S-1 1 d282443ds1.htm S-1 S-1
CLARUS THERAPEUTICS HOLDINGS, INC. false0001817944P3YThe effect of the convertible notes on the numerator for the year ended December 31, 2020 relates to the impact that the convertible notes had on net income during the period and are removed from net income when calculating net income (loss) attributable to common stockholders diluted using the if-converted method. The effect of the convertible notes on the shares in the denominator for the year ended December 31, 2020 was calculated based on the carrying value of the convertible notes balance at December 31, 2020, converted at the series D price of $4.50 per share and further retroactively adjusted for the effect of the Business Combination and are added back to the denominator when calculating diluted EPS using the if-converted method. These are excluded from the computation of diluted net loss per share attributable to common stockholders as of December 31, 2021 because including them would have had an anti-dilutive effect. The effect of accretion of preferred stock is $0 in 2021 because of the effect of the reversal of previous accretion forgone by the preferred shareholders upon completion of the Business Combination provided no benefit to the holders of the cancelled Legacy Clarus common stock. The gain on extinguishment of convertible notes relates to the difference between the carrying value of the convertible notes upon conversion to shares and the fair value of the shares exchanged which requires adjustment to the numerator when calculating basic EPS.Relates to activity associated with the Redeemable Convertible Preferred Stock prior to the reverse recapitalization on September 9, 2021. As all common shares have been retroactively restated to give effect to the Business Combination, there are no shares of common stock associated with the conversion of Series D redeemable convertible preferred stock.Relates to the conversion of redeemable convertible preferred stock that occurred and reversal of accretion booked on the redeemable preferred stock in 2021 prior to the merger, as the redeemable convertible preferred stock has been retroactively restated to give effect to the reverse recapitalization. 0001817944 2020-12-31 0001817944 2021-12-31 0001817944 2022-03-31 0001817944 2020-01-01 2020-12-31 0001817944 2021-01-01 2021-12-31 0001817944 2022-01-01 2022-03-31 0001817944 2021-01-01 2021-03-31 0001817944 2020-12-17 2020-12-17 0001817944 2020-12-17 0001817944 2021-09-09 0001817944 2021-09-09 2021-09-09 0001817944 2021-09-01 2021-09-01 0001817944 2020-03-12 0001817944 2020-03-01 2020-03-12 0001817944 2020-03-01 2020-03-31 0001817944 2021-12-17 2021-12-17 0001817944 2021-01-01 2021-05-15 0001817944 2021-12-31 2021-12-31 0001817944 2021-07-01 2021-07-31 0001817944 2022-04-27 0001817944 2019-12-31 0001817944 2021-03-31 0001817944 crxt:AmendedAndRestatedCertificateOfIncorporationMember 2021-12-31 0001817944 us-gaap:PrivatePlacementMember 2021-12-31 0001817944 us-gaap:CommonStockMember 2021-12-31 0001817944 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2021-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2021-12-31 0001817944 crxt:HavahMember 2021-12-31 0001817944 crxt:McgillMember 2021-12-31 0001817944 crxt:SeniorSecuredNotesMember 2021-12-31 0001817944 us-gaap:StockOptionMember 2021-12-31 0001817944 crxt:PikNoteMember 2021-12-31 0001817944 us-gaap:SeniorNotesMember 2021-12-31 0001817944 crxt:IndentureNoteMember 2021-12-31 0001817944 crxt:SecondIndentureNoteMember 2021-12-31 0001817944 us-gaap:USTreasurySecuritiesMember 2021-12-31 0001817944 us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-12-31 0001817944 us-gaap:FurnitureAndFixturesMember 2021-12-31 0001817944 crxt:OfficeEquipmentAndComputerHardwareMember 2021-12-31 0001817944 crxt:ReverseRecapitalizationMember 2021-12-31 0001817944 crxt:WarrantsAndRightsSubjectToMandatoryRedemptionTriggerPriceEqualsToElevenPointZeroFiveDollarsPerShareMember crxt:PrivatePlacementWarrantsMember 2021-12-31 0001817944 crxt:BusinessCombinationMember 2021-12-31 0001817944 us-gaap:ConvertibleNotesPayableMember 2021-12-31 0001817944 us-gaap:WarrantMember 2021-12-31 0001817944 us-gaap:SeriesDPreferredStockMember 2021-12-31 0001817944 crxt:ExerciseOfWarrantsEventMember us-gaap:SeriesDPreferredStockMember 2021-12-31 0001817944 us-gaap:RestrictedStockMember 2021-12-31 0001817944 crxt:IpoWarrantsMember 2021-12-31 0001817944 crxt:PrivatePlacementWarrantsMember 2021-12-31 0001817944 crxt:PreFundedWarrantsMember 2021-12-31 0001817944 crxt:MeasurementInputFairValueOfUnderlyingMeasurementMember 2021-12-31 0001817944 us-gaap:MeasurementInputRiskFreeInterestRateMember 2021-12-31 0001817944 us-gaap:MeasurementInputExpectedTermMember 2021-12-31 0001817944 us-gaap:MeasurementInputPriceVolatilityMember 2021-12-31 0001817944 us-gaap:MeasurementInputExpectedDividendRateMember 2021-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0001817944 crxt:ConvertibleNotesMember 2020-12-31 0001817944 crxt:SeniorSecuredNotesMember 2020-12-31 0001817944 us-gaap:FurnitureAndFixturesMember 2020-12-31 0001817944 crxt:OfficeEquipmentAndComputerHardwareMember 2020-12-31 0001817944 us-gaap:SeniorNotesMember 2020-12-31 0001817944 us-gaap:WarrantMember 2020-12-31 0001817944 us-gaap:SeriesDPreferredStockMember 2020-12-31 0001817944 us-gaap:SeriesAPreferredStockMember 2020-12-31 0001817944 us-gaap:SeriesBPreferredStockMember 2020-12-31 0001817944 us-gaap:SeriesCPreferredStockMember 2020-12-31 0001817944 us-gaap:LeaseAgreementsMember 2020-01-01 2020-12-31 0001817944 us-gaap:RedeemableConvertiblePreferredStockMember 2020-01-01 2020-12-31 0001817944 crxt:LegacyClarusWarrantsMember 2020-01-01 2020-12-31 0001817944 crxt:IpoWarrantsMember 2020-01-01 2020-12-31 0001817944 crxt:PrivatePlacementWarrantsMember 2020-01-01 2020-12-31 0001817944 crxt:PipeWarrantsMember 2020-01-01 2020-12-31 0001817944 crxt:StockOptionAndUnvestedRestrictedAwardMember 2020-01-01 2020-12-31 0001817944 us-gaap:SellingAndMarketingExpenseMember 2020-01-01 2020-12-31 0001817944 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-12-31 0001817944 us-gaap:GeneralAndAdministrativeExpenseMember 2020-01-01 2020-12-31 0001817944 crxt:SeniorSecuredNotesHoldersRoyalityObligationMember 2020-01-01 2020-12-31 0001817944 crxt:SeniorSecuredNotesMember 2020-01-01 2020-12-31 0001817944 us-gaap:PreferredStockMember us-gaap:RedeemablePreferredStockMember 2020-01-01 2020-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-12-31 0001817944 us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0001817944 us-gaap:FairValueInputsLevel12And3Member 2020-01-01 2020-12-31 0001817944 crxt:CatalentAgreementMember 2020-01-01 2020-12-31 0001817944 us-gaap:RestrictedStockMember 2020-01-01 2020-12-31 0001817944 us-gaap:SeriesAPreferredStockMember 2020-01-01 2020-12-31 0001817944 us-gaap:SeriesBPreferredStockMember 2020-01-01 2020-12-31 0001817944 us-gaap:SeriesCPreferredStockMember 2020-01-01 2020-12-31 0001817944 us-gaap:SeriesDPreferredStockMember 2020-01-01 2020-12-31 0001817944 crxt:LegacyClarusStockOptionAndIncentivePlanMember 2020-01-01 2020-12-31 0001817944 us-gaap:PrivatePlacementMember 2021-01-01 2021-12-31 0001817944 crxt:PrivatePlacementWarrantsMember 2021-01-01 2021-12-31 0001817944 crxt:McgillMember 2021-01-01 2021-12-31 0001817944 crxt:HavahMember 2021-01-01 2021-12-31 0001817944 us-gaap:LeaseAgreementsMember 2021-01-01 2021-12-31 0001817944 crxt:PfizerAgreementMember 2021-01-01 2021-12-31 0001817944 us-gaap:StockOptionMember 2021-01-01 2021-12-31 0001817944 us-gaap:RestrictedStockMember 2021-01-01 2021-12-31 0001817944 us-gaap:RedeemableConvertiblePreferredStockMember 2021-01-01 2021-12-31 0001817944 crxt:LegacyClarusWarrantsMember 2021-01-01 2021-12-31 0001817944 crxt:IpoWarrantsMember 2021-01-01 2021-12-31 0001817944 crxt:PipeWarrantsMember 2021-01-01 2021-12-31 0001817944 crxt:StockOptionAndUnvestedRestrictedAwardMember 2021-01-01 2021-12-31 0001817944 us-gaap:SellingAndMarketingExpenseMember 2021-01-01 2021-12-31 0001817944 us-gaap:ResearchAndDevelopmentExpenseMember 2021-01-01 2021-12-31 0001817944 us-gaap:GeneralAndAdministrativeExpenseMember 2021-01-01 2021-12-31 0001817944 us-gaap:ConvertibleDebtMember 2021-01-01 2021-12-31 0001817944 crxt:SecondIndentureNoteMember 2021-01-01 2021-12-31 0001817944 srt:MinimumMember 2021-01-01 2021-12-31 0001817944 srt:MaximumMember 2021-01-01 2021-12-31 0001817944 crxt:SeniorSecuredNotesHoldersRoyalityObligationMember 2021-01-01 2021-12-31 0001817944 crxt:SeniorSecuredNotesMember 2021-01-01 2021-12-31 0001817944 us-gaap:RetainedEarningsMember 2021-01-01 2021-12-31 0001817944 us-gaap:RedeemablePreferredStockMember us-gaap:PreferredStockMember 2021-01-01 2021-12-31 0001817944 crxt:PrivatePlacementWarrantLiabilitesMember 2021-01-01 2021-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-12-31 0001817944 us-gaap:CommonStockMember 2021-01-01 2021-12-31 0001817944 us-gaap:ConvertibleNotesPayableMember 2021-01-01 2021-12-31 0001817944 us-gaap:FairValueInputsLevel12And3Member 2021-01-01 2021-12-31 0001817944 crxt:ExerciseOfWarrantsEventMember us-gaap:SeriesDPreferredStockMember 2021-01-01 2021-12-31 0001817944 crxt:BusinessCombinationMember 2021-01-01 2021-12-31 0001817944 crxt:BusinessCombinationMember us-gaap:SeriesDPreferredStockMember 2021-01-01 2021-12-31 0001817944 crxt:ConversionOfPrincipalPortionOfConvertibleNotesMember us-gaap:SeriesDPreferredStockMember us-gaap:ConvertibleNotesPayableMember 2021-01-01 2021-12-31 0001817944 crxt:ConversionOfAccruedInterestPortionOfConvertibleNotesMember us-gaap:SeriesDPreferredStockMember us-gaap:ConvertibleNotesPayableMember 2021-01-01 2021-12-31 0001817944 crxt:EmployeeStockPurchasePlanMember 2021-01-01 2021-12-31 0001817944 crxt:CatalentAgreementMember 2021-01-01 2021-12-31 0001817944 crxt:BlueWaterAcquisitionCorpMember 2021-01-01 2021-12-31 0001817944 us-gaap:FurnitureAndFixturesMember 2021-01-01 2021-12-31 0001817944 crxt:OfficeEquipmentAndComputerHardwareMember 2021-01-01 2021-12-31 0001817944 crxt:LegacyClarusStockOptionAndIncentivePlanMember 2021-01-01 2021-12-31 0001817944 us-gaap:USTreasurySecuritiesMember 2021-01-01 2021-12-31 0001817944 us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-01 2021-12-31 0001817944 us-gaap:SeriesDPreferredStockMember 2021-01-01 2021-12-31 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ClassOfWarrantsMaturityAtJulyFourteenTwoThousandAndTwentyOneMember 2017-01-01 2017-12-31 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ClassOfWarrantsMaturityAtAprilNineTwoThousandAndTwentyThreeMember 2017-01-01 2017-12-31 0001817944 us-gaap:SeniorNotesMember 2020-03-31 0001817944 crxt:PaycheckProtectionProgramLoanMember 2020-04-01 0001817944 crxt:CatalentPharmaSolutionsLLCMember 2009-07-01 2009-07-31 0001817944 us-gaap:OverAllotmentOptionMember 2020-12-17 2020-12-17 0001817944 crxt:BlueWaterSponsorLlcMember us-gaap:IPOMember 2020-12-17 2020-12-17 0001817944 us-gaap:PrivatePlacementMember 2020-12-17 2020-12-17 0001817944 us-gaap:PrivatePlacementMember crxt:BlueWaterSponsorLlcMember crxt:PrivatePlacementWarrantsMember 2020-12-17 2020-12-17 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ClassOfWarrantsMaturityAtJulyFourteenTwoThousandAndTwentyOneMember 2017-12-17 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ClassOfWarrantsMaturityAtAprilNineTwoThousandAndTwentyThreeMember 2017-12-17 0001817944 us-gaap:OverAllotmentOptionMember 2020-12-17 0001817944 us-gaap:PrivatePlacementMember 2020-12-17 0001817944 us-gaap:CommonStockMember 2020-12-17 0001817944 us-gaap:IPOMember crxt:BlueWaterSponsorLlcMember 2020-12-17 0001817944 us-gaap:PrivatePlacementMember crxt:PrivatePlacementWarrantsMember crxt:BlueWaterSponsorLlcMember 2020-12-17 0001817944 crxt:OldClarusEquityHoldersMember 2021-09-01 2021-09-01 0001817944 crxt:BusinessCombinationMember 2021-09-01 2021-09-01 0001817944 crxt:EquityStockOptionAndIncentivePlan2021memberMember 2021-08-27 0001817944 us-gaap:StockOptionMember 2021-12-31 2021-12-31 0001817944 us-gaap:RestrictedStockUnitsRSUMember 2021-12-31 2021-12-31 0001817944 crxt:EmployeeStockPurchasePlanMember 2021-08-12 0001817944 crxt:PrincipalAmountSeniorSecuredNotesMember 2021-12-01 2021-12-31 0001817944 crxt:CarryingAmountSeniorSecuredNotesMember 2021-12-01 2021-12-31 0001817944 crxt:RemainingUnamortizedDebtDiscountSeniorSecuredNotesMember 2021-12-01 2021-12-31 0001817944 us-gaap:PrivatePlacementMember 2021-12-01 2021-12-01 0001817944 us-gaap:PrivatePlacementMember 2021-12-01 0001817944 crxt:AdditionalPrincipalSeniorSecuredNotesBalanceOfIndentureNoteToCommonStockMember crxt:ReverseRecapitalizationMember 2021-09-09 2021-09-09 0001817944 us-gaap:ConvertibleNotesPayableMember 2021-09-09 2021-09-09 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ExerciseOfWarrantsEventMember 2021-09-09 2021-09-09 0001817944 crxt:ConversionOfPrincipalSeniorSecuredNotesAndCertainRoyaltyRightsToCommonStockMember crxt:ReverseRecapitalizationMember 2021-09-09 2021-09-09 0001817944 crxt:ReverseRecapitalizationMember crxt:AdditionalPrincipalSeniorSecuredNotesBalanceOfSecondIndentureNoteToCommonStockMember 2021-09-09 2021-09-09 0001817944 crxt:ConversionOfPrincipalSeniorSecuredNotesAndCertainRoyaltyRightsToCommonStockMember crxt:ReverseRecapitalizationMember crxt:CommonStockAllocationToSeniorSecuredNoteholdersFromSponsorMember 2021-09-09 2021-09-09 0001817944 crxt:ConversionOfPrincipalSeniorSecuredNotesAndCertainRoyaltyRightsToCommonStockMember crxt:ReverseRecapitalizationMember crxt:CommonStockAllocationToSeniorSecuredNoteHoldersFromOldClarusEquityHoldersMember 2021-09-09 2021-09-09 0001817944 crxt:CommonStockAllocationToSeniorSecuredNoteHoldersMember crxt:ConversionOfPrincipalSeniorSecuredNotesAndCertainRoyaltyRightsToCommonStockMember crxt:ReverseRecapitalizationMember 2021-09-09 2021-09-09 0001817944 crxt:ReverseRecapitalizationMember 2021-09-09 2021-09-09 0001817944 crxt:PrincipalAmountSeniorSecuredNotesMember 2021-09-09 2021-09-09 0001817944 crxt:CarryingAmountSeniorSecuredNotesMember 2021-09-09 2021-09-09 0001817944 crxt:BusinessCombinationMember us-gaap:SeriesDPreferredStockMember 2021-09-09 2021-09-09 0001817944 crxt:BusinessCombinationMember 2021-09-09 2021-09-09 0001817944 us-gaap:AdditionalPaidInCapitalMember crxt:BusinessCombinationMember crxt:ReverseRecapitalizationEventMember 2021-09-09 2021-09-09 0001817944 crxt:BusinessCombinationMember crxt:ReverseRecapitalizationEventMember 2021-09-09 2021-09-09 0001817944 crxt:BusinessCombinationMember crxt:ReverseRecapitalizationEventMember crxt:ShareAllocationAgreementWithSponserMember 2021-09-09 2021-09-09 0001817944 crxt:BusinessCombinationMember us-gaap:PrivatePlacementMember crxt:ReverseRecapitalizationEventMember 2021-09-09 2021-09-09 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ReverseRecapitalizationMember crxt:BusinessCombinationMember 2021-09-09 2021-09-09 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ReverseRecapitalizationEventMember crxt:BusinessCombinationMember 2021-09-09 2021-09-09 0001817944 crxt:RemainingUnamortizedDebtDiscountSeniorSecuredNotesMember 2021-09-09 2021-09-09 0001817944 us-gaap:PrivatePlacementMember 2021-09-09 0001817944 us-gaap:CommonStockMember 2021-09-09 0001817944 crxt:DebtConversionMember 2021-09-09 0001817944 crxt:WarrantsAndRightsSubjectToMandatoryRedemptionTriggerPriceEqualsToElevenPointZeroFiveDollarsPerShareMember 2021-09-09 0001817944 us-gaap:SeriesDPreferredStockMember crxt:ExerciseOfWarrantsEventMember 2021-09-09 0001817944 crxt:BusinessCombinationMember 2021-09-09 0001817944 crxt:BusinessCombinationMember crxt:ReverseRecapitalizationEventMember us-gaap:PrivatePlacementMember 2021-09-09 0001817944 crxt:PikNoteMember 2021-01-01 2021-05-15 0001817944 crxt:HavahMember 2021-05-31 0001817944 crxt:PikNoteMember 2021-05-31 0001817944 crxt:PikNoteMember 2023-02-01 2023-02-28 0001817944 crxt:IndentureNoteMember 2021-06-01 2021-06-30 0001817944 crxt:AmendedAndRestatedCertificateOfIncorporationMember 2022-03-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember 2022-03-31 0001817944 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2022-03-31 0001817944 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2022-03-31 0001817944 crxt:SeniorSecuredNotesMember 2022-03-31 0001817944 crxt:EquityStockOptionAndIncentivePlan2021memberMember 2022-03-31 0001817944 crxt:EmployeeStockPurchasePlanMember 2022-03-31 0001817944 us-gaap:StockOptionMember 2022-03-31 0001817944 us-gaap:SeniorNotesMember 2022-03-31 0001817944 crxt:PikNoteMember 2022-03-31 0001817944 us-gaap:ConvertibleNotesPayableMember 2022-03-31 0001817944 us-gaap:WarrantMember 2022-03-31 0001817944 us-gaap:RestrictedStockMember 2022-03-31 0001817944 crxt:PrivatePlacementWarrantsMember 2022-03-31 0001817944 crxt:IpoWarrantsMember 2022-03-31 0001817944 crxt:MeasurementInputFairValueOfUnderlyingMeasurementMember 2022-03-31 0001817944 us-gaap:MeasurementInputRiskFreeInterestRateMember 2022-03-31 0001817944 us-gaap:MeasurementInputExpectedTermMember 2022-03-31 0001817944 us-gaap:MeasurementInputPriceVolatilityMember 2022-03-31 0001817944 us-gaap:MeasurementInputExpectedDividendRateMember 2022-03-31 0001817944 crxt:PublicWarrantsMember 2021-12-17 2021-12-17 0001817944 crxt:PrivatePlacementWarrantsMember 2021-12-17 2021-12-17 0001817944 us-gaap:SeriesDPreferredStockMember 2017-12-31 0001817944 crxt:ConversionOfPrincipalAndAccruedInterestOfConvertibleNotesMember us-gaap:SeriesDPreferredStockMember us-gaap:ConvertibleNotesPayableMember 2021-03-31 2021-03-31 0001817944 crxt:PreFundedWarrantsMember 2022-03-10 0001817944 crxt:PreFundedWarrantsMember us-gaap:SubsequentEventMember 2022-03-10 0001817944 crxt:PrivatePlacementWarrantsMember us-gaap:SubsequentEventMember 2022-03-10 0001817944 crxt:PrivatePlacementWarrantsMember 2022-01-01 2022-03-31 0001817944 us-gaap:LeaseAgreementsMember 2022-01-01 2022-03-31 0001817944 crxt:PfizerAgreementMember 2022-01-01 2022-03-31 0001817944 us-gaap:RestrictedStockMember 2022-01-01 2022-03-31 0001817944 us-gaap:StockOptionMember 2022-01-01 2022-03-31 0001817944 us-gaap:RedeemableConvertiblePreferredStockMember 2022-01-01 2022-03-31 0001817944 us-gaap:ConvertibleNotesPayableMember 2022-01-01 2022-03-31 0001817944 crxt:LegacyClarusWarrantsMember 2022-01-01 2022-03-31 0001817944 crxt:IpoWarrantsMember 2022-01-01 2022-03-31 0001817944 crxt:PipeWarrantsMember 2022-01-01 2022-03-31 0001817944 crxt:StockOptionAndUnvestedRestrictedAwardMember 2022-01-01 2022-03-31 0001817944 us-gaap:SellingAndMarketingExpenseMember 2022-01-01 2022-03-31 0001817944 us-gaap:ResearchAndDevelopmentExpenseMember 2022-01-01 2022-03-31 0001817944 us-gaap:GeneralAndAdministrativeExpenseMember 2022-01-01 2022-03-31 0001817944 us-gaap:ConvertibleDebtMember 2022-01-01 2022-03-31 0001817944 srt:MinimumMember 2022-01-01 2022-03-31 0001817944 srt:MaximumMember 2022-01-01 2022-03-31 0001817944 crxt:SeniorSecuredNotesMember 2022-01-01 2022-03-31 0001817944 crxt:PrivatePlacementWarrantLiabilitesMember 2022-01-01 2022-03-31 0001817944 us-gaap:FairValueInputsLevel12And3Member 2022-01-01 2022-03-31 0001817944 crxt:EmployeeStockPurchasePlanMember 2022-01-01 2022-03-31 0001817944 crxt:CatalentAgreementMember 2022-01-01 2022-03-31 0001817944 us-gaap:RestrictedStockUnitsRSUMember 2022-01-01 2022-03-31 0001817944 crxt:LegacyClarusStockOptionAndIncentivePlanMember 2022-01-01 2022-03-31 0001817944 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001817944 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001817944 crxt:PreFundedWarrantsMember us-gaap:SubsequentEventMember 2022-04-27 0001817944 us-gaap:SubsequentEventMember 2022-04-27 0001817944 us-gaap:SubsequentEventMember us-gaap:IPOMember 2022-04-27 0001817944 crxt:ClassAWarrantsMember us-gaap:SubsequentEventMember 2022-04-27 0001817944 us-gaap:LeaseAgreementsMember 2021-01-01 2021-03-31 0001817944 us-gaap:RedeemableConvertiblePreferredStockMember 2021-01-01 2021-03-31 0001817944 us-gaap:ConvertibleNotesPayableMember 2021-01-01 2021-03-31 0001817944 crxt:LegacyClarusWarrantsMember 2021-01-01 2021-03-31 0001817944 crxt:IpoWarrantsMember 2021-01-01 2021-03-31 0001817944 crxt:PrivatePlacementWarrantsMember 2021-01-01 2021-03-31 0001817944 crxt:PipeWarrantsMember 2021-01-01 2021-03-31 0001817944 crxt:StockOptionAndUnvestedRestrictedAwardMember 2021-01-01 2021-03-31 0001817944 us-gaap:SellingAndMarketingExpenseMember 2021-01-01 2021-03-31 0001817944 us-gaap:ResearchAndDevelopmentExpenseMember 2021-01-01 2021-03-31 0001817944 us-gaap:GeneralAndAdministrativeExpenseMember 2021-01-01 2021-03-31 0001817944 crxt:ConvertibleNotesMember 2021-01-01 2021-03-31 0001817944 crxt:SeniorSecuredNotesHoldersRoyalityObligationMember 2021-01-01 2021-03-31 0001817944 crxt:SeniorSecuredNotesMember 2021-01-01 2021-03-31 0001817944 us-gaap:PreferredStockMember us-gaap:RedeemablePreferredStockMember 2021-01-01 2021-03-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0001817944 us-gaap:ConvertibleNotesPayableMember us-gaap:SeriesDPreferredStockMember crxt:ConversionOfPrincipalPortionOfConvertibleNotesMember 2021-01-01 2021-03-31 0001817944 crxt:ConversionOfAccruedInterestPortionOfConvertibleNotesMember us-gaap:SeriesDPreferredStockMember us-gaap:ConvertibleNotesPayableMember 2021-01-01 2021-03-31 0001817944 crxt:CatalentAgreementMember 2021-01-01 2021-03-31 0001817944 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0001817944 crxt:ConversionOfPrincipalAndAccruedInterestOfConvertibleNotesMember 2022-03-31 2022-03-31 0001817944 us-gaap:StockOptionMember 2022-03-31 2022-03-31 0001817944 us-gaap:RestrictedStockUnitsRSUMember 2022-03-31 2022-03-31 0001817944 us-gaap:SubsequentEventMember crxt:PreFundedWarrantsMember 2022-04-27 2022-04-27 0001817944 us-gaap:SubsequentEventMember 2022-04-27 2022-04-27 0001817944 srt:MinimumMember 2022-04-29 0001817944 srt:MaximumMember 2022-04-29 0001817944 crxt:HavahMember 2021-05-01 2021-05-31 0001817944 crxt:PikNoteMember 2023-02-01 0001817944 crxt:McgillMember 2021-09-01 2021-09-30 0001817944 crxt:McgillMember 2021-09-30 0001817944 crxt:EmployeeStockPurchasePlanMember 2022-01-01 0001817944 crxt:EquityStockOptionAndIncentivePlan2021memberMember 2022-01-01 0001817944 crxt:PikNoteMember 2021-03-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001817944 us-gaap:CommonStockMember 2019-12-31 0001817944 us-gaap:RetainedEarningsMember 2019-12-31 0001817944 us-gaap:RedeemablePreferredStockMember us-gaap:PreferredStockMember 2019-12-31 0001817944 us-gaap:RetainedEarningsMember srt:RestatementAdjustmentMember 2019-12-31 0001817944 us-gaap:CommonStockMember srt:RestatementAdjustmentMember 2019-12-31 0001817944 srt:ScenarioPreviouslyReportedMember 2019-12-31 0001817944 srt:ScenarioPreviouslyReportedMember us-gaap:RetainedEarningsMember 2019-12-31 0001817944 srt:ScenarioPreviouslyReportedMember us-gaap:CommonStockMember 2019-12-31 0001817944 us-gaap:PreferredStockMember srt:ScenarioPreviouslyReportedMember us-gaap:RedeemablePreferredStockMember 2019-12-31 0001817944 us-gaap:RetainedEarningsMember 2020-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001817944 us-gaap:RedeemablePreferredStockMember us-gaap:PreferredStockMember 2020-12-31 0001817944 us-gaap:CommonStockMember 2020-12-31 0001817944 crxt:PrivatePlacementWarrantLiabilitesMember 2020-12-31 0001817944 crxt:PrivatePlacementWarrantLiabilitesMember 2021-12-31 0001817944 crxt:BusinessCombinationMember 2020-12-31 0001817944 us-gaap:RetainedEarningsMember 2021-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001817944 crxt:BusinessCombinationMember 2021-09-08 0001817944 us-gaap:RedeemablePreferredStockMember us-gaap:PreferredStockMember srt:ScenarioPreviouslyReportedMember 2021-12-31 0001817944 us-gaap:CommonStockMember srt:ScenarioPreviouslyReportedMember 2021-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember srt:ScenarioPreviouslyReportedMember 2021-12-31 0001817944 us-gaap:RetainedEarningsMember srt:ScenarioPreviouslyReportedMember 2021-12-31 0001817944 srt:ScenarioPreviouslyReportedMember 2021-12-31 0001817944 crxt:PrivatePlacementWarrantLiabilitesMember 2022-03-31 0001817944 us-gaap:RedeemablePreferredStockMember us-gaap:PreferredStockMember 2022-03-31 0001817944 us-gaap:CommonStockMember 2022-03-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001817944 us-gaap:RetainedEarningsMember 2022-03-31 0001817944 us-gaap:PreferredStockMember us-gaap:RedeemablePreferredStockMember srt:ScenarioPreviouslyReportedMember 2020-12-31 0001817944 us-gaap:CommonStockMember srt:ScenarioPreviouslyReportedMember 2020-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember srt:ScenarioPreviouslyReportedMember 2020-12-31 0001817944 us-gaap:RetainedEarningsMember srt:ScenarioPreviouslyReportedMember 2020-12-31 0001817944 srt:ScenarioPreviouslyReportedMember 2020-12-31 0001817944 us-gaap:PreferredStockMember us-gaap:RedeemablePreferredStockMember srt:RestatementAdjustmentMember 2020-12-31 0001817944 us-gaap:CommonStockMember srt:RestatementAdjustmentMember 2020-12-31 0001817944 us-gaap:AdditionalPaidInCapitalMember srt:RestatementAdjustmentMember 2020-12-31 0001817944 us-gaap:RetainedEarningsMember srt:RestatementAdjustmentMember 2020-12-31 0001817944 srt:RestatementAdjustmentMember 2020-12-31 0001817944 us-gaap:PreferredStockMember us-gaap:RedeemablePreferredStockMember 2021-03-31 0001817944 us-gaap:CommonStockMember 2021-03-31 0001817944 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001817944 us-gaap:RetainedEarningsMember 2021-03-31 iso4217:USD xbrli:shares utr:Year xbrli:pure utr:Day iso4217:USD xbrli:shares crxt:Patents utr:D utr:Y
As filed with the Securities and Exchange Commission on May 24, 2022
Registration
No. 333-            
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
Clarus Therapeutics Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
2836
 
85-1231852
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
555 Skokie Boulevard, Suite 340
Northbrook, Illinois 60062
(847)
562-4300
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
Robert E. Dudley, Ph.D.
Chief Executive Officer
555 Skokie Boulevard, Suite 340
Northbrook, Illinois 60062
(847)
562-4300
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies to:
Mitchell S. Bloom, Esq.
Marianne Sarrazin, Esq.
Goodwin Procter LLP
100 Northern Avenue
Boston, Massachusetts 02210
Tel: (617)
570-1000
 
 
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.  ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
under the Securities Exchange Act of 1934:
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated filer
     Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  
 
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

The information in this preliminary prospectus is not complete and may be changed. Neither we nor the Selling Securityholder may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION—DATED MAY 24, 2022
PRELIMINARY PROSPECTUS
 

Up to 1,300,000 Shares of Common Stock
 
 
This prospectus relates to the offer and sale from time to time by the selling securityholder named in this prospectus, or the Selling Securityholder, of an aggregate of up to 1,300,000 shares of our common stock, $0.0001 par value per share, or Common Stock, issuable upon the exercise of 1,300,000 Common Stock purchase warrants, or the Armistice Warrants, which were originally issued in a private placement to the Selling Securityholder.
We will not receive any proceeds from the sale of shares of Common Stock by the Selling Securityholder pursuant to this prospectus but we will receive the proceeds from any exercise of Armistice Warrants for cash. We will pay the expenses, other than underwriting discounts and commissions and expenses incurred by the Selling Securityholder for brokerage, accounting, tax or legal services or any other expenses incurred by the Selling Securityholder in disposing of the securities, associated with the sale of securities pursuant to this prospectus.
We are registering the securities for resale pursuant to the Selling Securityholder’s registration rights under the Armistice warrant. Our registration of the securities covered by this prospectus does not mean that the Selling Securityholder will offer or sell any of the shares of Common Stock. The Selling Securityholder may offer, sell or distribute all or a portion of its shares of Common Stock publicly or through private transactions at prevailing market prices or at negotiated prices. We provide more information about how the Selling Securityholder may sell such shares in the section entitled “
Plan of Distribution
.”
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, and are subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.
The Common Stock and warrants issued as part of the units in our initial public offering, or the Public Warrants, are listed on The Nasdaq Global Market, or Nasdaq, under the symbols “CRXT” and “CRXTW,” respectively. On May 23, 2022, the closing price of the Common Stock was $0.4246 and the closing price for the Public Warrants was $0.0729.
 
 
See the section entitled “Risk Factors” beginning on page 5 of this prospectus to read about factors you should consider before buying our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is                    , 2022.

TABLE OF CONTENTS
 
 
  
Page
 
  
 
ii
 
  
 
iv
 
  
 
1
 
  
 
5
 
  
 
35
 
  
 
36
 
  
 
37
 
  
 
53
 
  
 
86
 
  
 
93
 
  
 
95
 
  
 
104
 
  
 
109
 
  
 
111
 
  
 
112
 
  
 
121
 
  
 
126
 
  
 
128
 
  
 
128
 
  
 
129
 
  
 
F-1
 
Unless the context indicates otherwise, references in this prospectus to the “Company,” “Clarus,” “we,” “us,” “our” and similar terms refer to Clarus Therapeutics Holdings, Inc. (formerly known as Blue Water Acquisition Corp.) and its consolidated subsidiaries (including Legacy Clarus). References to “Blue Water” refer to Blue Water Acquisition Corp., a Delaware corporation, our predecessor company prior to the consummation of the Merger.
 
i

ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form
S-1
that we filed with the U.S. Securities and Exchange Commission, or SEC, using the “shelf” registration process. Under this shelf registration process, the Selling Securityholder may, from time to time, sell the securities offered by it described in this prospectus. We will not receive any proceeds from the sale by such Selling Securityholder of the securities offered by it described in this prospectus although we will receive the exercise price upon any cash exercise of the Armistice warrants.
You should rely only on the information contained in this prospectus as well as the information incorporated by reference to exhibits to the registration statement of which this prospectus forms a part and any applicable prospectus supplement. Neither we nor the Selling Securityholder have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement. Neither we nor the Selling Securityholder take responsibility for, or provide any assurance as to the reliability of, any other information that others may give you. You should not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the date of the applicable document. Since the date of this prospectus and the documents filed as exhibits to the registration statement of which this prospectus forms a part, our business, financial condition, results of operations and prospects may have change. Neither we nor the Selling Securityholder will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the sections of this prospectus entitled “
Where You Can Find More Information
.”
On September 9, 2021, or the Merger Closing Date, Clarus Therapeutics Holdings, Inc., a Delaware corporation, consummated a business combination pursuant to the terms of an Agreement and Plan of Merger, or the Merger Agreement, dated April 27, 2021 by and among our wholly-owned merger sub, Blue Water Merger Sub Corp., a Delaware corporation, or Merger Sub, and Clarus Therapeutics, Inc., or Legacy Clarus.
Pursuant to the terms of the Merger Agreement, we effected a business combination through the merger of Merger Sub with and into Legacy Clarus, or the Merger, with Legacy Clarus surviving as the post-merger company and as our wholly owned subsidiary. On the Merger Closing Date, we changed our name from Blue Water Acquisition Corp. to Clarus Therapeutics Holdings, Inc.
On December 7, 2021, we completed a private placement pursuant to the terms of a securities purchase agreement, or the Securities Purchase Agreement, dated December 3, 2021 with the purchaser listed therein, pursuant to which we issued shares of Common Stock,
pre-funded
warrants, or the PIPE
pre-funded
warrants, and Common Stock purchase warrants, or the PIPE common warrants. Under the Securities Purchase Agreement, we also agreed not to engage in certain “variable rate transactions” (as defined therein) for a period of 12 months from the date the registration statement registering for resale the securities issued pursuant to the Securities Purchase Agreement was declared effective.
On April 27, 2022, we issued and sold units in an underwritten
follow-on
public offering, or the April 2022 public offering, consisting of (i) shares of Common Stock and accompanying Class A warrants to purchase shares of Common Stock and
(ii) pre-funded
warrants to purchase shares of Common Stock and accompanying Class A warrants to purchase shares of Common Stock, resulting in gross proceeds of approximately $30.0 million. The accompanying Class A warrants provide for anti-dilution price protection, which could be considered a “variable rate transaction” for purposes of the Securities Purchase Agreement. Accordingly,
 
ii

concurrent with the closing of the April 2022 public offering, we issued the Armistice Warrants to acquire 1,300,000 shares of Common Stock to the Selling Securityholder in exchange for a waiver of restrictions in the Securities Purchase Agreement that prohibited the issuance of the Class A warrants with anti-dilution price protection terms. The Armistice Warrants have a five-year term, an exercise price of $1.80 per share, and are subject to adjustment for dilutive issuances.
 
iii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of present or historical fact included in this prospectus, our future financial performance, strategy, expansion plans, future operations, future operating results, estimated revenues, losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of such terms or other similar expressions. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this prospectus. We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control.
Forward-looking statements in this prospectus may include, for example, statements about:
 
   
our ability to obtain funding for our operations and to grow our business;
 
   
our ability to successfully commercialize and market JATENZO and any future product candidates, if approved, and the timing of any commercialization and marketing efforts;
 
   
the potential market size, opportunity and growth potential for JATENZO and any future product candidates, if approved;
 
   
the benefits of testosterone, or T, replacement therapy in certain populations, patients’ drug administration preferences and acceptance of JATENZO by physicians and patients;
 
   
our plans and expectations regarding our strategic alternative review process and the timing and success of such process regarding a potential transaction;
 
   
the timing of our product development activities and the initiation, timing, progress and results of our exploratory trials and studies to guide the development of JATENZO for additional potential indications;
 
   
the implementation of our business model, strategic plans for our business, product candidates and technology;
 
   
expectations regarding sales of JATENZO and the costs of supplying, manufacturing and continuing to commercialize JATENZO;
 
   
our ability to obtain marketing approval and acceptance for JATENZO in territories outside of the United States;
 
   
our ability to maintain the listing of the Common Stock on the Nasdaq Global Market and the potential liquidity and trading of our securities;
 
   
our future financial performance and expectations regarding future expenditures;
 
   
the accuracy of our estimates regarding expenses, capital requirements and our future needs for additional financing;
 
   
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professional;
 
iv

   
developments relating to our competitors and our industry, and our ability to compete effectively in a competitive industry;
 
   
our ability to contract with third-party suppliers, manufacturers and other service providers and their ability to perform adequately and to produce sufficient quantities of clinical and potentially future commercial supplies;
 
   
our ability to enter into marketing or
co-promotional
arrangements and strategic partnerships;
 
   
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
 
   
regulatory, judicial, and legislative developments and their impact on our business;
 
   
the impact from the outcome of any known and unknown litigation; and
 
   
other risks and uncertainties, including those listed under the section titled “
Risk Factors
.”
All of these forward-looking statements are subject to a number of risks and uncertainties, including those set forth in this prospectus in the section entitled “
Risk Factors
.” Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Additional cautionary statements or discussions of risks and uncertainties that could affect our results or the achievement of the expectations described in forward-looking statements may also be contained in any accompanying prospectus supplement.
Should one or more of the risks or uncertainties described in this prospectus, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.
You should read this prospectus and any accompanying prospectus supplement completely and with the understanding that our actual future results, levels of activity and performance as well as other events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
 
v

PROSPECTUS SUMMARY
This summary highlights selected information appearing in this prospectus. Because it is a summary, it may not contain all of the information that may be important to you. To understand this offering fully, you should read this entire prospectus carefully, including the information set forth in the sections entitled “
Risk Factors
,” “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
,” “
Business
” and the unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 and related notes and the audited consolidated financial statements for the year ended December 31, 2021
and related notes included elsewhere in this prospectus before making an investment decision.
The Company
We are a pharmaceutical company focused on the commercialization of JATENZO, the first oral
T-replacement
or
T-replacement
therapy, or TRT, of its kind that has received final approval by the U.S. Food and Drug Administration, or the FDA. We believe that current users of TRT are not satisfied with their current options and desire a therapeutic that is safe, effective and more convenient. Our primary goal for JATENZO is for it to become the preferred choice for TRT among men with hypogonadism — T deficiency accompanied by an associated medical condition. In parallel, our broader vision is to become a pharmaceutical company initially focused on the development and commercialization of JATENZO and other metabolic therapies for men and women.
Background
We were a blank check company incorporated in Delaware on May 22, 2020 and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On September 9, 2021, we consummated the previously announced business combination pursuant to the terms of the Merger Agreement by and among our company, Merger Sub and Legacy Clarus in which Merger Sub merged with and into Legacy Clarus, with Legacy Clarus surviving as the post-merger company and as our wholly owned subsidiary. On the Merger Closing Date, we changed our name from Blue Water Acquisition Corp. to Clarus Therapeutics Holdings, Inc. At the effective time of the Merger, we issued an aggregate of 17,751,348 newly issued shares of Common Stock to the Legacy Clarus security holders, assumed certain Legacy Clarus warrants that are now exercisable for 9,246 shares of Common Stock, and the remaining shares of Legacy Clarus capital stock and all outstanding options, warrants or rights to purchase or subscribe for any Legacy Clarus capital stock, securities convertible into or exchangeable for, or that otherwise conferred on the holder any right to acquire any capital stock of Legacy Clarus were cancelled, retired and terminated without any consideration or any liability to Legacy Clarus with respect thereto. In addition, all shares of our Class B common stock, par value $0.00001 per share, were converted into Class A common stock and then following the effective time of the Merger, upon filing of our Second Amended and Restated Certificate of Incorporation, or the Certificate of Incorporation, all of our shares of common stock were redesignated as Common Stock.
The Common Stock and Public Warrants are currently listed on Nasdaq under the symbols “CRXT” and “CRXTW,” respectively.
The rights of holders of the Common Stock and Public Warrants are governed by the Certificate of Incorporation, our Amended and Restated Bylaws, or the Bylaws, and the General Corporation Law of the State of Delaware, as amended, or the DGCL, and in the case of the Public Warrants and the warrants to purchase shares of Common Stock issued to the Sponsor in a private placement (including the additional warrants purchased after Blue Water’s initial public offering in connection with the overallotment securities issued to Blue
 
1

Water’s underwriters), or the Placement Warrants, a warrant agreement dated December 15, 2020, between Blue Water and Continental Stock Transfer & Trust Company, as the warrant agent. See the sections entitled “
Description of our Securities
” and “
Certain Relationships and Related Party Transactions
.”
The April 2022 Public Offering and Related Private Placement
On April 27, 2022 we completed an underwritten
follow-on
public offering in which we issued and sold 27,270,720 units consisting of (i) 26,680,720 shares of Common Stock and accompanying Class A warrants to purchase an aggregate of 26,680,720 shares of Common Stock, at a purchase price of $1.10 per Common Stock unit and (ii) 590,000
pre-funded
warrants to purchase 590,000 shares of Common Stock at an exercise price of $0.001 per
pre-funded
warrant, and accompanying Class A warrants to purchase an aggregate of 590,000 shares of Common Stock, at a purchase price of $1.10 (less) $0.001 per
pre-funded
warrant unit, resulting in gross proceeds of approximately $30.0 million. The
pre-funded
warrants were exercised upon issuance and are no longer outstanding. The Class A warrants are immediately exercisable, have an exercise price of $1.10 per share, expire five years after the issuance date and provide for anti-dilution price protection. We received net proceeds of $27.9 million, after incurring transaction expenses of approximately $2.1 million.
On April 27, 2022, concurrent with the closing of the April 2022 public offering, we issued the Armistice Warrants to acquire 1,300,000 shares of Common Stock to the Selling Securityholder in exchange for a waiver of restrictions in the Securities Purchase Agreement that prohibited the issuance of the Class A warrants with anti-dilution price protection terms. The Armistice Warrants have a five-year term, an exercise price of $1.80 per share, and are subject to adjustment for dilutive issuances. In addition, we agreed to register for resale the shares underlying the Armistice Warrants.
Risks Associated with Our Business
Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled “
Risk Factors
,” following this prospectus summary. These risks include the following, among others:
 
   
We have incurred significant operating losses and there is substantial doubt about our ability to continue as a going concern, which may affect our ability to obtain future financing and may require us to curtail our operations. We will need to raise additional capital to support our operations.
 
   
We have significant indebtedness and servicing our debt requires a significant amount of cash. We may not have sufficient cash flow from our operations to satisfy the financial covenants in our debt agreements. We may not receive a waiver of default for outstanding indebtedness for which we may be in default in the future.
 
   
We may not be successful in identifying and implementing any strategic business combination or other transaction and any strategic transactions that we may consummate in the future could have negative consequences.
 
   
JATENZO is the only product we are commercializing. If we fail to successfully commercialize JATENZO, we may need to acquire additional product candidates and our business may be impaired.
 
   
We have limited experience as a commercial company and the marketing and sale of JATENZO or any future approved drugs may be unsuccessful or less successful than anticipated.
 
   
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
 
   
Our reliance on third-party suppliers and distributors could harm our ability to commercialize JATENZO or any product candidates that may be approved in the future.
 
2

   
The ongoing
COVID-19
pandemic is having, and is expected to have, an adverse impact on our business, financial condition and results of operations, including our commercial operations and sales.
 
   
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label
uses. If we are found to have improperly promoted
off-label
uses, we may become subject to significant liability.
 
   
Even though we have received marketing approval for JATENZO in the United States, we may never receive marketing approval outside of the United States, or receive pricing and reimbursement outside the United States at acceptable levels.
 
   
Recent federal legislation may increase pressure to reduce prices of certain pharmaceutical products paid for by Medicare, which could materially adversely affect our revenue and our results of operations.
 
   
T is a Schedule III
(non-narcotic)
substance under the Controlled Substances Act and any failure to comply with this Act or its state equivalents would have a negative impact on our business.
 
   
If coverage and reimbursement for JATENZO are limited, it may be difficult for us to profitably sell JATENZO.
 
   
Our market is subject to intense competition. If we are unable to compete effectively, our opportunity to generate revenue from the sale of JATENZO will be impaired.
 
   
If we are unable to obtain or protect intellectual property rights related to JATENZO, we may not be able to compete effectively in our market.
 
   
We may be involved in lawsuits and proceedings to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
 
   
We have identified material weaknesses in our internal control over financial reporting, and we may identify future material weaknesses in our internal control over financial reporting.
 
   
We will need to grow our company, and we may encounter difficulties in managing this growth, which could disrupt our operations.
 
   
Our future success depends on our ability to retain our chief executive officer, chief financial officer, chief commercial officer and chief administrative officer and to attract, retain and motivate qualified personnel.
 
   
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Corporate Information
The mailing address for our principal executive office is 555 Skokie Boulevard, Suite 340, Northbrook, Illinois 60062, and our telephone number is (847)
562-4300.
Our website address is https://clarustherapeutics.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company under the JOBS Act until the earliest of (a) the last day of our first fiscal year following the fifth anniversary of Blue Water’s initial public offering, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (c) the date on which we are
 
3

deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by
non-affiliates
or (d) the date on which we have issued more than $1.0 billion in
non-convertible
debt securities during the previous three years.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of the Common Stock held by
non-affiliates
is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of the Common Stock held by
non-affiliates
is less than $700.0 million measured on the last business day of our second fiscal quarter.
As a result, the information in this prospectus and that we provide to our investors in the future may be different than what you might receive from other public reporting companies.
 
4

RISK FACTORS
Investing in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus or any prospectus supplement are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.
Risks Related to Business Operations and Commercialization
We have incurred significant operating losses and there is substantial doubt about our ability to continue as a going concern, which may affect our ability to obtain future financing and may require us to curtail our operations. We will need to raise additional capital to support our operations.
We have experienced negative operating cash flows and have accumulated significant accrued liabilities. Our net loss was $14.9 million for the three months ended March 31, 2022 and $40.6 million for the year ended December 31, 2021, and we had an accumulated deficit of $336.5 million as of March 31, 2022. Our revenue generated from the sales of JATENZO along with existing cash and cash equivalents of $9.1 million as of March 31, 2022 and the $27.9 million of net proceeds from our April 2022 public offering is expected to fund our operating expenses and capital expenditure requirements into September 2022. Accordingly, there is substantial doubt about our ability to continue as a going concern. Our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 and audited consolidated financial statements for the year ended December 31, 2021
and related notes included elsewhere in this prospectus do not include any adjustments that might result from the outcome of this uncertainty. Additionally, our independent registered public accounting firm’s report for the year ended December 31, 2021 contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern.
We plan to seek additional funding through the expansion of our commercial efforts to grow JATENZO and our operating cash flow, business development efforts to
out-license
JATENZO internationally, equity financings, debt financings (including potential restructuring of our current indebtedness), or other capital sources including collaborations with other companies or other strategic arrangements with third parties. There can be no assurance that these future financing efforts will be successful. If we are unable to obtain funding or generate operating cash flow, or successfully restructure our debt or engage in a strategic transaction, we will be forced to delay, reduce or eliminate some or all of our product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. We could also be required to limit or terminate our operations, make reductions in our workforce, discontinue our commercialization efforts for JATENZO as well as other development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
We have significant indebtedness and servicing our debt requires a significant amount of cash. We may not have sufficient cash flow from our operations to satisfy the financial covenants in our debt agreements. We may not receive a waiver of default for outstanding indebtedness for which we may be in default in the future.
In March 2020, prior to completion of the business combination, Legacy Clarus issued and sold senior secured notes to certain purchasers. The terms of the senior secured notes provide for semi-annual payments on March 1 and September 1. Until March 2022, only interest was payable on the notes. Legacy Clarus did not pay interest of approximately $2.99 million due September 1, 2021. On September 28, 2021, Legacy Clarus and the noteholders entered into Supplemental Indenture No. 3, which supplements the existing indenture, pursuant to
 
5

which they agreed to defer the September 1, 2021 interest payment to March 1, 2022, at an increased interest rate of 18.5%. Pursuant to Supplemental Indenture No. 3, Legacy Clarus also agreed, among other things, to commence a process to refinance, redeem or repay all notes outstanding under the indenture.
Beginning in September 1, 2022, in addition to interest payments, Legacy Clarus is required to make principal payments of $6 million on each of September 1, 2022, March 1, 2023, September 1, 2023 and March 1, 2024. Thereafter, in addition to interest payments, Legacy Clarus is required to make principal payments of $8 million on each of September 1, 2024 and March 1, 2025. Additionally, on February 1, 2023, Legacy Clarus is required to make a payment of principal in the amount of $3.125 million, which is the amount of a
payment-in-kind
note Legacy Clarus issued on May 27, 2021, plus accrued and unpaid interest in respect of such principal.
If we are unable to make payments when due or repay these obligations at maturity, and are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to generate the necessary amount of capital to make payments as they become due, or to repay these obligations, or that we will be able to extend the maturity dates or otherwise refinance these obligations. In the event of default on any of these loans, the noteholders have the right to exercise all remedies available under the indenture to receive the funds due. Accordingly, a default would have a material adverse effect on our business. In addition, the agreements governing this indebtedness include certain debt service and other financial covenants that Legacy Clarus must satisfy. In the past, Legacy Clarus has defaulted on certain of these covenants and has entered into forbearance agreements to waive Legacy Clarus defaults from the noteholders.
We cannot provide any assurance that the noteholders would provide us with a consent or enter into a forbearance agreement should Legacy Clarus not be in compliance in the future. A failure to maintain compliance, in the event the noteholders do not agree to a consent for the
non-compliance,
would cause the outstanding borrowings to be in default and payable on demand which would have a material adverse effect on us.
We may not be successful in identifying and implementing any strategic business combination or other transaction and any strategic transactions that we may consummate in the future could have negative consequences.
We continue to evaluate all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction. However, there can be no assurance that we will be able to successfully consummate any particular strategic transaction. The process of continuing to evaluate these strategic options may be very costly, time-consuming and complex and we have incurred, and may in the future incur, significant costs related to this continued evaluation, such as legal and accounting fees and expenses and other related charges. We may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed. Any such expenses will decrease the remaining cash available for use in our business and may diminish or delay any future distributions to our stockholders.
In addition, any strategic business combination or other transactions that we may consummate in the future could have a variety of negative consequences and we may implement a course of action or consummate a transaction that yields unexpected results that adversely affects our business and decreases the remaining cash available for use in our business or the execution of our strategic plan. There can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results. Any failure of such potential transaction to achieve the anticipated results could significantly impair our ability to enter into any future strategic transactions and may significantly diminish or delay any future distributions to our stockholders.
 
6

We depend almost entirely on the success of our product, JATENZO. There is no assurance that our commercialization efforts in the United States with respect to JATENZO will be successful or that we will be able to generate revenues at the levels or within the timing we expect or at the levels or within the timing necessary to support our goals.
Our lead product, JATENZO, was approved by the FDA in March 2019 and became commercially available in the United States in February 2020. Through March 31, 2022, we have generated $24.3 million in net revenues from the sale of JATENZO in the United States.
Our business currently depends heavily on our ability to successfully commercialize JATENZO, an androgen indicated for
T-replacement
therapy, in the United States to treat adult men with hypogonadism due to certain medical conditions. We may never be able to successfully commercialize the product or meet our expectations with respect to revenues. We may be subject to patent litigation that could materially impact or prevent commercialization. For example, Lipocine, Inc., or Lipocine, sued us for infringement of their patents. Although we prevailed on our motion for summary judgment in the litigation which invalidated the asserted Lipocine patents, and subsequently entered into a global settlement agreement with Lipocine, additional claims from other third parties could arise in the future. This and other proceedings are discussed in Note 13 – Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus.
Prior to our launch in February 2020, we had never marketed, sold or distributed for commercial use any pharmaceutical product. There is no guarantee that the infrastructure, systems, processes, policies, personnel, relationships and materials we have built to launch and commercialize JATENZO in the United States will be sufficient for us to achieve success at the levels we expect. Additionally, healthcare providers may not prescribe JATENZO due to safety risks posed by
T-replacement
products. We may also encounter challenges related to the reimbursement of JATENZO, even if we have positive early indications from payors, including potential limitations in the scope, breadth, availability, or amount of reimbursement covering each product. Similarly, healthcare settings or patients may determine that the financial burdens of treatment are not acceptable. Our results may also be negatively impacted if we have not adequately sized our field teams or our targeting strategy is inadequate or if we encounter deficiencies or inefficiencies in our infrastructure or processes. Any of these issues could impair our ability to successfully commercialize JATENZO or to generate substantial revenues or profits or to meet our expectations with respect to the amount or timing of revenue or profits. Any issues or hurdles related to our commercialization efforts may materially adversely affect our business, results of operations, financial condition and prospects. There is no guarantee that we will be successful in our commercialization efforts with respect to JATENZO.
We have limited experience as a commercial company and the marketing and sale of JATENZO or any future approved drugs may be unsuccessful or less successful than anticipated.
While we have initiated the commercial launch of JATENZO in the United States, we have limited experience as a commercial company and there is limited information about our ability to successfully overcome many of the risks and uncertainties encountered by companies commercializing drugs in the biopharmaceutical industry. To execute our business plan, in addition to successfully marketing and selling JATENZO, we will need to successfully:
 
   
establish and maintain our relationships with healthcare providers who will be treating the patients who may receive JATENZO and any future products;
 
   
obtain adequate pricing and reimbursement for JATENZO and any future products;
 
   
develop and maintain successful strategic alliances; and
 
   
manage our spending as costs and expenses increase due to clinical trials, marketing approvals, and commercialization.
 
7

If we are unsuccessful in accomplishing these objectives, we may not be able to successfully commercialize JATENZO and any future product candidates, raise capital, expand our business, or continue our operations.
The sales, marketing and distribution capabilities we have built may not be sufficient to overcome the challenges associated with commercializing JATENZO. We may not be able to build sufficient sales, marketing and distribution capabilities with respect to any of our future product candidates, if successfully developed and approved. If we are unsuccessful in these efforts, or if we are unable to achieve market acceptance for any approved products, our business, results of operations, financial condition and prospects will be materially adversely affected.
JATENZO is the first product we have marketed, sold and distributed for commercial use. There is no guarantee that the systems, processes, policies, relationships and materials we have built will be sufficient to overcome the challenges associated with commercializing JATENZO or for successful commercialization of the product in the United States as a treatment for adult men with hypogonadism due to certain medical conditions.
We have established a specialty sales force to promote JATENZO to endocrinologists and urologists, as well as high-prescribers of
T-replacement
therapies among primary care physicians, or PCPs, in the United States. In addition, we will need to commit significant additional management and other resources to establish and grow our sales organization. We may not be able to achieve the necessary development and growth in a cost-effective manner or realize a positive return on our investment. We will also have to compete with other pharmaceutical companies to recruit, hire, train and retain sales and marketing personnel. In addition, we plan to explore partnership or
co-promotion
arrangements with established pharmaceutical companies that have
PCP-focused
sales forces or contract with an outside sales force to achieve broader penetration into the U.S. PCP market, which may prove costly or difficult to implement. If we are unable to grow our sales force, or enter into agreements with third parties that have existing sales forces, we will not be able to successfully commercialize JATENZO and our ability to generate revenue will be impaired.
We have identified material weaknesses in our internal control over financial reporting, and we may identify future material weaknesses in our internal control over financial reporting.
During the preparation of our financial statements for the fiscal year ended December 31, 2021, management identified material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
Specifically, we identified a combination of deficiencies in our internal controls within the financial reporting function that result from an ineffective design and implementation of an appropriate system of controls. The material weaknesses identified include (i) insufficient supervision and review, (ii) a lack of segregation of duties and (iii) a lack of access and input controls related to our financial reporting systems. Management believes these deficiencies are the result of a lack of accounting personnel to provide the necessary segregation and review.
We have started the process of remediating these deficiencies and will continue to take initiatives to improve our internal control over financial reporting and disclosure controls. Towards this end, we are in the process of hiring additional accounting personnel. Management believes these efforts will address the issues that led to the aforementioned deficiencies. We are committed to appropriately staffing the accounting and reporting functions. However, the implementation of these initiatives is not complete and may not fully address the material weaknesses in our internal control over financial reporting and we cannot assure you that we will not identify other material weaknesses or deficiencies, which could negatively impact our results of operations in future periods.
 
8

More generally, the process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that satisfies our reporting obligations. If we are unable to meet the demands placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results in future periods, or report them within the timeframes required by law or securities exchange regulations. Failure to comply with the Sarbanes-Oxley Act, when and as applicable, could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. Any failure to maintain or implement required new or improved controls, or any difficulties encountered in their implementation, could result in additional material weaknesses or significant deficiencies, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, and investors could lose confidence in our, reported financial information. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in the ownership of its equity over a three-year period), the corporation’s ability to use its
pre-change
net operating loss, or NOL, carryforwards and certain other
pre-change
tax attributes to offset its post-change income may be limited. We have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of the business combination or subsequent shifts in our stock ownership, some of which are outside our control. As of December 31, 2021, we had U.S. federal and state NOL carryforwards of $231.7 million and $202.7 million, respectively, and our ability to utilize those NOLs could be limited by an “ownership change” as described above, which could result in increased tax liability to us. Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U.S. federal and state taxable income. As a result, the amount of the NOL and tax credit carryforwards presented in our financial statements could be limited and may expire unutilized. Federal NOL carryforwards generated in taxable years beginning after December 31, 2017 will not be subject to expiration. However, any such NOL carryforwards may only offset 80% of our annual taxable income in taxable years beginning after December 31, 2020.
Risks Related to Our Dependence on Third Parties
Our reliance on third-party suppliers and distributors could harm our ability to commercialize JATENZO or any product candidates that may be approved in the future.
We do not currently own or operate manufacturing facilities for the production of JATENZO or any product candidates that may be approved in the future. We rely on third-party suppliers to manufacture and supply the active pharmaceutical ingredient and drug product required for our commercial supply and preclinical studies and clinical trials, which may not be able to produce sufficient inventory to meet commercial demand in a cost-efficient, timely manner, or at all. Our third-party suppliers may not be required to, or may be unable to, provide us with any guaranteed minimum production levels or have sufficient dedicated capacity for our drugs. As a result, there can be no assurances that we will be able to obtain sufficient quantities of JATENZO, which could have a material adverse effect on our business as a whole.
If any contract manufacturing organization, or CMO, with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different CMO, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trials or commercial distribution could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original CMO and we may have difficulty, or there
 
9

may be contractual restrictions prohibiting us from, transferring such skills to a
back-up
or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change CMOs for any reason, we will be required to verify that the new CMO maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product according to the specifications previously submitted to or approved by the FDA or another regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMO may possess technology related to the manufacture of our product candidate that such CMO owns independently. This would increase our reliance on such CMO or require us to obtain a license from such CMO in order to have another CMO manufacture our products or product candidates. In addition, in the case of the CMOs that supply our product candidates, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.
Additionally, in March 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law in response to the
COVID-19
pandemic. Throughout the
COVID-19
outbreak, there has been public concern over the availability and accessibility of critical medical products, and the CARES Act enhances FDA’s existing authority with respect to drug shortage measures. Under the CARES Act, we must have in place a risk management plan that identifies and evaluates the risks to the supply of approved drugs for certain serious diseases or conditions for each establishment where the drug or active pharmaceutical ingredient is manufactured. The risk management plan will be subject to FDA review during an inspection. If we experience shortages in the supply of our marketed products, our results could be materially impacted.
We rely on two suppliers for our supply of
T-undecanoate,
or TU, the active pharmaceutical ingredient of JATENZO, and the loss of either of these suppliers could impair our ability to procure sufficient amounts of TU to meet demand for JATENZO.
We rely on two third-party suppliers, Pharmacia & Upjohn Company LLC, or Pfizer, and XIANJU Pharmaceutical Co. LTD, or Xianju, for our supply of
T-undecanoate,
the active pharmaceutical ingredient of JATENZO. Because there are only a limited number of TU suppliers in the world, if either of these parties ceases to provide us with TU or materially reduces the amount of TU they can provide us with, including below the minimum supply obligations in the case of our agreement with Pfizer, we may be unable to procure sufficient amounts of TU on commercially favorable terms, or may not be able to obtain it in a timely manner. Furthermore, the limited number of suppliers of TU may provide such companies with greater opportunity to raise their prices. Any increase in price for TU will likely reduce our gross margins.
We depend on Catalent Pharma Solutions, LLC, or Catalent, for the supply of the softgel capsules for JATENZO and the termination of our agreement with Catalent would hurt our business.
Our JATENZO softgel capsules are manufactured by Catalent pursuant to an exclusive manufacturing agreement under which Catalent will be our sole supplier of JATENZO softgel capsules on a worldwide basis. Reliance on a third-party manufacturer involves risks to which we would not be subject if we manufactured JATENZO ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control and the possibility of termination or nonrenewal of the agreement by the third party at a time that is costly or damaging to us. The FDA and other regulatory authorities require that JATENZO be manufactured according to current good manufacturing practices, or cGMP, and we are ultimately responsible for ensuring JATENZO is manufactured in accordance with cGMP even though we use contract manufacturers. Any failure by our third-party manufacturers to comply with cGMP could be the basis for action by the FDA to withdraw approvals previously granted to us and for other regulatory action.
 
10

We are required to purchase a minimum quantity of JATENZO softgel capsules. We are also required to pay to Catalent an annual commercial occupancy fee and an annual product maintenance fee effective January 1 of the year that commercial manufacture of JATENZO occurs. If Catalent terminates the manufacturing agreement, we would need to identify a new supplier of JATENZO softgel capsules, which could result in an interruption of the continued supply of JATENZO. In addition, we would lose the benefits of and rights to use Catalent’s proprietary technology and, to the extent that we were relying upon this technology, would need to negotiate for separate rights to it. The FDA likely will require the facilities of any new manufacturer of JATENZO to pass inspection before approving the change to such new manufacturer and would also potentially require that we run additional studies if we change the softgel formulation of JATENZO. Although it is likely that clinical studies will not be necessary, there is no guarantee of this. Accordingly, the termination of the Catalent manufacturing agreement could have a material adverse effect on our business, results of operations, financial condition and prospects.
If we do not establish successful partnership or
co-promotion
arrangements, our commercialization plans for JATENZO may be impacted.
We have established our own commercial organization in the United States, however, in order to achieve deeper penetration into the PCP market in the United States; we expect to enter into marketing or
co-promotion
arrangements with established pharmaceutical companies that have a
PCP-focused
sales force or contract with an outside sales force. Additionally, we expect to consider strategic partnerships to assist in obtaining marketing approval for and commercialization of JATENZO outside of the United States. We will face significant competition in seeking appropriate partners and these partnership or
co-promotion
arrangements are complex and time-consuming to negotiate and document. We may not be able to negotiate partnership or
co-promotion
arrangements on acceptable terms, or at all. If we are unable to enter into partnership or
co-promotion
arrangements, we may have to curtail or delay commercialization of JATENZO in certain geographies, reduce the scope of our sales or marketing activities, reduce the scope of our commercialization plans, or increase our expenditures and undertake commercialization activities at our own expense. If we elect to increase our expenditures to fund commercialization activities outside of the United States on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all.
If we enter into a partnership or
co-promotion
arrangement and a partner terminates or fails to perform its obligations under an agreement with us, the commercialization of JATENZO could be delayed or negatively impacted.
If we enter into partnership or
co-promotion
arrangements and any of our partners does not devote sufficient time and resources for a partnership or
co-promotion
arrangement with us, we may not realize the potential commercial benefits of the arrangement. In addition, if any future partner were to breach or terminate its arrangements with us, the commercialization of JATENZO in countries outside the United States could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue commercialization of JATENZO on our own in such locations.
Competition may negatively impact a partner’s focus on and commitment to JATENZO and, as a result, could delay or otherwise negatively affect the commercialization of JATENZO outside of the United States or in the general PCP market in the United States. If future partners fail to effectively commercialize JATENZO for any of these reasons, our sales of JATENZO may be limited.
The ongoing
COVID-19
pandemic is having, and is expected to have, an adverse impact on our business, financial condition and results of operations, including our commercial operations and sales.
The ongoing
COVID-19
pandemic may continue to have a negative impact on the global economy which could impact our business and results of operations. The continued spread of
COVID-19
could adversely impact our operations. In response to the spread of
COVID-19,
we have taken temporary precautionary measures
 
11

intended to help minimize the risk of the virus to our employees, including encouraging all employees to work remotely and requiring
COVID-19
vaccinations for all employees. Notwithstanding these measures, the
COVID-19
pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on taking similar measures.
Quarantines,
shelter-in-place
and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to the
COVID-19
pandemic could also impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.
Business interruptions from the current
COVID-19,
or a future, pandemic may also adversely impact our commercial operations, including:
 
   
adversely impacting the third parties we solely rely on to sufficiently manufacture JATENZO in quantities we require including the availability of raw materials and other supply chain requirements;
 
   
decreasing the demand for JATENZO; and
 
   
the ability of our sales representatives to reach healthcare customers.
The full extent to which the
COVID-19
pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning
COVID-19
and new variants such as the omicron variant the actions taken to contain it or treat its impact and the economic impact on local, regional, and national markets.
Risks Related to Development and Regulation
We may not be able to gain market acceptance for JATENZO.
The commercial success of JATENZO will depend upon the acceptance of the product by the medical community, including physicians, patients and healthcare payors.
Some physicians and patients may determine that the benefits of JATENZO as a
T-replacement
therapy in adult males do not outweigh the risks, including those risks set forth in the boxed warning for JATENZO. The boxed warning for JATENZO warns physicians that JATENZO can cause blood pressure increases that can increase the risk of major adverse cardiovascular events, including
non-fatal
myocardial infarction,
non-fatal
stroke and cardiovascular death. Physicians are recommended to consider the patient’s baseline cardiovascular risk and ensure blood pressure is adequately controlled. Furthermore, physicians are encouraged to monitor for and treat
new-onset
hypertension or exacerbations of
pre-existing
hypertension.
Physicians may be hesitant to prescribe JATENZO, and patients may be hesitant to take JATENZO, because of the boxed warning. These potential risks may make it more difficult for a patient to decide to begin JATENZO or to stay on JATENZO.
The degree of market acceptance of JATENZO will also depend on a number of other factors, including:
 
   
physicians’ views as to the scope of the approved indication and limitations on use and warnings and precautions contained in JATENZO’s approved labeling;
 
   
the availability, efficacy and safety of competitive therapies;
 
   
pricing and the perception of physicians and payors as to cost effectiveness;
 
   
the existence of sufficient third-party coverage or reimbursement; and
 
   
the effectiveness of our sales, marketing and distribution strategies.
 
12

If we are not able to achieve a high degree of market acceptance of JATENZO for
T-replacement
therapy, we may not be able to achieve our revenue goals or other financial goals or to achieve profitability or cash-flow break-even in the time periods we expect, or at all.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label
uses. If we are found to have improperly promoted
off-label
uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as JATENZO. In particular, a product may not be promoted for uses that are not approved by the FDA or other regulatory agencies as reflected in the product’s approved labeling. For instance, we received marketing approval for JATENZO for the treatment of adult men with hypogonadism due to certain medical conditions. Physicians may in their practice prescribe JATENZO to their patients in a manner that is inconsistent with the approved labeling. If we are found to have promoted such
off-label
uses, we may become subject to public advisory or enforcement letters, reputational damage, and significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion under both the federal Anti-kickback Statute and False Claims Act and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees, corporate integrity agreements or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of JATENZO to ensure it remains consistent with its approved labeling, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
Even though we have obtained marketing approval for JATENZO in the United States, physicians and patients using other
T-replacement
therapies may choose not to switch to our product.
Physicians often show a reluctance to switch their patients from existing drug products even when new and potentially more effective and convenient treatments enter the market. Patients also often acclimate to the brand or type of drug product that they are currently taking and do not want to switch unless their physician recommends switching products or they are required to switch drug treatments due to lack of coverage and reimbursement for existing drug treatments. In addition, men who are currently tolerating their current
T-replacement
therapy may not want to switch to a new product, including our product, particularly given the boxed warning, which includes warnings relating to blood pressure increases, and a limitation of use in the labeling that states that the safety and efficacy of JATENZO in males less than 18 years has not been established. The existence of either or both of physician or patient reluctance in switching to JATENZO, would depress demand for JATENZO and compromise our ability to successfully commercialize it.
We may still face future development and regulatory difficulties, and we will be subject to post-marketing regulatory requirements.
Even though we have received marketing approval, we continue to be subject to conducting required post-marketing studies and clinical trials, and regulatory authorities may still impose significant restrictions on JATENZO’s indicated uses or marketing or impose further ongoing requirements for potentially costly post-approval studies (e.g., FDA post-marketing requirements of which we are required over the next few years to complete: a) Medication Guide comprehension study; b) study to assess impact of chronic JATENZO therapy on adrenal function; c) assessment of JATENZO in pediatric patients who are unable to make sufficient T; and d) a clinical drug-drug interaction study). If we or a regulatory agency discover previously unknown problems with JATENZO, such as adverse events of unanticipated severity or frequency, a regulatory agency may impose restrictions on JATENZO including withdrawal of marketing approval. JATENZO is also subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising and promotion of the product and recordkeeping and submission of safety and other post-market information. The FDA has significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety
 
13

information and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug. The FDA also has the authority to require the submission of a risk evaluation and mitigation strategy, or REMS, either as part of a New Drug Application, or an NDA, or after the drug has been approved should FDA become aware of new safety information about a drug and determine that a REMS is necessary to ensure that the benefits of the drug outweigh its risks. A REMS could, for example, limit prescribing to certain physicians or medical centers that have undergone specialized training, limit treatment to patients who meet certain
safe-use
criteria or require treated patients to enroll in a registry. Any REMS required by the FDA may lead to increased costs to assure compliance with new post-approval regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue.
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 and other regulations. For certain commercial prescription drug products, manufacturers and other parties involved in the supply chain must also meet chain of distribution requirements and build electronic, interoperable systems for product tracking and tracing and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or other products that are otherwise unfit for distribution in the United States. If we or a regulatory agency discover previously unknown problems with the facility where JATENZO is manufactured, including the facility where Catalent manufactures JATENZO, a regulatory agency may impose restrictions on JATENZO, the manufacturer or us, including requiring withdrawal of JATENZO from the market or suspension of manufacturing. If we or the operators of the manufacturing facilities for JATENZO fail to comply with applicable regulatory requirements, a regulatory agency may:
 
   
issue warning or untitled letters or notice of violation letters;
 
   
seek an injunction or impose civil or criminal penalties or monetary fines;
 
   
suspend or withdraw marketing approval;
 
   
suspend any ongoing clinical trials;
 
   
refuse to approve pending applications or supplements to applications submitted by us;
 
   
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
 
   
seize or detain products, refuse to permit the import or export of products, or request that we initiate a product recall.
If we become subject to adverse regulatory action, the occurrence of such an event or penalty described above may inhibit or diminish our ability to commercialize JATENZO and generate revenue.
Even though we have received marketing approval for JATENZO in the United States, we may never receive marketing approval outside of the United States, or receive pricing and reimbursement outside the United States at acceptable levels.
We may never receive, regulatory approval to market JATENZO or other future product candidates outside of the United States or in any particular country or region, including in the European Union, or the EU. In order to market any product outside of the United States, we must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of other countries. Approval procedures vary among countries and can involve additional
non-clinical
studies or clinical trials, additional work related to manufacturing and analytical testing on controls, and additional administrative review periods. The time required to obtain approvals in other countries might differ from that required to obtain FDA approval. Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process in other countries. The marketing approval processes in other countries may implicate all of the risks detailed above regarding FDA approval in the United
 
14

States as well as other risks. In particular, in many countries outside of the United States, products must receive pricing and reimbursement approval before the product can be commercialized. Obtaining this approval may require additional studies and data, and can result in substantial delays in bringing products to market in such countries and such investment may not be justified from a business standpoint given the market opportunity or level of required investment. For example, we continue to assess the development and regulatory pathway for JATENZO in the EU and our overall EU strategy in light of our overall portfolio and program priorities. Even if we generate the data and information we believe may be sufficient to file a marketing authorization application for regulatory approval of JATENZO in a region or country outside the United States, the relevant regulatory agency may find that we did not meet the requirements for approval, or even if our application is approved, we may have significant post-approval obligations.
Even if we are able to successfully develop JATENZO and obtain marketing approval in a country outside the United States, we may not be able to obtain pricing and reimbursement approvals in such country at acceptable levels or at all, and any pricing and reimbursement approval we may obtain may be subject to onerous restrictions such as caps or other hurdles or restrictions on reimbursement. Failure to obtain marketing and pricing approval in countries outside the United States without onerous restrictions or limitations related to pricing, or any delay or other setback in obtaining such approval, would impair our ability to market our product candidates successfully or at all in such foreign markets. Any such impairment would reduce the size of our potential market or revenue potential, which could have a material adverse impact on our business, results of operations and prospects.
Any setback or delay in obtaining regulatory approval for our product candidates in a country or region outside the United States where we have decided it makes business sense to proceed or in our ability to commence marketing of our products, if approved, may have a material adverse effect on our business and prospects.
Recent federal legislation may increase pressure to reduce prices of certain pharmaceutical products paid for by Medicare, which could materially adversely affect our revenue and our results of operations.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the scope of coverage and the price that we receive for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may cause a similar reduction in payments from private payors.
Additionally, given the amount of litigation surrounding the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively, the ACA, it is unclear at this time what effect the latest ruling will have on the ACA long term. Litigation and legislation related to the ACA are likely to continue, with unpredictable and uncertain results. We will continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business. It is unclear how this decision and any subsequent appeals and other efforts to repeal and replace the ACA will impact the ACA and our business.
Further, some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. Most recently, on April 27, 2020, the United States Supreme Court reversed the U.S. Court of Appeals for the Federal Circuit’s decision that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued the payments were owed to them and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. It is unclear what impact these rulings will have on our business .
 
15

There has also been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. For example, the 340B drug pricing program imposes ceilings on prices that drug manufacturers can charge for medications sold to certain health care facilities. It is unclear how these developments could affect covered hospitals who might purchase our future products and affect the rates we may charge such facilities for our approved products in the future, if any.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product and medical device pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which suppliers will be included in their prescription drug and other healthcare programs.
We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. It is unclear how the current administration will prioritize and execute initiatives to contain healthcare costs. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:
 
   
the demand for our products and any products for which we may obtain regulatory approval;
 
   
our ability to set a price that we believe is fair for our products;
 
   
our ability to obtain coverage and reimbursement approval for a product;
 
   
our ability to generate revenues and achieve or maintain profitability; and
 
   
the level of taxes that we are required to pay.
We expect that changes and challenges to the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies, and additional downward pressure on the price that we receive for our products and any future approved product.
T is a Schedule III
(non-narcotic)
substance under the Controlled Substances Act and any failure to comply with this Act or its state equivalents would have a negative impact on our business.
Testosterone is regulated under the Controlled Substances Act of 1970, or the CSA, as a Schedule III
(non-narcotic)
substance. The CSA and regulations promulgated by the Drug Enforcement Administration, or the DEA, classify certain substances with a potential for abuse, known as “controlled substances” in either Schedule I, II, III, IV or V, with Schedule I substances considered to present the highest risk of abuse and dependence and Schedule V substances the lowest risk. The CSA establishes a closed chain of distribution for these drugs, and entities or individuals handling controlled substances are subject to DEA regulations relating to manufacturing, distribution, dispensing, importation and exportation. These regulations include requirements for registration, security, storage, recordkeeping and reporting. For example, facilities must maintain certain physical security for storing controlled substances and Schedule III drugs can only be prescribed by an authorized practitioner registered with the DEA and may only be refilled five times within a
six-month
period from the date of the original prescription.
Entities must register annually with the DEA to manufacture, distribute, import and export controlled substances, and entities prescribing, dispensing or conducting research with controlled substances must register every three years. In addition, the DEA requires entities handling controlled substances to maintain records and file reports related to transactions involving controlled substances follow specific labeling and packaging
 
16

requirements, and provide appropriate security measures to control against diversion of controlled substances. Failure to follow these requirements can lead to significant civil and criminal penalties and administrative action to revoke a DEA registration. Individual states also have established controlled substances laws. Though state controlled substances laws and regulations often mirror federal law, because the states are separate jurisdictions, they may schedule products separately. While some states automatically schedule a drug upon scheduling by DEA, in other states, scheduling requires a rulemaking or legislative action, which could delay commercialization in every state.
Because of the abuse potential, products containing controlled substances may generate public controversy. As a result, reports of diversion or abuse of these products may lead to marketing approvals withdrawn. Moreover, political pressures and adverse publicity could lead to delays in, and increased expenses for, and limit or restrict, the introduction and marketing of JATENZO.
If coverage and reimbursement for JATENZO are limited, it may be difficult for us to profitably sell JATENZO.
Market acceptance and sales of JATENZO will depend, in part, on coverage and reimbursement policies and may be affected by healthcare reform measures. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for JATENZO and, if reimbursement is available, what the level of such reimbursement will be. Limitations on coverage and reimbursement may impact the demand for, or the price of, JATENZO. If coverage is not available or reimbursement is available only at limited levels, we may not be able to successfully commercialize JATENZO.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for JATENZO could hinder our ability to recoup our investment.
The regulations that govern marketing approvals, coverage, and reimbursement for new drug products vary widely from country to country. In some foreign countries, particularly Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. To obtain favorable coverage and reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of JATENZO to other available therapies. If coverage for JATENZO is unavailable in any country in which coverage and reimbursement are sought, or reimbursement for JATENZO is limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenue from JATENZO will be diminished.
 
17

There can be no assurance that JATENZO will be considered medically reasonable and necessary for a specific indication, that it will be considered cost-effective by third-party payors, that coverage and an adequate level of reimbursement will be available, or that third-party payors’ reimbursement policies will not adversely affect our ability to sell JATENZO profitably.
Our current and future relationships with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of JATENZO. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, which may constrain the business or financial arrangements and relationships through which we market, sell and distribute JATENZO. In addition, we may be subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business.
Applicable federal, state, and foreign healthcare laws and regulations that may affect our ability to operate include: the federal anti-kickback statute, the federal False Claims Act, the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, (as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH), the federal false statements statute, the federal transparency requirements, sometimes referred to as the “Sunshine Act”, under the Patient Protection and Affordable Care Act, various federal and state health information and data protection laws and regulations and analogous state laws and regulations. These laws and regulations impose a variety of monitoring and reporting obligations as well as civil and criminal penalties and liabilities for noncompliance.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, that person or entity may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, or the FCPA and other worldwide anti-bribery laws.
We are subject to the FCPA, which prohibits companies and their intermediaries from making payments in violation of law to
non-U.S.
government officials for the purpose of obtaining or retaining business or securing any other improper advantage. We have an ongoing relationship with Xianju, a
non-U.S.
company, as a third-party supplier of TU and we may commercialize JATENZO outside of the United States in countries where we obtain marketing approval either alone or under a partnership or
co-promotion
arrangement with a third party. Our significant reliance on a foreign supply of TU demands a high degree of vigilance in preventing our employees and consultants from participation in corrupt activity, because this supplier could be deemed our agent, and we could be held responsible for its actions. The FCPA and similar anti-bribery laws to which we may be subject are complex and
far-reaching
in nature, and, as a result, we cannot assure you that we would not be
 
18

required in the future to alter one or more of our practices to be in compliance with these laws or any changes in these laws or the interpretation thereof. Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction and involve significant costs and expenses, including legal fees. We could also suffer severe penalties, including criminal and civil penalties, disgorgement, and other remedial measures.
Risks Related to Our Industry and Competition
Our market is subject to intense competition. If we are unable to compete effectively, our opportunity to generate revenue from the sale of JATENZO will be impaired.
The
T-replacement
therapies market is highly competitive and dominated by the sale of
T-gels
and injectable forms of T, which accounted for 95% of all prescriptions written in the United States for
T-replacement
therapies in 2020. Our success will depend, in part, on our ability to obtain and retain an appreciable share of the market. Potential competitors in North America, Europe and elsewhere include major pharmaceutical companies, specialty pharmaceutical companies, biotechnology firms and other drug discovery organizations. JATENZO or its use may infringe competitors’ patents, and if any patent infringement suit against us is successful, it could materially impact commercialization of JATENZO. Competitors may attack our patent portfolio, see Lipocine’s interferences under “
Business—Legal Proceedings
” and
in the “—
Risks Related to Our Intellectual Property
” subsection below. Other pharmaceutical companies may develop oral
T-replacement
therapies that would compete with JATENZO that do not infringe the claims of our pending patent applications or other proprietary rights, and these therapies may have competitive advantages over JATENZO. For example, because T and TU are not patented compounds and are commercially available to third parties, it is possible that competitors may design methods of T or TU administration that would be outside the scope of the claims of our issued patents and patent applications. This would enable their products to compete with JATENZO.
T-replacement
therapies currently on the market that would compete with JATENZO, include the following:
 
   
T-gels,
such as AndroGel, marketed by AbbVie Inc., or AbbVie; Testim, marketed by Endo Pharmaceutical, or Endo; and Fortesta, marketed by Endo in the United States;
 
   
generic
T-injectables;
 
   
oral
methyl-T;
 
   
transdermal patches, such as Androderm, marketed by Allergan Sales, LLC, a subsidiary of AbbVie; buccal patches, such as Striant, marketed by Endo;
 
   
implanted subcutaneous pellets, such as Testopel, marketed by Endo;
 
   
Aveed, a long-acting
T-injectable
marketed by Endo;
 
   
Xyosted, a
sub-cutaneous
weekly auto-injector
T-therapy
marketed by Antares Pharma, Inc.; and
 
   
Natesto, an intranasal
T-therapy,
marketed by Acerus Pharmaceuticals.
Several other pharmaceutical companies have
T-replacement
therapies, including oral formulations, and other therapies that are either pending approval of an NDA or in clinical development, which may be approved for marketing in the United States or outside of the United States. Based on publicly available information, we believe that current therapies in development that would be competitive with JATENZO include:
 
   
TLANDO, an oral TU formulation developed by Lipocine, was licensed to Antares Pharma who announced on March 29, 2022 that FDA had granted full approval to TLANDO. Such approval required the expiry of JATENZO’s Hatch-Waxman market exclusivity that occurred on March 27, 2022.
 
   
KYZATREX, an oral TU formulation as a
T-replacement
therapy being developed by Marius Pharmaceuticals with a Prescription Drug User Fee Act, or PDUFA, date of October 31, 2021. To date, the status of the NDA for KYZATREX is unknown but it has not received FDA approval.
 
19

   
BGS-649
(leflutrozole), a once weekly aromatase inhibitor (that increases testosterone levels), as first-line therapy for the treatment of infertility in obese men with hypogonadotropic hypogonadism, which has completed its Phase 2b trials, currently being developed by Mereo BioPharma Group Ltd; and
 
   
TesoRx Pharma, LLC is developing an oral TU product
(TSX-049)
for testosterone replacement therapy in hypogonadal men.
In addition, Andriol, an oral TU formulation, has been marketed by Merck & Co, Inc. in Europe or other international markets since the early 1970s, but is not nor has it ever been approved in the United States.
Many of our potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining FDA and other marketing approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, less expensive or more effectively marketed and sold than JATENZO and may render JATENZO obsolete or
non-competitive
before we can recover the expenses of developing and commercializing it. We anticipate that we will face intense and increasing competition as new drugs, both generic and branded, enter the market and advanced technologies become available.
Several companies have obtained approval for Section 505(b)(2) NDAs that cite existing
T-gel
products as their listed drugs. The entrance of any generic
T-gel
into the market might create downward pricing pressure on all
T-replacement
therapies and therefore could hurt our business.
Three Section 505(b)(2) NDAs citing to approved
T-gel
products have been approved for marketing in the United States. Teva Pharmaceuticals USA, or Teva, and Perrigo Israel Pharmaceuticals Ltd, or Perrigo, have obtained approval from the FDA to market
T-gel
products in the United States that are versions of AndroGel 1%. In addition, Upsher-Smith Laboratories, Inc., or Upsher-Smith, received approval to market its
T-gel
product, a version of Auxilium’s Testim 1%, in the United States. The entrance of any generic
T-gel
into the market might cause downward pressure on the pricing of all
T-replacement
therapies, and which could negatively affect the level of sales and price at which we can sell JATENZO.
Further, the Creating and Restoring Equal Access to Equivalent Samples Act, or the CREATES Act, was enacted in 2019 requiring sponsors of approved NDAs to provide sufficient quantities of product samples on commercially reasonable, market-based terms to entities developing generic drugs. The law establishes a private right of action allowing developers to sue application holders that refuse to sell them product samples needed to support their applications. If we are required to provide product samples or allocate additional resources to responding to such requests or any legal challenges under this law, our business could be adversely impacted.
The introduction of generic
T-gels
may also affect the reimbursement policies of government authorities and third-party payors, such as private health insurers and health maintenance organizations. These organizations determine which medications they will pay for and establish reimbursement levels. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for branded medications when there is a generic version available. If generic
T-gels
are available in the market, that may create an additional obstacle to the availability of coverage and reimbursement for JATENZO or lead to reduction in the level of such reimbursement, and our ability to generate revenue could be compromised.
We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.
The use of JATENZO in past clinical trials and the sale of JATENZO, expose us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others
 
20

selling or otherwise coming into contact with JATENZO. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:
 
   
substantial monetary awards to patients from our clinical trials or other claimants;
 
   
decreased demand for JATENZO;
 
   
damage to our business reputation and exposure to adverse publicity;
 
   
increased FDA warnings on product labels;
 
   
costs of related litigation;
 
   
distraction of management’s attention from our primary business;
 
   
loss of revenue; and
 
   
the inability to successfully commercialize JATENZO.
We have obtained product liability insurance coverage for commercial sales of JATENZO in the United States with a $10.0 million annual aggregate coverage limit. However, our insurance coverage may not be sufficient to reimburse 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 or obtain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial. A product liability claim or series of claims brought against us could cause our stock price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, business and prospects could be materially adversely impacted.
JATENZO is the only product we are commercializing. If we fail to successfully commercialize JATENZO, we may need to acquire additional product candidates and our business may be impaired.
We have no other compounds beyond JATENZO in clinical testing, preclinical testing, lead optimization or lead identification stages. If we fail to successfully commercialize JATENZO as a
T-replacement
therapy, our ability to generate revenue will be impaired and we may need to develop other sources of revenues. If this occurs, we may seek out opportunities to discover, develop, acquire or license additional promising product candidates or drug compounds to expand our product candidate pipeline beyond JATENZO; however, this would constitute a significant change in our strategy and would likely require substantial additional capital. We would also be exposed to numerous additional risks related to our ability to identify, select and acquire the right product candidates and products on terms that are acceptable to us, and there is no guarantee that we would be successful in these efforts.
Risks Related to Our Intellectual Property
If we are unable to obtain or protect intellectual property rights related to JATENZO, we may not be able to compete effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to JATENZO. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or
in-license
may fail to result in issued patents with claims that cover JATENZO in the United States or in other foreign countries. If this were to occur, early generic competition could be expected against JATENZO. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent application from issuing as a patent. In particular,
 
21

because the active pharmaceutical ingredient in JATENZO has been on the market as an ingredient in separate products for many years, it is possible that these products have previously been used
off-label
in such a manner that such prior usage would affect the validity of our patents or our ability to obtain patents based on our patent applications. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or not infringed. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the patent applications we hold with respect to JATENZO fail to issue, or if the breadth or strength of protection of our patent portfolio is threatened, it could dissuade companies from partnering with us to commercialize JATENZO. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found not invalid and not unenforceable or will go unthreatened by third parties. For several of our patents and patent applications, Lipocine suggested patent interferences, which can invalidate a patent or preclude issuance of a patent application; two interferences were decided against us, another was declared but resolved in our favor as part of the global settlement agreement with Lipocine, and several more were suggested by Lipocine but not instituted to date, see below and see Note 13 – Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus. Further, if we encounter delays in regulatory approvals, the period of time during which we could market JATENZO under patent protection could be reduced. Because patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to JATENZO. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be provoked by a third party or instituted by us or the U.S. Patent and Trademark Office, or USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. The outcome of an interference can invalidate one or both involved patents, and a license may be needed to practice the claims of the prevailing patent. Such license may not be available on favorable terms.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary
know-how
that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary
know-how,
information or technology that is not covered by patents. Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary
know-how,
information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the
non-patented
intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market and our ability to achieve profitability could be impaired.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on JATENZO in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products
 
22

may compete with JATENZO and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuance to us, in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection. If we are unable to prevent material disclosure of the
non-patented
intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could hurt our ability to successfully commercialize JATENZO.
Further, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to pharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and post-grant review,
inter partes
review and inter party reexamination proceedings before the USPTO. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are commercializing JATENZO. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that JATENZO may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of JATENZO. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that JATENZO may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of JATENZO, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize JATENZO unless we obtain a license under the applicable patents, or until such patents expire. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patent may be able to block our ability to develop and commercialize JATENZO unless we obtain a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms
 
23

or at all. See, for example, Lipocine’s patent infringement suit filed against us, and past patent interferences under “
Business—Legal Proceedings
” below.
Third parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize JATENZO; see Lipocine’s patent infringement suit filed against us under “
Business—Legal Proceedings
” below. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing product, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize JATENZO, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against JATENZO, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties or other forms of compensation to third parties.
We may be involved in lawsuits and proceedings to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or other contentious proceedings involving our patents or patent applications could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party is awarded one or more claims that cover JATENZO and does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
We have recently been involved in a number of interference proceedings and an infringement lawsuit with Lipocine regarding JATENZO, which consumed time and resources. In May 2021, our motion for summary judgment against Lipocine for failure to provide adequate written description of Lipocine’s asserted patent claims was granted, and we subsequently entered into a global settlement agreement with Lipocine that settled all patent-related claims, including the sole pending interference, and provided for a payment by Lipocine to us as a settlement fee. For more information regarding the disputes with Lipocine, see Note 13 – Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus
.
There is no guarantee that additional interference or infringement proceedings will not be filed by other third parties in the future.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or
 
24

other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could hurt the price of Common Stock.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance
with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Non-compliance
events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits,
non-payment
of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering JATENZO, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.
Risks Related to General Business, Employee Matters and Managing Growth
We will need to grow our company, and we may encounter difficulties in managing this growth, which could disrupt our operations.
We expect to experience significant growth in the number of employees and the scope of our operations. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from our
day-to-day
activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects. Our future financial performance and our ability to successfully commercialize JATENZO and compete effectively will depend, in part, on our ability to effectively manage any future growth. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy.
Our future success depends on our ability to retain our chief executive officer, chief financial officer, chief commercial officer and chief administrative officer and to attract, retain and motivate qualified personnel.
We are highly dependent on Dr. Robert E. Dudley, our chief executive officer, Richard Peterson, our chief financial officer, Steven A. Bourne, our chief administrative officer, and Frank Jaeger, our chief commercial
 
25

officer. We have entered into employment agreements with these individuals, but any of them may terminate his employment with us at any time. Although we do not have any reason to believe that we may lose the services of any of these individuals in the foreseeable future, the loss of their services might impede the achievement of our research, development and commercialization objectives. We rely on consultants and advisors to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. Recruiting and retaining qualified scientific personnel and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.
We may expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, result in additional dilution to our stockholders and consume resources that are necessary to sustain and grow our business.
An element of our growth strategy is to expand our product candidate pipeline beyond JATENZO. To pursue this strategy, we will need to acquire androgen and metabolic therapies for men and women or other complementary products, product candidates or businesses. We also may enter into relationships with other businesses in order to expand our product offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies.
We have limited resources to identify and execute the acquisition or
in-licensing
of third-party products, businesses and technologies. Moreover, we will face significant competition in seeking to acquire or license promising product candidates or drug compounds. Other companies, including some with significantly greater financial, marketing and sales resources and more extensive experience in preclinical studies and clinical trials, obtaining marketing approval and manufacturing and marketing pharmaceutical products, may compete with us for the license or acquisition of product candidates and drug compounds. If we are unable to acquire or license additional promising product candidates or drug compounds, we will not be able to expand our product candidate pipeline and our prospects for future growth and our ability to sustain profitability will continue to be entirely dependent upon the success of JATENZO.
In addition, the process of proposing, negotiating and implementing these transactions can be time consuming, difficult and expensive, and our ability to close these transactions may be subject to third-party approvals, such as government regulation, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.
An acquisition or investment may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities. An acquisition could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the
write-off
of goodwill.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
In March 2020, Legacy Clarus entered into an indenture and certain collateral agreements that places a lien on our assets and a negative pledge on our intellectual property. These loan documents contain various covenants
 
26

that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
 
   
sell, transfer, lease or dispose of certain assets;
 
   
encumber or permit liens on certain assets;
 
   
make certain restricted payments, including paying dividends on, or repurchasing or making distributions with respect to, Common Stock; and
 
   
enter into certain transactions with affiliates.
A breach of any of the covenants under the loan agreements could result in a default under the loan. Upon the occurrence of an event of default under the loan, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure such indebtedness.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in cyber security.
Our internal computer systems and those of current and future third parties on which we rely may fail and are vulnerable to damage from computer viruses and unauthorized access. Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt our operations. While we have not, to our knowledge, experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we currently rely on third parties for the manufacture and supply of the ingredients required for our commercial supply and clinical trials of JATENZO or any future product candidates, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of JATENZO or any future product candidates could be hindered or delayed.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may impose additional costs on us or expose us to additional risks.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our ESG policies may impose additional costs on us or expose us to additional risks. Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial condition and the price of our company’s shares could be materially and adversely affected.
 
27

Risks Related to Ownership of our Securities
An active market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
The price of our securities may vary significantly due to factors specific to us as well as to general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.
Our securities may be delisted from the Nasdaq and begin trading in the
over-the-counter
markets if we are not successful in regaining compliance with the Nasdaq’s continued listing standards, which may negatively impact the price of our securities and our ability to access the capital markets.
On February 18, 2022, we received two written notifications from the Listing Qualifications Department of The Nasdaq Stock Market LLC. The first notification indicated that as of February 18, 2022, we did not meet the $15,000,000 minimum market value of publicly held shares required to maintain continued listing as set forth in Nasdaq Marketplace Rule 5450(b)(2)(C), or the MVPHS Rule, for the
33-business
day period ended February 17, 2022. The second notification indicated that as of February 18, 2022, we did not meet the $50,000,000 minimum market value of listed securities required to maintain continued listing as set forth in Nasdaq Marketplace Rule 5450(b)(2)(A), or the MVLS Rule, and together with the MVPHS Rule, the Rules, for the
30-business
day period ended February 17, 2022. Under Nasdaq rules, we will have 180 calendar days from the date of the notifications to regain compliance by meeting the continued listing requirements, namely the market value of publicly held shares closes at $15,000,000 or more for a minimum of 10 consecutive business days and the market value of listed securities closes at $50,000,000 or more for a minimum of 10 consecutive business days. If we are unable to regain compliance with the Rules during the
180-day
period, and we receive a delisting determination from Nasdaq, we may, at that time, request a hearing to remain on the Nasdaq, which request will ordinarily suspend such delisting determination until a decision is issued by Nasdaq subsequent to the hearing.
We intend to actively monitor and assess the market value of our publicly held shares and publicly listed securities and may, as appropriate, consider available options to regain compliance with the Rules. However, there can be no assurance that we will be successful in regaining compliance with the Rules and maintaining the listing of our securities on the Nasdaq Stock Market.
If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an
over-the-counter
market. If this were to occur, we could face significant material adverse consequences, including:
 
   
a limited availability of market quotations for our securities;
 
   
reduced liquidity for our securities;
 
   
a determination that the Common Stock is a “penny stock,” which will require brokers trading in Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
 
   
a limited amount of news and analyst coverage;
 
   
a decreased ability to issue additional securities or obtain additional financing in the future.
 
   
potential loss of confidence by partners and employees; and
 
   
loss of institutional investor interest and fewer business development opportunities.
The price of the Common Stock may change significantly and you could lose all or part of your investment as a result.
The trading price of the Common Stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of
 
28

particular companies. You may not be able to resell your shares of Common Stock at an attractive price due to a number of factors such as those listed elsewhere in this section and the following:
 
   
results of operations that vary from the expectations of securities analysts and investors;
 
   
results of operations that vary from those our competitors;
 
   
changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;
 
   
declines in the market prices of stocks generally;
 
   
strategic actions by us or our competitors;
 
   
announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments;
 
   
any significant change in our management;
 
   
changes in general economic or market conditions or trends in our industry or markets;
 
   
changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
 
   
future sales of Common Stock or other securities;
 
   
investor perceptions of the investment opportunity associated with the Common Stock relative to other investment alternatives;
 
   
the public’s response to press releases or other public announcements by our or third parties, including our filings with the SEC;
 
   
litigation involving our business, our industry, or both, or investigations by regulators into our operations or those of our competitors;
 
   
guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
 
   
the development and sustainability of an active trading market for the Common Stock;
 
   
actions by institutional or activist stockholders;
 
   
changes in accounting standards, policies, guidelines, interpretations or principles; and
 
   
other events or factors, including those resulting from pandemics, natural disasters, war, including the ongoing conflict due to the Russian invasion of Ukraine, acts of terrorism or responses to these events.
These broad market and industry fluctuations may adversely affect the market price of the Common Stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of the Common Stock is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we are involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
Because there are no current plans to pay cash dividends on the Common Stock for the foreseeable future, you may not receive any return on investment unless you sell your Common Stock at a price greater than what you paid for it.
We intend to retain future earnings, if any, for future operations, expansion and debt repayment and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment
 
29

of any future dividends on shares of Common Stock will be at the sole discretion of our board of directors, or the Board. The Board may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications of the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as the Board may deem relevant. As a result, you may not receive any return on an investment in the Common Stock unless you sell your Common Stock for a price greater than that which you paid for it.
Our stockholders may experience dilution in the future.
The percentage of shares of Common Stock owned by current stockholders may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that we may grant to our directors, officers and employees, or exercise of our outstanding warrants. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of the Common Stock.
Future sales, or the perception of future sales, by us or our stockholders in the public market could cause the market price for the Common Stock to decline.
The sale of shares of Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. We issued a significant number of shares in the business combination to Legacy Clarus’ stockholders, all of which are freely tradable following expiration of the
lock-up
agreements other than by our “affiliates.” In addition, we adopted a new equity plan and an employee stock purchase plan, all of which could result in the issuance of additional shares into the market.
In the future, we may also issue securities in connection with investments or acquisitions. The amount of shares issued in connection with an investment or acquisition could constitute a material portion of the then-outstanding Common Stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to our stockholders.
We account for the private warrants issued in a private placement concurrent with Blue Water’s initial public offering as a liability and record changes in fair value each period reported in earnings, which may have an adverse effect on the market price of the Common Stock.
We classify the private warrants issued in a private placement concurrent with Blue Water’s initial public offering as a liability as opposed to equity. Accordingly, this results in the application of derivative liability accounting, which entails a quarterly valuation of these liabilities with any change in value reflected in our quarterly and annual financial statements. The impact of changes in fair value on earnings may have an adverse effect on the market price of Common Stock.
If securities or industry analysts do not publish research or reports about our business, if they change their recommendations regarding the Common Stock or if our operating results do not meet their expectations, the price of the Common Stock and trading volume could decline.
The trading market for Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If no securities or industry analysts commence coverage of us, the trading price for Common Stock could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover or downgrade our securities or publish unfavorable research about our business, or if our operating results do not meet analyst expectations, the trading price of the Common Stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for Common Stock could decrease, which might cause the price of the Common Stock and trading volume to decline.
 
30

We are an emerging growth company within the meaning of the Securities Act, and we if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. We intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We cannot predict whether investors will find securities issued by us less attractive because we rely on these exemptions. If some investors find those securities less attractive as a result of its reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging
growth companies but any such election to opt out is irrevocable. As an emerging growth company, we can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the closing of Blue Water’s initial public offering, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion; (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule
12b-2
under the Exchange Act, which would occur if the market value of the Common Stock held by
non-affiliates
exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in
non-convertible
debt securities during the prior three-year period.
We may redeem certain of our outstanding warrants prior to their exercise at a time that is disadvantageous for warrant holders.
We will have the ability to redeem outstanding Public Warrants issued as part of the units in Blue Water’s initial public offering at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30
trading-day
period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when such warrants become redeemable, we may exercise our redemption right if there is a current registration statement in effect with respect to the shares of Common Stock underlying such warrants. Redemption of such outstanding warrants could force you to: (i) exercise your warrants and pay the related exercise price at a time when it may be disadvantageous for you to do so; (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption price that, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the warrants issued in the private
 
31

placement by Blue Water will be redeemable by us for cash so long as they are held by our former sponsor or its permitted transferees.
U.S. federal income tax reform could adversely affect us and holders of our securities.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, or the IRS, and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of Common Stock. In recent years, many changes have been made and changes are likely to continue to occur in the future. Additional changes to U.S. federal income tax law are currently being contemplated, and future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. It cannot be predicted whether, when, in what form, or with what effective dates, new tax laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.
This prospectus does not discuss any such tax legislation or the manner in which it might affect holders of our securities. We urge holders of our securities to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of their ownership of our securities.
Delaware law and our current Certificate of Incorporation and Bylaws contain certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Our current Certificate of Incorporation and Bylaws, as amended in connection with the business combination, and the DGCL contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by the Board and therefore depress the trading price of the Common Stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of the Board or taking other corporate actions, including effecting changes in our management. Among other things, our Certificate of Incorporation and Bylaws include provisions regarding:
 
   
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board;
 
   
opting out of Section 203 of the DGCL to allow us to establish our own rules governing business combinations with interested parties;
 
   
the ability of the Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
 
   
the limitation of the liability of, and the indemnification of, our directors and officers;
 
   
the exclusive right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Board;
 
   
the requirement that directors may only be removed from the Board for cause;
 
   
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors;
 
   
the requirement that a special meeting of stockholders may be called only by the Board, the chairperson of the Board, our chief executive officer or our president (in the absence of a chief executive officer),
 
32

 
which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors;
 
   
controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;
 
   
the requirement for the affirmative vote of holders of at least 2/3 of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of the Certificate of Incorporation and Bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
 
   
the ability of the Board to amend the bylaws, which may allow the Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and
 
   
advance notice procedures with which stockholders must comply to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Board or management.
Any provision of our Certificate of Incorporation and Bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for Common Stock.
Our Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, and also provide that the federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit the ability of our stockholders to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our current Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action arising pursuant to any provision of the DGCL, or our Certificate of Incorporation or the Bylaws or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants. Our current Bylaws also provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The exclusive forum provision is applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision does not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
 
33

Any person or entity purchasing or otherwise acquiring any interest in any of our securities is deemed to have notice of and consented to this provision. This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find the exclusive-forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
 
34

USE OF PROCEEDS
All of the Common Stock offered by the Selling Securityholder pursuant to this prospectus will be sold by the Selling Securityholder for its account. We will not receive any of the proceeds from these sales.
We will receive up to an aggregate of approximately $2.3 million from the exercise of the Armistice Warrants, assuming the exercise in full of all of the Armistice Warrants for cash, at the initial exercise price per share and no downward adjustment of the exercise price in accordance with the anti-dilution price protection terms. We expect to use the net proceeds from any exercise of the Armistice Warrants to support growth initiatives for our near-term commercial objectives for JATENZO. We will have broad discretion over the use of proceeds from the exercise of the Armistice Warrants. There is no assurance that the holder of the Armistice Warrants will elect to exercise any or all of such Armistice Warrants. To the extent that the Armistice Warrants are exercised on a “cashless basis,” we will not receive any cash proceeds from the exercise of the Armistice Warrants.
 
35

MARKET INFORMATION FOR COMMON STOCK AND DIVIDEND POLICY
Market Information
The Common Stock and Public Warrants are currently listed on the Nasdaq Global Market under the symbols “CRXT” and “CRXTW,” respectively. Prior to the consummation of the Merger, the Common Stock, units and Public Warrants were listed on the Nasdaq Capital Market under the symbols “BLUW,” “BLUWU” and “BLUWW,” respectively. We currently do not intend to list the Armistice Warrants issued to the Selling Securityholder on any stock exchange or stock market.
As of May 11, 2022, we had approximately 52,020,731 shares of Common Stock issued and outstanding held of record by 21 registered holders and approximately 5,750,000 Public Warrants outstanding held of record by two registered holders. The actual number of holders of these securities is greater than this number of record holders, as the actual number includes holders who are beneficial owners whose securities are held in street name by brokers and other nominees. This number of holders of record also does not include holders whose securities may be held in trust by other entities.
Dividend Policy
We have not paid any cash dividends on the Common Stock to date. We may retain future earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. We do not anticipate declaring any cash dividends to holders of the Common Stock in the foreseeable future.
 
36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read together with our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 and notes thereto and our audited consolidated financial statements for the year ended December 31, 2021 and notes thereto included elsewhere in this prospectus. In addition to historical financial information, this discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially from such forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
We are a pharmaceutical company focused on the commercialization of JATENZO, the first oral
T-replacement,
or
T-replacement
therapy of its kind that has received final approval by the FDA. We believe that current users of TRT are not satisfied with their current options and desire a therapeutic that is safe, effective and more convenient. Our primary goal for JATENZO is for it to become the preferred choice for TRT among men with hypogonadism—T deficiency accompanied by an associated medical condition. In parallel, our broader vision is to become a pharmaceutical company initially focused on the development and commercialization of JATENZO and other metabolic therapies for men and women.
In March 2019, our first commercial product, JATENZO, was approved by the FDA as a TRT for the treatment of adult men with hypogonadism due to certain medical conditions. JATENZO is the first oral T therapy approved by the FDA in more than 60 years. JATENZO is a
T-ester
prodrug created by the linkage of T with the fatty acid undecanoic acid to form TU. Once absorbed, TU, an inactive version of T, is converted by natural enzymes in the body to bioactive T. In February 2020, we commenced U.S. commercial sales of JATENZO and, as of March 31, 2022, JATENZO was available under health plans representing approximately 72% of all covered lives in the United States. Of those lives, 76% of the commercial lives had access to JATENZO. For the three months ended March 31, 2022 and 2021, JATENZO generated net revenues of approximately $4.0 million, and $2.3 million, respectively, demonstrating consistent prescription and sales growth despite the commercial challenges presented by the ongoing
COVID-19
pandemic. Total prescription growth for JATENZO for the three months ended March 31, 2022 increased 75% as compared to the prior year period. In August 2019, the FDA granted
3-year
Hatch-Waxman market exclusivity to JATENZO, which prevented the FDA from granting full market approval to similar new drugs or generic competitors of JATENZO until March 27, 2022.
We continue to work on several life cycle management projects for JATENZO, including a label expansion to treat hypogonadal men with chronic kidney disease, development of a once-daily oral TU with Phase 2 clinical trial initiation anticipated in the second half of 2022, subject to availability of funding, and a label expansion to provide T therapy for
female-to-male
transgender individuals, with a Phase 4 clinical trial initiation anticipated in the second half of 2022, subject to availability of funding.
Since the beginning of Legacy Clarus’ operations in 2004, we have focused primarily on developing and progressing JATENZO through clinical development, organizing and staffing, research and development activities, raising capital and commercial launch activities. We have one product approved for sale, JATENZO, as of March 31, 2022. Through March 31, 2022, we have received gross proceeds of $104.2 million from investors in our preferred stock, gross proceeds of $82.3 million from investors in our issued convertible debt, gross proceeds of $61.7 million from investors in issued senior secured notes and related royalty obligation, and net proceeds of $17.0 million from the closing of the business combination, and net proceeds of $13.8 million from investors in a December 2021 private placement. In April 2022, we closed an underwritten
follow-on
public
 
37

offering raising approximately $27.9 million of net proceeds after deducting underwriting commissions and discounts and estimated offering expenses.
Merger
On September 9, 2021, we consummated the business combination, pursuant to which Clarus Therapeutics, Inc. became our wholly-owned subsidiary and its equity holders and convertible debt holders’ equity interests converted into the right to receive shares of Common Stock or else were canceled, retired and terminated without consideration. Upon the consummation of the business combination, we changed our name to “Clarus Therapeutics Holdings, Inc.” See Note 1 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 appearing elsewhere in this prospectus for more information regarding the business combination.
The business combination was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles, or GAAP. Under this method of accounting, we are treated as the acquired company and Clarus Therapeutics, Inc. is treated as the acquirer for financial statement reporting and accounting purposes. As a result, the historical operations of Clarus Therapeutics, Inc. are deemed to be our financial statements. Therefore, the consolidated financial statements included elsewhere in this prospectus reflect (i) the historical operating results of Clarus Therapeutics, Inc. prior to the business combination; (ii) the combined results following the business combination on the Merger Closing Date; (iii) the assets and liabilities of Clarus Therapeutics, Inc. at their historical cost; and (iv) our equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the business combination is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented.
No step-up
basis of intangible assets or goodwill was recorded in the business combination consistent with the treatment of the transaction as a reverse recapitalization of Clarus Therapeutics, Inc.
Risks and Liquidity
Since inception, we have incurred significant operating losses and have experienced negative operating cash flows. For the three months ended March 31, 2022 and the year ended December 31, 2021, our net loss was $14.9 million and $40.6 million, respectively. As of March 31, 2022, we had an accumulated deficit of $336.5 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future if and as we:
 
   
continue to commercialize JATENZO in the United States for the treatment of adult males with a deficiency or absence of endogenous T;
 
   
incur sales and marketing costs to support the commercialization of JATENZO;
 
   
incur contractual manufacturing costs for JATENZO;
 
   
implement post-approval requirements related to JATENZO;
 
   
actively pursue additional indications and line extensions for JATENZO for the treatment of adult males with a deficiency or absence of endogenous T;
 
   
seek to attract and retain new and existing skilled personnel;
 
   
invest in measures to protect and expand our intellectual property;
 
   
seek to discover and develop additional product candidates;
 
   
seek to
in-license
or acquire additional product candidates for other medical conditions;
 
   
adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;
 
   
maintain, expand and protect our intellectual property portfolio;
 
38

   
hire additional clinical, manufacturing and scientific personnel;
 
   
add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts;
 
   
create additional infrastructure to support operations as a public company and incur increased legal, accounting, investor relations and other expenses; and
 
   
experience delays or encounter issues with additional outbreaks of the pandemic in addition to any of the above.
We expect to incur significant expenses related to developing an internal commercialization capability to support product sales, marketing and distribution. Furthermore, we now expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders. Private and public equity offerings and debt financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations or other strategic transactions with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the commercialization efforts of our product, JATENZO, and/or any product portfolio expansion.
Because of the numerous risks and uncertainties associated with being a commercial stage pharmaceutical company and our efforts to grow our business by means of product and business development, 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. We began product sales in 2020, and if we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue operations at planned levels and be forced to reduce or terminate our operations.
In light of our current liquidity, we need to raise additional capital to support our operations and debt obligations and concurrently, we are exploring strategic alternatives for the purpose of maximizing stockholder value. We expect to devote significant efforts to raise capital, restructure our indebtedness and identify and evaluate potential strategic alternatives but there can be no assurance that these efforts will be successful, that we will be able to raise necessary capital on acceptable terms, reach agreement with our lenders, or that the strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. The Board has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any additional cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our commercialization efforts for JATENZO as well as other development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, fall into forbearance on our debt obligations, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
 
39

These factors raise substantial doubt about our ability to continue as a going concern. Management believes that our existing cash and cash equivalents of $9.1 million as of March 31, 2022, the $27.9 million of net proceeds from our April 2022 public offering along with revenue generated from sales of JATENZO will fund our operating expenses and capital expenditure requirements into September 2022. See “—
Liquidity and Capital Resources
.”
COVID-19
Business Update
The business disruptions associated with the ongoing
COVID-19
pandemic had a significant negative impact on our financial statements for the three months ended March 31, 2022 and 2021, and the years ended December 31, 2021 and 2020. Management expects that the public health actions being undertaken to reduce the spread of the virus, and that will have to be undertaken again in the event the
COVID-19
pandemic worsens, such as by the omicron variant or other variants that may surface, will create significant disruptions to us with respect to: (i) the demand for our products, (ii) the ability of our sales representatives to reach healthcare customers, (iii) our ability to maintain staffing levels to support our operations, (iv) our ability to continue to manufacture certain of our products, (v) the reliability of our supply chain and (vi) our ability to achieve the financial covenants required by the senior secured notes agreement. The extent to which the ongoing
COVID-19
pandemic will impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, vaccinates rates and mandates, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We are closely monitoring the evolving impact of the pandemic on all aspects of our business. We have implemented a number of measures designed to protect the health and safety of our employees, support its customers and promote business continuity. We are also actively reviewing and implementing cost-saving measures including discontinuing or delaying all
non-essential
services and programs and instituting controls on travel, events, marketing and preclinical studies and clinical trials to adapt the business plan for the evolving
COVID-19
challenges.
We expect to have an adequate supply of JATENZO through the end of 2022. We are working closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to product supplies as a result of the
COVID-19
pandemic.
Components of Our Results of Operations
Product Revenue
Legacy Clarus did not generate any product revenue from inception until 2020. Our first commercial product, JATENZO, was approved by the FDA as a treatment for adult males with a deficiency or absence of endogenous testosterone, in March 2019 and became commercially available in February 2020.
Total revenue consists of net sales of JATENZO. Net sales represent the gross sales of JATENZO less provisions for product sales discounts and allowances. These provisions include trade allowances, rebates to government and commercial entities, copay costs and other customary sales discounts. Although we expect net sales to increase over time, the provisions for product sales discounts and allowances may fluctuate based on the mix of sales to different customer segments and/or changes in accrual estimates. For further discussion of the components of revenue see “—
Critical Accounting Policies
and Significant Judgments and Estimates
.”
Cost of Product Sales
Cost of product sales include manufacturing and distribution costs, the cost of drug substance, royalties due to third parties on net product sales, freight, shipping, handling, storage costs, salaries of employees involved with production, and a reserve for short-dated, obsolete inventory. We began capitalizing inventory upon FDA approval of JATENZO.
 
40

We expect that our cost of product sales will increase moderately in the near term as we ramp up production to meet anticipated demand for JATENZO.
The shelf life of JATENZO is 30 months from the date of manufacture. Due to the low rate of inventory turnover generated by our commercial launch efforts for JATENZO during a global pandemic, we have a reserve for inventory obsolescence of $8.6 million as of March 31, 2022 and December 31, 2021. We will continue to assess obsolescence in future periods as demand for JATENZO and the rate of inventory turnover evolves.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of commercialization expenses related to JATENZO, commercially launched in February of 2020, and FDA program fees. Prior to the commercial launch, we had significantly lower sales and marketing expenses. We anticipate that our sales and marketing expenses will increase in 2022 as we continue to expand our commercialization of JATENZO.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, such as salaries, stock-based compensation, benefits and travel expenses for personnel in executive, legal, finance and accounting, human resources, and other administrative departments. General and administrative expenses also consist of office leases, and professional fees, including legal, tax and accounting and consulting fees.
We anticipate that our general and administrative expenses will increase in the future to support continued commercialization efforts, ongoing and future potential research and development activities, and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees paid to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the SEC, insurance and investor relations costs.
Research and Development Expenses
Research and development expenses have primarily been limited to clinical trials, and chemistry, manufacturing, and controls, or CMC, and CMC activities related to JATENZO. Our research and development costs as incurred, include:
 
   
salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
 
   
post-marketing requirements of the FDA for JATENZO and pharmaceutical development expense related to our internally
-in-licensed
products; and
 
   
costs of outside consultants, including their fees and related travel expenses engaged in research and development functions.
We currently have one product, JATENZO, and do not currently track internal research and development expenses on an
indication-by-indication
basis as they primarily relate to personnel, early research and consumable costs, which are deployed across multiple programs. A significant portion of research and development costs are external costs, such as fees paid to consultants, central laboratories, contractors, contract manufacturing organizations, contract research organizations and companies that manufacture clinical trial materials and potential future commercial supplies. Inventory acquired prior to receipt of the marketing approval of JATENZO was recorded as research and development expense as incurred. We began capitalizing the costs associated with the production of JATENZO after the FDA approval in March 2019.
 
41

Our research and development expenses are expected to increase in the foreseeable future. Specifically, our costs will increase as we conduct additional clinical trials for JATENZO and conduct further developmental activities for our research and development pipeline programs.
Total Other Income (Expense), Net
Change in Fair Value of Warrant Liability and Derivative Liability
Subsequent to the completion of the merger, the change in fair value of the warrant liability relates to the change in fair value of the private placement warrant liabilities, which relate to warrants issued in a private placement concurrent with Blue Water’s initial public offering. The total change in fair value of the private placement warrants recorded during the three months ended March 31, 2022 was $0.6 million.
Interest Income
Interest income related to our operating bank accounts, including money market funds.
Interest Expense
Interest expense is related to Legacy Clarus’ convertible notes, senior secured notes and debt discount amortization.
Results of Operations
Comparison of the three months ended March 31, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):
 
    
Three Months Ended

March 31,
             
    
2022
   
2021
   
Change ($)
   
Change (%)
 
Net product revenue
   $ 4,011     $ 2,330     $ 1,681       72
Cost of product sales
     664       367       297       81
  
 
 
   
 
 
   
 
 
   
Gross profit
     3,347       1,963       1,384       71
Operating expenses:
        
Sales and marketing
     10,729       7,937       2,792       35
General and administrative
     5,285       3,605       1,680       47
Research and development
     881       1,210       (329     (27 %) 
  
 
 
   
 
 
   
 
 
   
Loss from operations
     (13,548     (10,789     (2,759     26
Other expense, net:
        
Change in fair value of warrant liability and derivative, net
     642       —         642       100
Interest income
     1       —         1       100
Interest expense
     (1,965     (4,640     2,675       (58 %) 
  
 
 
   
 
 
   
 
 
   
Total other expense, net
     (1,322     (4,640     3,318       (72 %) 
  
 
 
   
 
 
   
 
 
   
Net loss
   $ (14,870   $ (15,429   $ 559       (4 %) 
  
 
 
   
 
 
   
 
 
   
Net Product Revenue
For the three months ended March 31, 2022, we recorded $4.0 million of net product revenue, which increased by $1.7 million from $2.3 million for the three months ended March 31, 2021. The increase in net revenue is related
 
42

to the growth of the brand through our sales and marketing efforts. We did not begin commercially selling JATENZO within the United States until February 2020, following FDA approval in March 2019.
Cost of Product Sales
Cost of product sales was $0.7 million for the three months ended March 31, 2022, which increased by $0.3 million, from $0.4 million for the three months ended March 31, 2021. The increase in cost of product sales is primarily due to increased product revenue sales.
Sales and Marketing Expenses
Sales and marketing expenses were $10.7 million for the three months ended March 31, 2022, which increased by $2.8 million, from $7.9 million for the three months ended March 31, 2021. The increase in sales and marketing expenses was primarily attributable to the following:
 
   
a $2.0 million increase in outsourced advertising and promotion costs due to timing of media buys and agency activities;
 
   
a $0.6 million increase in patient assistance costs;
 
   
a $0.6 million increase in other sales and marketing related costs; offset by
 
   
a $0.5 million decrease in commercial analytic and market research costs, primarily related to prescription and payor data.
General and Administrative Expenses
General and administrative expenses were $5.3 million for the three months ended March 31, 2022, which increased by $1.7 million, from $3.6 million for the three months ended March 31, 2021. The increase in general and administrative expenses was primarily attributable to the following:
 
   
a $1.6 million increase in personnel costs, including stock-based compensation expense, primarily due to an increase in headcount and external consultants;
 
   
a $0.5 million increase in insurance fees, related to directors’ and officers’ insurance;
 
   
a $0.2 million increase in other general and administrative costs; offset by
 
   
a $0.6 million decrease in consulting and professional fees.
Research and Development Expenses
Research and development expenses were $0.9 million for the three months ended March 31, 2022, which decreased by $0.3 million from $1.2 million for the three months ended March 31, 2021. The decrease in research and development expenses was primarily attributable to the following:
 
   
a $0.7 million decrease in clinical costs related to costs incurred as part of the Phase 4 trials related to the development of JATENZO, our lead commercial product, during the three months ended March 31, 2021; offset by
 
   
a $0.4 million increase in personnel costs.
Other Expense, Net
Total other expense, net was $1.3 million for the three months ended March 31, 2022, compared to $4.6 million for the three months ended March 31, 2021. The decrease of $3.3 million was primarily related to a $2.7 million decrease in interest expense and a $0.6 million increase in the change in fair value of the warrant liability and derivative.
 
43

Comparison of the years ended December 31, 2021 and 2020
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (in thousands):
 
    
Years Ended December 31,
       
    
     2021     
   
     2020     
   
Change
 
Net product revenue
   $ 13,957     $ 6,369     $ 7,588  
Cost of product sales
     2,720       8,687       (5,967
  
 
 
   
 
 
   
 
 
 
Gross profit
     11,237       (2,318     13,555  
Operating expenses:
      
Sales and marketing
     30,677       30,524       153  
General and administrative
     16,662       11,937       4,725  
Research and development
     3,630       2,398       1,232  
  
 
 
   
 
 
   
 
 
 
Total operating expenses
     50,969       44,859       6,110  
  
 
 
   
 
 
   
 
 
 
Loss from operations
     (39,732     (47,177     7,445  
Other (expense) income, net:
      
Change in fair value of warrant liability and derivative, net
     12,508       66,891       (54,383
Interest income
     2       25       (23
Interest expense
     (15,895     (15,394     (501
Litigation settlement
     2,500       —         2,500  
  
 
 
   
 
 
   
 
 
 
Total other (expense) income, net
     (885     51,522       (52,407
  
 
 
   
 
 
   
 
 
 
Net (loss) income
   $ (40,617   $ 4,345     $ (44,962
  
 
 
   
 
 
   
 
 
 
Net Product Revenue
For the year ended December 31, 2021, we recorded $14.0 million of net product revenue, which increased by $7.6 million from $6.4 million for the year ended December 31, 2020. The increase in net revenue is related to the growth of the brand through our sales and marketing efforts. We did not begin commercially selling JATENZO within the United States until February 2020, following FDA approval in March 2019.
Cost of Product Sales
Cost of product sales was $2.7 million for the year ended December 31, 2021, which decreased by $6.0 million, from $8.7 million for the year ended December 31, 2020. The decrease in cost of product sales is primarily due to the fact that 2020 includes a $7.8 million inventory obsolescence charge whereas such charge was $0.7 million in 2021, offset by an increase due to increased product revenue sales.
Sales and Marketing Expenses
Sales and marketing expenses were $30.7 million for the year ended December 31, 2021, which increased by $0.2 million, from $30.5 million for the year ended December 31, 2020. The increase in sales and marketing expenses was primarily attributable to the following:
 
   
a $1.8 million increase in in commercial analytic and market research costs, primarily related to prescription and payor data;
 
   
a $1.5 million decrease in in outsourced advertising and promotion costs due to timing of media buys and agency activities; and
 
   
a $0.1 million increase in other sales and marketing related costs.
 
44

General and Administrative Expenses
General and administrative expenses were $16.6 million for the year ended December 31, 2021, which increased by $4.7 million, from $11.9 million for the year ended December 31, 2020. The increase in general and administrative expenses was primarily attributable to the following:
 
   
a $2.8 million increase in personnel costs, including stock-based compensation expense, primarily due to an increase in headcount and external consultants;
 
   
a $1.0 million increase in insurance fees, related to directors’ and officers’ insurance;
 
   
a $0.6 million increase in in consulting and professional fees, primarily in connection with operating as a public company; and
 
   
a $0.3 million increase in in other general and administrative costs.
Research and Development Expenses
Research and development expenses were $3.6 million for the year ended December 31, 2021, which increased by $1.2 million from $2.4 million for the year ended December 31, 2020. The increase in research and development expenses was primarily attributable to the following:
 
   
a $0.9 million increase in license fees related to the license agreements with HavaH Therapeutics, or HavaH, and McGill University, or McGill;
 
   
a $0.7 million increase in clinical costs related to Phase 4 trials related to the development of JATENZO, our lead commercial product; offset by
 
   
a $0.4 million decrease in costs related to research and development consulting services.
Other (Expense) Income, Net
Total other expense, net was $0.9 million for the year ended December 31, 2021, compared to income of $51.5 million for the year ended December 31, 2020. The decrease of $52.4 million was primarily related to a $54.4 million decrease in the change in fair value of the warrant liability and derivative, a $2.5 million increase from a legal settlement received associated with the patent infringement lawsuit with Lipocine, and an increase in interest expense of $0.5 million. The increase in interest expense is driven by an increase of $1.1 million in interest incurred with related parties offset by a decrease of $1.9 million in interest incurred with third parties and an increase of $0.3 million associated with a gain on extinguishment of the senior secured notes.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, Legacy Clarus has incurred significant operating losses, has experienced negative operating cash flows and has accumulated significant accrued liabilities. Our net loss was $14.9 million for the three months ended March 31, 2022 and $40.6 million for the year ended December 31, 2021. As of March 31, 2022, we had cash and cash equivalents of $9.1 million and an accumulated deficit of $336.5 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future. As a result, even with proceeds from the merger, the December 2021 private placement and the April 2022 public offering, we will need substantial additional funding to support our continuing operations, service our indebtedness and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions.
We are exploring strategic alternatives for the purpose of maximizing stockholder value. We expect to devote significant efforts to raise capital, restructure our indebtedness and identify and evaluate potential
 
45

strategic alternatives but there can be no assurance that these efforts will be successful, that we will be able to raise necessary capital on acceptable terms, reach agreement with our lenders, or that the strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. The Board has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any additional cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our commercialization efforts for JATENZO as well as other development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
April 2022 Underwritten Public Offering
On April 27, 2022, we issued and sold 27,270,720 units in an underwritten
follow-on
public offering, consisting of (i) 26,680,720 shares of Common Stock and accompanying Class A warrants to purchase an aggregate of 26,680,720 shares of Common Stock, at a purchase price of $1.10 per Common Stock unit and (ii) 590,000
pre-funded
warrants to purchase 590,000 shares of Common Stock at an exercise price of $0.001 per
pre-funded
warrant, and accompanying Class A warrants to purchase an aggregate of 590,000 shares of Common Stock, at a purchase price of $1.10 (less) $0.001 per
pre-funded
warrant unit, resulting in gross proceeds of approximately $30.0 million. The
pre-funded
warrants were exercised upon issuance and are no longer outstanding. Each Class A warrant is immediately exercisable for one share of Common Stock at an exercise price of $1.10 per share and expires five years after the issuance date. We received net proceeds of $27.9 million, after incurring transaction expenses of approximately $2.1 million.
On April 27, 2022, concurrent with the closing of the April 2022 public offering, we issued the Armistice Warrants to acquire 1,300,000 shares of Common Stock to the accredited investor who purchased shares in the December 2021 private placement in exchange for a waiver of restrictions in the Securities Purchase Agreement that prohibited the issuance of the Class A warrants with anti-dilution price protection terms. These warrants have a five-year term, an exercise price of $1.80 per share, and are subject to adjustment for dilutive issuances. We agreed to register for resale of the shares underlying these warrants.
Cash Flows
Comparison of the months ended March 31, 2022 and 2021
The following table summarizes our cash flows for the three months ended March 31, 2022 and 2021 (in thousands):
 
    
Three Months Ended

March 31,
 
    
2022
    
2021
 
Net cash used in operating activities
   $ (17,268    $ (7,042
Net cash used in investing activities
     (10      (11
Net cash provided by financing activities
     —          7,184  
  
 
 
    
 
 
 
Net (decrease) increase in cash and cash equivalents
   $ (17,278    $ 131  
  
 
 
    
 
 
 
Operating Activities
Net cash used in operating activities was $17.3 million for the three months ended March 31, 2022, reflecting net loss of $14.9 million and
non-cash
charges of $4.0 million, offset by a net change of $1.6 million in net operating assets. The
non-cash
charges primarily consist of
non-cash
interest expense on debt financings and the royalty obligation, a change in the fair value of warranty liability, stock-based compensation expense and
 
46

depreciation. The change in net operating assets and liabilities was primarily due to an increase in accounts receivable of $1.7 million, an increase in inventory of $0.7 million, partially offset by an increase in accrued expenses of $3.2 million, an increase in deferred revenue of $0.4 million, a decrease in prepaid expenses of $0.3 million, and an increase in accounts payable of $0.1 million.
Net cash used in operating activities was $7.0 million for the three months ended March 31, 2021, reflecting net loss of $15.4 million, offset by a net change of $3.6 million in net operating assets and
non-cash
charges of $4.8 million. The
non-cash
charges primarily consist of
non-cash
interest expense on debt financings and the royalty obligation, stock-based compensation expense and depreciation. The change in net operating assets and liabilities was primarily due to an increase in inventory of $2.2 million, an increase in accounts receivable of $0.8 million, an increase in prepaid expenses and other current assets of $0.3 million, partially offset by an increase in accounts payable of $4.1 million and an increase in accrued expenses of $2.8 million.
Investing Activities
During the three months ended March 31, 2022 and 2021, net cash used in investing activities was approximately $10 thousand and $11 thousand, respectively, for purchases of property and equipment.
Financing Activities
During the three months ended March 31, 2021, net cash provided by financing activities was $7.2 million, related to $7.2 million of proceeds from the issuance of convertible notes.
Comparison of the years ended December 31, 2021 and 2020
The following table summarizes our cash flows for the years ended December 31, 2021 and 2020 (in thousands):
 
    
Years Ended
December 31,
 
    
2021
    
2020
 
Net cash used in operating activities
     (43,786      (41.580
Net cash used in investing activities
     (25      (63
Net cash provided by financing activities
     62,993        47,220  
  
 
 
    
 
 
 
Net increase in cash and cash equivalents
   $ 19,182      $ 5,577  
  
 
 
    
 
 
 
Operating Activities
Net cash used in operating activities was $43.8 million for the year ended December 31, 2021, reflecting net loss of $40.6 million and cash used in net operating assets and liabilities of $7.2 million, offset by
non-cash
charges of $4.0 million. The
non-cash
charges consist of
non-cash
interest expense on debt financings and the royalty obligation of $13.1 million, settlement of interest with
payment-in-kind
note of $3.1 million, gain on extinguishment of senior note of $0.3 million, change in fair value of warrant liability of $12.5 million, stock-based compensation expense of $668 thousand and depreciation expense of $25 thousand. The change in net operating assets and liabilities was primarily due to an increase in inventory of $8.4 million, an increase in accounts receivable of $1.9 million, an increase in prepaid expenses and other current assets of $2.8 million, a decrease in deferred revenue of $0.4 million, partially offset by an increase in accrued expenses of $3.6 million and an increase in accounts payable of $1.8 million.
Net cash used in operating activities was $41.6 million for the year ended December 31, 2020, reflecting net income of $4.3 million, offset by a net change of $7.6 million in net operating assets and
non-cash charges
of $53.6 million. The
non-cash charges
primarily consist of the change in fair value of the warrant and derivative
 
47

liabilities,
non-cash interest
expense on debt financings and the royalty obligation, stock-based compensation expense and depreciation. The change in net operating assets and liabilities was primarily due to an increase in accounts payable of $7.7 million, an increase in accrued expenses of $2.9 million, an increase in deferred revenue of $1.2 million, partially offset by a decrease in accounts receivable of $4.4 million, and a decrease in prepaid expenses of $0.8 million.
Investing Activities
During the years ended December 31, 2021 and 2020, net cash used in investing activities was approximately $25 thousand and $63 thousand, respectively, and was used for the purchases of property and equipment.
Financing Activities
During the year ended December 31, 2021, net cash provided by financing activities was $63.0 million, related to $23.6 million of proceeds from the issuance of convertible notes payable, $17.0 million in net proceeds from the business combination, $13.8 million of proceeds from issuance in a private placement of shares (or in lieu thereof,
pre-funded
warrants) and accompanying purchase warrants, net of issuance costs, and $8.6 million of proceeds from the issuance of senior notes payable.
During the year ended December 31, 2020, net cash provided by financing activities was $47.2 million, primarily related to $49.1 million of gross proceeds received from the issuance of senior notes and related royalty obligation, and $1.6 million of gross proceeds received from the issuance of convertible note, partially offset by debt issuance costs paid of $3.5 million.
Funding Requirements
Our primary use of cash is to fund operating expenses, primarily related to our selling and marketing activities associated with the commercialization of JATENZO and our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses. Until such time, if ever, we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. Our ability to raise additional capital may be adversely impacted by, but not limited to, potential worsening global economic conditions and our stock price, and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing
COVID-19
pandemic, and more recently the Russian invasion of Ukraine. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If funding permits, we expect our expenses to increase substantially in connection with its ongoing activities, particularly as we advance the commercialization of our product JATENZO. In addition, we now expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
Going Concern
We evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the audited consolidated financial statements are issued.
 
48

Since inception, Legacy Clarus has devoted substantially all its efforts to business planning, clinical development, commercial planning and raising capital. Legacy Clarus, and since the merger, we, have incurred significant losses from operations since inception and has an accumulated deficit of $336.5 million as of March 31, 2022. Further, as of March 31, 2022, we had a working capital deficit of $29.5 million.
In addition to the consummation of the merger and the related investment, we plan to seek additional funding through the expansion of our commercial efforts to grow JATENZO and our operating cash flow, business development efforts
to out-license
JATENZO internationally, equity financings, debt financings such as the secured notes described in Note 7 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 included elsewhere in this prospectus or other capital sources including collaborations with other companies or other strategic arrangements with third parties. There can be no assurance that these future financing efforts will be successful.
If we are unable to obtain funding or generate operating cash flow, we will be forced to delay, reduce or eliminate some or all of our product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. The terms of any financing may adversely affect the holdings or the rights of our stockholders.
Based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional capital to finance our future operations, as of the issuance date of the unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022, we have concluded that our cash and cash equivalents as of March 31, 2022 along with the proceeds from the April 2022 public offering will be sufficient to fund our operating expenses and capital expenditure requirements into September 2022. Accordingly, there is substantial doubt about our ability to continue as a going concern.
If we are unable to obtain funding or generate operating cash flow, we will be forced to delay, reduce or eliminate some or all of our product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. The terms of any financing may adversely affect the holdings or the rights of our stockholders.
Working Capital
Because of the numerous risks and uncertainties associated with research, development and commercialization of JATENZO and our research and development portfolio, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
 
   
The costs, timing and ability to manufacture JATENZO;
 
   
the costs of future activities, including product sales, marketing, manufacturing and distribution of JATENZO;
 
   
the costs of manufacturing commercial-grade product and necessary inventory to support continued commercial launch;
 
   
the costs of potential milestones related to license agreements;
 
   
the ability to receive additional
non-dilutive
funding, including grants from organizations and foundations;
 
49

   
the revenue from commercial sale of its products;
 
   
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing its intellectual property rights and defending intellectual property-related claims; and
 
   
our ability to establish and maintain collaborations on favorable terms, if at all.
Material Cash Requirements from Contractual and Other Obligations
Purchase Obligations
We have an agreement with Catalent under which we must make minimum annual purchases of JATENZO softgel capsules, through March 2025. Any shortfall between the minimum annual purchase quantities and actual purchases will be multiplied by a unit price, as defined in such agreement, and paid to Catalent within 30 days of
any year-end
that the minimum purchase requirement is not met. We have not made any payments to Catalent as a result of a shortfall in minimum purchase quantities. Purchases under the manufacturing agreement with Catalent, or the Catalent Agreement, for the three months ended March 31, 2022 and 2021 were $1.2 million and $3.3 million, respectively, and were $6.2 million and $3.2 million for the years ended December 31, 2021 and 2020, respectively. The aggregate amount of future purchase obligations under the Catalent Agreement total $10 million as of March 31, 2022, of which $3.6 million is to be paid within one year.
We have an agreement with Pfizer, under which we must make minimum annual purchases of TU equal to approximately $1.8 million per year through January 2024. If there is a shortfall between the minimum annual purchase quantities and actual purchases, the difference between the minimum annual purchase amount and actual purchases will be paid to Pfizer. There were no purchases under the supply agreement with Pfizer, or the Pfizer Agreement, during the three months ended March 31, 2022 and the year ended December 31, 2021. The aggregate amount of future purchase obligations under the Pfizer Agreement total $4.7 million as of March 31, 2022, of which $1.8 million is to be paid within one year.
Lease Commitments
We have entered operating leases for rental space in Northbrook, Illinois and Murfreesboro, Tennessee that extend to December 31, 2022 and September 30, 2022, respectively. Total minimum rental payments owed under the leases as of March 31, 2022 totaled $99 thousand and are all due within one year.
We enter into contracts in the normal course of business with clinical trial sites, clinical and commercial supply manufacturers, and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts.
Long-Term Debt Commitments
As discussed above and in Note 7 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 included elsewhere in this prospectus, we have outstanding senior secured notes.
License Agreement Commitments
Under the terms of our licensing agreement with HavaH, we made an upfront payment of $0.5 million and HavaH may be eligible for up to $10.8 million in potential development and regulatory milestone payments. Additionally, HavaH would be eligible for royalty payments and up to $30.0 million in potential commercial milestones. Such royalty payments will be based on total aggregate annual net sales
of CLAR-121 in
the territory, at a low single digit percentage rate (when there is no patent protection or regulatory exclusivity) or a low teens percentage rate
(where CLAR-121 has
patent protection or regulatory exclusivity). Additionally, such
 
50

royalties are payable until the later of ten years or the loss of patent protection or regulatory exclusivity. To date, pursuant to the HavaH Agreement, we have made cash payments of $0.5 million consisting of the upfront payment.
Under the terms of our licensing agreement with McGill, McGill may be eligible for up to $10.5 million in potential development and regulatory milestone payments. Additionally, McGill would be eligible for royalty payments and up to $15.0 million in potential commercial milestones. Such royalty payments will be based on total aggregate annual net sales of any licensed products that are covered by the licensed patents in the territory, at a low single digit percentage rate. To date, pursuant to the McGill Agreement, we have made cash payments of $0.4 million consisting of the upfront payment.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes to our critical accounting policies from those described in our most recent annual financial statements for the year ended December 31, 2021 included elsewhere in this prospectus.
Recently Issued Accounting Pronouncements
See Note 2 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2022 and our audited consolidated financial statements for the year ended December 31, 2021
included elsewhere in this prospectus.
Qualitative and Quantitative Disclosures about Market Risk
We are exposed to certain market risks in the ordinary course of its business. Market risk represents the risk of loss that may impact its financial position due to adverse changes in financial market prices and rates. Our market risk exposure primarily relates to changes in interest rates.
Interest Rate Risk
Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash equivalents are in the form of money market funds and our long-term debt financings. As of March 31, 2022 and December 31, 2021, we had cash and cash equivalents of $9.1 million and $26.4 million, respectively. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio.
As of March 31, 2022 and December 31, 2021, $43.1 million in aggregate principal amount of our outstanding debt obligations were at fixed interest rates, representing approximately 100% of our total debt, on an amortized cost basis. As of March 31, 2022 and December 31, 2021, our outstanding debt obligations at fixed interest rates were comprised of senior notes.
 
51

Emerging Growth Company Status
We are an “emerging growth company” as defined in the Jobs Act and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company under Section 107 of the JOBS Act, which provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We elected to avail ourselves of the extended transition period and, therefore, while we are an emerging growth company, we will not be subject to new or revised accounting standards the same time that they become applicable to other public companies that are not emerging growth companies, unless we choose to early adopt a new or revised accounting standard.
 
52

BUSINESS
Overview
We are a pharmaceutical company focused on the commercialization of JATENZO, the first oral
T-replacement
or TRT of its kind that has received final approval by the FDA. We believe that current users of TRT are not satisfied with their current options and desire a therapeutic that is safe, effective and more convenient. Our primary goal for JATENZO is for it to become the preferred choice for TRT among men with hypogonadism—T deficiency accompanied by an associated medical condition. In parallel, our broader vision is to become a pharmaceutical company initially focused on the development and commercialization of JATENZO and other metabolic therapies for men and women.
In March 2019, our first commercial product, JATENZO, was approved by the FDA as a TRT for the treatment of adult men with hypogonadism due to certain medical conditions. JATENZO is the first oral T therapy approved by the FDA in more than 60 years. JATENZO is a
T-ester
prodrug created by the linkage of T with the fatty acid undecanoic acid to form TU. Once absorbed, TU, an inactive version of T, is converted by natural enzymes in the body to bioactive T. In February 2020, we commenced U.S. commercial sales of JATENZO and, as of March 31, 2022, JATENZO was available under health plans, representing approximately 72% of all insured lives. Of these patients, 76% of patients with commercial insurance had access to JATENZO. In the three months ended March 31, 2022 and 2021, JATENZO generated net revenues of approximately $4.0 million, and $2.3 million, respectively, demonstrating consistent month over month prescription growth since the beginning of commercialization despite the commercial challenges presented by the ongoing
COVID-19
pandemic. In August 2019, the FDA granted
3-year
Hatch-Waxman market exclusivity to JATENZO, which prevented the FDA from granting full market approval to similar new drugs or generic competitors for the protected conditions of use of JATENZO until March 27, 2022.
Initial Business Combination
We were a blank check company incorporated in Delaware on May 22, 2020 and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On September 9, 2021, we consummated the previously announced business combination pursuant to the terms of the Merger Agreement by and among the Company, our wholly-owned merger subsidiary, and Legacy Clarus, in which our merger subsidiary merged with and into Legacy Clarus, with Legacy Clarus surviving as the post-merger company and as a wholly owned subsidiary of the Company. On the Merger Closing Date, we changed our name from Blue Water Acquisition Corp. to Clarus Therapeutics Holdings, Inc. At the effective time of the Merger, Legacy Clarus security holders received an aggregate of 17,886,348 shares of Common Stock (which included 135,000 shares that were transferred from Blue Water Sponsor LLC, or the Sponsor, pursuant to a share allocation agreement), assumed some Legacy Clarus warrants that are now exercisable for 9,246 shares of Common Stock, and the remaining shares of Legacy Clarus capital stock and all outstanding options, warrants or rights to purchase or subscribe for any Legacy Clarus capital stock, securities convertible into or exchangeable for, or that otherwise conferred on the holder any right to acquire any capital stock of Legacy Clarus were cancelled, retired and terminated without any consideration or any liability to Legacy Clarus with respect thereto. In addition, all shares of our Class B common stock, par value $0.00001 per share, were converted into Class A common stock and then redesignated as Common Stock.
Capital Raising and Restructuring Plan
In light of our current liquidity, we need to raise additional capital to support our operations and debt obligations and concurrently, we are exploring strategic alternatives for the purpose of maximizing stockholder value. We have been and expect to continue to devote significant efforts to raise capital, restructure our indebtedness and identify and evaluate potential strategic alternatives but there can be no assurance that these
 
53

efforts will be successful, that we will be able to raise necessary capital on acceptable terms, reach agreement with our lenders, or that the strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. The Board has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any additional cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our commercialization efforts for JATENZO as well as other development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, fall into forbearance on our debt obligations, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
TRT Overview
T-deficiency
is diagnosed in men by a simple blood test that identifies a T concentration below 300 nanograms per deciliter. Common symptoms identified in the Endocrine Society’s clinical guidelines that suggest testing for T deficiency include reduced sexual activity and desire, decreased energy, increased body fat and reduced muscle mass, depressed mood and other emotional and physiological issues.
T-deficiency
affects approximately 20 million men over the age of 45, according to a study published in the
International Journal of Clinical Practice
in 2006. Of this population, about 8 million are diagnosed with hypogonadism, and even fewer, approximately 2.2 million, actually receive TRT, the standard treatment for hypogonadism. Even with this low treatment rate, the overall market for TRT grew 7% in 2020 over 2019, despite the ongoing
COVID-19
pandemic, which followed a 6.6% growth in prescriptions in the United States in 2019 as compared to 2018. The overall
T-replacement
therapy market was nearly 8 million prescriptions in 2020 and has been growing at a 5% compound annual growth rate, according to Symphony Health (Payer/Plan TRx Volume).
Existing therapeutic options for hypogonadal men, including
T-injections
(intramuscular and subcutaneous),
T-gels,
T-patches,
T-
buccal
T-patches
and implanted subcutaneous
T-pellets,
all suffer from limitations due to their routes of administration and ease of use. Consequently, these TRT options have low rates of adherence to prescribed dosing regimens. For example, only 31% and 14% of men continued taking
T-gel
six and 12 months after commencing therapy, respectively, according to a peer-reviewed study that reviewed enrollment and medical records of more than 15,000 men with hypogonadism. In addition, according to a survey we commissioned in 2020, 76% of the surveyed men reported that their needs are not being met by existing
T-replacement
therapies. This same poll found that 82% of TRT users were interested in learning about an oral TRT option. We believe that many hypogonadal patients are not satisfied with
non-oral
therapies due to administration and other challenges. Thus, they often discontinue their TRT or switch from one option to another in a cyclical search of a TRT that is acceptable. We believe JATENZO not only provides patients with the convenience of an oral route of administration but also the efficacy and safety necessary to treat hypogonadism. Although
T-injections
and
T-gels
collectively represent 95% of the TRT market, these products have significant challenges. Injections are painful, yield considerable
inter-day
T level variability and carry the risk of pulmonary micro-embolisms, or POMEs. Gels are messy, pose a significant risk of T transference to the patient’s partner or children and result in substantial amounts of T entering the environment when patients shower, bathe or swim. Overall, we believe that JATENZO is more convenient than currently approved T therapies, thus making it more likely that men will adhere to their treatment.
We own patents and pending applications in the United States and several other countries worldwide having claims covering the formulation and use of JATENZO, and have been involved in a U.S. district court patent infringement action, and USPTO interference proceedings with Lipocine involving Lipocine patents and Clarus patent application having claims covering the use of JATENZO and/or Lipocine’s TLANDO product. See “
Business Legal Proceedings
.” We have established a contract sales force of approximately 60 sales representatives as of December 17, 2021 to promote JATENZO in the United States. Assuming we are able to raise additional capital, we intend to invest additional resources to expand our national footprint to approximately 100 targeted sales representatives and to bring this sales force
in-house
by the end of 2022. Our sales force
 
54

currently targets high volume prescribing health care providers, or HCPs, comprised of endocrinologists, urologists and primary care physicians. We continue to evaluate marketing or
co-promotion
arrangements to leverage our existing sales force and provide even broader JATENZO penetration in the U.S. market. We continue to explore potential strategic partnerships to assist in obtaining marketing approval for and commercialization of JATENZO outside of the United States (particularly in Europe, Asia and the Middle East). Success in achieving sales of JATENZO outside the United States could be a source of
non-dilutive
funding. We are also actively exploring potential business development transactions to expand our portfolio and leverage our existing sales force.
Since the beginning of our operations in 2004 through our wholly-owned subsidiary, Clarus Therapeutics, Inc., we have assembled a seasoned management team with significant commercial TRT and large pharmaceutical experience. President and Chief Executive Officer, Dr. Robert Dudley, and founder of Clarus Therapeutics, Inc., has over 30 years of experience in the
T-replacement
field and led the discovery, development, regulatory approval and launch of AndroGel, the first
T-gel
product. He also
co-invented
JATENZO and oversaw its development through approval by the FDA. Our senior management team includes industry veterans who have collectively more than 60 years of experience in the TRT market.
Our Strategy
Assuming we are able to raise additional capital, our goal is to build a pharmaceutical company that commercializes products complementary to our lead product, JATENZO. Key elements of our strategy to achieve this goal include:
 
   
Establish JATENZO as the preferred choice among appropriate hypogonadal men for
T-replacement
. We will continue to drive awareness of JATENZO by leveraging the convenience of JATENZO’s oral administration and will seek to establish JATENZO as the preferred TRT treatment for HCPs and their hypogonadal patients.
 
   
Accelerate the build of our commercial infrastructure to successfully grow the market for JATENZO and launch any additional products we develop or acquire
. We will grow our commercial infrastructure and sales force that targets endocrinologists, urologists and PCPs who are high prescribers of TRT.
 
   
Explore additional indications for JATENZO and consider business development opportunities to grow our pipeline and product portfoli
o. We plan to use exploratory trials to guide the development of JATENZO for additional potential indications, including, for example, treatment of hypogonadism associated
female-to-male
transgender T therapy and chronic kidney disease. We will also seek to leverage the commercial launch of JATENZO with our sales organization and commercial infrastructure to develop or acquire the rights to additional complementary products or product candidates.
Hypogonadism and the
T-Replacement
Therapy Market
Hypogonadism or
T-Deficiency
T is a key male sex hormone and is essential to the development of male growth. It is responsible for promoting growth of muscle mass, increasing bone density and strength, and stimulating linear growth and bone maturation. In addition, researchers increasingly have identified T as an important factor in metabolic function and other physiological processes, including the observation that normal levels help maintain energy levels and an overall sense of well-being in men.
Approximately 20 million men in the United States between the ages of 45 and 75 years old may have deficient levels of T, defined as circulating T levels below 300 nanograms per deciliter, based upon
age-based
prevalence rates published in the International Journal of Clinical Practice in 2006 and the U.S. Census Bureau’s 2012 population estimates.
 
55

The Endocrine Society, a professional medical organization comprised of HCPs with medical expertise in the area of hormones and related medical disorders, has published clinical guidelines identifying signs and symptoms of hypogonadism, including the following:
 
 
There are two types of hypogonadism: primary, or classical, hypogonadism and secondary hypogonadism.
Primary hypogonadism is caused by the failure (inability) of the testes to synthesize and secrete T. Causes of primary hypogonadism include Klinefelter’s syndrome, a condition in which males have an extra X chromosome, testicular tumors, testicular damage, varicocele, which is an abnormal enlargement of the vein in the scrotum that drains blood from the testicles, disease-associated testicular damage, including that from mumps, certain systemic diseases, such as renal insufficiency, and exposure to alcohol in chronic excess.
Secondary hypogonadism is caused by a fault in the hypothalamic-pituitary axis that results in an inadequate gonadotropin signal to the testes to produce T. Secondary hypogonadism is relatively common among men with diseases such as
type-2
diabetes and its common precursor, metabolic syndrome. For example, approximately 33% and 12% of men with
type-2
diabetes and metabolic syndrome, respectively, are hypogonadal, according to research published in
Diabetes Care
in 2007 and the
Journal of Andrology
in 2009. Secondary hypogonadism is also associated with obesity, chronic heart disease, chronic kidney disease, asthma and chronic obstructive pulmonary disease.
U.S. TRT Market Dynamics %
U.S. sales of
T-replacement
therapies, currently the standard treatment for T deficiency, exceeded $1.3 billion in 2020, according to Symphony Health, and almost 8 million prescriptions for
T-replacement
therapies are written per year. U.S. sales represent the vast majority of global TRT sales, with injections representing 36% and gels representing 58% of the U.S. sales dollars in 2020. Injections represent 75% and gels represent 24%, respectively, of all U.S. prescriptions written in 2020.
 
56

The following graph demonstrates year-over-year prescription growth in the U.S. TRT market over the last 5 years.
U.S. Annual Prescriptions and Year-over-Year Growth in the TRT Market
 
 
We believe there is potential for continued TRT market expansion. According to a study published in the
Archives of Internal Medicine
in 2008, only 12% of hypogonadal men, representing less than half of all men diagnosed with hypogonadism, actually receive TRT. Additionally, the overall TRT market in 2020 grew 7% over 2019, to approximately 8 million prescriptions per year, despite the
COVID-19
pandemic. This followed a 6.6% growth in prescriptions in 2019 as compared to 2018. Our expectation of continued growth and penetration in the TRT market in the United States is based on a number of factors, including:
 
   
a growing awareness among physicians to diagnose and treat hypogonadism and willingness by patients to discuss signs and symptoms of their medical condition than in the past;
 
   
recognition and association by HCPs of the association of hypogonadism with other increasingly prevalent diseases, such as metabolic syndrome, type 2 diabetes, chronic renal disease and chronic heart disease;
 
   
the ability to easily identify low serum T levels through a simple blood test; and
 
   
continuing guidance from medical societies (including the Endocrine Society, American Association of Clinical Endocrinologists and American Urological Association), that clinicians measure serum T levels of patients if they present with symptoms or signs typically associated with hypogonadism.
Limitations of Existing Treatments for Hypogonadism
The U.S. TRT market is comprised primarily of
non-oral
T treatments, including injections, gels, topical and buccal patches, and implanted subcutaneous pellets. Each of these products is associated with different T pharmacokinetic profiles which, in turn, can lead to significant intra- and inter-patient variabilities in circulating T response and associated symptom relief. Furthermore, each TRT delivery route has been associated with user challenges. For example, the pain of weekly deep muscle injections, skin irritation associated with the
T-patch
or
T-gels,
risk of T transference to women and children by
T-gel
users, potential anaphylactic reactions observed with a long-acting depot form of TU, thrice-daily administration of a nasal T preparation, and a surgical procedure for placement of
T-pellets.
Consequently, there has been relatively poor patient adherence and significant ‘switching’ from one TRT to another. Missing from the available armamentarium of TRT therapies
 
57

was an oral T product that was effective in meeting current
T-replacement
regulatory standards and one not associated with potentially serious liver toxicity. Prior to JATENZO’s approval, the only oral
T-replacement
product approved by FDA (over 60 years ago) was methyltestosterone—a chemical cousin of T that has been associated with serious liver toxicity and thus has been rarely prescribed. Therefore, when viewed in the historical context of TRT, we believe JATENZO offers appropriate hypogonadal patients an
easy-to-use,
safe and effective TRT option that was not previously available.
Prior to 2000, with the introduction of a
T-gel,
T was primarily available through either scrotal or
non-scrotal
patches, pellets, or injections.
T-injections,
which became the dominant mode of administration and remain so today. However, besides having pain at the injection site, intramuscular T products carry significant risk of POME and polycythemia (i.e., increase in red blood cell count) which requires monitoring by the healthcare provider.
With the introduction of a
T-gel
formulation in 2000, topical T administration became desirable because of its ease of use. However, over time common side effects including itching, irritation and discomfort at the application site became increasingly problematic for patients. Additionally, topical
T-gels
place partners and children at risk of T transference (secondary exposure to T when transferred from user to
non-user
(e.g., women and children)). This prompted the FDA to add boxed warnings to the labeling for
T-gels
relating to T transference. Despite these limitations, gels have continued to demonstrate significant market penetration.
The other approved TRT therapies have their own limitations, including gum, nasal and skin irritation and difficulty of administration (e.g., office procedure). As a result,
non-oral
TRT products are associated with low rates of patient compliance and adherence. More than 95,000 men change
T-replacement
therapies more than once per year. According to a peer-reviewed study published in the Journal of Sexual Medicine in 2013, only 31% and 14% of patients were still on gel therapy six months and 12 months, respectively, after first dosing, and only about half of those who discontinued therapy later resumed treatment.
Our Solution—JATENZO
Our first commercial product, JATENZO, was approved in March 2019 by the FDA for oral TRT use in adult males for conditions associated with a deficiency or absence of endogenous, or naturally produced, T, including congenital or acquired primary and secondary hypogonadism, with a boxed warning. JATENZO was the first oral
T-medicine
approved by the FDA in more than 60 years, the first oral
T-prodrug,
and the first oral softgel TU TRT.
We believe JATENZO offers hypogonadal men and prescribing physicians a safe and effective oral replacement option and has a number of advantages over the currently approved replacement therapies, including:
 
   
Convenient Oral Dosing
. JATENZO as either one or two
easy-to-swallow
softgels is taken twice daily with a regular meal. We believe oral dosing is preferred by most patients, is easier to use than other TRTs currently on the market and will ultimately improve the low TRT adherence rates.
 
   
Normalized T Levels
. After dose adjustment (if necessary), 87% of men treated with JATENZO in our clinical trials achieved average serum T levels in the normal range. In addition, JATENZO improved the classic signs and symptoms associated with hypogonadism, including psychosexual symptoms, body mass index, fat mass and bone mineral density.
 
   
Avoids Administration Challenges
. Unlike other TRT products, JATENZO is an oral product and as such avoids the challenges, risks and safety issues seen with
non-oral
products. JATENZO avoids the risk of T transfer to partners and children that exists with gel treatment; injection site pain, risk of POME and polycythemia seen with injections, and the gum, nasal and skin irritation and difficulty of administration seen with other TRT products.
 
58

   
Safety Profile
. JATENZO’s overall safety profile is generally consistent with that observed in clinical trials of other FDA approved TRTs. The modest increase in systolic blood pressure observed in men treated with JATENZO is not unique and has been observed with injectable T and other oral TU products under development in the United States or marketed outside the United States. Importantly, JATENZO has not been associated with liver toxicity in Phase 3 clinical testing that included patients treated with JATENZO for up to two years.
We commercially launched JATENZO in the United States in February 2020. In the three months ended March 31, 2022, JATENZO generated net revenue of approximately $4.0 million and in the three months ended March 31, 2021, JATENZO generated net revenue of approximately $2.3 million. Despite the ongoing
COVID-19
pandemic which had a profound effect on our ability to market JATENZO to HCPs, we achieved prescription growth month-over-month during the first two years of our launch as a result of our increasing educational efforts and increasing commercial payor coverage. Based on our current
gross-to-net
sales deductions of ~55% of gross sales, each TRT market share point JATENZO achieves equates to ~$34 million in annual net sales. In addition, we believe that the gross profit margin will approximate 80.5%.
As of March 31, 2022, JATENZO was available and covered for approximately 72% of all insured lives. Of these patients, 76% of patients with commercial insurance had access to JATENZO. This level coverage is consistent within the class of approved
T-replacement
products. We anticipate being able to secure additional payor coverage for JATENZO but there is no guarantee this will occur.
JATENZO is available in three capsule strengths yielding five available dosing levels, for twice daily administration with food. In our pivotal Phase 3 trial of JATENZO, an open-label study designed to evaluate the efficacy and safety of JATENZO in adult hypogonadal male subjects referred to as the ‘inTUne trial’, JATENZO was evaluated for safety against Axiron, a then commonly prescribed topical T formulation. A total of 222 hypogonadal men were randomized, with 166 in the JATENZO group and 56 in the Axiron group. JATENZO achieved the primary endpoint, with 87% of patients treated with JATENZO achieving an average T level in the normal male range by the end of the trial period and in some cases in as little as seven days. Notably, a robust dose-titration paradigm was tested and validated such that T responses to JATENZO could be tailored to individual patient requirements if a dose adjustment was necessary. As shown in the following graphic, JATENZO also improved classic signs and symptoms associated with hypogonadism in the inTUne trial, including free (i.e., bioactive) T, psychosexual symptoms, body composition, and bone mineral density, each as illustrated in the figures below.
 
 
The safety profile of JATENZO was consistent with data generated in two earlier Phase 3 trials and the general safety profiles for TRT products as a therapeutic class. No liver toxicity was observed. The most
 
59

common adverse events of JATENZO were headache (5%), increased hematocrit (5%), hypertension (4%), decreased HDL (3%), and nausea (2%). Each of the treatment-emergent adverse events of an increased hematocrit was considered by the investigator as mild in intensity. Compared to baseline, mean serum sex hormone binding globulin concentrations declined significantly in response to JATENZO but remained within the normal range after approximately three to four months of JATENZO. In parallel, concentrations of free T increased such that by the end of treatment, mean levels were significantly higher than baseline but still within the normal range. JATENZO was associated with a modest increase in average systolic blood pressure of about
3-5
mmHg—an increase consistent in magnitude with a currently marketed form of injectable testosterone. Because any increase in systolic blood pressure increases the theoretical risk of an adverse cardiovascular event (e.g., heart attack or stroke), FDA required that JATENZO (as well as an injectable T product approved in 2018 XYOSTED) to carry a boxed warning about potential increased blood pressure. Due to this risk, the boxed warning also states that use of JATENZO is only for the treatment of men with hypogonadal conditions associated with structural or genetic etiologies. We are also required by the FDA to conduct certain post-marketing studies to assess patient understanding of key risks relating to JATENZO, evaluate adrenal function with chronic JATENZO therapy, and conduct a pediatric study of JATENZO in adolescent hypogonadal patients.
In recent years, the FDA has mandated changes to all TRT product labeling to define the indicated uses of TRT products more explicitly and to strengthen precautions and warnings about their use. For example, language about potential cardiovascular risks, including deep vein thrombosis, now appears in TRT labeling as does a caution against TRT use in men with
“age-related
hypogonadism”.
Assuming we have sufficient capital, we plan to explore additional potential indications for JATENZO including, for example, treatment of hypogonadal men with chronic kidney disease and as T replacement in
female-to-male
transgender patients. We plan to conduct small exploratory Phase 4 studies to confirm our hypotheses that JATENZO therapy in these patient populations will restore T levels to the normal male range and improve other biomarkers and symptoms associated with T deficiency. We then expect to conduct Phase 3 studies based on FDA guidance that would potentially result in expanded labeling indications for JATENZO. The following table summarizes our current pipeline of product candidates.
 
 
We will also continue to explore commercial partnerships with outside organizations to maximize the sales and marketing potential for JATENZO. Of particular interest are establishing marketing partnerships for JATENZO in Europe, Asia and the Middle East.
 
60

Additional Product Candidates
Assuming we have sufficient capital, we will seek to leverage the commercial launch of JATENZO with our sales team and commercial infrastructure to develop or acquire rights to additional complementary products or product candidates. Our business strategy is to identify complementary development and commercialization opportunities that apply our management expertise, commercial infrastructure and sales force to approved products or product candidates. Our strategy is to pursue these opportunities both on our own and with industry leading partners. We believe this strategy offers a distinct value to patients, healthcare providers, pharmaceutical partners and our stockholders.
In May 2021, we entered into a licensing agreement to acquire the exclusive worldwide (excluding Australia) development and commercialization rights for HAVAH T+Ai
(CLAR-121).
CLAR-121
is a proprietary combination of T (natural ligand for the androgen receptor, or AR) and anastrozole (an aromatase inhibitor that blocks T conversion to estradiol) delivered by a subcutaneous implant for treatment of
AR-mediated
breast disease that predominantly affects women. Our initial therapeutic target will be inflammatory periductal mastitis, or PDM—a painful, often debilitating inflammation of breast tissue. We estimate that the annual total U.S. patient population of women with PDM is approximately 150,000. We are not aware of any effective pharmaceutical intervention for PDM and currently seek FDA Orphan Drug designation for
CLAR-121
for use in the treatment of PDM. However, there can be no guarantee that FDA will grant such designation. In addition to PDM,
CLAR-121
may have potential use to treat estrogen receptor-positive, or ER
+
, breast cancer as AR is a tumor suppressor in ER+ breast cancer. Of the approximately 280,000 annual cases of breast cancer in the United States, 80% of these are ER+ and 90% of ER+ breast cancers are also AR+. We will need to undertake significant development to demonstrate clinical efficacy and safety and to secure FDA approval for both of these potential uses for
CLAR-121.
There is no guarantee such development will be successful and result in FDA approval of
CLAR-121
for either condition.
In September 2021, we entered into a licensing agreement with McGill, Canada’s top ranked medical doctoral university, whereby we will develop and commercialize McGill’s proprietary technology to develop potential treatments for rare, endocrine, metabolic, and neurological conditions associated with primary and secondary CoQ
10
(ubiquinone) deficiencies that belong to the wider class of mitochondrial diseases. The basis of McGill’s technology is the combination of CoQ
10
and caspofungin into a parenteral formulation that substantially increases intracellular uptake of CoQ
10
.
CoQ
10
is synthesized in the inner membrane of mitochondria, a cellular organelle whose primary function is to produce the body’s chemical energy. Deficiencies of CoQ
10
can lead to severe multiple organ dysfunctions that involve the brain, nerves, kidneys, heart, gastrointestinal tract and muscle. Oral CoQ
10
is largely ineffective because it is poorly absorbed and does not result in intracellular uptake of CoQ
10
. McGill has identified a method to substantially increase such intracellular uptake, thereby forming the basis for a new, and potentially profound, method of addressing deficiencies of CoQ
10
. There is no guarantee that such method will be successful.
Mitochondrial diseases are chronic, genetic diseases that occur when the mitochondria, structures in our body cells that produce energy from oxygen and food, fail to function properly. Mitochondrial diseases can affect almost any area of the body and can occur at any age, making them often misdiagnosed. We intend to seek FDA Orphan Drug Designation for
CLAR-222
to treat primary CoQ
10
and certain forms of secondary CoQ
10
deficiencies but cannot be certain FDA will grant such designation.
Sales, Marketing and Distribution
We have built a robust internal commercial organization in the United States to market and sell JATENZO and any additional products we may develop or acquire. We have also established with a commercial outsource partner a sales force at the time of launch (February 2020) of approximately 55 representatives dedicated solely to promoting JATENZO in the United States. On December 17, 2021, we increased that number to 60
 
61

representatives which has enabled us to expand our TRT prescription volume coverage from ~59% to ~80%. Assuming we have sufficient capital, we intend to invest additional resources to bring our sales force
in-house
while expanding our national footprint. Our sales force targets high prescribing endocrinologists, urologists and primary care physicians. We believe that this approach allows us to achieve broad geographic coverage while connecting with the most valuable targets. In addition, we conduct direct outreach to hypogonadal men through paid search, social media and programmatic advertising. In April 2020, in connection with the
COVID-19
pandemic, we incorporated digital assets and virtual marketing into our sales force approach, including virtual sales calls, and we expect to proceed with a hybrid virtual and
in-person
approach moving forward. We also intend to explore additional strategies to engage both the patient and the consumer through various
direct-to-consumer
modalities. The launch of any future products may require further expansion of our existing sales force.
In addition to developing our own commercial organization, we continue to evaluate distribution or
co-promotion
arrangements with established pharmaceutical companies that have either complimentary product offerings or with established pharmaceutical companies to expand the footprint for JATENZO.
We are considering strategic partners with demonstrated commercial capabilities to assist in obtaining marketing approval for and commercialization of JATENZO outside of the United States. We intend to seek approval and launch commercial sales of JATENZO in territories outside of the United States by establishing additional collaborations with one or more pharmaceutical company collaborators, depending on, among other things, the applicable indications, the related development costs and our available resources. In May 2014, we entered into an agreement with CBC SPVI, Ltd., or
C-Bridge,
pursuant to which we and
C-Bridge
agreed to make commercially reasonable efforts to jointly develop a plan for the commercial manufacture, marketing, promotion, sale, distribution, and commercial importation and exportation of JATENZO and any related products in China. As part of this agreement,
C-Bridge
also purchased convertible promissory notes and became an investor in our company.
We have contracted with numerous wholesale distributors, including Cardinal, McKesson Corporation and Amerisource Bergen Corporation, to distribute JATENZO to retail pharmacies. In addition to shipping our product, these distributors provide inventory and sales reports as well as other services. In exchange for these services, we pay fees to certain distributors based on a percentage of wholesale acquisition cost. We also plan to explore using alternative,
non-retail
channels to distribute JATENZO.
Manufacturing
We have established a comprehensive supply chain for commercial manufacture of JATENZO capsules. We rely on contract manufacturers to produce the drug substance and drug product required for our commercial supply and clinical studies. We have qualified two sources of bulk TU, entered into an exclusive manufacturing relationship for the manufacture of the softgel capsules and engaged with a commercial packager for the production of finished JATENZO capsules. All lots of drug substance and drug product used for our commercial supply and clinical studies are manufactured, packaged and labeled under cGMP. The FDA inspects manufacturing facilities periodically, with the frequency based on its assessment of risk. We have established an internal quality control and quality assurance program, including a set of standard operating procedures and specifications that we believe is cGMP-compliant.
We expect to continue to rely on third parties for our manufacturing processes and for the production of all drug substance and drug product used for our commercial supply and clinical studies of JATENZO and any other product or product candidate we may develop or acquire. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners, to manufacture commercial quantities of JATENZO and any other product we may develop or acquire, if such product is approved in Europe or in territories outside of the United States and Europe.
 
62

For the commercialization of JATENZO, we have:
 
   
qualified two sources of bulk TU, Pfizer and Xianju, both of which are subject to continuing FDA review and periodic inspection, and entered into a commercial supply agreement with each;
 
   
entered into an exclusive manufacturing agreement with Catalent for the manufacture of JATENZO softgel capsules; and
 
   
entered into an agreement with a commercial packager for finished JATENZO capsules.
In March 2021, we entered into the Pfizer Agreement, for the bulk supply of TU. We provide Pfizer estimates of our projected supply requirements. These supply forecasts are binding for an initial period, can be altered by a certain percentage over a subsequent period and then are used only to assist with Pfizer’s production planning over the final period. We have an obligation to purchase a minimum amount of TU from Pfizer, subject to an annual maximum, for the first three years of the Pfizer agreement. The price per kilogram of bulk TU under the Pfizer Agreement is fixed based on the total volume purchased during a calendar year. If Pfizer is unable to satisfy our delivery requirements, we may purchase more supply needs from an alternative supplier. The term of the Pfizer Agreement expires in January 2024. The Pfizer Agreement may be terminated by either party without cause upon 18 months’ prior written notice or upon the other party’s uncured breach of any material obligation. The Pfizer Agreement also contains customary representations and warranties, indemnification, limitation on liability, assignment, confidentiality and other provisions.
Our January 2014 agreement with Xianju, or the Xianju Agreement, similarly requires us to project our bulk TU supply needs for the United States. Our purchase orders are then bound by each such supply forecast for an initial period, can be altered by a certain percentage over a subsequent period and then are used only to assist with Xianju’s production planning over such projection’s final period. The price per kilogram of bulk TU under the Xianju Agreement is fixed based on the total volume purchased in a year; however, Xianju may increase the price if there are sudden changes in economic circumstances that increase the cost of production or raw materials. In addition, Xianju may request each year that the parties renegotiate the agreed upon prices from the previous year. The Xianju Agreement had an initial term of seven years and automatically renewed for two consecutive three-year terms unless either party gives notice of
non-renewal
no later than six months prior to the expiration of any initial or renewal term. The Xianju Agreement is also terminable by either party upon the other party’s bankruptcy, uncured material breach or for any changes in law or regulations that would render it impossible for a party to perform its material obligations. In the event of either
non-renewal
or termination, however, Xianju will continue to supply us with bulk TU on the terms of the Xianju Agreement for up to 18 months. The Xianju Agreement also contains customary representations and warranties, indemnification, limitation on liability, assignment and confidentiality provisions, as well as provisions with respect to quality control and manufacturing procedures.
The JATENZO formulation is encapsulated in a softgel form. We have chosen Catalent, a third-party manufacturer, to produce clinical trial supplies and commercial quantities of JATENZO softgel capsules. JATENZO softgel capsules come in 158 mg TU, 198 mg TU, and 237 mg TU forms. We have entered into the Catalent Agreement, which remains in effect until March 2025, six years following the date on which the FDA approved Catalent as a manufacturer of JATENZO, and automatically renews for successive
two-year
periods, if not terminated one year prior to the expiration of the initial term or any then-current renewal term. Either we or Catalent may terminate the Catalent Agreement upon the other party’s bankruptcy, uncured material breach or upon 24 months’ prior written notice for convenience. In addition, Catalent may terminate the Catalent Agreement or cease performing its obligations if we fail to pay amounts within ten days of being due. We are required to purchase a minimum quantity of JATENZO softgel capsules, and we are required to pay to Catalent an annual commercial occupancy fee and an annual product maintenance fee. The unit price of capsules under the Catalent Agreement is determined based on batch size and the total volume shipped in a year. The price may be increased annually based on a market price index. The Catalent Agreement contains customary representations and warranties, indemnification, limitation on liability, assignment and confidentiality provisions.
 
63

We, along with our contract manufacturers, are subject to extensive governmental regulations, including requirements that our products be manufactured, packaged and labeled in conformity with cGMP. The cGMP requirements govern quality control of the manufacturing process and documentation policies and procedures. The FDA typically inspects manufacturing facilities every two years. We have established an internal quality control and quality assurance program, including a set of standard operating procedures and specifications that we believe is cGMP-compliant.
Third Party Reimbursement and Pricing
In the United States and elsewhere, sales of pharmaceutical products to consumers depend to a significant degree on the availability of coverage and reimbursement by third-party payors, such as government and private insurance plans. Third-party payors increasingly are challenging the prices charged for medical products and services and implementing other cost containment mechanisms. This is especially true in markets where generic options exist. It is, and will be, time consuming and expensive for us to go through the process of maintaining or seeking reimbursement for our products from Medicaid, Medicare and commercial payors. Our products and those of our partners may not be considered cost effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis, potentially resulting in contract changes with these major payors.
Third-party payors often utilize a tiered reimbursement system, which may adversely affect demand for our products by placing them in a more expensive patient
co-payment
tier. Additionally, third party payors may require step edits or prior authorizations. We cannot be certain that our products will successfully be placed on the list of drugs covered by particular health plan formularies or in a more preferential position on their formularies. Third-party payors are currently demanding, and will most likely continue to demand, more aggressive pricing and rebates for favorable formulary placement. Some U.S. states have also created Medicaid preferred drug lists and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate. If our products are not included on these preferred drug lists, they may be subject to prior authorization. Physicians may not be inclined to prescribe JATENZO to their Medicaid patients, and even if they do prescribe it, Medicaid may not authorize payment, thereby diminishing the potential market for our products in this market segment.
Currently, most of our prescriptions are open access, and we have negotiated agreements with several pharmacy benefits managers, including Express Scripts. We offer a
co-pay
assistance program to patients for JATENZO under which patients covered by commercial pharmacy benefit plans receive discounts on their prescriptions. Our JATENZO GO
Co-pay
Assistance Program provides financial support to most commercially insured patients to assist with
out-of-pocket
costs of JATENZO, such that most commercial covered patients will pay $0 for their prescription.
Similarly, in order to ensure coverage by Medicare Part D and commercial pharmacy benefit plans, we participate in certain rebate programs, which provide discounted prescriptions to qualified insured patients. Under these rebate programs, we pay a rebate to the third-party administrator of the program. We also provide discounts to authorized users of the Federal Supply Schedule, or FSS, of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs, including discounts mandated by the Veterans Health Care Act, discounted prescriptions to DoD’s Tricare retail pharmacy program, and discounts to federal grantees and safety net providers referred to as covered entities pursuant to our pharmaceutical pricing agreement with the U.S. Department of Health and Human Services, or HHS, and the 340B drug discount program, which is required as a condition of Medicaid coverage. Government agencies ordering under the FSS and covered entities purchase products from the wholesale distributors at the discounted price, and the wholesale distributors then charge back the difference between the current wholesale acquisition cost and the price the entity paid for the product.
 
64

Patents and Proprietary Rights
Our success will depend, in part, on our ability to obtain and protect our proprietary rights in the United States and in other countries. To do so, we will continue to rely on patents, trademarks, trade secrets, and confidentiality and other agreements to protect our proprietary rights. We intend to seek patent protection whenever appropriate for any product candidates, including methods for their manufacture and use, and related technology we develop or acquire in the future.
We have been building and continue to expand our intellectual property portfolio relating to JATENZO. We strive to protect and enhance the proprietary technologies that we believe are important to our business and seek patent protection, where appropriate, in the United States and internationally for compositions related to JATENZO, its methods of use and any other inventions that are important to the development of our business. Our policy is to actively seek to protect our proprietary position by, among other things, filing patent applications in the United States and abroad, including Europe and other major countries when appropriate, relating to proprietary technologies that are important to the development of our business.
However, patent protection may not afford us with complete protection against competitors who seek to circumvent our patents. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology. There is also the risk that third parties have patents or may obtain patents having claims that also cover JATENZO. For example, Lipocine asserted the use of JATENZO infringed its patents, and attacked patents and applications in our portfolio by provoking patent interferences, see Note 13 – Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus.
Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for the technologies, inventions,
know-how
and products we consider important to our business, defend our patents, preserve the confidentiality of our trade secrets and operate our business without infringing the patents and proprietary rights of third parties.
Our U.S. patent portfolio on JATENZO currently includes seven issued patents: U.S. Patent No. 11,179,402, which expires in April 2026, U.S. Patent No. 8,241,664, which expires in March 2029; U.S. Patent No. 8,492,369, which expires in December 2030, as well as U.S. Patent Nos. 8,778,916, 10,543,219, 10,617,696, and 11,179,403 each of which expires in April 2030. The issued U.S. patents contain claims to both pharmaceutical compositions and methods of treatment using our proprietary pharmaceutical composition and all are listed in the FDA Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations. In addition, we have several patent applications pending in the United States and other countries that, if issued, will cover pharmaceutical compositions, methods of treatment and other features of JATENZO, and have the potential to extend patent coverage beyond 2030.
We also have issued patents covering JATENZO in Australia, Canada, China, Costa Rica, Europe, Hong Kong, India, Indonesia, Israel, Japan, Mexico, New Zealand, Philippines, Russia, Singapore, South Africa and South Korea.
Our portfolio also contains pending applications around the world, including in the United States, Canada and Europe. These patent applications, if they were to issue, have the potential to extend the patent coverage beyond 2030.
We solely own all the issued patents and the pending patent applications in our JATENZO patent portfolio. However there is risk that the USPTO could declare other interference proceedings involving patent claims that cover JATENZO as discussed in more detail in Note 13 – Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus.
 
65

TU, the active pharmaceutical ingredient in JATENZO, as well as its use for treating hypogonadism, are well known in this field. Accordingly, The TU active ingredient, standing alone, is not protected by any valid and unexpired third-party patents, although there are third party patents with claims that are alleged to cover use of TU in treating hypogonadism and the use of JATENZO as discussed in more detail in Note 13—Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus.
Competition
There are several approved
T-replacement
therapies on the market, as well as several therapies under review by the FDA. The TRT market is highly competitive, and our future success will depend on our ability to capture market share from currently approved therapies most notably injections and gels, the continued expansion of the TRT market, and our ability to operate freely with regard to or to preclude from competing against us several competitors who have also develop oral TU products, including Lipocine which has received tentative approval from the FDA and has alleged that JATENZO infringes certain Lipocine patents, as described in Note 13 – Commitments and Contingencies, to the audited consolidated financial statements included elsewhere in this prospectus.
Injectables
Injectable
T-esters
(e.g.,
T-enanthate;
T-cypionate)
continue to represent the majority of the prescriptions in the TRT market. Over 5.9 million prescriptions were written for T injectables (75% of all TRT prescriptions and 36% of U.S. sales) in 2020.
T-injectables
are predominantly given as
T-cypionate
(95% of all injections) and
T-enanthate
(1% of all injections). Injectables have experienced significant prescription growth in the U.S. market due to overall market demand for TRT and due to their generic availability and low cost. These men receive an injection every two to three weeks, most often intramuscularly, instead of applying a daily administration of other products. We believe physicians and their hypogonadal patients perceive the primary downsides of injections to be pain at injection site and risk for POME and polycythemia (excess concentration of red blood cells). Additionally, injecting T weekly or
bi-weekly
is associated with wide fluctuations in serum T levels between treatment cycles. For example, in many men limit of normal on day one of the injection, which may lead to undesirable side effects. Conversely, T levels often fall into the hypogonadal range before it is time for the next injection which leads to a return of undesirable symptoms.
Gels
Gels represent the second largest segment within the TRT market. Over 1.9 million prescriptions were written for gels in 2020 and represented 58% of U.S. sales in 2020. The
gel-based
T replacement products that are currently available include AbbVie’s AndroGel
®
, and Endo’s Testim
®
and Fortesta
®
along with their respective authorized generics as well as generic equivalents of each version.
The FDA has granted a therapeutic equivalence, or TE, rating of AB to “generic” versions of approved products that have been approved via a 505(b)(2) NDA. In July 2014, the FDA granted the AB rating to Perrigo’s 1%
T-gel
drug product (NDA 203098) approved in January 2013, and a BX rating to Teva’s 1% gel drug product (NDA 202763) approved in February 2012. Each are versions of AbbVie’s AndroGel 1.0% and employed 505(b)(2) submissions citing AndroGel as their reference listed drugs, or RLD. Teva’s version was found not to be bioequivalent to AndroGel, hence the BX rating. Upsher-Smith Laboratories also received approval for a version of Endo’s Testim (Vogelxo; NDA 204399) in June 2014 using the same pathway. In January of 2015, the FDA determined that Vogelxo is therapeutically equivalent to Testim and received an AB rating. In August 2015, the FDA granted AB rating to Perrigo’s 1.62%
T-gel
drug product (NDA 204268) which also received FDA approval in August 2015. Eli Lilly and Acrux’s Axiron had patent expiry in February 2017. On July 6, 2017, Acrux confirmed that a generic version of Axiron Topical Solution, 30 mg/1.5 mL
(T-Topical
Solution, 30 mg/1.5 mL) has been launched in the United States by Perrigo Company plc. Acrux also confirmed the availability of an authorized generic version of Axiron in the United States, through a marketing and distribution agreement between Lilly and a leading authorized generics company.
 
66

Other Current
T-Delivery
Methods
JATENZO also competes with other TRT products such as a nasal
T-gel,
auto-injectable subcutaneous T, buccal T and topical
T-patches,
and implantable subcutaneous
T-pellets.
Transdermal
T-patches
include Allergan’s Androderm. An intramuscular depot form of TU also exists in branded form as Aveed by Endo. Additionally, Endo markets the buccal TRT Striant and the Testopel implantable
T-pellets,
which it acquired from Auxilium in 2015. Antares Pharma, Inc. markets a
sub-cutaneous
weekly auto-injector T therapy, Xyosted. Aytu BioScience Inc. markets an intranasal T therapy, Natesto, which it licensed from Acerus Pharmaceuticals in 2016.
Other
T-Products
in Development
We are aware of a number of products in clinical development that, if approved by the FDA, would compete with JATENZO.
Lipocine has developed an oral TU formulation, TLANDO. In October 2021, Lipocine licensed the exclusive U.S. rights for TLANDO to Antares Pharma. On March 28, 2022, after expiry of Hatch-Waxman market exclusivity granted to Clarus’s JATENZO product, FDA granted full approval to TLANDO. Like JATENZO and XYOSTED, TLANDO carries a boxed warning about the potential for increased blood pressure because this was observed in clinical trials conducted by Lipocine. The FDA has also required Lipocine to conduct certain post-marketing studies to assess patient understanding of key risks relating to TLANDO (e.g., potential to increase blood pressure), evaluate adrenal function with chronic TLANDO therapy, conduct a drug-drug interaction study and conduct a pediatric study.
Marius Pharmaceuticals has developed an oral
T-undecanoate
under the name of KYZATREX as a TRT for the treatment of primary and secondary hypogonadism in adult men. An NDA for this product was submitted to the FDA on January 5, 2021 with an expected PDUFA action date on October 31, 2021. To date, the FDA has not approved KYZATREX and there has been no public information provided by Marius regarding the status of the NDA. If and when KYZATREX is approved, we expect KYZATREX labeling to carry boxed warning regarding the potential for increased blood pressure. We also believe that the FDA will require Marius Pharmaceuticals to assess patient understanding of key risks relating to KYZATREX, evaluate adrenal function with chronic KYZATREX therapy, conduct a drug-drug interaction study and conduct a pediatric study.
Mereo BioPharma Group Ltd. is currently developing leflutrozole
(BGS-649),
a once weekly aromatase inhibitor that increases testosterone levels, as first-line therapy for treatment of infertility in obese men with hypogonadotropic hypogonadism.
BGS-649
has completed Phase 2b testing. Based on published guidance from the FDA regarding treatment of hypogonadism with
non-T
approaches Establishing Effectiveness for Drugs Intended to Treat Male Hypogonadotropic Hypogonadism Attributed to Nonstructural Disorders: Guidance for Industry U.S. Department of Health and Human Services Food and Drug Administration Center for Drug Evaluation and Research (CDER) May 2018, Clinical, we expect that development of
BGS-649
will be challenging. Moreover, we believe that any approval of
BGS-649
will result in highly restricted product labeling that will preclude its use to treat the vast majority of men with classic hypogonadism.
TesoRx Pharma LLC is developing an oral
‘bio-identical’
testosterone,
TSX-002,
for the treatment of Constitutional Delay of Growth and Puberty in adolescent age boys. Phase 2 clinical studies have been completed. TesoRx is also developing a potential once-daily oral TU product candidate,
TSX-049,
as TRT for hypogonadal in men. Based on the company’s web site, this product appears to be ready for evaluation in a Phase 1/2 clinical trial, but there is no listing on ClinicalTrials.gov that clinical testing has actually begun.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical
 
67

products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, packaging, recordkeeping, tracking, approval, import, export, distribution, advertising and promotion of our products.
U.S. Government Regulation of Drug Products
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or the FDCA, and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve a pending NDA, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before product candidates may be marketed in the United States generally involves the following:
 
   
nonclinical laboratory and animal tests that must be conducted in accordance with Good Laboratory Practices;
 
   
submission to the FDA of an Investigational New Drug, or IND, which must become effective before clinical trials may begin;
 
   
approval by an independent institutional review board, or IRB, for each clinical site or centrally before each trial may be initiated;
 
   
adequate and well controlled human clinical trials to establish the safety and efficacy of the proposed product candidate for its intended use, performed in accordance with good clinical practices, or GCPs;
 
   
submission to the FDA of an NDA and payment of user fees;
 
   
satisfactory completion of an FDA advisory committee review, if applicable;
 
   
pre-approval
inspection of manufacturing facilities and selected clinical investigators for their compliance with cGMP and GCP;
 
   
satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data; and
 
   
FDA review and approval of an NDA to permit commercial marketing for particular indications for use.
Preclinical Studies
Preclinical studies include laboratory evaluation of drug substance chemistry, pharmacology, toxicity and drug product formulation, as well as animal studies to assess potential safety and efficacy. Prior to commencing the first clinical trial with a product candidate, a sponsor must submit the results of the preclinical tests and preclinical literature, together with manufacturing information, analytical data and any available clinical data or literature, among other required information, to the FDA as part of an IND. Some preclinical studies may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the
30-day
time period, raises safety concerns or questions about the conduct of the clinical trial and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in FDA authorization to commence a clinical trial.
 
68

Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development, as well as amendments to previously submitted clinical trials. Further, an independent IRB for each institution participating in the clinical trial must review and approve the plan for any clinical trial, its informed consent form and other communications to study subjects before the clinical trial commences at that site. The IRB must continue to oversee the clinical trial while it is being conducted, including any changes to the study plans.
Regulatory authorities, an IRB or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk, the clinical trial is not being conducted in accordance with the FDA’s or the IRB’s requirements or if the drug has been associated with unexpected serious harm to subjects. Some studies also include a data safety monitoring board, which receives special access to unblinded data during the clinical trial and may advise the sponsor to halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.
Human clinical trials are typically conducted in three sequential phases that may be combined or overlap.
 
   
Phase 1—Studies are initially conducted to test the product candidate for safety, dosage tolerance, structure-activity relationships, mechanism of action, absorption, metabolism, distribution and excretion in healthy volunteers or subjects with the target disease or condition. If possible, Phase 1 clinical trials may also be used to gain an initial indication of product effectiveness.
 
   
Phase 2—Controlled studies are conducted with groups of subjects with a specified disease or condition to provide enough data to evaluate the preliminary efficacy, optimal dosages and dosing schedule and expanded evidence of safety. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expansive Phase 3 clinical trials.
 
   
Phase 3—These clinical trials are generally undertaken in larger subject populations to provide statistically significant evidence of clinical efficacy and to further test for safety in an expanded subject population at multiple clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. These clinical trials may be done at trial sites outside the United States as long as the global sites are also representative of the U.S. population and the conduct of the study at global sites comports with FDA regulations and guidance, such as compliance with GCPs. In most cases, FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single trial may be sufficient in rare instances, including (1) where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful 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 or (2) when in conjunction with other confirmatory evidence.
The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These
so-called
Phase 4 trials may be made a condition to be satisfied after approval. The results of Phase 4 trials can confirm the effectiveness of a product candidate and can provide important safety information.
Clinical trials must be conducted under the supervision of qualified investigators in accordance with GCP requirements, which include the requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial and the review and approval of the study by an IRB. Investigators must also provide information to the clinical trial sponsors to allow the sponsors to make specified financial disclosures to the FDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, the parameters to be used in monitoring safety and the efficacy criteria to be
 
69

evaluated and a statistical analysis plan. Information about some clinical trials, including a description of the trial and trial results, must be submitted within specific timeframes to the U.S. National Institutes of Health for public dissemination on its ClinicalTrials.gov website. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur.
The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export of investigational drug products outside of the United States is subject to regulatory requirements of the receiving country, as well as U.S. export requirements under the FDCA. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and the IRB and more frequently if serious adverse effects occur.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate, as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will be receiving orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity. Orphan exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. Further, the FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active ingredients. Moreover, competitors may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity.
Special FDA Expedited Review and Approval Programs
The FDA has various programs, including fast track designation, breakthrough therapy designation, orphan drug designation, accelerated approval and priority review, which are intended to expedite or simplify the
 
70

process for the development and FDA review of drugs that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
Under the fast-track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. To be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction with the FDA’s review team and may allow for rolling review of NDA components before the completed application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable and the sponsor pays any required user fees upon submission of the first section of the NDA. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. The FDA may decide to rescind the fast-track designation if it determines that the qualifying criteria no longer apply.
In addition, a sponsor can request breakthrough therapy designation for a drug if it is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are eligible for intensive guidance from the FDA on an efficient drug development program, organizational commitment to the development and review of the product, including involvement of senior managers, and, like fast-track products, are also eligible for rolling review of the NDA. Both fast track and breakthrough therapy products may be eligible for accelerated approval and/or priority review, if relevant criteria are met.
Under the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. A drug candidate approved on this basis is subject to rigorous post marketing compliance requirements, including the completion of Phase 4 or post approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post approval studies or confirm a clinical benefit during post marketing studies will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated approval regulations are subject to prior review by the FDA.
Once an NDA is submitted for a product intended to treat a serious condition, the FDA may assign a priority review designation if FDA determines that the product, if approved, would provide a significant improvement in safety or effectiveness. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under the PDUFA goals. Under the current PDUFA performance goals, these
six-and
ten-month
review periods are measured from the
60-day
filing date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review from the date of submission.
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 decide that the time period for FDA review or approval will not be shortened. In addition, the manufacturer of an investigational drug for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on responding to requests for expanded
 
71

access. Furthermore, fast track designation, breakthrough therapy designation, accelerated approval and priority review do not change the standards for approval and may not ultimately expedite the development or approval process.
NDA Submission and Review by the FDA
Assuming successful completion of the required clinical and preclinical testing, among other items, the results of product development, including chemistry, manufacture and controls, nonclinical studies and clinical trials are submitted to the FDA, along with proposed labeling, as part of an NDA. The submission of an NDA requires payment of a substantial user fee to the FDA. This user fee must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in some circumstances.
In addition, under the Pediatric Research Equity Act, an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and efficacy 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 product is safe and effective.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements.
Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially complete to permit a substantive review, before it files the application. Once the submission is filed by the FDA, the FDA begins an
in-depth
review of the NDA. Under the goals agreed to by the FDA under PDUFA, the FDA has set the review goal of 10 months from the
60-day
filing date to complete its initial review of a standard NDA for a new molecular entity, or NME, and make a decision on the application. For priority review applications, the FDA has set the review goal of reviewing NME NDAs within six months of the
60-day
filing date. Such deadlines are referred to as the PDUFA date. The PDUFA date is only a goal and the FDA does not always meet its PDUFA dates. The review process and the PDUFA date may also be extended if the FDA requests or the NDA sponsor otherwise provides certain additional information or clarification regarding the submission during the review period that amends the original application.
The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing controls are adequate to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and subcontracts, are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCPs.
The FDA must refer applications for drugs that contain active ingredients, including any ester or salt of the active ingredients, that have not previously been approved by the FDA to an advisory committee or provide in an action letter a summary of the reasons for not referring it to an advisory committee. The FDA may also refer drugs which present difficult questions of safety, purity or potency to an advisory committee. An advisory committee is typically a panel that includes clinicians and other experts who review, evaluate and make a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
 
72

Once the FDA’s review of the application is complete, the FDA will issue either a Complete Response Letter, or CRL, or approval letter. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL generally contains a statement of specific deficiencies and provides recommendations for securing approval of the NDA. These recommendations may include additional clinical or preclinical testing or other information or analyses in order for the FDA to reconsider the application in the future. Even with the submission of additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If, or when the deficiencies have been met to the FDA’s satisfaction, the FDA will issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information, require post-marketing testing and surveillance to monitor safety or efficacy of a product and/or impose other conditions, including distribution restrictions or other risk management mechanisms. For example, the FDA may require a REMS as a condition of approval or following approval to mitigate any identified or suspected serious risks