Pelthos Therapeutics (PTHS) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01The report of the independent registered public accounting firm on our 2024 and 2023 financial statements contains a going concern qualification
2. 02We are a clinical stage biopharmaceutical company with a limited operating history
3. 03There are numerous risks and uncertainties associated with pharmaceutical product and biological development, and we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability
4. 04Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control over financial reporting
5. 05We have identified material weaknesses in our internal control over financial reporting
6. 06We may be subject to litigation for a variety of claims, which could adversely affect our results of operations, harm our reputation or otherwise negatively impact our business

Risks Related to Development, Clinical Testing, and Regulatory Approval

1. 07We are early in our efforts to develop CT2000 and have not moved into clinical trials. If we are unable to advance CT2000 through clinical trials, obtain regulatory approval and ultimately commercialize CT2000, or if we experience significant delays in doing so, our business will be materially harmed
2. 08We are early in our efforts to develop CT3000 and have not moved into clinical trials. If we are unable to advance CT3000 through clinical trials, obtain regulatory approval and ultimately commercialize CT3000, or if we experience significant delays in doing so, our business will be materially harmed
3. 09We may encounter substantial delays in our pre-clinical and clinical trials, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities
4. 10Our drug development costs will increase if we experience delays in testing or obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, need to be restructured or be completed on schedule, if at all
5. 11Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize CC8464, CT2000 and CT3000 and the approval may be for a narrower indication than we seek
6. 12CC8464, CT2000 and CT3000 may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval
7. 13CC8464, CT2000 and CT3000 are based on specific modes of administration (dose escalation regime, eye drops and injection, respectively), which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval
8. 14Even if we obtain regulatory approval for CC8464, CT2000 and CT3000, our compounds will remain subject to regulatory oversight
9. 15Even if we obtain and maintain approval for CC8464, CT2000 and CT3000 from the FDA, we may never obtain approval for them outside of the United States, which would limit our market opportunities and adversely affect our business
10. 16If we are not able to secure an orphan drug designation, or if the exclusivity associated with such designation does not effectively protect us from competition, our business, financial condition, results of operations and prospects will be adversely affected
11. 17We may expend our limited resources to pursue a compound or indication and fail to capitalize on our compounds or indications that may be more profitable or for which there is a greater likelihood of success
12. 18If we are not successful in discovering, developing and commercializing additional compounds, our ability to expand our business and achieve our strategic objectives would be impaired
13. 19If we are unsuccessful in identifying and developing additional new compounds, our potential for growth may be impaired
14. 20On December 23, 2023, we entered into the Benuvia License Agreement. We are dependent on the Benuvia License Agreement, and the termination of the Benuvia License Agreement could have an adverse effect on our business
15. 21If Benuvia does not properly maintain or enforce the intellectual property underlying the Benuvia License Agreement, our competitive position and business prospects could be harmed. Benuvia may also seek to terminate our license

Risks Related to Manufacturing

1. 22Delays in obtaining regulatory approvals of the process and facilities needed to manufacture CC8464, CT2000, CT3000 or any of our other compounds or disruptions in our manufacturing process may delay or disrupt our product development and commercialization efforts
2. 23Given the nature of sterile product manufacturing, there is a risk of contamination. Any contamination could materially adversely affect our ability to produce CC8464, CT2000 and CT3000 on schedule and could, therefore, harm our results of operations and cause reputational damage

Risks Related to Commercialization of Our Compounds

1. 24If we are unable to expand our market development capabilities or enter into agreements with third parties to market and sell our compounds, we may be unable to generate any revenue
2. 25If the market opportunities for CC8464, CT2000, CT3000 or our future compounds are smaller than we believe they are, our revenues may be adversely impacted, and our business may suffer
3. 26Government price controls or other changes in pricing regulation could restrict the amount that we are able to charge for CC8464, CT2000 and CT3000, if approved, or any of our other future compounds that may be approved in the future, which would adversely affect our revenue and results of operations
4. 27The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our products, if approved, could limit our ability to market those products and decrease our ability to generate product revenue

Risks Related to Our Business Operations

1. 28We may not be successful in our efforts to identify or discover additional compounds and may fail to capitalize on programs or compounds that may be a greater commercial opportunity or for which there is a greater likelihood of success
2. 29If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer
3. 30Our future success depends on our ability to retain key employees and scientific advisors and to attract, retain and motivate qualified personnel
4. 31Our employees, principal investigators and advisors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements
5. 32We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties
6. 33If 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
7. 34Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations
8. 35Our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures
9. 36Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation or exposing us to liability
10. 37Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop

Risks Related to Our Intellectual Property

1. 38We may not be able to protect our intellectual property or enforce our intellectual property rights adequately throughout the world
2. 39Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business
3. 40Third parties may initiate legal or administrative proceedings attacking the validity of our patents protecting CC8464, CT2000, CT3000 and future compounds the outcome of which would be uncertain and could have a material adverse effect on the success of our business
4. 41Instituting and defending against patent and other types of intellectual property litigation and administrative proceedings could cause us to spend substantial resources, distract our personnel from their normal responsibilities, and have uncertain outcomes
5. 42Changes in United States patent law and its administrative and judicial interpretation could diminish the value of patents in general, thereby impairing our ability to protect our compounds
6. 43Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats
7. 44Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects

Risks Related to our Common Stock

1. 45The market price and trading volume of our shares of Common Stock may experience rapid and substantial price volatility, which could cause purchasers of our Common Stock to incur substantial losses
2. 46Our Common Stock is currently listed on The NYSE American LLC (“NYSE American)”. NYSE American may delist our Common Stock from trading, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions
3. 47We could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their voting rights; and provisions in our charter documents could discourage a takeover that stockholders may consider favorable
4. 48A significant portion of our total outstanding shares are restricted from immediate resale but may 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 performing well
5. 49All of the shares of Common Stock in the IPO are immediately tradable without restriction under the Securities Act, except for any securities held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or Rule 144
6. 50In addition, we have registered the Selling Stockholder Shares pursuant to the Resale Prospectus and, as a result, all of the Selling Stockholder Shares are freely tradable under the Securities Act, subject to the terms of the lock up agreements
7. 51The Series C Preferred Stock has a liquidation preference over our Common Stock
8. 52If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline
9. 53The price of our securities may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our securities
10. 54We have broad discretion in the use of our cash and may not use them effectively
11. 55Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies, CC8464, CT2000 and CT3000
12. 56We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock less attractive to investors
13. 57The requirements of being a public company may strain our resources and divert management’s attention
14. 58Because 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

Risks Related to our CEF Purchase Agreement

1. 59It is not possible to predict the actual number of Purchase Shares we will sell under the CEF Purchase Agreement, or the actual gross proceeds resulting from those sales. We may not have access to the full amount available under the CEF Purchase Agreement with Tikkun
2. 60On July 26, 2024, we entered into the CEF Purchase Agreement (the “CEF Purchase Agreement”) with Tikkun Capital LLC (“Tikkun”), pursuant to which Tikkun committed to purchase up to $30.0 million in shares of our Common Stock, subject to certain limitations and conditions set forth in the CEF Purchase Agreement
3. 61Sales of a substantial number of our Common Stock in the public market by our existing stockholders could cause the price of our shares of our Common Stock to fall
4. 62Investors who buy shares of our Common Stock at different times will likely pay different prices
5. 63We may require additional financing to sustain our operations and, without it, we will not be able to continue operations
6. 64The terms of the CEF Purchase Agreement limit the amount of shares of Common Stock we may issue to Tikkun, which may have an adverse effect on our liquidity
7. 65Future sales of substantial amounts of our Common Stock, or the possibility that such sales could occur, could adversely affect the market price of our Common Stock
8. 66Management will have broad discretion as to the use of the proceeds from our sale of Purchase Shares to Tikkun under the CEF Purchase Agreement, and such uses may not improve our financial condition or market value