springbanks107232015.htm
 As filed with the Securities and Exchange Commission on July ___, 2015
No. 333-_____ 
  


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

____________________________
 

SPRING BANK PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
2834
52-2386345
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)

113 Cedar Street
Milford, MA 01757
(508) 473-5993
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
___________________________________
Jonathan P. Freve
Chief Financial Officer
Spring Bank Pharmaceuticals, Inc.
113 Cedar Street
Milford, MA 01757
(508) 473-5993
 (Name, address, including zip code, and telephone number, including
area code, of agent for service)
___________________________
Copies to:

David S. Hunt, Esq.
222 Main Street, Suite 500
Salt Lake City, Utah 84101
Tel: (801) 355-7878
Fax: (801) 966-6164
_____________________________________

Approximate date of commencement of proposed sale to the public: As soon as possible after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x
 
 
 
 

 
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  o (Do not check if a smaller reporting company)
Smaller reporting company  x
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 

 
CALCULATION OF REGISTRATION FEE

Class of securities to be registered
Proposed maximum aggregate offering price
Amount of registration fee
Common Stock, $0.0001 par value per share (1)
 
 
     
     

(1)  
The proposed maximum aggregate price has been estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.


The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 
 
 

 
 

 
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION DATED _____________, 2015


PRELIMINARY PROSPECTUS
 

Common Stock
 
We are offering $    of our common stock in this offering.
 
 
Prior to this offering, there has been no public market for the common stock. We plan to apply to have our common stock listed on The Nasdaq under the symbol “SBPH”.
 
We may sell these securities directly, through placement agents, or through underwriters or dealers as designated from time to time.  If any agents or underwriters are involved in the sale of any of these securities, the applicable prospectus supplement will provide the names of the agents or underwriters and any applicable fees, commissions or discounts.
 
We are an "emerging growth company" as defined in Section 2(a) of the Securities Act of 1933 and will be subject to reduced public company reporting requirements. See "Prospectus Summary — Implications of Being an Emerging Growth Company."
 
Investing in our securities involves a high degree of risk.  See “Risk Factors” commencing on page 10.  You should carefully read this prospectus, the documents incorporated herein, and the applicable prospectus supplement before making any investment decision.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 

           
   
Per Share
 
Total
 
Initial public offering price
 
$
 
$
 
Proceeds, before expenses, to Spring Bank
 
$
 
$
 

 

The date of this prospectus is                                                                , 2015
 


 
 
 

 
 
 
We are responsible for the information contained in this prospectus. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 
TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

We have not authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Unless the context otherwise requires, “Spring Bank,” the “Company,” “we,” “us,” “our” and similar names refer to Spring Bank Pharmaceuticals, Inc.

Our logo and some of our trademarks and tradenames are used in this prospectus. This prospectus also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus may appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and tradenames.


 
 
 
 
 
This summary may not contain all the information that you should consider before investing in securities. You should read the entire prospectus, any applicable prospectus supplement and the information incorporated by reference in this prospectus carefully, including “Risk Factors” and the financial data and related notes and other information incorporated by reference, before making an investment decision.
 
Overview
 
We are a clinical-stage biopharmaceutical company engaged in the discovery and development of a novel class of orally bioavailable therapeutics using our proprietary small molecule nucleic acid hybrid, or SMNH, chemistry platform. SMNH compounds are small segments of nucleic acids that we design to selectively target and modulate the activity of specific proteins or enzymes implicated in various disease states. We are developing our most advanced SMNH product candidate, SB 9200, for the treatment of viral diseases. We have designed SB 9200 to selectively activate the host cellular proteins, RIG I and NOD 2, which have been implicated in the body’s immune response to viral infections.  We believe that SB 9200 can play an important role in antiviral therapy by modulating host immune response to fight viral infections.
 
We have completed a Phase 1 trial of SB 9200 in otherwise healthy patients infected with the Hepatitis C virus, or HCV, and, subject to the proceeds of this offering and additional funding, we are preparing to initiate in 2016 three additional clinical trials of SB 9200:
 
 
a Phase 2 clinical trial in patients with chronic Hepatitis B virus, or HBV to explore both monotherapy and combination therapy with a direct acting antiviral, or DAA;
 
 
a Phase 2 clinical trial in HCV patients who have failed multiple DAA combination therapy to explore the combination of SB 9200 with two or three DAAs; and
 
 
a Phase 2a clinical trial in Respiratory Syncytial Virus, or RSV, in healthy volunteers inoculated with RSV.
 
We are developing SB 9200 for the treatment of HBV chronic infection.  We believe SB 9200 has the potential to provide a functional cure of HBV by increasing the clearance of HBsAg, HBsAg is the surface antigen of the hepatitis B virus that indicates active hepatitis B infection. Clearance of HBsAg would be indicative of a functional cure. Currently available treatments for HBV include Barraclude (entecavir) and Viread (tenofovir) . These drugs are DAAs which suppress viral replication and had reported worldwide revenues of approximately $2.5 billion in 2014. In Europe, Pegylated interferon-α, or PEG-IFN-α, is indicated for first line treatment of HBV virus according to the European Association for the Study of the Liver, or EASL, guidelines for HBV treatment for certain patient populations.  We expect that the market for HBV treatments will continue to expand as new therapies come to market.
 
We are also developing SB 9200 for HCV infection.  We believe that the chronically infected HCV population remains largely untreated, even with the introduction of new regimens in 2013 and 2014. The reported worldwide sales of the three newest therapies for HCV (sofosbuvir, ledipasvir and simeprevir) during 2014 totaled approximately $14.7 billion. We believe that the market for HCV treatments will continue to expand as new therapies come to market.  In addition, as more patients are treated with combination therapies that include an NS5a inhibitor and other DAAs, we believe the treatment failure market due to NS5a resistance will continue to grow and provide an attractive market opportunity for SB 9200 in combination with DAAs.
 
 
 
Our Business Strategy

Our primary objective is to expand our leadership position in developing SMNH therapeutics for the treatment of viral infections and other therapeutic indications. To achieve this goal, we are pursuing the following strategies:
 
 
Rapidly advance the clinical development of SB 9200 for antiviral applications.  We have completed a Phase 1 trial of SB 9200 in HCV infected patients, and, subject to funding and regulatory approval, we are preparing to initiate in 2016 three additional clinical trials of SB 9200 in patients infected with HBV, HCV and RSV.
 
 
Develop additional SMNH candidates for antiviral therapies.  We are developing SB 9400, SB 9941 and SB 9946 in preclinical development as antiviral therapies targeting RIG I and NOD 2. In preclinical studies these compounds have demonstrated antiviral activity against HCV and RSV. We plan to evaluate the compounds against other viral targets to support investigational new drug applications, or INDs, to expand our presence in antiviral treatments.
 
 
Continue to refine and expand our SMNH therapeutics platform.  We have active discovery programs exploring the use of SMNH compounds to treat COPD and oncology indications.
 
 
Collaborate selectively to develop and commercialize some product candidates while seeking a balance between wholly owned and partnered programs.  We currently have full commercial rights to all of our product candidates and programs. We plan to selectively develop and commercialize candidates on our own based on the opportunity and the marketplace.  In the future, we plan to seek to enter into collaboration agreements with leading pharmaceutical and biotechnology companies to assist us in furthering the development and commercialization of some of our product candidates.
 
Our SMNH Chemistry Platform
 
We design our SMNH compounds to disrupt the interaction between the nucleotides/nucleic acids and aberrant proteins by binding to the active sites of enzymes and proteins and thereby modulating their activity.  Our compounds disrupt this interaction by binding to specific sites on the enzymes and proteins.  Because SMNH compounds resemble naturally occurring nucleotides and nucleic acids in the body, they mimic nucleic acid/nucleotide/protein interactions and are more efficient in disrupting the interactions with aberrant proteins than is possible with traditional small molecules.  By making specific structural modifications to SMNH scaffolds, we enable them to bind to targets in the diseased tissues with high affinity and selectivity.

Unlike other nucleic acid-based approaches, such as RNA interference, that act by inhibiting specific protein expression through down regulation of messenger RNA, or mRNA, SMNH compounds act directly on proteins and therefore can be used to either up regulate or down regulate the function of proteins in order to modulate the protein interactions to mitigate their activity in disease processes.

For example, SB 9200 is designed to bind selectively with and up regulate the host cellular proteins, RIG I and NOD 2, each of which is involved in the activation of body’s immune response to foreign pathogens.

Some of the features of our SMNH compounds that we believe to be important include:

 
Oral bioavailability.  Because of the size of our SMNH compounds, which are small segments of nucleic acids, they can be delivered orally.
 
 
Treat a broad range of diseases.  SMNH compounds can be designed to selectively target certain proteins whose presence or activity contributes to disease severity or causes the underlying disease.  This approach is potentially applicable to a broad range of diseases.
 
 
 
 
Selectivity for desired protein target.  By mimicking nucleic acid/nucleotide/protein interactions, SMNH compounds can be more effective in disrupting the interactions with aberrant proteins than is traditional small molecules.
 
 
No observed immune overstimulation.  In preclinical studies of our SMNH compounds and our Phase 1 clinical trial of SB 9200, our SMNH compounds do not appear to have triggered a nonspecific immune response.
 
 
Intact excretion limits likelihood of unwanted drug-drug interactions. SMNH compounds are unlikely to have drug-drug interactions because they are not metabolized by enzyme systems in the liver and are excreted mostly intact.
 
 
Multiple viable routes of delivery create medical and commercial opportunity. SMNH compounds can be delivered in multiple ways, including by oral, inhaled and intravenous administration, depending on the disease target and optimal delivery approach.
 
 
Relative ease of manufacturing. Because SMNH compounds are chemically synthesized by a proprietary solution phase technology, they can be produced in a scalable and reproducible manner.
 
 
Rapid in vitro discovery and chemical synthesis. We have developed the capability to use our SMNH platform to identify lead candidates for development.
 
 
Our Product Candidates

The following table summarizes the status of the development of our product candidates.  Each of our product candidates is a prodrug which is designed to deliver the active product to the target organ through the product’s metabolites. We own all of the commercial rights to all of our product candidates.

Product Candidate
Indication/
Therapeutic Area
Stage of Development
Anticipated
Milestones
SB 9200
HBV
Phase 2
Initiation of Phase 2 clinical trial planned in 1H 2016
SB 9200
HCV
Phase 2
Phase 1 clinical trials completed; Phase 2 clinical trial planned in 2016
SB 9200
RSV
Phase 2
Initiation of Phase 2a clinical trial planned in 2016
SB 9400
Viral Infections
Preclinical
IND enabling toxicology studies
SB 9941
Viral Infections
Preclinical
IND enabling toxicology studies
SB 9946
Viral Infections
Preclinical
IND enabling toxicology studies
 
 
 
Risks Associated with Our Business
 
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. Some of these risks are:
 
 
we have a limited operating history, have incurred significant losses since our inception, expect to incur losses for the foreseeable future and may never achieve or maintain profitability;
 
 
we will need additional funding before we can expect to become profitable from the sales of our products, if approved, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts;
 
 
we are very early in our development efforts and our product candidates may not be successful in later stage clinical trials and as a result may never be approved as marketable therapeutics;
 
 
we rely, and expect to continue to rely, on third parties to conduct our clinical trials and to manufacture our product candidates for pre-clinical and clinical testing, and those third parties may not perform satisfactorily, which could delay our product development activities;
 
 
if we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects;
 
 
we may not be able to retain key executives or to attract, retain and motivate key personnel including a chief executive officer; and
 
 
our business currently depends substantially on the success of clinical trials for SB 9200, which is still under development. If we are unable to obtain regulatory approval for, or successfully commercialize SB 9200, our business will be materially harmed.
 
It is difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.
 
Our Corporate Information
 
We were incorporated under the laws of the Commonwealth of Massachusetts as Spring Bank Technologies, Inc. on October 7, 2002. On May 12, 2008, we filed a certificate of incorporation in the State of Delaware and changed our corporate domicile to Delaware and our name to Spring Bank Pharmaceuticals, Inc.  Our principal executive offices are located at 113 Cedar Street, Milford, MA 01757 and our telephone number is (508) 473-5993. Our website address is www.springbankpharm.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus.
 
Implications of Being an Emerging Growth Company
 
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.
 
 
 
We will remain an emerging growth company until the earliest to occur of:

 
the last day of the fiscal year in which we have $1.0 billion or more in annual revenue;
 
the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;
 
the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or
 
the last day of the fiscal year ending after the fifth anniversary of our initial public offering.
 
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act) are required to comply with the new or revised financial accounting standard.
 
For certain risks related to our status as an emerging growth company, see the disclosure elsewhere in this prospectus under “Risk Factors—Risks Related to this Offering, the Securities Markets and Ownership of Our Common Stock—We are an ‘emerging growth company’,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
 
 
 
 
Common stock offered by us                                                                       
       shares of common stock
Common stock to be outstanding after this offering
       shares of common stock
Use of proceeds                                                                       
We estimate that the net proceeds from the sale of shares of our common stock in this offering will be approximately $      based upon the assumed initial public offering price of $    per share, and after deducting estimated offering expenses payable by us. We expect to utilize these funds to continue to advance the clinical development of SB 9200, conduct additional research and development, and for working capital and other general corporate purposes. See “Use of Proceeds” beginning on page 50.
Risk factors                                                                       
See “Risk Factors” beginning on page 10 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.
Proposed symbol                                                                       
“SBPH”
 
The number of shares of our common stock to be outstanding after this offering is based on 23,184,474 shares of our common stock outstanding as of June 30, 2015, and 1,000,000 additional shares of our common stock issuable upon the conversion of all of our outstanding shares of preferred stock upon the closing of this offering, and excludes:
 
 
4,727,270 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2015, at a weighted average exercise price of $2.17 per share;
 
 
593,000 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2015, at a weighted average exercise price of $2.32 per share; and
 
 
307,000 shares of common stock available for future issuance under our 2014 Stock Incentive Plan as of June 30, 2015.
 
Unless otherwise indicated, this prospectus reflects and assumes the following:
 
 
the issuance of 1,000,000 shares of common stock upon conversion of our outstanding preferred stock upon the closing of this offering; and
 
 
no exercise of outstanding options or warrants after June 30, 2015.
 

 
 
You should read the following financial data together with our financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. We have derived the statement of operations data for the years ended December 31, 2013 and 2014, and the balance sheet data as of December 31, 2013 and 2014, from our audited financial statements appearing at the end of this prospectus. The statement of operations data for the three months ended March 31, 2014 and 2015, and the balance sheet data as of March 31, 2015, have been derived from our unaudited financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and the interim period results are not necessarily indicative of the results to be expected for the full year or any other interim period.
 
   
Year Ended December 31,
   
Three Months Ended March 31,
 
   
2013
   
2014
   
2014
   
2015
 
   
(in thousands, except share and per share data)
 
Statement of Operations Data:
                       
Grant revenue
  $ 651     $ 738     $ 210     $ 250  
                                 
Operating expenses:
                               
Research and development
    3,966       6,132       1,231       1,133  
General and administrative
    1,756       2,412       524       1,075  
                                 
Total operating expenses
    5,722       8,544       1,755       2,208  
                                 
Loss from operations
    (5,071 )     (7,806 )     (1,545 )     (1,958 )
Other income (expense):
                               
Interest income (expense), net
    (1,939 )     (1,906 )     (410 )     -  
Gain on change in fair value of warrant liability
    54       -       -       -  
                                 
Net loss
  $ (6,956 )   $ (9,712 )   $ (1,955 )   $ (1,958 )
                                 
Net loss per common share, basic and  diluted(1)
  $ (0.60 )   $ (0.78 )   $ (0.16 )   $ (0.09 )
                                 
Weighted-average common shares outstanding, basic and diluted(1)
    11,667,564       12,473,377       12,373,259       21,346,172  
                                 
Pro forma net loss per share, basic and diluted (unaudited)(2)
          $ (0.72 )           $ (0.09 )
                                 
Pro forma weighted-average common shares outstanding, basic and diluted (unaudited)(2)
            13,473,377               22,346,172  
                                 
 


(1) See Note 2 to our financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders.
 
(2) See Note 1 to our financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted pro forma net loss per share attributable to common stockholders.
 


   
As of
December 31,
   
As of
March 31,
 
   
2013
   
2014
   
2015
 
   
(in thousands)
 
Balance Sheet Data:
                 
Cash and cash equivalents
  $ 6,301     $ 1,570     $ 19,742  
Working capital
    2,670       12,074       19,500  
Total assets
    7,629       13,805       20,430  
Convertible notes
    3,616       -       -  
Total stockholders’ equity
    2,908       12,200       19,637  
 

 

 
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment.
 
Risks Related to Our Financial Position and Capital Needs
 
We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses in the future.
 
We are a clinical-stage biopharmaceutical company. We have one product candidate, SB 9200, in the early stages of clinical development and all of our other product candidates are pre-clinical. We do not have any products approved by regulatory authorities for marketing and have not generated any revenue from product sales, and we continue to incur significant research, development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in every reporting period since our inception in 2002. For the years ended December 31, 2013 and 2014, we reported a net loss of $7.0 million and $9.7 million, respectively, and for the three months ended March 31, 2015, we reported a net loss of $2.0 million.  We had an accumulated deficit of $24.6 million at March 31, 2015.
 
We expect to continue to incur significant and increasing losses for the foreseeable future. We anticipate these losses to increase as our expenses increase, and we expect that our expenses will increase if and as we:
 
 
continue to develop and conduct clinical trials with respect to SB 9200, including the clinical trials we plan to initiate in 2016;
 
 
initiate and continue research, preclinical and clinical development efforts for our other product candidates;
 
 
seek to identify and develop additional product candidates;
 
 
seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
 
 
establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval, if any;
 
 
require the manufacture of larger quantities of product candidates for clinical development and potentially commercialization;
 
 
maintain, expand and protect our intellectual property portfolio;
 
 
hire and retain additional personnel, including a chief executive officer, and clinical, quality control and scientific personnel;
 
 
add operational, financial and management information systems and personnel, including personnel to support our product development and help us comply with our obligations as a public company; and
 
 
add equipment and physical infrastructure to support our research and development programs.
 
 
 
We currently have no source of product revenue and may never become profitable.
 
We do not have any products approved by regulatory authorities for marketing and have not generated any revenue from product sales. Our ability to achieve and maintain profitability will depend upon our ability to generate revenue. We do not expect to generate significant revenue unless and until we are able to gain regulatory approval of and commercialize SB 9200 or other product candidates that we may develop, in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for SB 9200 or any other product candidate, we do not know when we will generate revenue from product sales, if at all. Our ability to generate revenue from product sales of SB 9200 or any other product candidate also depends on a number of factors, including our ability to:
 
 
successfully complete development activities, including enrollment of study participants and completion of the necessary clinical trials;
 
 
complete and submit New Drug Applications, or NDAs, to the United States Food and Drug Administration, or FDA, and obtain regulatory approval for indications for which there is a commercial market;
 
 
complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;
 
 
successfully commercialize any approved products;
 
 
manufacture or have manufactured commercial quantities of our products at acceptable cost levels;
 
 
develop a commercial organization capable of manufacturing, sales, marketing and distribution for any products we intend to sell ourselves in the markets in which we choose to commercialize such products on our own;
 
 
enter into arrangements with third parties to manufacture, market, sell and distribute our approved products in other markets; and
 
 
obtain adequate pricing, coverage and reimbursement from third parties, including government and private payors.
 
In addition, because of the numerous risks and uncertainties associated with product development, including that SB 9200 or our other product candidates, may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for SB 9200 or any other product candidate, we anticipate incurring significant costs associated with commercializing these products.
 
Even if we are able to generate revenues from the sale of SB 9200 or any other products, we may not generate revenues that are large enough for us to become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.
 
We intend to expend our limited resources on the development of our sole clinical stage product candidate, SB 9200, for antiviral applications and may fail to capitalize on other technologies, product candidates or other indications that may be more profitable or for which there is a greater likelihood of success.
 
 
 
Because we have limited financial and managerial resources, we are focusing our resources on the development of SB 9200, which concentrates the risk of product failure on SB 9200.  SB 9200 may prove to be unsafe or ineffective. As a result of this concentration of resources, we may forego or delay development of other technologies, product candidates or other indications that later prove to have greater commercial potential.
 
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to the candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product candidate.
 
We will require additional capital to fund our operations. If we fail to obtain necessary financing, we may be forced to delay, reduce or eliminate our development and potential commercialization efforts for SB 9200.
 
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we initiate new clinical trials of, initiate new research and preclinical development efforts for and seek marketing approval for, SB 9200. In addition, if we obtain marketing approval for SB 9200, we may incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a future collaborator. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

We plan to use the net proceeds of this offering primarily to fund our ongoing development of SB 9200 including the clinical trials we plan to initiate in 2016.  However, the net proceeds of this offering and our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of SB 9200. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.  We do not have any committed external source of funds other than under an existing grant from the National Institutes of Health, or NIH.
 
Adequate additional financing may not be available to us on acceptable terms or at all.  Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
 
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of March 31, 2015, will enable us to fund our operating expenses and capital expenditure requirements until _______. We have based this estimate on assumptions that may prove to be wrong, and we could deploy our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.  Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to the:
 
 
initiation, progress, timing, costs and results of pre-clinical studies and clinical trials of SB 9200 including the clinical trials we plan to initiate in 2016;
 
 
initiation, progress, timing, costs and results of pre-clinical studies and clinical trials of our other product candidates and any other product candidates;
 
 
 
 
our obligation to make royalty and non-royalty sublicense receipt payments to third-party licensors, if any, under our licensing agreements;
 
 
the number and characteristics of product candidates that we discover or in-license and develop;
 
 
the outcome, timing and cost of seeking regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;
 
 
the costs of filing, prosecuting, defending and enforcing any patent claims and maintaining and enforcing other intellectual property rights;
 
 
subject to receipt of marketing approval, revenue, if any, received from commercial sales of SB 9200 and  any other products;
 
 
the costs and timing of the implementation of commercial-scale manufacturing activities;
 
 
the costs and timing of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval; and
 
 
the costs of operating as a public company.
 
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or SB 9200.
 
Until we can generate substantial revenue from product sales, if ever, we expect to seek additional capital through a combination of private and public equity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development of SB 9200 and our other product candidates.
 
If we raise additional funds through strategic collaborations and alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop and market ourselves.
 
We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
 
As part of our business strategy, we may pursue acquisitions of assets, including pre-clinical, clinical or commercial stage products or product candidates, or businesses, or strategic alliances and collaborations, to expand our existing technologies and operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, on favorable terms or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on our financial condition, results of operations and cash flows. We have no experience with acquiring other companies, products or product candidates, and limited experience with forming strategic alliances and collaborations. We may not be able to find suitable companies, products or product candidates to acquire or partners  with which to form strategic alliances or collaborations, and if we enter into any such transactions, we may not be able to integrate the acquired companies, products or product candidates successfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business.
 
 
 
To finance any acquisitions or collaborations, we may choose to issue convertible debt or equity as consideration. Any such issuance of securities would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.
 
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
 
Our future success is dependent on the successful clinical development, regulatory approval and commercialization of SB 9200, and will require significant capital resources and years of additional clinical development effort. If we are unable to develop, obtain regulatory approval for or successfully commercialize SB 9200 or experience significant delays in doing so, our business could be materially harmed.
 
We do not have any products that have gained regulatory approval. Currently, our only clinical-stage product candidate is SB 9200. As a result, our business is dependent on our ability to successfully complete clinical development of, obtain regulatory approval for, and, if approved, to successfully commercialize SB 9200 in a timely manner. The success of SB 9200 will depend on several factors, including the following:
 
 
successful completion of our planned clinical trials in HBV, HCV and RSV;
 
 
initiation and successful enrollment and completion of additional clinical trials;
 
 
safety, tolerability and efficacy profiles that are satisfactory to the FDA, or any comparable foreign regulatory authority for marketing approval;
 
 
timely receipt of marketing approvals from applicable regulatory authorities;
 
the performance of our future collaborators, if any;
 
 
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
 
 
establishment of supply arrangements with third-party raw materials suppliers and manufacturers;
 
 
establishment of arrangements with third-party manufacturers to obtain finished drug products that are appropriately packaged for sale;
 
 
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;
 
 
protection of our rights in our intellectual property portfolio;
 
 
successful launch of commercial sales following any marketing approval;
 
 
a continued acceptable safety profile following any marketing approval;
 
 
commercial acceptance by patients, the medical community and third-party payors following any marketing approval; and
 
 
our ability to compete with other therapies, including therapies targeting viral hepatitis and other antiviral applications.
 
 
 
Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for and successfully commercialize SB 9200 or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.
 
We are conducting multiple clinical trials of SB 9200 in different indications.  If patients in any of these trials experience adverse safety events, we may be required to delay, discontinue or modify all of our clinical trials of SB9200.
 
The results of pre-clinical studies and early clinical trials may not be predictive of results in future clinical trials.
 
The outcome of pre-clinical studies and early clinical trials may not be predictive of the results of later clinical trials and interim results of clinical trials do not necessarily predict success in such clinical trials.  A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier pre-clinical studies and clinical trials. Generally, in vitro and in vivo results from preclinical studies such as the results from our studies in animal models of HBV, HCV and RSV as well as in in vitro assays, may not translate into human efficacy.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of SB 9200, the development timeline and regulatory approval and commercialization prospects for SB 9200, and, correspondingly, our business and financial prospects, would be negatively impacted.
 
The therapeutic efficacy of SB 9200 is unproven in humans, and we may not be able to successfully develop and commercialize SB 9200.
 
SB 9200 is a novel compound and its potential benefit as an antiviral drug is unproven. SB 9200 may not prove to be effective against indications it is being designed to act against and may not demonstrate in clinical trials any or all of the pharmacological effects that have been observed in pre-clinical studies. To date, we have only completed a single Phase I trial of SB 9200. In that trial, we evaluated SB 9200 in 38 otherwise healthy HCV infected patients as a monotherapy treatment for up to seven days.  We plan to initiate clinical trials of SB 9200 for the treatment of HBV, HCV, and RSV. We expect the trials for HBV and HCV will be of longer duration and involve combination therapy with other antiviral agents. As a result, our Phase I trial results may not be indicative of the results of these trials.   While we have conducted a phase 1 clinical trial in HCV infected patients, the dose and frequency may be different for other indications of antiviral therapy.
 
SB 9200 may interact with human biological systems in unforeseen, ineffective or harmful ways. If SB 9200 is associated with undesirable side effects or has characteristics that are unexpected, we may need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop or commercialize SB 9200, in which case our business will be harmed.
 
Clinical development of product candidates involves a lengthy and expensive process with an uncertain outcome.
 
Clinical testing is expensive, can take many years to complete, and its outcome is inherently uncertain. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, or at all.  Failure can occur at any time during the clinical trial process, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a product candidate may not continue development or is not approvable.
 
 
 
We may experience delays in our ongoing or future clinical trials and we do not know whether planned clinical trials will begin or enroll subjects on a timely basis, need to be redesigned or be completed on schedule, if at all. There can be no assurance that the FDA or other foreign regulatory authority will not put clinical trials of SB 9200 or any other product candidates on clinical hold now or in the future. Clinical trials may be delayed, suspended or prematurely terminated or may take longer than anticipated for a variety of reasons, such as:
 
 
delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that we are able to execute;
 
 
delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;
 
 
delay or failure in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
 
 
delay or failure in obtaining Investigational Review Board, or IRB, approval or the approval of other reviewing entities, including comparable foreign regulatory authorities, to conduct a clinical trial at a site;
 
 
withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;
 
 
delay or failure in recruiting and enrolling suitable study subjects to participate in a trial;
 
 
delay or failure in study subjects completing a trial or returning for post-treatment follow-up or otherwise complying with the trial protocol;
 
 
clinical sites and investigators deviating from the trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;
 
 
inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for competing product candidates with the same indication;
 
 
failure of our third-party service providers to satisfy their contractual duties or meet expected deadlines;
 
 
delay or failure in adding new clinical trial sites;
 
 
feedback from the FDA, the IRB, data safety monitoring boards, or a comparable foreign regulatory authority, or results from earlier stage or concurrent pre-clinical studies and clinical trials, that might require modification to the protocol for the trial;
 
 
decision by the FDA, the IRB, a comparable foreign regulatory authority, or us, or recommendation by a data safety monitoring board or comparable foreign regulatory authority, to suspend or terminate clinical trials at any time for safety issues or for any other reason;
 
 
 
 
unacceptable risk-benefit profile, unforeseen safety issues or adverse side effects or adverse events;
 
 
failure of a product candidate to demonstrate any benefit;
 
 
difficulties in manufacturing or obtaining from third parties sufficient quantities of a product candidate for use in clinical trials;
 
 
lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical studies or increased expenses associated with the services of our CROs and other third parties; or
 
 
changes in governmental regulations or administrative actions.
 
We have not submitted an IND to the FDA for SB 9200 or any other product candidate.  We may not conduct a clinical trial in the United States until we submit an IND to the FDA. Because we are developing SB 9200 for multiple indications, we may be required to submit an IND to the FDA for one or more of these indications and may not conduct a clinical trial in the United States for that indication unless we do so.
 
We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
 
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
 
We may not be able to initiate or continue clinical trials for any of our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials as required by the FDA or comparable foreign regulatory authorities, such as the EMA. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
 
 
the size and nature of the patient population;
 
 
the severity of the disease under investigation;
 
 
the proximity of patients to clinical sites;
 
 
the eligibility criteria for the trial;
 
 
the design of the clinical trial;
 
 
efforts to facilitate timely enrollment;
 
 
competing clinical trials; and
 
 
clinicians' and patients' perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
 
For instance, in our Phase I clinical trial of SB 9200 in HCV patients, we experienced significant delays in enrollment due to competing clinical trials in HCV being conducted by our competitors.
 
Our inability to enroll a sufficient number of patients for our clinical trials could result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, delay or halt the development of and approval processes for our product candidates and jeopardize our ability to commence sales of and generate revenues from our product candidates, which could cause the value of our company to decline.
 
 
If we experience any of a number of possible unforeseen events in connection with clinical trials of our product candidates, potential marketing approval or commercialization of our product candidates could be delayed or prevented.
 
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval or commercialization of our product candidates, including:
 
 
clinical trials of our product candidates may produce unfavorable or inconclusive results;
 
 
we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
 
 
the number of patients required for clinical trials of our product candidates may be larger than we anticipate, patient enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;
 
 
the cost of planned clinical trials of our product candidates may be greater than we anticipate;
 
 
our third-party contractors, including those manufacturing our product candidates or components or ingredients thereof or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;
 
 
regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
 
 
we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
 
 
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial's duration;
 
 
we may have to delay, suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;
 
 
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate;
 
 
the FDA or comparable foreign regulatory authorities may disagree with our clinical trial designs or our interpretation of data from preclinical studies and clinical trials;
 
 
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for clinical and commercial supplies;
 
 
the supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and
 
 
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.
 
 
 
Product development costs for us will increase if we experience delays in testing or pursuing marketing approvals and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates.
 
Our commercial success depends upon attaining significant market acceptance of SB 9200 as a monotherapy or in combination with other antiviral agents or of any other product candidates, if approved, among physicians, patients, healthcare payors, and others in the medical community necessary for commercial success, and the market opportunity for the product candidate may be smaller than we estimate.

Even if we obtain regulatory approval for SB 9200 or any other product candidate for antiviral therapy in HCV, HBV and RSV, our product candidate may not gain market acceptance among physicians, healthcare payors, patients or the medical community. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies.
 
Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including the:
 
 
efficacy and safety of our product candidates administered with other drugs each as demonstrated in clinical trials and post-marketing experience;
 
 
clinical indications for which our product candidates are approved;
 
 
potential and perceived advantages of our product candidates over alternative treatments;
 
 
safety of our product candidates seen in a broader patient group, including its use outside the approved indications should physicians choose to prescribe for such uses;
 
 
prevalence and severity of any side effects;
 
 
product labeling or product insert requirements of the FDA or other regulatory authorities;
 
 
timing of market introduction of our product candidates as well as of competitive products;
 
 
cost of treatment with our product candidates in relation to alternative treatments;
 
 
availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;
 
 
adverse publicity about our product candidates or favorable publicity about competitive products;
 
 
the convenience and ease of administration of our product candidates whether as part of combination therapy or as a monotherapy as compared to alternative treatments;
 
 
effectiveness of our sales and marketing efforts; and
 
 
changes in the standard of care for the targeted indications for the product candidate.
 
 
 
Moreover, if SB 9200 is approved but fails to achieve market acceptance among physicians, patients, or healthcare providers are restricted, withdrawn or recalled or fail to be approved, as the case may be, we may not be able to generate significant revenues, which would compromise our ability to become profitable.
 
The potential market opportunities for our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.
 
Even if we are able to commercialize SB 9200 or any other product candidate, the product candidate may not receive coverage and adequate reimbursement from third-party payors, which could harm our business.
 
Our ability to successfully commercialize SB 9200 or any other product candidate will depend, in part, on the extent to which coverage and adequate reimbursement for such product candidate will be available from third party payors, including government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical drugs. Third-party payors may also seek with respect to an approved product additional clinical evidence, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations before covering SB 9200 or any other product candidate for those patients. We cannot be sure that coverage and reimbursement will be available for SB 9200 and, if it is available, whether the level of reimbursement will be adequate. Coverage and reimbursement may impact the demand for, or the price of, SB 9200 or any other product candidate, if approved. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize SB 9200 or any other product candidate, if approved.
 
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
 
If we are unable to establish sales, marketing and distribution capabilities or enter into agreements with third parties to market, sell or distribute SB 9200 or any other product candidates, we may not be successful in commercializing such product candidate if and when they are approved.
 
 
 
We do not currently have an organization for the sale, marketing and distribution of pharmaceutical products and have no experience in the sale, marketing or distribution of pharmaceutical products. In order to market any products that may be approved by the FDA and comparable foreign regulatory authorities, we must establish sales, marketing and distribution capabilities or make arrangements with third parties to perform these services.
 
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues may be lower, perhaps substantially lower, than if we were to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we may have little or no control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
 
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales, marketing and distribution functions, we may be unable to compete successfully against these more established companies.
 
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
 
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our operations (including our marketing, promotion, educational programs, pricing, and relationships with healthcare providers or other entities, among other things) and expose us to areas of risk include the following:
 
 
the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;
 
 
federal civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
 
 
HIPAA, and the rules and regulations promulgated thereunder, establish federal standards for maintaining the privacy and security of certain patient health information known as Protected Health Information. As amended by the Health Information Technology for Economic and Clinical Health Act, HIPAA also establishes federal standards for administrative, technical and physical safeguards relevant to the electronic transmission of Protected Health Information and imposes certain notification obligations in the event of a breach of the privacy or security of Protected Health Information. In addition to adhering to the requirements of HIPAA, entities considered "covered entities" under HIPAA (such as health plans, health care clearinghouses, and certain health care providers) are also required to obtain assurances in the form of a written contract from certain business associates to which they transmit Protected Health Information to ensure that the privacy and security of such information is maintained in accordance with HIPAA requirements;
 
 
 
 
HIPAA also criminalizes health care fraud and makes it a felony to knowingly and willfully execute or attempt to execute a scheme or artifice to defraud any health care benefit program or to obtain money or other property owned or controlled by a health care benefit program by means of false or fraudulent pretenses, representations, or promises;
 
 
failure to comply with HIPAA can result in civil and criminal liability, including civil money penalties, fines and imprisonment;
 
 
the federal physician sunshine requirements under the Affordable Care Act requires manufacturers of drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and
 
 
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
 
Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcare laws and regulations will involve the expenditure of appropriate, and possibly significant, resources. Nonetheless, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
 
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
 
We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of conduct for our directors, officers and employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
 
 
 
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
 
The development and commercialization of new drug products is highly competitive. We expect that we will face competition with respect to SB 9200 and with respect to any other product candidates that we may seek to develop or commercialize, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing SB 9200. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
 
We expect our current and other product candidates to face intense and increasing competition as new products enter the HCV and antiviral markets and advanced technologies become available, particularly in the case of HCV in combinations with existing products and other new products. The competitive landscape for HCV has been on evolving one and has resulted in approved products being discontinued. For instance, first, generation protease inhibitors, Incivek™ (telaprevir) of Vertex and Victrelis™ (boceprevir) of Merck, which were approved in 2011 by the FDA for the treatment of HCV in combination with interferon and ribavirin, which in combination were the previous standard of care, but by January 2015 both were discontinued in the United States due to competing treatments and diminishing market demand. Other approved products for HCV include a third protease inhibitor, simeprevir (Olysio™) from Janssen Therapeutics which was approved by the FDA in November 2013 for use in genotype 1 HCV patients only when used in combination with pegylated interferon and ribavirin; sofosbuvir (Sovaldi™), a nucleotide analogue inhibitor of the HCV NS5B polymerase enzyme from Gilead for patients with genotype 2 or 3 HCV and no requirement for interferon (also approved for patients with genotypes 1 or 4 when combined with pegylated interferon and ribavirin); Gilead’s interferon-free Harvoni™, a combination of sofosbuvir and ledipasvir (a NS5A inhibitor) for patients with genotype 1 HCV approved in October 2014; and an interferon-free combination therapy of simeprevir and sofusbuvir for genotype 1 HCV patients approved in November 2014. These and other potential new treatment regimens may render our HCV product candidates noncompetitive. In particular, regimens containing our HCV product candidates may not be able to compete successfully with other products and regimens in development involving multiple classes of inhibitors of HCV, including protease inhibitors, polymerase inhibitors (nucleoside and non-nucleoside), NS5A inhibitors, cyclophilin inhibitors and others, under development by companies such as AbbVie, Achillion, Bristol-Myers Squibb, Gilead, Johnson & Johnson, Medivir, Merck, Presidio, Regulus and Roche and Theravance Biopharma.
 
There are currently no FDA approved products available to cure HBV. FDA approved treatments for patients with chronic HBV include interferons such as Intron A (INF alpha-2b) and Pegasys (peg-INF alpha-2A), and nucleoside analogues such as Epivir-HBV (lamivudine), Hepsera (adefovir dipivoxil), Baraclude (entecavir), Tyzeka (telbivudine) and Viread (tenofovir).  The companies that are marketing these drugs include Merck, Genentech Inc., GlaxoSmithKline, Gilead Sciences, BMS and Novartis. These treatments are designed to decrease the risk of liver damage from HBV by slowing down or stopping the virus from reproducing.  In addition, several pharmaceutical and biotechnology companies are developing additional therapies to address HBV, including non-nucleotide antivirals and non-INF immune enhancers.
 
 
 
There are also FDA approved vaccinations available for children and high-risk adults that protect against HBV. These vaccines are manufactured by Merck and GlaxoSmithKline and are widely available in the United States (and less available in the rest of the world), and have limited side effects.  Although the vaccines are effective against HBV in non-infected individuals, they do not reverse or cure the disease in people who have already contracted the virus, such as children of women who are already HBV positive.
 
There are no FDA approved therapies for RSV infection.  While Ribavirin is used in severe cases of RSV infection, there are significant side effects and risks associated with the use of Ribavirin, especially in infants. Supportive care is the most common treatment for RSV infection.  Synagis of MedImmune is an FDA-approved prescription injection of antibodies that is given monthly to help protect high-risk infants from severe RSV disease throughout the RSV season.  Possible, serious side effects include severe allergic reaction, which may occur after any dose and may be life-threatening or cause death. Several pharmaceutical companies have programs in clinical development for an RSV antiviral application including Janssen, Gilead and Alnylam.
 
There are a variety of available therapies and supportive care products marketed for antiviral patients. Some of these other drugs are branded and subject to patent protection, some are in clinical development and not yet approved, and others are available on a generic basis. Many of the approved drugs are well established therapies or products and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. These factors may make it difficult for us to achieve market acceptance at desired levels and/or in a timely manner to ensure viability of our business.
 
Many of our existing and potential future competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. 
 
Our competitors may obtain regulatory approval of their products before we are able to, which may limit our ability to develop or commercialize SB 9200 or any other product candidates. Our competitors may also develop drugs that are safer, more effective, more convenient or less expensive than ours, and may also be more successful than us in manufacturing and marketing their products. In addition, our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective, have fewer or more tolerable side effects or are less costly than any product candidates that we are currently developing or that we may develop,  These appreciable advantages could reduce or eliminate our commercial opportunity and render SB 9200 or any other product candidates obsolete or non-competitive.
 
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
 
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of SB 9200 or any other product candidates.
 
We face an inherent risk of product liability exposure related to the testing of SB 9200 or any other product candidates by us or our investigators in human clinical trials and will face an even greater risk if we commercially sell SB 9200  or such product candidates if and after we obtain regulatory approval. Product liability claims may be brought against us by study subjects enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling SB 9200 or such product candidates. If we cannot successfully defend ourselves against claims that SB 9200 or such product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in, for example:
 
 
 
 
 
decreased demand for SB 9200 or such product candidates;
 
 
termination of clinical trial sites or entire trial programs;
 
 
injury to our reputation and significant negative media attention;
 
 
withdrawal of clinical trial subjects;
 
 
significant costs to defend the related litigation;
 
 
substantial monetary awards to clinical trial subjects or patients;
 
 
loss of revenue;
 
 
diversion of management and scientific resources from our business operations;
 
 
the inability to commercialize SB 9200 or such product candidates; and
 
 
increased scrutiny and potential investigation by, among others, the FDA, DOJ, the Office of Inspector General of the HHS, state attorneys general, members of Congress and the public.
 
We currently have $10 million in product liability insurance coverage in the aggregate, which may not be adequate to cover all liabilities that we may incur.
 
Insurance coverage is increasingly expensive. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for any product candidate. However, we may not be able to obtain or maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, which could adversely affect our business, financial condition, results of operations and prospects.
 
Our business and operations would suffer in the event of computer system failures.
 
Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. In addition, our systems safeguard important confidential personal data regarding our subjects. If a disruption event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of SB 9200 could be delayed.
 
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
 
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
 
 
 
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.
 
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
 
Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.
 
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
 
We rely on third-party manufacturers to produce SB 9200 and expect to rely on third-party manufacturers to produce product candidates in the future Our ability to obtain clinical supplies of SB 9200 could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. The ultimate impact on us, our significant suppliers and our general infrastructure of being in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.
 
Risks Related to Our Dependence on Third Parties
 
We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, our business may be harmed.
 
We rely on third-party research vendors, academic research institutions, CROs, and other third-parties to conduct, and monitor and manage data for, our ongoing pre-clinical and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and we control only some aspects of their activities. Nevertheless, we are responsible for ensuring that each of our pre-clinical studies and clinical trials are conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We also rely on third parties to assist in conducting our pre-clinical studies in accordance with good laboratory practice, or GLP, and the Animal Welfare Act requirements. We and our service providers are required to comply with federal regulations and current good clinical practice or cGCP, which are international standards meant to protect the rights and health of subjects that are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for SB 9200 and any other product candidates in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our service providers fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require us to repeat pre-clinical studies and clinical trials, which would delay the regulatory approval process.
 
 
 
Our service providers are not our employees, and except for remedies available to us under our agreements with such service providers, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and pre-clinical programs. If service providers do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our pre-clinical studies and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize SB 9200. As a result, our results of operations and the commercial prospects for SB 9200 would be harmed, our costs could increase and our ability to generate revenues could be delayed.
 
Because we have relied on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves 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. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers. To the extent we are unable to identify and successfully manage the performance of third-party service providers in the future, our business may be adversely affected. Though we carefully manage our relationships with our service providers, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
 
If our relationships with third-party vendors and other service providers are terminated, our drug development efforts could be delayed.
 
We rely on third-party vendors and service providers for pre-clinical studies and clinical trials related to our drug development efforts. Switching or adding additional third-party vendors or service providers would involve additional cost and require management time and focus. Our third-party vendors and service providers generally have the right to terminate their agreements with us under certain circumstances. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. In addition, there is a natural transition period when a new third-party vendor or service provider commences work, and the new third-party vendor or service provider may not provide the same type or level of services as the original provider. If any of our relationships with our third-party vendors or service providers terminate, we may not be able to enter into arrangements with alternative third-party vendors or service providers or to do so on commercially reasonable terms.
 

 
We have no experience manufacturing SB 9200 or any other product candidate on a commercial scale and have no manufacturing facility. We are dependent on contract manufacturers for the manufacture of SB 9200 as well as on third parties for our supply chain and expect to rely on contract manufacturers for any other product candidates. If we experience problems with any such contract manufacturers, the manufacturing of SB 9200 or any other product candidate could be delayed.
 
We currently have no manufacturing facilities and limited personnel with manufacturing experience. We rely on contract manufacturers to produce both drug substance and drug product required for our clinical trials. We plan to continue to rely upon contract manufacturers to manufacture commercial quantities of our products, if approved. Reliance on such third-party contractors entails risks, including:
 
 
manufacturing delays if our third-party contractors give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between us and them;
 
 
the possible termination or nonrenewal of agreements by our third-party contractors at a time that is costly or inconvenient for us;
 
 
the possible breach by the third-party contractors of our agreements with them;
 
 
the failure of third-party contractors to comply with applicable regulatory requirements;
 
 
the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified;
 
 
the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and
 
 
the possible misappropriation of our proprietary information, including our trade secrets and know-how.
 
We currently rely, and expect to continue to rely, on a small number of third-party contract manufacturers to supply the majority of our active pharmaceutical ingredient and required finished product for our preclinical studies and clinical trials. We do not have long-term agreements with any of these third parties. If any of our existing manufacturers should become unavailable to us for any reason, we may incur some delay in identifying or qualifying replacements.
 
Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations, delay our clinical trials and, if our products are approved for sale, result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture our product candidates. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacture caused by problems at suppliers could delay shipment of our product candidates, increase our cost of goods sold and result in lost sales.
 
If any of our product candidates are approved by any regulatory agency, we plan to enter into agreements with third-party contract manufacturers for the commercial production and distribution of those products. It may be difficult for us to reach agreement with a contract manufacturer on satisfactory terms or in a timely manner. In addition, we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our commercialization efforts.
 
Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States. Facilities used by our third-party manufacturers must be approved by the FDA after we submit an NDA and before potential approval of the product candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of our product candidates. If our manufacturers cannot successfully manufacture material that conforms to our specifications or the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate.
 
 
 
In addition, our manufacturers are subject to ongoing periodic inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements both prior to and following the receipt of marketing approval for any of our product candidates. Some of these inspections may be unannounced. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could adversely affect supplies of our product candidates and significantly harm our business, financial condition and results of operations.
 
Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
 
If we enter into licensing or collaboration agreements with third parties to develop, obtain regulatory approvals for and commercialize SB 9200 or any other product candidates, our prospects with respect to those product candidates will depend in significant part on the success of those collaborations.
 
Because we have limited resources, we may seek to enter into collaboration agreements with other pharmaceutical or biotechnology companies. If we enter into such collaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on any future collaborators' abilities to successfully perform the functions assigned to them in these arrangements. In addition, any future collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms.

           Collaborations involving our product candidates pose a number of risks, including the following:
 
 
collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
 
 
collaborators may not perform their obligations as expected;
 
 
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs, based on clinical trial results, changes in the collaborators' strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;
 
 
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
 
 
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;
 
 
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
 
 
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
 
 
 
 
 
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
 
 
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.
 
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If any future collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.
 
Despite our efforts, we may be unable to secure additional collaborative licensing or other arrangements that are necessary for us to further develop and commercialize SB 9200 or any other product candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the potential differentiation of our product candidate from competing product candidates, design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate.  Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
 
Risks Related to Regulatory Approval and Other Legal Compliance Matters
 
We have never obtained marketing approval for a product candidate and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our product candidates.
 
We have never obtained marketing approval for a product candidate. It is possible that the FDA may refuse to accept for substantive review any new drug applications, or NDAs, that we submit for our product candidates or may conclude after review of our data that our application is insufficient to obtain marketing approval of our product candidates. If the FDA does not accept or approve our NDAs for our product candidates, it may require that we conduct additional clinical, nonclinical or manufacturing validation studies and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA-required studies, approval of any NDA or application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDAs.
 
Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us from commercializing our product candidates, generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for our product candidates, which could significantly harm our business.
 
We are developing SB 9200 for multiple indications.  In order to market SB 9200 for multiple indications, we will need to conduct appropriate clinical trials, obtain positive results from those trials and obtain regulatory approval for such indications.  Regulatory approval of SB 9200 for one indication may not mean that SB 9200 for another indication will receive regulatory approval.
 
 
 
If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
 
We are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulatory authorities, such as the European Medicines Agency, or the EMA, impose similar restrictions. We may never receive such approvals. We must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals.
 
We have not previously submitted an NDA to the FDA or similar drug approval filings to comparable foreign regulatory authorities for any of our product candidates. Any inability to complete preclinical and clinical development successfully could result in additional costs to us, and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. Moreover, if (1) we are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we, or they contemplate, (2) we are unable to successfully complete clinical trials of our product candidates or other testing, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or (4) there are unacceptable safety concerns associated with our product candidates, we may:
 
 
be delayed in obtaining marketing approval for our product candidates;
 
 
not obtain marketing approval at all;
 
 
obtain approval for indications or patient populations that are not as broad as intended or desired;
 
 
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
 
 
be subject to additional post-marketing testing or other requirements; or
 
 
be required to remove the product from the market after obtaining marketing approval.
 
SB 9200 or any other product candidate may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval or limit the commercial profile of an approved label.
 
Undesirable side effects caused by SB 9200 or any other product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities.
 
Results of our trials could reveal an unacceptably high severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of SB 9200 or any other product candidates for any or all targeted indications. Study drug-related side effects could affect study subject recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims.
 
If SB 9200 or any of our other product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.
 
Failure to obtain regulatory approval in international jurisdictions would prevent SB 9200 and any other product candidate from being marketed abroad.
 
In order to market and sell our products in the European Union and many other jurisdictions, including Japan, China and South Korea, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in the European Union, Japan, China, South Korea or another country or jurisdiction, the commercial prospects of our product candidates may be significantly diminished and our business prospects could decline.
 
 
 
If any of our product candidates receives marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to market the drug could be compromised.
 
Clinical trials of our product candidates are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
 
 
regulatory authorities may withdraw their approval of the drug or seize the drug;
 
 
we may be required to recall the drug, change the way the drug is administered or conduct additional clinical trials;
 
 
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug;
 
 
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
 
 
regulatory authorities may require the addition of labeling statements, such as a "black box" warning or a contraindication;
 
 
we may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
 
 
we could be sued and held liable for harm caused to patients;
 
 
the drug may become less competitive; and
 
 
our reputation may suffer.
 
Any of these events could have a material and adverse effect on our operations and business and could adversely impact our stock price.
 
Even if SB 9200 or any other product candidate receives regulatory approval, the terms of approvals and ongoing regulation of these approved products may limit how we manufacture and market our products, which could materially impair our ability to generate revenue.
 
Even if we obtain regulatory approval for SB 9200 or any other product candidate, it and its manufacturer and marketer would be subject to review and extensive regulation.
 
Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current Good Manufacturing Practice, or cGMP, and other regulations. If we or a regulatory agency discover 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, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
 
 
 
Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by, among others, the FDA, the United States Department of Justice, or DOJ, the Office of Inspector General of the Office of Health and Human Services, or HHS, state attorneys general, members of Congress and the public. Violations, including promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. Similarly, advertising and promotion of any product candidate that obtains approval outside of the United States will be subject to legal and regulatory restrictions and heavily scrutinized by comparable foreign regulatory authorities.
 
The FDA and other agencies, including the DOJ, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers' communications regarding off-label use and if we do not market any of our product candidates for which we receive marketing approval for only their approved indications, we may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.
 
If we, SB 9200 or any other product candidate or the manufacturing facilities for SB 9200 or the product candidate fails to comply with applicable regulatory requirements, a regulatory agency may:
 
 
issue warning letters or untitled letters;
 
 
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
 
 
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
 
 
seek an injunction or impose civil or criminal penalties or monetary fines;
 
 
suspend or withdraw regulatory approval;
 
 
suspend any ongoing clinical trials;
 
 
refuse to approve pending applications or supplements to applications filed by us;
 
 
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
 
 
seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.
 
The occurrence of any event or penalty described above may inhibit or preclude our ability to commercialize SB 9200 or any other product candidate and generate revenue.
 
Any of our product candidates for which we obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market and we may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products following approval.
 
Any of our product candidates for which we obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy.
 
 
 
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. In addition, failure to comply with regulatory requirements, may yield various results, including:
 
 
restrictions on products, manufacturers or manufacturing processes;
 
 
restrictions on the labeling or marketing of a product;
 
 
restrictions on product distribution or use;
 
 
requirements to conduct post-marketing studies or clinical trials;
 
 
warning letters or untitled letters;
 
 
withdrawal of the products from the market;
 
 
refusal to approve pending applications or supplements to approved applications that we submit;
 
 
recall of products;
 
 
restrictions on coverage by third-party payors;
 
 
fines, restitution or disgorgement of profits or revenues;
 
 
suspension or withdrawal of marketing approvals;
 
 
refusal to permit the import or export of products;
 
 
product seizure; or
 
 
injunctions or the imposition of civil or criminal penalties.
 
Recently enacted and future legislation, including potentially unfavorable pricing regulations and other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercialize SB 9200 and any other product candidates and adversely affect the prices we may obtain.
 
The regulations that govern, among other things, marketing approvals, coverage, pricing and reimbursement for new drug products vary widely from country to country. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of SB 9200 and any other product candidates, restrict or regulate post-approval activities and affect our ability to sell SB 9200 and any other product candidates, if we obtain marketing approval for such product candidates. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved products.
 
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians. The Centers for Medicare and Medicaid Services, the agency that runs the Medicare program, also has the authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. While the Medicare Modernization Act and Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.
 
 
 
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, or the Affordable Care Act, 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 pharmaceutical and medical device manufacturers and impose additional health policy reforms.  The Affordable Care Act expanded manufacturers’ rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and capped the total rebate amount for innovator drugs at 100.0% of AMP. The Affordable Care Act and subsequent legislation also changed the definition of AMP. Furthermore, the Affordable Care Act imposes a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant number of provisions are not yet, or have only recently become, effective. Although it is too early to determine the effect of the Affordable Care Act, it appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
 
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, creates the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. If we ever obtain regulatory approval and commercialization of SB 9200, these new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of SB 9200 may be.
 
In the United States, the European Union and other potentially significant markets for SB 9200, government authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Furthermore, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the European Union will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our other product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.
 
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for SB 9200 or any other product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the commercialization of the product and its revenues we are able to generate from the sale of the product in that particular country.
 
 
 
Laws and regulations governing international operations may preclude us from developing, manufacturing and selling product candidates outside of the United States and require us to develop and implement costly compliance programs.
 
As we seek to expand our operations outside of the United States, we must comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.
 
The Foreign Corrupt Practices Act, or FCPA, prohibits any United States individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The SEC, is involved with enforcement of the books and records provisions of the FCPA.
 
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
 
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-United States nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding presence outside of the United States will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling SB 9200 or any other product candidates outside of the United States, which could limit our growth potential and increase our development costs.
 
The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the United States government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on United States exchanges for violations of the FCPA’s accounting provisions.
 
Risks Related to Our Intellectual Property
 
If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.
 
 
 
Our success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products that are important to our business.
 
The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the United States Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.
 
With respect to patent rights, we do not know whether any of the pending patent applications for any of our compounds will result in the issuance of patents that protect our technology or products, or if any of our or our licensors’ issued patents will effectively prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
 
Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensors’ patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
 
If third parties initiate legal proceedings against us alleging that we are infringing their intellectual property rights, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.
 
Our commercial success depends upon our ability to develop, manufacture, market and sell SB 9200 and any other product candidates and to use our related proprietary technologies, without infringing the intellectual property and other proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to SB 9200 or any other product candidates, including interference or derivation proceedings before the United States Patent and Trademark Office, or USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and 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. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing the applicable product candidate. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing the applicable product candidate or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
 
 
 
 
While SB 9200 is in pre-clinical studies and clinical trials, we believe that the use of SB 9200 in these pre-clinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. If SB 9200 progresses toward commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that SB 9200 and the methods we employ to manufacture SB 9200, as well as the methods for its use that we intend to promote, do not infringe other parties’ patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.
 
In addition, we plan to evaluate SB 9200 in combination with other product candidates and approved products that are covered by patents held by other companies or institutions. In the event that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement of the third-party patents covering the product candidate or product recommended for administration with SB 9200. In such a case, we could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.
 
We may not be able to protect our intellectual property rights throughout the world.
 
Filing, prosecuting and defending patents on SB 9200 and any other product candidates throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States In addition, the laws and practices of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our and our licensors’ inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where we or our licensors have patent protection, but where enforcement is not as strong as that in the United States These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
 
 
 
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our or our licensor’s patents or marketing of competing products in violation of our proprietary rights generally in those countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our and our licensors’ patents at risk of being invalidated or interpreted narrowly and our and our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We or our licensors may not prevail in any lawsuits that we or our licensors initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
 
The laws of certain foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including European Union countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
 
The terms of our patents may be inadequate to protect our competitive position on our products for an adequate amount of time.
 
Given the amount of time required for the development, testing and regulatory review of new product candidates, such as SB 9200, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and pre-clinical data and launch their product earlier than might otherwise be the case.
 
Changes in patent law, including recent patent reform legislation, could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
 
As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity, and is costly, time-consuming, and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. For example, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our and our licensors’ ability to obtain new patents or to enforce existing patents and patents we and our licensors may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents and those licensed to us.
 
 
 
In September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a "first to file" system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO and may become involved in opposition, derivation, reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of our licensors. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our or our licensors’ patent rights, which could adversely affect our competitive position.
 
The USPTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
 
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
 
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, 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. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitive position would be adversely affected.
 
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have a material adverse effect on the success of our business.
 
Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others.. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both.  These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.
 
 
 
We may be subject to claims by third parties asserting that our licensors, employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
 
Many of our employees and our licensors’ employees, including our senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
 
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
 
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
 
 
others may be able to make compounds that are the same as or similar to SB 9200 but that are not covered by the claims of the patents that we own or have exclusively licensed;
 
 
we or our licensors or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or have exclusively licensed;
 
 
we or our licensors might not have been the first to file patent applications covering certain of our inventions;
 
 
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
 
 
it is possible that our pending patent applications will not lead to issued patents;
 
 
issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
 
 
 
 
our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
 
 
we may not develop additional proprietary technologies that are patentable; and
 
 
the patents of others may have an adverse effect on our business.
 
Risks Related to Employee Matters and Managing Growth
 
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
 
As of June 30, 2015, we had 13 full-time employees and one part-time employee, of whom six hold Ph.D. degrees, plus several consultants. As our development and commercialization plans and strategies develop, we will need additional managerial, operational, sales, marketing, financial and other resources. In addition, we are seeking to hire a chief executive officer in connection with our plan to become a public reporting company. Our management, personnel and systems currently in place is likely not adequate to support this future growth. Future growth would impose significant added responsibilities on members of management, including:
 
 
managing our clinical trials effectively;
 
 
identifying, recruiting, maintaining, motivating and integrating additional employees;
 
 
managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
 
 
improving our managerial, development, operational and finance systems; and
 
 
expanding our facilities.
 
Our management may need to devote a disproportionate amount of its attention to managing these growth activities. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or identify, recruit and train additional qualified personnel. Our inability to manage the expansion of our operations effectively may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could also require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If we are unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our business strategy, including the successful commercialization of our product candidates.
 
Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel.
 
We are highly dependent upon our executive officers.  We have entered into employment agreements with each of our executive officers.  These employment agreements do not prevent such persons from terminating their employment with us at any time. We do not maintain "key person" insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. We are seeking to hire a chief executive officer. However, we may not be able to attract a high quality chief executive officer on a timely basis or at all which may impact our ability to raise additional funding.
 
 
 
Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. Our industry has experienced a high rate of turnover of management personnel in recent years. If we lose one or more of our executive officers or other key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain marketing approval of and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.

We rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to develop and commercialize our product candidates will be limited.
 
Risks Related to Our Common Stock and this Offering
 
There has been no independent “due diligence” review of our affairs or financial condition.

The statements contained in this prospectus are solely those of our management. There has been no independent “due diligence” review of our affairs or financial condition, nor has any independent party verified the statements contained in this prospectus.

No public market for our common stock currently exists, and an active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. The initial market price for our common stock will be arbitrary and may not reflect the price at which investors in the market will be willing to buy and sell our shares following this offering.  If an active market for our common stock does not develop or is not maintained, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all. An inactive trading 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.
 
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.
 
Our stock price is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the offering price. The market price for our common stock may be influenced by many factors, including:
 
 
 
the exchange on which our common stock is listed, if any;
 
 
the success of competitive products or technologies;
 
 
results of clinical trials of our product candidate or those of our competitors;
 
 
 
 
developments related to any future collaborations;
 
 
regulatory or legal developments in the United States and other countries;
 
 
development of new product candidates that may address our markets and may make our product candidates less attractive;
 
 
changes in physician, hospital or healthcare provider practices that may make our product candidates less useful;
 
 
announcements by us, our partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
 
 
developments or disputes concerning patent applications, issued patents or other proprietary rights;
 
 
the recruitment or departure of key personnel;
 
 
the level of expenses related to any of our product candidates or clinical development programs;
 
 
failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
 
 
the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
 
 
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
 
 
variations in our financial results or those of companies that are perceived to be similar to us;
 
 
changes in the structure of healthcare payment systems;
 
 
market conditions in the pharmaceutical and biotechnology sectors;
 
 
general economic, industry and market conditions; and
 
 
the other factors described in this “Risk Factors” section.
 
 
 
If you purchase shares of common stock in this offering, you will suffer immediate dilution in the book value of your investment.

The offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on the offering price of $     per share, you will experience immediate dilution of $    per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the offering price.  For a further description of the dilution that you will experience immediately after this offering, see ‘‘Dilution.’’
 
After this offering, our executive officers, directors and principal stockholders, if they choose to act together, may have the ability to significantly influence all matters submitted to stockholders for approval.
 
Upon the closing of this offering, based on the number of shares of common stock outstanding as June 30, 2015, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates will, in the aggregate, hold shares representing approximately ___% of our outstanding voting stock. As a result, if these stockholders were to choose to act together, they may be able to significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, may be able to significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:
 
 
delay, defer or prevent a change in control;
 
 
entrench our management and the board of directors; or
 
 
impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
 
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
 
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We intend to use the net proceeds of this offering to fund the clinical development of SB 9200, conduct additional research and development and for working capital and general corporate purposes. However, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
 
A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
 
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. _______ shares of our common stock are either being registered in this offering or may be presently eligible for resale under an exemption from registration such as Rule 144 of the Securities Act of 1933, as amended. Moreover, holders of 5,320,270 shares of our common stock issuable upon the exercise of warrants and options may become eligible for immediate sale in the public market upon issuance if registered, or salable in the public market pursuant to Rule 144 after a six month holding period from the time they exercise such warrants and options and purchase their stock.
 
 
 
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
 
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the closing of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
 
 
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
 
 
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
 
 
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
 
 
reduced disclosure obligations regarding executive compensation; 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 have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we 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 reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies.
 
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
 
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the exchange or market upon which we trade and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.
 
 
 
We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
 
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we are not required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
 
A material weakness in internal controls over financial reporting is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. In the course of the preparation and external audit of our financial statements, we and our independent registered public accounting firm identified "material weaknesses" in our internal control over financial reporting related to: (1) our financial statement close process, including both our failure to have adequate processes in place to complete our financial statement close process in a timely and accurate manner and flaws in our review controls, which were not designed with the precision necessary to detect or prevent material misstatements; and (2) our lack of sufficient personnel to account for complex transactions in accordance with generally accepted accounting principles and to properly segregate accounting duties. Following the identification of these control deficiencies, we took actions and measures to improve our internal control over financial reporting by hiring additional employees and consultants at various appropriate levels. Our remediation efforts may not, however, enable us to avoid material weaknesses or other significant deficiencies in the future. There is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, if we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
 
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
 
The trading market for our common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our preclinical studies or clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
 
 
 
Provisions in our proposed restated certificate of incorporation and amended and restated bylaws and under Delaware law could make an acquisition of our company, 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 restated certificate of incorporation and our amended and restated bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions, if adopted, 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 include those establishing:
 
 
a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;
 
 
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
 
 
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;
 
 
the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
 
 
the ability of our board of directors to alter our bylaws without obtaining stockholder approval;
 
 
the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors;
 
 
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
 
 
the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
 
 
advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
 
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us 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. Furthermore, our restated certificate of incorporation that will become effective upon the closing of this offering specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our restated certificate of incorporation to be inapplicable or unenforceable in such action.
 
 
 
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
 
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
 
We could be subject to securities class action litigation.
 
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
 
 
This prospectus contains forward-looking statements.  All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, product candidates, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements.  These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
 
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections in this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus.
 
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
 
 
 
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement and with the understanding that our actual future results may be materially different from what we expect.  We qualify all of our forward-looking statements by these cautionary statements.
 
 
We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties.  Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.  While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources.  While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.
 
 
We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection with our business in the United States and/or in certain foreign jurisdictions.
 
Solely for convenience, the trademarks, service marks, logos and trade names referred to in this prospectus are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This prospectus contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners.  We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
 

We estimate the gross proceeds from the sale of ______ shares of common stock in this offering, prior to deducting the estimated offering expenses payable by us, will be approximately $    .
 
We estimate that we will receive net proceeds of approximately $    after deducting estimated expenses of the offering payable by the company of approximately $   , which includes legal, accounting, printing costs and various fees associated with the registration and listing of our shares.
 
As of March 31, 2015, we had cash and cash equivalents of approximately $19.7 million. We expect to utilize the net proceeds from this offering, together with our cash and cash equivalents, as follows:

 
$    to advance the clinical development of SB 9200 into Phase 2 clinical trials in HBV, HCV, and RSV;
 
$    to conduct preclinical research of SMNH therapeutics in other diseases, including our product candidates SB 9400, SB 9941 and SB 9946; and
 
the remainder for working capital and general corporate purposes.

Our management will have broad discretion in the application of the proceeds, from this offering and our existing cash and cash equivalents and investors will be relying on the judgment of our management regarding the application of these funds. We may find it necessary or advisable to use these funds for other purposes. Circumstances that may give rise to a change in the use of proceeds from this offering and our existing cash and cash equivalents and the alternate purposes for which these funds may be used include:
 
 
the existence of unforeseen or other opportunities or the need to take advantage of changes in timing of our existing activities;
 
 
 
the need or desire on our part to accelerate, increase, reduce or eliminate one or more existing initiatives due to, among other things, changing regulations, changing market conditions and competitive developments or interim results of research and development efforts;
 
 
results from our business development and marketing efforts; the effect of foreign, federal, state, and local regulation;
 
 
our ability to continue attracting grant or other development funding; and/or
 
 
the presentation of strategic opportunities of which we are not currently aware (including acquisitions, joint ventures, licensing and other similar transactions).
 
Based on our planned use of the net proceeds from this offering and our existing cash and cash equivalents, we estimate that such funds will be sufficient to enable us to [ ], and to fund our operating expenses and capital expenditure requirements at least through [ ]. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We do not expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to enable us to fund the completion of development of any of our product candidates.

Pending uses as described above, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the United States government as well as bank demand deposits.




PLAN OF DISTRIBUTION
 
General

The offering is being made by us directly to purchasers, including our affiliates, and will continue until terminated by our management.  Neither our management nor any of our affiliates are entitled to compensation for their services in offering and selling the common stock in this offering.

No Underwriter or Placement Agent

We currently have not retained or identified any underwriters or placement agents to sell this offering. We may amend this prospectus to sell the securities offered through this prospectus (1) to or through underwriters or dealers, (2) directly to purchasers, including our affiliates, (3) through agents, or (4) through a combination of any of these methods. The prospectus supplement will include the following information:
 
 
the names of any placement agents or underwriters, including any managing underwriters, dealers or agents;
 
 
the net proceeds to us from the sale of the securities;
 
 
any underwriting discounts, commissions and other items constituting underwriters’ or dealers’ compensation, and any commissions paid to agents;
 
 
details regarding over-allotment options under which underwriters may purchase additional securities from us, if any;
 
 
any discounts or concessions allowed or reallowed or paid to dealers; and
 
 
other facts material to the transaction.
 
Sales through Underwriters or Dealers

If underwriters are used in the sale, the underwriters will acquire the securities for their own account, including through underwriting, purchase, security lending or repurchase agreements with us.  The underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions.  Underwriters may sell the securities in order to facilitate transactions in any of our other securities (described in this prospectus or otherwise), including other public or private transactions and short sales.  Underwriters may offer securities to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters.  Unless otherwise indicated in the prospectus supplement, the obligations of the underwriters to purchase the securities will be subject to certain conditions, and the underwriters will be obligated to purchase all the offered securities if they purchase any of them.  The underwriters may change from time to time any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.  The prospectus supplement will include the names of the principal underwriters, the respective amount of securities underwritten, the nature of the obligation of the underwriters to take the securities and the nature of any material relationship between an underwriter and us.

If dealers are used in the sale of securities offered through this prospectus, we will sell the securities to them as principals.  They may then resell those securities to the public at varying prices determined by the dealers at the time of resale.  The prospectus supplement will include the names of the dealers and the terms of the transaction.

Direct Sales and Sales through Agents

We may sell the securities offered through this prospectus directly.  In this case, no underwriters or agents would be involved. Such securities may also be sold through agents designated from time to time.  The prospectus supplement will name any agent involved in the offer or sale of the offered securities and will describe any commissions payable to the agent by us.  Unless otherwise indicated in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment.
 
 

We may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any sale of those securities.  The terms of any such sales will be described in the prospectus supplement.

Market Making

Unless the applicable prospectus supplement states otherwise, each series of securities offered by us will be a new issue and will have no established trading market, other than our common stock, which we intend to list on the Nasdaq.  However, we are not currently listed on any public market. We may elect to list any offered securities on an exchange.  Any underwriters that we use in the sale of offered securities may make a market in such securities, but may discontinue such market making at any time without notice.  Therefore, we cannot assure you that the securities will have a liquid trading market.
 
General Information

Agents, underwriters, and dealers may be entitled, under agreements entered into with us, to indemnification by us against certain liabilities, including liabilities under the Securities Act.

We will bear substantially all of the costs, expenses, and fees in connection with the registration of our securities under this prospectus. The underwriters, dealers, and agents may engage in transactions with us, or perform services for us, in the ordinary course of business.
 
In compliance with guidelines of the Financial Industry Regulatory Authority, or FINRA, the maximum consideration or discount to be received by any FINRA member or independent broker dealer may not exceed 8% of the aggregate amount of the securities offered pursuant to this prospectus.

Prior to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares of our common stock will be determined by the Company. Among the factors considered in determining the initial public offering price will be our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares of our common stock will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our shares of common stock will develop and continue after this offering.

DILUTION 
 
If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering.
 
As of March 31, 2015, we had a historical net tangible book value of $19.6 million, or $0.85 per share of common stock. Our historical net tangible book value is the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share represents historical net tangible book value divided by the 23,184,474 shares of our common stock outstanding as of March 31, 2015.
 
We have an actual pro forma net tangible book value of $19.6 million, or $0.81 per share of common stock, as of March 31, 2015. Pro forma net tangible book value per share is equal to our total tangible assets less total liabilities, divided by the number of outstanding shares of our common stock after giving effect to the conversion of all outstanding shares of our preferred stock into 1,000,000 shares of common stock upon the closing of this offering.
 
 
Investors participating in this offering will incur immediate and substantial dilution. After giving effect to the sale of _______ shares of common stock in this offering, after deducting the estimated commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $   per share, our pro forma as adjusted net tangible book value as of March 31, 2015 would have been approximately $   million, or approximately $   per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $   per share to our existing stockholders and an immediate dilution of $   per share to investors participating in this offering.
 
The following table illustrates this per share dilution to new investors participating in this offering::

Assumed initial public offering price per share
  $    
Historical net tangible book value per share as of March 31, 2015
  $    
Pro forma net tangible book value per share before giving effect to this offering as of March 31, 2015
  $    
Increase in pro forma net tangible book value per share attributable to new investors
  $    
Pro forma as adjusted net tangible book value per share after this offering
  $    
Dilution per share to new investors
  $    
 
The following table summarizes, on a pro forma as adjusted basis as of March 31, 2015, the differences between the number of shares of common stock purchased from us, the total consideration and the average price per share paid by existing stockholders and by investors participating in this offering, after deducting the estimated offering expenses, at an assumed initial public offering price of $    per share.
 
   
Shares Purchased
       
Total Consideration
             
   
Number
 
Percent
   
Amount
   
Percent
   
Average Price Per Share
 
                             
Existing Stockholders (1)
    24,184,474  
 
%   $ 39,955,153    
 
%   $ 1.65  
New Public Investors
       
 
%           $   %   $    
Total
       
100.0
          $ 100.0 %   $    
 
 
(1)
Data does not consider changes in these numbers in the event existing stockholders participate in this offering.
 
The number of shares of common stock to be outstanding after this offering is based on 23,184,474 shares of common stock outstanding as of March 31, 2015, and 1,000,000 additional shares of our common stock issuable upon the conversion of all of our outstanding shares of preferred stock upon the closing of this offering.
 
The number of shares of our common stock to be outstanding after this offering excludes the following:
 
 
593,000 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2015, at a weighted average exercise price of $2.32 per share;
 
 
 
 
 
4,727,270 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2015, at a weighted average exercise price of $2.17 per share; and
 
 
307,000 shares of common stock available for future issuance under our 2014 Stock Incentive Plan as of June 30, 2015.
 
We may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. New investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.
 
DIVIDEND POLICY
 
We have never declared or paid dividends on our capital stock. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. We do not anticipate paying any dividends on our capital stock in the foreseeable future. Investors should not purchase our common stock with the expectation of receiving cash dividends.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis of financial condition and results of operations together with the section entitled “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of this prospectus.

Overview

We are a clinical-stage biopharmaceutical company focused on applying our proprietary chemistry platform for the discovery and development of a novel class of pharmaceuticals we call Small Molecule Nucleic-Acid Hybrids, or SMNH molecules. We believe that SMNH molecules have the potential to address a wide range of therapeutic areas. We design SMNH molecules to achieve target selectivity and specificity along with the benefits of small molecule pharmaceuticals, including oral delivery and ease of manufacture. Our most advanced product is SB 9200.  We have recently completed a Phase 1 clinical study of SB 9200 in healthy HCV infected subjects, and plan to initiate Phase 2 clinical trials of SB 9200 for the treatment of Hepatitis B virus, or HBV, Hepatitis C virus, or HCV and Respiratory Syncytial Virus, or RSV infections.  We believe SB 9200 can treat HBV, HCV and RSV by modulating the body’s own immune system to kill the viral infection.  We are also developing additional SMNH product candidates for the treatment of viral infections and have active discovery programs in COPD and cancer.

We have not generated any revenue to date other than from the National Institutes of Health, or NIH. We have incurred significant annual net operating losses in every year since our inception and expect to incur a net operating loss in 2015 and continue to incur net operating losses for the foreseeable future. Our net losses were $7.0 million and $9.7 million for the years ended December 31, 2013 and 2014, respectively, and $2.0 million for the three months ended March 31, 2015. As of March 31, 2015, we had an accumulated deficit of $24.6 million. We expect to continue to incur significant expenses and increasing operating losses for the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase significantly if and as we
 
 
continue to develop and conduct clinical trials with respect to SB 9200, including the clinical trials we plan to initiate in 2016;
 
 
 
initiate and continue research and preclinical and clinical development efforts for our other product candidates;
 
 
seek to identify and develop additional product candidates;
 
 
seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
 
 
establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval, if any;
 
 
require the manufacture of larger quantities of product candidates for clinical development and potentially commercialization;
 
 
maintain, expand and protect our intellectual property portfolio;
 
 
hire a new chief executive officer, and retain additional personnel, including quality control and scientific personnel;
 
 
add operational, financial and management information systems and personnel, including personnel to support our product development and help us comply with our obligations as a public company; and
 
 
add equipment and physical infrastructure to support our research and development programs.
 
As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies or product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.

As of March 31, 2015, we had $19.7 million in cash and cash equivalents. We expect that our existing cash and cash equivalents as of March 31, 2015, together with anticipated net proceeds from this offering, will enable us to fund our operating expenses through at least [_______].  See “—Liquidity and Capital Resources.”
 
Financial Operations Overview

Grant revenue

We have generated revenue from grants from the NIH. The NIH has provided funding of $5.7 million from inception to March 31, 2015, and an additional $1.0 million of grant funding remains available to us through April 30, 2016.
 



Operating expenses

Our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs.

Research and development
 
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, which include:
 
 
expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, pre-clinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug products for use in our pre-clinical and clinical trials;
 
 
salaries, benefits and other related costs, including stock-based compensation expense, for personnel in our research and development functions;
 
 
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
 
 
the cost of laboratory supplies and acquiring, developing and manufacturing pre-clinical study and clinical trial materials;
 
 
costs related to compliance with regulatory requirements; and
 
 
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.
 
Our primary focus of research and development since inception has been on the development of SB 9200.  Our direct research and development expenses consist primarily of external costs, such as fees paid to investigators, consultants and CROs in connection with our pre-clinical studies and clinical trials and regulatory fees. We do not allocate employee-related costs and other indirect costs to specific research and development programs because our primary focus has been on the discovery and development of SB 9200. Our direct research and development expenses are not currently tracked on a program-by-program basis.
 
The successful development of our product candidates is highly uncertain. Accordingly, at this time, we cannot reasonably estimate the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from SB 9200 or any of our other current or potential product candidates. This is due to the numerous risks and uncertainties associated with developing medicines, including the uncertainties of:
 
 
establishing an appropriate safety profile with investigational new drug application, or IND, enabling toxicology studies;
 
 
successful enrollment in, and completion of clinical trials;
 
 
receipt of marketing approvals from applicable regulatory authorities;
 
 
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
 
 
 
 
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
 
 
launching commercial sales of the products, if and when approved, whether alone or in collaboration with others; and
 
 
a continued acceptable safety profile of the products following approval.
 
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.
 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we initiate clinical trials for certain product candidates and pursue later stages of clinical development of our product candidates. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
 
General and administrative

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also expect to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Other income (expense)

Interest income and interest expense consists primarily of interest income earned on our cash and cash equivalents and interest expense incurred on our convertible debt, respectively.
 
Critical Accounting Policies and Significant Judgments and Estimates
 
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our financial statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

 
 
JOBS Act

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC, we intend to rely on certain of these exemptions, including the exemption from the requirement that the auditors provide an attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earliest of the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:

 
CROs in connection with performing research services on our behalf and clinical trials;
 
 
investigative sites or other providers in connection with clinical trials;
 
 
vendors in connection with pre-clinical and clinical development activities; and
 
 
vendors related to product manufacturing, development and distribution of pre-clinical and clinical supplies.
 
We base our expenses related to pre-clinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
 
 

Convertible Note Financings

We have issued convertible debt with warrants on numerous occasions to finance our operations. When we issue convertible debt, we evaluate and account for embedded and freestanding features in our convertible note financings in accordance with professional standards. If the feature meets the definition of a derivative, professional standards generally provide three criteria that require companies to bifurcate the derivative from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instruments are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. In accounting for convertible note financings, including the fair value of warrants issued in connection with the financings and the fair value of the stock underlying the conversion features of the notes.  See further discussion regarding these significant estimates at Critical Accounting Policies and Significant Judgments and Estimates - Stock-Based Compensation.  Proceeds are first allocated to freestanding and embedded derivatives required to be recognized at fair value and the residual proceeds are allocated to the convertible notes.

We have issued warrants in connection with our convertible note financings. We review the terms of all warrants issued and classify the warrants as a component of permanent equity if they are free standing financial instruments that are legally detachable and separately exercisable from the debt instruments, contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of common shares upon exercise. In addition, the warrants must require physical settlement and may not provide any guarantee of value or return. Warrants that meet these criteria are initially recorded at their grant date fair value and are not subsequently remeasured.

We classify warrants as liabilities if they are free standing financial instruments that permit the holders to purchase mandatory redeemable equity instruments or they otherwise do not meet the criteria for equity classification. Liability-classified warrants are initially recorded at fair value and remeasured at each period end while these instruments were outstanding or until they meet the criteria for equity classification. Gains and losses arising from changes in fair value are recognized in other income (expense) in the statements of operations.

Stock-Based Compensation

We did not grant options until March 2015. We measure stock options and other stock-based awards granted to employees and directors based on the fair value on the date of grant and recognize the corresponding compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue stock options and restricted stock awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.

We measure stock options and other stock-based awards granted to consultants and nonemployees based on the fair value of the award on the date at which the related service is complete. We recognize this compensation expense over the period during which services are rendered by such consultants and nonemployees until completed. At the end of each financial reporting period prior to completion of the service, we remeasure the fair value of these awards using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.
 
 

We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Use of this model requires that we make assumptions as to the fair value of our common stock, the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Because we are currently a private company and lack company-specific historical and implied volatility information, we estimate our expected volatility based on the historical volatility of a group of publicly traded peer companies. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded stock price. We use the simplified method prescribed by Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of options granted to employees and directors. We base the expected term of options granted to consultants and nonemployees on the contractual term of the options. We determine the risk-free interest rate by reference to the United States Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

The assumptions we used to determine the fair value of stock options granted to employees and directors are as follows, presented on a weighted-average basis:

                 
   
Year Ended December 31,
   
Three Months Ended March 31,
   
2013
   
2014
   
2014
   
2015
Risk-free interest rate
  N/A     N/A     N/A     1 %
Expected term (in years)
  N/A     N/A     N/A     6  
Expected volatility
  N/A     N/A     N/A     87 %
Expected dividend yield
  N/A     N/A     N/A     0 %
 
These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.
 
We recognize compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate for pre-vesting forfeitures, we have considered our historical experience of actual forfeitures. If our future actual forfeiture rate is materially different from our estimate, our stock-based compensation expense could be significantly different from what we have recorded in the prior periods. However, estimates will not be necessary to determine the fair value of new awards once our common stock begins to be publicly traded.
 
During the years ended December 31, 2013 and 2014, we issued common stock to consultants and advisors as compensation for services and recognized expense equal to the fair value of the shares issued. Beginning in 2015, we began issuing stock options to employees, directors and consultants.  The following table summarizes the classification of our stock-based compensation expenses recognized in our statements of operations:

                         
   
Year Ended December 31,
   
Three Months Ended March 31,
 
   
2013 
   
2014 
   
2014 
   
2015 
 
       
Research and development
  $ 102,000     $ 179,000       -     $ 43,000  
General and administrative
    132,000       85,000       -       70,000  
                                 
    $ 234,000     $ 264,000       -     $ 113,000  
 
 
 
Determination of the fair value of common stock

We are a privately held company with no active public market of our common stock. Therefore, our board of directors determines the fair value of our common stock on each date of grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.

In the absence of a public trading market for our common stock, our board’s determination of the fair value of our common stock was performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Practice Aid Series: Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“the “AICPA Guide”). We performed contemporaneous and retrospective valuations, with the assistance of a third-party specialist, as of December 31, 2014, which resulted in valuations of our common stock of $1.69 and $2.32 per share as of December 31, 2013 and 2014, respectively.  In addition to these valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
 
 
the prices at which we sold convertible notes, and conversion rights and preferences of the note holders relative to our common stock at the time of each grant;
 
 
the price at which we sold common stock at the time of each grant;
 
 
the progress of our research and development programs, including the status of pre-clinical studies and clinical trials for our product candidates;
 
 
our stage of development and our business strategy;
 
 
external market conditions affecting the biotechnology industry;
 
 
trends within the biotechnology industry;
 
 
our financial position, including cash on hand and our historical and forecasted performance and operating results;
 
 
the lack of an active public market for our common stock;
 
 
the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions; and
 
 
the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

If a public trading market for our common stock is established in connection with the closing of this offering, we do not expect that it will be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and restricted stock, as the fair value of our common stock will be its trading price on the date of grant.

Valuation methodologies
 
Our common stock valuations were performed using the market approach to estimate the enterprise value of the Company in accordance with the AICPA Guide. The Market Approach is one of the three approaches (along with the Income Approach and Asset Approach) used to estimate enterprise and equity value. The market approach employs analysis using comparable companies in determining the value of the entity. Both public and private companies, if publicly available information exists, are considered in the Market Approach. Two information points commonly available – company valuation and transaction value — are used for their respective methodologies. There are a number of different methods within the Market Approach that may be used: the three main methods utilized are: the Guideline Pubic Companies Method; the Guideline Transactions Method; and the Backsolve Method.
 
 
 
Beginning in 2012, we valued our common stock using the Backsolve Method. This method derives an implied market value of invested capital from a transaction involving a company’s own securities. The price of a company’s security that was involved in a recent arms-length transaction is used as a reference point in an allocation of value. The Backsolve Method requires considering the rights and preferences of each class of equity and solving for the total market value of invested capital that is consistent with a recent transaction in our own securities, considering the rights and preferences of each class of equity. Per the AICPA Guide, the Backsolve Method is generally the most reliable indicator of value of early-stage enterprises with no product revenue or cash flow, if relevant and reliable transactions have occurred in the company’s equity securities. This methodology is also prescribed by the AICPA when a valuation is conducted in close proximity to the date of a financing transaction, and when other methodologies are deemed less reliable.
 
As of December 31, 2014, we valued our common stock using the Guideline Public Companies Method, where there was not a direct equity financing with independent investors that could be used to determine enterprise value. This method derives a valuation based on the average multiple of market capitalization as compared to paid in capital of peer companies, which was then applied to our paid in capital balance.
 
While there are many different value allocation methods, these various methods can be grouped into three general categories as defined by the AICPA Guide, one of which is the Option-Pricing Method, or OPM. We used the OPM to allocate market value of invested capital to the various equity classes and debt comprising our capitalization structure. We chose the OPM over other acceptable methods due to the complex capital structure of our company, the uncertainty related to market conditions, and the lack of visibility on an imminent exit event. Under the OPM, each equity class is modeled as a call option with a distinct claim on the equity of our company. The option’s exercise price is based on our company’s total equity value available for each participating equity holder. The characteristics of each equity class determine the equity class’ claim on the total equity value. By constructing a series of options in which the exercise price is set at incremental levels of value, which correspond to the equity value necessary for each level of equity to participate, we determined the incremental option value of each series. When multiplied by the percentage of ownership of each equity class participating under that series, the result is the incremental value allocated to each class under that series.
 


Option Grants
 
The following table summarizes by grant date the number of shares subject to options granted during the three months ended March 31, 2015, the per share exercise price of the options, the fair value of common stock underlying the options on date of grant, and the per share estimated fair value of the options. We did not grant any stock options prior to the three months ended March 31, 2015.

Grant Date
 
Number of Shares
   
Per Share Exercise Price
of Options(1)
   
Fair Value of
Common Stock
per Share on Date of Option Grant
   
Per Share
Estimated Fair
Value of
Options(2)(3)
 
March 25, 2015
    593,000     $ 2.32     $ 2.32     $ 1.65  
 

(1) The Per Share Exercise Price of Options represents the fair value of our common stock on the date of grant, as determined by our board of directors, after taking into account the various objective and subjective facts described above since the date of such valuation through the date of grant.
(2) The Per Share Estimated Fair Value of Options reflects the weighted average fair value of options granted on each grant date, determined using the Black-Scholes option-pricing model.
(3) For purposes of recording stock-based compensation for grants of options to nonemployees, we measure the fair value of the award on the service completion date (vesting date). At the end of each reporting period prior to completion of the services, we remeasure the value of any unvested portion of the option based on the then-current fair value of the option and adjust the expense accordingly. The weighted average fair value amounts presented in this column for grants to employees, directors and nonemployees reflect only the grant-date fair value of options granted to nonemployees and not any subsequently remeasured fair value of those options.
 

Results of Operations

Comparison of Three Months Ended March 31, 2014 and 2015

The following table summarizes our results of operations for the three months ended March 31, 2014 and 2015:

                   
   
Three Months Ended March 31,
   
Increase
(Decrease)
 
   
2014
   
2015
 
   
(in thousands)
 
Grant revenue
  $ 210     $ 250     $ 40  
                         
Operating expenses:
                       
Research and development
    1,231       1,133       (98 )
General and administrative
    524       1,075       551  
                         
Total operating expenses
    1,755       2,208       453  
                         
Loss from operations
    (1,545 )     (1,958 )     (413 )
Other income (expense):
                       
Interest income (expense), net
    (410 )     -       410  
                         
Net loss
  $ (1,955 )   $ (1,958 )   $ (3 )
                         
 
Research and development expenses
 
Research and development expenses were $1.2 million for the three months ended March 31, 2014, compared to $1.1 million for the three months ended March 31, 2015. The decrease of $0.1 million was due primarily to increased spending of $0.5 million on clinical trial related activities for our Phase 1 clinical trial incurred during the 2014 period, partially offset by increased spending of $0.3 million on preclinical studies incurred during the 2015 period.

 
 
General and administrative expenses
 
General and administrative expenses were $0.5 million for the three months ended March 31, 2014, compared to $1.1 million for the three months ended March 31, 2015. The increase of $0.6 million was primarily due to increased legal, accounting and other consulting expenses, as well as additional salaries associated with higher headcount, in the three months ended March 31, 2015.

Other income (expense)

Interest income (expense), net for the three months ended March 31, 2014, was $0.4 million, related to the accretion and accrued interest on our convertible notes and amortization of the related deferred financing costs. We had no interest expense for the three months ended March 31, 2015.
 
Comparison of Years Ended December 31, 2013 and 2014

The following table summarizes our results of operations for the years ended December 31, 2013 and 2014:
 
                   
   
Year Ended December 31,
   
Increase
(Decrease)
 
   
2013
   
2014
 
   
(in thousands)
 
Grant revenue
  $ 651     $ 738     $ 87  
                         
Operating expenses: