Equillium (EQ) Risk Analysis

One element of our strategy is to expand our pipeline by acquiring a portfolio of other product candidates through business or product candidate acquisitions such as our acquisitions of Bioniz and Ariagen, if we are able to raise additional capital. The success of this strategy depends in large part upon raising additional capital and the combination of our regulatory, development and commercial capabilities and expertise and our ability to identify, select and acquire product candidates for therapeutic indications that complement or augment our current pipeline, or that otherwise fit into our development or strategic plans on terms that are acceptable to us. Identifying, selecting and acquiring promising product candidates requires substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a particular product candidate, potentially resulting in a diversion of our management's time and the expenditure of our resources with no resulting benefit. If we are unable to identify, select and acquire suitable product candidates from third parties or acquire businesses at valuations and on other terms acceptable to us, or if we are unable to raise capital required to acquire businesses or new product candidates, our business and prospects will be limited and may require us to divest one or more of our product candidates to enable us to acquire businesses or new product candidates or progress the development of our other product candidates. Moreover, any product candidate we acquire may require additional, time-consuming development or regulatory efforts prior to commercial sale or prior to expansion into other indications, including nonclinical studies if applicable, and extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to the risk of failure that is inherent in pharmaceutical drug development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective or desired than other commercially available alternatives. In addition, if we fail to successfully commercialize and further develop our product candidates, there is a greater likelihood that we will fail to successfully develop a pipeline of other product candidates to follow our existing product candidates or be able to acquire other product candidates to expand our existing portfolio, and our business and prospects would be harmed.

We previously conducted four Phase 1 studies, one Phase 2 study and one Phase 3 study of discontinued product candidates and indications. To date we have not successfully completed late-stage clinical studies or obtained regulatory approval for any product candidate. Prior to initiating a clinical study of EQ504, data from animal toxicology studies will be required as well as formulation development. Because of our limited interaction with the FDA, we may not learn of certain information or data that the FDA may request until future interactions. In part because of our limited infrastructure, experience conducting clinical studies as a company and regulatory interactions, we also cannot be certain that our planned or future clinical studies will be completed on time, if at all, that our planned or future clinical studies will be initiated on time, if at all, or that our planned development programs would be acceptable to the FDA. Adverse safety and toxicology findings may emerge as we conduct our planned or future nonclinical research or clinical studies. In addition, success in early clinical studies does not mean that later clinical studies will be successful, because later-stage clinical studies may be conducted in broader patient populations and involve different study designs. Furthermore, our planned or future clinical studies will need to demonstrate sufficient safety and efficacy in larger patient populations for approval by the FDA. Companies frequently suffer significant setbacks in advanced clinical studies, even after earlier clinical studies have shown promising results, and we cannot be certain that we will not face similar setbacks. Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical studies and clinical studies have nonetheless failed to obtain marketing approval of their products. In addition, only a small percentage of product candidates under development result in the submission of an NDA to the FDA and even fewer are approved for commercialization. Our ability to generate product revenues, which we do not expect will occur for at least the next several years, if ever, will depend heavily on our ability to raise additional capital and successfully complete the above activities and any other activities required for the successful development and eventual commercialization of our product candidates. The success of our product candidates will further depend on factors such as: - completion of our planned or future nonclinical and clinical studies with favorable results, including activities that may be adversely impacted by public health epidemics or outbreaks;- acceptance of INDs by the FDA for our planned or future clinical studies, as applicable;- timely and successful enrollment in, and completion of, our planned or future clinical studies with favorable results;- demonstrating safety, efficacy and acceptable risk-benefit profile of our product candidates to the satisfaction of the FDA;- receipt of marketing approvals from the FDA;- maintaining arrangements with our CMOs for clinical supply and, if and when approved, commercial supply of EQ504 and EQ302, if we resume development;- establishing sales, marketing and distribution capabilities and launching commercial sale of our product candidates, if and when approved in one or more indications;- acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;- effectively competing with other therapies;- obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; and - maintaining a continued acceptable safety profile of our products, if and when approved. If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to successfully obtain marketing approval and commercialize our product candidates, which would materially harm our business.

Our translational biology program may initially show promise in identifying additional indications for which our product candidates may have therapeutic benefit, yet this may fail to yield additional clinical development opportunities for our product candidates for a number of reasons, including, our product candidates may, on further study, be shown to have harmful side effects, limited to no efficacy or other characteristics that indicate that it is unlikely to receive marketing approval and achieve market acceptance in such additional indications. Research programs to identify additional indications for our product candidates require substantial technical, financial and human resources. Because we have limited financial and managerial resources, we must prioritize our research programs and will need to focus our development efforts on the potential treatment of certain, limited indications. As a result, we may forego or delay pursuit of opportunities with other indications or for any future product candidates, or divest product candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending toward developing our product candidates for specific indications may not yield any approved or commercially viable products. If we do not accurately evaluate the commercial potential or target market for our product candidates, we may pursue indications that are less attractive and may also relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

From time to time, we may publicly disclose preliminary or topline data from our planned or future nonclinical and clinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same nonclinical and clinical studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our studies. Interim data from studies that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses, or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical study is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular biopharmaceutical product, biopharmaceutical product candidate or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval of, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

We may not be able to initiate any future clinical studies of our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these studies as required by the FDA or other applicable regulatory authorities. Multiple factors could contribute to such challenges of enrolling any future clinical studies, including changing business conditions that impart financial constraints that impede our ability to fund further enrollment as well as impacts related to public health epidemics or outbreaks, which have previously adversely impacted enrollment in our clinical studies. In addition, some of our competitors may have ongoing clinical studies for product candidates that would treat the same indications as our product candidates, and patients who would otherwise be eligible for our future clinical studies may instead enroll in clinical studies of our competitors' product candidates. Any future patient enrollment may also be affected by other factors, including: - severity of the disease under investigation;- our ability to recruit clinical study investigators of appropriate competencies and experience;- invasive procedures required to obtain evidence of the product candidate's performance during the clinical study;- availability and efficacy of approved medications for the disease under investigation;- eligibility criteria defined in the protocol for the study in question;- the size of the patient population required for analysis of the study's primary endpoints;- perceived risks and benefits;- efforts to facilitate timely enrollment in our planned or future clinical studies;- reluctance of physicians to encourage patient participation in our planned or future clinical studies;- the ability to monitor patients adequately during and after treatment;- our ability to obtain and maintain patient consents;- proximity and availability of clinical study sites for prospective patients; and - impacts and risks associated with global health epidemics or outbreaks. Our inability to enroll and retain a sufficient number of patients for clinical studies we may conduct would result in significant delays or may require us to abandon clinical studies altogether. Enrollment delays in clinical studies would likely result in increased development costs, which would cause the value of our company to decline and limit our ability to obtain additional financing.

Before we can initiate our planned or future clinical studies of our product candidates in any distinct indication in the United States, we must submit the results of nonclinical studies to the FDA along with other information, including information about their chemistry, manufacturing and controls and our proposed clinical study protocol, as part of an IND or similar regulatory filing. Before obtaining marketing approval from the FDA or from any other applicable regulatory authority outside of the United States for the sale of any of our product candidates in any indication, we must conduct extensive clinical studies to demonstrate the safety and efficacy of those product candidates. Clinical testing is expensive, time consuming and uncertain as to outcome. In addition, we expect to rely in part on nonclinical, clinical and quality data generated by CROs and other contracted parties for regulatory submissions for our product candidates. While we have or will have agreements governing these contracted parties' services, we have limited influence over their actual performance. If these parties do not make data available to us, or, if applicable, make regulatory submissions in a timely manner, in each case pursuant to our agreements with them, our development programs may be significantly delayed and we may need to conduct additional studies or collect additional data independently. In either case, our development costs would increase. The FDA and other applicable regulatory authorities may require us to conduct additional preclinical studies of our existing or any future product candidates before they allow us to initiate clinical studies, which may lead to additional delays and increase the costs of our preclinical development programs. Any such delays in the commencement or completion of planned or future clinical studies could significantly affect our product development costs. We do not know whether our planned or future studies will be completed on schedule, if at all, or whether our planned or future studies will begin on time, if at all. The commencement and completion of our planned or future clinical studies can be delayed for a number of reasons, including delays related to: - the FDA or other applicable regulatory authorities disagreeing as to the design or implementation of our planned or future clinical studies;- obtaining FDA or other applicable regulatory authorizations to commence a study or reaching a consensus with the applicable FDA regulators on study design;- any failure or delay in reaching an agreement with CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and study sites;- obtaining approval from one or more Institutional Review Boards, or IRBs;- additional nonclinical pharmacology and toxicology studies to support planned or future Phase 2 and 3 clinical studies;- IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the study;- changes to clinical study protocol;- clinical sites deviating from study protocol or dropping out of a study;- manufacturing sufficient quantities of product candidate or obtaining sufficient quantities of combination therapies for use in planned or future clinical studies;- subjects failing to enroll or remain in our study at the rate we expect, or failing to return for post-treatment follow-up;- subjects choosing an alternative treatment, or participating in competing planned or future clinical studies;- lack of adequate funding to continue the clinical study;- cost of preclinical research and testing being greater than anticipated or greater than our available financial resources;- subjects experiencing severe or unexpected drug-related adverse effects;- occurrence of serious adverse events in studies of the same class of agents conducted by other companies;- selection of clinical end points that require prolonged periods of clinical observation or analysis of the resulting data;- a facility manufacturing our product candidates or any of their components being ordered by the FDA (or its own regulatory authorities if such facility is located outside the United States) to temporarily or permanently shut down or cease export of such materials due to violations of current good manufacturing practice, or cGMP, regulations or other applicable requirements, changes in export restrictions and controls, or infections or cross-contamination during the manufacturing process;- any changes to our manufacturing process that may be necessary or desired;- impacts and risks associated with global health epidemics or outbreaks;- third-party clinical investigators losing the licenses or permits necessary to perform our planned or future clinical studies, not performing our planned or future clinical studies on our anticipated schedule or consistent with the clinical study protocol, Good Clinical Practices, or GCP, or other regulatory requirements;- data collection or analysis in an untimely or inaccurate manner or improper disclosure of data prematurely or otherwise in violation of a clinical study protocol by us or our contractors; or - our contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications. We could also encounter delays if a clinical study is modified, suspended or terminated by us, by the IRBs of the institutions in which such studies are being conducted, by a Data Safety Monitoring Board for such study or by the FDA or by other regulatory agencies or health authorities that have jurisdiction in countries in which the study is being conducted. Such authorities may impose such a suspension or termination, or a modification to our study protocol, due to a number of factors, including failure to conduct the clinical study in accordance with regulatory requirements or our clinical protocols, inspection of the clinical study operations or study site by the FDA or other regulatory agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a pharmaceutical, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical study. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical study protocols to comply with these changes. Amendments may require us to resubmit our clinical study protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical study. Certain of our scientific advisors or consultants who receive compensation from us are likely to be investigators for our planned or future clinical studies. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory agencies. The FDA or other regulatory agencies may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the clinical study. The FDA or other applicable regulatory agency may therefore question the integrity of the data generated at the applicable clinical study site and the utility of the clinical study itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or other regulatory agencies and may ultimately lead to the denial of marketing approval of our product candidates in one or more indications. If we experience delays in the completion of, or termination of, any clinical study of our product candidates, the commercial prospects of such product candidate will be harmed, and our ability to generate product revenues will be delayed. Moreover, any delays in completing our planned or future clinical studies will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues from product sales which may harm our business, financial condition, results of operations and prospects significantly.