers do not adhere to applicable governing practices and standards, the development and commercialization
of our product candidates could be delayed or stopped, which could severely harm our business and financial condition.
Because
we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing
these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner
or may fail to perform at all. Although we have not experienced any significant difficulties with its third-party contractors,
it is possible that we could experience difficulties in the future. In addition, the use of third-party service providers requires
us to disclose its proprietary information to these parties, which could increase the risk that this information will be misappropriated.
There are a limited number of third-party service providers that specialize or have the expertise required to achieve its business
objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming
and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources
we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully
manage the performance of third-party service providers in the future, our business may be adversely affected, and we may be subject
to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.
Reimbursement
decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement
for RP-G28, it is less likely that it will be widely used.
In
the event we are able to obtain the additional funding necessary to advance the clinical development of RP-G28, and RP-G28 is
ultimately approved for sale by the applicable regulatory authorities, market acceptance and sales of RP-G28 will depend on reimbursement
policies and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish
payment levels. We cannot be certain that reimbursement will be available for RP-G28. Also, we cannot be certain that reimbursement
policies will not reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available
on a limited basis, we may not be able to successfully commercialize RP-G28.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), changed
the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare
coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that
will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices
for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan would
likely be lower than the prices it might otherwise obtain in the United States. Moreover, while the MMA applies only to drug
benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their
own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental
payors.
The
United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell its products profitably. Among
policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare
systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the
United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by
major legislative initiatives. If RP-G28 is ultimately approved for sale by the applicable regulatory authorities, we expect
that it would experience pricing pressures in connection with the sale of RP-G28, due to the trend toward managed healthcare,
the increasing influence of health maintenance organizations and additional legislative proposals.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “ACA”), enacted in March 2010, is a sweeping law intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes and fees on health industry and impose additional health policy
reforms. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates
for drugs covered under Medicaid programs and make changes to the coverage requirements under Medicare Part D program. Although
it is too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical pricing,
especially under the Medicare program, and may also increase our regulatory burdens and operating costs. Since its enactment,
there have been judicial and Congressional challenges to certain aspects of the ACA. Congress and President Trump have expressed
their intentions to repeal and replace the ACA. President Trump issued an Executive Order and both chambers of Congress passed
bills, all with the goal of fulfilling their intentions. However, to date, the Executive Order has had limited effect and the
Congressional activities have not resulted in the passage of a law. If a law is enacted, many if not all of the provisions of
the ACA may no longer apply to prescription drugs.
Risks
Related to the Commercialization of RP-G28 or Any Other Product Candidate Developed by Us in the Future in the Event the
Merger is not Completed
Any
product approved for sale by the applicable regulatory authorities, or launched as an OTC product without the need for regulatory
approval, may not achieve broad market acceptance among physicians, patients and healthcare payors, and as a result our
revenues generated from sales of any such product may be limited.
The
commercial success of any product we launch will depend upon its acceptance among the medical community, including physicians,
health care payors and patients. The degree of market acceptance of a product will depend on a number of factors, including:
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limitations
or warnings contained in our product candidates’ labeling, including FDA-approved labeling;
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changes
in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for
such product candidates;
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limitations
in the approved clinical indications or intended use for such product;
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demonstrated
clinical safety and efficacy compared to other products;
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lack
of significant adverse side effects;
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sales,
marketing and distribution support;
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availability
of reimbursement from managed care plans and other third-party payors;
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timing
of market introduction and perceived effectiveness of competitive products;
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the
degree of cost-effectiveness;
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availability
of alternative therapies at similar or lower cost, including generics and OTC products;
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the
extent to which a product candidate is approved for inclusion on formularies of hospitals and managed care organizations;
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whether
a product candidate is designated under physician treatment guidelines for the treatment of or reduction of symptoms associated
with the indications for which we have received regulatory approval;
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adverse
publicity about a product candidate or favorable publicity about competitive products;
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convenience
and ease of administration of a product candidate; and
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potential
product liability claims.
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If
RP-G28 or any other product candidate we develop is approved by the applicable regulatory authorities (or launched without
the need for regulatory approval), but does not achieve an adequate level of acceptance by physicians, patients, the medical community
and healthcare payors, sufficient revenue may not be generated from its sales and we may not become or remain profitable.
In addition, efforts to educate the medical community and third-party payors on the benefits of any product candidate may require
significant resources and may never be successful.
The
OTC drug business is subject to significant competitive pressures.
If
the merger is not completed, we may continue to seek partnering, collaborative or similar strategic arrangements with third parties
to develop and commercialize RP-G28 as an OTC product. The OTC healthcare product industry, however, is highly competitive. Many
participants in this industry have substantially greater capital resources, technical staffs, facilities, marketing resources,
product development, and distribution experience than we do. We believe that our ability to compete in the OTC healthcare product
industry will depend on a number of factors, including product quality and price, availability, speed to market, consumer marketing,
reliability, credit terms, brand name recognition, delivery time and post-sale service and support. However, our failure to appropriately
and timely respond to consumer preferences and demand for new products could significantly harm its business, financial condition
and results of operations. Furthermore, unfavorable publicity or consumer perception of products we develop and commercialize
could have a material adverse effect on our business and operations. There can be no assurance that we would be able to compete
successfully in this highly competitive OTC industry. If we are unable to compete effectively, our earnings would be significantly
negatively impacted.
We
have no internal sales, distribution and/or marketing capabilities and we would have to invest significant resources to develop
those capabilities or enter into acceptable third-party sales and marketing arrangements in the event the merger is not completed
and we decide to continue operations.
We
have no internal sales, distribution and/or marketing capabilities
at this time. To develop these capabilities, we would need to invest significant amounts of financial and management resources,
some of which may need to be committed prior to any confirmation that a particular product candidate will be approved. We
could also face a number of additional risks, including:
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we
or our third-party sales collaborators may not be able
to attract and build an effective marketing or sales force;
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the
cost of securing or establishing a marketing or sales force may exceed the revenues generated by the product candidate; and
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our
direct sales and marketing efforts may not be successful.
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We
may have limited or no control over the sales, marketing and distribution activities of third parties. Its future revenues could
depend heavily on the success of the efforts of third parties.
Risks
Relating to Our Intellectual Property if the Merger is not Completed
If
our patent position does not adequately protect our product candidates, others could compete against us more directly, which would
harm our business, possibly materially.
Our
commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving
and enforcing current trade secret protection. In particular, it will depend in part on our ability to obtain, maintain and enforce
patents, especially those directed to methods of using our products and those directed to the methods used to develop and manufacture
our products, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties
from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid
and enforceable patents (and/or trade secrets) that cover these activities. We cannot be sure that patents will be granted with
respect to any of its pending patent applications or with respect to any patent applications it files in the future, nor can we
be sure that any of its existing patents or any patents that may be granted to it in the future will withstand subsequent challenges
to their validity, enforceability, and/or patentability, or if they will be commercially useful in protecting our product candidates,
discovery programs and processes. Furthermore, we cannot be sure that our existing patents and patent applications will embrace
(or “claim”) the particular uses for RP-G28 or any other product candidate that may be approved by the FDA. Our inability
to protect our patents, would also likely impact our ability to attract potential third-party collaborators.
The
patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved.
No
consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged,
to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they
substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of any claims that will issue or will be enforceable
in the patents that have or may be issued from the patents and applications we currently own or may in the future own or license
from third parties. Further, if any patents we obtain, or to which we obtain licenses, are deemed invalid, unpatentable and unenforceable,
our ability to commercialize or license our technology could be adversely affected.
In
the future others may file patent applications directed to products, uses for products, and manufacturing techniques and related
technologies that are similar, identical or competitive to our or important to our business. We cannot be certain that any patent
or patent application owned by a third-party will not have priority over patent applications filed or in-licensed by us in the
future, or that we or our licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings
before U.S. or non-U.S. patent offices or courts.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection
and may not adequately protect its rights or permit us to gain or keep its competitive advantage. For example:
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others
may be able to develop a platform similar to, or better than, ours in a way that does not infringe our patents;
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others
may be able to make compounds that are similar to our product candidates but that do not infringe our patents;
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others
may be able to manufacture compounds that are similar or identical to our product candidates using processes that do not infringe
our method of making patents;
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others
may obtain regulatory approval for uses of compounds, similar or identical to our product, that do not infringe our pharmaceutical
composition patents or our method of use patents;
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we
may not be able to obtain licenses for patents that are essential to the process of making the product;
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we
might not have been the first to make the inventions claimed in its issued patents and pending patent applications;
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we
might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies;
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any
patents that we obtain may not provide us with any competitive advantages;
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we
may not develop additional proprietary technologies that are patentable; or
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the
patents of others may have an adverse effect on our business.
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Patents
directed to pharmaceutical compositions containing RP-G28 or methods of using RP-G28 expire in 2030 if the appropriate maintenance
fee renewal, annuity, or other government fees are paid, unless a patent term extension based on regulatory delay is obtained.
We expect that expiration in 2030 of some of its pharmaceutical composition and method-of-use patents directed to RP-G28 and its
use in treating lactose intolerance will have a limited impact on its ability to protect its intellectual property in the United
States, where we have additional issued patents directed to such compositions and uses that extend until 2030. In other countries,
our issued patents and pending patent applications directed to compositions containing or methods of using RP-G28 for treating
other indications, if issued, would expire in 2030. If we decide to pursue the continued development of RP-G28, including with
a strategic partner, we will attempt to mitigate the effect of patent expiration by seeking data exclusivity, or the foreign equivalent
thereof, in conjunction with product approval, as well as by filing additional patent applications covering improvements in its
intellectual property.
We
expect that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity
or other governmental fees are paid, would expire in 2030. We own pending applications in the United States, Europe, and certain
other countries directed to uses of RP-G28 to treat a variety of disorders, including lactose intolerance. Patent protection,
to the extent these patents issue, would be expected to extend to 2030, unless a patent term extension based on regulatory delay
is obtained.
Due
to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not
obtain patents directed to all of its product candidates or methods involving these candidates in the parent patent application.
We could pursue divisional patent applications or continuation patent applications in the United States and other countries to
obtain claims directed to inventions that were disclosed but not claimed in the parent patent application.
We
also may rely on trade secrets to protect its technology, especially where we do not believe patent protection is appropriate
or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets,
its employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third-party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes
less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our
patents are not directed to RP-G28 as a composition of matter.
Although
we own certain patents and patent applications with claims directed to specific pharmaceutical compositions and methods of using
RP-G28 to treat LI, we do not have patents directed to RP-G28 as a composition of matter in the United States or elsewhere. As
a result, we may be limited in our ability to list our patents in the FDA’s Orange Book if our product or the use of our
product, consistent with its FDA-approved label, would not fall within the scope of our patent claims. Also, our competitors may
be able to offer and sell products so long as these competitors do not infringe any other patents that we (or third parties) hold,
including patents with claims directed to the manufacture of RP-G28, pharmaceutical compositions containing RP-G28, and/or method
of using RP-G28. In general, pharmaceutical composition patents and method of use patents are more difficult to enforce than composition
of matter patents because, for example, of the risks that FDA may approve alternative uses of the subject compounds not covered
by the method of use patents, and others may engage in off-label sale or use of the subject compounds. Physicians are permitted
to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions
may infringe our method of use patents, the practice is common across medical specialties and such infringement is difficult to
prevent or prosecute. FDA approval of uses that are not covered by our patents would limit its ability to generate revenue from
the sale of RP-G28, if approved, for commercial sale. Off-label sales would limit our ability to generate revenue from the sale
of RP-G28, if approved for commercial sale. Any of these factors could impact our ability to attract potential third-party collaborators.
We
may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property
rights.
If
we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual or
company may seek a post grant review (including inter partes review) of our patents, and has the right to ask the court to rule
that such patents are invalid or should not be enforced against that third-party. These lawsuits and administrative proceedings
are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we
were successful in stopping the infringement of such patents. In addition, there is a risk that the court or administrative body
will decide that such patents are not valid or unpatentable and that we do not have the right to stop the other party from using
the inventions. There is also the risk that, even if the validity/patentability of such patents is upheld, the court will refuse
to stop the other party on the ground that such other party’s activities do not infringe our patents. In addition, the U.S.
Supreme Court and the Court of Appeals for the Federal Circuit have articulated and/or modified certain tests used by the U.S.
Patent and Trademark Office (the “USPTO”), in assessing patentability and by the courts in assessing validity and
claim scope, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood that others
may succeed in challenging any patents we obtain or license.
We
may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop it
from commercializing or increase the costs of commercializing our product candidates.
Our
success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee
that our products, methods of manufacture, or uses of RP-G28 (or any future product candidate), will not infringe third-party
patents. Furthermore, a third-party may claim that we or our manufacturing or commercialization collaborators are using inventions
covered by the third-party’s patent rights and may go to court to stop us from engaging in our normal operations and activities,
including making or selling its product candidates. These lawsuits are costly and could affect our results of operations and divert
the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization
collaborators are infringing the third-party’s patents and would order us or our collaborators to stop the activities covered
by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need
to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators
to pay the other party damages for having violated the other party’s patents. In the future, we may agree to indemnify our
commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical
and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including
Ritter, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation
by the courts, and the interpretation is not always uniform.
If
we are sued for patent infringement, the patentee would need to demonstrate, by a preponderance of the evidence that our products
or methods infringe the patent claims of the relevant patent, and we would need to demonstrate either that we do not infringe
or, by clear and convincing evidence, that the patent claims are invalid; we may not be able to do this. Proving invalidity is
difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome
the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial
costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect
on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be
available, defend an infringement action or challenge the validity or enforceability of the patents in court. Patent litigation
is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition,
if we do not obtain a license, develop or obtain non-infringing technology, otherwise fail to defend an infringement action successfully
or have a court hold that any patent we infringe is invalid or unenforceable, we may incur substantial monetary damages, encounter
significant delays in bringing its product candidates to market and may be precluded from manufacturing or selling its product
candidates.
We
cannot be certain that others have not filed patent applications for technology claimed in its pending applications, or that we
were the first to invent the technology, because:
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some
patent applications in the United States may be maintained in secrecy until the patents are issued;
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patent
applications in the United States are typically not published until at least 18 months after the earliest asserted priority
date; and
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publications
in the scientific literature often lag behind actual discoveries.
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Our
competitors may have filed, and may in the future file, patent applications directed to technology similar to ours. Any such patent
application may have priority over our patent applications, which could further require us to obtain rights to issued patents
directed to such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have
to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The
costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to
us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss
of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications,
and other parties may be entitled to priority over our applications in such jurisdictions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue its operations or to attract potential
third-party collaborators.
Obtaining
and maintaining our patent portfolio depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patents could be deemed abandoned or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and/or applications. We employ an outside firm to pay fees due to non-U.S. patent agencies and this outside firm
has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S. governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process.
We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured
by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would
have a material adverse effect on our business. Furthermore, our inability to protect its patents, would also likely impact its
ability to attract potential third-party collaborators.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology
or pharmaceutical companies, including competitors or potential competitors. We may be subject to claims that these employees,
or that we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
Litigation may be necessary to defend against these claims. Even if we were successful in defending against these claims, litigation
could result in substantial costs and be a distraction to management.
We
have relied on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult to protect. We have also relied in part on confidentiality agreements
with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade
secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information
and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others
may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative,
is currently considering whether to make additional information publicly available on a routine basis, including information that
we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s
disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and
determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect
our competitive business position.
Failure
to secure trademark registrations could adversely affect our business.
We
have not developed a trademark for our RP-G28 product. Hence, we do not currently own any actual or potential trademark rights
associated with our RP-G28 product. If we seek to register any trademarks in the future, our trademark applications may not be
allowed for registration or our registered trademarks may not be maintained or enforced. During trademark registration proceedings,
we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome
such rejections. In addition, in the USPTO and in comparable agencies in many other jurisdictions, third parties are given an
opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings
may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for
our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.
Risks
Relating to Our Business and Strategy if the Merger is not Completed
If
the merger is not completed and we decide to continue our operations and the development of RP-G28 as either a prescription drug,
OTC product or dietary supplement, we will face competition from other biotechnology and pharmaceutical companies and our operating
results will suffer if we fail to compete effectively.
Although
we know of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid and significant technological change. If the merger is not completed
and we decide to continue our operations and the development of RP-G28 as either a prescription drug, OTC product or dietary supplement,
we would have potential competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical
companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other
research institutions. Many of these potential competitors have greater financial and other resources, such as larger research
and development staff and more experienced marketing and manufacturing organizations. Large pharmaceutical companies, in particular,
have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical
products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements
in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily
to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates
that we develop obsolete.
As
a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval or
discovering, developing and commercializing drugs for the diseases that we would target before we do. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.
Some of the pharmaceutical and biotechnology companies we could compete with include microbiome-based development companies: Second
Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix Inc. In addition, many universities and
private and public research institutes may become active in our target disease areas. These potential competitors may succeed
in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly,
which could render our products obsolete and noncompetitive.
We
believe that our ability to successfully compete will depend on, among other things:
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ability to commercialize and market any product candidates
approved for sale;
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the
efficacy, safety and reliability of any product candidates approved for sale;
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the
price of any product candidates approved for sale;
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adequate
levels of reimbursement under private and governmental health insurance plans, including Medicare;
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our
ability to protect intellectual property rights related
to any product candidates approved for sale;
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ability to manufacture and sell commercial quantities
of any product candidates approved for sale to the market; and
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acceptance
of any product candidates approved for sale by physicians and other health care providers.
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If
our competitors market products that are more effective, safer or less expensive, or that reach the market sooner than any of
our product candidate approved for sale, we may not achieve commercial success. In addition, the biopharmaceutical industry is
characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for
us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may
be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies
or product candidates obsolete, less competitive or not economical.
If
the merger is not completed and we are able to raise the additional funds necessary to pursue the continued development of RP-G28
(either as a prescription drug, OTC product or dietary supplement), we will need to expand our operations and increase the size
of its company, and we may experience difficulties in managing growth.
If
the merger is not completed and we are able to raise the additional funds necessary to pursue the continued development of RP-G28
(either as a prescription drug, OTC product or dietary supplement), we will need to increase its product development, scientific
and administrative headcount to manage the development and commercialization of our product candidates. If we are unable to successfully
manage this growth and increased complexity of operations, our business may be adversely affected.
We
may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
If
we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience
constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital
and its ability to implement our business strategy. There is also a risk that other obligations could distract our officers and
employees from its business, which could have negative impact on our ability to effectuate its business plans.
Competition
to hire and retain consultants from a limited pool is intense. Further, because these advisors are not our employees, they may
have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, and typically
they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their
work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist
those companies in developing products or technologies that may compete with ours.
If
the merger is not completed and we decide to pursue the development of RP-G28 as either a prescription drug, OTC product or dietary
supplement, we may face product liability exposure, and if successful claims are brought against us, we may incur substantial
liability for a product candidate and may have to limit its commercialization.
The
use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose
us to the risk of product liability claims. Product liability claims may be brought against us or our potential future collaborators
by participants enrolled in its clinical trials, patients, health care providers or others using, administering or selling its
products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial programs;
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costs
of related litigation;
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substantial
monetary awards to patients or other claimants;
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decreased
demand for our product candidates and loss of revenues;
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impairment
of our business reputation;
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diversion
of management and scientific resources from our business operations; and
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the
inability to commercialize our product candidates.
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We
have product liability insurance coverage for our clinical trials in the United States and in selected other jurisdictions where
we intends to conduct clinical trials at levels we believe are sufficient and consistent with industry standards for companies
at our stage of development. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for
any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we
may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due
to product liability. We intend to expand our insurance coverage for products to include the sale of any commercial products for
which we obtain marketing approval, but we may be unable to obtain commercially reasonable product liability insurance for any
products approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated
side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our
insurance coverage, could decrease our cash resources and adversely affect our business.
Our
insurance policies are expensive and only protect
it from some business risks, which will leave us exposed to significant uninsured liabilities.
We
do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain
include general liability ($2.0 million coverage), employment practices liability, workers’ compensation, and directors’
and officers’ insurance at levels we believe are typical for a company in our industry and at our stage of development.
We currently carry clinical trial liability insurance for our clinical trials at levels we believe are sufficient and consistent
with industry standards for companies at our stage of development. We do not know, however, if we will be able to maintain insurance
with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely
affect our financial position and results of operations.
Risks
Relating to Our Capital Stock
An
active trading market for our common stock may not develop or be sustained.
An
active trading market in our common stock may not develop or, if developed, may not be sustained. The lack of an active market
may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The
lack of an active market may also reduce the fair market value of our common stock. An inactive market may also impair our ability
to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies
by using our shares as consideration.
Our
share price has been and may continue to be volatile, which could subject us to securities class action litigation and prevent
our stockholders from being able to sell their shares at or above their purchase price.
The
market price of shares of Ritter common stock could be subject to wide fluctuations in response to many risk factors listed in
this section, and others beyond Ritter’s control, including:
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our
ability to consummate
the transactions contemplated by the Merger Agreement, including the merger;
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our
ability to raise
sufficient additional funds necessary for the continued development of RP-G28 (as a prescription
drug, OTC product or dietary supplement), in the event we decide
to continue development of RP-G28, whether through potential collaborative, partnering
or other strategic arrangements or otherwise, and the terms and timing of any future
collaborative, licensing or other strategic arrangements that we may establish;
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Our
ability to realize
any value from the sale of its RP-G28 assets, in the event we decide to sell or
license RP-G28 to a third-party;
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our
ability to maintain
our listing on the Nasdaq Capital Market;
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results
of clinical trials of our competitors’ products;
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regulatory
actions with respect to our products or Ritter’s competitors’ products;
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actual
or anticipated fluctuations in our financial condition and operating results;
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actual
or anticipated changes in our growth rate relative to our competitors;
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actual
or anticipated fluctuations in our competitors’ operating results or changes
in their growth rate;
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competition
from existing products or new products that may emerge;
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announcements
by us, our potential future collaborators or its competitors of significant acquisitions,
strategic collaborations, joint ventures, or capital commitments;
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issuance
of new or updated research or reports by securities analysts;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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inconsistent
trading volume levels of our shares;
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additions
or departures of key management or scientific personnel;
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disputes
or other developments related to proprietary rights, including patents, litigation matters
and our ability to obtain patent protection for our technologies;
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announcement
or expectation of additional financing efforts;
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sales
of our common stock by us, our insiders or our other stockholders;
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market
conditions for biopharmaceutical stocks in general; and
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general
economic and market conditions.
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Furthermore,
the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market
prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market
conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market
price of shares of our common stock. In addition, such fluctuations could subject us to securities class action
litigation, which could result in substantial costs and divert our management’s attention from other business concerns,
which could seriously harm our business.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business,
our share price and trading volume could decline.
The
trading market for our common stock will depend on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide
favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our
share price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on
us, we could lose visibility in the financial markets, which could cause its share price or trading volume to decline.
Future
sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline,
even if our business is doing well.
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could occur in the future. These
sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could
reduce the market price of our common stock.
We
may sell up to approximately $8.0 million of our shares of common stock under our at-the-market (“ATM Agreement”)
sales agreement with A.G.P./Alliance Global Partners (“AGP”). The sale of a substantial number of shares of our common
stock pursuant to the ATM Agreement, or anticipation of such sales, could cause the trading price of our common stock to decline
or make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might
otherwise desire. However, we may terminate the financing arrangement at any time at our discretion without any penalty or cost
to us.
Exercise
of options or warrants or conversion of convertible securities may have a dilutive effect on your percentage ownership and may
result in a dilution of your voting power and an increase in the number of shares of common stock eligible for future resale in
the public market, which may negatively impact the trading price of our shares of common stock.
The
exercise or conversion of some or all of our outstanding options, warrants, or convertible securities (or, after the merger, the
issuance of equity awards under the Ritter 2020 Plan) could result in significant dilution in the percentage ownership interest
of our stockholders and in a significant dilution of voting rights and earnings per share.
Additionally,
the issuance of shares of our common stock upon exercise of stock options outstanding under our stock incentive plans will further
dilute our stockholders’ voting interests. To the extent options and/or warrants and/or conversion rights are exercised,
additional shares of common stock will be issued, and such issuance will dilute stockholders.
We
are an “emerging growth company”
and will be able to avail itself of reduced disclosure requirements applicable to emerging growth companies, which could make
our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”),
and rely on certain exemptions from various reporting requirements that are applicable to other public companies that are not
“emerging growth companies” including not being required to comply with the auditor attestation requirements of Section
404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and
proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. 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.
We
(and the combined company following the merger) may take advantage of these reporting exemptions until we are no longer an “emerging
growth company.” We will remain an emerging growth company until December 31, 2020, the last day of the fiscal year following
the fifth anniversary of the date we completed our initial public offering, after which time the combined company will no longer
be entitled to rely on the exemptions available to emerging growth companies.
Our
failure to meet the continued listing requirements
of Nasdaq could result in a delisting of our common stock and the termination of the Merger Agreement by Qualigen.
On
August 19, 2019, we received a written notice from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1),
as our stockholders’ equity, as reported in our Quarterly Report on Form 10-Q for the period ended June 30, 2019, was below
$2.5 million, which is the minimum stockholders’ equity required for compliance with Rule 5550(b)(1). As of August 19, 2019,
we also did not satisfy the conditions for the alternative market value of listed securities standard for continued listing or
the net income standard for continued listing.
We
were given until October 3, 2019 to submit a plan to regain compliance, which, if accepted by Nasdaq, could have resulted in us
being granted an extension of up to 180 calendar days from the date of the original notice of noncompliance, or until February
15, 2020, to demonstrate compliance with Nasdaq Listing Rule 5550(b)(1).
On
October 28, 2019, we received a second written notice from Nasdaq indicating that, because the closing bid price for our common
stock had been below $1.00 per share for 30 consecutive business days, we no longer complied with the minimum bid price requirement
for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum
bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Listing Rule 5810(c)(3)(A) provides that a
failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive business days.
We were given until April 27, 2020, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing
bid price of our common stock would need to meet or exceed $1.00 per share for a minimum of 10 consecutive business days during
the 180-calendar day grace period.
On
November 21, 2019, we received a letter from the Listing Qualifications Department of Nasdaq, notifying us that Nasdaq had determined
to delist our common stock pursuant to Nasdaq’s discretionary authority under Listing Rule 5101, based on our failure to
comply with the above described continued listing requirements and its belief that we do not have any current operating business.
The letter stated that, unless we appealed Nasdaq’s determination and requested a hearing on the matter by the applicable
deadline, trading of our common stock on the Nasdaq Capital Market would be suspended at the opening of business on December 3,
2019 and a Form 25-NSE would be filed with the SEC.
We
appealed Nasdaq’s determination and a hearing was held on January 16, 2020, at which we submitted our compliance plan to
Nasdaq. The plan identified the Merger Agreement as a “change of control” transaction under Nasdaq Rule 5110(a) and
indicated that upon filing the Registration Statement, we would file a Change of Control Application with Nasdaq via the Nasdaq
Listing Center. The compliance plan also formally requested, on behalf of Ritter, and its proposed partner, Qualigen, that an
exception through May 19, 2020 to complete the merger and provide evidence of compliance with all applicable requirements for
Initial Listing on the Nasdaq Capital Market be made, which request has been granted by Nasdaq.
The
terms of the Merger Agreement provide that the Merger Agreement may be terminated by Qualigen if we fail to maintain our listing
on Nasdaq. If our common stock is delisted, we would expect our common stock to be traded in the OTC market, which could adversely
affect the liquidity of our common stock. Additionally, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our common stock;
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a
decreased ability to issue additional securities and a concomitant substantial impairment
in our ability to obtain sufficient additional capital to fund its operations
and to continue as a going concern;
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reduced
liquidity for our stockholders; and
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potential
loss of confidence by employees and potential future partners or collaborators; and loss of institutional investor interest
and fewer business development opportunities.
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Provisions
in our corporate charter documents and under Delaware law could make an acquisition of Ritter, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our Certificate of Incorporation and our Bylaws may discourage, delay or prevent a merger, acquisition or other change in control
that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.
These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock,
thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing
the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for stockholders to replace members of our board of directors. Among other
things, these provisions provide that:
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the
authorized number of directors can be changed only by resolution of our board of directors;
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our
Bylaws may be amended
or repealed by our board of directors or our stockholders;
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stockholders
may not call special meetings of the stockholders or fill vacancies on the board of directors;
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our
board of directors is authorized to issue, without stockholder approval, preferred stock,
the rights of which will be determined at the discretion of the board of directors and
that, if issued, could operate as a “poison pill” to dilute the stock ownership
of a potential hostile acquirer to prevent an acquisition that our board of directors
does not approve;
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our
stockholders do not have cumulative voting rights, and therefore our stockholders holding
a majority of the shares of common stock outstanding will be able to elect all of our
directors; and
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our
stockholders must comply with advance notice provisions to bring business before or nominate
directors for election at a stockholder meeting.
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Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which prohibits a person
who owns in excess of 15% of our outstanding voting stock from merging or combining with Ritter for a period of three years after
the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or
combination is approved in a prescribed manner.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against
us and may reduce the amount of money available to us.
As
permitted by Section 102(b)(7) of the DGCL, our Certificate of Incorporation limits the liability of our directors to the fullest
extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our Certificate of Incorporation and our Bylaws
provide that we shall indemnify, to the fullest extent authorized by the DGCL, each person who is involved in any litigation or
other proceeding because such person is or was a director or officer of Ritter or is or was serving as an officer or director
of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith.
Our Certificate of Incorporation provides that the right to indemnification includes the right to be paid expenses incurred in
defending any proceeding in advance of its final disposition, provided, however, that such advance payment will only be made upon
delivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full
within 60 days after we receive a written claim for such indemnification, except in the case of a claim for an advancement of
expenses, in which case such period is 20 days, our Certificate of Incorporation and our Bylaws authorize the claimant to bring
an action against us and prescribe what constitutes a defense to such action.
Section
145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted
in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful.
In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for
expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action
or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to
be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine
that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
The
rights conferred in our Certificate of Incorporation and Bylaws are not exclusive, and we are authorized to enter into indemnification
agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons. We have entered
into indemnification agreements with each of our officers and directors.
The
above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers
for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us.
Although we plan to increase the coverage under our directors’ and officers’ liability insurance, certain liabilities
or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts
may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations,
which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to
bring a claim against us.
Because
the merger will result in an ownership change under Section 382 of the Code for Ritter, our pre-merger net operating loss carryforwards
and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain
other tax attributes of Qualigen and of the combined company may also be subject to limitations as a result of ownership changes.
If
a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s
net operating loss carryforwards and certain other tax attributes arising before the ownership change are subject to limitations
on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s
equity ownership by certain stockholders that exceed 50 percentage points by value over a rolling three-year period. Similar rules
may apply under applicable state income tax laws. While we have not performed a detailed analysis of limitations on the use of
our existing net operating loss carry forwards and certain other tax attributes arising before the ownership change, the merger
will result in an ownership change for Ritter and, accordingly, our net operating loss carryforwards and certain other tax attributes
will be subject to limitation and possibly elimination after the merger. The merger may, if part of a cumulative change in Qualigen’s
equity ownership by certain stockholders that exceeds 50 percentage points by value over a rolling three-year period, limit Qualigen’s
net operating loss carryforwards and certain other tax attributes. Additional ownership changes in the future could result in
additional limitations on Ritter’s, Qualigen’s and the combined company’s net operating loss carryforwards and
certain other tax attributes. Consequently, even if the combined company achieves profitability, it may not be able to utilize
a material portion of Ritter’s, Qualigen’s or the combined company’s net operating loss carryforwards and certain
other tax attributes, which could have a material adverse effect on cash flow and results of operations.