PART I

Diffusion Pharmaceuticals: Enhancing Oxygen, Fueling Life

We are a clinical stage biotechnologybiopharmaceutical company developing novel therapies that enhance the body’s ability to deliver oxygen to the areas where it is needed most. Our lead product candidate, TSC, is being developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions.

Our Strategy

Our goal is to become a leading biopharmaceutical company focused on extending the life expectancydevelopment and commercialization of novel therapies that enhance the body’s ability to deliver oxygen to areas where it is needed most and improve treatment outcomes for patients suffering from conditions complicated by hypoxia. To achieve this strategy, we are focused on the following key objectives:

Our Lead Product Candidate: Trans Sodium Crocetinate

Our lead product candidate, TSC, is being developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia.

Hypoxia is a condition in which there is an insufficient supply of oxygen to meet the energy demands of the cells in a tissue (e.g., skeletal muscle). Hypoxia is associated with the pathophysiology of many of medicine’s most intractable and difficult-to-treat conditions, including cancers, cardiovascular diseases, cerebrovascular diseases, respiratory diseases, skin and soft tissue diseases, and neurodegenerative diseases. 

All currently approved treatments for hypoxia work by augmenting or supplementing the systemic availability of oxygen. For example, respirators use pressure to push oxygen across the lungs into the blood to increase oxygen concentration, certain medications and devices such as external mechanical pumps are designed to improve cardiac output, and blood transfusions are used to increase the concentration of red blood cells and oxygen-carrying hemoglobin molecules.

While these treatments are effective in certain circumstances, there are significant associated risks such as lung damage resulting from the use of respirators, toxic side effects and drug-to-drug interactions of medications that increase cardiac output, infections related to blood transfusions, and the risk of creating excessive oxygen-related tissue toxicity, or hyperoxia, by providing a patient with excessive amounts of oxygen, among others. In addition, in certain other indications, these currently approved therapies are ineffective in treating the associated hypoxia. For example, in the treatment of cancer, re-oxygenating hypoxic, cancerous tissue cells cannot typically be accomplished simply by increasing the systemic availability of oxygen.

We believe TSC is the first therapy specifically designed to enhance the efficiency of the oxygen diffusion process. Furthermore, in animal models, TSC’s diffusion-enhancing mechanism of action has been observed to affect hypoxic tissue preferentially while avoiding excessive oxygen-related tissue toxicity.

By supporting normal, physiologic levels of oxygen diffusion at the uptake and delivery points of the circulatory system, we believe TSC presents a significant opportunity to improve the current standard-of-care treatment for conditions complicated by hypoxia.

TSC's Mechanism of Action

Blood plasma is approximately 90% water. The water molecules in the plasma are constantly moving, bound together in a loosely organized matrix by hydrogen bonds. TSC was designed to enhance the level of organization among the water molecules by increasing the amount of hydrogen bonding. This creates a less dense matrix of water molecules, reducing the resistance to oxygen diffusion across the concentration gradient.

Selected Preclinical Experiences

TSC has been evaluated in a variety of preclinical models intended to mimic relevant human conditions known to be complicated by hypoxia. In these studies, a variety of positive effects have been observed in connection with TSC administration, including:

Positron emission tomography scans showing reduction in hypoxia in a rat C6 glioma brain tumor model 45 min after TSC administration.

The TSC Oxygenation Trials: Demonstrating Proof of Concept, Dose Response Relationships, and Potential Indications for Future Development

While our clinical trials evaluating TSC conducted prior to 2021 provided certain preliminary signals regarding TSC’s mechanism of action and dose response characteristics, none of those studies were designed to demonstrate proof of concept by directly measuring TSC’s effects on tissue oxygenation and a variety of questions remained regarding TSC’s dose response characteristics, pharmacokinetics, and pharmacodynamics.

Given these identified gaps in our knowledge, in November 2020, we communicated our plan to design and execute our Oxygenation Trials, a series of short-term clinical studies using experimental models to evaluate the clinical effects of TSC on oxygenation, each designed to look at the effects of TSC on a different component of the oxygenation pathway. By quantifying the magnitude of effects of TSC on tissue oxygen levels and other direct clinical parameters assessing oxygen levels, and thereby demonstrating proof of concept of TSC’s effects on tissue oxygenation, as well as supplementing our knowledge of TSC’s dose response characteristics, pharmacokinetics and pharmacodynamics, we believe the data obtained from the Oxygenation Trials will allow us to significantly increase our clinical development strategy’s likelihood of success.

TCOM Trial: TSC's Effects on Peripheral Tissue Oxygenation

In March 2021, we initiated and completed enrollment in the first of the Oxygenation Trials, our TCOM Trial. In June 2021, we reported a positive trend in peripheral tissue oxygenation as compared to placebo among participants receiving TSC that persisted through the duration of the one-hour, post-dosing measurement period. Although the magnitude of this effect was not statistically significant due to limitations in the study design, the trends in the primary endpoint data indicated an improvement in peripheral oxygenation with TSC with no evidence of hyperoxygenation.

The figure below was created during a supplemental analysis of the TCOM Trial results by subtracting the median response observed in the TCOM Trial’s placebo group from the median response observed in each TSC dosage group at each of the measurement times during the one-hour period following dosing. These data highlight the persistent increase in peripheral tissue oxygenation relative to the placebo group through the duration of the one-hour measurement period following TSC administration, particularly at the two highest doses tested.

Effects of TSC on transcutaneous oxygen pressure.

We believe the TCOM Trial provides clinical evidence to support the hypothesis that TSC enhances the passive diffusion of oxygen from areas of high concentration to areas of low concentration without causing hyperoxygenation and that the data obtained from the study represent a positive and meaningful step towards the accomplishing of the Oxygenation Trials’ strategic objectives originally set forth in November 2020. These data have and will continue to guide the next steps of our development strategy, including the design of our Hypoxic Solid Tumor Program.

Altitude Trial: TSC's Effects Under Induced Hypoxic Conditions

On November 22, 2021, we announced dosing of the first participants in our second Oxygenation Trial, the Altitude Trial. This study is a double-blind, randomized, placebo-controlled crossover study designed to evaluate the effects of TSC on maximal oxygen consumption and partial pressure of blood oxygen in normal healthy volunteers subjected to incremental levels of physical exertion while exposed to “simulated altitude.” The study will enroll 30 healthy volunteers and give each volunteer a single dose of TSC at one of three different doses. Due to enrollment delays experienced during early 2022 related to the omicron variant wave of the COVID-19 pandemic, we now anticipate completing dosing in the Altitude Trial in the second quarter of 2022, with topline results reported within two months of study completion.

ILD-DLCO Trial: TSC's Effects on Oxygen Transfer Efficiency

On December 16, 2021, we announced dosing of the first patients in our third and final Oxygenation Trial, the ILD-DLCO Trial. This study is a double-blind, randomized, placebo-controlled, crossover study designed to evaluate the effects of TSC on the diffusion of carbon monoxide through the lungs, or DLCO, in patients with previously diagnosed ILD who have a baseline DLCO test result that is abnormal. DLCO is used in the study as a surrogate measure of oxygen transfer efficiency, or uptake, from the alveoli of the lungs through the plasma, and onto hemoglobin within red blood cells. The study will enroll 27 patients with confirmed ILD who will be randomized in a 2:1 ratio to a single dose of TSC or placebo via IV bolus. The study is statistically powered to evaluate the difference in effect of TSC versus placebo on improvement in DLCO measurements. In addition, patients will undergo a standard six-minute walk test intended to assess functional improvement in exercise capacity. Due to enrollment delays experienced during early 2022 related to the omicron variant wave of the COVID-19 pandemic, the effect of the omicron variant on patients with pulmonary diseases such as ILD, and staffing issues at the facilities where the ILD-DLCO Trial is being conducted, we now anticipate completing dosing in the ILD-DLCO Trial by improvingthe middle of 2022, with topline results reported within two months of study completion.

TSC's Demonstrated Clinical Safety Profile

TSC has been observed to be safe and well-tolerated at most doses tested in over 220 subjects included to-date in clinical studies at a variety of doses administered via intravenous infusion. Our clinical studies have included patients with a variety of medical conditions often complicated by hypoxia, including patients afflicted with GBM, peripheral artery disease with intermittent claudication, stroke, COVID-19, and interstitial lung disease. In each of these conditions and many others, hypoxia is a significant contributor to morbidity and mortality, and a considerable treatment obstacle for medical providers.

During 2021, we obtained additional data further demonstrating TSC's safety at higher doses and increased dosing frequencies from our COVID Trial and Oxygenation Trials. In the COVID Trial, completed in February 2021, TSC was administered on a different dosing regimen than any of our prior trials, with patients receiving an infusion multiple times per day for up to 15 days. In the TCOM Trial, based in part on a recommendation from the COVID Trial’s safety monitoring committee, arms evaluating even higher doses of TSC were included. No dose-limiting toxicities or serious adverse events were observed among any patients or participants in the either trial, including those who received the highest tested doses of TSC.

Our Hypoxic Solid Tumor Program

We believe TSC’s novel mechanism of action supports the objective of developing TSC as a treatment for hypoxic solid tumors because TSC’s ability to enhance the oxygenation of hypoxic tissues may increase the effectiveness of current standard-of-care treatments, including radiation therapy and chemotherapy. We are developing our lead product candidate,transcrocetinate sodium, also known astrans sodium crocetinate (“TSC”), for use in the many cancer types in which tumor oxygen deprivation (“hypoxia”) is known to diminish the effectiveness of current treatments. TSC is designed to target the cancer’s hypoxic micro-environment, re-oxygenating treatment-resistant tissue and making the cancer cells more susceptible to the therapeutic effects of standard-of-care radiation therapy and chemotherapy. Our lead development programs target TSC against cancers known to be inherently treatment-resistant, including brain

Solid tumors comprise approximately 90% of all adult cancers and, pancreatic cancer. A Phase 1/2 clinical trial of TSC combined with first-line radiation and chemotherapyaccording to the American Cancer Society, it was expected that roughly 1.9 million new cancer cases would be diagnosed in patients newly diagnosed with primary brain cancer (“glioblastoma” or “GBM”) was completed in 2015. This trial provided evidence of efficacy and safety in extending overall survival without the addition of toxicity. Based on these results, an End-of-Phase 2 meeting was held with the U.S. Food and Drug Administration (“FDA”) in August 2015, resulting in guidelines for the design of a single 400 patient pivotal Phase 3 registration study which, if successful, would be sufficient to support approval. The Companyduring 2021. It is also exploring the possibility of focusing on the subset of inoperable patientswell-documented in the GBM indication. Discussions withscientific literature that the FDA regarding extensionprevalence of the TSC development program from first line GBM into first-line pancreatic cancer treatment are currently underway. TSC has been granted Orphan Drug designation for the treatment of both GBM and brain metastases.

In addition to cancer, TSC also has potential applications in other indications involving hypoxia, such as hemorrhagic shock, stroke, peripheral artery disease, respiratory diseases and neurodegenerative diseases. In this regard, the Company is exploring the feasibility of testing TSC as a novel stroke treatment in an emergency medicine/ambulance setting.

Summary of Current Product Candidate Pipeline

The following table summarizes the targeted clinical indications for Diffusion’s lead molecule,trans sodium crocetinate:

In addition to the TSC programs depicted in the table, we are exploring alternatives regarding how best to capitalize upon our product candidate, RES-529, a novel PI3K/Akt/mTOR pathway inhibitor which has completed two Phase I clinical trials for age-related macular degeneration and is in preclinical development in oncology, specifically GBM.

Technology Overview

Our proprietary technology is targeted at overcoming treatment-resistance in solid cancerous tumors by combining our lead product candidate, TSC, with standard-of-care radiation and chemotherapy regimens, thus effecting a better patient survival outcome without the addition of harmful side effects.

Under normally oxygenated cellular conditions, radiation and chemotherapy generally have a powerful killing effect upon cancerous tumor tissue. However, in manyhypoxic regions across numerous primary solid tumor types cellular oxygen deprivation occurs asdirectly contributes to treatment resistance, whether it be radiotherapy, chemotherapy, or immunotherapy, increasing the resultmetastatic potential of rapid tumor growth, causing partsthese tumors and the probability of the tumor to outgrow its blood supply. When tumor tissue becomes hypoxic, it is up to three times more resistant to the cancer-killing power of the standard therapies (radiation and chemotherapy) currently used in the treatment of the vast majority of cancer patients. Cancerous tumor cells are known to thrive under hypoxic conditions, as the resultant changes in the tumor microenvironment confer “treatment-resistance” to radiation and chemotherapy within the cell.unsuccessful treatment.

Many solid cancerousof the challenges faced by practitioners in treating some of the most fatal and difficult-to-treat tumor types, are hypoxic and therefore subject to this treatment-resistance. TSC safely re-oxygenates treatment-resistant hypoxic tumor tissue via a novel mechanism of action, without affecting the oxygenation of normal tissue, thereby increasing therapeutic effectiveness. To date, no addition of serious harmful side effects, or exacerbation of the known side effects of standard-of-care treatments, has been observed in our clinical studies.

TSC’s distinctive re-oxygenation capabilities derive from its mechanism of action, which promotes enhanced diffusion of oxygen through blood plasma and into the hypoxic tumor microenvironment. Disruption of the treatment-resistance syndrome by re-oxygenation promotes enhanced cancer-killing power from radiation and chemotherapy, thereby safely extending patient survival. Because of the characteristics of this novel mechanism, oxygen levels of normal tissue remain unaffected, thereby avoiding side effects related to the syndrome referred to as “oxygen toxicity.” We believe this avoidance of oxygen toxicity confers a significant advantage to TSC’s diffusion-based approach over previous attempts to diminish treatment-resistance based on enhancing the oxygen concentration levels of the blood.

Our clinical development plan targets TSC at radiation and chemotherapy sensitization of hypoxic tumor types, with an initial focus on primary brain cancer,including GBM, pancreatic cancer, and brain metastases. We have been granted orphan drug designations by the FDA for the treatment of brain cancers based on the acknowledged unmet medical need and number of patients affected. Such orphan drug designations allow certain favorable treatments under FDA regulations in connection with exclusivity periods and the new drug approval process.

Tumor Hypoxia

We believe that our breakthrough small molecule approach to overcomingother solid tumor treatment-resistance by the reduction of cellular hypoxia may have significant implications for the improved treatment of cancer. Hypoxia is a deficiency in the supply of oxygen. It is well known that tumors, are especiallya product of those tumors’ highly hypoxic nature. Cancerous tumors are specifically susceptible to developing hypoxia driven bydue to a combination of rapid cellular growth, structural abnormalities of the tumor microvessels, and disturbed circulation within the tumor. There are a number of known treatment-resistanceHypoxic conditions within the tumor microenvironment have numerous negative consequences conferred by tumor hypoxia, including increases in:for patient outcomes and treatment, including:

We have previously obtained and published evidence supporting TSC’s ability to enhance oxygenation of C6 glioma tumors in animals, as well as clinical evidence of TSC’s effects in unresectable GBM tumors from our previously completed Phase 2 clinical trial evaluating 59 patients with newly diagnosed GBM. This open-label, historically controlled trial demonstrated a favorable safety and tolerability profile for TSC when combined with standard of care treatment for GBM. Although not prospectively defined, a post hoc subgroup analysis of inoperable patients suggested a higher proportion of TSC-treated patients survived at two years compared to those in the historical control group.

In November 2021, based on the available preclinical and clinical data and the significant unmet medical need, we announced our intention to focus near-term efforts on developing TSC as an adjunct to standard of care therapy for hypoxic solid tumors. Through the combination of our past experiences, new knowledge gained from our Oxygenation Trials and COVID Trial regarding TSC’s effects on oxygenation, dose response characteristics, pharmacokinetics, and pharmacodynamics, and further analyses and discussions of all available data with our Scientific Advisory Board and other external advisors, we believe we now have the necessary information to design the Hypoxic Solid Tumor Program to be more efficient and increase our likelihood of success compared to the Company’s past efforts to develop TSC as a cancer treatment, which were terminated in 2019 due to financial constraints.

As part of the ongoing design of our Planned Phase 2 Hypoxic Tumor Trial – the first trial in our Hypoxic Solid Tumor Program which we currently expect to commence in the second half of 2022, subject to FDA feedback and the availability of clinical drug supply – we are currently drafting a trial protocol which we intend to file with the FDA. In parallel, we will continue our work to optimize the TSC manufacturing process and support the continued availability of high-quality drug product and undertake preclinical studies and other opportunities to continue developing data designed to demonstrate TSC’s potential uses in a broad spectrum of non-cancer indications.

TSC's Potential to Treat Other Conditions Complicated by Hypoxia

Beyond cancer, hypoxia is a complicating factor in many other intractable and difficult-to-treat conditions as well, including cardiovascular diseases, cerebrovascular diseases, respiratory diseases, skin and soft tissue diseases, and neurodegenerative diseases. In addition to our oncology programs past and present, we have previously conducted a variety of preclinical and clinical studies evaluating the effects of TSC in several of these other indications complicated by hypoxia, including COVID-19, stroke, and peripheral artery disease with intermittent claudication, and we intend to continue to pursue potential partnering opportunities in non-oncology indications.

Certain medical conditions complicated by hypoxia.

Our Phase 2 COVID-19 Trial

We believe TSC’s oxygen-enhancing mechanism of action could potentially provide benefit patients suffering from respiratory indications, such as COVID-19.

In September 2020, we announced the dosing of the first patients in our COVID Trial evaluating TSC in hospitalized COVID-19 patients at the National Institute of Infectious Diseases in Bucharest, Romania. The trial enrolled 24 patients divided into four sequential cohorts of six patients, with each patient in a cohort receiving the same intravenous doses of 0.25 mg/kg, 0.5 mg/kg, 1.0 mg/kg, or 1.5 mg/kg. All patients were administered intravenous doses of TSC every six hours for a minimum of five days and up to 15 days. On February 9, 2021, we completed dosing of the twenty-fourth and final patient in the trial.

The above-described phenomenon of hypoxia-related “treatment-resistance” has been known to the scientific and clinical communities for over half a century. The challenge has been to find an approach that can effectively mitigate treatment-resistance without the addition of toxic side effects or exacerbationprimary endpoint of the side effects associated with radiationCOVID Trial was to evaluate the safety and chemotherapy treatments. We believe thattolerability of TSC embodiesadministered every six hours for at least five and up to 15 days, a more frequent dosing regimen than had been used in our previous clinical studies. Secondary endpoints included pharmacokinetic measurement of TSC levels after dosing, relative improvements in blood oxygen levels, and certain other clinical parameters related to COVID-19, such an approach.as improvement in WHO ordinal scale by day 7 and through day 29, time on oxygen supplementation, and hospital length of stay.

Trans Sodium CrocetinateData from the trial, evaluated by the study’s independent safety monitoring committee, indicated TSC was safe and well-tolerated and that no dose-limiting toxicities or serious adverse events were observed among any patients in the study, including those who received the highest dose administered in the trial. Additionally, while the COVID Trial was not designed or powered to evaluate efficacy, the safety monitoring committee also observed that patients receiving the highest dose administered had improved outcomes in the trial’s secondary and exploratory endpoints compared to those receiving lower doses. Further, no patients that received TSC required dialysis or developed acute kidney injury, nor were there any reports of pulmonary embolism or deep vein thrombosis. Based on their observations, the safety monitoring committee also recommended the Company consider testing of higher TSC doses and a continuous intravenous infusion in future studies.

Product Development

Dr. John Gainer, our Chief Scientific Officer, one of our directorsResearch and Professor Emeritus of Chemical Engineering at the University of Virginia, was the first to propose the use of chemical compounds specifically to facilitate the diffusion of oxygen through blood plasma for the purpose of re-oxygenating hypoxic tissues. Dr. Gainer’s early laboratory work systematically examined various means to alter the diffusivity of oxygen through the use of small molecules that would affect the intermolecular forces existing in blood plasma. He originally identified crocetin, a natural carotenoid compound, as a molecule that could increase oxygen diffusion through the plasma, and crocetin was shown to be an effective treatment in a rabbit model of atherosclerosis and other indications. This work continued from the 1970s into the mid-1990s with various animal models, including radiation sensitization and hemorrhagic shock.

Because crocetin is an isomeric mixture, Dr. Gainer examined whether it was thetransDevelopment-isomer which was responsible for eliciting the therapeutic benefit. These experiments led to his development of a puretrans-isomer salt compound, which he namedtrans sodium crocetinate. (The USAN designated name istranscrocetinate sodium). TSC has been shown to be more effective than crocetin in a severe model of hemorrhagic shock in both rats and pigs. It also demonstrated safety and efficacy in animal models of stroke and myocardial infarction, as well as in enhancing the response of hypoxic tumors to the therapeutic effects of radiation and chemotherapy.

It is proposed that TSC works by altering the molecular arrangement of the water molecules in blood plasma (which is composed of 90% water), with the altered structure being less dense – and thus less resistant to oxygen diffusion – than untreated blood plasma. A water molecule is composed of two hydrogen atoms and one oxygen atom, with a net positive charge found on the hydrogen atoms and a net negative charge found on the oxygen atom. This results in the formation of hydrogen bonds, which are an attraction between the net-negatively charged oxygen of one water molecule and the net-positively charged hydrogen atoms of another water molecule. Theoretically, one water molecule can form four hydrogen bonds with neighboring water molecules. However, the literature on the subject indicates that a water molecule actually forms, on average, 2 to 3.6 hydrogen bonds. By promoting an increase in the average number of hydrogen bonds among the water molecules comprising the bulk of blood plasma, TSC enhances the ability of oxygen to diffuse more easily through the plasma and into hypoxic tissue.

In March 2017, we received a patent for bipolar trans carotenoid saltsrecent years, the majority of our research and their uses.This patent expands the coverage of the therapeutic use of TSC and other related compounds to five hypoxia-related conditions including congestive heart failure, chronic renal failure, acute lung injury (ALI), chronic obstructive pulmonary disease (COPD) and respiratory distress syndrome (RDS).

Trans Sodium Crocetinate Increases Oxygenation of Hypoxic Cancerous Tumors

While earlier studies focused on improved treatments for hemorrhagic shock, ischemia, and traumatic brain injury, the use of TSC as an agent to re-oxygenate hypoxic cancerous tumors became a central area of research for us following our founding in 2001. Because tumor hypoxia is a leading cause of solid tumor resistance to both radiation and chemotherapy, it was believed that an agent such as TSC – one that could safely increase the oxygenation of hypoxic tumor tissue – could prove effective in treatment-resistant cancers when combined with standard-of-care regimens of radiation and/or chemotherapy. This belief leddevelopment expenditures have been directed to the development of TSC. For example, during the year ended December 31, 2021, we incurred approximately $8.5 million in costs related to research and development of our products, a decrease of approximately $0.9 million compared to the year ended December 31, 2020. The majority of these costs were related to the development of TSC and related personnel, including costs associated with the Oxygenation Trials and the COVID Trial, which was completed in February 2021. We expect this trend to continue for the foreseeable future, including planned expenditures related to completion of the remaining Oxygenation Trials, the initiation of the Hypoxic Solid Tumor Program, and other costs associated with the conduct of additional, supportive preclinical studies and clinicalgeneral research and development programs targeted against treatment-resistanceactivities related to TSC and any other product candidates we may acquire or in-license in various cancers, withthe future.

As a focus on brain cancer types (both GBMdevelopment-stage company, we continuously evaluate opportunities to improve the value of our development pipeline, including potential acquisition and metastatic)in-licensing opportunities. Our efforts include ongoing evaluation and pancreatic cancer, allmodification of which are knownour development plans intended to maximize the probability of technical, developmental, and regulatory success while enhancing patient and stockholder value. These activities have, and we expect they will continue to be significantly hypoxic. The Company’s longer term goal isfor the foreseeable future, focused on opportunities that are synergistic with our overall corporate strategy to use TSC against treatment-resistance indevelop novel treatments for the entire rangetreatment of hypoxic cancers now treated with radiationhypoxia and chemotherapy.conditions complicated by hypoxia.

Glioblastoma ProgramIntellectual Property

Our lead programWe believe that a strong intellectual property portfolio is targetedcritical to our success. We are committed to obtaining and maintaining appropriate patent and other protections for our products candidates and other technologies, preserving and protecting our trade secrets and other confidential and proprietary information, and fiercely defending our intellectual property portfolio against newly diagnosed primary brain cancer, also known as glioblastoma (GBM). Glioblastoma is a grade IV brain tumor, characterizedany potential infringement by a heterogeneous cell population,third parties. We attempt to protect our intellectual property through among other things, the filing of applications for patent, trademark, and other appropriate intellectual property protections, the use of confidentiality agreements with a numberconsultants, contractors and other third parties, our employee policies regarding confidentiality, invention disclosure, and the assignment of negative attributes. GBM cells are typically genetically unstable (and thus prone to mutation), highly infiltrative, angiogenic, and resistant to radiation and chemotherapy. The mutations typically found in GBM allow the tumor to grow and thrive in a hypoxic environment. GBM is classified into two major subclasses, primary or secondary, depending upon the clinical propertiesinventions, as well as regular meetings of members of our internal development and legal teams, which contains key members of our management team. We are also committed to operating our business without infringing on the chromosomal and genetic alterations that are unique to each class. Primary GBM arisesde novo from normal glial cells and typically occurs in those over the ageintellectual property of 40, while secondary GBM arises from transformation of lower grade tumors and is usually seen in younger patients. Primary GBM is believed to account for approximately 95% of all GBM diagnoses.others.

While GBMIn general, patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained, with term adjustments or extensions possible in certain cases based on patent office delays or pursuant to certain administrative and legislative exceptions. The actual protection afforded by a patent, which can vary from country to country, depends on the most common formtype of primary brain tumor involving glial cells it is still relatively rare, as approximately 12,000 peoplepatent, the scope of its coverage and the availability of legal remedies in the United States were diagnosed with GBM in 2014. The median age of GBM diagnosis is approximately 65 years, with the incidence of GBM in those over 65 increasing rapidly as shown by a doubling in incidence from 5.1 per 100,000 in the 1970s to 10.6 per 100,000 in the 1990s. Those diagnosed with the disease have a grim prognosis, with the median survival time of untreated patients being 4.5 months. Current standard-of-care treatment only provides 14-16 months of survival time after diagnosis.country.

Current Treatments for GBM

The standard-of-care for GBM tumors generally begins with surgical resection, unlessWe continue to invest significant time, effort, and resources into the tumor is deemed inoperable due to its location near vital centersdevelopment and maintenance of the brain. This surgery is performed both to alleviate the symptoms associated with the disease as well as to facilitate treatmentour patent portfolio. As of residual tumor cells. Even with advancesDecember 31, 2021, we owned 17 issued U.S. patents and more than 35 issued non-U.S. patents, and had numerous patent applications pending worldwide including issued patents and applications in surgical technique, complete removal of the tumor with clean margins is difficult to achieve,major markets such as the tumors are highly infiltrativeU.S., E.U., China, Japan, and typically extend intoIndia. The normal life (i.e. with no adjustments or extensions) of our key issued patents related to the composition of matter of TSC extends to 2026, with potential patent term extensions to 2031, and the normal brain parenchyma. Duelife of our patents related to this, almost all GBM patients have recurrencean oral formulation of the tumor,TSC extends to 2031, with 90%potential patent term extensions to 2036. The normal life of such recurrence occurring at the primary site.

Dueour key issued patents related to the invasive naturemethods of the tumors, surgical resection is promptly followed by radiotherapy coupled with the use of chemotherapeutic agents. Radiotherapy involves the administration of irradiationTSC extends to the whole brain. While nitrosoureas were historically a commonly used chemotherapeutic agent, temozolomide (“TMZ”) was approved in 20052037, not including potential patent term extensions. For additional information regarding patent term extensions, see "Business — Government Regulation— The Hatch-Waxman Amendments — Patent Term Restoration and is now a mainstay of the standard-of-care. This is based on a clinical trial that showed theMarketing Exclusivity. In addition, of TMZ to surgery and radiation increased median survival in newly diagnosed GBM patients to 14.6 months compared to 12.1 months for the surgery and radiation only group.

Most chemotherapeutic drugs have a limited ability to cross the blood brain barrier, thus a strategy to attempt to circumvent this was the development of Gliadel^®, dissolvable chemotherapy wafers that could be placed in the tumor bed following surgical resection. Gliadel^® contains the nitrosourea chemotherapeutic agent carmustine that is released for several weeks, in contrast to systemically administered carmustine that has a very short half-life. While Gliadel^® wafers were shown to be safe, the drugs’ addition to radiation and TMZ did not result in a statistically significant increase in survival.

GBM tumors show increased expression of vascular endothelial growth factor (“VEGF”), and the anti-angiogenesis drug bevacizumabTSC has been approvedgranted Orphan Drug designation by the FDA for the treatment of recurrent GBM. A Phase 2 study found that bevacizumab treatment in patientsboth GBM and metastatic brain cancer, which may provide us with recurrent GBM increased six-month progression-free survival from a historical 9-15% to 25% with overall six-month survivalright of 54%. Another Phase 2 study showed that recurrent GBM patients treated with bevacizumab at a lower dose but a higher frequency had even higher six-month progression-free survival of 42.6%.

While bevacizumab has shown success in recurrent GBM, it is not utilized in newly diagnosed patients, our target patient population, as two separate clinical trials showed no difference in overall survival in patients treated with radiation, TMZ,exclusivity under certain FDA regulations. For additional information regarding orphan and bevacizumab compared to patients treated with only radiation and TMZ. Bevacizumab treatment did result in an increase in progression free survival in both studies; however, the reason why this increase in progression free survival did not translate to an increase in overall survival is unclear. In addition, certain studies have reported that patients treated with bevacizumab had an increased symptom burden, a worse quality of life, and a decline in neurocognitive function.

ultra-orphan designations, see "GBM Therapies Under DevelopmentBusiness

There are a number of companies developing GBM therapies. For example, a search on the website www.clinicaltrials.gov yields over 300 results for “glioblastoma multiforme” and “open trials.” Most of these trials focus on the recurrent patient population, whereas our target population is newly diagnosed patients. In addition to the therapeutics previously mentioned, current GBM trials include Northwest Therapeutics’ DCVax^®-L, Bristol-Myers Squibb’s Nivolumab/Ipilimumab and AbbVie’s Veliparib. In addition, the medical device company Novocure has been developing a novel approach called Tumor Treating Fields (“TTFields”) using low intensity, alternating electric fields within the intermediate frequency range. TTFields are believed to disrupt cell division through physical interactions with key molecules during mitosis. This medical device approach has shown some success in the recurrent GBM patient population and more recently as an initial treatment.

—GBM is an Orphan Disease Government Regulation

GBM is diagnosed in approximately 12,000 individuals every year, making it an “orphan disease.”— Certain Other FDA Regulations — The Orphan Drug Act of 1983 was designed to provide financial incentives for, and to reduce the costs associated with, developing drugs for rare diseases and disorders. A “rare disease or disorder” is defined by the Orphan Drug Act of 1983 as affecting fewer than 200,000 Americans at the time of designation or one for which “there is no reasonable expectation that the cost of developing and making available in the United States…will be recovered from sales in the United States..” A sponsor must request that the FDA designate a drug currently under development for a “rare disease or condition” as an orphan drug, and if the FDA agrees that the drug and indication meet the criteria set forth in the Orphan Drug Act of 1983, certain financial and marketing incentives become available.

In July 2011, we announced that TSC was granted Orphan Drug Designation by the FDA for the treatment of GBM.Chemistry, Manufacturing, and Controls

Trans Sodium Crocetinate Phase 1/2 Clinical Trial in GBMTSC is currently formulated as a freeze-dried, injectable product, requiring a sophisticated manufacturing process.

We have evaluateddo not currently own or operate any facilities suitable for manufacturing TSC in 148 human subjects in various Phase 1or any of our other product candidates on a scale required to support either clinical development or commercialization. We currently use third-party CMOs to manufacture API, other starting materials, and Phase 2finished drug product for our preclinical studies and clinical trials and we intend to date,continue doing so for the foreseeable future. We anticipate this strategy will be scalable in a manner sufficient to support the production capacity required to support continued clinical development and ultimate commercialization. However, we do not have any formal agreements at this time with no serious adverse events attributableany CMO to TSC. Our Phase 1/2 clinical trialcover commercial production of TSC or any other product candidate. Although the use of third party CMOs to manufacture pharmaceutical products is common within the industry, this dependence on third-party CMOs exposes our business to certain risks, including those described under the heading, “Risk Factors – Risks Related to Our Dependence on Third Parties.”

Supply Chain Matters

Recently, many companies across a variety of sectors have reported disruptions, shortages, and other supply chain-related issues. In the biopharmaceutical sector, delays and interruptions in patients with newly diagnosed GBM completedthe supply chain were particularly pronounced as CMOs redirected resources under the Defense Production Act and to otherwise support the COVID-19 vaccine roll-out across the globe.

During 2021, we were able to effectively manage our supply of TSC and its component materials in 2015 is described in more detail below. TSC is targeted for testing against newly diagnosed GBM in an upcoming Phase 3a manner that avoided any significant interruptions to our clinical trial that, assumingprograms. We also took actions designed to increase the robustness of our drug supply and overall supply chain to mitigate risks related to the availability of funding resourcesour drug supply in the future. However, as constraints on the supply chain continue to impact the cost and general availability of manufacturing materials, related delays and shortages could affect the completioncost and timing of certain manufacturing and animal toxicology guidelines mandated by the FDA guidance, could begin within the next twelve (12) months.our available clinical study drug supply of TSC.

Our Phase 1/2 clinical trialCompetition

Currently, medical options to improve oxygenation without risk of hyper-oxygenation are limited and we believe that TSC's diffusion enhancing mechanism of action make it a first-in-class, novel, small molecule. However, there are several companies currently developing or marketing oxygen enhancing products, therapeutics, or devices that may nevertheless be competitive with TSC, if approved, including Hemoglobin Oxygen Therapeutics LLC, Hemotek Medical Inc., NuvOx Pharma LLC, Omniox, Inc., and VirTech Bio Inc. In addition, in GBM enrolled 59 newly diagnosed patients who received TSC in conjunctionthe first quarter of 2021, we became aware of a third party affiliated with radiation and TMZ. In the Phase I portiona former outside consultant of the trial, TSC was initially administered three times per week at half-dose to three patients prior to radiation. Subsequently, six additional patients received full-dose TSC for six weeks in combination with radiation. No dose-limiting toxicities were identified in the nine patients during the Phase I portion of the trial, nor were any serious adverse events relating to the drug observed. Fifty additional patients were enrolled in the Phase II trial and received full-dose TSC in combination with TMZ and radiation therapy. Four weeks after completion of radiation therapy, all patients underwent chemotherapy with higher doses of TMZ for five (5) days every four weeks, but no further TSC was administered.

We presented initial results from the trial at the 2015 American Society of Clinical Oncology (“ASCO”) Annual Meeting in June 2015,Company which discussed data from the 18 trial sites covering the first twenty-one months. Final results were published in the Journal of Neurosurgery online in May 2016. We compared results in relation to a historical control group from a 2005 study which showed that the addition of TMZ to standard-of-care (surgery plus radiation) increased overall survival from 12.1 months to 14.6 months. We reported that:

End-of-Phase 2 FDA Meeting and Plans for TSC Phase 3 GBM Clinical Trial

Following the announcement of the results of the 2015 Phase 1/2 clinical trial in GBM, we held an end of Phase 2 meeting with the FDA in August 2015 to discuss planning for a Phase 3 clinical trial. At the meeting, guidance was received on a trial design for the Phase 3 study, including:

One of the major differences between the Phase 3 trial and the Phase 1/2 trial is the addition of TSC doses after the completion of the radiation/chemotherapy phase of treatment into the chemotherapy only phase. In the Phase 1/2 trial, TSC was only given prior to radiation (18 doses total over 6 weeks). In the Phase 3 study, we are planning to give the patients 36 total doses of TSC, 18 in conjunction with radiation/chemotherapy and 18 in conjunction with chemotherapy alone for a total TSC treatment duration of 30 weeks. The following figure gives a graphical representation of our planned Phase 3 trial, which, assuming the availability of financial resources and the completion of certain manufacturing and animal toxicology guidelines mandated by the FDA guidelines, we intend to commence enrollment in 2017, complete enrollment and potentially receive interim data in 2019 and complete conduct (enrollment and dosing) of the study in 2020. Data collection, analysis and regulatory interaction are projected to occur over the following 12 to 18 months.

Pancreatic Cancer Program

One of the most hypoxic of all the solid cancers, and therefore one of the most treatment-resistant, is pancreatic cancer. According to the American Cancer Society, pancreatic cancer is responsible for 7% of all cancer deaths in both men and women, making it the fourth leading cause of cancer death in the U.S. Estimates are that 40% of pancreatic cancer cases are sporadic in nature, 30% are related to smoking and 20% may be associated with dietary factors, with only 5-10% of cases hereditary in nature.

Pancreatic cancer is difficult to diagnose in early stages because initial symptoms are often nonspecific and subtle in nature, and include anorexia, malaise, nausea, fatigue, and back pain. Approximately 75% of all pancreatic carcinomas occur within the head or neck of the pancreas, 15-20% occur in the body of the pancreas, and 5-10% occur in the tail.

The only potential curative therapy for pancreatic cancer is complete surgical resection. Unfortunately, this is only possible for approximately 20% of cases, and even of those patients whose cancer is surgically resected, 80% will develop metastatic disease within two to three years following surgery. Patients with unresectable pancreatic cancer have a median overall survival of 10 to 14 months while patients diagnosed with Stage IV disease (indicative of metastases) have a 5-year overall survival of just 1%.

Multiple studies have confirmed that pancreatic cancers are highly hypoxic. A study reporting the direct measurement of oxygenation in human pancreatic tumors prior to surgery showed dramatic differences between tumors and normal tissue. The partial pressure of oxygen (“pO2”) ranged between 0-5.3 mmHg in tumors but in adjacent normal tissue it ranged from 9.3-92.7 mmHg. Hypoxic areas are also frequently found when examining tissue from mouse models of pancreatic cancer.

Current Treatment Options for Pancreatic Cancer

Surgery remains the primary mode of treatment for patients with pancreatic cancer. However, there is an important role for chemotherapy and/or radiation in an adjuvant setting (given to prevent recurrence) or neoadjuvant setting (given before surgery to shrink the tumor to make complete resection more probable), as well as in patients with unresectable disease.

Since its approval in 1996, gemcitabine has been partnered with approximately 30 different agents in late-stage clinical trials in an attempt to improve upon the effectiveness of gemcitabine alone in treating patients with metastatic pancreatic cancer. Only two of these trials have demonstrated improved efficacy, leading to FDA approvals – erlotinib (Tarceva^®) and nab-paclitaxel (Abraxane^®).

In patients with metastatic disease, the use of erlotinib with gemcitabine led to a significantly higher one-year survival rate than with the use of gemcitabine alone (23% vs. 17%,P= 0.023) as well as an increased median overall survival (6.24 months vs. 5.91 months,P = 0.038). A more recent study showed that the addition of nanoparticle albumin-bound (nab)-paclitaxel to gemcitabine significantly improved overall survival in treatment naïve patients with metastatic cancer, as overall survival was approximately two (2) months longer in patients treated with combination therapy (8.5 vs. 6.7 months).

The Folfirinox (leucovorin + 5-fluorouracil + oxaliplatin + irinotecan) regimen was shown to significantly improve overall survival compared to treatment with gemcitabine (11.1 months vs. 6.8 months). While dramatically improving overall survival, the Folfirinox treatment was accompanied by serious adverse events and thus is only recommended for patients with good performance status.

Other combinations of gemcitabine with cisplatin, oxaliplatin, irinotecan or docetaxel tested in Phase 3 trials have not been of superior benefit to gemcitabine alone. The combination therapy nab-Paclitaxel and gemcitabine was recently approved by the FDA as an additional standard-of-care for the treatment of patients with untreated pancreatic adenocarcinoma. However, the improvements were modest, and treatment of pancreatic cancer remains an area of intense research, with 92 products in all stages of clinical development with 14 of them in Phase 3 at this time according to clinicaltrials.gov.

Just recently, the FDA approved Onivyde^® (irinotecan liposome injection) in combination with fluorouracil and leucovorin, to treat patients with metastatic pancreatic cancer who were previously treated with gemcitabine-based chemotherapy. In the pivotal clinical trial, patients treated with Onivyde^® plus fluorouracil/leucovorin lived an average of 6.1 months, compared to 4.2 months for those treated with only fluorouracil/leucovorin.

Pancreatic Cancer Market Analysis

It is estimated that every year approximately 49,000 people are diagnosed with pancreatic cancer in the United States. More than half of these patients will be diagnosed with metastatic disease. The five-year survival rates for patients with pancreatic cancer are dismal (<14%) and are particularly bad for those with metastatic disease (~1%).

The current standard-of-care for patients with metastatic pancreatic cancer includes gemcitabine combined with either erlotinib or nab-paclitaxel. Gemzar^® (gemcitabine) is now available as a generic, however prior to losing patent protection the drug generated peak revenues of approximately $700 million in the United States for Eli Lilly. Tarceva^®(erlotinib), which is approved for the treatment of metastatic non-small cell lung cancer and metastatic pancreatic cancer, is marketed by Roche and Astellas and sales of the drug generated $1.2 billion in revenue in 2015. Abraxane^® (nab-paclitaxel), which was approved for the treatment of breast cancer in 2005 and non-small cell lung cancer in 2012, was approved by the FDA in 2013 for the treatment of metastatic pancreatic cancer. Sales of Abraxane^® totaled $848 million in 2014 for all indications.

TSC in Pancreatic Cancer

We believe that targeting hypoxia in pancreatic cancer with TSC, especially in combination with standard-of-care therapies involving gemcitabine and nab-paclitaxel, may be beneficial in the treatment of pancreatic cancer. Pancreatic cancer is one of the most hypoxic malignant tumors, making it one of the most resistant tumors to therapy. Patients with advanced pancreatic cancer of exocrine origin have few therapeutic options and, for patients with advanced cancers, the overall survival rate of all stages is less than 1% at 5 years, with most patients dying within 1 year. Gemcitabine remains to-date, the backbone of treatment of pancreatic cancer.

The antitumor efficacy of gemcitabine is knownclaims to be hindered byin early-stage development of a numberproduct candidate that purportedly may operate through a similar mechanism of hypoxia-related factors including, but not limited to:

Taken together, the four factors above are believed to explain, at least in part, the limitations of gemcitabine in hypoxic conditions and the efficacy observed with the gemcitabine plus nab-paclitaxel combination regimen for the treatment of pancreatic cancer. They also suggest that correction of hypoxia with an anti-hypoxia agent such as TSC may significantly improve the efficacy of the gemcitabine plus nab-paclitaxel combination regimen for the treatment of pancreatic cancer, including for the following reasons:

Proposed Plans for TSC Phase 2 Clinical Trial in Pancreatic Cancer

The planned Phase 2 clinical trial for TSC in pancreatic cancer is based on preclinical safety and efficacy data, and findings from the Phase 1/2 clinical trial in GBM, as well as the facts noted above. Global experts in the field agree that pancreatic cancer is an appropriate target for expansion of the use of TSC, and a clinical advisory committee of these key opinion leaders has been assembled to facilitate our pancreatic cancer clinical development program. We are currently in discussions with recognized pancreatic cancer experts and the FDA regarding trial design, end-points, and patient numbers. Assuming the availability of financial resources, we anticipate beginning enrollment in this trial during 2017 and completing conduct of the study (enrollment and dosing) in 2019. Data collection, analysis and regulatory interaction are projected to occur over the following 9 to 12 months.

Brain Metastases Program

In contrast to the relative rarity of primary brain cancers, life-threatening cancers that metastasize to the brain are much more common and represent a serious complication in the treatment of many cancer types. Up to 30% of adult cancer patients will suffer from brain metastases. There are approximately 170,000 cases of metastatic brain cancer every year in the United States. Incidence of brain metastases varies depending upon the primary tumor type, although lung cancer appears to carry the greatest risk. The prognosis for patients with brain metastases is very grim, with current treatment options only resulting in median overall survival times of less than one year.

Treatment for brain metastases involves both controlling the symptoms associated with the condition as well as attacking the cancer directly. Brain metastases typically result in edema that can be controlled with the use of steroids; however, long-term use of steroids typically results in side effects that diminish a patient’s quality of life. Approximately 25-45% of patients will experience seizures and require the use of anti-epileptic drugs. Surgery is only utilized in patients with a solitary brain metastatic lesion. Radiation therapy remains the standard-of-care for the vast majority of patients with brain metastases. There is very limited evidence for the use of chemotherapy, as few clinical trials have been conducted. There are no medications currently approved for the treatment of brain metastases.

Plans for TSC Phase 2/3 Clinical Trial in Metastatic Brain Cancer

We are planning to conduct a Phase 2/3 clinical trial in metastatic brain cancer after further discussions with experts and the FDA regarding trial design, end-points, and patient numbers.

In December 2012, the FDA granted us Orphan Drug Designation for the use of TSC in brain metastases.

Description of Other Indications/Products

We have rights to and own technologies and potential products beyond those described above, including analog molecules as backupsaction to TSC. It is our strategy to focus at the current time on our TSC for oncology, specifically GBM and pancreatic cancer, as described herein. Beyond those described herein, we also intend to continue to review our technologies and potential products on a regular basis and consider internal development in the future and the potential to out-license portions of our technology and potential products to other biopharmaceutical companies with greater focus and resources than ours, or potentially in-license late stage products which are in or ready for human clinical trials.

As a result of the Merger, we acquired product candidates for ophthalmology, oncology and dermatology. One suchunclear if this Company’s product candidate is RES-529, a novel PI3K/Akt/mTOR pathway inhibitor which has completed two Phase I clinical trials for age-related macular degenerationwould, if developed and is in preclinical development in oncology, specifically GBM. The novel inhibition of the PI3K/Akt/mTOR pathway and targeting of the androgen receptor have also shown potential in a number of additional indications.

We are exploring partnering opportunities for our product candidates, such as strategic partnerships, alliances or licensing arrangements.

Competitionapproved, actually be competitive with TSC.

Our industry is highly competitive and subject to rapid and significant change. Potential competitors in the United States are numerous and include major pharmaceutical and specialty pharmaceutical companies, smaller biopharmaceutical companies, research universities, and other institutions. We generally divide ourothers. The biopharmaceutical and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the pharmaceutical industry into four categories: (1) corporationsdevelopment, patenting, manufacturing, and marketing of health care products competitive with large research and developmental departmentsthose that develop and market products in many therapeutic areas; (2) companies that have moderate research and development capabilities and focus their product strategy on a small number of therapeutic areas; (3) small companies with limited development capabilities and only a few product offerings; and (4) university and other research institutions.we are developing. Many of our competitors have longer operating histories, greater name recognition, substantially greater financial resources, and larger research and development staffs than we do, as well as substantially greater experience than us in developing products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. AIn addition, a significant amount of research is carried out at academic and government institutions. These institutions are aware of the commercial value of their findings and are aggressive in pursuing patent protection and negotiating licensing arrangements to collect royalties for use of technology that they have developed.

There are several firms currently marketing One or developingmore of these companies or other entities may have one or more products under development that maywould be competitive with our products, including therapeutics and devices. We believe TSC is a first-in-class novel small molecule that re-oxygenates hypoxic tissue, enhancing efficacy of radiation and chemotherapy without harmful side effects.TSC.

MergersSales and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel therapies that are more effective, safer or less costly than our current or future product candidates, or obtain regulatory approval for their products more rapidly than we may obtain approval for our product candidates. In addition, the first product to reach the market in a therapeutic or preventative area is often at a significant competitive advantage relative to later entrants in the market and may result in certain marketing exclusivity as per federal legislation. Acceptance by physicians and other health care providers, including managed care groups, also is critical to the success of a product versus competitor products. Our success will be based in part on our ability to identify, develop and manage a portfolio of product candidates that are safer and more effective than competing products.

Research and Product Development

We incurred approximately $7.2 million in 2016 and $3.9 million in 2015 on research and product development activities that related primarily to activities associated with the synthesis and formulations of our products then in development, additional preclinical studies and planning for Phase I/Phase II studies. We anticipate that our research and development expenses during 2017 will increase compared to 2016 and will consist primarily of expenses associated with the initiation of our glioblastoma and pancreatic cancer human clinical trials.

Intellectual Property

Our success depends and will continue to depend in part upon our ability to maintain proprietary protection for our products and technologies, to preserve our proprietary information, trademarks and trade secrets and to operate without infringing the proprietary rights of others. Our policy is to attempt to protect our technology by, among other things, filing patent applications on inventions that are important to the development and conduct of our business with the U.S. Patent and Trademark Office (“USPTO”), and its foreign counterparts or obtaining license rights for technology that we consider important to the development of our business.

As of December 31, 2016, we owned approximately 14 issued U.S. patents and 46 issued foreign patents, which include granted European, Japanese, Chinese and Indian patent rights, and over 50 pending patent applications worldwide, covering the product candidates we currently intend to develop. Our current patents expire between 2026 and 2031. TSC has been granted Orphan Drug Designation for the treatment of both GBM and metastatic brain cancer and an application is pending for pancreatic cancer. A formulation patent provides protection for the TSC oral drug product until 2031 with extensions possible.

Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.

In addition to patents, we use other forms of protection, such as trademark, copyright and trade secret protection, to protect our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable. We aim to take advantage of all of the intellectual property rights that are available to us and believe that this comprehensive approach will provide us with proprietary positions for our product candidates, where available.Marketing

We also protect our proprietary information by requiring our employees, consultants, contractorscurrently have no marketed products and, accordingly, currently have no sales or marketing personnel.

Government Regulation

Pharmaceuticals like TSC and other advisors to execute nondisclosure and assignment of invention agreements upon commencement of their respective employment or engagement. Agreements with our employees also prevent them from bringingproduct candidates we may develop are highly regulated by governmental authorities in the proprietary rights of third parties to us. In addition, we also require confidentiality or service agreements from third parties that receive our confidential information or materials.

Government Regulation

FDA Drug Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (the “FDC Act”)U.S. and other countries at the federal, state, and state statuteslocal levels. These regulations are numerous and regulations, govern,extensive in their scope, relating to, among other things, the research and development, testing, manufacture, storage, recordkeeping,quality control and testing, approval, labeling and packaging, promotion, marketing, and marketing,advertising, distribution, post-approval monitoring and reporting, samplingexport and import, and exportrecord keeping of pharmaceutical products. Failure

The FDA Drug Approval Process

Generally, before a new pharmaceutical product can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each applicable regulatory authority, submitted for review, and approved by the competent regulatory authority. In the United States, the competent regulatory authority is the FDA, which, pursuant to the FDC Act, is responsible for the review and approval of all data required to support a license to commercially market pharmaceuticals such as TSC.

The process of obtaining regulatory approvals and the subsequent compliance with FDA regulations requires the expenditure of substantial time and financial resources and failure to comply with the applicable U.S. requirements at any time during the product development process, approval process, or, if approved, following approval may subject a companyan applicant to a variety of administrative or judicial sanctions. These sanctions such as FDAcould include, among other actions, the FDA’s refusal to approve pending new drug applications, (“NDAs”),withdrawal of an approval, license revocation, a clinical hold, untitled or warning letters, voluntary or untitled letters,mandatory product recalls, market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties, and criminal prosecution.any of which could have a material adverse effect on our business, financial position, or results of operations.

Pharmaceutical product development for a new product or certain changes to an approved product inProcess Overview

The FDA drug approval process generally involves the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drugfollowing steps:

The preclinical and clinical testing may commence, and adequateapproval process requires substantial time, effort, and well-controlled clinical trials to establish the safetyfinancial resources and effectiveness of the drug for each indication for which FDA approval is sought. Satisfactionsatisfaction of FDA pre-market approval requirements typically takes many years, andthough the actual time required may vary substantially based upon the type, complexity, and novelty of the applicable product or disease.indication to be treated. We cannot be certain that any approvals for TSC or any product candidates we attempt to develop in the future will be granted on a timely basis or at all.

Preclinical testsStudies

Preclinical studies include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices.drug. The results of preclinical testing are submitted to the FDA as part of an IND along with other information related to the drug, including information about product chemistry,regarding its chemical make-up, manufacturing process, and quality controls, andas well as a proposed clinical trial protocol. Long termLong-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

Clinical Trials

AFollowing completion of preclinical studies and the submission on an IND to the FDA, a 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans.required. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

Clinical trials involve the administration of thean investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. ClinicalThese trials must be conducted: (1)conducted in compliance with federal regulations; (2) in compliance with good clinical practice (“regulations as well as GCP,”) an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; and (3)monitors. Each trial is conducted under protocolsa protocol detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board (“IRB”) for approval at each site at which the clinical trial will be conducted. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap, especially in cancer indications.certain indications such as cancer.

Not all drug development programs are required to follow the order and content of all three phases. For example, in August 2018, the FDA released a draft guidance entitled “Expansion Cohorts: Use in First-In-Human Clinical Trials to Expedite Development of Oncology Drugs and Biologics,” which outlines how drug developers can utilize an adaptive trial design commonly referred to as a seamless trial design in early stages of oncology drug development, i.e., the first-in-human clinical trial, to compress the traditional three phases of trials into one continuous trial called an expansion cohort trial. Information to support the design of individual expansion cohorts is included in IND applications and assessed by FDA. Expansion cohort trials can potentially bring efficiency to drug development and reduce developmental costs and time.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators 15 calendar days after the trial sponsor determines the information qualifies for reporting for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction as soon as possible but in no case later than seven calendar days after the sponsor’s initial receipt of the information.

Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2, usually involves trials in a limited patient population to determine metabolism, pharmacokinetics, the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3, and other types of clinical trials are undertaken to obtainmay not be completed successfully within any specified period, if at all. The FDA or the additional information about clinical efficacy and safety insponsor may suspend or terminate a larger number of patients, typically at geographically dispersed clinical trial sites,at any time on various grounds, including a finding that the patients are being exposed to permit thean unacceptable health risk.

New Drug Application and FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases the FDA requires two adequate and well-controlled Phase 3 clinical trials with statistically significant results to demonstrate the efficacy of the drug. With suitable FDA agreement, a single Phase 3 clinical trial with other confirmatory evidence may be sufficient. In those instances, the study is usually a large multicenter trial demonstrating internal consistency and a statistically persuasive finding of an effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.Review Process

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA.FDA containing data intended to provide substantial evidence that the drug is safe and effective in the relevant indication, and FDA approval of the NDA is required before commercial marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacturemanufacturing, and controls. The cost of preparing and submitting an NDA is substantial. Thesubstantial, and the submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and sponsor under an approved new drug application are also subject to annual productsubstantial initial and establishment userongoing fees. These fees are typically increased annually.

The FDA has sixty (60)60 days from its receipt of an NDA to determine whether the applicationNDA will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreedreview subject to certain performance goals inagreed upon by the review of new drug applications.FDA. Priority review can be applied in certain instances, including with respect to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. For certain drugs, priority review is further limited only for drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The review process, for bothwhether standard andor priority, review may be extended by the FDA for three (3) additional months to consider certain late-submitted information or information intended to clarify information already provided in the submission.

The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured.manufactured to confirm compliance with cGMP. The FDA will not approvemay also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee. This advisory committee is typically a panel that includes clinicians and other experts in the product unless compliance with current good manufacturing practice (“cGMP”) is satisfactoryrelevant indication or subject matter who review and evaluate the NDA contains data thatand provide substantial evidence thata recommendation to the drugFDA as to whether the application should be approved. The FDA is safe and effective innot bound by the indication studied.recommendation of an advisory committee, but it generally follows such recommendations.

After the FDA evaluates the NDA, andthe clinical sites, the manufacturing facilities, and, as needed, receives a recommendation from the advisory committee, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two orto six (6) months depending on the type of new information included.

FDA Approval Letter

An FDA approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (“REMS”) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals and elements to assure safe use (“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy.efficacy including, in certain cases, REMS as described in more detail under the heading “—Certain Other FDA Regulations – Risk Evaluation and Mitigation Strategies.” Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

ChangesFurther, changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the samesimilar procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

The Hatch-Waxman ActAmendments

The Drug Price Competition and Patent Term Restoration Act, commonly referred to as the Hatch-Waxman Amendments, is a 1984 U.S. federal law which established the modern system of generic drug regulation in the U.S. The Hatch-Waxman Amendments were enacted to encourage the manufacture of generic drugs by outlining the process for generic pharmaceutical manufacturers to file an abbreviated new drug application and to provide certain related protections to drug development innovators, namely a new kind of market exclusivity period and the ability to potentially extend patent life by a portion of the time a drug is under regulatory review by the FDA.

Orange Book Listing and Abbreviated New Drug Applications

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application (“ANDA”). ANDA.

An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.

TheAn ANDA applicant is required to certifymake certain certifications to the FDA concerning any such patents listed in the Orange Book for the approved product inreference drug intended to confirm that the FDA’s Orange Book. Specifically, the applicant must certify that: (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid orproposed generic equivalent will not be infringed byinfringe on any intellectual property related to the new product.reference drug, commonly referred to as a Paragraph IV certification. The ANDA applicant may also electprocess gives the owner of the reference drug an opportunity to submitassert a section viii statement certifying thatpatent infringement claim if it believes its proposed ANDA label does not contain (or carves out) any language regardingintellectual property rights are being infringed upon following the patented method-of-use rather than certify tosubmission of a listed method-of-use patent. If the applicant does not challenge the listed patents, theParagraph IV certification.

An ANDA will not be approved until all the listed patents claiming the referenced product have expired.

A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then commence a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within forty-five (45) days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of thirty (30) months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

The ANDA also will not be approved until any applicable non-patent exclusivity periods listed in the Orange Book for the referenced product hasreference drug have expired.

Patent Term Restoration and Marketing Exclusivity

UponCertain of our current and future product candidates, including TSC, may be eligible for patent term restoration and marketing exclusivity under the Hatch-Waxman Amendment.

The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. Patent term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally 50% of the amount of time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for such an extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.

Marketing exclusivity provisions under the FDC Act can also delay the submission or the approval of certain marketing applications. The FDC Act provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example investigations related to new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. The FDC Act also provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity, (“NCE”)meaning the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance.

During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. Three-year and five-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.

Certain Other FDA Regulations

The Orphan Drug Act of 1983

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug product intended to treat a rare disease or condition, which is generally a disease or condition that containsaffects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no active moietyreasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product. Our lead product candidate, TSC, has been approvedgranted Orphan Drug designations by the FDA for the treatment of both GBM and metastatic brain cancer.

Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. For example, we previously announced that TSC was granted orphan drug designation by the FDA for the treatment of GBM and metastatic brain cancer in July 2011 and in December 2012, respectively. However, orphan drug designation on its own does not convey any advantage in or shorten the duration of the regulatory review and approval process but may result in certain financial and marketing incentives if approved.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other NDA, thatapplications to market the same drug receives fivefor the same indication for seven years from the date of marketingsuch approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity during whichby means of greater effectiveness, greater safety, or providing a major contribution to patient care, or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication. In the latter case, because health care professionals are free to prescribe products for off-label uses, the competitor’s product could be used for the orphan indication despite our orphan exclusivity. Orphan drug exclusivity could also block the approval of one of our products for seven years if a competitor obtains approval before we do for the same drug and same indication, as defined by the FDA, cannot receive any ANDAfor which we are seeking approval, or if our product is determined to be contained within the scope of a generic version of that drug. Certain changes to athe competitor’s product for the same indication or disease. If we pursue marketing approval for an indication broader than the orphan drug such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA for a generic drug that includes the change.

An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, theredesignation we have received, we may not be a Paragraph IV certificationentitled to orphan drug exclusivity. Orphan drug status in the E.U. has similar, but not identical, requirements and thus, no ANDA may be filed before the expiration of the exclusivity period.benefits.

REMSExpedited Development and Review Programs

The FDA has a fast track program that is intended to expedite or facilitate the authorityprocess for reviewing new drugs that meet certain criteria. Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor can request the FDA to designate the product for fast track status any time before receiving NDA approval, but ideally no later than the pre-NDA meeting. Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review.

A product may also be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than IMM that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product. If the FDA determines that the conditions of approval are not being met, the FDA can withdraw its accelerated approval for such drug.

Additionally, a drug may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to ensure an efficient drug development program.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or the time period for FDA review or approval may not be shortened. Furthermore, fast track designation, priority review, accelerated approval, and breakthrough therapy designation do not change the standards for approval, but may expedite the development or approval process.

Rare Pediatric Disease Priority Review Voucher Program

In 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications. This program is designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval.

For purposes of this program, a “rare pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents; and (b) a rare disease or condition within the meaning of the Orphan Drug Act. On December 27, 2020, the Rare Pediatric Disease Priority Review Voucher Program was extended. Under the current statutory sunset provisions, after September 30, 2024, FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30, 2026, FDA may not award any Rare Pediatric Disease Priority Review Voucher.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products are required to register and disclose to the public certain clinical trial information, including information related to the product, patient population, phase of investigation, study sites, investigators, and other aspects of the trial design. Sponsors are also obligated to discuss the results of their clinical trials after completion. However, disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved as competitors may otherwise use this or other publicly-available information to gain knowledge regarding the progress of development programs and gain a competitive advantage.

Risk Evaluation and Mitigation Strategies and Other Post-Approval Requirements

As a condition of NDA approval, the FDA may require a REMS to help ensure that the safe usebenefits of the drug.drug’s continued approval outweigh the potential risks. In determining whether a REMS is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate healthcare providers of the drug’s risks, limitations on who may prescribe or dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug. REMS can include medication guides, communication plans for healthcare professionals, and ETASU. ETASUelements to assure safe use. Elements to assure safe use can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring requirements, and the use of patient registries. In addition, the REMS must include a timetable to periodically assess the strategy. The FDA may also impose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that a REMS is necessary to ensure that the drug’s benefits outweigh its risks. The requirement for a REMS can materially affect the potential market and profitability of a drug.drug product.

Patent Term Extension

After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase, the time between IND application and NDA submission, and all of the review phase, the time between NDA submission and approval, up to a maximum of five years. The time can be shortenedEven if the FDA determines that the applicant diddoes not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for whichrequire a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.

Post-Approval Requirements

OnceREMS, once an NDA is approved, a product will be subject to certain post-approval requirements.regulations. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

Adverse event reporting and the submission of periodic reports isare also required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

Pediatric Information

Under the Pediatric Research Equity Act, NDAs or supplements to NDAs must contain data to assess the safetyDrug Approval Process and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data.

The Best Pharmaceuticals for Children Act (“BPCA”) provides NDA holders a six-month extension of any exclusivity, patent or non-patent, for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

The Orphan Drug Act of 1983

The Orphan Drug Act of 1983 was designed to provide financial incentives for, and to reduce the costs associated with, developing drugs for rare diseases and disorders. A “rare disease or disorder” is defined by the Orphan Drug Act of 1983 as affecting fewer than 200,000 Americans at the time of designation or one for which “there is no reasonable expectation that the cost of developing and making available in the United States…will be recovered from sales in the United States.” A sponsor must request that the FDA designate a drug currently under development for a “rare disease or condition” as an orphan drug, and if the FDA agrees that the drug and indication meet the criteria set forth in the Orphan Drug Act of 1983, certain financial and marketing incentives become available. As mentioned previously, we have received Orphan Drug designations for GBM and metastatic brain cancer.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.

RegulationOther Regulations Outside of the United StatesU.S.

In addition to regulations in the United States,U.S., we are and will be subject to the regulations of other countries governingin which we conduct any of our clinical trials andor engage in commercial sales andor other distribution of our product candidates.products, if approved. Whether or not we obtain FDA approval for conduct of a clinical trial or distribution of a product, we must obtain approval byfrom the comparablecompetent regulatory authority of any country or economic area in which we would seek to commence a clinical trial or market products. For example, conduct of the COVID Trial in Bucharest, Romania, required certain approvals from regulatory authorities of countries outside ofin Romania and the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas.E.U. Certain countries outside of the United States have a process similar to the FDA’s thatIND process which requires the submission of a clinical trial application (“CTA”) much like the IND prior to the commencement of human clinical trials. In the European Union,E.U., for example, a CTA must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA andwhich operates similar to an IRB respectively.under U.S. regulations. Once the CTA is approved in accordance with a country’s requirements, the clinical trial development may proceed.proceed in the applicable country. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under European Union regulatory systems,In particular, in the E.U. a company may submit marketing authorization applications (comparable to an NDA submission in the US to the FDA) under either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders, or diabetes and is optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European UnionE.U. member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this decentralized procedure, the holder of a national marketing authorization in any E.U. member state may submit an application to the remaining member states. Within ninety (90) days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

Anti-Kickback and False Claims Laws

In addition The E.U. also has procedures similar to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry. These laws include, among others, anti-kickback statutes, false claims statutes and other statutes pertaining to healthcare fraud and abuse. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the Affordable Care Act amended the intent elementthose of the federal anti-kickback statute so thatFDA pursuant to which a person company may obtain marketing exclusivity for a product for up to 11 years and/or entity no longer needsorphan drug designation and related exclusivity for up to have actual knowledge of the statute or specific intent to violate it. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.

Federal false claims laws prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid,ten years, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly inflating drug prices they reportexpedited approval pathways available to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate federal false claims laws. Additionally, Affordable Care Act amended the federal healthcare program anti-kickback statute such that a violation of that statute can serve as a basis for liability under certain federal false claims laws.drugs.

The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer or payor knows or should know is likely to influence the beneficiary to order or receive a reimbursable item or service from a particular supplier, and the healthcare fraud and false statements statutes, which prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations, or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items, or services.

Violations of these federal healthcare fraud and abuse laws are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs.

It is uncertain whether there will be any legislation that will replace or amend the Affordable Care Act. In addition, the Trump Administration has and will appoint many new secretaries, directors and the like into positions of authority in the U.S. Federal government dealing with the pharmaceutical and healthcare industries that may potentially have a negative impact on the prices and regulatory pathways for certain pharmaceuticals and healthcare products developed by the Company to market and sell its products in the U.S.

Other Federal and State Regulatory Requirements

The Centers for Medicare & Medicaid Services (“CMS”) has issued a final rule pursuant to Affordable Care Act that requires certain manufacturers of prescription drugs to annually collect and report information on payments or transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Manufacturers were required to begin collecting information on August 1, 2013, with the first reports due March 31, 2014. The reported data is posted in searchable form on a public website. Failure to submit required information may result in civil monetary penalties.

In addition, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners and entities in these states. Other states prohibit various other marketing-related activities. Still other states require the posting of information relating to clinical studies and their outcomes. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies to implement compliance programs and marketing codes. Several additional states are considering similar proposals. Some of the state laws are broader in scope than federal laws. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.

Reimbursement

Sales of any of our product candidates that are approved will depend, in part, on the extent to which the costs of our approved products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our expected net revenue and results. If any of our products are approved and these third-party payors do not consider our approved products to be cost-effective compared to other therapies, they may not cover our approved products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our approved products on a profitable basis.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our approved products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to the U.S. Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any approved product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider our approved products to be cost-effective compared to other available therapies, they may not cover our approved products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our approved products on a profitable basis.

The Affordable Care Act was enacted in March 2010, which includes measures to significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the Affordable Care Act of importance to the pharmaceutical and biotechnology industry are the following:

In addition, in some non-U.S. jurisdictions, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European UnionE.U. provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates launched in the European UnionE.U. do not follow price structures of the United StatesU.S. and generally tend to be significantly lower.

It is uncertain whether thereCertain Other Legislation and Regulations

Current Healthcare Laws and Regulations

Healthcare providers, physicians, and third party payors, including governmental payors such as Medicare and Medicaid, will beplay a significant role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with third party payors, healthcare providers, and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell, and distribute any drugs for which we obtain marketing approval.

These laws include, without limitation, state and federal anti-kickback, false claims, physician transparency, and patient data privacy and security laws and regulations, and other federal, state, and local regulations and legislation that will replace or amendimpacting the Affordable Care Act.pharmaceutical and biopharmaceutical industries, including but not limited to those described below.

21^st Century Cures Act

The 21st Century Cures Act,scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions, and settlements in the U.S. Househealthcare industry. If our operations are found to be in violation of Representatives passed in July 2015any of these laws or any other related governmental regulations that may apply to us, we may be subject to significant civil, criminal, and President Obama signed into law in December 2016, provides for a wide rangeadministrative penalties, damages, fines, imprisonment, disgorgement, exclusion of reforms,drugs from government funded healthcare programs, such as broadeningMedicare and Medicaid, reputational harm, additional oversight, and reporting obligations if we become subject to a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with these laws and the typescurtailment or restructuring of data required to support drug approval, extending protections from genetic competition, accelerating approval of breakthrough therapies, expanding the orphan drug product program, and clarifying how manufacturers communicate about their products.our operations.

ManufacturingFuture Healthcare Laws and SupplyRegulations

We do notIn the United States and foreign jurisdictions, there have any facilities suitable for manufacturing onbeen a commercial scale anynumber of proposed changes regarding the healthcare system and its regulation that could prevent or delay marketing approval of our product candidates, nor do we haverestrict or regulate post-approval activities, and affect our ability to profitably sell any experience in volume manufacturing. We currently use third-party cGMP contract manufacturing organizations (“CMOs”) to manufacture our product candidates for our preclinical studies and clinical trials and intend to continue doing so in the future in accordance with FDA and other appropriate regulations. We anticipate that these CMOs will have capacity to support commercial scale, but we do not have any formal agreements at this time with any of these CMOs to cover commercial production. We also may elect to pursue other CMOs for manufacturing supplies for later-stage trials and for commercialization. We currently have no plans to establish a manufacturing capability, but rather plan to continue to rely on third-party cGMP manufacturers for any future trials and commercialization of our product candidates for which we retain manufacturing responsibility.obtain marketing approval. We expect that further implementation of 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, or any strategic collaborators, may receive for any approved products. Further, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

SalesU.S. Environmental, Health, and MarketingSafety Laws

We currently have no salesare subject to numerous environmental, health, and marketing personnelsafety laws and regulations. From time to sell anytime and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our product candidates on a commercial basis ifhazardous materials, we could be held liable for any resulting damages, and whenany liability could exceed our product candidates received required regulatory approvals. Ifresources. We also could incur significant costs associated with civil or criminal fines and whenpenalties for failure to comply with such laws and regulations.

In addition, we are readymay incur substantial costs in order to commercially launch a product, we will either contractcomply with current or hire qualified salesfuture environmental, health, and marketing personnelsafety laws and regulations. Current or seek a joint marketing partnerfuture environmental laws and regulations may impair our research, development or licenseeproduction efforts. In addition, failure to assist uscomply with this function.these laws and regulations may result in substantial fines, penalties or other sanctions.

EmployeesPublic Company Status

As a public company, we incur significant legal, accounting and other expenses to comply with the reporting requirements of the Exchange Act and applicable requirements of SOX and the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and Nasdaq, including the establishment and maintenance of effective disclosure and financial controls, changes in corporate governance practices and required filing of annual, quarterly and current reports with respect to our business and operating results. These requirements increase our legal and financial compliance costs and make some activities more time-consuming and costly. In addition, our management and other personnel devote significant time and attention to these public company requirements.

Our People and Human Capital Resources

As of December 31, 2016,2021, we had 1016 full-time employees, including 4 in product development and 6 in management or administrative positions.up from 12 employees as of December 31, 2020. We also have engagedregularly work with several independent consultants and other contract organizations to support our organization.business and we regularly evaluate additional talent to help support our product manufacturing, development, financial, and other capabilities.

Diversity and Inclusion

We believe that an inclusive culture is required to understand and develop products that benefit all patients. By embracing differences, we aim to foster an environment of respect and trust in an effort to facilitate creativity, spark passion, and help us achieve better outcomes for all those who work at and with Diffusion. We are committed to creating and maintaining a workplace free from discrimination or harassment, including on the basis of any class protected by applicable law, and our recruitment, hiring, development, training, compensation, and advancement practices are based on qualifications, performance, skills, and experience without regard to gender, race, or ethnicity. Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace, including adhering to the standards for appropriate behavior set forth in our code of conduct.

Compensation and Benefits

We operate in a highly competitive environment for human capital, particularly as we seek to attract and retain talent with relevant experience in the biotechnology and pharmaceutical sectors. Therefore, we strive to provide a total rewards package to our employees that is competitive with our peer companies, including competitive pay, a comprehensive healthcare benefits package (including an 80% employer contribution to family medical coverage), 25 days of paid leave, a company-sponsored 401(k) savings plan, short-term and long-term disability, and other benefits, as well as remote working and flexible work schedules. We also offer every full-time employee the benefit of equity ownership in Diffusion through stock option grants. We believe these grants both help promote alignment between our employees and our stockholders and provide retention benefits, as the awards generally vest over a three-year period.

We do not have any employees that are represented by a labor union or that have entered into a collective bargaining agreement with the Company.

Safety and Wellness

At Diffusion, we believe that health matters to everyone, and the safety health, and wellness of our employees is one of our top priorities. We are committed to developing and fostering a work environment that is safe, professional, and promotes teamwork, diversity, and trust in order to afford all of our employees the opportunity to contribute to the best of their abilities.

Over the past two years, in response to the COVID-19 pandemic, we have taken certain measures and responded to changes in our operational needs, including actions designed to provide a safe work environment for our employees. These actions included investing in technology solutions to support increased work-from-home capabilities, shifting work schedules to reduce the number of people present in our offices, requiring mask wearing and social distancing, making hand sanitizer readily available, and other measures intended to comply with health and safety protocols as required by federal, state, and local governmental agencies, as well as guidance from the U.S. Centers for Disease Control and Prevention and similar public health authorities.

Employee Development and Training

We believe our people are among our most important assets. We focus on attracting, retaining, and cultivating talented individuals and believe in investing in our people to help them grow. Employees are encouraged to attend scientific, clinical, technological, and other relevant meetings and conferences and we strive to provide employees access to a broad set of internal resources intended to help them be successful, including a variety of training and educational materials. During 2021, we intend to implement a new, comprehensive employee evaluation program tied to the achievement of individual, team, and company goals to help further support, retain, and develop our people and further promote alignment of interests between our employees, future target customers, and our stockholders.

Directors and Executive Officers

The table below setsinformation set forth asin "Part III — Item 10 — Directors, Officers, and Corporate Governance," of March 15, 2017, certain information concerning our current directors and executive officers. No family relationships exist among any of our directors or executive officers.

this Annual Report is incorporated herein by reference.

The following is a biographical summary of the experience of our directors and executive officers:Other Information About Our Company

David G. Kalergis – Mr. Kalergis has served as our Chairman of the Board and Chief Executive Officer since the completion of the Merger in January 2016. Mr. Kalergis, along with Dr. Gainer is the Company’s co-founder and has served as a director of Diffusion LLC since its inception in 2001 and as its Chief Executive Officer since 2004. Prior to joining the Company, Mr. Kalergis held positions with the University of Virginia; as the general counsel and director of business development for Pharmaceutical Research Associates, Inc., a pharmaceutical contract research organization; as an intelligence analyst for the U.S. Government; and with the law firm Dewey, Ballantine, Bushby, Palmer & Wood, practicing in the areas of corporate finance, public offerings and mergers and acquisitions. In addition, from July 1998 until May 2012, Mr. Kalergis served on the board of directors and audit committee of Virginia National Bank. Mr. Kalergis received a B.A. in psychology, as well as an M.B.A. and J.D., from the University of Virginia, and is a graduate of the Harvard Business School’s Leadership and Strategy in the Pharmaceutical and Biotechnology Industry program.

John L. Gainer, Ph.D. – Dr. Gainer has served as a director and as our Chief Scientific Officer since the completion of the Merger in January 2016. Dr. Gainer, along with Mr. Kalergis, is the Company’s co-founder and has served as one of Diffusions LLC’s directors and as its Chief Scientific Officer since its inception in 2001. From 1966 until his retirement in 2005, Dr. Gainer was a professor of chemical engineering at the University of Virginia. During his career, Dr. Gainer authored more than 100 scientific journal articles, including more than 30 published in medical journals, and spent two sabbaticals investigating drug actions and related research at Karolinska Institute in Stockholm and the laboratory of a major pharmaceutical company. He has been a member of the International Society for Oxygen Transport in Tissues since its inception in 1973. Dr. Gainer received a BSChE from West Virginia University, a MS in chemical engineering from the Massachusetts Institute of Technology, and a Ph.D. in chemical engineering from the University of Delaware.

David R. Jones, M.D. – Dr. Jones serves as our Chief Medical Officer. Dr. Jones was appointed Chief Medical Officer in connection with the completion of the Merger, and has served as Diffusion LLC’s Chief Medical Officer since September 2012. In addition to serving as the Company’s Chief Medical Officer, Dr. Jones is also the Fiona and Stanley Druckenmiller Endowed Professor for Lung Cancer Research and Chief of Thoracic Surgery at Memorial Sloan-Kettering Cancer Center in New York, NY, a position he has held since 2013. From 2007 to 2013, Dr. Jones was Professor of Surgery and Division Chief of Thoracic & Cardiovascular Surgery at the University of Virginia. In addition to his clinical practice, Dr. Jones has published more than 220 scientific articles, authored or co-authored over 35 book chapters, and served as Principal Investigator or Co-Investigator of over 30 clinical trials. Dr. Jones received an undergraduate degree in chemistry and an M.D. from West Virginia University, and completed his thoracic surgery residency and postdoctoral research fellowship in molecular oncology at the University of North Carolina - Chapel Hill.

Ben L. Shealy – Mr. Shealy serves as our Senior Vice President – Finance and Treasurer. Mr. Shealy was appointed Senior Vice President – Finance and Treasurer in connection with the completion of the Merger. Mr. Shealy has served as Diffusion LLC’s Senior Vice President – Finance and Treasurer, since December 2015, and prior to that had served as Diffusion LLC’s Chief Financial Officer since 2004. Prior to joining the Company, Mr. Shealy spent more than 20 years in the financial management industry focusing on private and public corporate financings, including serving as the Vice President of REBAR Inc. and positions with Donaldson, Lufkin & Jenrette, Prudential-Bache Capital Funding and the John Hancock Derivatives Group. Mr. Shealy received a B.S. in accounting from San Jose State University, an M.B.A. in finance from Columbia University and is a CFA Charter holder.

Thomas Byrne– Mr. Byrne was appointed as our General Counsel in connection with the completion of the Merger. Mr. Byrne served as a director of Diffusion LLC from 2001 to January 2016, as a director of the Company from January 2016 until April 2016 and has served as Diffusion LLC’s Secretary and Director of Patent Strategy since 2007. Prior to joining Diffusion LLC, Mr. Byrne served in in-house counsel positions at both Genentech Inc. and Amgen Inc., where he co-invented the erythropoiesis stimulating agent darbepoietin alpha (Aranesp®). From 1992 to 2000, he was a partner in the intellectual property law firm of Nixon and Vanderhye P.C. Mr. Byrne also currently acts as a consultant for start-up biotechnology companies on intellectual property, contract and business issues. He received a B.S. in chemical engineering and nuclear engineering, as well as a J.D., from the University of Virginia, and an M.S. in biochemical engineering from Yale University.

Isaac Blech –Mr. Blech has served as a director since August 2016. Mr. Blech’s current roles include serving as vice chairman of the board of directors of Edge Therapeutics, Inc., a clinical-stage biotechnology company, founder and director of Cerecor, Inc., a CNS company, director of ContraFect Corporation, an infectious disease company, director of Medgenics, Inc., a biotechnology company, and vice chairman of InspireMD, a stent company. He is vice chairman of the boards of directors of Centrexion Corporation, a private company which is developing new modalities of pain control, Regenovation, Inc., a private company developing new ways to regenerate human tissue, X4 Pharmaceuticals, a private cancer immunology company, Sapience Therapeutics, a private oncology company, Aridis Pharmaceuticals, a private company with a product to treat pneumonia, WaveGuide Corporation, a private company developing the world’s smallest NMR machine, SpendSmart Networks, Inc., a private electronic rewards company, and root9B Technologies, a private cyber security company. Over the past 35 years, Mr. Blech has founded and served on the boards of directors of companies which have produced major advances in a broad array of diseases, including the diagnosis of chlamydia, herpes, syphilis and HIV and the treatment of cystic fibrosis, sexual dysfunction, multiple myeloma and brain cancer. Mr. Blech was previously a member of the board of directors of the Company prior to the Merger.

Robert Adams – Mr. Adams has served as a director since the completion of the Merger in January 2016 and as a director of Diffusion LLC since 2002. Prior to his retirement in 2015, Mr. Adams was a partner in the intellectual property law firm of Nixon & Vanderhye P.C, where he had practiced for over 25 years, focusing on patent litigation and international patent licensing and negotiations. During that time period, Mr. Adams was lead litigation counsel in more than 50 major intellectual property lawsuits, where he directly handled, for example, all intellectual property valuations and settlements on behalf of his U.S. and foreign clients. Moreover, Mr. Adams served as the head negotiator for a well-known Japanese consumer products company for 15 years in various complicated licensing situations. Those negotiations typically involved the cross-licensing of up to hundreds of U.S. and foreign patent rights. His lead licensing activities on behalf of that client included, among other things, multi-year negotiations with Texas Instruments, Advanced Micro Devices and Freescale. Mr. Adams received a B.A. from the University of Maryland and a J.D. from George Washington University (with honors), and is a member of the Virginia State Bar.

Mark T. Giles – Mr. Giles has served as a director since the completion of the Merger in January 2016 and as a director of Diffusion LLC since 2008. Since July 2007, Mr. Giles has been the sole managing member of Panda Holdings, LLC, which engages in the investment and management of private capital. Prior to joining Panda Holdings, Mr. Giles served as the Chief Executive Officer of Virginia National Bank from July 1998 until June 2007 and thereafter continued to serve as the non-executive Chairman until December 2011. Prior to joining Virginia National Bank, Mr. Giles also served as the president of two publicly traded bank holding companies and subsidiary banks in Texas and practiced law with the banking group of a Houston law firm. He chairs the boards of Relay Foods, Inc. and Expedition Trust Company. He also serves on the boards of The Paramount Theater Foundation, The Paramount Theater Operating Company and the Computers4Kids Program. Mr. Giles received a B.S. from the McIntire School of Commerce at the University of Virginia and a J.D. from the University of Virginia School of Law.

Alan Levin – Mr. Levin has served as a director since the completion of the Merger in January 2016 and as a director of Diffusion LLC since June 2015. He previously served as Executive Vice President and Chief Financial Officer of Endo Health Solutions Inc. (“Endo”), a global specialty healthcare company, from June 2009 until his retirement in September 2013. Prior to joining Endo, Mr. Levin worked with Texas Pacific Group, a leading private equity firm, and one of their start-up investments. Before that, he was Senior Vice President & Chief Financial Officer of Pfizer, Inc. where he worked for 20 years in a variety of executive positions of increasing responsibility, including Treasurer and Senior Vice President of Finance & Strategic Management for the company’s research and development organization. Mr. Levin received a bachelor’s degree from Princeton University and a master’s degree from New York University’s Stern School of Business. Mr. Levin is a certified public accountant. He is a member of the board of directors of Aceto Corp, a NASDAQ-traded company specialized in generics and pharmaceutical intermediate products. He is also a member of the Advisory Board of Auven Therapeutics, a private equity fund; and the Critical Path Institute, a nonprofit collaboration between the Food and Drug Administration and pharmaceutical industry participants focused on streamlining and accelerating the development and regulatory pathways for innovative medicines.

Corporate Information and History

We were originally incorporated under the laws of the State of Nevada on January 10, 1995 and reincorporated under the laws of the State of Delaware on June 18, 2015 under the name, “RestorGenex Corporation.” On January 8, 2016, we completed the merger of our wholly owned subsidiary with and into Diffusion LLC, which was treated as a "reverse acquisition" under GAAP pursuant to which Diffusion LLC's historical results of operations replaced the Company's for all periods prior to the merger. Immediately following the closing of the merger, we changed our name from "RestorGenex Corporation" to "Diffusion Pharmaceuticals Inc."

On May 6, 2021, we received a written notice from the Nasdaq Staff indicating that we were not in compliance with the Bid Price Rule because the bid price for our common stock had closed below $1.00 per share for the previous 30 consecutive business days. On November 3, 2021, after failing to regain compliance with the Bid Price Rule within 180 days of our receipt of the first notice, we received an additional notice from the Staff providing that, although the Company had not regained compliance with the Bid Price Rule by the previously stated deadline, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company would be granted an additional 180 calendar days, or until May 2, 2022, to regain compliance with the Bid Price Rule. As part of our efforts to regain compliance with the Bid Price Rule, on February 28, 2022, we filed a definitive proxy statement related to a special meeting of our stockholders scheduled for Thursday, April 14, 2022 at which our stockholders will vote upon proposal, approved and recommended for stockholder approval by the Board, to amend our Certificate of Incorporation to effect a reverse stock split of our outstanding shares of common stock by a ratio of any whole number between 1-for-2 and 1-for-50 at any time prior to December 31, 2022, the timing and implementation of which will be subject to the discretion of the Board. To regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days.

Our principal corporate headquarters areoffice is located at 2020 Avon Court, #4,300 East Main Street, Suite 201, Charlottesville, Virginia 22902, and our telephone number is (434) 220-0718,220-0718. Our website, www.diffusionpharma.com, including the Investor Relations section, investors.diffusionpharma.com, and our Internet web site addresssocial media channels – Facebook (www.facebook.com/diffusionpharmaceuticalsinc/), Twitter (www.twitter.com/diffusionpharma) and LinkedIn (https://www.linkedin.com/company/diffusion-pharmaceuticals/) -- contain a significant amount of information about the Company. We encourage investors to visit these websites and social media channels as information is www.diffusionpharma.com. Thefrequently updated and new information containedis shared. However, the information included on our web site or connected towebsite and available through our web sitesocial media channels is not incorporated by reference into, and should not be considered part of, this annual report on Form 10-K.Annual Report or any other filings we make with the SEC.

Merger with RestorGenex

On January 8, 2016, we completed the Merger with Diffusion LLC in accordance with the terms of the Merger Agreement. As a result of the Merger, Diffusion LLC, the surviving company in the Merger, became a wholly owned subsidiary of the Company.

At the effective time of the Merger (the “Effective Time”), each outstanding unit of membership interest of Diffusion LLC (the “Diffusion Units”) was converted into the right to receive 0.3652658 shares of our common stock, as determined pursuant to the Merger Agreement (the “Exchange Ratio”). Also at the Effective Time, the rights of the holders of each outstanding convertible promissory note convertible into Diffusion Units (the “Diffusion Convertible Notes”) to convert such Diffusion Convertible Notes into Diffusion Units was converted into the right to convert such securities into a number of shares of common stock equal to the number of Diffusion Units such Diffusion Convertible Note would be convertible into pursuant to its terms multiplied by the Exchange Ratio. In addition, at the Effective Time and as a result of the Merger, all outstanding options to purchase Diffusion Units were converted into and became options to purchase common stock on terms substantially identical to those in effect prior to the Effective Time, except for adjustments to the underlying number of shares and the exercise price based on the Exchange Ratio.

Immediately following the Merger, the former equity holders of Diffusion LLC owned approximately 84.1% of the Company’s common stock, and the stockholders of RestorGenex immediately prior to the Merger owned approximately 15.9% of the Company’s common stock, in each case, on a fully-diluted basis (subject to certain exceptions and adjustments) and calculated in accordance with the terms of the Merger Agreement. Also in connection with the Merger, the pre-Merger directors and officers of the Company tendered their resignations and the pre-Merger directors and officers of Diffusion LLC were appointed as the new directors and officers of the Company. Following the completion of the Merger, the Company changed its corporate name from “RestorGenex Corporation” to “Diffusion Pharmaceuticals Inc.” and changed the trading symbol of the Company’s common stock from “RESX” to “DFFN.” In November 2016, our common stock was approved for listing on the NASDAQ Capital Market and will continue to trade under the ticker symbol “DFFN.”

For accounting purposes, the Merger is treated as a “reverse acquisition” under generally acceptable accounting principles in the United States (“U.S. GAAP”) and Diffusion LLC is considered the accounting acquirer. Accordingly, Diffusion LLC’s historical results of operations have replaced the Company’s historical results of operations for all periods prior to the Merger.

Reverse Stock Split

On August 17, 2016, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-to-10 reverse stock split (the “Reverse Stock Split”) of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would have been entitled to receive fractional shares of common stock had their holdings rounded up to the next whole share. Proportional adjustments were made to the Company’s outstanding warrants, stock options and other equity securities and to the Company’s 2015 Equity Incentive Plan, as amended, to reflect the Reverse Stock Split, in each case, in accordance with the terms thereof. Unless the context otherwise requires, all share and per share amounts in this annual report on Form 10-K have been adjusted to reflect the Reverse Stock Split.

Private Placement

We are conducting a private placement (the “Private Placement”) of (i) shares of our Series A convertible preferred stock, $0.001 par value per share (the “Series A Convertible Preferred Stock”), each share of Series A Convertible Preferred Stock being convertible into one share of our common stock, subject to adjustment, and (ii) for each share of Series A Convertible Preferred Stock purchased in the Private Placement, a 5-year warrant to purchase one share of common stock (the “Warrant” and collectively with the Series A Convertible Preferred Stock, the “Securities”). 

On March 14, 2017, we entered into Subscription Agreements with certain accredited investors and conducted an initial closing of the Private Placement pursuant to which we sold 7,837,023 shares of the Series A Convertible Preferred Stock at a purchase price of $2.02 per share (the “Initial Closing”). In addition, each investor received a Warrant to purchase one share of common stock for each share of Series A Convertible Preferred Stock purchased by such investor in the Private Placement at an exercise price equal to $2.22, subject to adjustment thereunder.

We received total net proceeds of approximately $14.1 million from the Initial Closing, after deducting $1.7 million in placement agent fees and expenses associated with the Initial Closing. We currently intend to use the anticipated proceeds of the Private Placement to fund research and development of TSC, including clinical trial activities, and for general corporate purposes. Pursuant to the Purchase Agreements, we may conduct one or more additional closings until we have sold up to an aggregate of $25.0 million of Securities.

The Securities are being offered and sold in a private placement only to accredited investors pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), afforded by Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder. To the extent that any shares of common stock are issued in connection with the conversion of the Series A Convertible Preferred Stock or the exercise of the Warrants, the common stock may not be offered, transferred or sold in the United States absent registration or the availability of an applicable exemption from the registration requirements of the Securities Act. The foregoing description of the Private Placement is neither an offer to sell, nor a solicitation of an offer to buy, any of the Securities and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such offer, solicitation or sale is unlawful.The Securities offered in the Private Placement have not been registered under the Securities Act or the securities laws of any state, and may not be offered or sold in the United States unless the Securities are registered under the Securities Act and all applicable state securities laws, or an exemption from such registration requirements is available. The Securities are being offered and sold in reliance on exemptions from the registration requirements of the Securities Act and applicable state securities laws.

For a more information on the Initial Closing and a description of the Securities please see our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 15, 2017.

Available Information

We make available free of charge andon or through our Internet web site,website certain reports that we file with or furnish to the SEC in accordance with Exchange Act. These include our annual reportsAnnual Reports on Form 10-K, quarterly reportsour Quarterly Reports on Form 10-Q, current reportsand our Current Reports on Form 8-K, andas well as any amendments to any suchthose reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange ActAct. We make this information available free of 1934, as amended,charge as soon as reasonably practicable after we electronically file such materialthe information with, or furnish it to, the SEC. The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC. We also make available, free of charge and through our Internet web site, to any shareholder who requests,website, the charters of our boardthe committees of the Board, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics. Requests for copies can be directed to Investor Relations at (434) 220-0718.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K (this “Annual Report”) includes forward-looking statements. We may, in some cases, use terms such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical development and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, our intellectual property position, the degree of clinical utility of our products, particularly in specific patient populations, our ability to develop commercial functions, expectations regarding clinical trial data, our results of operations, cash needs, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained or incorporated by reference in this Annual Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained or incorporated by reference in this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained or incorporated by reference in this Annual Report, they may not be predictive of results or developments in future periods.

Actual results could differ materially from our forward-looking statements due to a number of factors, including risks related to:

●

our ability to obtain additional financing;

You should also read carefully the factors described in the “Risk Factors” section of this Annual Report and elsewhere to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward- looking statements contained or incorporated by reference in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

Any forward-looking statements that we make contained or incorporated by reference in this Annual Report speak only as of the date of such statement, and, except as required by applicable law, we undertake no obligation to update such statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

The followingInvesting in our common stock involves a high degree of risk. Set forth below are significant factorscertain material risks and uncertainties known to us that could materially harmadversely affect our business, operatingfinancial condition, or results or financial conditionof operations or could cause our actual results to differ materially from our anticipated results or other expectations including those expressed in any forward-looking statement madeelsewhere in this report:

Risks Related to Our Financial Needs

Wehave limited cash resources,have incurred significant losses since our inception and have a history of net losses and negative cash flow from operations.

We are a clinical-stage biotechnology company and, as a result, we have a limited operating history and there is little historical basis upon which to assess how we will respond to competitive or economic challenges or other challenges to our business. Our business and prospects must be considered in lightAnnual Report. The occurrence of the risks and uncertainties frequently encounteredevents contemplated by similarly situated companies.

We have limited cash resources, have generated substantial net losses and negative cash flow from operations since our inception, and we continue to incur significant research, development and other expenses related to our ongoing operations for other product candidates. We expect to incur losses and negative cash flow for the foreseeable future. Our ability to generate sufficient revenues from our other product candidates, if approved, will depend on numerous factors described in the following risk factors. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity.

We currently generate no revenue from the sale of products and may never become profitable.

To date, we have not generated any revenues from our product candidates. Even if we are able to successfully achieve regulatory approval for our product candidates, we do not know when any of these products will generate revenue for us, if at all. Our ability to generate revenue from our current products or future product candidates also depends on a number of additional factors, including our ability to:

In addition, because of the numerous risks and uncertainties associated with product development, including that our 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 process described above, we anticipate incurring significant costs associated with commercializing these products.

We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may be unable to complete the development and commercialization of our product candidates.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to advance the clinical development of our product candidates and to commercialize any product candidates for which we receive regulatory approval. We expect our existing cash as of December 31, 2016, together with the proceeds from the Initial Closing of the Private Placement of our Series A Convertible Preferred Stock in March 2017, will enable us to fund our operating expenses and capital expenditure requirements into December of 2017. Even if we raise the maximum amount being offered in the Private Placement, we will require additional capital for the further development and commercialization of our product candidates and may also need to raise additional funds sooner in order to accelerate development of our product candidates. We may also require additional capital to repay our outstanding convertible indebtedness if the holders thereof do not elect to convert such indebtedness into equity prior to maturity.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. We also could be required to:

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we describe below could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We may seek additional capital through a combination of private and public equity offerings, debt financings, receivables or royalty financings, strategic partnerships and alliances and licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us.

The issuance of shares ofSeries A ConvertiblePreferred Stock reduces the relative voting power of holders ofcommonstock, dilutes the ownership of such holders and may adversely affect the market price of ourcommonstock.

In the event of any vote or action by written consent, each holder of shares of Series A Convertible Preferred Stock shall be entitled to that number of votes equal to the whole number of shares of common stock into which the aggregate number of shares of Series A Convertible Preferred Stock held of record by such stockholder are convertible as of the close of business on the record date fixed for such vote or such written consent based on a conversion price, solely for such purpose, equal to the closing price of our common stock onto decline, resulting in the date such Series A Convertible Preferred Stock was issued. As holdersloss of Series A Convertible Preferred Stockall or part of any investment in our common stock. Furthermore, other risks that are entitledcurrently unknown to vote on an as-converted basisus or that we currently believe to be immaterial may also, nevertheless, adversely affect our business, financial condition, or results of operations in a way that is material.

Before investing in our common stock, you should carefully consider these risks and uncertainties, together with holders of common stock on all matters submitted to a vote of the holders of common stock, the issuance of the Series A Convertible Preferred Stock, and the subsequent payment of dividendsother information in shares of common stock, effectively reduces the relative voting power of the current holders of common stock.

We have a history of operating losses and expect to continue to incur losses in the forseeable future, which raises substantial doubt about our ability to continue as a going concern.

As discussed further in footnote 2 ofthis Annual Report, including our consolidated financial statements forand related notes, the year ended December 31, 2016, we have a historyinformation included in, Part II — Item 7 — Management’s Discussion and Analysis of operating lossesFinancial Condition and expect to continue to incur losses in the forseeable future, which raises substantial doubt regarding our ability to continue as a going concern.We currently have no sourcesResults of revenue and our ability to continue as a going concern is dependent on our ability to raise capital to fund our future business plans. Additionally, volatility in the capital markets and general economic conditions in the United States may be a significant obstacle to raising the required funds. These factors raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expensesOperations, and the balance sheet classifications used.information incorporated herein by reference.

Risks Related to the Development, Regulatory Approval, and Commercialization of TSC and Our Other Product Candidates

Our businessThe success of Diffusion is dependent on the successful development, regulatory approval, and, ultimately, commercialization of TSC and our other product candidates, which include products primarilycandidates. However, the drug development process is expensive, time-consuming and uncertain. Our efforts to develop, obtain regulatory approval for, and commercialize TSC or any other product candidate could fail at any stage of the treatmentdevelopment process for a variety of glioblastoma multiforme, pancreatic cancerreasons, including the possibility that TSC fails to adequately demonstrate efficacy or proof of concept in the Oxygenation Trials. Furthermore, because the results of preclinical studies and brain metastases.early-stage clinical trials are not necessarily predictive of future results, even if we are able to advance TSC or another product candidate into additional clinical trials – for example, beyond our Planned Phase 2 Hypoxic Solid Tumor Trial – we may not continue to experience favorable results.

Our portfolio of product candidates includes TSC, which is a novel small molecule that re-oxygenates hypoxic tissue, enhancing the efficacy of radiation and chemotherapy without harmful side effects poised to enter Phase III clinical development for glioblastoma multiforme. In addition, TSC may have potential applications in pancreatic cancer and brain metastases. The success of our business,Diffusion, including our ability to finance our companyoperations and generate any revenue in the future, primarily will depend primarily on the successful development, regulatory approval, and, ultimately, commercialization of our product candidates. Currently, the majority of our product development resources are dedicated to our lead product candidate, TSC. In the future, we may also become dependent on oneseek to develop or more othercommercialize additional product candidates, or any futureincluding product candidates that we may in-license or acquire or develop.to supplement our internally developed portfolio.

The clinical and commercial success of our product candidates will depend on a number of factors, including the following:

If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays or an inability to obtain regulatory approvals or commercialize our product candidates. Even if regulatory approvals are obtained, we may never be able to successfully commercialize any of our product candidates. Accordingly, we cannot assure you that we will be able to generate sufficient revenue through the sale of our product candidates or any future product candidates to continue our business.

Clinical drug development for our product candidates is very expensive, time-consuming and uncertain. Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.

Clinical drug development for our product candidatesprocess is very expensive, time-consuming, difficult to design and implement, and its outcome is inherently uncertain. Before obtaining regulatory approval for the commercial sale of a product candidate, we must demonstrate through clinical trials that a product candidate is both safe and effective for use in the target indication. Most product candidates that commence clinical trials are never approved by regulatory authorities for commercialization. commercialization and success in early-stage clinical trials does not ensure that later clinical trials will demonstrate the efficacy and safety of an investigational drug in a manner adequate to support regulatory approval. Countless other companies, including many with greater resources and experience, have failed or suffered significant setbacks attempting to navigate the drug development process, including failed attempts to develop treatments for hypoxia and indications on the hypoxia-continuum that we may ultimately choose to target with TSC, and there can be no assurance that we will have success where others have failed.

Our product candidates, areincluding TSC, remain in early stages of development. Wethe development process and we expect that the additional clinical trials for these product candidatesnecessary to support an NDA will take several years but may take significantly longer than expected to complete. In addition,We do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety or otherwise provide adequate information to result in regulatory approval to market any partner with which weof our product candidates in any particular jurisdiction. Furthermore, the timeline for our clinical trials may be delayed in the future collaborate,for a variety of reasons, including delays related to regulatory and IRB review and approval, slower than anticipated rates of enrollment in or early withdrawals from the FDA, an IRBtrial, third party performance issues beyond our control including any CRO engaged in the conduct of the trial, discovery of series or unexpected toxicities or side effects, or a lack of effectiveness.

Whether we are able to successfully develop TSC or any of our other regulatory authorities,product candidates will depend on a large number of factors, including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including:the following:

WeAny of these factors, many of which are beyond our control, could result in significant delays or an inability to develop, obtain regulatory approvals for, or commercialize our product candidates, and we may ultimately be able to receive regulatory approval or generate revenue from the sale of TSC or any partner with which we may collaborate may suffer significant setbacks in our clinical trials similar to the experience of aother product candidate.

A number of other companies in the pharmaceutical and biotechnology industries,biopharmaceutical industry have suffered significant setbacks in later-stage Phase 3 clinical development even after receiving promising results in earlier preclinical studies or clinical trials. InIf later-stage clinical trials do not produce favorable results for TSC or any other product candidate, or we are unable to complete the eventnecessary clinical trials for any reason (including a lack of funding), our ability to achieve regulatory approval or successfully commercialize may be compromised. At any time, we may decide or be forced by circumstance to delay or discontinue the development or commercialization of TSC or any of our other product candidates, including as a result of unfavorable results in later-stage clinical trials, changes in our internal product, technology or indication focus, the appearance of new technologies that make our product candidate obsolete, competition from a competing product, or changes in (or failure to comply with) applicable regulatory requirements. If we or our potential partners abandondecide or are delayedforced to terminate the TSC development program or any future program in which we have invested significant resources, we will not receive any return on our investment despite the clinical development efforts related to our product candidates,allocation of significant resources, we may not be able to execute on our business plan effectively, and our business, financial condition, operating results of operations may be materially and prospects would be harmed.adversely affected.

WeEven if we are able to successfully complete the clinical trials and over development activities necessary to submit an NDA to the FDA or an application for marketing approval to an equivalent non-U.S. regulatory authority, we may be unable to obtain regulatory approval for TSC or any other product candidates we may attempt to develop in future, for the indications offor which we are seekinginitially seek approval or our other future product candidates under applicable regulatory requirements.at all. The FDA and foreignsimilar non-U.S. regulatory bodiesauthorities have substantialsignificant discretion in the approval process, including the ability to delay, limit, or deny approval of product candidates. The delay, limitation, or denial of any regulatory approval for any of our product candidates, and TSC in particular, would limit or restrict altogether our ability to commercialize the product and generate revenue, which could materially and adversely impact commercialization, our potential to generate revenue, our business, financial condition, and our operating results.results of operations.

We currently have no products approved for sale, and we may never obtain regulatory approval to commercialize TSC or any of our current or futureother product candidates.candidates we may attempt to develop in the future. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to our drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign countries, and such regulationsabroad, which often differ from country to country. We arewill not be permitted to market TSC or any of our other current product candidates in the United StatesU.S. until we receive approval of an NDA or other applicable regulatory filing from the FDA. We are alsoFDA, and we will not be permitted to market TSC or any of our other current product candidates in any foreignnon-U.S. countries until we receive the requisite approval from the applicable regulatory authorities of such countries.authorities.

To gain approval to market a new drug, such as TSC, the FDA and foreignsimilar non-U.S. regulatory authorities must receiverequire the submission of an NDA (or similar application) that contains preclinical and clinical data that adequately demonstratedemonstrating the safety, purity, potency, efficacy, and compliant manufacturing of the product for the intended indication applied for in an NDA or other applicable regulatory filing. The development and approval of new drug products involves a long, expensive and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in clinical trials, including in Phase 3 clinical development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we or our partners may conduct.

indication. The FDA and foreign regulatory bodiestheir non-U.S. counterparts have substantial discretion in the drug approval process, including the ability to delay, limit, or deny approval of product candidatesapplications for many reasons, including:

OfHistorically, of the large number of drugs in development at any given time, only a small percentage successfully complete the FDA or other regulatory approval processes and are ultimately commercialized. Our product candidates may not be approved for sale and marketing by the FDA or applicable foreign regulatory agenciesany other governmental authority, even if they meet specified endpoints in our clinical trials. The FDA or applicable foreign regulatory agencies may ask us to conduct additional costly and time-consuming clinical trials in order to obtain marketing approval or approval to enter into an advanceda further phase of clinical development, or may change the requirements for approval even after such agency has reviewed and commented on the design for the clinical trials.

Any delay in obtaining, or inability to obtain, applicablethe regulatory approval for any ofapprovals necessary to market and sell our product candidates would delay or prevent commercialization of our product candidates and would harmmaterially and adversely affect our business, financial condition, operating results and prospects.

Even if our product candidates obtain regulatory approval, they may fail to achieve the broad degreeresult of physician and patient adoption and use necessary for commercial success.

The commercial success of any of our current or future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications, and may not be commercially successful. The degree and rate of physician and patient adoption of our current or future product candidates, if approved, will depend on a number of factors, including:

Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of health care products competitive with those that we are developing. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, clinical trial expertise, intellectual property portfolios, experience in obtaining patents and regulatory approvals for product candidates and other resources than us. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts.

Many pharmaceutical companies currently offer products, and continue to develop additional alternative product candidates and technologies, for indications similar to those targeted by our product candidates. We anticipate that,operations. Furthermore, if we obtain regulatory approval of our product candidates, we will face significant competition from other approved therapies. If approved, our product candidates may also compete with unregulated, unapproved and off-label treatments. Certain of our product candidates, if approved, will present novel therapeutic approaches for the approved indications and will have to compete with existing therapies, some of which are widely known and accepted by physicians and patients. To compete successfully in this market, we will have to demonstrate that the relative cost, safety and efficacy of our approved products, if any, provide an attractive alternative to existing and other new therapies. Such competition could lead to reduced market share for our product candidates and contribute to downward pressure on the pricing of our product candidates, which could harm our business, financial condition, operating results and prospects. For more information about the competition we face, see “Business—Competition.”

Due to less stringent regulatory requirements in certain foreign countries, there are many more products and procedures available for use in those international markets than are approved for use in the United States. In certain international markets, there are also fewer limitations on the claims that our competitors can make about the effectiveness of their products and the manner in which they can market them. As a result, we expect to face more competition in these markets than in the United States.

Any product candidates that we commercialize, or that any partner with which we may collaborate commercializes, will be subject to ongoing and continued regulatory review.

Even after we or our partners achieve U.S. regulatory approval for a product candidate, if any, we or our partners will be subject to continued regulatory review and compliance obligations. For example, with respect to our product candidates, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials or a REMS, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for our product candidates. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP requirements and with the FDA’s GCP requirements and good laboratory practice (“GLP”) requirements, which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical and preclinical development, and for any clinical trials that we conduct post-approval. To the extent that a product candidate is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.

In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians, withdrawal of the product from the market or suspension of manufacturing.

If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

The regulations, policies or guidance of the FDA and other applicable government agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

We have conducted and maydetermine in the future conduct clinical trials for our product candidates outsidethat the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials.

We have conducted and may in the future choose to conduct one or more of our clinical trials outside the United States. Although the FDA or applicable foreign regulatory authority may accept data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study data by the FDA or applicable foreign regulatory authority may be subject to certain conditions. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.

Our product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in post-approval regulatory action.

Unforeseen side effects from any of our product candidates could arise either during clinical development, or, if approved, after the approved product has been marketed. Undesirable side effects caused by product candidates could cause us, any partners with which we may collaborate or regulatory authorities to interrupt, modify, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us, or our potential partners, to cease further development of or deny approval of product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.

Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval, or other products with the same or related active ingredients, a numbercommercial prospects of potentially negative consequences could result, including:

Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us or our potential partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.

Because the results of preclinical studies and early-stage clinical trials are not necessarily predictive of future results, any product candidate we advance into additional clinical trials may not continueare insufficient to have favorable results or receive regulatory approval.

Success in preclinical studiesjustify our continued expenditure of the associated development and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. Many companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after reporting promising results in earlier clinical trials. We do not know whether the clinical trialsother costs, we may conduct will demonstrate adequate efficacy and safetychoose to delay, suspend, or otherwise provide adequate information to result in regulatory approval to market any ofabandon our product candidates in any particular jurisdiction. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for any of our product candidates may be compromised.

We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases.

In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:

We obtained product liability insurance coverage for our clinical trials. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will be costly, and we may be unable to obtain this increased product liability insurance on commercially reasonable terms, or at all. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, financial condition, operating results and prospects.

If any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.

The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug products. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling and comparative safety or efficacy claims cannot be made without direct comparative clinical data. If we are found to have promoted off-label uses of any of our product candidates, we may receive warning or untitled letters and become subject to significant liability, which would materially harm our business. Both federal and state governments have levied large civil and criminal fines against companies for alleged improper promotion and have enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred and our brand and reputation could be damaged. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.

We cannot, however, prevent a physician from using our product candidates outside of those indications for use when in the physician’s independent professional medical judgment he or she deems appropriate. Physicians may also misuse our product candidates or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by physicians or their patients. Furthermore, the use of our product candidates for indications other than those cleared by the FDA may not effectively treat such conditions, which could harm our reputation among physicians and patients.

We may choose not to continue developing or commercializing any of our product candidates at any time during development or after approval,commercialization efforts with respect thereto, which would reduce or eliminate our potential return on investment for those product candidates.

AtOur ability to develop our product candidates depends, and, if TSC or any time,of our other product candidates are approved, our ability to successfully commercialize our products will depend, in part on our ability to successfully obtain sufficient quantities of the necessary APIs, other component substances and materials, and finished drug product for our product candidates. We are currently entirely dependent on third parties for the manufacture and supply of our product candidates and their component parts, including, with respect to TSC, a sole supplier. We may be unable to continue to develop or commercialize our product candidates or face significant delays in that process if we may decideare unable to discontinuesuccessfully obtain these materials or manufacture drug product in sufficient quantities.

Maintaining an adequate supply of TSC and our other product candidates to meet our needs is critical to the developmentsuccess of anyour business. However, manufacturing and supply of APIs, other substances and materials and finished drug products is a complex and technically challenging process, and changes beyond our direct control can impact the quality, volume, price, and successful delivery of our product candidates or not to continue commercializing oneimpede, delay, limit or moreprevent the successful development and commercialization of our approved product candidates for a varietycandidates. Mistakes and mishandling are not uncommon in the biopharmaceutical and pharmaceutical industry and can affect successful production and supply significantly.

As of reasons, including changes in our internal product, technology or indication focus, the appearancedate of new technologies that make our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in whichthis Annual Report, we have invested significant resources,no internal manufacturing capabilities and therefore we willdo not receive any return onhave direct control over our investmentability to maintain drug supply sufficient to serve our needs for our ongoing and we will have missed the opportunity to have allocated those resources to potentially more productive uses.

Weplanned clinical trials or, our prospective partners may be subject to product recalls in the future that could harm our brand and reputation and could negatively affect our business.

We or our prospective partners may be subject to product recalls, withdrawals or seizures if any of our product candidates ifare approved, for marketing, fail to meet specifications or are believed to cause injury or illness or ifcommercialization. Although we are allegedultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our third party CMOs and other contract suppliers and manufacturers for the manufacture of our drug product, including both APIs and finished products, as well as day-to-day compliance with cGMPs and certain other manufacturing-related regulatory requirements. Facilities used by our contract suppliers and manufacturers to have violated governmental regulationsproduce the APIs and other substances and materials or finished products for commercial sale must pass inspection, provide regulators with certain technical information, and be approved by the FDA and other relevant regulatory authorities to confirm compliance with cGMP requirements and other regulatory requirements. If the safety of TSC or any of our other product candidates (or any component thereof) is found in the future to be compromised, we may not be able to successfully commercialize or obtain regulatory approval for the product candidate, and we may be held liable for injuries sustained as a result.

Any disruption in our relationship with these third parties or their ability to manufacture the APIs and finished drug product we need for our clinical trials and other development activities could result in significant delays in our anticipated development timelines and/or significant additional supply costs. Such a disruption could be the result of any number of reasons, including thosecontractual disputes with our partners, regulatory issues with our partners or at their facilities (whether or not related to Diffusion or our drug product), financial issues faced by our partners (including bankruptcy or insolvency), damages to our partners’ facilities or equipment, communication breakdowns, or acts of God. For example, during 2021 we faced certain delays in the manufacturing process for planned, new batches of TSC drug product due to the fact that, in connection with the U.S. federal government’s Operation Warp Speed initiative in response to the COVID-19 pandemic, the facility at which our former, primary CMO partner conducts significant portions of the TSC manufacturing process had been mandated to devote the majority of the facility’s available resources to the manufacture labeling, promotion, sale or distribution. Any recall, withdrawal or seizureof components of the COVID-19 vaccine.

Amplifying this risk is the fact that, notwithstanding the improvements made to our supply chain during 2021 described under, "Business - Product Development - Chemistry, Manufacturing, and Controls," we currently depend upon a sole source to manufacture our API for TSC and other aspects of our manufacturing process, limiting our available options to troubleshoot these issues. Although we actively manage this third-party relationship to ensure continuity, quality, and compliance with regulations and we intend to identify and develop alternative manufacturing and supply alternatives in the future, this process remains ongoing, will take time, and will involve significant costs. Even with these efforts, some events beyond our control, including global instability due to political unrest or from an outbreak of pandemic or contagious disease, such as COVID-19, could result in supply chain disruptions or the complete or partial failure of these manufacturing services. Any such failure or disruptions could materially adversely affect our business, financial condition, cash flows, and results of operations. Furthermore, due to the significant regulatory oversight of the pharmaceutical manufacturing process, any changes in the identity of our third-party partners or in our manufacturing processes – even if in the best interests of the Company and successful – could result in regulatory and other delays, as well as significant additional costs. In addition, if our current supplier terminated our arrangement or failed to meet our supply needs for any reason prior to the time we are able to identify sufficient alternative manufacturing capacity, we may be forced to delay our development plans significantly.

Our CMO and other manufacturing and supply partners are also engaged to supply and manufacture materials or products for other biopharmaceutical and pharmaceutical companies, exposing them to regulatory risks unrelated to the work they are doing for Diffusion but which may nevertheless impact their ability to meet their contractual requirements to us or otherwise impede their ability to supply us with sufficient quantities of drug product. Failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates or if it withdraws its approval in the future, even if such lack of approval is unrelated to Diffusion or our product candidates, we may need to find alternative supply or manufacturing facilities.

In addition, to date we have only manufactured TSC and our other product candidates in relatively small quantities for preclinical studies and clinical trials. As we prepare for additional, later-stage clinical trials and potential commercialization, we will need to take steps to substantially increase the scale at which we are able to produce TSC, its API, and its other component parts. In order to meet these needs, our CMOs and suppliers will need to produce our API, other components, and finished product in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. These third-party contractors may not be able to successfully increase the manufacturing capacity for any of such drug substance and product candidates in a timely or cost-effective manner or at all. Even if such a scale up is possible, it may require additional processes, technologies, and validation studies, which are costly, may not be successful, and which the FDA and foreign regulatory authorities would need to review and approve prior to any commercial sale of TSC or any other product candidate. In addition, quality issues may arise during those scale-up activities because of the inherent properties of a product candidate itself or in combination with other components added during the process of manufacturing, packaging, shipping, or storage.

Our reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information. In addition, the manufacturing facilities of certain of our suppliers are located outside of the United States. This may give rise to difficulties in importing our product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation or defective packaging.

Any of these factors could cause a delay or termination of preclinical studies, clinical trials, other development activities, regulatory submissions or approvals of our product candidates, or, if any of our product candidates is approved, commercial supply, and could result in significant, unanticipated costs or an inability to effectively develop our products candidates or commercialize our approved products on a timely basis, or at all, which could materially and adversely affect consumer confidence in our brands and lead to decreased demand for our approved products. In addition, a recall, withdrawal or seizure of any of our approved products would require significant management attention, would likely result in substantial and unexpected expenditures and would harm our business, financial condition, and operating results.results of operations.

If we or any partners with which we may collaborate are unable to achieve and maintain coverage and adequate levels of reimbursement for any of our product candidates for which we receive regulatory approval, or any future products we may seek to commercialize, their commercial success may be severely hindered.

For any of our product candidates that become available only by prescription, successful sales by us or by any partners with which we may collaborate depend on the availability of coverage and adequate reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. If any of our product candidates do not demonstrate attractive efficacy profiles, they may not qualify for coverage and reimbursement. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

In addition, the market for our product candidates will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects.

Healthcare reform measures could hinder or prevent the commercial success of our products and product candidates.

In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future revenue and profitability and the future revenue and profitability of any partner with which we may collaborate. Federal and state lawmakers regularly propose and, at times, enact legislation that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, President Obama signed one of the most significant healthcare reform measures in decades the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which are expected to impact existing government healthcare programs and result in the development of new programs. The Affordable Care Act, among other things, (1) increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to certain individuals enrolled in Medicaid managed care organizations, (2) established annual fees on manufacturers of certain branded prescription drugs and (3) enacted a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals and imaging centers.

More recently, the Protecting Access to Medicare Act of 2014, signed into law in April 2014, provides for a 0.5% change from 2013 federal payment rates under the Medicare Physician Fee Schedule through 2014 and a 0% update from January 1 until April 1, 2015. Congressional failure to intervene to prevent these changes in payment rates may adversely affect our future revenue and operating results. The 21st Century Cures Act, which the U.S. House of Representatives passed in July 2015 and President Obama signed into law in December 2016, provides a wide range of reforms, such as broadening the types of data required to support drug approval, extending protections from genetic competition, accelerating approval of breakthrough therapies, expanding the orphan drug product program, and clarifying how manufacturers communicate about their products.

Additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.

It is also uncertain whether there will be any legislation that will replace or amend the Affordable Care Act. In addition, the Trump Administration has and will appoint and employ many new secretaries, directors and the like into positions of authority in the U.S. Federal government dealing with the pharmaceutical and healthcare industries that may potentially have a negative impact on the prices and the regulatory pathways for certain pharmaceuticals and healthcare products developed by the Company. Such changes in the regulatory pathways could adversely affect and or delay the ability of the Company to market and sell its products in the U.S.

We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.

Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject to regulation by both the federal government and the states in which we or our partners conduct our business. The laws and regulations that may affect our ability to operate include:

Recent health care reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. It is uncertain whether there will be any legislation that will replace or amend the Affordable Care Act. 

Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.

Our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional, reckless or negligent conduct or unauthorized activity that violates: laws or regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations, and serious harm to our reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. 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, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our operating results.

Risks Related to Our Dependence on Third Parties

We expect to rely on third-party CROs and other third parties to conduct and oversee our clinical trials and other aspects of our development process for TSC and our other product development.candidates. If these third parties do not meet our requirements or otherwise conduct the trials as required,or perform the other services for which they are engaged, we may not be able to satisfy our contractual obligations orsuccessfully develop, obtain regulatory approval for, or commercialize our product candidates when expected or at all. Furthermore, if we are not able to establish and maintain the necessary collaborative relationships with our CROs and other third party partners, we may have to alter our development and commercialization plans.

Conducting our clinical trials in a safe, compliant, and timely manner is critical to our success. We expect tocurrently rely on third-party CROs to conduct and oversee our clinical trials and other aspects of our product development. We also rely upondevelopment, as well as various medical institutions, clinical investigators, and contract laboratories, consultants, and other third parties to design and conduct our trials, to analyze the results therefrom, and to ensure that the trials are conducted in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s regulations and GCPs, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security and recordkeeping for drug products.GCPs. These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical trials and preclinical studies, andtherefrom, as we control only certain aspects of their activities. Weactivities and rely heavily on them to execute our CROstrials in a safe, compliant, and other third-party contractors are requiredtimely manner. Although we intend to comply with GCPinternalize portions of some of these functions during 2021 and GLP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP and GLP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. Ifbeyond as our organization grows, we or any ofexpect to continue to rely on these third parties fail to comply with applicable GCP and GLP requirements,a significant degree in the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authority may require us to perform additional clinical trials before approving our or our partners’ marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical or preclinical trials complies with applicable GCP and GLP requirements. In addition, our clinical trials must generally be conducted with product produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat clinical trials, which would delay the regulatory approval process.future.

If any of our CROs, or clinical trial sites, terminateor other third party partners terminates their involvement in one of our clinical trials (or with Diffusion entirely) for any reason, we may not be able to enter into alternative arrangements with alternative CROs or clinical trial sites, or do sosufficient to meet our needs, on a timely basis, on commercially reasonable terms.terms, or at all. In addition, if our relationship with clinical trial sites is terminated, we may incur significant additional costs or experience the loss of follow-up information on patients enrolled in our ongoing clinical trials, unless we are able to transfer the care of those patients to another qualified clinical trial site.

We, as well as the CROs and other third-party contractors acting on our behalf, are required to comply with GCP and GLP requirements in all of our clinical trials, which are enforced through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP, GLP, or other regulatory requirements, the clinical data generated in our clinical trials may be deemed unreliable and we may be required to perform additional clinical trials to supplement or replace such data before receiving approval of a product candidate from the FDA foreign regulatory authority. Our clinical trials must also generally be conducted with product produced under cGMP regulations. Our and our partners’ compliance with these various regulations may be reviewed by regulatory inspections at any time, processes over which we will have very little control or immediate visibility, and a failure to comply with these regulations and policies by us, our CROs, or any of our other third party partners may result in significant delays in our development programs. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.

We rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers, we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates. We do not currently have, nor do we plan to acquire, the infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products.

Our ability to develop our product candidates depends and our ability to commercially supply our products will depend, in part, on our ability to successfully obtain theactive pharmaceutical ingredients (“APIs”) and other substances and materials used in our product candidates from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates.

We do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. Although we are ultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our contract suppliers and manufacturers for day-to-day compliance with cGMPs for production of both APIs and finished products. Facilities used by our contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. If the safety of any product or product candidate or component is compromised due to a failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, clinical trials or regulatory submissions or approvals of our product candidates, and could entail higher costs or result in our being unable to effectively commercialize our approved products on a timely basis, or at all.

We also rely and will continue to rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture. In the event an existing supplier fails to supply product on a timely basis or in the requested amount, supplies product that fails to meet regulatory requirements, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or if we or our manufacturers are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we likely would incur added costs and delays in identifying or qualifying replacement manufacturers and materials and there can be no assurance that replacements would be available to us on a timely basis, on acceptable terms or at all. In certain cases we may be required to get regulatory approval to use alternative suppliers, and this process of approval could delay production of our products or development of product candidates indefinitely. We and our manufacturers do not currently maintain inventory of these APIs and other substances and materials. Any interruption in the supply of an API or other substance or material or in the manufacture of a finished product could have a material adverse effect on our business, financial condition, operating results and prospects.