Statements in this Form 10-K that are not strictly historical are
forward-looking statements and include statements about products in development,
results and analyses of pre-clinical studies, clinical trials and studies,
research and development expenses, cash expenditures, and alliances and
partnerships, among other matters. You can identify these forward-looking
statements because they involve our expectations, intentions, beliefs, plans,
projections, anticipations, or other characterizations of future events or
circumstances. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that may cause actual
results to differ materially from those in the forward-looking statements as a
result of any number of factors. These factors include, but are not limited to,
risks relating to our ability to conduct and obtain successful results from
ongoing clinical trials, commercialize our technology, obtain regulatory
approval for our product candidates, contract with third parties to adequately
test and manufacture our proposed therapeutic products, protect our intellectual
property rights and obtain additional financing to continue our development
efforts. Some of these factors are more fully discussed in Part I, Item 1A,
"Risk Factors" and in our consolidated financial statements and related notes,
included elsewhere herein. We do not undertake to update any of these
forward-looking statements or to announce the results of any revisions to these
forward-looking statements except as required by law. For further information
regarding forward-looking statements, please refer to the "Information Regarding
Forward-Looking Statements" at the beginning of Part I of this Form 10-K.



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Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows.





Overview



We are a late-stage specialty pharmaceutical company focused on developing our
clinically-validated and patent-protected PLxGuard delivery system to provide
more effective and safer products. Our PLxGuard delivery system works by
targeting the release of active pharmaceutical ingredients to various portions
of the GI tract. We believe this has the potential to improve the absorption of
many drugs currently on the market or in development, and to reduce the risk of
stomach erosions, ulcers and bleeding associated with aspirin and ibuprofen, and
potentially other drugs.



The FDA approved our lead product, VAZALORE 325 mg, which is a novel formulation
of aspirin using the PLxGuard delivery system intended to provide better
antiplatelet effectiveness for vascular disease prevention and treatment as
compared to the current standard of care, enteric-coated aspirin and
significantly reduce gastric side effects as compared with immediate-release
aspirin. VAZALORE 325 mg (formerly PL2200 Aspirin 325 mg and Aspertec 325 mg)
was originally approved under the drug name aspirin, and the proprietary name
'VAZALORE' was granted subsequent to the FDA approval. A companion 81 mg dose of
the same novel formulation,VAZALORE 81 mg, is in late-stage development and will
be the subject of a sNDA, leveraging the already approved status of VAZALORE 325
mg. We are focused on collecting the data, including initiating a bioequivalence
study, required for post-approval manufacturing changes which will be included
in the sNDA filing for VAZALORE 325 mg and to support approval of low dose
VAZALORE 81 mg.  The Company will be able to better assess the timing of its
product launch once the sNDA filings has been submitted.



Our commercialization strategy will target both the OTC and prescription
markets, taking advantage of the existing OTC distribution channels for aspirin
while leveraging the FDA approval of VAZALORE 325 mg and anticipated approval
for VAZALORE 81 mg for OTC and prescription use when recommended by physicians
for vascular disease treatment and prevention. Given our clinical demonstration
of better antiplatelet efficacy (as compared with enteric-coated aspirin) and
better GI tolerability, we intend to market VAZALORE to the healthcare
professional and the consumer through several marketing channels, including a
physician-directed sales force. Our product pipeline also includes other oral
NSAIDs using the PLxGuard delivery system that may be developed, including a
clinical-stage, GI-safer ibuprofen, PL1200 Ibuprofen 200 mg, for pain and
inflammation.



Critical Accounting Policies



Our consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S.
GAAP"). The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Note 3 of the Notes to Consolidated
Financial Statements included elsewhere herein describes the significant
accounting policies used in the preparation of the financial statements. Certain
of these significant accounting policies are considered to be critical
accounting policies, as defined below.



A critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect on
our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: (1) we are required to make
assumptions about matters that are highly uncertain at the time of the estimate;
and (2) different estimates we could reasonably have used, or changes in the
estimate that are reasonably likely to occur, would have a material effect on
our financial condition or results of operations.



Estimates and assumptions about future events and their effects cannot be
determined with certainty. We base our estimates on historical experience and on
various other assumptions believed to be applicable and reasonable under the
circumstances. These estimates may change as new events occur, as additional
information is obtained and as our operating environment changes. These changes
have historically been minor and have been included in the financial statements
as soon as they became known. Based on a critical assessment of our accounting
policies and the underlying judgments and uncertainties affecting the
application of those policies, management believes that our financial statements
are fairly stated in accordance with U.S. GAAP and present a meaningful
presentation of our financial condition and results of operations. We believe
the following critical accounting policies reflect our more significant
estimates and assumptions used in the preparation of our consolidated financial
statements:



Use of Estimates



The preparation of our consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period. In the
accompanying consolidated financial statements, estimates are used for, but not
limited to, determining the fair value of tangible and intangible assets and
liabilities acquired in business combinations, the fair value of warrant
liability the fair value of stock-based compensation, allowance for inventory
obsolescence, allowance for doubtful accounts, contingent liabilities, fair
value and depreciable lives of long-lived assets, and deferred taxes and
associated valuation allowance. Actual results could differ from those
estimates.



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Fair Value Measurements



Fair value is defined as the price that would be received in the sale of an
asset or that would be paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Company has categorized
all investments recorded at fair value based upon the level of judgment
associated with the inputs used to measure their fair value.



Hierarchical levels, directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:





      ?  Level 1: Quoted prices in active markets for identical assets or
         liabilities that the organization has the ability to access at the
         reporting date.

? Level 2: Inputs other than quoted prices included in Level 1, which are


         either observable or that can be derived from or corroborated by
         observable data as of the reporting date.



? Level 3: Inputs include those that are significant to the fair value of

the asset or liability and are generally less observable from objective


         resources and reflect the reporting entity's assumptions about the
         assumptions market participants would use in pricing the asset or
         liability.




The Company's financial instruments (cash and cash equivalents, receivables,
accounts payable and accrued liabilities) are carried in the consolidated
balance sheet at cost, which reasonably approximates fair value based on their
short-term nature. The Company's warrant liability is recorded at fair value,
with changes in fair value being reflected in the statements of operations for
the period of change. The fair value of the term loan approximates its face
value of $4,375,000 based on the Company's current financial condition and on
the variable nature of term loan's interest feature as compared to current
rates.



Research and Development Expenses





Costs incurred in connection with research and development activities are
expensed as incurred. Research and development expenses consist of direct and
indirect costs associated with specific projects, manufacturing activities, and
include fees paid to various entities that perform research related services for
the Company.



Stock-Based Compensation



The Company recognizes expense in the consolidated statements of operations for
the fair value of all stock-based compensation to key employees, nonemployee
directors and advisors, generally in the form of stock options and stock awards.
The Company uses the Black-Scholes option valuation model to estimate the fair
value of stock options on the grant date. Compensation cost is amortized on a
straight-line basis over the vesting period for each respective award. The
Company accounts for forfeitures as they occur.



Adopted Accounting Guidance


For a discussion of significant accounting guidance recently adopted or unadopted accounting guidance that has the potential of being significant, see Note 3 of the Notes to Consolidated Financial Statements included elsewhere herein.





Results of Operations



Revenue



Total revenues were $0.6 million and $0.8 million for the years ended December
31, 2019 and 2018, respectively. All the revenue recognized in 2019 and 2018 is
attributable to work performed under an award of a National Institutes of Health
grant. This grant is nearing completion.



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Operating Expenses



Total operating expenses were $14.8 million during the year ended December 31,
2019, a 26% increase from operating expenses of $11.7 million during the year
ended December 31, 2018. Operating expenses for the years ended December 31,
2019 and 2018 were as follows:



                                             Years Ended December 31,            Increase (Decrease)
                                               2019             2018               $                %
Operating Expenses
Research and development expenses          $  4,741,130     $  3,922,665     $      818,465          20.9 %
General and administrative expenses          10,026,627        7,791,600          2,235,027          28.7 %
Total operating expenses                   $ 14,767,757     $ 11,714,265     $    3,053,492          26.1 %



Research and Development Expenses





Research and development expenses totaled $4.7 million in the year ended
December 31, 2019, compared to $3.9 million in the prior year, reflecting
continued product development and manufacturing activities for VAZALORE. This
increase was due to the manufacture, packaging, stability and analytical costs
related to the registration batches, which provide data to be submitted in the
Company's sNDA filings.


General and Administrative Expenses

General and administrative expenses totaled $10.0 million in the year ended December 31, 2019, compared to $7.8 million in the prior year. This increase is due to commercial-related activities to support the upcoming launch of $1.9 million and payments associated with the UT License Agreement of $0.3 million.





Other income (expense), net



Other income (expense), net totaled $6.3 million of net other expense for the
year ended December 31, 2019, compared to $11.9 million of net income in the
prior year. The change is primarily attributable to the non-cash change in fair
value of warrant liability primarily due to the fluctuation of the price of the
Company's common stock ($5.7 million of other expense for the year ended
December 31, 2019, as compared to $12.7 million of other income in the prior
year).


Liquidity and Capital Resources





The following table summarizes the primary uses and sources of cash for the
periods indicated:



                                               Years Ended December 31,
                                                2019              2018

Net cash used in operating activities       $ (12,659,035 )   $ (9,499,231 )
Net cash used in investing activities       $    (230,294 )   $   (654,870 )
Net cash provided by financing activities   $  12,640,366     $          -




Net Cash Used in Operating Activities





Net cash used in operating activities of $12.7 million for the year ended
December 31, 2019 primarily reflects our net loss for the period of $20.5
million adjusted for various non-cash charges and income, including (i) $5.7
million change in fair value of warrant liability reflected as other expense,
(ii) net operating asset/liability changes of $0.9 million, (iii) $0.9 million
of stock-based compensation, (iv) depreciation and amortization expense of $0.2
million and (v) $0.2 million of non-cash interest expense.



Net cash used in operating activities of $9.5 million for the year ended
December 31, 2018 primarily reflects our net income for the period of $0.9
million adjusted for various non-cash charges and income, including (i) $12.7
million change in fair value of warrant liability reflected as other income,
partially offset by (ii) net operating asset/liability changes of $0.3 million,
(iii) $0.8 million of stock-based compensation, (iv) an increase in the
provision for obsolete inventory of $0.8 million, (v) depreciation and
amortization expense of $0.2 million and (vii) $0.2 million of non-cash interest
expense.


Net Cash Used in Investing Activities





Net cash used in investing activities totaled $0.2 million in net uses in the
year ended December 31, 2019 and primarily reflects $0.2 million of capital
expenditures for equipment purchases, net of $11,000 of proceeds from the sale
of equipment.



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Net cash used in investing activities totaled $0.7 million in net uses in the
year ended December 31, 2018 and reflects capital expenditures for equipment
purchases of $0.5 million and leasehold improvements of $0.2 million.



Net Cash Provided by Financing Activities





Net cash provided by financing activities totaled $12.6 million in the year
ended December 31, 2019, consisting of proceeds from the issuance of our common
and preferred stock, offset by repayment of a portion of our long-term debt. We
had no cash flows from financing activities in 2018.



Future Liquidity and Capital Needs





As of December 31, 2019, we had working capital of $8.2 million and cash and
cash equivalents of $14.0 million. In March 2019, we entered into the Equity
Distribution Agreement with JMP to issue and sell shares of our common stock,
having an aggregate offering price of up to $12.5 million, from time to time
during the term of the Equity Distribution Agreement, through an "at-the-market"
equity offering program at our sole discretion, under which JMP will act as our
agent. As of December 31, 2019, we had sold approximately $2.3 million of shares
of our common stock pursuant to the Equity Distribution Agreement, and received
proceeds of $2.1 million, net of commissions and fees. In addition, in March
2020 we entered into a purchase agreement with certain investors, including
funds affiliated with Park West Asset Management LLC and an affiliate of MSD
Partners, L.P., pursuant to which the Company has agreed to issue 8,000 shares
of Series B Convertible Preferred Stock for gross proceeds of $8.0 million (the
"Series B Private Placement").  The closing of the Series B Private Placement is
contingent on the Company obtaining stockholder approval. Based on the Company's
expected operating cash requirements, we believe our cash on-hand at December
31, 2019, in addition to the $8.0 million gross proceeds from the Series B
Private Placement, is adequate to fund operations for at least twelve months
from the date that these financial statements were issued.



We have not generated any revenue from the sale of products, have generated
minimal revenue from licensing activities, and have incurred losses in each year
since we commenced operations. As of December 31, 2019, we had an accumulated
deficit of $86.9 million. We expect to continue to incur significant expenses
and increasing operating losses for the foreseeable future as we continue the
development and commercialization of VAZALORE and our other product candidates.
Even if we do generate revenues, we may never achieve profitability, and even if
we do achieve profitability in the future, we may not be able to sustain
profitability in subsequent periods. Our prior losses, combined with expected
future losses, have had and will continue to have an adverse effect on our
stockholders' equity and working capital. If we are unable to achieve and
sustain profitability, the market value of our common stock will likely decline.
Because of the numerous risks and uncertainties associated with developing
biopharmaceutical products, we are unable to predict the extent of any future
losses or when, if ever, we will become profitable.



We anticipate that we will need to obtain substantial additional financing in
the future, in addition to the proceeds from the Private Placement, the
"at-the-market" program and the Series B Private Placement to fund our future
operations. We may obtain additional financing through public or private equity
offerings, debt financings (including related-party financings), a credit
facility or strategic collaborations.



Additional financing may not be available to us when we need it or it may not be
available to us on favorable terms, if at all. Our failure to raise capital as
and when needed could have a negative impact on our financial condition and our
ability to pursue our business strategies. Future capital requirements will also
depend on the extent to which we acquire or invest in additional complementary
businesses, products and technologies. We currently have no understandings,
commitments or agreements relating to any of these types of transactions. If we
are unable to raise additional funds when needed, we may be required to sell or
license our technologies or clinical product candidates or programs that we
would prefer to develop and commercialize ourselves. Without additional funding
- or, alternatively, a partner willing to collaborate and fund development - we
will be unable to continue development of PL1200 Ibuprofen or any other
development-stage products in our pipeline.



Inflation


The Company believes that the rates of inflation in recent years have not had a significant impact on its operations.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements as of December 31, 2019 or 2018.

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