NVUS 2018 Annual Report

Because the Reverse Merger resulted in an ownership change under Section 382 of the Internal Revenue Code, for Tokai, Tokai’s pre-merger net operating loss carryforwards and certain other tax attributes are subject to limitations. The net operating loss carryforwards and other tax attributes of Otic and of the post-merger Company may also be subject to limitations as a result of ownership changes. ,I D FRUSRUDWLRQ XQGHUJRHV DQ ³RZQHUVKLS FKDQJH´ ZLWKLQ WKH PHDQLQJ RI 6HFWLRQ RI WKH &RGH WKH FRUSRUDWLRQ¶V QHW operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the FRUSRUDWLRQ¶V HTXLW\ RZQHUVKLS E\ FHUWDLQ VWRFNKROGHUV WKDW H[F eeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Reverse Merger resulted in an ownership change for Tokai and, DFFRUGLQJO\ 7RNDL¶V QHW RSHUDWLQJ ORVV FDUU\IRUZDUGV DQG FHUWDLQ RWKHU WD[ DWWULEXW es may be subject to limitations (or GLVDOORZDQFH RQ WKHLU XVH DIWHU WKH 5HYHUVH 0HUJHU 2WLF¶V QHW RSHUDWLQJ ORVV FDUU\IRUZDUGV PD\ DOVR EH VXEMHFW WR OLPLWDWLR n as a result of prior shifts in equity ownership and/or the transaction. Additional ownership changes in the future could result LQ DGGLWLRQDO OLPLWDWLRQV RQ 7RNDL¶V 2WLF¶V DQG WKH SRVW - PHUJHU &RPSDQ\¶V QHW RSHUDWLQJ ORVV FDUU\IRUZDUGV &RQVHTXHQWO\ even if the Company achieves profitability, it may not be able to utilize a material portion of T RNDL¶V 2WLF¶V RU WKH SRVW - PHUJHU &RPSDQ\¶V QHW RSHUDWLQJ ORVV FDUU\IRUZDUGV DQG RWKHU WD[ DWWULEXWHV ZKLFK FRXOG KDYH D PDWHULDO DGYHUVH HIIHFW RQ cash flow and results of operations. Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, or the approvals may be for a narrow indication, we may not be able to commercialize our product candidates, and our ability to generate revenue may be materially impaired. Our product candidates must be approved by the FDA pursuant to a new drug application in the U.S. and by other regulatory authorities outside the U.S. prior to commercialization in the respective regions. The process of obtaining marketing approvals, both in the U.S. and outside the U.S., is expensive and takes several years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any country. We have no experience in filing and supporting the applications necessary to gain marketing approvals for ear, nose, or throat (ENT) products and may engage third-party consultants to assist in this process. Securing marketing approval requires the submission of extensive nonclinical and clinical data, and other supporting information to regulatory authorities IRU HDFK WKHUDSHXWLF LQGLFDWLRQ WR HVWDEOLVK WKH SURGXFW FDQGLGDWH¶V VDIHW\ DQG HIILFDF\ 6HFXULQJ PDUNHWLQJ DSSURYDO DOVR requires the submission of information about the product formulation and manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional nonclinical, clinical or other data. In addition, varying interpretations of the data obtained from nonclinical and clinical studies could delay, limit or prevent marketing approval of a product candidate. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may also cause delays in or prevent the approval of an application. Any marketing approval we ultimately obtain may be for fewer or more limited indications than requested or subject to restrictions or post-approval commitments that render the approved product not commercially viable or its market potential significantly impaired. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired. Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed outside the U.S. In order to market and sell our products in the EU and other international jurisdictions outside of the U.S., we or our third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may require additional nonclinical, clinical or health outcome data. In addition, the time required to obtain approval may differ substantially amongst international jurisdictions.

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