As
filed with the Securities and Exchange Commission on April 23, 2021
Registration
Statement No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
F-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
4D
pharma plc
(Exact
name of registrant as specified in its charter)
England
and Wales
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2834
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Not
applicable
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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5th
Floor, 9 Bond Court
Leeds
LS1
2JZ
United
Kingdom
Tel:
+44 (0) 113 895 0130
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Cogency
Global Inc.
10
East 40th Street, 10th Floor
New
York, N.Y. 10016
Tel:
+ 1(800)221-0102
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies
of all communications, including communications sent to agent for service, should be sent to:
Steven
V. Bernard
Bradley L. Finkelstein
Melissa
Rick
Wilson
Sonsini Goodrich & Rosati
Professional
Corporation
650
Page Mill Road
Palo
Alto, California
94303-1050
(650)
493-9300
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Duncan
Peyton
Chief Executive Officer
4D
pharma plc
5th
Floor, 9 Bond Court
Leeds
LS1
2JZ
United
Kingdom
+44(0)
113 895 0130
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Charles
Waddell
Pinsent
Masons LLP
30
Crown Place
Earl
Street
London
EC2A 4ES
United
Kingdom
+44(0)
20 7418 7000
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Approximate
date of commencement of proposed sale to public:
As
soon as practicable after this Registration Statement becomes effective.
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, check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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(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 an emerging growth company as defined in Rule 405 of the Securities Act.
Emerging
growth company [X]
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. [ ]
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
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Amount to be
Registered(1)
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Proposed Maximum
Offering Price Per Unit
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Proposed Maximum
Aggregate Offering Price
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Amount of
Registration
Fee
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Ordinary shares, nominal value £0.0025 per ordinary share(2)
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22,372,720
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$
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1.594
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(3)
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$
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35,662,115.68
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(3)
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$
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3,891
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(1)
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Pursuant
to Rule 416(a) under the Securities Act, this Registration Statement shall also cover any additional of the registrant’s
ordinary shares that become issuable as a result of any stock dividend, stock split, recapitalization, or other similar transaction
effected without the receipt of consideration that results in an increase to the number of the registrant’s outstanding
ordinary shares, as applicable.
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(2)
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These
ordinary shares are represented by American Depositary Shares, or ADSs, each of which represents eight ordinary shares of
the registrant. ADSs issuable upon deposit of the ordinary shares registered hereby have been registered pursuant to a separate
registration statement on Form F-6 (File No. 333-253268).
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(3)
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Estimated
solely for the purpose of computing the amount of the registration fee pursuant to Rule
457(c) under the Securities Act of 1933, as amended, based on the average of the high
and low trading prices of the ordinary shares on AIM, a market operated by the London
Stock Exchange, on April 16, 2021 (£1.153, as expressed in U.S. dollars
based on an exchange rate of $1.3826 per £1.00, the noon buying rate of
the Federal Reserve Bank of New York on April 16, 2021).
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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 which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as amended or until the registration statement shall
become effective on such date as the Commission, acting pursuant to such Section 8(a), shall determine.
The
information contained in this prospectus is not complete and may be changed. No securities may be sold pursuant to this prospectus
until the registration statement filed with the Securities and Exchange Commission with respect to such securities has been declared
effective. This prospectus is not an offer to sell these securities and no offers to buy these securities are being solicited
in any jurisdiction where their offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED APRIL 23, 2021
PROSPECTUS
22,372,720
Ordinary Shares
Represented
by up to
2,796,590
American Depositary Shares
Our
ordinary shares are currently traded on AIM, a market operated by the London Stock Exchange, under the symbol “DDDD.”
Our American Depositary Shares, or ADSs, each representing eight ordinary shares of 4D pharma plc, are listed on the Nasdaq Global
Market, or Nasdaq, under the symbol “LBPS”. The ADSs began trading on Nasdaq on March 22, 2021. The closing price
of our ordinary shares on AIM on April 19, 2021 was £1.153 per ordinary share, which is equivalent to a price
of $1.594 per ordinary share based on the noon buying rate of the Federal Reserve Bank of New York on April 16,
2021. The closing price of our ADSs on Nasdaq on April 19, 2021 was $13.17 per ADS.
We
have filed a registration statement of which this prospectus forms a part with respect to an aggregate of 22,372,720 ordinary
shares (including 11,317,392 ordinary shares currently represented by an aggregate of 1,414,674 ADSs) held by the
shareholders identified herein. Holders of all such ordinary shares and ADSs are identified in this prospectus as the Registered
Holders and the aggregate of 22,372,720 ordinary shares (and, as applicable, ADSs) offered hereby as the Registered Shares.
Any Registered Shares offered and sold by the Registered Holders on Nasdaq will be in the form of ADSs. Any Registered Shares
offered and sold by the Registered Holders on AIM will be in the form of ordinary shares. See the section entitled “Plan
of Distribution.” The Registered Holders may, or may not, elect to dispose of Registered Shares as and to the extent that
they may individually determine. We will not receive proceeds from any disposition of Registered Shares by Registered Holders.
We
are a “foreign private issuer,” and an “emerging growth company” each as defined under the federal securities
laws, and, as such, we will be subject to reduced public company reporting requirements. See the section entitled “Prospectus
Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information.
Neither
the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Investing
in our ordinary shares or our ADSs representing our ordinary shares involves a high degree of risk. Before buying any ordinary
shares or ADSs you should carefully read the discussion of material risks of investing in such securities in “Risk Factors”
beginning on page 6 of this prospectus.
TABLE
OF CONTENTS
This
prospectus is part of a registration statement on Form F-1 that we filed with the Securities and Exchange Commission (the “SEC”).
The Registered Holders may, from time to time, sell the securities offered by them described in this prospectus. We will not receive
any proceeds from the sale by such Registered Holders of the securities offered by them described in this prospectus.
We
and the Registered Holders are responsible for the information contained in this prospectus and any free writing prospectus that
we may prepare or authorize. Neither we nor the Registered Holders have authorized anyone to provide you with different or additional
information, and neither we nor they take any responsibility for, or provide any assurance as to the reliability of, any other
information that others may give you. Neither we nor the Registered Holders are making an offer to sell ADSs or ordinary shares
in any jurisdiction where the offer or sale thereof is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of the time of
delivery of this prospectus or any sale of our ADSs or ordinary shares.
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.”
For
investors outside the United States: Neither we nor the Registered Holders have taken any action to permit the possession or distribution
of this prospectus in any jurisdiction other than the United States where action for that purpose is required. Persons outside
the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating
to the ADSs and ordinary shares and the distribution of this prospectus outside the United States.
We
are a public limited company incorporated under the laws of England and Wales and a majority of our outstanding securities are
owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we are currently eligible
for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic
reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered
under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Unless
the context indicates otherwise, references in this prospectus to the “Company,” “4D Pharma,”
the “Group,” “we,” “us,” “our” and similar terms refer
to 4D pharma plc. and its consolidated subsidiaries. References to “Longevity” refer to Longevity Acquisition
Corporation.
CERTAIN
DEFINTIONS
Unless
otherwise indicated and except where the context otherwise requires, references in this prospectus to:
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“ADR”
are to American Depositary Receipt.
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“ADS”
are to American Depositary Shares.
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“CMS”
are to Centers for Medicare & Medicaid Services.
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“CNS”
are to the central nervous system.
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“CROs”
are to contract research organizations.
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“DSMB”
are to the data safety monitoring board.
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“EGC”
are to the Emerging Growth Company.
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“EMA”
are to the European Medicines Agency.
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“FDA”
are to the U.S. Food and Drug Administration.
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“HHS”
are to U.S. Department of Health and Human Services.
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“HNSCC”
are to head and neck squamous cell carcinoma.
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“IBD”
are to inflammatory bowel disease.
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“IBS”
are to irritable bowel syndrome.
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“ICI”
are to immune checkpoint inhibitor.
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“Keytruda”
are to ICI Keytruda (pembrolizumab) made by MSD.
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“LBPs”
are to live biotherapeutic products.
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“MCBs”
are to master cell banks.
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“Merck”
are to Merck Sharp & Dohme Corp.
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“MHRA”
are to the United Kingdom’s Medicines and Healthcare Products Regulatory Agency.
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“MS”
are to multiple sclerosis.
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“MSD”
are to Merck Sharp & Dohme Corp.
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“MSI-H”
are to microsatellite instable.
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“NSCLC”
are to non-small cell lung cancer.
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“RCC”
are to renal cell carcinoma.
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“TNBC”
are to triple negative breast cancer.
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“UC”
are to urothelial carcinoma.
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“USPTO”
are to the United States Patent and Trademark Office.
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TRADEMARKS,
TRADE NAMES AND SERVICE MARKS
We
own or have rights to trademarks, trade names and service marks that they use in connection with the operation of our business.
In addition, our names, logos and website names and addresses are its trademarks or service marks. Other trademarks, trade names
and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, in some cases,
the trademarks, trade names and service marks referred to in this prospectus are listed without the applicable ®, ™
and SM symbols, but they will assert, to the fullest extent under applicable law, their rights to these trademarks, trade names
and service marks.
PRESENTATION
OF FINANCIAL AND OTHER INFORMATION
Financial
Statements
This
prospectus contains our audited consolidated financial statements as of December 2020 and 2019 and for the years ended December
31, 2020, 2019 and 2018 (our “audited consolidated financial statements”), prepared in accordance
with the generally accepted accounting principles in the United States (“GAAP”). Our financial information
is presented in U.S. dollars.
Currencies
and Exchange Rates
References
in this prospectus to “USD,” “U.S. dollars,” “dollars,” “$”
or “cents” are to the currency of the United States and references to “GBP,” “pounds
sterling,” “pounds,” “£,” “pence” or “p”
are to the currency of the United Kingdom. There are 100 pence to each pound.
In
this prospectus, unless otherwise stated, pounds sterling have been translated into U.S. dollars at the noon buying rate in New
York City for cable transfers in pounds sterling as certified for custom purposes by the Federal Reserve Bank of New York, on
the date indicated. On April 16, 2021, the noon buying rate in New York City for cable transfers in pounds sterling as
certified for customs purposes by the Federal Reserve Bank of New York was $1.3826 per £1.00. These translations
should not be construed as a representation that the U.S. dollar amounts actually represent, or could be converted into, pounds
sterling at the rates indicated.
Rounding
We
have made rounding adjustments to reach some of the figures included in this prospectus. As a result, numerical figures shown
as totals in some tables may not be an arithmetic aggregation of the figures that precede them.
Industry
and Market Data
The
industry and market data relating to our business included in this prospectus on our internal estimates and research, as well
as publications, research, surveys and studies conducted by independent third parties not affiliated to us. We include data obtained
from Globaldata Service (found at https://www.globaldata.com/).
Industry
publications, studies and surveys generally state that they were prepared based on sources believed to be reliable, although there
is no guarantee of accuracy. While we believe that each of these studies and publications is reliable, we have not independently
verified the market and industry data provided by third-party sources. In addition, while we believe our internal research is
reliable, such research has not been verified by any independent source. We believe that all market data in this prospectus is
reliable, accurate and complete. We note that assumptions underlying industry and market data are subject to risks and uncertainties,
including those discussed under “Special Note Regarding Forward-Looking Statements” and “Risk Factors”
of this prospectus.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains or may contain “forward-looking statements” within the meaning of the Securities Exchange Act
of 1933, as amended (the “Securities Act”) and the Exchange Act. Forward looking terms such as “may,”
“will,” “could,” “should,” “would,” “plan,” “potential,”
“intend,” “anticipate,” “project,” “target,” “believe,” “estimate”
or “expect” and other words, terms and phrases of similar nature are often intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. Forward-looking statements are statements which are
not historical fact and involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties,
and include, but are not limited to, statements regarding intent, belief or current expectations. From time to time, oral or written
forward-looking statements may also be included in other materials released to the public.
Forward-looking
statements are based on the current beliefs and assumptions of the management of 4D Pharma and on information currently available
to such management. While the management of 4D Pharma believes that these forward-looking statements are reasonable as and when
made, there can be no assurance that future developments will be as anticipated. Such statements are subject to risks and uncertainties,
and actual results may differ materially from those expressed or implied in the forward-looking statements due to of various factors,
including, but not limited to, those identified under the section “Risk Factors” in this prospectus. These risks and
uncertainties include factors relating to:
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the
process of discovering, developing and commercializing drugs that are safe and effective for use as human therapeutics and
operating as an early clinical stage company;
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our
ability to develop, initiate or complete preclinical studies and clinical trials for, obtain approvals for and commercialize
any of our therapeutic candidates;
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the
timing, progress and results of preclinical studies and clinical trials for MRx0518, MRx-4DP0004, MRx0029, Blautix, Thetanix
or any other of our therapeutic candidates, including statements regarding the timing of initiation and completion of studies
or trials and related preparatory work and the period during which the results of the trials will become available;
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changes
in our plans to develop and commercialize our therapeutic candidates;
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the
potential for clinical trials of MRx0518, MRx-4DP0004, MRx0029, Blautix, Thetanix or any other of our therapeutic candidates
to differ from preclinical, preliminary or expected results;
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our
ability to enroll patients and volunteers in clinical trials, timely and successfully completion of those trials and receipt
of necessary regulatory approvals;
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our
ability to continue to manufacture sufficient quantity of our therapeutic candidates and to scale manufacturing to clinical-scale
and small-to-mid-scale commercial supply;
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negative
impacts of the COVID-19 pandemic on our operations, including clinical trials;
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the
risk of the occurrence of any event, change or other circumstance that could give rise to the termination of the strategic
collaboration agreement with the University of Texas MD Anderson Cancer Center or the research collaboration and option to
license agreement with Merck Sharp & Dohme Corp.;
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our
ability to raise any additional funding we will need to continue to pursue our business and product development plans;
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regulatory
developments in the United Kingdom, the United States and other countries;
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our
reliance on third parties, including contract research organizations;
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our
ability to claim UK Research and Development tax credits;
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our
ability to obtain and maintain intellectual property protection for our therapeutic candidates;
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the
future composition of our management team and directors and those of our subsidiaries;
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competition
in the industry in which we operate;
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other
risk factors discussed under “Risk Factors.”
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The
foregoing list is not intended to be exhaustive, and there may be other key risks that are not listed above that are not presently
known to us or that we currently deem immaterial. Should one or more of these or other risks or uncertainties materialize, or
should any of the underlying assumptions prove incorrect, actual results may vary in material respects from those expressed or
implied by the forward-looking statements made by us contained in this prospectus. As a result of the foregoing, readers should
not place undue reliance on the forward-looking statements contained in this prospectus. The forward-looking statements contained
in this prospectus are expressly qualified in their entirety by the foregoing cautionary statements.
Forward
looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking
statements or other information contained in this report, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in our reports on Form 6-K filed with the SEC. Please
also see the cautionary discussion of risks and uncertainties under “Risk Factors.”
ENFORCEABILITY
OF CIVIL LIABILITIES
4D
Pharma is a corporation organized under the laws of England and Wales. A substantial portion of 4D Pharma’s assets and most
of its directors and executive officers are located and reside, respectively, outside the United States. Because of the location
of 4D Pharma’s assets and board members, it may not be possible for investors to serve process within the United States
upon 4D Pharma or such persons with respect to matters arising under the United States federal securities laws or to enforce against
4D Pharma or persons located outside the United States judgments of United States courts asserted under the civil liability provisions
of the United States federal securities laws.
4D
Pharma understands that there is doubt as to the enforceability in the United Kingdom, in original actions or in actions for enforcement
of judgments of United States courts, of civil liabilities predicated solely upon the federal securities laws of the United States
insofar as they are fines or penalties. In addition, awards of punitive damages in actions brought in the United States or elsewhere
may be unenforceable in the United Kingdom by reason of being a penalty.
4D
Pharma has appointed Cogency Global Inc. as its agent to receive service of process in any action against it in any state or federal
court in the State of New York.
PROSPECTUS
SUMMARY
This
summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does
not contain all of the information you should consider in making your investment decision. You should read the entire prospectus
carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated
financial statements and the related notes and the sections titled “Risk Factors,” “Business,” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Overview
4D
Pharma was established with the mission of leveraging the deep and varied interactions between the human body and the gut microbiome,
the trillions of bacteria that colonize the human gastrointestinal tract, to develop an entirely novel class of drug: Live Biotherapeutics.
We are focused on understanding how individual strains of bacteria function and how their interactions with the human host can
be exploited to treat particular diseases, from cancer, respiratory, central nervous system, immunological and gastrointestinal
diseases and disorders.
To
further advance our product pipeline, we have developed MicroRx, our proprietary discovery platform. MicroRx interrogates our
proprietary library of bacterial isolates for therapeutic functionality and comprehensively characterizes the bacterial isolates
using a range of complementary tools and technologies. By developing a thorough understanding of the functionality and mechanism
of action of our therapeutic candidates, we can develop LBPs that target disease pathology rationally and effectively, and expand
our robust sector-leading patent portfolio with additional patents relating to LBP functionality.
To
this end, our key clinical focus areas include immuno-oncology and respiratory disease, with preclinical candidates targeting
CNS and autoimmune conditions. We have completed three clinical trials and currently have five more ongoing. One of our key focus
areas is immuno-oncology, and with our lead immuno-oncology therapeutic candidate, MRx0518, we delivered what we believe to be
the first positive proof of-concept data with a LBP in the treatment of cancer. MRx0518 is being evaluated in three ongoing clinical
trials, including a Phase I/II clinical trial in solid tumors in combination with Keytruda (supplied under a free of charge supply
agreement) in patients with advance or metastatic NSCLC, RCC and UC who are refractory to prior anti-PD-1/ PD-L1 therapy. Additionally,
new cohorts of 10 patients with new tumor types are to be enrolled in the study, including patients with TNBC, HNSCC and MSI-H
high tumors. We successfully completed Part A of this Phase I/II clinical trial and Part B of the clinical trial is currently
enrolling up to an additional 30 patients per tumor type and will assess clinical benefit in addition to safety. We also completed
recruitment for Part A of an ongoing Phase I trial of MRx0518 as a monotherapy in patients undergoing surgical resection of solid
tumors, which is being conducted at Imperial College London. We are currently redesigning Part B of this Phase I clinical trial
after initial data from Part A expressed showed encouraging early biomarker readouts. Our third clinical trial of MRx0518 is a
Phase I clinical trial of MRx0518 in patients with potentially resectable pancreatic cancer in combination with hypofractionated
radiotherapy, which is part of our strategic collaboration with the University of Texas MD Anderson Cancer Center. Meanwhile,
we are engaged in business development activities with the goal of expanding the development of MRx0518 into new settings and
are actively exploring additional collaboration opportunities. Following the year end, in February 2021, we entered into agreement
with Merck KGaA and Pfizer, who co-developed and co-commercialized Bavencio (avelumab) to supply Bavencio free of charge in a
future clinical trial.
We
are also developing therapeutic candidates for our respiratory disease portfolio. MicroRx enabled the discovery of MRx-4DP0004,
an immunomodulatory single strain LBP candidate that demonstrated marked effects in preclinical trials of respiratory inflammation,
particularly in the lungs. A Phase I/II clinical trial of MRx-4DP0004 in partly controlled asthma is ongoing, and to our knowledge
the world’s first clinical trial of an LBP in the indication. We are also investigating MRx4DP0004 in a Phase II clinical
trial as an oral therapeutic to prevent or reduce the hyperinflammatory response in patients hospitalized with COVID-19. The Phase
II trial of MRx-4D0004 received expedited approval from the MHRA in April 2020.
We
continue to utilize the MicroRx platform to discover promising new LBP candidates for major diseases with significant unmet need.
As part of our CNS portfolio, we have identified novel LBP candidates that act upon multiple aspects of the pathology of neurodegenerative
diseases in preclinical models, including gut-barrier function, neuroinflammation and protection of neurons critical to healthy
CNS function. Accordingly, we are currently planning a first-in-human clinical study for our lead CNS therapeutic candidate, MRx0029,
in Parkinson’s disease patients. As part of our commitment to CNS research and drug development, in December 2020, we became
an industry partner of the Parkinson’s Progression Markers Initiative, a longitudinal study sponsored by The Michael J.
Fox Foundation for Parkinson’s Research to better understand Parkinson’s disease and accelerate the development of
new treatments.
In our gastro-intestinal
disease portfolio, we currently have two LBP candidates that have completed early clinical evaluation, Blautix and Thetanix. Blautix
is being developed as the first therapeutic to treat patients with IBS, regardless of clinical subtype. The Phase II clinical
trial results for Blautix provide a foundation for the continued development of Blautix as the first therapeutic with the potential
to treat both major subtypes of IBS, and this data will advance regulatory engagement around the design of a potential
Phase III pivotal program. Thetanix is a single strain human gut commensal bacteria that has an anti-inflammatory mechanism and
is currently under investigation for the treatment of IBD. Thetanix has an Orphan Drug Designation for pediatric Crohn’s
disease from the FDA. We have successfully completed a Phase Ib clinical trial of Thetanix in pediatric Crohn’s disease
patients, and we are exploring strategic options for Thetanix, including parallel development in pediatric and adult populations
in both Crohn’s disease and ulcerative colitis, as well as potential partners.
In
addition to our internal development programs, we are seeking to realize the value and potential of the MicroRx platform through
collaborations in new areas. In 2019, we entered into a research collaboration and option to license agreement with MSD to discover
and develop LBPs for vaccines. This collaboration pairs our proprietary MicroRx platform with MSD’s expertise in the development
and commercialization of novel vaccines, to discover and develop LBPs as vaccines in up to three undisclosed indications. See
“Business—Collaborations—Research Collaboration and Option to License Agreement with Merck.”
In
2020, the global COVID-19 pandemic hit the United Kingdom, United States and other regions worldwide, affecting almost all aspects
of the economy including the pharmaceutical industry in which we operate. In response we have been proactive, putting the safety
of staff and patients first. We have made good use of technology to minimize disruption to our operations while protecting our
staff. However, as has been seen across the biopharma industry, there have been unavoidable impacts on certain activities, resulting
in some potential delays to expected clinical readouts. We continue to monitor the situation closely and will provide updates
as and when the expected resolution of the situation becomes clearer.
Recent
Developments
On
March 22, 2021, we consummated a merger (the “Merger”) with Longevity Acquisition Corporation (“Longevity”),
a publicly-traded special purpose acquisition company, pursuant to which we issued Nasdaq-listed American Depositary Shares (“ADSs”)
to the shareholders of Longevity and assumed warrants previously issued by Longevity, and Longevity became our wholly-owned subsidiary.
At
closing, Longevity merged with and into Dolphin Merger Sub Limited (“Merger Sub”), our new wholly owned subsidiary,
with Merger Sub continuing as the surviving company. Each of Longevity’s ordinary shares issued and outstanding prior to
the effective time of the merger (excluding shares held by the Company and Longevity and dissenting shares, if any) was automatically
converted into the right to receive the per share merger consideration (as defined below). The per share merger consideration
consisted of 7.5315 ordinary shares, payable in ADSs (each ADS representing 8 ordinary shares), for each issued and outstanding
ordinary share of Longevity. Each warrant to purchase Longevity’s ordinary shares and right to receive Longevity’s
ordinary shares that were outstanding immediately prior to the effective time of the merger was assumed by us and automatically
converted into a warrant to purchase our ordinary shares and a right to receive our ordinary shares, payable in our ADSs, respectively,
giving effect to the exchange ratio implied by the per share merger consideration. As a result of the Merger, we acquired Longevity’s
assets which consisted of approximately $14.8 million in cash held in its trust account, less liabilities of Longevity in connection
with transaction and related expenses.
On
March 17, 2021 and March 22, 2021, we announced subscription agreements (the “Subscription Agreements”) with certain
accredited investors and Merck Sharp & Dohme Corp. (collectively, the “PIPE Investors”) pursuant to, and
on the terms and subject to the conditions of which, the PIPE Investors collectively subscribed for 16,367,332 ordinary shares at a price
of £1.10 (or $1.53) per ordinary share for an aggregate investment amount equal to £18.0 million ($25.0 million) (the “PIPE
Investment”). In addition, on April 15, 2021, we entered into Subscription Agreements with our Chief Executive Officer, Duncan
Peyton and our Chief Scientific Officer, Alexander Stevenson (the “Additional PIPE Investors”) pursuant to, and on
the terms and subject to the conditions of which, the Additional PIPE Investors collectively subscribed for an additional 1,317,680 ordinary
shares at a share price of £1.10 (or $1.53) per share for an aggregate investment amount equal to £1.44 million ($2.0 million)
(the “Additional PIPE Investment” and together with the PIPE Investment, the “PIPE Investments”).
The Subscription Agreements provide certain registration rights.
Pursuant
to the Merger and the PIPE Investments, and after deducting the expenses of such transactions, we received net proceeds of approximately
$33.1 million. As a result, together with cash on our balance sheet prior to the transactions, we had cash and cash equivalents
as of March 31, 2021 of approximately $39.0 million (on a pro-forma basis including the net proceeds from the Additional
PIPE Investment).
In addition
to the shares issued in the Merger and the PIPE Investments, in the Merger we assumed warrants to purchase up to a total 16,268,040
ordinary shares at an exercise price of $1.53 per ordinary share (the “Assumed Warrants”). We are currently
evaluating the accounting treatment of the Assumed Warrants in accordance with United States Generally Accepted Accounting Principles
(“US GAAP”) to determine whether they will be classified as either liabilities or equity on our consolidated
balance sheet for fiscal periods ending after the closing of the Merger. We also assumed an option to purchase up to a total of
240,000 units at an exercise price of $11.50 per unit, each unit consisting of 8.28465 ordinary shares and a warrant to purchase
up to 3.76575 ordinary shares at an exercise price of $1.53 per ordinary share. In connection with certain backstop financing
agreements related to the Merger, we have committed to issue warrants to acquire up to 7,530,000 ordinary shares at an exercise
price of £0.0025 per ordinary share.
Corporate
Information
4D
pharma plc was incorporated in England and Wales on January 10, 2014. Our principal executive offices are located at 5th Floor,
9 Bond Court, Leeds, LS1 2JZ, United Kingdom, and our telephone number is +44 (0) 113 895 0130.
Our
website address is www.4dpharmaplc.com. The information on, or that can be accessed through, our website is not part of this prospectus,
and you should not consider information contained on our website in deciding whether to purchase shares of our Ordinary Shares.
Implications
of Being an Emerging Growth Company and a Foreign Private Issuer
Emerging
Growth Company
We
are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more
than $1.07 billion in annual revenues; the date we qualify as a “large accelerated filer,” with at least $700 million
of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible
debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering.
As
an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable
to other publicly traded entities that are not emerging growth companies. These exemptions include: (i) the option to present
only two years of audited financial statements and related discussion in the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this prospectus; (ii) not being required to comply with
the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002; (iii) not being required to comply with
any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm
rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(i.e., an auditor discussion and analysis); (iv) not being required to submit certain executive compensation matters to shareholder
advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes”;
and (v) not being required to disclose certain executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
In
addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying
with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards
until they would otherwise apply to private companies. We have elected to take advantage of this extended transition period.
We
have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has
different application dates for public or private companies, we, as an emerging growth company, 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 certain
other public companies difficult or impossible because of the potential differences in accounting standards used.
Foreign
Private Issuer
We
report under the Exchange Act as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an
emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain
provisions of the Exchange Act that are applicable to U.S. domestic public companies, including: (i) the sections of the Exchange
Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange
Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities
and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring
the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specific information, and current
reports on Form 8-K upon the occurrence of specified significant events.
Foreign
private issuers are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer
qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent
compensation and other disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.
THE
REGISTERED SHARES
Nasdaq
Stock Market Symbol for our ADSs
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“LBPS”
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AIM
trading symbol for our ordinary shares
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“DDDD”
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Registered
Shares being registered on behalf of the Registered Holders
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22,372,720
ordinary shares.
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Ordinary
shares issued and outstanding immediately before and after the effectiveness of the registration statement of which this prospectus
forms a part
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180,299,728 ordinary shares.
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American
Depositary Shares
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Each
ADS represents eight ordinary shares, nominal value £0.0025 per ordinary share. Holders of ADSs have the rights of an ADS holder
or beneficial owner of ADSs (as applicable) as provided in the deposit agreement among us, the depositary and holders and beneficial
owners of ADSs issued thereunder from time to time. To better understand the terms of the ADSs representing our ordinary shares,
see the section of this prospectus captioned “Description of Our American Depositary Shares.” We also encourage you to
read the deposit agreement, the form of which is filed as an exhibit to the registration statement of which this prospectus forms
a part. As of March 31, 2021, 3,881,024 ADSs were outstanding, representing 31,048,192 ordinary shares.
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Depositary
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JPMorgan
Chase
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Use
of proceeds
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We
will not receive any proceeds from the sale of our securities offered by the Registered Holders under this prospectus.
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Risk
factors
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See
“Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully
consider before deciding to invest in our ordinary shares or ADSs.
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Unless
otherwise stated in this prospectus, the number of our ordinary shares set forth herein is as of April 23, 2021 and is
based on 180,299,728 ordinary shares issued and outstanding on such date but excludes:
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417,088
ordinary shares issuable upon the exercise of outstanding options under our 2015 Long Term Incentive Plan, or the Employee
LTIP, at an exercise price of £0.0025 per share;
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16,268,040
ordinary shares issuable upon exercise of warrants assumed
by us pursuant to the Merger, at an exercise price of $1.53 per share;
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21,892,448
ordinary shares issuable upon exercise of existing 4D warrants
outstanding pursuant to certain financing transactions, at a weighted average exercise price of £1.00 per share;
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7,530,000
ordinary shares issuable upon exercise of warrants we have committed to issue in connection with certain backstop financing
agreements related to the Merger at an exercise price of £0.0025 per ordinary share; and
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240,000
units issuable upon exercise of a unit purchase option at an exercise price of $11.50 per unit, each unit consisting of 8.28465 ordinary
shares and a warrant to purchase up to 3.76575 ordinary shares at an exercise price of $1.53 per ordinary share.
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SUMMARY
RISK FACTORS
The
below summary risks provide an overview of the material risks we are exposed to in the normal course of our business activities.
The below summary risks do not contain all of the information that may be important to you, and you should read the summary risks
below together with the more detailed discussion of risks set forth following this section under the heading “Risk Factors,”
as well as elsewhere in this prospectus. The summary risks and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not currently known to us or that we currently deem less significant may also affect our business operations
or financial results. Consistent with the foregoing, we are exposed to a variety of risks, including those associated with the
following:
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We
are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the
foreseeable future and may never achieve or maintain profitability.
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We
will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed,
or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our research and drug development
programs or future commercialization efforts. Such capital raises may cause dilution to our holders, including holders of
our shares and ADSs.
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We
are very early in our development efforts and may not be successful in our efforts to use our platform to build a pipeline
of therapeutic candidates and develop marketable drugs. We may encounter substantial delays in the design, manufacture, regulatory
approval, and launch of any of our therapeutic candidates, which could prevent us from commercializing any products we develop
on a timely basis, if at all.
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We
have a limited operating history, have not initiated or completed any pivotal clinical trials, and have no products approved
for commercial sale, which may make it difficult for you to evaluate our current business and likelihood of success and current
and future viability.
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We
have limited experience manufacturing our therapeutic candidates at commercial scale, and if we decide to expand our own manufacturing
facility, we cannot assure you that we can manufacture our therapeutic candidates in compliance with regulations at a cost
or in quantities necessary to make them commercially viable.
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Our
therapeutic candidates are single-strain LBPs, which are an unproven approach to therapeutic intervention.
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There
may be immunotoxicity associated with the fundamental pharmacology of our therapeutic candidates or our therapeutic candidates
may cause undesirable side effects, toxicities or other undesirable side effects when used alone or in combination with other
approved products or investigational new drugs.
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Companies
with differing microbiome or microbial products may produce negative clinical data which could adversely affect public perception
of microbiome-derived therapies, and may negatively impact regulatory approval of, or demand for, our potential products.
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The
clinical trials of our therapeutic candidates may not demonstrate safety and efficacy to the satisfaction of the MHRA, FDA,
EMA or other comparable foreign regulatory authorities or otherwise produce positive results and the outcome of preclinical
testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical
trials may not satisfy the requirements of the MHRA, FDA, EMA or other comparable foreign regulatory authorities.
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If
we experience delays or difficulties in the enrolment of patients in clinical trials or data from our clinical trials may
changes as more patient data become available, our regulatory submissions or receipt of necessary regulatory approvals could
be delayed or prevented.
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We
have begun developing and expect to continue to develop MRx0518 and potentially other therapeutic candidates in combination
with other therapies, which exposes us to additional risks.
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We
face significant competition, and if our competitors develop and market technologies or products more rapidly than we do or
that are more effective, safer or less expensive than the products we develop, our commercial opportunities will be negatively
impacted.
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We
expect to depend on collaborations with third parties for the research, development, and commercialization of certain of the
therapeutic candidates we may develop. If any such collaborations are not successful, we may not be able to realize the market
potential of those therapeutic candidates.
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If
we are unable to obtain and maintain patent and other intellectual property protection for any therapeutic candidates we develop,
or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors
could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize
any therapeutic candidates we may develop may be adversely affected.
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We
may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause
us to incur substantial costs.
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Our
operations and financial results could be adversely impacted by the COVID-19 pandemic in the United Kingdom, United States
and the rest of the world.
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The
withdrawal of the United Kingdom from the EU, commonly referred to as “Brexit,” may adversely impact our ability
to obtain regulatory approvals of our therapeutic candidates in the EU, result in restrictions or imposition of taxes and
duties for importing our therapeutic candidates into the EU, and may require us to incur additional expenses in order to develop,
manufacture and commercialize our therapeutic candidates in the EU.
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Our
ability to claim UK Research and Development tax credits would impact our cash requirements and the amount of additional capital
required.
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Risks
Related to Our Financial Position and Need for Additional Capital
We
are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable
future and may never achieve or maintain profitability.
Since inception, we have
incurred significant operating losses, have not generated any revenue from product sales to date and have financed our operations
principally from proceeds from sales of our ordinary shares on Alternative Investment Market of the London Stock Exchange (the
“AIM”). Our net loss was $30.5 million for the year ended December
31, 2020, $30.3 million for the year ended December 31, 2019 and $32.6 million for the year ended December 31, 2018.
As of December 31, 2020, we had an accumulated deficit of $148.2 million. We have devoted substantially all of our financial resources
and efforts to developing our MicroRx LBP discovery platform, identifying potential therapeutic candidates and conducting preclinical
and clinical studies of our therapeutic candidates. We are in the early stages of developing our therapeutic candidates, and we
have not completed the development of any microbiome therapies or other drugs or biologics. As a result, we expect that it could
be several years, if ever, before we have a commercialized product and generate revenue from product sales. Even if we succeed
in receiving marketing approval for and commercialize one or more of our therapeutic candidates, we expect that we will continue
to incur substantial research and development costs and other expenses in order to discover, develop and market additional potential
products.
We
expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses
will increase substantially as we continue and expand clinical trials to investigate the efficacy of our current therapeutic candidates;
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seek
to enhance our discovery platform and discover and develop additional therapeutic candidates;
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seek
regulatory approvals for any therapeutic candidates that successfully complete clinical trials;
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seek
to establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any
products for which we may obtain regulatory approval;
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maintain,
expand and protect our intellectual property portfolio; and
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add
clinical, scientific, operational, financial and management information systems and personnel, including personnel to support
our product development and potential future commercialization efforts and to support our operations as a public company.
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We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. In addition, we anticipate
that our expenses will increase substantially if we experience any delays or encounter any issues with any of the above, including
but not limited to failed studies, complex results, safety issues or other regulatory challenges. The net losses we incur may
fluctuate significantly from quarter to quarter such that a period-to-period comparison of our results of operations may not be
a good indication of our future performance. The size of our future net losses will depend, in part, on the rate of future growth
of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to
have an adverse effect on our working capital, our ability to fund the development of our therapeutic candidates and our ability
to achieve and maintain profitability and the performance of our shares and ADSs.
We
will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or
on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our research and drug development programs
or future commercialization efforts.
Developing
pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and
uncertain process that takes years to complete. Our operations have consumed substantial amounts of cash since inception, and
we expect our expenses to increase in connection with our ongoing activities, particularly as we conduct clinical trials of, and
seek marketing approval for MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix and our other programs. Even if one or more of
the therapeutic candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated
with sales, marketing, manufacturing and distribution activities. Our expenses could increase beyond expectations if we are required
by the MHRA, FDA, the EMA or other regulatory agencies to perform clinical trials or preclinical studies in addition to those
that we currently anticipate. Other unanticipated costs may also arise. Because the design and outcome of our planned and anticipated
clinical trials are highly uncertain, we cannot reasonably estimate the actual amount of resources and funding that will be necessary
to successfully complete the development and commercialization of any product candidate we develop. While we have met with the
MHRA, FDA and EMA to discuss the clinical development of our candidates, we have not discussed commercialization of any of programs,
and we are not permitted to market or promote MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix, or any other product candidate,
before we receive marketing approval from the MHRA, FDA or EMA. Accordingly, we will need to obtain substantial additional funding
in order to continue our operations.
As
of December 31, 2020, we had $12.0 million in cash and cash equivalents. We expected our current cash and cash equivalents, including
the sales of ordinary shares in March and April 2021 pursuant to the PIPE Investments, and after giving effect to
the Merger and a €1 million ($1.1 million) overdraft facility, will be sufficient to fund our current operating plan through
the second quarter of 2022. Our estimate as to how long we expect the net proceeds of the merger with Longevity and from the PIPE
Investments, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based
on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing
circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently
anticipate, and we may need to seek additional funds sooner than planned.
We
could be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing
arrangements or other sources, which may dilute our stockholders or restrict our operating activities. We do not have any committed
external source of funds. Adequate additional financing may not be available to us on acceptable terms, or at all.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest
will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder.
Debt financing may result in imposition of debt covenants, increased fixed payment obligations or other restrictions that may
affect our business. If we raise additional funds through upfront payments or milestone payments pursuant to strategic collaborations
with third parties, we may have to relinquish valuable rights to our therapeutic candidates, or grant licenses on terms that are
not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations
even if we believe we have sufficient funds for our current or future operating plans.
Our
failure to raise capital as and when needed or on acceptable terms would have a negative impact on our financial condition and
our ability to pursue our business strategy, and we may have to delay, reduce the scope of, suspend or eliminate one or more of
our research-stage programs, clinical trials or future commercialization efforts.
Our
ability to generate revenue and achieve profitability depends significantly on our ability to achieve several objectives relating
to the discovery, development and commercialization of our therapeutic candidates.
Our
business depends entirely on the successful discovery, development and commercialization of therapeutic candidates. We have no
products approved for commercial sale and do not anticipate generating any revenue from product sales in the short to medium term,
if ever. To become and remain profitable, we, and any future collaborators, must succeed in developing and eventually commercializing
products that generate significant revenue. This will require us to be successful in a range of challenging activities, including
completing preclinical testing and clinical trials of our therapeutic candidates, discovering additional therapeutic candidates,
obtaining regulatory approval for these therapeutic candidates and manufacturing, marketing and selling any products for which
we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in
these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability.
Because
of the numerous risks and uncertainties associated with pharmaceutical product and biological product development, we are unable
to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If
we are required by the MHRA, FDA or EMA or other regulatory authorities to perform preclinical or clinical studies in addition
to those currently expected, or if there are any delays in completing our preclinical studies or clinical trials or the development
of any of our therapeutic candidates, our expenses could increase and revenue could be further delayed.
Even
if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure
to become and remain profitable would depress our value and could impair our ability to raise capital, expand our business, maintain
our research and development efforts, diversify our therapeutic offerings or even continue our operations.
We
have a limited operating history, have not initiated or completed any pivotal clinical trials, and have no products approved for
commercial sale, which may make it difficult for you to evaluate our current business and likelihood of success and current and
future viability.
We
are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects.
Since our inception in 2014, we have devoted substantially all of our resources to identifying and developing our therapeutic
candidates, building our intellectual property portfolio, process development and manufacturing function, taking candidates through
preclinical and clinical development, planning our business, raising capital and providing general and administrative support
for these operations. All of our therapeutic candidates are in clinical or preclinical development.
Drug
development is a highly uncertain undertaking and involves a substantial degree of risk. While we have now completed three clinical
trials and have five more clinical trials ongoing, we do not have any products approved for sale. For instance, MRx0518, our lead
immuno-oncology therapeutic candidate is being assessed in three separate clinical trials: in combination with Keytruda in patients
with advanced or metastatic NSCLC, RCC, UC who are refractory to prior anti-PD-1/PD-L1 therapy, as a monotherapy in the neoadjuvant
setting in patients undergoing surgical resection of solid tumors and in combination with hypofractionated radiotherapy in the
neoadjuvant setting in patients with potentially resectable pancreatic cancer. In our respiratory program, our therapeutic candidate,
MRx-4DP0004, is being assessed in patients with partly controlled asthma and to prevent or reduce the hyperinflammatory response
in patients hospitalized with COVID-19. We also have other therapeutic candidates in discovery and preclinical trials that are
being assessed in a variety of disease types including, MRx1299 in solid tumors in various types of cancer, MRx0029 in Parkinson’s
disease, MRx0006 in rheumatoid arthritis and MRx0002 in multiple sclerosis. We have also investigated the efficacy of two therapeutic
candidates in our gastrointestinal program in clinical trials, Blautix and Thetanix for patients with IBS and pediatric Crohn’s
disease, respectively. To date, however, we have not obtained marketing approval for and successfully commercialized a therapeutic
candidate. We have devoted substantially all of our resources to research and development activities, including with respect to
MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix therapeutic candidates, MicroRx and other preclinical programs, business planning,
establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and
administrative support for these operations.
We
have not yet demonstrated our ability to successfully initiate and complete a pivotal clinical trial, obtain marketing approvals,
obtain regulatory approvals to commercialize a product, manufacture a commercial-scale product, or arrange for a third party to
do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. As a result,
it may be more difficult for you to accurately predict our likelihood of success and viability than it could be if we had a longer
operating history. In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and
unknown factors and risks frequently experienced by clinical-stage biopharmaceutical companies in rapidly evolving fields. We
also may need to transition from a company with a research and development focus to a company capable of supporting commercial
activities.
Additionally,
we expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year
to year due to a variety of factors, many of which are beyond our control. Consequently, any predictions about our future success
or viability may not be as accurate as they could be if we had a longer operating history.
Raising
additional capital may cause dilution to our holders, including holders of our ADSs, restrict our operations or require us to
relinquish rights to our technologies or therapeutic candidates.
We
expect that significant additional capital will be needed in the future to continue our planned operations, including expanded
research and development activities and potential commercialization efforts. Until such time, if ever, as we can generate substantial
product revenues, we expect to finance our cash needs through any or a combination of securities offerings, debt financings, license
and collaboration agreements and research grants and tax credits.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest
will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights
as a shareholder. Debt financing and preferred equity financing, if available, could result in fixed payment obligations, and
we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified
liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we raise additional funds through
collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required
to relinquish valuable rights to our technologies, future revenue streams, research programs or therapeutic candidates or to grant
licenses on terms that may not be favorable to us. In addition, we could also be required to seek funds through arrangements with
collaborators or others at an earlier stage than otherwise would be desirable.
If
we raise funds through research grants or take advantage of research and development tax credits, we may be subject to certain
requirements, which may limit our ability to use the funds or require us to share information from our research and development.
If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit,
reduce or terminate our product development or future commercialization efforts or grant rights to a third party to develop and
market therapeutic candidates that we would otherwise prefer to develop and market ourselves. Raising additional capital through
any of these or other means could adversely affect our business and the holdings or rights of our shareholders, and may cause
the market price of our ADSs to decline.
Risks
Related to the Discovery, Development, Regulatory Approval and Potential Commercialization of Our Therapeutic Candidates
We
are very early in our development efforts and may not be successful in our efforts to use our platform to build a pipeline of
therapeutic candidates and develop marketable drugs.
We
are using our MicroRx platform, with an initial focus on developing therapies in immuno-oncology, inflammatory and CNS conditions,
to discover and develop a pipeline of therapeutic candidates. While we believe our preclinical and clinical studies to date have
validated our platform to a degree, we are at an early stage of development and our platform has not yet, and may never lead to,
approvable or marketable products. We are developing these therapeutic candidates and additional therapeutic candidates that we
intend to use to treat additional immunological diseases, respiratory diseases, neuroinflammation and neurodegeneration, behavioral,
and other therapeutic areas. We may have problems applying our technologies to these other areas, and our new therapeutic candidates
may not demonstrate a comparable ability in treating disease as our initial or our competitors’ therapeutic candidates.
Even if we are successful in identifying additional therapeutic candidates, they may not be suitable for clinical development
as a result of our inability to manufacture products comprising bacteria which are challenging to produce on a large scale, or
which have limited efficacy, unacceptable safety profiles or other characteristics that indicate that they are unlikely to be
products that will receive marketing approval and achieve market acceptance, or will be unacceptably challenging to manufacture.
The success of our therapeutic candidates will depend on several factors, including the following:
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completion
of preclinical studies and clinical trials with positive results;
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receipt
of marketing approvals from applicable regulatory authorities;
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obtaining
and maintaining patent and trade secret protection and regulatory exclusivity for our therapeutic candidates;
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making
arrangements with third-party manufacturers, or the success of our existing commercial manufacturing capabilities;
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launching
commercial sales of our products, if and when approved, whether alone or in collaboration with others;
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entering
into new collaborations throughout the development process as appropriate, from preclinical studies through to commercialization;
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acceptance
of our products, if and when approved, by patients, the medical community and third-party payors;
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effectively
competing with other therapies;
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obtaining
and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for our products,
if approved;
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protecting
our rights in our intellectual property portfolio;
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operating
without infringing or violating the valid and enforceable patents or other intellectual property of third parties;
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maintaining
an acceptable safety profile of the products following approval; and
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maintaining
and growing an organization of scientists and business people who can develop and commercialize our products and technology.
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If
we do not successfully develop and commercialize therapeutic candidates based upon our technological approach, we will not be
able to obtain product revenue in future periods, which likely would result in significant harm to our financial position and
adversely affect our stock price.
Certain
of our therapeutic candidates are intended to act on cells in the small intestine to produce therapeutic effects in tissues remote
from the gut with limited side effects. This biological interaction between the small intestine and the rest of the body may not
function in humans the way we have observed in mice and our drugs may not reproduce the systemic effects we have seen in preclinical
data.
We
believe certain of our therapeutic candidates, including MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix, work by modulating
systemic responses via interactions with cells in the small intestine. This requires our therapeutics be dosed to achieve sufficient
exposure to the small intestine, requiring them to firstly pass safely through the gut. Dosing to achieve sufficient exposure
may require an inconvenient dosing regimen. Even with successful formulation and delivery to achieve proper exposure of our LBPs
to the small intestine, we may not get sufficient or even any activity at the site of disease. This may be because our understanding
of the mechanisms of the small intestine do not work in humans the way we believe they do. Despite the positive early results
observed in our clinical studies and the strong justification in the academic literature to support the concept, these principles
and the ability to use microbiome derived therapies to modulate the immune system and other systems has not yet been proven in
large scale studies in humans.
Our
therapeutic candidates are Live Biotherapeutics Products, which are an unproven approach to therapeutic intervention.
All
of our LBP candidates are based on single strains of commensal bacteria. We have not, nor to our knowledge has any other company,
received regulatory approval for an oral therapeutic based on this approach. We cannot be certain that our approach will lead
to the development of approvable or marketable products. In addition, our LBPs may have different safety profiles and efficacy
in various indications. Finally, regulatory agencies may lack experience in evaluating the safety and efficacy of products based
on live bacteria, which could result in a longer than expected regulatory review process, increase our expected development costs
and delay or prevent commercialization of our therapeutic candidates.
Even
if our therapeutic candidates do not cause off target adverse events, there may be immunotoxicity associated with the fundamental
pharmacology of our therapeutic candidates.
Our
therapeutic candidates, including MRx0518, MRx-4DP0004 and Thetanix, work by modulating the immune system. While we have observed
in preclinical studies that our LBPs have favorable side effect profiles, the pharmacological immune effects we induce are often
remote from the gut. Although not observed in any of the clinical studies we have run to date, systemic immunomodulation from
taking our LBPs could lead to immunotoxicity in patients, which may cause us or regulatory authorities to delay, limit or suspend
clinical development. Other immunomodulatory agents have shown immunotoxicity. In the case of immune activating agents, such as
pembrolizumab and nivolumab, induction of adverse auto-immune events has been observed in some patients. Immunotoxicity in one
program could cause regulators to view these adverse events as a class effect of our LBPs, which may impact the timing of the
development of our pipeline of potential therapeutic candidates. Even if the adverse events are manageable, the profile of the
drug may be such that it limits or diminishes the possible number of patients who could receive our therapy.
Our
therapeutic candidates may cause undesirable side effects, toxicities or other undesirable side effects when used alone or in
combination with other approved products or investigational new drugs, or have other properties that may result in a safety profile
that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, prevent market acceptance,
or result in significant negative consequences following marketing approval, if any.
If
our therapeutic candidates are associated with undesirable side effects or have unexpected characteristics in preclinical studies
or clinical trials when used alone or in combination with other approved products or investigational new drugs we may need to
interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable
side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Treatment-related
side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential
product liability claims. Any of these occurrences may prevent us from achieving or maintaining market acceptance of the affected
product candidate and may harm our business, financial condition and prospects significantly.
For
example, our current therapeutic candidates consist of lyophilized live biological material that remain viable in the gastrointestinal
tract of humans. If these bacteria exert a pathogenic effect, despite this not having been observed in any clinical trials to
date, the bacteria carry a risk of causing infections in patients. Some infections may require treatment with antibiotics to eliminate
the pathogenic bacteria. All our therapeutic candidates are screened for antibiotic sensitivity but it is possible that if antibiotic
therapy does not eliminate the live biological material, a resistant version of our strain could remerge. These events, while
unlikely, could cause a delay in our clinical development and/or could increase the regulatory standards for the entire class
of microbiome derived therapies. In an instance where the infection risk of taking our therapeutic candidates is high, this may
cause the benefit risk profile of therapy to be non-competitive in the market and may lead to discontinuation of development of
the product.
In
addition, it is possible that infections from our therapeutic candidates could be rare and not frequently observed in our clinical
trials. In larger post marketing authorization trials, however, data could show that the infection risk, while small, does exist.
If unacceptable side effects arise in the development of our therapeutic candidates, we, the MHRA, FDA, EMA or comparable foreign
regulatory authorities, the IRBs at the institutions in which our studies are conducted, or ethics committees, or the DSMB could
suspend or terminate our clinical trials or the MHRA, FDA, EMA or comparable foreign regulatory authorities could order us to
cease clinical trials or deny approval of our therapeutic candidates for any or all targeted indications. Although none have been
observed in any of our clinical studies to date, treatment-related side effects could also affect patient recruitment or the ability
of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may
not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our
therapeutic candidates to understand the side effect profiles for the LBPs we are studying in our clinical trials and upon any
commercialization of any of our therapeutic candidates. Inadequate training in recognizing or managing the potential side effects
of our therapeutic candidates could result in patient injury or death. Any of these occurrences may harm our business, financial
condition and prospects significantly.
If
any of our therapeutic candidates receives marketing approval, and we or others later identify undesirable side effects caused
by such products, a number of potentially significant negative consequences could result, including:
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regulatory
authorities may withdraw their approval of the product;
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we
may be required to recall a product or change the way such product is administered to patients;
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additional
restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any
component thereof;
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we
may be required to conduct post-marketing studies or clinical trials;
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regulatory
authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
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we
may be required to implement a risk evaluation and mitigation strategy or create a medication guide outlining the risks of
such side effects for distribution to patients;
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we
could be sued and held liable for harm caused to patients;
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the
product may become less competitive; and
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our
reputation may suffer.
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Any
of the foregoing events could prevent us from achieving or maintaining market acceptance of the particular product candidate,
if approved, and result in the loss of significant revenues to us, which would materially and adversely affect our results of
operations and business.
Companies
with differing microbiome or microbial products may produce negative clinical data which will adversely affect public perception
of microbiome-derived therapies, and may negatively impact regulatory approval of, or demand for, our potential products.
Our
LBP therapeutic candidates are pharmaceutical compositions of commensal bacteria. While we believe our approach is distinct from
other types of microbiome therapy, negative data from clinical trials using microbiome-based therapies and other types of microbiome
therapy could negatively impact the perception of the therapeutic use of microbiome-based products. This could negatively impact
our ability to enroll patients in clinical trials. The clinical and commercial success of our potential products will depend in
part on the public and clinical communities’ acceptance of the use of LBPs. Moreover, our success depends upon physicians
prescribing, and their patients being willing to receive, treatments that involve the use of therapeutic candidates we may develop
in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may
be available.
Adverse
events in our preclinical studies or clinical trials or those of our competitors or of academic researchers utilizing microbiome
technologies, even if not attributable to our therapeutic candidates, and the resulting publicity could result in increased governmental
regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential therapeutic
candidates, stricter labeling requirements for our therapeutic candidates that are approved, if any, and a decrease in demand
for any such products.
We
have limited experience manufacturing our therapeutic candidates at commercial scale, and if we decide to expand our own manufacturing
facility, we cannot assure you that we can manufacture our therapeutic candidates in compliance with regulations at a cost or
in quantities necessary to make them commercially viable.
We
have significantly invested in our in-house manufacturing facility for our therapeutic candidates for production at a commercial
scale. Although we have taken seven strains through process development and scale-up to be able to manufacture clinic-ready product,
and our in-house facility has the ability to produce over 30 million capsules of current good manufacturing practice (“cGMP”)
drug product per year, with capacity to support our ongoing trials and potentially small-scale commercial supply, we have limited
experience in commercial-scale manufacturing of our therapeutic candidates. We are investigating external manufacturing capability
as we scale our therapeutic candidates and prepare for commercialization of one or more of our therapeutic candidates. Currently,
we are dependent on the manufacturing of product for each of our therapeutic candidates at our internal manufacturing facility.
Developing our in-house manufacturing facility, required and continues to require substantial additional funds and hiring and
training a significant number of qualified employees to staff this facility. We may not be able to develop commercial-scale manufacturing
facilities that are able to produce an adequate supply of materials in the event of significant commercial uptake of one of LBP
therapeutics.
Although
having in-house control of production has been a significant advantage in a field that has experienced significant hurdles relating
to manufacturing, the equipment and facilities employed in the manufacture of pharmaceuticals are subject to stringent qualification
requirements by regulatory agencies, including validation of facility, equipment, systems, processes and analytics. Our in-house
manufacturing facility is currently compliant with cGMP regulations. However, if we are found to no longer comply with cGMP regulations
or similar regulatory requirements outside of the United States or if we cannot successfully manufacture material that conforms
to our specifications and the strict regulatory requirements of the FDA, EMA or others, we will not be able to secure and/or maintain
marketing approval for our manufacturing facility or any future facilities.
Catastrophic
events at our manufacturing facility or loss of our master cell banks could significantly impair our ability to manufacture our
therapeutic candidates.
We
currently manufacture all of the material for our therapeutic candidates out of our sole manufacturing facility in Leòn,
Spain. We have not undertaken a systematic analysis of the potential consequences to our business and financial results if our
manufacturing facility is impacted by flood, fire, earthquake, power loss, terrorist activity or other disasters and do not have
a recovery plan or alternative manufacturing facility. In addition, we do not carry sufficient insurance to compensate us for
actual losses from interruption of our business that may occur, and any losses or damages incurred by us could harm our business.
The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our
costs and expenses.
In
addition, our LBP therapeutic candidates require that we manufacture from MCBs of strains from our library of single strain bacteria.
There is a possibility of a catastrophic failure or destruction of our MCBs. This could make it impossible for us to continue
to manufacture a specific product. Recreating and recertifying our MCBs is possible, as we have back-up stocks of our clinical
candidates stored remotely from the MCBs, but not certain and could put at risk the supply of our therapeutic candidates for preclinical
studies or clinical trials or any products, if approved, to our customers.
The
regulatory approval processes of the MHRA, FDA, EMA and other comparable foreign regulatory authorities are lengthy, time consuming
and inherently unpredictable. If we are ultimately unable to obtain regulatory approval of our therapeutic candidates, we will
be unable to generate product revenue and our business will be substantially harmed.
Obtaining
approval by the MHRA, FDA, EMA and other comparable foreign regulatory authorities is unpredictable, typically takes many years
following the commencement of clinical trials and depends upon numerous factors, including the type, complexity and novelty of
the therapeutic candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary
to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions,
which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial
discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval
and require additional preclinical, clinical or other data. Even if we eventually complete clinical testing and receive approval
for our therapeutic candidates, the MHRA, FDA, EMA and other comparable foreign regulatory authorities may approve our therapeutic
candidates for a more limited indication or a narrower patient population than we originally requested or may impose other prescribing
limitations or warnings that limit the product’s commercial potential. We have not submitted for, or obtained, regulatory
approval for any product candidate, and it is possible that none of our therapeutic candidates will ever obtain regulatory approval.
Further, development of our therapeutic candidates and/or regulatory approval may be delayed for reasons beyond our control.
Applications
for our therapeutic candidates could fail to receive regulatory approval for many reasons, including the following:
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the
MHRA, FDA, EMA or other comparable foreign regulatory authorities may disagree with the design, implementation or results
of our clinical trials;
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the
MHRA, FDA, EMA or other comparable foreign regulatory authorities may determine that our therapeutic candidates are not safe
and effective, are only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics
that preclude our obtaining marketing approval or prevent or limit commercial use;
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the
population studied in the clinical trial may not be sufficiently broad or representative to assure efficacy and safety in
the full population for which we seek approval;
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the
MHRA, FDA, EMA or other comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical
studies or clinical trials;
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we
may be unable to demonstrate to the MHRA, FDA, EMA or other comparable foreign regulatory authorities that our product candidate’s
risk-benefit ratio for its proposed indication is acceptable;
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the
MHRA, FDA, EMA or other comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures
and specifications or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
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the
MHRA, FDA, EMA or other comparable regulatory authorities may fail to approve companion diagnostic tests required for our
therapeutic candidates; and
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the
approval policies or regulations of the MHRA, FDA, EMA or other comparable foreign regulatory authorities may significantly
change in a manner rendering our clinical data insufficient for approval.
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lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain
regulatory approval to market any of our therapeutic candidates, which would significantly harm our business, results of operations
and prospects.
The
clinical trials of our therapeutic candidates may not demonstrate safety and efficacy to the satisfaction of the MHRA, FDA, EMA
or other comparable foreign regulatory authorities or otherwise produce positive results.
Before
obtaining marketing approval from the MHRA, FDA, EMA or other comparable foreign regulatory authorities for the sale of our therapeutic
candidates, we must complete preclinical development and extensive clinical trials to demonstrate with substantial evidence the
safety and efficacy of such therapeutic candidates. Clinical testing is expensive, difficult to design and implement, can take
many years to complete and its ultimate outcome is uncertain. A failure of one or more clinical trials can occur at any stage
of the process. The outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of later
clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many
companies that have believed their therapeutic candidates performed satisfactorily in preclinical studies and clinical trials
have nonetheless failed to obtain marketing approval of their drugs.
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We
may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent receipt of
marketing approval or our ability to commercialize our therapeutic candidates, including:
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receipt
of feedback from regulatory authorities that requires us to modify the design of our clinical trials;
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negative
or inconclusive clinical trial results that may require us to conduct additional clinical trials or abandon certain drug development
programs;
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the
number of patients required for clinical trials being larger than anticipated, enrollment in these clinical trials being slower
than anticipated or participants dropping out of these clinical trials at a higher rate than anticipated;
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third-party
contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner,
or at all;
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the
suspension or termination of our clinical trials for various reasons, including non-compliance with regulatory requirements
or a finding that our therapeutic candidates have undesirable side effects or other unexpected characteristics or risks;
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the
cost of clinical trials of our therapeutic candidates being greater than anticipated;
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the
supply or quality of our therapeutic candidates or other materials necessary to conduct clinical trials of our therapeutic
candidates being insufficient or inadequate; and
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regulators
revising the requirements for approving our therapeutic candidates.
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If
we are required to conduct additional clinical trials or other testing of our therapeutic candidates beyond those that we currently
contemplate, if we are unable to successfully complete clinical trials of our therapeutic candidates or other testing in a timely
manner, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns,
we may incur unplanned costs, be delayed in seeking and obtaining marketing approval, if we receive such approval at all, receive
more limited or restrictive marketing approval, be subject to additional post-marketing testing requirements or have the drug
removed from the market after obtaining marketing approval.
The
outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the
results of our clinical trials may not satisfy the requirements of the MHRA, FDA, EMA or other comparable foreign regulatory authorities.
We
will be required to demonstrate with substantial evidence through well-controlled clinical trials that our therapeutic candidates
are safe and effective for use in a diverse population before we can seek marketing approvals for their commercial sale. Success
in preclinical studies and early-stage clinical trials does not mean that future clinical trials will be successful. For example,
we have not yet completed a clinical trial of MRx-4DP0004. While we have received positive results from the preclinical trials
of MRx-4DP0004, we do not know how it will perform in current or future clinical trials as it has in prior preclinical studies.
Therapeutic candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction
of the MHRA, FDA, EMA and other comparable foreign regulatory authorities despite having progressed through preclinical studies
and early-stage clinical trials.
Additionally,
while we are aware of several other clinical-stage companies developing new therapeutics, to our knowledge, there are no therapeutics
approved for the treatment of patients with solid tumors that are refractory to ICI therapy. However, the development of MRx0518
and our share price may be impacted by inferences, whether correct or not, that are drawn between the success of our therapeutic
candidates and those of other companies. Regulatory authorities may also limit the scope of later-stage trials until we have demonstrated
satisfactory safety, which could delay regulatory approval, limit the size of the patient population to which we may market our
therapeutic candidates, or prevent regulatory approval.
In
some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same
product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations,
differences in and adherence to the dose and dosing regimen and other trial protocols and the rate of dropout among clinical trial
participants. Patients treated with our therapeutic candidates may also be undergoing surgical, and other treatments and may be
using other approved products or investigational new drugs, which can cause side effects or adverse events that are unrelated
to our therapeutic candidates. As a result, assessments of efficacy can vary widely for a particular patient, and from patient
to patient and site to site within a clinical trial. This subjectivity can increase the uncertainty of, and adversely impact,
our clinical trial outcomes.
We
do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient
to obtain approval to market any of our therapeutic candidates.
If
we experience delays or difficulties in the enrolment of patients in clinical trials, our regulatory submissions or receipt of
necessary regulatory approvals could be delayed or prevented.
We
may not be able to initiate or continue clinical trials for our therapeutic candidates if we are unable to locate and enroll a
sufficient number of eligible patients to participate in these trials as required by the MHRA, FDA, EMA or other comparable foreign
regulatory authorities. We are developing our therapeutic candidates, MRx0518, to treat multiple types of cancer, MRx-4DP0004
to treat asthma and COVID-19 and MRx0029 to treat central nervous system disorders. There are a limited number of patients from
which to draw for clinical studies for many of our therapeutic candidates.
Enrollment
of patients in our clinical trials and maintaining patients in our ongoing clinical trials may be delayed or limited as our clinical
trial sites limit their onsite staff or temporarily close as a result of the COVID-19 pandemic. In addition, patients may not
be able to visit clinical trial sites for dosing or data collection purposes due to limitations on travel and physical distancing
imposed or recommended by federal or state governments or patients’ reluctance to visit the clinical trial sites during
the pandemic. These factors resulting from the COVID-19 pandemic could delay the anticipated readouts from our clinical trials
and our regulatory submissions. For example, enrolment for our Phase I/II clinical trial of MRx-4DP0004 in patients with partly
controlled asthma has been impacted due to factors associated with the COVID-19 pandemic, potentially delaying expected preliminary
data for this clinical trial.
Patient
enrolment is also affected by other factors including:
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the
severity of the disease under investigation;
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the
patient eligibility criteria for the study in question;
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the
existence of competing clinical trials with the same patient population;
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the
perceived risks and benefits of the product candidate under study;
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the
availability of other treatments for the disease under investigation;
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the
efforts to facilitate timely enrollment in clinical trials;
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our
payments for conducting clinical trials;
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the
patient referral practices of physicians;
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the
ability to monitor patients adequately during and after treatment; and
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the
proximity and availability of clinical trial sites for prospective patients.
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Our
inability to enroll a sufficient number of patients or volunteers for our clinical trials would result in significant delays and
could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased
development costs for our therapeutic candidates, which would cause the value of our company to decline and limit our ability
to obtain additional financing.
Interim,
“topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as
more patient data become available and are subject to audit and verification procedures that could result in material changes
in the final data.
From
time to time, we may publicly disclose preliminary or topline data from our preclinical studies and clinical trials, which is
based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change
following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations,
calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and
carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of
the same studies, or different conclusions or considerations may qualify such results, once additional data have been received
and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being
materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution
until the final data are available.
From
time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials
that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrolment
continues and more patient data become available. Adverse differences between preliminary or interim data and final data could
significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility
in the price of our shares and ADSs.
Further,
others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses
or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability
or commercialization of the particular product candidate or product and our company in general. In addition, the information we
choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information,
and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
We
may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on therapeutic
candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we intend to focus on developing therapeutic candidates that we identify as
most likely to succeed, in terms of both regulatory approval and commercialization. As a result, we may forego or delay pursuit
of opportunities with other therapeutic candidates or for other indications that may prove to have greater commercial potential.
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Our spending on current and future research and product development programs and therapeutic candidates for specific indications
may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for
a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or
other royalty arrangements, in cases in which it would have been more advantageous for us to retain sole development and commercialization
rights to such product candidate.
We
have begun developing and expect to continue to develop MRx0518 and potentially other therapeutic candidates in combination with
other therapies, which exposes us to additional risks.
We
have begun developing and intend to continue to develop MRx0518 and potentially other programs, in combination with one or more
currently approved therapies. In 2019, we initiated a Phase I/II study evaluating our LBP MRx0518 in combination with Keytruda
in heavily pre-treated patients with secondary resistant tumors refractory to ICIs. Although we have dosed patients with MRx0518
and Keytruda without any observed drug related serious adverse events, as we move into larger study populations, we cannot exclude
the possibility of observing that some patients may not be able to tolerate MRx0518 or any of our other therapeutic candidates
in combination with other therapies or dosing of MRx0518 in combination with other therapies may have unexpected consequences.
Even if any of our therapeutic candidates were to receive marketing approval or be commercialized for use in combination with
other existing therapies, we would continue to be subject to the risks that the MHRA, FDA, EMA or other comparable foreign regulatory
authorities could revoke approval of the therapy used in combination with any of our therapeutic candidates, or safety, efficacy,
manufacturing or supply issues could arise with these existing therapies. In addition, it is possible that existing therapies
with which our therapeutic candidates are approved for use could themselves fall out of favor or be relegated to later lines of
treatment. This could result in the need to identify other combination therapies for our therapeutic candidates or our own products
being removed from the market or being less successful commercially.
Additionally,
if the third-party providers of therapies or therapies in development used in combination with our therapeutic candidates are
unable to produce sufficient quantities for clinical trials or for commercialization of our therapeutic candidates, or if the
cost of combination therapies are prohibitive, our development and commercialization efforts would be impaired, which would have
an adverse effect on our business, financial condition, results of operations and growth prospects. For example, for our Phase
I/II trial of MRx0518 in combination with the ICI Keytruda, we entered into a clinical trial collaboration and supply agreement
with MSD. Under the terms of the clinical trial collaboration and supply agreement, MSD supply us with Keytruda to use in combination
with MRx0518. If this agreement terminates and we are unable to obtain Keytruda on the current terms, the cost to us to conduct
this trial may significantly increase.
Even
if any of our therapeutic candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians,
patients, hospitals, third-party payors and others in the medical community necessary for commercial success.
Even
if our therapeutic candidates pass scrutiny by regulatory authorities, since LBPs are a new therapeutic modality, the degree of
market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community of any of our approved
therapeutic candidates will depend on a number of factors, including:
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the
efficacy and safety profile as demonstrated in clinical trials compared to alternative treatments;
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the
timing of market introduction of the product candidate as well as competitive products;
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the
clinical indications for which a product candidate is approved;
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restrictions
on the use of therapeutic candidates in the labelling approved by regulatory authorities, such as boxed warnings or contraindications
in labelling, or a risk evaluation and mitigation strategy, if any, which may not be required of alternative treatments and
competitor products;
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the
potential and perceived advantages of our therapeutic candidates over alternative treatments;
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the
cost of treatment in relation to alternative treatments;
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the
availability of coverage and adequate reimbursement by third-party payors, including government authorities;
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the
availability of an approved product candidate for use as a combination therapy;
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relative
convenience and ease of administration;
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the
willingness of the target patient population to try new therapies and undergo required diagnostic screening to determine treatment
eligibility and of physicians to prescribe these therapies and diagnostic tests;
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the
effectiveness of sales and marketing efforts;
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unfavorable
publicity relating to our therapeutic candidates; and
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the
approval of other new therapies for the same indications.
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If
any of our therapeutic candidates are approved but do not achieve an adequate level of acceptance by physicians, hospitals, healthcare
payors and patients, we may not generate or derive sufficient revenue from that product candidate and our financial results could
be negatively impacted.
If
we are unable to establish sales or marketing capabilities or enter into agreements with third parties to sell or market our therapeutic
candidates, we may not be able to successfully sell or market our therapeutic candidates that obtain regulatory approval.
We
currently do not have and have never had a marketing or sales team. In order to commercialize any therapeutic candidates, if approved,
we must build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third
parties to perform these services for each of the territories in which we may have approval to sell or market our therapeutic
candidates. We may not be successful in accomplishing these required tasks.
Establishing
an internal sales or marketing team with technical expertise and supporting distribution capabilities to commercialize our therapeutic
candidates will be expensive and time-consuming, and will require significant attention of our executive officers to manage. Any
failure or delay in the development of our internal sales, marketing and distribution capabilities could adversely impact the
commercialization of any of our therapeutic candidates that we obtain approval to market, if we do not have arrangements in place
with third parties to provide such services on our behalf. Alternatively, if we choose to collaborate, either globally or on a
territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to
augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems, we will be required
to negotiate and enter into arrangements with such third parties relating to the proposed collaboration and such arrangements
may prove to be less profitable than commercializing the product on our own. If we are unable to enter into such arrangements
when needed, on acceptable terms, or at all, we may not be able to successfully commercialize any of our therapeutic candidates
that receive regulatory approval, or any such commercialization may experience delays or limitations. If we are unable to successfully
commercialize our approved therapeutic candidates, either on our own or through collaborations with one or more third parties,
our future product revenue will suffer, and we may incur significant additional losses.
We
face significant competition, and if our competitors develop and market technologies or products more rapidly than we do or that
are more effective, safer or less expensive than the products we develop, our commercial opportunities will be negatively impacted.
The
development and commercialization of new drug and biologic products is highly competitive and is characterized by rapid and substantial
technological development and product innovations. We face competition with respect to our current therapeutic candidates and
will face competition with respect to therapeutic candidates that we may seek to develop or commercialize in the future, from
major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. We are aware of a number
of large pharmaceutical and biotechnology companies, including AbbVie Inc., Amgen Inc., AstraZeneca plc, Biogen Inc., Bristol-Myers
Squibb, F. Hoffmann-La Roche A.G., Novartis, Janssen, GlaxoSmithKline plc, Johnson & Johnson, MSD, Novartis International
A.G., Pfizer Inc., Regeneron Pharmaceuticals, Inc., Sanofi S.A. and Teva Pharmaceutical Industries Ltd., as well as smaller, early-stage
companies, that are pursuing the development of products, including microbiome-based therapeutics in some instances, for disease
indications we are targeting. Some of these competitive products and therapies are based on scientific approaches that are similar
to our approach, and others may be based on entirely different approaches. Potential competitors also include academic institutions,
government agencies and other public and private research organizations.
Many
of the companies against which we are competing or against which we may compete in the future have significantly greater
financial resources, established presence in the market and expertise in research and development, manufacturing, preclinical
testing, conducting clinical trials, obtaining regulatory approvals and reimbursement and marketing approved products than we
do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being
concentrated among a smaller number of our competitors. These third parties compete with us in recruiting and retaining
qualified scientific, sales and marketing and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our
programs.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective,
have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors
also may obtain MHRA, FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which
could delay us from obtaining MHRA, FDA approval to market our therapeutic candidates and result in our competitors establishing
a strong market position before we are able to enter the market, especially for any competitor developing a microbiome-based therapeutic
which will likely share our same regulatory approval requirements. For more information, please see “Risk Factors — Our
therapeutic candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated,
which may delay us from marketing our therapeutic candidates.” In addition, our ability to compete may in future be affected
in many cases by insurers or other third-party payors seeking to encourage the use of generic or biosimilar products.
Product
liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that
we may develop.
We
face an inherent risk of product liability exposure related to the testing of our therapeutic candidates in clinical trials and
will face an even greater risk if we commercially sell any products that we develop. If we cannot successfully defend ourselves
against claims that our therapeutic candidates or products caused injuries, we will incur substantial liabilities. Regardless
of merit or eventual outcome, liability claims may result in:
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regulatory
investigations, product recalls or withdrawals, or labeling, marketing or promotional restrictions;
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decreased
demand for any therapeutic candidates or products that we may develop;
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injury
to our reputation and significant negative media attention;
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withdrawal
of clinical trial participants;
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significant
costs to defend the related litigation;
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substantial
monetary awards to trial participants or patients;
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loss
of revenue;
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reduced
resources of our management to pursue our business strategy; and
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the
inability to commercialize any products that we may develop.
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Our
current product liability insurance coverage and any product liability insurance coverage that we acquire in the future may not
be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical
trials or if we commence commercialization of our therapeutic candidates. Insurance coverage is increasingly expensive. We may
not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Our
therapeutic candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated,
which may delay us from marketing our therapeutic candidates.
Even
if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may
face competition from biosimilars. In the US, the BPCIA created an abbreviated approval pathway for biological products that are
biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar
product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the
FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which
the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing
version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical
data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product.
The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation,
and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted
by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
We
believe that any of our therapeutic candidates approved as a biological product under a BLA should qualify for the 12-year period
of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or
that the FDA will not consider our therapeutic candidates to be reference products for competing products, potentially creating
the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA
exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved,
will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
In
Europe, the European Commission has granted marketing authorizations for biosimilars pursuant to a set of general and product
class-specific guidelines for biosimilar approvals issued over the past few years. Post-Brexit, it is understood that the UK will
follow the same regulatory regime. According to this regime, a competitor may reference data supporting approval of an innovative
biological product but will not be able to get on the market until 10 years after the time of approval of the innovative product.
This 10-year marketing exclusivity period will be extended to 11 years if, during the first eight of those 10 years, the marketing
authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits
compared with existing therapies. In addition, companies may be developing biosimilars in other countries that could compete with
our products. If competitors are able to obtain marketing approval for biosimilars referencing our products, our products may
become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.
Failure
to obtain marketing approval in international jurisdictions would prevent our therapeutic candidates from being marketed abroad.
In
order to market and sell our therapeutic candidates in the United Kingdom, United States, the European Union and many other jurisdictions,
we or our collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements.
The approval procedure varies among countries and can involve additional testing. The time required to obtain approval in foreign
countries may differ substantially from that required to obtain UK, FDA, EMA or other applicable regulatory approval. Additionally,
the MHRA has taken on additional regulatory responsibilities for medical products marketed in the UK, as pan-EU regulatory procedures
before EMA no longer apply in the UK. MHRA and the National Institute for Biological Standards and Control (“NIBSC”)
have issued guidance documents to the industry regarding regulation under the UK system. Proposals set forth in the new MHRA guidance
will take effect through legislative changes that are subject to parliamentary approval, which may increase the amount of resources
and time needed for obtaining regulatory approval in the UK and delay our clinical development and commercialization. The full
impact of Brexit on our business remains unclear.
Furthermore,
clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. The regulatory approval
process outside the United States generally includes all of the risks associated with obtaining MHRA, FDA, EMA or other applicable
regulatory approval. In addition, in many countries outside the United States, it is required that the product be approved for
reimbursement before the product can be approved for sale in that country. We or our collaborators may not obtain approvals for
our therapeutic candidates from regulatory authorities outside the United States on a timely basis, if at all. Approval by the
MHRA or FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory
authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or
by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory
process in others. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize
our products in any market.
Any
therapeutic candidates we develop may become subject to unfavorable third-party coverage and reimbursement practices, as well
as pricing regulations.
The
availability and extent of coverage and adequate reimbursement by third-party payors, including government health administration
authorities, private health coverage insurers, managed care organizations and other third-party payors is essential for most patients
to be able to afford expensive treatments. Sales of any of our therapeutic candidates that receive marketing approval will depend
substantially, both in the United States and internationally, on the extent to which the costs of such therapeutic candidates
will be covered and reimbursed by third-party payors. If reimbursement is not available, or is available only to limited levels,
we may not be able to successfully commercialize our therapeutic candidates. Even if coverage is provided, the approved reimbursement
amount may not be high enough to allow us to establish or maintain pricing sufficient to realize an adequate return on our investment.
Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval.
If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully
commercialize any product candidate for which we obtain marketing approval.
There
is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States,
for example, principal decisions about reimbursement for new products are typically made by the CMS, an agency within the HHS.
CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare, and private third-party payors
often follow CMS’s decisions regarding coverage and reimbursement to a substantial degree. However, one third-party payor’s
determination to provide coverage for a product candidate does not assure that other payors will also provide coverage for the
product. As a result, the coverage determination process is often time-consuming and costly. This process will require us to provide
scientific and clinical support for the use of our products to each third-party payor separately, with no assurance that coverage
and adequate reimbursement will be applied consistently or obtained in the first instance. The approval process may be more cumbersome
for us since our LBP therapeutic candidates have not been previously marketed for the uses we propose.
Increasingly,
third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity
and reviewing the cost effectiveness of medical therapeutic candidates. There may be especially significant delays in obtaining
coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific therapeutic candidates
on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication. We may
need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of our products.
Nonetheless, our therapeutic candidates may not be considered medically necessary or cost effective. We cannot be sure that coverage
and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of
reimbursement will be.
In
addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement
for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable
to pharmaceutical or biological products, will apply to any companion diagnostics we invent and develop with intent to commercialize.
Additionally, if any companion diagnostic provider is unable to obtain reimbursement or is inadequately reimbursed, that may limit
the availability of such companion diagnostic, which would negatively impact prescriptions for our therapeutic candidates, if
approved.
Outside
the United States, the commercialization of therapeutics is generally subject to extensive governmental price controls and other
market regulations, and we believe the increasing emphasis on cost containment initiatives in Europe, Canada and other countries
has and will continue to put pressure on the pricing and usage of therapeutics such as our therapeutic candidates. In many countries,
particularly the countries of the European Union, medical product prices are subject to varying price control mechanisms as part
of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time
after a product receives marketing approval. To obtain reimbursement or pricing approval in some countries, we may be required
to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general,
product prices under such systems are substantially lower than in the United States. Other countries allow companies to fix their
own prices for products but monitor and control company profits. Additional foreign price controls or other changes in pricing
regulation could restrict the amount that we are able to charge for our therapeutic candidates. Accordingly, in markets outside
the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to
generate commercially reasonable revenue and profits.
If
we are unable to establish or sustain coverage and adequate reimbursement for any therapeutic candidates from third-party payors,
the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability
to market or sell those therapeutic candidates, if approved. Coverage policies and third-party payor reimbursement rates may change
at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory
approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
We
expect to depend on collaborations with third parties for the research, development, and commercialization of certain of the therapeutic
candidates we may develop. If any such collaborations are not successful, we may not be able to realize the market potential of
those therapeutic candidates.
We
currently use and expect to continue to work with third-party collaborators for the research, development, and commercialization
of certain of the therapeutic candidates we may develop. For example, we have entered into a research collaboration and option
to license agreement with MSD to discover and develop LBPs for vaccines. We also entered into a strategic alliance with the University
of Texas MD Anderson Cancer Center. To date, we have initiated two clinical trials as part of this strategic alliance. For additional
information on our relationships with MSD and the University of Texas MD Anderson Cancer Center, see “Business—Collaborations.”
Our likely collaborators for any other collaboration arrangements include large and mid-size pharmaceutical companies, regional
and national pharmaceutical companies, biotechnology companies and academic institutions. While we generally impose diligence
obligations on our collaborators, we often have limited control over the amount and timing of resources that they dedicate to
the development or potential commercialization of any therapeutic candidates we may seek to develop with them. Our ability to
generate revenue from these arrangements with commercial entities will depend on our collaborators’ abilities to successfully
perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter
into.
Collaborations
involving any therapeutic candidates we may develop pose the following risks to us:
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despite
being subject to contractual diligence obligations, collaborators generally control the efforts and resources that they will
apply to these collaborations;
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collaborators
may not properly obtain, maintain, enforce, or defend intellectual property or proprietary rights relating to our therapeutic
candidates or research programs or may use our proprietary information in such a way as to expose us to potential litigation
or other intellectual property related proceedings, including proceedings challenging the scope, ownership, validity, and
enforceability of our intellectual property;
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collaborators
may own or co-own intellectual property covering our therapeutic candidates or research and development programs that results
from our collaboration with them, and in such cases, we may not have the right to commercialize such intellectual property
or such therapeutic candidates or research programs;
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we
may need the cooperation of our collaborators to enforce or defend any intellectual property we contribute to or that arises
out of our collaborations, which may not be provided to us;
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collaborators
may decide to not pursue development and commercialization of any therapeutic candidates we develop or may elect not to continue
or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic
focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities
or collaborators may elect to fund or commercialize a competing product;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
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collaborators
could independently develop, or develop with third parties, products that compete directly or indirectly with our therapeutic
candidates or research programs if the collaborators believe that competitive products are more likely to be successfully
developed or can be commercialized under terms that are more economically attractive than ours;
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collaborators
may restrict us from researching, developing, or commercializing certain products or technologies without their involvement;
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collaborators
with marketing and distribution rights to one or more therapeutic candidates may not commit sufficient resources to the marketing
and distribution of such therapeutic candidates;
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we
may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of
control;
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collaborators
may grant sublicenses to our technology or therapeutic candidates or undergo a change of control, and the sublicensees or
new owners may decide to take the collaboration in a direction which is not in our best interest;
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collaborators
may become bankrupt, which may significantly delay our research or development programs, or may cause us to lose access to
valuable technology, know-how, or intellectual property of the collaborator relating to our products, therapeutic candidates,
or research programs;
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key
personnel at our collaborators may leave, which could negatively impact our ability to productively work with our collaborators;
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collaborations
may require us to incur short and long-term expenditures, issue securities that dilute our stockholders, or disrupt our management
and business;
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if
our collaborators do not satisfy their obligations under our agreements with them, or if they terminate our collaborations
with them, we may not be able to develop or commercialize therapeutic candidates as planned;
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collaborations
may require us to share in development and commercialization costs pursuant to budgets that we do not fully control, and our
failure to share in such costs could have a detrimental impact on the collaboration or our ability to share in revenue generated
under the collaboration;
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collaborations
may be terminated in their entirety or with respect to certain therapeutic candidates or technologies and, if so terminated,
may result in a need for additional capital to pursue further development or commercialization of the applicable therapeutic
candidates or technologies; and
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collaboration
agreements may not lead to development or commercialization of therapeutic candidates in the most efficient manner or at all.
If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis
on our development or commercialization program under such collaboration could be delayed, diminished, or terminated.
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We
may face significant competition in seeking appropriate collaborations. Recent business combinations among biotechnology and pharmaceutical
companies have resulted in a reduced number of potential collaborators. In addition, the negotiation process is time-consuming
and complex, and we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable
to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay
its development program or one or more of our other development programs, delay its potential commercialization or reduce the
scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities
at our own expense. If we elect to increase our expenditures to fund development or commercialization activities 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 do not have sufficient
funds, we may not be able to further develop therapeutic candidates or bring them to market and generate product revenue.
We
may not realize the benefit of collaborations if we or our collaborator elects not to exercise the rights granted under the agreement
or if we or our collaborator are unable to successfully integrate a product candidate into existing operations and company culture.
In addition, if our agreement with any of our collaborators terminates, our access to technology and intellectual property licensed
to us by that collaborator may be restricted or terminate entirely, which may delay our continued development of our therapeutic
candidates utilizing the collaborator’s technology or intellectual property or require us to stop development of those therapeutic
candidates completely. We may also find it more difficult to find a suitable replacement collaborator or attract new collaborators,
and our development programs may be delayed or the perception of us in the business and financial communities could be adversely
affected. Many of the risks relating to product development, regulatory approval, and commercialization described in this “Risk
Factors” section also apply to the activities of our collaborators and any negative impact on our collaborators may adversely
affect us.
We
rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform
satisfactorily, including failing to meet deadlines for the completion of such trials, research and studies.
We
rely, and expect to continue to rely, on third parties, such as CROs, clinical data management organizations, medical institutions,
clinical investigators and potential pharmaceutical partners, to conduct and manage our clinical trials, including our clinical
trials of MRx0518, MRx-4DP0004 and potential future trials with MRx0029, Blautix and Thetanix.
Third
parties have a significant role in the conduct of our clinical trials and the subsequent collection and analysis of data. These
third parties are not our employees, and except for obligations imposed upon those third parties and remedies available to us
under our agreements with such third parties, we have limited ability to control the amount or timing of resources that any such
third party will devote to our clinical trials. The third parties we rely on for these services may also have relationships with
other entities, some of which may be our competitors. Some of these third parties may be able to terminate their engagements with
us at any time. If we need to enter into alternative arrangements with a third party, it would delay our drug development activities.
Our
reliance on these third parties for such drug development activities will reduce our control over these activities but will not
relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our clinical
trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires
us to comply with GCP standards, regulations for conducting, recording and reporting the results of clinical trials to assure
that data and reported results are reliable and accurate and that the rights, integrity and confidentiality of trial participants
are protected. The MHRA and EMA also require us to comply with similar standards. Regulatory authorities enforce these GCP requirements
through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply
with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, MHRA,
EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing
applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine
that any of our clinical trials substantially comply with GCP regulations. In addition, our clinical trials must be conducted
with product produced under current cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical
trials, which would delay the marketing approval process.
If
these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials
in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining,
marketing approvals for our therapeutic candidates and will not be able to, or may be delayed in our efforts to, successfully
commercialize our therapeutic candidates.
We
also rely on third parties to store and distribute drug product required by our clinical trials. Any performance failure on the
part of our distributors could delay clinical development or marketing approval of our therapeutic candidates or commercialization
of our products, producing additional losses and depriving us of potential product revenue.
Risks
Related to Our Intellectual Property
If
we are unable to obtain and maintain patent and other intellectual property protection for any therapeutic candidates we develop,
or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could
develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize
any therapeutic candidates we may develop may be adversely affected.
Our
commercial success will depend in large part on our ability to obtain and maintain patent, trademark, trade secret and other intellectual
property protection of our therapeutic candidates and other technology, methods used to manufacture them and methods of treatment,
as well as successfully defending our patent and other intellectual property rights against third-party challenges. It is difficult
and costly to protect and enforce intellectual property rights, and we may not be able to ensure the same for every product. Our
ability to stop unauthorized third parties from making, using, selling, offering to sell, importing or otherwise commercializing
our therapeutic candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets
that cover these activities.
We
seek to protect our proprietary position by developing a comprehensive intellectual property portfolio including filing patent
applications and obtaining granted patents in the United States and abroad related to our therapeutic candidates that are important
to our business. If we are unable to obtain or maintain patent protection with respect to a product candidate we may develop,
or if the scope of the patent protection secured is not sufficiently broad, our competitors could develop and commercialize products
and technology similar or identical to ours and our ability to commercialize that product candidate may be adversely affected.
The
patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce,
or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, we may not
pursue or obtain patent protection in all relevant markets. It is also possible that we will fail to identify patentable aspects
of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality
agreements with parties who have access to confidential or patentable aspects of our research and development output, such as
our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors,
and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is
filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable
patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over
the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries,
and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing,
or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents
or pending patent applications, or that we were the first to file for patent protection of such inventions.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual
questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability,
and commercial value of our patent rights are uncertain and we may become involved in complex and costly litigation. Our pending
and future patent applications may not result in patents being issued which protect therapeutic candidates or effectively prevent
others from commercializing competitive technologies and therapeutic candidates.
Changes
in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect
our inventions, obtain, maintain, enforce and defend our intellectual property rights and, more generally, could affect the value
of our intellectual property or narrow the scope of our owned and licensed patent rights. We also cannot predict whether the patent
applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued
patents will be valid and enforceable and provide sufficient protection from competitors. Any patents that we own or in-license
may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any therapeutic
candidates we may develop will be protectable or remain protected by valid and enforceable patents. Our competitors or other third
parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing
manner.
In
addition, given the amount of time required for the development, testing, and regulatory review of new therapeutic candidates,
patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual
property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Moreover, some of our owned patents and patent applications may in the future be, co-owned by us with third parties. If we are
unable to obtain an exclusive license to such third-party co-owners’ interest in such patents or patent applications, such
co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market
competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce
such patents against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material
adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
Our
patents and patent applications contain claims directed to compositions of matter on therapeutic candidates, as well as methods
directed to the use of such therapeutic candidates for treatment of specific indications. Method-of-use patents do not prevent
a competitor or other third party from developing or marketing an identical product for an indication that is outside the scope
of the patented method. Moreover, with respect to method-of-use patents, even if competitors or other third parties do not actively
promote their product for our targeted indications or uses for which we may obtain patents, providers may recommend that patients
use these products off-label, or patients may do so themselves.
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 may fail to result in issued patents with claims that cover our therapeutic candidates or
uses thereof in the United States or in other foreign countries. For example, while our patent applications are pending, we may
be subject to a third party pre-issuance submission of prior art to the USPTO or become involved in interference or derivation
proceedings, or equivalent proceedings in foreign jurisdictions. Even if patents do successfully issue, third parties may challenge
their inventorship, validity, enforceability or scope, including through opposition, revocation, reexamination, post-grant and
inter partes review proceedings. An adverse determination in any such submission, proceeding or litigation could reduce
the scope of, or invalidate or render unenforceable certain patent rights, allow third parties to commercialize our technology
or therapeutic candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize
products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared
by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent
office, that challenge features of patentability with respect to one or more patents and patent applications. Such challenges
may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable,
which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit
the duration of the patent protection of our technology and therapeutic candidates. 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 breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade
companies from collaborating with us to develop, and threaten our ability to commercialize, our therapeutic candidates. Further,
if we encounter delays in development, testing, and regulatory review of new therapeutic candidates, the period of time during
which we could market our therapeutic candidates under patent protection would be reduced.
Given
that patent applications in the United States and other countries are confidential for a period of time after filing, at any moment
in time, we cannot be certain that we were in the past or will be in the future the first to file any patent application related
to our therapeutic candidates. In addition, some patent applications in the United States may be maintained in secrecy until the
patents are issued. As a result, there may be prior art of which we are not aware that may affect the validity or enforceability
of a patent claim, and we may be subject to priority disputes. We may in the future become a party to proceedings or priority
disputes in Europe or other foreign jurisdictions. The loss of priority for, or the loss of, these patents could have a material
adverse effect on the conduct of our business.
We
may be required to disclaim part or all of the term of certain patents or patent applications. There may be prior art of which
we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we or
potential future licensors are aware, but which we or those licensors do not believe affects the validity or enforceability of
a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be
given that, if challenged, our patents would be declared by a court, patent office or other governmental authority to be valid
or enforceable or that even if found valid and enforceable, a competitor’s technology or product would be found by a court
to infringe our patents. We may analyze patents or patent applications of our competitors that we believe are relevant to our
activities, and consider that we are free to operate in relation to our therapeutic candidates or if applicable challenge the
validity of any issued patents, but our competitors may achieve issued claims, including in patents we consider to be unrelated,
that block our efforts or potentially result in our therapeutic candidates or our activities infringing such claims. It is possible
that our competitors may have filed, and may in the future file, patent applications covering our products or technology similar
to ours. Those patent applications may have priority over our patent applications or patents, which could require us to obtain
rights to issued patents covering such technologies. The possibility also exists that others will develop products that have the
same effect as our therapeutic candidates on an independent basis that do not infringe our patents or other intellectual property
rights, or will design around the claims of our patent applications or our in-licensed patents or patent applications that cover
our therapeutic candidates.
Likewise,
our current patents and patent applications directed to our therapeutic candidates are expected to expire from December 2035 through
October 2039 (upon issuing as patents), without taking into account any possible patent term adjustments or extensions. Our patents
may expire before, or soon after, our first product candidate achieves marketing approval in the United States or foreign jurisdictions.
Additionally, no assurance can be given that the USPTO or relevant foreign patent offices will grant any of the pending patent
applications we own or in-license currently or in the future. Upon the expiration of our current patents, we may lose the right
to exclude others from practicing these inventions. The expiration of these patents could also have a similar material adverse
effect on our business, financial condition, results of operations and prospects.
We
may also be subject to claims that former employees, collaborators, or other third parties have an interest in our patents or
patent applications or other intellectual property as an inventor or co-inventor. If we are unable to obtain an exclusive license
to any such third-party co-owners’ interest in such patent applications, such co-owners may be able to license their rights
to other third parties, including our competitors. In addition, we may need the cooperation of any such co-owners to enforce any
patents that issue from such patent applications against third parties, and such cooperation may not be provided to us.
If
we are unsuccessful in any interference proceedings or other priority, validity (including any patent oppositions), or inventorship
disputes to which we may be subject, we may lose valuable intellectual property rights through the loss of one or more of our
owned, licensed, or optioned patents, or such patent claims may be narrowed, invalidated, or held unenforceable, or through loss
of exclusive ownership of or the exclusive right to use our patents. In the event of loss of patent rights as a result of any
of these disputes, we may be required to obtain and maintain licenses from third parties, including parties involved in any such
interference proceedings or other priority or inventorship disputes. Such licenses may not be available on commercially reasonable
terms or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development,
manufacture, and commercialization of one or more of the therapeutic candidates we may develop. The loss of exclusivity or the
narrowing of our patent claims could limit our ability to stop others from using or commercializing similar or identical technology
and therapeutic candidates. Even if we are successful in an interference proceeding or other similar priority or inventorship
disputes, it could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could
result in a material adverse effect on our business, financial condition, results of operations, or prospects.
We
have intellectual property coverage for our therapeutic candidates in the United States, Europe, and other territories, but our
foreign intellectual property rights are not exhaustive.
We
have intellectual property for our therapeutic candidates in many key markets such as the United States and Europe. However, we
do not have intellectual property rights in every country throughout the world. Filing, prosecuting, and defending patents on
therapeutic candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights
in some countries outside the United States, and Europe can be less extensive than those in the United States. In addition, the
laws of foreign countries do not protect intellectual property rights to the same extent as federal and state 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 where enforcement is
not as strong as that in the United States. These products may compete with our therapeutic candidates and our patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
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 biotechnology and pharmaceutical products,
which could make it difficult for us to stop the infringement of our patents or marketing of competing products against third
parties in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our patents and intellectual
property 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. Moreover, the initiation of proceedings
by third parties to challenge the scope or validity of our patent rights in foreign jurisdictions could result in substantial
cost and divert our efforts and attention from other aspects of our business and / or the limitation or loss of key patent rights.
Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license.
Many
countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
many countries limit the enforceability of patents against government agencies or government contractors. In these countries,
the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors
is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may
be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected.
We
may enter into license agreements for intellectual property rights in the future and if we fail to comply with our obligations
in such agreements or otherwise experience disruptions to our business relationships with our licensors or research and development
partners, we could lose license rights that are important to our business.
We
cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, resulting
in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our
part to pay royalties and/or other forms of compensation to third parties, which could be significant. It is possible that our
ability to commercialize some therapeutic candidates in the United States and abroad may be adversely affected if we cannot obtain
a license to any potentially relevant third-party patents on commercially reasonable terms that would allow us to make an appropriate
return on our investment. In addition, the licensing or acquisition of third-party intellectual property rights is a highly competitive
area, and other, potentially more established companies may pursue strategies to license or acquire third party intellectual property
rights that we may, in the future, consider attractive or necessary. These established companies may have a competitive advantage
over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition,
companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Further, even if we were able
to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies
licensed to us, and it could require us to make substantial licensing and royalty payments. Even if we believe third-party intellectual
property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity,
enforceability, or priority. In order to successfully challenge the validity of any such U.S. patent in federal court, we would
need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence
as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate
the claims of any such U.S. patent. As such, we could be forced, including by court order, to cease developing, manufacturing,
and commercializing the infringing technology or therapeutic candidates. In addition, we could be found liable for significant
monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or
other intellectual property right. Thus, we may be required to expend significant time and resources to redesign our technology,
therapeutic candidates, or the methods for manufacturing them or to develop or license replacement technology, or we may need
to abandon development of the relevant program or product candidate, all of which may not be feasible on a technical or commercial
basis and could have a material adverse effect on our business, financial condition, results of operations, and prospects. Claims
that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse
effect on our business, financial condition, results of operations, and prospects.
The
intellectual property landscape pertaining to live biotherapeutics is in constant flux.
The
field of Live Biotherapeutics is still in its infancy, and few if any therapeutic candidates have reached the market. Due to the
intense research and development that is taking place by several companies, including us and our competitors, in this field, the
intellectual property landscape is evolving and in flux, and it may remain uncertain for the coming years. There may be significant
intellectual property related litigation and proceedings relating to intellectual property and proprietary rights in the future.
Our
commercial success depends upon our ability and the ability of future collaborators to develop, manufacture, market, and sell
any therapeutic candidates that we may develop and use our proprietary technologies without infringing, misappropriating, or otherwise
violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are
characterized by extensive litigation regarding patents and other intellectual property rights as well as administrative proceedings
for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination
proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We are, and may in future
be subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual
property rights including interference proceedings, post-grant review, inter partes review, and derivation proceedings
before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the EPO. Currently three of our European
patents have been challenged by third parties in Opposition proceedings before the EPO. Numerous U.S. and foreign issued patents
and pending patent applications that are owned by third parties exist in the fields in which we are developing our therapeutic
candidates and they may assert infringement claims against us based on existing patents or patents that may be granted in the
future, regardless of their merit.
As
the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our therapeutic candidates
may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants,
including us, which patents cover various types of therapies, products or their methods of use or manufacture. There may be third-party
patents or patent application with claims to technologies, methods of manufacture or methods for treatment related to the use
or manufacture of our therapeutic candidates. Because patent applications can take many years to issue, there may be currently
pending patent applications that may later result in issued patents that our therapeutic candidates may infringe. In addition,
third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.
Defense
of third-party claims of infringement of misappropriation, or violation of intellectual property rights involves substantial litigation
expense and would be a substantial diversion of management and employee time and resources from our business. Some third parties
may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater
resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse
effect on our business, financial condition, results of operations and prospects. There could also be public announcements of
the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common stock. Any of the foregoing
events could have a material adverse effect on our business, financial condition, results of operations and prospects.
We
may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming, and unsuccessful
and could result in a finding that such patents are unenforceable or invalid.
Competitors
may infringe our patents, or we may be required to defend against claims of infringement. In addition, our patents also are, and
may in the future become, involved in inventorship, priority, validity or enforceability disputes. Countering or defending against
such claims can be expensive and time consuming. In future infringement proceedings, a court may decide that a patent owned by
us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our
owned or any in-licensed patents do not cover the technology in question. An adverse result in any litigation proceeding could
put one or more of our patents at risk of being invalidated or interpreted narrowly.
In
patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and
there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also
raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These
types of mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation
proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). These types of proceedings could
result in revocation or amendment to our patents such that they no longer cover our therapeutic candidates. The outcome for any
particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity
question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent
examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability,
or if we are otherwise unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection
on our technology and/or therapeutic candidates. Defense of these types of claims, regardless of their merit, would involve substantial
litigation expense and would be a substantial diversion of employee resources from our business.
Conversely,
we may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review
the patent claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings,
and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). We are currently challenging, and in the future
may choose to challenge, third party patents in patent opposition proceedings in the European Patent Office (the “EPO”)
or before another foreign patent office. Even if successful, the costs of these opposition proceedings could be substantial, and
may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, EPO or other patent office then
we may be exposed to litigation by a third party alleging that the patent may be infringed by our therapeutic candidates or other
proprietary technologies.
Even
if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses and could distract our personnel from their normal responsibilities. Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation in the US and certain other jurisdictions, there
is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition,
there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if
securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price
of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources
available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial
or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs
of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and
developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation
or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other
requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications are due to be paid
to the USPTO and foreign patent agencies outside of the United States over the lifetime of our patents and applications. The USPTO
and foreign patent agencies require compliance with several procedural, documentary, fee payment, and other similar provisions
during the patent application process. While an inadvertent lapse can ordinarily be cured by payment of a late fee or by other
means in accordance with the applicable rules, there are situations, however, in which non-compliance can result a partial or
complete loss of patent rights in the relevant jurisdiction. Were a noncompliance event to occur, our competitors might be able
to enter the market with similar or identical products or technology, which could have a material adverse effect on our business,
financial condition, results of operations, and prospects.
Changes
in patent law in the United States and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing
our ability to protect our therapeutic candidates.
As
is the case with other biotech and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly
patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and
is therefore costly, time-consuming and inherently uncertain.
Changes
in either the patent laws or interpretation of the patent laws could increase the uncertainties and costs surrounding the prosecution
of patent applications and the enforcement or defense of our issued patents. For example, in March 2013, under the Leahy-Smith
America Invents Act, or the America Invents Act, the United States transitioned from a “first to invent” to a “first-to-file”
patent system. Under a “first-to-file” system, assuming that other requirements for patentability are met, the first
inventor to file a patent application generally will be entitled to a patent on an invention regardless of whether another inventor
had made the invention earlier. A third party that files a patent application in the USPTO after March 2013, but before us could
therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third
party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since
patent applications in the United States and most other countries are confidential for a period of time after filing or until
issuance, we cannot be certain that we or our licensors were the first to either file any patent application related to our technology
or therapeutic candidates or invent any of the inventions claimed in our or our licensor’s patents or patent applications.
The America Invents Act also includes a number of other significant changes to U.S. patent law, including provisions that affect
the way patent applications will be prosecuted, allowing third party submission of prior art and establish a new post-grant review
system including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard
in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim,
a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though
the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a
third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first
challenged by the third party as a defendant in a district court action. The effects of these changes are currently unclear as
the USPTO continues to promulgate new regulations and procedures in connection with the America Invents Act and many of the substantive
changes to patent law, including the “first-to-file” provisions, only became effective in March 2013. In addition,
the courts have yet to address many of these provisions and the applicability of the act and new regulations on the specific patents
discussed in this filing have not been determined and would need to be reviewed. Thus, it is not clear what, if any, impact the
Leahy-Smith Act will have on the operation of our business. However, the America Invents Act and its implementation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents.
In
addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. These cases include Association for Molecular Pathology v. Myriad
Genetics, Inc., 569 U.S. 12-398 (2013) or Myriad; Alice Corp. v. CLS Bank International, 573 U.S. 13-298 (2014);
and Collaborative Services v. Prometheus Laboratories, Inc., or Prometheus, 566 U.S. 10-1150 (2012). In addition
to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty
with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the
federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken
our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example,
in the case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to
DNA molecules are not patentable, but claims to complementary DNA, or cDNA, molecules, which are not genomic sequences, may be
patent eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products
is uncertain. However, on March 4, 2014, the USPTO issued a memorandum to patent examiners providing guidance for examining claims
that recite laws of nature, natural phenomena or natural products under the Myriad and Prometheus decisions. The
guidance did not limit the application of Myriad to DNA but, rather, applied the decision broadly to other natural products,
which may include our therapeutic candidates. The March 4, 2014 memorandum and the USPTO’s interpretation of the cases and
announced examination rubric received widespread criticism from stakeholders during a public comment period and was superseded
by interim guidance published on December 15, 2014. We cannot predict how this and future decisions by the courts, the U.S. Congress
or the USPTO may impact the value of our patents. Any similar adverse changes in the patent laws of other jurisdictions could
also have a material adverse effect on our business, financial condition, results of operations and prospects.
Patent
terms may be inadequate to protect our competitive position on our therapeutic candidates for an adequate amount of time.
Patents
have a limited lifespan. The terms of individual patents depends upon the legal term for patents in the countries in which they
are granted. In most countries, including the United States, if all maintenance fees are timely paid, the natural expiration of
a patent is generally 20 years from its earliest non-provisional filing date in the applicable country. However, the actual protection
afforded by a patent varies from country to country, and depends upon many factors, including the type of patent, the scope of
its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and
the validity and enforceability of the patent. Various extensions including PTE and PTA, may be available, but the life of a patent,
and the protection it affords, is limited. For more information regarding PTA and PTE, please see “Business— Intellectual
Property.” Even if patents covering our therapeutic candidates are obtained, once the patent life has expired, we may be
open to competition from competitive products, including generics. Given the amount of time required for the development, testing
and regulatory review of new therapeutic candidates, patents protecting our therapeutic candidates might expire before or shortly
after we or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may not provide
us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If
we do not obtain Patent Term Extension (“PTE”) for any therapeutic candidates we may develop, our business may be
materially harmed.
Depending
upon the timing, duration and specifics of any FDA marketing approval of any therapeutic candidates we may develop, one or more
of our U.S. patents may be eligible for limited PTE under the Drug Price Competition and Patent Term Restoration Act of 1984,
or the Hatch-Waxman Amendments. Analogous extensions of patent term may be available upon marketing approval in other jurisdictions.
The Hatch-Waxman Amendments PTE term of up to five years as compensation for patent term lost during the FDA regulatory review
process. A PTE cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only
one patent per product may be extended and only those claims covering the approved drug, a method for using it, or a method for
manufacturing it may be extended. However, even if we were to seek a PTE or corresponding extension of patent term in other jurisdictions,
it may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review
process, the failure to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or any
other failure to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded
could be less than we request. If we are unable to obtain PTE or a corresponding extension of patent term in other jurisdictions,
or the term of any such extension is less than we request, our competitors may be able to launch competing products earlier than
anticipated following our patent expiration, and our business, financial condition, results of operations, and prospects could
be materially harmed.
If
we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In
addition to seeking patents for our technology and therapeutic candidates, we also rely on know-how and trade secret protection,
as well as confidentiality agreements, non-disclosure agreements and invention assignment agreements with our employees, consultants
and third parties, to protect our confidential and proprietary information, especially where we do not believe patent protection
is appropriate or obtainable.
It
is our policy to require our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants,
advisors, and other third parties to execute confidentiality agreements upon the commencement of employment or consulting relationships
with us. These agreements provide that all confidential information concerning our business or financial affairs developed by
or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential
and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements provide
that all inventions conceived by the individual, and that are related to our current or planned business or research and development
or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property.
In the case of consultants and other third parties, the agreements provide that all inventions conceived in connection with the
services provided are our exclusive property. However, we cannot guarantee that we have entered into such agreements with each
party that may have or have had access to our trade secrets or proprietary technology and processes. Additionally, the assignment
of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced
to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we
regard as our intellectual property. Any of these parties may breach the agreements and disclose our proprietary information,
including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable.
In
addition to contractual measures, we try to protect the confidential nature of our proprietary information through other appropriate
precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect.
These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized
access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant
from misappropriating our trade secrets and providing them to a competitor, and any recourse we might take against this type of
misconduct may not provide an adequate remedy to protect our interests fully. In addition, trade secrets may be independently
developed by others in a manner that could prevent us from receiving legal recourse. If any of our confidential or proprietary
information, such as our trade secrets, were to be disclosed or misappropriated, or if any of that information was independently
developed by a competitor, our competitive position could be harmed.
In
addition, some courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If
we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. Even if we
are successful, these types of lawsuits may consume our time and other resources. Any of the foregoing could have a material adverse
effect on our business, financial condition, results of operations and prospects.
Third
parties may assert that our employees, consultants, or advisors have wrongfully used or disclosed confidential information or
misappropriated trade secrets.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals that are currently or were previously employed
at universities, research institutions or other biotechnology or pharmaceutical companies, including our competitors or potential
competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or
know-how of others in their work for us, we may be subject to claims that we or these individuals have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s
current or former employer. Also, we have in the past and may in the future be subject to claims that these individuals are violating
non-compete agreements with their former employers. We may then have to pursue litigation to defend against these claims. If we
fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or
personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to our technical and management personnel from their normal responsibilities. In addition, there could be public announcements
of the results of hearings, motions or other interim proceedings or developments, and, if securities analysts or investors perceive
these results to be negative, that perception could have a substantial adverse effect on the price of our common stock. This type
of litigation or proceeding could substantially increase our operating losses and reduce our resources available for development
activities, and we may not have sufficient financial or other resources to adequately conduct this type of litigation or proceedings.
For example, some of our competitors may be able to sustain the costs of this type of litigation or proceedings more effectively
than we can because of their substantially greater financial resources. In any case, uncertainties resulting from the initiation
and continuation of intellectual property litigation or other intellectual property related proceedings could adversely affect
our ability to compete in the marketplace.
If
our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets
of interest and our business may be adversely affected.
Our
registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined
to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to
build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third
parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly
leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners
of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade
names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may
not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary
rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could
result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of
operations and growth prospects.
Intellectual
property rights do not necessarily address all potential threats.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
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any
therapeutic candidates we may develop will likely eventually become commercially available in generic or biosimilar product
forms;
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others
may be able to make live biotherapeutic products that are similar to any therapeutic candidates we may develop but that are
not covered by the claims of the patents that we own or may own in the future;
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we,
or our current or future collaborators, might not have been the first to make the inventions covered by the issued patent
or pending patent application that we own or may own in the future;
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we,
or our current or future collaborators, might not have been the first to file patent applications covering certain of our
or their inventions;
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we,
or our current or future collaborators, may fail to meet our obligations to the U.S. government regarding any patents and
patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our
intellectual property rights;
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it
is possible that our pending patent applications or those that we may own in the future will not lead to issued patents;
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it
is possible that there are prior public disclosures that could invalidate our patents, or parts of our patents;
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it
is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with
claims covering our therapeutic candidates or technology similar to ours
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it
is possible that our patents or patent applications omit individual(s) that should be listed as inventor(s) or include individual(s)
that should not be listed as inventor(s), which may cause these patents or patents issuing from these patent applications
to be held invalid or unenforceable;
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issued
patents that we hold rights to may be held invalid, unenforceable, or narrowed in scope, including as a result of legal challenges
by our competitors;
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the
claims of our issued patents or patent applications, if and when issued, may not cover our therapeutic candidates;
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the
laws of foreign countries may not protect our proprietary rights or the proprietary rights of current or future collaborators
to the same extent as the laws of the United States;
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the
inventors of our patents or patent applications may become involved with competitors, develop products or processes that design
around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors;
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our
competitors might conduct research and development activities in countries where we do not have patent rights and then use
the information learned from such activities to develop competitive products for sale in our major commercial markets;
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we
have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop
adjacent or competing products that are outside the scope of our patents;
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we
may not develop additional proprietary technologies that are patentable;
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any
therapeutic candidates we develop may be covered by third parties’ patents or other exclusive rights;
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the
patents of others may harm our business; or
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we
may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently
file a patent covering such intellectual property.
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Should
any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations,
and prospects.
Risks
Related to Our Business Operations and Compliance with Government Regulations
Our
operations and financial results could be adversely impacted by the COVID-19 pandemic in the United Kingdom, United States and
the rest of the world.
In
December 2019, COVID-19 was reported to have surfaced in Wuhan, China, resulting in significant disruptions to Chinese manufacturing
and travel. COVID-19 has now spread to numerous other countries, including the United Kingdom and United States, resulting in
the World Health Organization characterizing COVID-19 as a pandemic. As a result of measures imposed by the governments in affected
regions, many commercial activities, businesses and schools have been suspended as part of quarantines and other measures intended
to contain this pandemic. As the COVID-19 pandemic continues to spread around the globe, we may experience disruptions that could
severely impact our business and clinical trials, including:
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delays
or difficulties in enrolling patients in our clinical trials;
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical
site staff;
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diversion
of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical
trial sites and hospital staff supporting the conduct of clinical trials;
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interruption
of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended
by federal or state governments, employers and others;
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limitations
in resources that would otherwise be focused on the conduct of our business or our clinical trials, including because of sickness
or the desire to avoid contact with large groups of people or as a result of government-imposed “shelter in place”
or similar working restrictions;
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delays
in receiving approval from local regulatory authorities to initiate our planned clinical trials;
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delays
in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
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interruption
in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in
our clinical trials;
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changes
in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical
trials are conducted, or to discontinue the clinical trials altogether, or which may result in unexpected costs; and
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delays
in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations
in employee resources or forced furlough of government or contractor personnel.
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We
are still assessing the impact that COVID-19 may have on our ability to effectively conduct our business operations as planned
and there can be no assurance that we will be able to avoid a material impact on our business from the spread of COVID-19 or its
consequences, including disruption to our business and downturns in business sentiment generally or in our industry. A significant
proportion of our employees are currently telecommuting, which may impact certain of our operations over the near term and long
term.
Additionally,
certain third parties with whom we engage, including our collaborators, contract organizations, third party manufacturers, suppliers,
clinical trial sites, regulators and other third parties with whom we conduct business are similarly adjusting their operations
and assessing their capacity in light of the COVID-19 pandemic. If these third parties experience shutdowns or continued business
disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and
negatively impacted. For example, as a result of the COVID-19 pandemic, there could be delays in the manufacturing supply chain
for our clinical trials, which could delay or otherwise impact our ongoing clinical programs in oncology and respiratory disease.
We may also experience delays in procurement of materials for certain aspects of our studies due to the pandemic, which could
impact our ability to conduct prespecified analysis.
Additionally,
certain preclinical studies for our discovery research programs are conducted by CROs, which could be discontinued or delayed
as a result of the pandemic. It is also likely that the disproportionate impact of COVID-19 on hospitals and clinical sites will
have an impact on recruitment and retention for our clinical trials.
In
addition, certain of our clinical trial sites have experienced, and others may experience in the future, delays in collecting,
receiving and analyzing data from patients enrolled in our clinical trials. For example, we experience delays to our study of
MRx-4DP0004 in patients with partly controlled asthma due to limited staff at sites, limitation or suspension of on-site visits
by patients, or patients’ reluctance to visit the clinical trial sites during the pandemic. We and our CROs have also made
certain adjustments to the operation of such trials in an effort to ensure the monitoring and safety of patients and to minimize
risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA on March 18, 2020, which the FDA
subsequently updated, and generally. We may need to make further adjustments in the future, including those based on additional
and future regulatory requirements promulgated by the FDA and other regulatory authorities as a result of the COVID-19 pandemic.
Many of these adjustments are new and untested, may not be effective, and may have unforeseen effects on the enrolment, progress
and completion of these trials and the findings from these trials. While we are currently continuing our clinical trials and considering
adding new clinical trial sites to accelerate patient recruitment, we may not be successful in adding trial sites, may experience
delays in patient enrolment or in the progression of our clinical trials, may need to suspend our clinical trials, and may encounter
other negative impacts to our trials, due to the effects of the COVID-19 pandemic.
The
global outbreak of COVID-19 continues to rapidly evolve. While the extent of the impact of the current COVID-19 pandemic on our
business and financial results is uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could
have a material negative impact on our business, financial condition and operating results.
Our
success is highly dependent on our ability to attract and retain highly skilled executive officers and employees.
To
succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and
we face significant competition for experienced personnel. We are highly dependent on the principal members of our management
and scientific and medical staff. If we do not succeed in attracting and retaining qualified personnel, particularly at the management
level, it could adversely affect our ability to execute our business plan and harm our operating results. In particular, the loss
of one or more of our executive officers could be detrimental to us if we cannot recruit suitable replacements in a timely manner.
We could in the future have difficulty attracting and retaining experienced personnel and may be required to expend significant
financial resources in our employee recruitment and retention efforts.
Many
of the other biotechnology companies that we compete against for qualified personnel have greater financial and other resources,
different risk profiles and a longer history in the industry than we do. They also may provide higher compensation, more diverse
opportunities and better prospects for career advancement. Some of these characteristics may be more appealing to high-quality
candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and
success at which we can discover, develop and commercialize our therapeutic candidates will be limited and the potential for successfully
growing our business will be harmed.
Additionally,
we rely on our scientific founders and other scientific and clinical advisors and consultants to assist us in formulating our
research, development and clinical strategies. These advisors and consultants are not our employees and may have commitments to,
or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, these advisors
and consultants typically will not enter into non-compete agreements with us. If a conflict of interest arises between their work
for us and their work for another entity, we may lose their services. Furthermore, our advisors may have arrangements with other
companies to assist those companies in developing products or technologies that may compete with ours. In particular, if we are
unable to maintain consulting relationships with our scientific founders or if they provide services to our competitors, our development
and commercialization efforts will be impaired and our business will be significantly harmed.
In
order to successfully implement our plans and strategies, we will need to grow the size of our organization, and we may experience
difficulties in managing this growth.
As
of December 31, 2020, we had 92 employees, including 40 employees in the United Kingdom and one employee in the United States.
Of these employees, 78 were engaged in research and development activities and 14 were engaged in administrative activities. In
order to successfully implement our development and commercialization plans and strategies, and we expect to need additional managerial,
operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on
members of management, including:
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identifying,
recruiting, integrating, maintaining and motivating additional employees;
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managing
our internal development efforts effectively, including the commercial, clinical and regulatory development of MRx0518, MRx-4DP0004,
MRx0029, Blautix and Thetanix and any other therapeutic candidates, while complying with any contractual obligations to contractors
and other third parties we may have; and
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improving
our operational, financial and management controls, reporting systems and procedures.
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Our
future financial performance and our ability to successfully develop and commercialize MRx0518, MRx-4DP0004, MRx0029, Blautix
and Thetanix and other therapeutic candidates will depend, in part, on our ability to effectively manage any future growth, and
our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to
devote a substantial amount of time to managing these growth activities.
We
currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations,
advisors and consultants to provide certain services, including key aspects of clinical development and manufacturing. We cannot
assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely
basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced
activities or if the quality or accuracy of the services provided by third party service providers is compromised for any reason,
our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of MRx0518 and
MRx-4DP0004 and any other therapeutic candidates or otherwise advance our business. We cannot assure you that we will be able
to manage our existing third-party service providers or find other competent outside contractors and consultants on economically
reasonable terms, or at all.
If
we are not able to effectively expand our organization by hiring new employees and/or engaging additional third-party service
providers, we may not be able to successfully implement the tasks necessary to further develop and commercialize MRx0518, MRx-4DP0004,
MRx0029, Blautix and Thetanix and other therapeutic candidates and, accordingly, may not achieve our research, development and
commercialization goals.
Our
operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our
operating results to fall below expectations or our guidance.
Our
quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our
future operating results. From time to time, we may enter into license or collaboration agreements or strategic partnerships with
other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become
an important source of our revenue. These upfront and milestone payments may vary significantly from period to period and any
such variance could cause a significant fluctuation in our operating results from one period to the next.
In
addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair
value of the award as determined by our board of directors, and recognize the cost as an expense over the employee’s requisite
service period. As the variables that we use as a basis for valuing these awards change over time, including, after the closing
of this offering, our underlying share price and stock price volatility, the magnitude of the expense that we must recognize may
vary significantly.
Furthermore,
our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult
to predict, including the following:
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the
timing and cost of, and level of investment in, research and development activities relating to our current therapeutic candidates
and any future therapeutic candidates and research-stage programs, which will change from time to time;
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our
ability to enroll patients in clinical trials and the timing of enrolment;
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the
cost of manufacturing our current therapeutic candidates and any future therapeutic candidates, which may vary depending on
FDA, EMA or other comparable foreign regulatory authority guidelines and requirements, the quantity of production and the
terms of our agreements with manufacturers;
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expenditures
that we will or may incur to acquire or develop additional therapeutic candidates and technologies or other assets;
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the
timing and outcomes of clinical trials for MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix, and any of our other therapeutic
candidates, or competing therapeutic candidates;
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the
need to conduct unanticipated clinical trials or trials that are larger or more complex than anticipated;
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competition
from existing and potential future products that compete with MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix and any
of our other therapeutic candidates, and changes in the competitive landscape of our industry, including consolidation among
our competitors or partners;
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any
delays in regulatory review or approval of MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix or any of our other therapeutic
candidates;
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the
level of demand for MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix and any of our other therapeutic candidates, if approved,
which may fluctuate significantly and be difficult to predict;
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the
risk/benefit profile, cost and reimbursement policies with respect to our therapeutic candidates, if approved, and existing
and potential future products that compete with MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix and any of our other therapeutic
candidates;
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our
ability to commercialize MRx0518, MRx-4DP0004, MRx0029, Blautix and Thetanix and any of our other therapeutic candidates,
if approved, inside and outside of the United States, either independently or working with third parties;
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our
ability to establish and maintain collaborations, licensing or other arrangements;
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our
ability to adequately support future growth;
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potential
unforeseen business disruptions that increase our costs or expenses;
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future
accounting pronouncements or changes in our accounting policies; and
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the
changing and volatile global economic and political environment.
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The
cumulative effect of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating
results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not
rely on our past results as an indication of our future performance. This variability and unpredictability could also result in
our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating
results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts
we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially.
Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.
Our
internal computer systems, or those of any of our CROs, manufacturers, other contractors or consultants or potential future collaborators,
may fail or suffer security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of our
proprietary or confidential data, employee data, or personal data, which could result in additional costs, loss of revenue, significant
liabilities, harm to our brand and material disruption of our operations.
Despite
the implementation of security measures in an effort to protect systems that store our information, given their size and complexity
and the increasing amounts of information maintained on our internal information technology systems, and those of our third-party
CROs, other contractors (including sites performing our clinical trials) and consultants, these systems are potentially vulnerable
to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war
and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees,
contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including
the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service
reliability and threaten the confidentiality, integrity and availability of information), which may compromise our system infrastructure
or lead to the loss, destruction, alteration or dissemination of, or damage to, our data. For example, companies have experienced
an increase in phishing and social engineering attacks from third parties in connection with the COVID-19 pandemic. To the extent
that any disruption or security breach were to result in a loss, destruction, unavailability, alteration or dissemination of,
or damage to, our data or applications, or for it to be believed or reported that any of these occurred, we could incur liability
and reputational damage and the development and commercialization of our therapeutic candidates could be delayed. We cannot assure
you that our data protection efforts and our investment in information technology, or the efforts or investments of CROs, consultants
or other third parties, will prevent significant breakdowns or breaches in systems or other cyber incidents that cause loss, destruction,
unavailability, alteration or dissemination of, or damage to, our data that could have a material adverse effect upon our reputation,
business, operations or financial condition. For example, if such an event were to occur and cause interruptions in our operations,
it could result in a material disruption of our programs and the development of our therapeutic candidates could be delayed. In
addition, the loss of clinical trial data for our therapeutic candidates could result in delays in our marketing approval efforts
and significantly increase our costs to recover or reproduce the data. Furthermore, significant disruptions of our internal information
technology systems or security breaches could result in the loss, misappropriation, and/or unauthorized access, use, or disclosure
of, or the prevention of access to, data (including trade secrets or other confidential information, intellectual property, proprietary
business information, and personal information), which could result in financial, legal, business, and reputational harm to us.
For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal
information regarding our clinical trial subjects or employees, could harm our reputation directly, compel us to comply with federal
and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject
us to liability under laws and regulations that protect the privacy and security of personal information, which could result in
significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.
Notifications
and follow-up actions related to a security incident could impact our reputation and cause us to incur significant costs, including
legal expenses and remediation costs. 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 lost data.
We expect to incur significant costs in an effort to detect and prevent security incidents, and we may face increased costs and
requirements to expend substantial resources in the event of an actual or perceived security breach. We also rely on third parties
to manufacture our therapeutic 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 incident were to result in a loss, destruction or alteration
of, or damage to, our data, or inappropriate disclosure of confidential or proprietary information, we could be exposed to litigation
and governmental investigations, the further development and commercialization of our therapeutic candidates could be delayed,
and we could be subject to significant fines or penalties for any noncompliance with certain state, federal and/or international
privacy and security laws.
Our
insurance policies may not be adequate to compensate us for the potential losses arising from any such disruption in or, failure
or security breach of our systems or third-party systems where information important to our business operations or commercial
development is stored. In addition, such insurance may not be available to us in the future on economically reasonable terms,
or at all. Further, our insurance may not cover all claims made against us and could have high deductibles in any event, and defending
a suit, regardless of its merit, could be costly and divert management attention.
The
collection, processing and cross-border transfer of personal information is subject to restrictive laws and regulations.
We
are subject to privacy and data protection laws and regulations that apply to the collection, transmission, storage and use of
personally identifiable information. The legislative and regulatory landscape for privacy and data protection continues to evolve,
and there has been an increasing amount of focus on compliance in this area, with the potential to affect our business.
In
the EU, the collection and use of personal data (including health data) is governed by the provisions of the General Data Protection
Regulation (the “GDPR”) which became effective and enforceable across all then-current member states of the
EU on May 25, 2018. The GDPR enhances data protection obligations for both processors and controllers of personal data, including
by materially expanding the definition of what is expressly noted to constitute personal data, requiring additional disclosures
about how personal data is to be used, imposing limitations on retention of personal data, creating mandatory data breach notification
requirements in certain circumstances, and establishing onerous new obligations on services providers who process personal data
simply on behalf of others, as well as obligations regarding the security and confidentiality of the personal data. The GDPR also
imposes strict rules on the transfer of personal data out of the European Economic Area to third countries, including the United
States. The GDPR has expanded its reach to include any business, regardless of its location, that processes personal data in relation
to the offering of goods or services to individuals in the EU and/or the monitoring of their behavior. This expansion would incorporate
any clinical trial activities in EU member states. The GDPR imposes special protections for “sensitive information”
which includes health and genetic information of data subjects residing in the EU. The GDPR also grants individuals the opportunity
to object to the processing of their personal information, allows them to request deletion of personal information in certain
circumstances, and provides an express right to seek legal remedies in the event the individual believes his or her rights have
been violated. Failure to comply with the requirements of the GDPR may result in fines of up to 4% of an undertaking’s total
global annual turnover for the preceding financial year, or €20 million, whichever is greater. In addition to administrative
fines, a wide variety of other potential enforcement powers are available to competent authorities in respect of potential and
suspected violations of the GDPR, including extensive audit and inspection rights, and powers to order temporary or permanent
bans on all or some processing of personal data carried out by noncompliant actors. While we have taken steps to comply with the
GDPR, and implementing legislation in applicable member states, including by seeking to establish appropriate lawful bases for
the various processing activities we carry out as a controller, reviewing our security procedures, and entering into data processing
agreements with relevant customers and business partners, we cannot guarantee that our efforts to achieve and remain in compliance
have been, and/or will continue to be, fully successful.
In
the United Kingdom, following the end of the transition period for the United Kingdom’s withdrawal from the EU on December
31, 2021, the GDPR has been retained as part of domestic law by virtue of the European Union (Withdrawal) Act 2018. The retained
law – the UK GDPR – continues to apply alongside the Data Protection Act 2018. The UK GDPR has been modified to reflect
the fact that the UK is no longer a member of the EU.
Businesses
based in the United Kingdom who operate in the EU are now subject to both the GDPR (“EU GDPR”) and the UK GDPR.
This may result in some duplication of liabilities, expenses, costs, and other operational losses in connection with measures
taken to comply with the two separate laws. In particular, there are now two parallel enforcement regimes, each with the power
to impose fines up to the greater of either 4% of total global annual turnover, or €20 million (under the EU GDPR) or £17.5
million (under the UK GDPR).
In
addition, the United Kingdom is now considered a “third country” under the EU GDPR and EU countries are considered
“third countries” under the UK GDPR, which may have an impact on transfers of personal data between the UK and EU
countries.
In
respect of data transfers from the EU to the UK, the EU-UK Trade and Cooperation Agreement provides for a transitional period
permitting the continuation of such transfers until 30 June 2021. After such date, transfers to the UK may continue freely if
the European Commission issues an adequacy decision in favour of the UK. A draft decision has been issued but still needs to be
approved. In the absence of such decision, transfers may only continue if the parties to the transfer put in place appropriate
safeguards as required by the EU GDPR, which would involve additional costs.
Data
transfers from the UK to the EU are permitted by UK law. Such permission will be reviewed in 4 years.
The
so-called Schrems II judgement, which was delivered by the Courts of Justice of the European Union in July 2020 poses a further
risk which needs to be noted. The judgement applies both in the EU and the UK since it was delivered before the end of the transition
period. The Schrems II judgement effectively renders unlawful transfers of personal data to entities in the US which are caught
by section 702 of the Foreign Intelligence Surveillance Act, and it raises concerns that transfers to other countries may similarly
be deemed unlawful depending on the applicable domestic legal framework. Before engaging in international data transfers, UK and
EU entities are now required to assess the local laws which will apply to the data after it is transferred.
Similarly,
failure to comply with federal and state laws in the United States regarding privacy and security of personal information could
further expose us to penalties under privacy and data protection laws. Even if we are not determined to have violated these laws,
government investigations into these issues typically require the expenditure of significant resources and generate negative publicity,
which could harm our business.
Our
employees, consultants and contractors may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements or insider trading violations, which could significantly harm our business.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, consultants or contractors could include
intentional failures to comply with governmental regulations, comply with healthcare fraud and abuse and anti-kickback laws and
regulations in the United States, the United Kingdom and other jurisdictions, or failure to report financial information or data
accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare
industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other
abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper
use of, including improper trading based upon information obtained in the course of clinical studies, which could result in regulatory
sanctions and serious harm to our reputation. We have adopted a robust compliance program, but it is not always possible to identify
and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful
in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations,
including the imposition of significant fines or other sanctions.
Healthcare
legislative reform measures may have a negative impact on our business and results of operations.
In
the United States, there have been, and continue to be, legislative and regulatory developments regarding the healthcare system
that could prevent or delay marketing approval of our therapeutic candidates, restrict or regulate post-approval activities, and
affect our ability to profitably sell any therapeutic candidates for which we obtain marketing approval. Additionally, there has
been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of
prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted
federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. While
any proposed measures will require authorization through additional legislation to become effective, Congress and the current
administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug
costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control
pharmaceutical and biological product 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. The implementation of cost containment measures or other healthcare reforms may prevent
us from being able to generate revenue, attain profitability or successfully commercialize our drugs.
The
withdrawal of the United Kingdom from the EU, commonly referred to as “Brexit,” may adversely impact our ability to
obtain regulatory approvals of our therapeutic candidates in the EU, result in restrictions, delays or increased costs for importing
our therapeutic candidates into the EU, and may require us to incur additional expenses in order to develop, manufacture and commercialize
our therapeutic candidates in the EU.
Following
the result of a referendum in 2016, the United Kingdom left the EU on January 31, 2020, commonly referred to as Brexit. Pursuant
to the formal withdrawal arrangements agreed between the United Kingdom and the EU, the United Kingdom was subject to a transition
period (the “Transition Period”) during which EU rules continued to apply, which ended on December 31, 2020.
Following negotiations, the two sides agreed on a Trade and Cooperation Agreement (“TCA”) on December 24, 2020
to regulate their post-Brexit trade relationship. The TCA has already been ratified by the UK. In the EU, the TCA was applied
initially on a provisional basis until 28 February 2021, pending a decision by the European Parliament to assent to the ratification
of the TCA by the Council of the EU. The UK-EU Partnership Council has since agreed to an extension of the period for the provisional
application of the TCA by the EU to 30 April 30, 2021. It is possible that this time period could be extended beyond April 30,
2021 if the European Parliament has not assented to the ratification before that date.
The
TCA provides for a no tariff, no quota on goods trade deal. However, there will now be a need for border controls and checks in
importing and exporting goods into the EU, potentially leading to delays and additional costs.
Currently,
a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our therapeutic candidates
is derived from EU directives and regulations. In the immediate post-Brexit period, a lot of EU legislation has been retained
as domestic legislation by virtue of the EU (Withdrawal) Act 2018 (as amended). However, the UK may choose to amend retained legislation
over time. This could materially impact the existing regulatory regime with respect to the development, manufacture, importation,
approval and commercialization of our therapeutic candidates in the United Kingdom or the EU.
Following
the Transition Period, the United Kingdom is no longer covered by the centralized procedures for obtaining EU-wide marketing authorization
from the European Medicines Agency and a separate process for authorization of drug products, including our therapeutic candidates,
will be required in the United Kingdom, the new processes being outlined by the Medicines and Healthcare Products Regulatory Agency
(with existing applications via the centralized procedure being addressed by transitional arrangements). Any delay in obtaining,
or an inability to obtain, any marketing approvals, as a result of the new or transitional processes or otherwise, could make
it more difficult for us to commercialize our therapeutic candidates in the EU or in the United Kingdom and restrict our ability
to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay
efforts to seek regulatory approval in the United Kingdom or the EU for our therapeutic candidates, or incur significant additional
expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve
profitability of our business.
Although
the TCA means that we should not be required to pay new tariffs in connection with the importation of our therapeutic candidates
from the UK into the EU and vice versa, this will depend upon whether the products satisfy complex rules of origin. If goods being
imported into the EU from the UK are not treated under these rules as originating in the UK, EU tariffs may be payable. In the
near term there is also a risk of disrupted import and export processes due to a lack of administrative processing capacity by
the respective UK and EU customs agencies that may delay time-sensitive shipments and may negatively impact our product supply
chain.
In
addition, in order to benefit from no tariffs, a product must meet complex rules which certify its origins as being from the UK
or the EU (or at least, being substantively processed in one or the other). Any further changes in international trade, tariff
and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers
on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular,
trade between the impacted nations and the United Kingdom.
It
is also possible that Brexit may negatively affect our ability to attract and retain employees, particularly those from the EU,
since free movement of workers between the UK and EU will now require visas and other permits in a number of circumstances, and
hence make travel by our employees between our UK, Irish and Spanish facilities more difficult, time-consuming and expensive than
previously was the case.
Our
business may incur VAT in EU states where it is not established and does not make supplies. VAT incurred by the UK companies in
the group will not have access to the EU’s electronic system for claiming refunds. Although refunds should still be obtainable,
claims will have to be made direct to the relevant tax authorities, which means reclaims could be significantly more complex and
slower to process. Such differences have the potential to materially affect cash requirements and costs to the business.
Legal,
political and economic uncertainty surrounding Brexit may be a source of instability in international markets, create significant
currency fluctuations, adversely affect our operations in the United Kingdom and pose additional risks to our business, revenue,
financial condition, and results of operations.
While
our headquarters are in the United Kingdom, we have subsidiaries elsewhere in the EU, currently in Ireland and Spain, and rely
on suppliers elsewhere in the EU. On the one hand, this is helpful to us since having an “establishment” in the EU
is now required for compliance with a number of relevant regulatory matters, for example a clinical trials sponsor must either
be established in the EU or, if not, appoint a legal representative in an EU27 country. However, since future UK laws and regulations,
including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws, supply
chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, may diverge from
EU law and regulation after January 1, 2021, this may negatively impact foreign direct investment in the United Kingdom, increase
costs, depress economic activity and restrict access to capital.
Although
the TCA is agreed between the principals, there is still material clarification required on the detail of how higher-level principles
will be reflected into day to day processes and operations. Hence there is still likely to be a degree of uncertainty concerning
the United Kingdom’s ongoing legal, political and economic relationship with the EU, which may be a source of instability
in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or
similar cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
These
developments, or the perception that any of them could occur, have had, and may continue to have, a significant adverse effect
on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity
and limit the ability of key market participants to operate in certain financial markets. In particular, it could also lead to
a period of considerable uncertainty in relation to the UK financial and banking markets, as well as on the regulatory process
in Europe. Asset valuations, currency exchange rates and credit ratings may also be subject to increased market volatility. The
TCA is subject to regular (every five years) review provisions. In addition, each party has the right to take certain trade defense
measures unilaterally (which could include the imposition of tariffs or quotas or suspension of certain aspects of the TCA) subject
to binding arbitration procedures. Ultimately, either party has the right to require the “rebalancing” of rights and
obligations under the TCA in circumstances where there has been a significant and persistent divergence in subsidy-control or
environmental and labor regulation. Irrespective of the need to “rebalance” the TCA, each party also has the right
to terminate it, by giving 12 months’ notice. Accordingly, the nature of the TCA is such that it creates a lot of uncertainty
for businesses.
The
detail of how the United Kingdom’s access to the European single market for goods, capital, services and labor within the
EU, or single market, and the wider commercial, legal and regulatory environment, will impact our UK operations and customers
remains to be fully understood. There may continue to be economic uncertainty surrounding the consequences of Brexit, which could
adversely impact customer confidence resulting in customers reducing their spending budgets on our products, which could adversely
affect our business, revenue, financial condition, results of operations and could adversely affect the market price of our shares
and ADSs.
Exchange
rate fluctuations may adversely affect our results of operations and cash flows.
Our
functional currency is pounds sterling, and our transactions are commonly denominated in that currency. However, we receive payments
under our collaboration agreements in U.S. dollars and we incur a portion of our expenses in other currencies, primarily Euros.
As a result, fluctuations in exchange rates, particularly between the pound sterling on the one hand and the U.S. dollar and Euro
on the other hand, may adversely affect our reported results of operations and cash flows. Since the Brexit referendum in 2016,
there has been a significant increase in the volatility of these exchange rates and an overall weakening of the pound sterling.
Our business and the price of our shares and ADSs may be affected by fluctuations in foreign exchange rates between the pound
sterling and these and other currencies, any of which may have a significant impact on our results of operations and cash flows
from period to period.
If
we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could have a material adverse effect on the success of our business.
We
are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could
be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although
we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage
against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental,
health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production
efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks
Related to Our ADSs and Ordinary Shares
We
do not know whether listing in the Nasdaq will increase liquidity for our shareholders. We do not know whether an active, liquid
and orderly trading market will develop for our ADSs or what the market price of our ADSs will be and as a result it may be difficult
for you to sell your ADSs at or above the price you pay for them, if at all.
Our
ADSs were approved to list on the Nasdaq and began trading on March 22, 2021. However, prior to March 22, 2021, while our ordinary
shares had been traded on AIM since February 2014, no public market has previously existed for our ADSs or ordinary shares in
the United States. We have undertaken the Merger because we believed that the Merger would provide us and our shareholders, with
a number of advantages, including providing our shareholders with securities that we expected would enjoy greater market liquidity
than the securities these shareholders currently hold. However, the Merger might not accomplish these objectives. We cannot predict
whether a liquid market for 4D Pharma ADSs and existing ordinary shares will be maintained.
The
lack of an active market for ADSs may impair your ability to sell your shares at the time you wish to sell them or at a price
that you consider reasonable. The lack of an active market may also reduce the fair market value of the ADSs and could also affect
the market price for our ordinary shares on AIM. The price at which ADSs trade on Nasdaq may or may not be correlated with the
price at which our ordinary shares trade on AIM.
The
price of our ordinary shares ADSs may be volatile and fluctuate substantially, which could result in substantial losses for purchasers
of our ordinary shares or ADSs, and we could be subject to securities class action litigation as a result.
Our
stock price is likely to be volatile. The stock market in general, and the market for smaller biopharmaceutical companies in particular,
have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result
of this volatility, you may not be able to sell your ADSs at or above the price at which you purchase the shares. The market price
for our ordinary shares or our ADSs may be influenced by many factors, including:
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success of competitive products or technologies;
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actual
or anticipated changes in our growth rate relative to our competitors;
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results
of clinical trials of our therapeutic candidates or those of our competitors;
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developments
related to any future collaborations;
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regulatory
or legal developments in the United States and other countries;
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adverse
actions taken by regulatory agencies with respect to our preclinical studies or clinical trials, manufacturing or sales and
marketing activities;
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any
adverse changes to our relationship with third party contractors or manufacturers;
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development
of new therapeutic candidates that may address our markets and may make our existing therapeutic candidates less attractive;
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changes
in physician, hospital or healthcare provider practices that may make our therapeutic candidates less useful;
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announcements
by us, our collaborators or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations
or capital commitments;
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developments
or disputes concerning patent applications, issued patents or other proprietary rights;
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the
recruitment or departure of key personnel;
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the
level of expenses related to any of our therapeutic candidates or product development programs;
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failure
to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
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press
reports or other negative publicity, whether or not true, about our business;
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the
results of our efforts to discover, develop, acquire or in-license additional therapeutic candidates or products;
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actual
or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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variations
in our financial results or those of companies that are perceived to be similar to us;
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changes
in the structure of healthcare payment systems;
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market
conditions in the pharmaceutical and biotechnology sectors;
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the
trading volume of our ADSs on Nasdaq or ordinary shares on AIM;
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sales
of our ADSs or ordinary shares by us, members of our senior management and directors or our shareholders;
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general
economic, political, and market conditions and overall fluctuations in the financial markets in the United States, the United
Kingdom, the EU, and other countries, including the global and regional impacts of the COVID-19 pandemic; and
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the
other factors described in this “Risk Factors” section.
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These
and other market and industry factors may cause the market price and demand for our ordinary shares and ADSs to fluctuate substantially,
regardless of our actual operating performance, which may limit or prevent investors from selling their ordinary shares or ADSs
at or above the price paid for the ordinary shares or ADSs and may otherwise negatively affect the liquidity of our ordinary shares
or ADSs.
Some
companies that have experienced volatility in the trading price of their shares have been the subject of securities class action
litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide
to settle lawsuits on unfavorable terms.
Any
such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to
our business practices. Defending against litigation is costly and time-consuming and could divert our managements’ and
key employees’ attention and our resources. Furthermore, during the course of litigation, there could be negative public
announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect
on the market price of our ordinary shares or ADSs.
Future
sales, or the possibility of future sales, of a substantial number of ADSs representing our shares or our shares could adversely
affect the price of such securities.
Future
sales of a substantial number of ADSs or shares, or the perception that such sales will occur, could cause a decline in the market
price of our shares or ADSs. If holders sell substantial amounts of ADSs on Nasdaq or ordinary shares on AIM, or if the market
perceives that such sales may occur, the market price of the ADSs and the ordinary shares may fall and our ability to raise capital
through an issue of equity securities in the future could be adversely affected.
The
dual-listing of ordinary shares and ADSs is costly to maintain and may adversely affect the liquidity and value of our ordinary
shares and ADSs.
Our
ordinary shares trade on AIM and our ADSs trade on Nasdaq. For now, we plan to maintain a dual listing, which will generate additional
costs, including increased legal, accounting, investor relations and other expenses that we did not incur prior to the listing
of our ADSs on Nasdaq, in addition to the costs associated with the additional reporting requirements. We cannot predict the effect
of this dual listing on the value of our ADSs and ordinary shares. However, the dual listing of ADSs and ordinary shares may dilute
the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market
for our ADSs. The price of our ADSs could also be adversely affected by trading in our ordinary shares on AIM.
We
are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may
make our ADSs less attractive to investors.
We
are an emerging growth company as that term is used in the JOBS Act may remain an emerging growth company until the earlier of
(i) the last day of the fiscal year (A) following the fifth anniversary of the completion of the Merger, (B) in which we have
total annual gross revenue of at least $1.07 billion, or (C) in which we are deemed to be a large accelerated filer, which means
the market value of our outstanding ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June
30, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period.
For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure
requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
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being
permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial
statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” disclosure;
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not
being required to comply with the auditor attestation requirements in the assessment of our internal control over financial
reporting;
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not
being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit
and the financial statements;
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reduced
disclosure obligations regarding executive compensation; and
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exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved.
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addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying
with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards
until they would otherwise apply to private companies. We have elected to take advantage of this extended transition period.
We
have elected to take advantage of certain of the reduced reporting obligations. In particular, we have not included all of the
executive compensation information that would be required if we were not an emerging growth company. We cannot predict whether
investors will find our ADSs less attractive if we rely on certain or all of these exemptions. If some investors find our ADSs
less attractive as a result, there may be a less active trading market for our ADSs and our ADS price may be more volatile.
We
qualify as a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange
Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
This may limit the information available to holders of our ADSs.
We
are a foreign private issuer, as such term is defined in Rule 405 under the Securities Act, and report under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. As a foreign private issuer,
we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For
example, we are exempt from certain rules under the Exchange Act that are applicable to U.S. domestic public companies, including
(i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security
registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock
ownership and trading activities and liability for insiders who profit from trades made in a short period of time (including the
requirement applicable to emerging growth companies to disclose the compensation of our Chief Executive Officer and the other
two most highly compensated executive officers on an individual, rather than an aggregate, basis); and (iii) the rules under the
Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified
information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, foreign private
issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S.
domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end
of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from
making selective disclosures of material information. Accordingly, there may be less publicly available information concerning
our business than there would be if we were a U.S. public company and you may not have the same protections afforded to shareholders
of US-listed companies that are not foreign private issuers.
As
a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters
that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders
than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
As
a foreign private issuer listed on Nasdaq, we will be subject to corporate governance listing standards. However, Nasdaq rules
permit a foreign private issuer like us to follow the corporate governance practices of its home country in lieu of certain Nasdaq
corporate governance listing standards. Certain corporate governance practices in England, which is our home country, may differ
significantly from Nasdaq corporate governance listing standards. For example, neither the corporate laws of England nor our articles
of association require a majority of our directors to be independent; we may include non-independent directors as members of our
nominations and remuneration committees; and our independent directors would not necessarily hold regularly scheduled meetings
at which only independent directors are present. We are required to follow the AIM Rules for Companies published by London Stock
Exchange plc, and have adopted the Corporate Governance Code published by the Quoted Companies Alliance. Therefore, our shareholders
may be afforded less protection than they otherwise would have under Nasdaq corporate governance listing standards applicable
to U.S. domestic issuers. See “Management—Foreign Private Issuer Exemption” for the exemptions to the Nasdaq
corporate governance rules applicable to foreign private issuers.
We
may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.
We
are a foreign private issuer, as such term is defined in Rule 405 under the Securities Act, however, under Rule 405, the determination
of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second
fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2021.
In
the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S.
citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although
we may elect to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions
mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly
higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S.
domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer.
For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual
basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary,
bonus, and equity compensation) and potential payments in connection with change in control, retirement, death or disability,
while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an aggregate basis.
We
would also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors, and principal shareholders
will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also
be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers.
Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions
from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
We
will incur increased costs as a result of simultaneously having our ADSs listed in the United States and our ordinary shares admitted
to trading on AIM in the United Kingdom, and our senior management will be required to devote substantial time to new compliance
initiatives and corporate governance practices.
As
a company whose securities are publicly listed in the United States, we incur significant legal, accounting and other expenses,
even though our ordinary shares are admitted to trading on AIM, and these expenses may increase after we are no longer an EGC.
We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform
and Protection Act, as well as rules adopted, and to be adopted, by the SEC and Nasdaq. Our management and other personnel will
need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to
substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly, which
will increase our operating expenses. For example, we expect these rules and regulations to make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain sufficient
coverage, particularly in light of recent cost increases related to coverage. We cannot accurately predict or estimate the amount
or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make
it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as
executive officers.
In
addition, as a public company we will be required to incur additional costs and obligations in order to comply with SEC rules
that implement Section 404 of the Sarbanes-Oxley Act. Under these rules, beginning with our second annual report on Form 20-F
after we become a company whose securities are publicly listed in the United States, we will be required to make a formal assessment
of the effectiveness of our internal control over financial reporting, and once we cease to be an emerging growth company, we
will be required to include an attestation report on internal control over financial reporting issued by our independent registered
public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaging in a process
to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard,
we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan
to assess and document the adequacy of our internal control over financial reporting, continue steps to improve control processes
as appropriate, validate through testing that controls are designed and operating effectively, and implement a continuous reporting
and improvement process for internal control over financial reporting.
The
rules governing the standards that must be met for management to assess our internal control over financial reporting are complex
and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During
the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to
meet the deadline imposed by the Sarbanes-Oxley Act. Our internal control over financial reporting will not prevent or detect
all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud will be detected.
If
we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable
to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If
that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the
stock exchange on which our ordinary shares are listed, the SEC or other regulatory authorities.
Further,
being a U.S. listed company and an English public company with ordinary shares admitted to trading on AIM impacts the disclosure
of information and requires compliance with two sets of applicable rules. From time to time, this may result in uncertainty regarding
compliance matters and result in higher costs necessitated by legal analysis of dual legal regimes, ongoing revisions to disclosure
and adherence to heightened governance practices. As a result of the enhanced disclosure requirements of the U.S. securities laws,
business and financial information that we report is broadly disseminated and highly visible to investors, which we believe may
increase the likelihood of threatened or actual litigation, including by competitors and other third parties, which could, even
if unsuccessful, divert financial resources and the attention of our management and key employees from our operations.
If
we do not develop and implement all required accounting practices and policies, including proper and effective internal control
over financial reporting, we may be unable to provide the financial information required of a U.S. publicly traded company in
a timely and reliable manner or prevent fraud. As a result, shareholders could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of our shares and ADSs.
Ensuring
that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial
statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with generally accepted accounting principles. In connection with the
listing, we intend to improve the process of documenting, reviewing and improving our internal controls and procedures for compliance
with Section 404, which will require annual management assessment of the effectiveness of our internal control over financial
reporting. We have begun recruiting additional finance and accounting personnel with certain skill sets that we will need as an
English public company listed in the U.S.
Implementing
any appropriate changes to our internal controls may distract our officers and employees from day-to-day business operations,
entail substantial costs to modify our existing processes, and take significant time to complete. These changes may not, however,
be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability
to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business.
Any
delays or deficiencies in our internal controls could penalize us, including by limiting our ability to obtain financing, either
in the public capital markets or from private sources and hurt our reputation and could thereby impede our ability to implement
our growth strategy. In addition, any such delays or deficiencies could result in our failure to meet the requirements to maintain
our ADSs listed on a national securities exchange.
Our
Articles of Association and the Deposit Agreement for our ADSs 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 and
that certain claims may only be instituted in the courts of England and Wales, which could limit our securityholders’ ability
to choose the judicial forum for disputes with us or our directors, shareholders, officers, or others.
Section
22 of the Securities Act creates concurrent jurisdiction for U.S. federal and state courts over all causes of action arising under
the Securities Act. Accordingly, both U.S. state and federal courts have jurisdiction to entertain such claims. To prevent having
to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other
considerations, we have amended our Articles of Association to provide that, unless we consent in writing to the selection of
an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution
of any complaint asserting a cause of action arising under the Securities Act. The Deposit Agreement similarly provides for such
an exclusive forum for such causes of action. This exclusive forum provision will not apply to suits brought to enforce any liability
or duty created by the Exchange Act. Any person or entity purchasing or otherwise acquiring any interest in any of our securities
shall be deemed to have notice of and consented to the foregoing provisions.
We
have amended our Articles of Association to provide that any action asserting a claim that is governed by the internal affairs
doctrine, such as, for example, an action asserting a claim of breach of fiduciary duty owed by any of our directors, officers,
or other employees, including the ability to bring such a claim, shall be governed by and construed in accordance with the laws
of England and Wales, and that any such claims may only be instituted in the courts of England and Wales.
Although
we believe these exclusive forum provisions benefit us by providing increased consistency in the application of U.S. federal securities
laws and the laws of England and Wales in the types of lawsuits to which they apply, these provisions may limit a shareholder’s
ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors, shareholders, officers,
or others, or may increase the cost of doing so, both of which may discourage lawsuits with respect to such claims. Our shareholders
will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder
as a result of our exclusive forum provision. Further, in the event a court finds the exclusive forum provisions contained in
our Articles of Association or the Deposit Agreement to be unenforceable or inapplicable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could harm our results of operations.
If
equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business
or our market, the price and trading volume of our shares and ADSs could decline.
The
trading market for our shares ADSs is influenced by the research and reports that equity research analysts publish about us and
our business. As a company admitted to trading on AIM, our equity securities are currently subject to coverage by a number of
analysts. Equity research analysts may elect not to provide research coverage of our ADSs, and such lack of research coverage
may adversely affect the market price of our ADSs. We will not have any control over the analysts or the content and opinions
included in their reports. If any of the equity research analysts who cover us downgrade our shares or ADSs or issue an adverse
or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our target preclinical
studies or clinical studies and/or operating results fail to meet the expectations of analysts, the price of our shares or ADSs
could decline. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand
for our shares or ADSs could decrease, which in turn could cause the trading price or trading volume of our shares or ADSs to
decline.
Concentration
of ownership of our ordinary shares (including ordinary shares represented by ADSs) among our existing senior management, directors
and principal shareholders may prevent new investors from influencing significant corporate decisions and matters submitted to
shareholders for approval.
Members
of our senior management, directors and current beneficial owners of 5% or more of our ordinary shares and their respective affiliates
will, in the aggregate, beneficially own approximately 21.9% of our issued and outstanding ordinary shares, based on the number
of ordinary shares issued and outstanding as of March 23, 2021. As a result, depending on the level of attendance at general meetings
of our shareholders, these persons, acting together, would be able to significantly influence all matters requiring shareholder
approval, including the election, re-election and removal of directors, any merger, scheme of arrangement, or sale of all or substantially
all of our assets, or other significant corporate transactions, and amendments to our articles of association. In addition, these
persons, acting together, may have the ability to control the management and affairs of our company. Accordingly, this concentration
of ownership may harm the market price of our ADSs by:
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delaying,
deferring, or preventing a change in control;
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entrenching
our management and/or the board of directors;
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impeding
a merger, scheme of arrangement, takeover, or other business combination involving us; or
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discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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In
addition, some of these persons or entities may have interests different than yours. For example, because many of these shareholders
purchased their shares at prices substantially below the current market price for an ordinary share on AIM and have held their
shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may
want us to pursue strategies that deviate from the interests of other shareholders.
Because
we do not anticipate paying any cash dividends on our ordinary shares (including ordinary shares represented by ADSs) in the foreseeable
future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.
You
should not rely on an investment in our ADSs to provide dividend income. Under current English law, a company’s accumulated
realized profits must exceed its accumulated realized losses (on a non-consolidated basis) before dividends can be paid. Therefore,
we must have distributable profits before issuing a dividend. We have never declared or paid a dividend on our ordinary shares
in the past, and we currently intend to retain our future earnings, if any, to fund the development of our technologies and therapeutic
candidates and the growth of our business. As a result, capital appreciation, if any, on our ADSs will be your sole source of
gains for the foreseeable future. Investors seeking cash dividends should not purchase our ADSs.
Securities
traded on AIM may carry a higher risk than securities traded on other exchanges, which may impact the value of your investment.
Our
ordinary shares are currently traded on AIM. Investment in equities traded on AIM is sometimes perceived to carry a higher risk
than an investment in equities quoted on exchanges with more stringent listing requirements, such as the Main Market of the London
Stock Exchange, New York Stock Exchange or Nasdaq. This is because AIM imposes less stringent corporate governance and ongoing
reporting requirements than those other exchanges. In addition, AIM requires only half-yearly, rather than quarterly, financial
reporting. The value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of
which may affect AIM companies generally, including the depth and liquidity of the market, our performance, a large or small volume
of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the
prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares, the ADSs, or
the ordinary shares underlying the ADSs, may not reflect the underlying value of our company.
Fluctuations
in the exchange rate between the U.S. dollar and the British pound sterling may increase the risk of holding ADSs and ordinary
shares.
The
share price of our ordinary shares is quoted on AIM in British pounds sterling, while our ADSs trade on Nasdaq in U.S. dollars.
Fluctuations in the exchange rate between the U.S. dollar and the British pound sterling may result in differences between the
value of our ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such
exchange rate differences. In addition, as a result of fluctuations in the exchange rate between the U.S. dollar and the British
pound sterling, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive upon the sale in the United
Kingdom of any ordinary shares withdrawn from the depositary, and the U.S. dollar equivalent of any cash dividends paid in British
pounds sterling on ordinary shares represented by the ADSs, could also decline.
Holders
of our ADSs have fewer rights than our shareholders and must act through the depositary to exercise their rights.
Holders
of our ADSs do not have the same rights as our shareholders who hold our ordinary shares directly and may only exercise their
voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Holders
of the ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the
ordinary shares represented by the ADSs. When a general meeting is convened, if you hold ADSs, you may not receive sufficient
notice of a shareholders’ meeting to permit you to withdraw the ordinary shares underlying your ADSs to allow you to vote
with respect to any specific matter. We will use commercially reasonable efforts to cause the depositary to extend voting rights
to you in a timely manner, but we cannot assure you that you will receive voting materials in time to instruct the depositary
to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not
have the opportunity to exercise a right to vote. Furthermore, the depositary will not be liable for any failure to carry out
any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not
be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you request. In addition, in your
capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
You
may be subject to limitations on transfers of your ADSs.
Your
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from
time to time when deemed necessary or advisable by it in good faith in connection with the performance of its duties or at our
reasonable written request, subject in all cases to compliance with applicable U.S. securities laws. In addition, the depositary
may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed,
or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental
body, or under any provision of the deposit agreement, or for any other reason, subject to certain rights to cancel ADSs and withdraw
the underlying ordinary shares. Temporary delays in the cancellation of ADSs and withdrawal of the underlying ordinary shares
may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary
shares is blocked to permit voting at a shareholders’ meeting, or because we are paying a dividend on our ordinary shares
or similar corporate actions.
The
depositary for our ADSs is entitled to charge holders fees for various services, including annual service fees.
The
depositary for our ADSs is entitled to charge holders fees for various services, including for the issuance of ADSs upon deposit
of ordinary shares (other than in the case of ADSs issued pursuant to the Merger), cancellation of ADSs, distributions of cash
dividends or other cash distributions, distributions of ADSs pursuant to share dividends or other free share distributions, distributions
of securities other than ADSs and annual service fees. In the case of ADSs issued by the depositary into The Depository Trust
Company (“DTC”), the fees will be charged by the DTC participant to the account of the applicable beneficial
owner in accordance with the procedures and practices of the DTC participant as in effect at the time. The depositary for our
ADSs will not generally be responsible for any United Kingdom stamp duty or stamp duty reserve tax arising upon the issuance or
transfer of ADSs.
You
may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical
to make them available to holders of ADSs.
Although
we do not have any present plans to declare or pay any dividends, in the event we declare and pay any dividend, the depositary
for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares
or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the
number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement,
it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to register under
U.S. securities laws any offering of ADSs, ordinary shares or other securities received through such distributions. We also have
no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders
of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it
is unlawful or impractical to make them available to you. These restrictions may have an adverse effect on the value of your ADSs.
Your
right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
Under
English law, shareholders usually have preemptive rights to subscribe on a pro rata basis in the issuance of new shares for cash.
The exercise of preemptive rights by certain shareholders not resident in the United Kingdom may be restricted by applicable law
or practice in the United Kingdom and overseas jurisdictions. We may from time to time distribute rights to our shareholders,
including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register
the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements
is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both
the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted
from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such
rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able
to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may,
under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate
in our rights offerings and may experience dilution in your holdings. We are also permitted under English law to disapply preemptive
rights (subject to the approval of our shareholders by special resolution or the inclusion in our articles of association of a
power to disapply such rights) and thereby exclude certain shareholders, such as overseas shareholders, from participating in
a rights offering (usually to avoid a breach of local securities laws).
We
may be a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. investors
owning the ADSs or our ordinary shares.
A
non-U.S. corporation, such as our company, will be considered a Passive Foreign Investment Company (“PFIC”)
for any taxable year if either (i) at least 75% of its gross income is passive income or (ii) at least 50% of the value of its
assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce
or are held for the production of passive income.
Based
upon our current and projected income and assets, and projections as to the value of our assets, we do not anticipate that we
will be a PFIC for the 2021 taxable year or the foreseeable future. However, no assurance can be given in this regard because
the determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon
the composition of our income and assets, and we have not and will not obtain an opinion of counsel regarding our classification
as a PFIC. Fluctuations in the market price of the ADSs may cause us to be classified as a PFIC in any taxable year because the
value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined
by reference to the market price of the ADSs from time to time (which may be volatile). If our market capitalization subsequently
declines, we may be or become classified as a PFIC for the 2021 taxable year or future taxable years. Furthermore, the composition
of our income and assets may also be affected by how, and how quickly, we use our liquid assets and any future fundraising activity.
Under circumstances where our revenues from activities that produce passive income significantly increases relative to our revenues
from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes,
our risk of becoming classified as a PFIC may substantially increase. It is also possible that the Internal Revenue Service (“IRS”)
may challenge the classification or valuation of 4D Pharma’s assets, including its goodwill and other unbooked intangibles,
or the classification of certain amounts received by 4D Pharma, including from JPMorgan, as depositary, which may result in 4D
Pharma being, or becoming classified as, a PFIC for the 2021 taxable year or future taxable years.
If
we were treated as a PFIC for any taxable year during which a U.S. investor held an ADS or an ordinary share, certain adverse
U.S. federal income tax consequences could apply to the U.S. Holder. See “Material Income Tax Considerations—U.S.
Federal Income Taxes—Passive Foreign Investment Company Considerations.”
We
may be unable to use U.K., Irish and Spanish carryforward tax losses to reduce future tax payments or benefit from favorable U.K.
tax legislation.
As
a U.K. resident trading entity with Irish, Spanish, U.S, and British Virgin Islands (“BVI”) subsidiaries, we
are subject to U.K. corporate taxation with Corporation tax in the other jurisdictions also applicable. Due to the nature of our
business, we have generated losses since inception. As of December 31, 2020, we had gross cumulative carryforward tax losses of
$53.9 million, $6.1 million and $1.0 million respectively in the UK, Ireland and Spain. With our U.S. and BVI entities having
been recently formed there are no such carryforward losses. Subject to any relevant restrictions (including those that limit the
percentage of profits that can be reduced by carried forward losses and those that can restrict the use of carried forward losses
where there is a change of ownership of more than half the ordinary shares of the company and a major change in the nature, conduct
or scale of the trade), we expect these to be available to carry forward and offset against future operating profits.
As
a company that carries out extensive research and development activities, we benefit from the U.K. research and development tax
credit (“RDEC”) regime under the scheme for small and medium-sized enterprises(“SMEs”),
or in some instances we access the RDEC scheme in place of this. Under the SME scheme, we are able to surrender to the UK tax
authorities some of our trading losses that arise from our qualifying research and development activities for a cash payment using
an enhanced effective rate of up to 33.35% of such qualifying research and development expenditures (again subject to certain
restrictions but including enhanced deductions), while the RDEC scheme offers up to 13% (10.53% after tax). We may not be able
to continue to claim payable research and development tax credits under the SME Scheme in the future if we cease to qualify as
an SME, based on size criteria concerning employee headcount, turnover and gross assets. Qualifying expenditures largely are comprised
of employment costs for research staff, research materials, outsourced CRO costs and Research and Development (“R&D”)
consulting costs incurred as part of research projects. Under the SME scheme specified subcontracted qualifying research expenditures
are eligible for a cash rebate of up to 21.67% and may be ineligible to qualify for the more stringent rules of the RDEC scheme.
Recent
proposed changes to the SME scheme, which are scheduled to begin for years commencing from April 2021, will cap the available
claim under the schemes to a multiple of payroll taxes. This cap is likely to limit the value we can claim.
In
the event we generate revenues in the future, we may benefit from the U.K. “patent box” regime that allows profits
attributable to revenues from patents or patented products with a UK nexus to be taxed at an effective rate of 10%. We are the
owners of several patents which cover our product candidates, and accordingly, future upfront fees, milestone fees, product revenues
and royalties could be taxed at this tax rate. When taken in combination with the enhanced relief available on our research and
development expenditures, we expect a long-term lower effective rate of corporation tax to apply to us. If, however, there are
unexpected adverse changes to the U.K. research and development tax credit regime or the “patent box” regime, or for
any reason we are unable to qualify for such advantageous tax legislation, or we are unable to use net operating loss and tax
credit carryforwards and certain built-in losses to reduce future tax payments, our business, results of operations, and financial
condition may be adversely affected. This may impact our ongoing requirement for investment and the timeframes within which additional
investment is required.
We
may be subject to securities litigation, which is expensive and could divert management attention.
The
market price of our ADSs may be volatile and, in the past, companies that have experienced volatility in the market price of their
stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future.
Securities litigation against us could result in substantial costs and divert our management’s attention from other business
concerns, which could seriously harm our business.
Changes
and uncertainties in the tax system in the countries in which we have operations, could cause us to experience fluctuations in
our tax obligations and effective tax rate materially adversely affecting our financial condition and results of operations, and
reducing net returns to our shareholders.
We
are subject to a variety of taxes and tax collection obligations in the United Kingdom and in other jurisdictions where we record
tax expense, including indirect taxes, based on current tax payments and our estimates of future tax payments. We may recognize
additional tax expense and be subject to additional tax liabilities, including tax collection obligations, due to changes in tax
law such as legislation, including regulations, administrative practices, outcomes of court cases, and changes to the global tax
framework. Further, our effective tax rate and cash taxes paid in a given financial statement period may be adversely impacted
by results of our business operations including changes in the mix of costs and revenue among different jurisdictions, acquisitions,
investments, entry into new geographies, the relative amount of foreign earnings, changes in foreign currency exchanges rates,
changes in our stock price, intercompany transactions, changes to accounting rules, expectation of future profits, changes to
trading rules post Brexit, changes in our deferred tax assets and liabilities and our assessment of their realizability, and changes
to our ownership or capital structure. Fluctuations in our tax obligations and effective tax rate could adversely affect our business.
In
the ordinary course of our business, there are numerous transactions and calculations for which the ultimate tax determination
is uncertain. Although we believe that our tax positions and related provisions reflected in the financial statements are fully
supportable, we recognize that these tax positions and related provisions may be challenged in the future by various tax authorities.
These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information
become available, including changes in interpretation of tax laws, developments in case law, and closing of statute of limitations.
To the extent that the ultimate results differ from our original or adjusted estimates, our effective tax rate can be adversely
affected.
The
provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and
laws in the jurisdictions in which we operate. Future changes in applicable laws, projected levels of taxable income and tax planning
could change the effective tax rate and tax balances recorded by us. In addition, should tax authorities review our income tax
returns filed by us then they may raise issues regarding our filing positions, timing and amount of income and deductions, and
the allocation of income among the jurisdictions in which we operate. A significant period of time may elapse between the filing
of an income tax return and the ultimate resolution of an issue raised by a tax authority with respect to that return. Any adjustments
as a result of any examination may result in additional taxes or penalties being assessed on or imposed against us. If the ultimate
result of any audit differs from original or adjusted estimates, it could have a material impact our effective tax rate and tax
liabilities.
While
we have transfer pricing policies in place for trade with subsidiaries in multiple countries the tax authorities could come to
a different determination on the values and amounts of such transfers. Such a determination could lead to additional tax liabilities
and may also incur fines and penalties which may have a material impact on our brought forwards losses and our tax liability.
At
any one time, multiple tax years could be subject to audit by various taxing jurisdictions. As a result, we could be subject to
higher than anticipated tax liabilities as well as ongoing variability in our disclosed tax rates as audits close and exposures
are re-evaluated.
We
continue to analyze our exposure for taxes and related liabilities and do not have provisions for current tax liabilities arising
in the normal course of business as we anticipate that any such liabilities would be covered by our losses to date. We do have
provisions for deferred tax liabilities relating to the increases in value arising on recognition of the fair value of acquired
over the amounts paid and we had deferred tax provisions of $18 thousand at December 31, 2020.
If
a U.S. person is treated as owning at least 10% of our ordinary shares (including ordinary shares represented by ADSs), such holder
may be subject to adverse U.S. federal income tax consequences.
If
a U.S. person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our ordinary
shares, such person may be treated as a “United States shareholder” with respect to us or to any of our subsidiaries,
if we or any of our subsidiaries constitute a “controlled foreign corporation” (in each case, as such terms are defined
under the Code). Certain United States shareholders of a controlled foreign corporation may be required to annually report and
include in its U.S. taxable income, as ordinary income, its pro rata share of “Subpart F income,” “global
intangible low-taxed income” and certain investments in U.S. property by controlled foreign corporations, whether or not
we make any distributions to such United States shareholder. A failure by a United States shareholder to comply with its reporting
obligations may subject the United States shareholder to significant monetary penalties and other adverse tax consequences, and
may extend the statute of limitations with respect to the United States shareholder’s U.S. federal income tax return for
the year for which such reporting was due. We cannot provide any assurances that we will assist investors in determining whether
we or any of our non-U.S. subsidiaries are controlled foreign corporations or whether any investor is a United States shareholder
with respect to any such controlled foreign corporations. We also cannot guarantee that we will furnish to United States shareholders
information that may be necessary for them to comply with the aforementioned obligations. United States investors should consult
their own advisors regarding the potential application of these rules to their investments in us. The risk of being subject to
increased taxation may deter our current shareholders from increasing their investment in us and others from investing in us,
which could impact the demand for, and value of, our ADSs.
The
rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation. Particularly, protections
found in provisions under the U.K. Takeover Code may delay or discourage a takeover attempt, including attempts that may be beneficial
to holders of our ADSs.
We
are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders
of our ADSs, are governed by English law, including the provisions the U.K. Companies Act and by our articles of association.
The
U.K. Takeover Code applies, amongst other things, to an offer for a public company whose registered office is in the United Kingdom
and whose securities are admitted to trading on a multilateral trading facility in the United Kingdom, which includes AIM. We
are therefore subject to the Takeover Code.
The
U.K. Takeover Code provides a framework within which takeovers of certain companies organized in the United Kingdom are regulated
and conducted. The following is a brief summary of some of the most important rules of the U.K. Takeover Code:
In
connection with a potential offer, if, following an approach by or on behalf of a potential bidder, the company is “the
subject of rumor or speculation” or there is an “untoward movement” in the company’s share price, there
is a requirement for the potential bidder to make a public announcement about a potential offer for the company, or for the company
to make a public announcement about its review of a potential offer.
When
a person or group of persons acting in concert (i) acquires, whether by a series of transactions over a period of time or not,
interests in shares carrying 30% or more of the voting rights of a company (which percentage is treated by the Takeover Code as
the level at which effective control is obtained) or (ii) increases the aggregate percentage interest they have when they are
already interested in not less than 30% and not more than 50%, they must make a cash offer to all other shareholders at the highest
price paid by them or any person acting in concert with them in the 12 months before the offer was announced.
When
interests in shares carrying 10% or more of the voting rights of a class have been acquired for cash by an offeror (i.e. a bidder)
or any person acting in concert with them in the offer period (i.e. before the shares subject to the offer have been acquired)
or within the previous 12 months, the offer must be in cash or be accompanied by a cash alternative for all shareholders of that
class at the highest price paid by the offeror or any person acting in concert with them in that period. Further, if an offeror
or any person acting in concert with them acquires for cash any interest in shares during the offer period, the offer must be
in cash or accompanied by a cash alternative at a price at least equal to the price paid for such shares during the offer period.
If
after an announcement is made, the offeror or any person acting in concert with them acquires an interest in shares in an offeree
company (i.e. a target) at a price higher than the value of the offer, the offer must be increased accordingly.
The
board of directors of the offeree company must appoint a competent independent adviser whose advice on the financial terms of
the offer must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company.
Favorable
deals for selected shareholders are not permitted, except in certain circumstances where independent shareholder approval is given
and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the offeree company.
All
shareholders must be given the same information.
Those
issuing documents in connection with a takeover must include statements taking responsibility for the contents thereof.
Profit
forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and must be reported
on by professional advisers.
Misleading,
inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately.
Actions
during the course of an offer by the offeree company which might frustrate the offer are generally prohibited unless shareholders
approve these plans. Frustrating actions would include, for example, lengthening the notice period for directors under their service
contract or agreeing to sell off material parts of the target group.
Stringent
requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the prompt disclosure
of positions and dealings in relevant securities by the parties to an offer and any person who is interested (directly or indirectly)
in 1% or more of any class of relevant securities.
Employees
of both the offeror and the offeree company and the trustees of the offeree company’s pension scheme must be informed about
an offer. In addition, the offeree company’s employee representatives and pension scheme trustees have the right to have
a separate opinion on the effects of the offer on employment appended to the offeree board of directors’ circular or published
on a website.
As
an English public company, certain capital structure decisions will require shareholder approval, which may limit our flexibility
to manage our capital structure.
English
law provides that a board of directors may only allot shares (or grant rights to subscribe for, or to convert any security into,
shares) with the prior authorization of shareholders by ordinary resolution, being a resolution passed by a simple majority of
votes cast at a general meeting in person or by proxy, such authorization stating the aggregate nominal amount of shares that
it covers and being valid for a maximum period of five years, each as specified in the articles of association or relevant shareholder
resolution. In either case, this authorization would need to be renewed by our shareholders upon expiration (i.e., at least every
five years). Typically, English public companies renew the authorization of their directors to allot shares on an annual basis
at their annual general meeting.
English
law also generally provides shareholders with preemptive rights when new shares are issued for cash. However, it is possible for
the articles of association, or for shareholders to pass a special resolution at a general meeting, being a resolution passed
by at least 75% of the votes cast, in person or by proxy, to disapply preemptive rights. Such a disapplication of preemptive rights
may be for a maximum period of up to five years from the date of adoption of the articles of association, if the disapplication
is contained in the articles of association, or from the date of the shareholder special resolution, if the disapplication is
by shareholder special resolution, but not longer than the duration of the authority to allot shares to which the disapplication
relates. In either case, this disapplication would need to be renewed by our shareholders upon its expiration (i.e., at least
every five years). Typically, English public companies renew the disapplication of preemptive rights on an annual basis at their
annual general meeting.
English
law also generally prohibits a public company from repurchasing its own shares without the prior approval of shareholders by ordinary
resolution, being a resolution passed by a simple majority of votes cast, at a general meeting in person or by proxy, and other
formalities. Such approval may be for a maximum period of up to five years. See “Description of Securities—General
Description of our Ordinary Shares.”
Claims
of U.S. civil liabilities may not be enforceable against us.
We
are incorporated under English law. All of our assets are located outside the United States. The majority of our senior management
and board of directors reside outside the United States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce judgments obtained in U.S. courts against them or us, including
judgments predicated upon the civil liability provisions of the U.S. federal securities laws.
The
United States and the United Kingdom do not currently have a treaty providing for the reciprocal recognition and enforcement of
judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by
a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized
or enforceable in England and Wales. In addition, uncertainty exists as to whether the English and Welsh courts would entertain
original actions brought in England and Wales against us or our directors or senior management predicated upon the securities
laws of the United States or any state in the United States. Any final and conclusive monetary judgment for a definite sum obtained
against us in U.S. courts would be treated by the courts of England and Wales as a cause of action in itself and sued upon as
a debt so that no retrial of the issues would be necessary, provided that certain requirements are met consistent with English
law and public policy. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of
the U.S. securities laws is an issue for the English court making such decision. If an English court gives judgment for the sum
payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose.
As
a result, U.S. investors may not be able to enforce against us or our senior management, board of directors or certain experts
named herein who are residents of the United Kingdom or countries other than the United States any judgments obtained in U.S.
courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
ADS
holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in
less favorable results to the plaintiff(s) in any such action.
The
deposit agreement governing our ADSs provides that owners and holders of ADSs irrevocably waive the right to a trial by jury in
any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under U.S. federal securities
laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited
by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. Although we
are not aware of a specific federal decision that addresses the enforceability of a jury trial waiver in the context of U.S. federal
securities laws, it is our understanding that jury trial waivers are generally enforceable. Moreover, insofar as the deposit agreement
is governed by the laws of the State of New York, New York laws similarly recognize the validity of jury trial waivers in appropriate
circumstances. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider
whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has
knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs.
In
addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim of fraud
or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or
in the case of an intentional tort claim (as opposed to a contract dispute). No condition, stipulation or provision of the deposit
agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any
provision of U.S. federal securities laws and the rules and regulations promulgated thereunder.
If
any owner or holder of our ADSs brings a claim against us or the depositary in connection with matters arising under the deposit
agreement or the ADSs, including claims under U.S. federal securities laws, such owner or holder may not be entitled to a jury
trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary.
If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of
the applicable trial court, which would be conducted according to different civil procedures and may result in different results
than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending
on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.
USE
OF PROCEEDS
All
of the securities offered by the Registered Holders pursuant to this prospectus will be sold by the Registered Holders for their
respective accounts. We will not receive any of the proceeds from the sale of the securities hereunder.
With
respect to the registration of the Registered Shares, the Registered Holders will pay any underwriting discounts and commissions
incurred by them in disposing of the Registered Shares. We will bear all other costs, fees and expenses incurred in effecting
the registration of the Registered Shares covered by this prospectus, including all registration and filing
fees, Nasdaq listing fees, and fees of our counsel and our independent registered public accountants.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our shares and we do not anticipate paying any cash dividends on our shares
in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion
of our business. Under English law, among other things, we may only pay dividends if we have sufficient distributable reserves
(on a non-consolidated basis), which are calculated as our accumulated realized profits that have not been previously distributed
or capitalized less its accumulated realized losses, so far as such losses have not been previously written off in a reduction
or reorganization of capital.
CAPITALIZATION
The
following table sets forth our cash and cash equivalents, term deposits, indebtedness and capitalization as of December 31, 2020.
This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus.
(in thousands)
|
|
December 31, 2020
|
|
Cash and cash equivalents
|
|
$
|
11,990
|
|
Long term liabilities
|
|
|
1,619
|
|
Equity:
|
|
|
|
|
Share capital
|
|
|
479
|
|
Capital reserves and translation reserve
|
|
|
186,727
|
|
Accumulated deficit
|
|
|
(148,235
|
)
|
Total equity
|
|
$
|
38,971
|
|
Total capitalization
|
|
$
|
40,590
|
|
SELECTED
CONSOLIDATED FINANCIAL DATA
The
selected historical consolidated financial information for the years ended December 31, 2020, 2019 and 2018 and the selected statements
of financial position data as of December 31, 2020 and 2019 have been derived from, and should be read in conjunction with, our audited
consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
Our
historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial data
should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements
and related notes set forth elsewhere in this annual report and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this prospectus.
We
have not included selected historical consolidated financial data for the years ended December 31, 2017 and 2016 or as of December
31, 2018, 2017 and 2016 in the table below as we qualify as an EGC as defined in Section 2(a)(19) of the Securities Act.
|
|
Year ended December 31,
|
|
U.S. dollars in thousands, except share and per share data
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
690
|
|
|
$
|
269
|
|
|
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
23,384
|
|
|
|
29,193
|
|
|
|
27,830
|
|
General and administrative expenses
|
|
|
13,015
|
|
|
|
10,380
|
|
|
|
11,294
|
|
Foreign currency losses (gains)
|
|
|
(699
|
)
|
|
|
957
|
|
|
|
(234
|
)
|
Total operating expenses
|
|
|
35,700
|
|
|
|
40,530
|
|
|
|
38,890
|
|
Loss from operations
|
|
|
(35,010
|
)
|
|
|
(40,261
|
)
|
|
|
(38,890
|
)
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6
|
|
|
|
78
|
|
|
|
379
|
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
Other income
|
|
|
4,496
|
|
|
|
6,883
|
|
|
|
6,378
|
|
Change in fair value of contingent consideration payable
|
|
|
—
|
|
|
|
2,967
|
|
|
|
(465
|
)
|
Total other income (expense), net
|
|
|
4,502
|
|
|
|
9,928
|
|
|
|
6,289
|
|
Net loss before income tax benefit
|
|
$
|
(30,508
|
)
|
|
$
|
(30,333
|
)
|
|
|
(32,601
|
)
|
Income tax benefit
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(30,495
|
)
|
|
$
|
(30,333
|
)
|
|
|
(32,601
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
1,566
|
|
|
|
1,113
|
|
|
|
(3,995
|
)
|
Comprehensive loss
|
|
$
|
(28,929
|
)
|
|
$
|
(29,220
|
)
|
|
|
(36,596
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.46
|
)
|
|
|
(.50
|
)
|
Weighted average common shares used in computing basic and diluted net loss per common share
|
|
|
114,149,743
|
|
|
|
65,493,842
|
|
|
|
65,493,842
|
|
|
|
Years ended December 31,
|
|
U.S. dollars in thousands
|
|
2020
|
|
|
2019
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,990
|
|
|
$
|
5,031
|
|
Total assets
|
|
|
49,099
|
|
|
|
40,826
|
|
Total liabilities
|
|
|
10,128
|
|
|
|
9,639
|
|
Accumulated deficit
|
|
|
(148,235
|
)
|
|
|
(117,740
|
)
|
Total stockholders’ equity
|
|
|
38,971
|
|
|
|
31,187
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
section titled “Selected Consolidated Financial Data” and the consolidated financial statements and related notes
thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences
include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included
elsewhere in this prospectus. For a comparison of our results of operations for the fiscal years ended December 31, 2019 and 2018,
see Management’s Discussion and Analysis of Financial Condition and Results of Operations of 4D Pharma included in Amendment
No. 5 to our registration statement on Form F-4 (File No. 333-250986), filed with the SEC on February 24, 2021.
Overview
4D
Pharma was established with the mission of leveraging the deep and varied interactions between the human body and the gut microbiome,
the trillions of bacteria that colonize the human gastrointestinal tract, to develop an entirely novel class of drug: Live Biotherapeutics.
We are focused on understanding how individual strains of bacteria function and how their interactions with the human host can
be exploited to treat particular diseases, from cancer, respiratory, central nervous system, immunological and gastrointestinal
diseases and disorders.
To
further advance our product pipeline, we have developed MicroRx, our proprietary discovery platform. MicroRx interrogates our
proprietary library of bacterial isolates for therapeutic functionality and comprehensively characterizes the bacterial isolates
using a range of complementary tools and technologies. By developing a thorough understanding of the functionality and mechanism
of action of our therapeutic candidates, we can develop LBPs that target disease pathology rationally and effectively, and expand
our robust sector-leading patent portfolio with additional patents relating to LBP functionality.
To
this end, our key clinical focus areas include immuno-oncology and respiratory disease, with preclinical candidates targeting
CNS and autoimmune conditions. We have completed three clinical trials and currently have five more ongoing. One of our key focus
areas is immuno-oncology, and with our lead immuno-oncology therapeutic candidate, MRx0518, we delivered what we believe to be
the first positive proof of-concept data with a LBP in the treatment of cancer. MRx0518 is being evaluated in three ongoing clinical
trials, including a Phase I/II clinical trial in solid tumors in combination with Keytruda (supplied under a free of charge supply
agreement) in patients with advance or metastatic NSCLC, RCC and UC who are refractory to prior anti-PD-1/ PD-L1 therapy. Additionally,
new cohorts of 10 patients with new tumor types are to be enrolled in the study, including patients with TNBC, HNSCC and MSI-H
high tumors. We successfully completed Part A of this Phase I/II clinical trial and Part B of the clinical trial is currently
enrolling up to an additional 30 patients per tumor type and will assess clinical benefit in addition to safety. We also completed
recruitment for Part A of an ongoing Phase I trial of MRx0518 as a monotherapy in patients undergoing surgical resection of solid
tumors, which is being conducted at Imperial College London. We are currently redesigning Part B of this Phase I clinical trial
after initial data from Part A expressed showed encouraging early biomarker readouts. Our third clinical trial of MRx0518 is a
Phase I clinical trial of MRx0518 in patients with potentially resectable pancreatic cancer in combination with hypofractionated
radiotherapy, which is part of our strategic collaboration with the University of Texas MD Anderson Cancer Center. Meanwhile,
we are engaged in business development activities with the goal of expanding the development of MRx0518 into new settings and
are actively exploring additional collaboration opportunities. Following the year end, in February 2021, we entered into agreement
with Merck KGaA and Pfizer, who co-developed and co-commercialized Bavencio (avelumab) to supply Bavencio free of charge in a
future clinical trial.
We
are also developing therapeutic candidates for our respiratory disease portfolio. MicroRx enabled the discovery of MRx-4DP0004,
an immunomodulatory single strain LBP candidate that demonstrated marked effects in preclinical trials of respiratory inflammation,
particularly in the lungs. A Phase I/II clinical trial of MRx-4DP0004 in partly controlled asthma is ongoing, and to our knowledge
the world’s first clinical trial of an LBP in the indication. We are also investigating MRx4DP0004 in a Phase II clinical
trial as an oral therapeutic to prevent or reduce the hyperinflammatory response in patients hospitalized with COVID-19. The Phase
II trial of MRx-4D0004 received expedited approval from the MHRA in April 2020.
We
continue to utilize the MicroRx platform to discover promising new LBP candidates for major diseases with significant unmet need.
As part of our CNS portfolio, we have identified novel LBP candidates that act upon multiple aspects of the pathology of neurodegenerative
diseases in preclinical models, including gut-barrier function, neuroinflammation and protection of neurons critical to healthy
CNS function. Accordingly, we are currently planning a first-in-human clinical study for our lead CNS therapeutic candidate, MRx0029,
in Parkinson’s disease patients. As part of our commitment to CNS research and drug development, in December 2020, we became
an industry partner of the Parkinson’s Progression Markers Initiative, a longitudinal study sponsored by The Michael J.
Fox Foundation for Parkinson’s Research to better understand Parkinson’s disease and accelerate the development of
new treatments.
In
our gastro-intestinal disease portfolio, we currently have two LBP candidates that have completed early clinical evaluation, Blautix
and Thetanix. Blautix is being developed as the first therapeutic to treat patients with IBS, regardless of clinical subtype. The Phase
II clinical trial results for Blautix provide a strong foundation for the continued development of Blautix as the first therapeutic with
the potential to treat both major subtypes of IBS, and this data will further development strategy around the design of a potential
Phase III pivotal program. Thetanix is a single strain human gut commensal bacteria that has an anti-inflammatory mechanism and is currently
under investigation for the treatment of IBD. Thetanix has an Orphan Drug Designation for pediatric Crohn’s disease from the FDA.
We have successfully completed a Phase Ib clinical trial of Thetanix in pediatric Crohn’s disease patients, and we are exploring
strategic options for Thetanix, including parallel development in pediatric and adult populations in both Crohn’s disease and ulcerative
colitis, as well as potential partners.
In
addition to our internal development programs, we are seeking to realize the value and potential of the MicroRx platform through
collaborations in new areas. In 2019, we entered into a research collaboration and option to license agreement with MSD to discover
and develop LBPs for vaccines. This collaboration pairs our proprietary MicroRx platform with MSD’s expertise in the development
and commercialization of novel vaccines, to discover and develop LBPs as vaccines in up to three undisclosed indications. See
“Business—Collaborations —Research Collaboration and Option to License Agreement with Merck.”
In
2020, the global COVID-19 pandemic hit the United Kingdom, United States and other regions worldwide, affecting almost all aspects
of the economy including the pharmaceutical industry in which we operate. In response we have been proactive, putting the safety
of staff and patients first. We have made good use of technology to minimize disruption to our operations while protecting our
staff. However, as has been seen across the biopharma industry, there have been unavoidable impacts on certain activities, resulting
in some potential delays to expected clinical readouts. We continue to monitor the situation closely and will provide updates
as and when the expected resolution of the situation becomes clearer.
In
light of this unprecedented situation, we have carefully re-evaluated our strategic priorities and near to-mid-term objectives.
We have taken measures to streamline the business, including changes to management structure and reducing staffing requirements,
primarily relating to manufacturing, research and administrative services. We have also prioritized allocation of capital and
resources to key programs, such as oncology and are set to continue to deliver key clinical value drivers for our shareholders
in the coming months.
Key
Performance Indicators
We
track a series of metrics focused primarily on science and product development while ensuring that the business maintains both
sufficient resources and effective allocation of those resources to achieve our strategic goals. The Board and management of 4D
Pharma monitor the following metrics as an indicator of how we are progressing towards the goal of advancing our Live Biotherapeutic
programs:
|
1.
|
Successful
clinical trials – We are a drug development company and will realize long-term value by successfully progressing our
candidates through the clinic to registration and approval. For the year ended December 31, 2020, we had one clinical trial completed
through Phase II. For each of the years ended December 31, 2019 and 2018, we had two clinical trials completed through Phase I/Phase
II.
|
|
|
|
|
2.
|
Clinical
trials initiated by phase – Clinical trials are essential in converting the productivity and potential of our MicroRx
platform and early-stage research into long-term value. In the last year we commenced two new clinical trials, one Phase I
and one Phase II. Shortly after the year ended December 31, 2019, we initiated seven clinical trials: four Phase I clinical
trials; two Phase I/II clinical trials and one Phase II clinical trial. There were three clinical trials that we initiated
for year ended December 31, 2018 of two Phase I clinical trials and one Phase II clinical trials.
|
|
3.
|
Strategic
collaborations – Collaborations enable us to realize the potential of our platform, leveraging the complementary expertise
of our partners. For the year ended December 31, 2020, we had four strategic collaborations and three strategic collaborations
for the year ended December 31, 2019. In December 2020 we became an industry partner of the PPMI, a longitudinal study sponsored
by The Michael J. Fox Foundation for Parkinson’s Research to better understand Parkinson’s disease and accelerate the
development of new treatments. Our representatives will join the Partner Scientific Advisory Board closely involved in the design
and execution of the study, as well as a variety of PPMI Working Groups. In February 2021, we announced a clinical trial collaboration
and supply agreement with Merck KGaA, Darmstadt, Germany and Pfizer Inc. for Bavencio (avelumab), under which we intend to commence
a clinical trial in 2021 to evaluate Bavencio in combination with MRx0518 as a first-line maintenance therapy for patients with locally
advanced or metastatic urothelial carcinoma that has not progressed with first-line platinum-containing chemotherapy. These partnerships
are in addition to an ongoing strategic collaboration with the University of Texas MD Anderson Cancer Center, to evaluate our Live
Biotherapeutic oncology pipeline across a range of cancer settings, a clinical collaboration with MSD to evaluate MRx0518 in combination
with Keytruda, an anti-PD-1 ICI marketed by MSD, in patients with in patients with metastatic solid tumors that are refractory to
prior anti-PD-1/PD-L1 therapy, and a research collaboration and option to license agreement with MSD to discover and develop vaccines
derived from our proprietary gut microbiome-derived commensal bacteria selected from our culture collection for use in up to three
indications, combining our MicroRx platform with MSD’s world-leading expertise in vaccine development. If MSD successfully
develops vaccines under this agreement, we will be eligible to receive milestone payments of up to approximately $1 billion as well
as high single-digit royalties on sales. See “Business—Collaborations” for more information on our strategic collaborations.
|
|
|
|
|
4.
|
Intellectual
property portfolio – Intellectual property is essential to our strategy and capturing the value of our world-leading
research output. We have continued to invest significantly in expanding our intellectual property rights, and by December
31, 2020, had initiated 65 patent families including over 1,000 granted patents providing coverage for our pipeline and clinical-stage
candidates, manufacturing innovations and novel diagnostic approaches across major global markets.
|
|
|
|
|
5.
|
Cash
and equivalents – We continue to invest capital from our shareholders and partners into supporting research and clinical
development programs, to generate the critical data to advance this novel modality. See Liquidity and Capital Resources section
below for additional information.
|
|
|
|
|
6.
|
Research
and development spend – Investment in research and development (“R&D”) is central to our progress and
returning long-term value. Our unique approach allows rapid translation from bench to bedside. For the year ended December
31, 2020, our R&D spend was $23.4 million compared to $29.2 million for the year ended December 31, 2019. While maintaining
our strategy to invest in our clinical development programs on a long-term basis, the decrease is reflective of the effects
COVID-19 has had on both our clinical trials and structure of the business after management took quick action to reduce costs.
|
Critical
Accounting Policies
We
describe our significant accounting policies more fully in Note 2 to our consolidated financial statements included elsewhere
in this prospectus. We believe that the accounting policies described below and in Note 2 are critical in order to fully understand
and evaluate our financial condition and results of operations.
We
prepare our financial statements in accordance with U.S. GAAP. At the time of the preparation of the consolidated financial statements
management is required to use estimates, evaluations, and assumptions which affect the application of the accounting policy and
the amounts reported for assets, obligations, income, and expenses. Any estimates and assumptions are continually reviewed. The
changes to the accounting estimates are credited during the period in which the change to the estimate is made.
Revenue
Recognition
For
the year ended December 31, 2020 and 2019, we recognized revenue from our research collaboration and option agreement. The balance
of the upfront payment has been deferred. Our research collaboration and option agreement with MSD is for the development of novel
vaccines (the “MSD Collaboration Agreement”). The MSD Collaboration Agreement is within the scope of ASC 606, “Revenue
from Contract with Customer” (“ASC 606”).
Under
ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects
the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount
of revenue to be recognized for arrangements determined to be within the scope of ASC 606, management performs the following five
steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods
or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement
of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the
performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the
five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for
the goods or services it transfers to the customer.
Performance
obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered
distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources
and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised
goods or services are distinct, management considers factors such as the stage of development of the underlying intellectual property,
the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily
available and whether the goods or services are integral to or dependent on other goods or services in the contract.
We
measure the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring
the promised goods and/or services to the customer. We utilize the “most likely amount” method to estimate the amount
of variable consideration, to predict the amount of consideration to which it will be entitled for its one open contract. Amounts
of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal
in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration
is subsequently resolved. At the inception of each arrangement that includes development and regulatory milestone payments, management
evaluates whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction
price using the most likely amount method. Currently, we have one contract with an option to acquire exclusive licenses for identified
targets for development product candidates which it evaluated and determined that it was not a material right related to the MSD
Agreement.
We
allocate the transaction price based on the estimated stand-alone selling price of each of the performance obligations. We must
develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified
in a contract with a customer. We utilize key assumptions to determine the stand-alone selling price for service obligations,
which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Additionally,
in determining the standalone selling price for material rights, we may reference comparable transactions, clinical trial success
probabilities, and develop estimates of option exercise likelihood. Any variable consideration is allocated specifically to one
or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance
obligation and the resulting amounts allocated are consistent with the amount we would expect to receive for the satisfaction
of each performance obligation.
The
consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods
or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess
the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time
or at a point in time and, if over time, the appropriate method of measuring progress. Management evaluates the measure of progress
each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Development
and regulatory milestone payments are assessed under the most likely amount method and constrained if it is probable that a significant
revenue reversal would occur. Milestone payments that are not within our control or the licensee’s control, such as regulatory
approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period,
management re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary,
adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which
would affect license revenues in the period of adjustment.
For
revenue related to sales-based royalties received from licensees, including milestone payments based on the level of sales, where
the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when
the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been
satisfied (or partially satisfied). To date, we have not recognized any consideration related to sales-based royalty revenue resulting
from our MSD Collaboration Agreement.
To
the extent we receive payments, including non-refundable payments, in excess of the recognized revenue, such excess is recorded
as deferred revenue until we perform our obligations under these arrangements. Amounts are recorded as accounts receivable when
our right to consideration is unconditional.
Functional
and Reporting Currency
Our,
and our subsidiaries (other than the non-UK subsidiaries mentioned below), functional currency is the GPB. The operations of the
two foreign subsidiaries are conducted in euros. Balances denominated in, or linked to, foreign currencies are stated on the basis
of the exchange rates prevailing at the balance sheet date. For foreign currency transactions included in the statement of operations
and comprehensive loss, the exchange rates applicable to the relevant transaction dates are used. Transaction gains or losses
arising from changes in the exchange rates used in the translation of such balances are carried to financing income or expenses.
Assets and liabilities of the two subsidiaries are translated from their functional currency to GBP at the balance sheet date
exchange rates. Income and expense items are translated at the average rates of exchange prevailing during the year. Translation
adjustments are reflected in the consolidated balance sheets as a component of accumulated other comprehensive income or loss.
Our,
and our subsidiaries, reporting currency is the USD and these consolidated financial statements are presented in USD. Dollar amounts
included herein are in thousands, except per share data. Stockholders’ equity is translated into USD from GBP at historical
exchange rates. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenses
are translated at the average exchange rates prevailing during the reporting period. Adjustments resulting from translating the
financial statements into USD are recorded as a separate component of Accumulated Other Comprehensive Loss in stockholders’
equity.
Goodwill
and Indefinite Assets
Goodwill
represents the excess of the purchase price over the fair value of identifiable net assets off an acquired business. Our acquired
research and development is an indefinite lived asset. These assets are accounted for under FASB ASC Topic 350, “Goodwill
and Other Intangibles”, under which these assets are not amortized but instead are reviewed annually, or more frequently
as a result of an event or change in circumstances, for possible impairment with impaired assets written down to fair value. Management’s
judgments regarding the existence of impairment indicators, on an interim or annual basis, are based on various factors, including
market conditions and operational performance of our business. As of December 31, 2020 and 2019, we had $13.5 million and $12.7
million of goodwill accounting for 27% and 31% of our total assets, respectively, and $6.2 million and $5.9 million of research
and development intellectual property, respectively. We test our goodwill and indefinite lived assets for impairment at least
annually. This test is conducted in December of each year in connection with the annual budgeting and forecast process. Also,
on a quarterly basis, we evaluate whether events or changes in circumstances have occurred that would negatively impact the realizable
value of our intangibles or goodwill.
We
completed our annual goodwill and indefinite lives assets impairment analysis as of December 31, 2020, for our singular reporting
unit. Our assessment concluded that there was no impairment of goodwill. Our analysis employed the use of both a market and income
approach, with each method given equal weighting. Significant assumptions used in the income approach include growth and discount
rates, profit margins and our weighted average cost of capital. We used historical performance and management estimates (based
on comparable product market data) to assess the future performance and determine profit margins and growth rates. Our weighted
average cost of capital was based on market data for similar stage companies. The fair value was evaluated as being in excess
of the goodwill carrying value. Considerable management judgment is necessary to evaluate the impact of operating changes and
to estimate future cash flows. Changes in our actual results and/or estimates or any of our other assumptions used in our analysis
could result in a different conclusion.
Research
and Development Expenses
We
have entered into various research and development-related contracts with research institutions, CROs, contract manufacturers
and other companies. These agreements are generally cancellable, and related payments are recorded as research and development
expenses as incurred. Costs of certain development activities, such as manufacturing, pre-clinical and clinical trial expenses,
are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities are based
on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated
financial statements as prepaid or accrued research and development costs. Non-refundable advance payments for goods or services
to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts
are expensed as the related goods are delivered or the services are performed. Costs incurred in obtaining technology licenses
are charged to research and development expense as acquired in-process research and development if the technology licensed has
not reached technological feasibility and has no alternative future use.
Share-based
Compensation
Equity
settled share-based payment transactions are measured with reference to the fair value of equity awards at the date of grant,
and recognized on a straight-line basis over the vesting period, based on our estimate of shares that will eventually vest. Fair
value is measured using a suitable option pricing model, which takes into account any market conditions.
At
each reporting date before vesting, the cumulative expense is calculated, representing both the extent to which the vesting period
has expired and management’s best estimate of the achievement or otherwise of non-market conditions. This calculation determines
the number of equity instruments that will ultimately vest with the movement in cumulative expense since the previous reporting
date recognized in the Consolidated Statements of Operations and Other Comprehensive Loss, with a corresponding entry in equity.
When
share-based payments have lapsed due to a failure to meet performance criteria, no expense is recognized and any previously recognized
expense is reversed when the lapse occurs. Where share-based payments fail to vest as a result of market-based vesting criteria,
the fair value of the award is expensed and included in the Consolidated Statements of Operations and Comprehensive Loss as an
expense until the fair value is recognized in full.
Income
Taxation
We
account for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly,
we recognize deferred tax assets and liabilities for the expected impact of differences between the financial statements and the
tax basis of assets and liabilities.
We
account for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP.
The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority
as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits
of the position are recognized.
We
record a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the
event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the recorded amount,
an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise,
should we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to operations in the period such determination was made. As of December 31, 2020, we
had a valuation allowance of $16.0 million.
Significant
Contracts and Agreements Related to Research and Development Activities
Collaboration
Agreements
MSD
Collaboration Agreement
In
October 2019, the Company entered into the MSD Collaboration Agreement. The MSD Collaboration Agreement is for the use of the
Company’s MicroRx discovery platform to discover and develop LBP candidates as vaccines in up to three indications. The
Company is responsible for the discovery and engineering of the LBPs.
Under
the MSD Collaboration Agreement, the Company received a non-refundable, upfront payment, of $2.5 million, a $5.0 million equity
investment, and are eligible to receive milestone payments of up to approximately $1 billion as well as high single-digit royalties
on sales. The achievement and timing of the milestones depend on the success of development, approval and sales progress, if any,
of vaccines in the future.
For
the years ended December 31, 2020 and 2019, we have recognized $0.7 million and $0.3 million in collaboration revenues, respectively.
Associated costs of sale of $1.3 million and $0.3 million, respectively, are included within research and development costs in
the consolidated statements of operations and comprehensive loss. Amounts expected to be recognized as revenue within the 12 months
following the balance sheet date are classified as a current portion of deferred revenue in the balance sheets in our financial
statements included elsewhere in this prospectus. Amounts not expected to be recognized as revenue within the 12 months following
the balance sheet date are classified as deferred revenue, net of current portion. As of December 31, 2020, we have current deferred
revenues of $1.3 million and long-term deferred revenues of $0.3 million, which will be recognized as the research and development
costs and labor effort are incurred, which is expected to be a three-year period.
MD
Anderson Collaboration Agreement
In
November 2017 we established a strategic collaboration with the University of Texas MD Anderson Cancer Center, to evaluate 4D
Pharma’s Live Biotherapeutic oncology pipeline across a range of cancer settings. Under the agreement, we provide funding
and in-kind support for pre-clinical and clinical studies in solid tumors and radiation oncology.
For
the years ended December 31, 2020 and 2019, we have recognized $1.7 million and $1.7 million, respectively, in costs from MD Anderson
which are included within research and development costs in the consolidated statement of operations and comprehensive loss.
Results
of Operations
Revenues
We
have not generated commercial revenues from product sales. To date, we have generated revenues from the collaboration agreement
with MSD Collaboration Agreement.
Operating
Expenses
We
generally recognize operating expenses as they are incurred in two general categories, general and administrative expenses and
research and development expenses. Our operating expenses also include non-cash components related to depreciation and amortization
of property and equipment, intangibles, and stock-based compensation, which are allocated, as appropriate to general and administrative
expenses and research and development expenses.
General
and administrative expenses consist of salaries and related expenses for executive, legal, finance and administrative personnel,
as well as professional fees, insurance costs, and other general corporate expenses. Management expects general and administrative
expenses to increase in future periods as we add personnel and incurs additional expenses related to an expansion of our research
and development activities and our operation as a public company, including higher legal, accounting, insurance, compliance, compensation
and other expenses.
Patent
spend has reduced overall since 2018 as we implemented various cost saving measures including limiting the territorial protection
for patents protecting non-core assets and making direct contact with suppliers in foreign territories therefore bypassing intermediary
markup costs.
Staff
costs increased in 2019 in line with increases in staff numbers before the COVID-19 pandemic occurred in 2020 which resulted in
the 4D Pharma’s Board taking decisive action, reducing staffing levels.
Our
research and development expenses consist primarily of salaries and related personnel expenses, contractual commitments, depreciation
and amortization and other expenses. We charge research and development expenses to operations as they are incurred. Costs are
not directly tied to a specific product candidate until such product candidate reaches the clinical trial stage. Product candidates
often have more than one associated clinical trial related to different therapeutic areas or clinical indications. Once a product
candidate enters a clinical trial, we track costs of such clinical trial but do not track other costs associated with specific
clinical indications which are pooled.
The
following table discloses the breakdown of research and development expenses:
|
|
For the Year Ended December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Contractual commitments
|
|
$
|
12,080
|
|
|
$
|
16,190
|
|
|
$
|
9,958
|
|
Staff costs
|
|
|
5,823
|
|
|
|
6,414
|
|
|
|
5,906
|
|
Depreciation and amortization
|
|
|
1,278
|
|
|
|
1,171
|
|
|
|
1,427
|
|
Other MicroRx research costs
|
|
|
3,032
|
|
|
|
1,572
|
|
|
|
6,796
|
|
Other MicroDx research costs
|
|
|
79
|
|
|
|
658
|
|
|
|
1,251
|
|
Other manufacturing research and development costs
|
|
|
1,092
|
|
|
|
3,187
|
|
|
|
2,492
|
|
Total
|
|
$
|
23,384
|
|
|
$
|
29,193
|
|
|
$
|
27,830
|
|
Over
the last year we have continued to lead the development of LBPs, further expanding our clinical development activities –
generating clinical data in multiple indications while launching new trials. Meanwhile, we continued to progress promising new
LBP candidates in exciting new areas like Parkinson’s disease. While we continue to rapidly progress our proprietary development
candidates into and through the clinic, we are also leveraging the MicroRx platform to generate value through partnerships, such
as our research collaboration with MSD in the vaccines space which serves as an example of the potential of the platform and provides
a valuable endorsement from an industry leading partner.
In
2020 we made significant progress in the clinical development of lead immuno-oncology candidate MRx0518, launching our third clinical
trial, in resectable pancreatic cancer. We also generated data from the two ongoing clinical trials of MRx0518 in different treatment
settings, completing Part A of a Phase I/II combination study of MRx0518 with Keytruda in solid tumors refractory to prior anti-PD-1/PD-L1
therapy, and completing Part A of our Phase I study of MRx0518 as a neoadjuvant monotherapy. Following successful completion of
Part A, we initiated, expanded and accelerated enrolment of Part B of the MRx0518 and Keytruda combination study, with the inclusion
of additional tumor type cohorts and bringing additional clinical sites on board. We also launched a Phase II clinical trial of
MRx-4DP0004 as an oral therapeutic to prevent or reduce the hyperinflammatory response in patients hospitalized with COVID-19.
Enrollment for the ongoing Phase I/II trial of MRx-4DP0004 in partly controlled asthma was impacted by the COVID-19 pandemic.
A Phase II clinical trial of Blautix for irritable bowel syndrome with constipation (“IBS-C”) or IBS-D was completed
in the period.
In
February 2021, we announced a clinical trial collaboration and supply agreement with Merck KGaA, Darmstadt, Germany and Pfizer
Inc. for Bavencio (avelumab), under which we intend to commence a clinical trial in 2021 to evaluate Bavencio in combination with
MRx0518 as a first-line maintenance therapy for patients with locally advanced or metastatic urothelial carcinoma that has not
progressed with first-line platinum-containing chemotherapy.
Costs
for the year included the completion of Blautix, coupled with the three clinical trials of our therapeutic candidate, MRx0518,
and the Phase I/II clinical trial of MRx-4DP0004 in partly controlled asthma and Phase II clinical trial of MRx-4DP0004 as an
oral therapeutic to prevent or reduce the hyperinflammatory response in patients hospitalized with COVID-19. Despite the ongoing
trials above and the anticipated launch of a fourth trial of MRx0518 in 2021 in combination with Bavencio, we anticipate that
our research and development expenses for 2021 will remain at a similar level to that experienced in 2020.
The
completion of the Blautix trial in the early part of 2021 and issues with patient recruitment created by COVID-19 in our Asthma
trial reduced overall contractual commitments from $16.2 million in 2019 to $12.1 million in 2020, a decrease of $4.1 million.
COVID-19 then provided a point of inflection, with management taking swift action to scale back operations and cut costs or redirect
resources across to other areas of study reducing a number of costs including those for MicroDx research, other manufacturing
and research and development. However, there was some offset for these costs due to increases in other MicroRx research elements
stemming from other items including those for the manufactured supply and development of MRx518 product.
Comparison
of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
Results
of Operations
|
|
For the Year Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
690
|
|
|
$
|
269
|
|
|
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
23,384
|
|
|
|
29,193
|
|
|
|
27,830
|
|
General and administrative expenses
|
|
|
13,015
|
|
|
|
10,380
|
|
|
|
11,294
|
|
Foreign currency losses (gains)
|
|
|
(699
|
)
|
|
|
957
|
|
|
|
(234
|
)
|
Total operating expenses
|
|
|
35,700
|
|
|
|
40,530
|
|
|
|
38,890
|
|
Operating loss
|
|
|
(35,010
|
)
|
|
|
(40,261
|
)
|
|
|
(38,890
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6
|
|
|
|
78
|
|
|
|
379
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
Other income
|
|
|
4,496
|
|
|
|
6,883
|
|
|
|
6,378
|
|
Change in fair value of contingent consideration payable
|
|
|
-
|
|
|
|
2,967
|
|
|
|
(465
|
)
|
Total other income, net
|
|
|
4,502
|
|
|
|
9,928
|
|
|
|
6,289
|
|
Net loss before income tax benefit
|
|
|
(30,508
|
)
|
|
|
(30,333
|
)
|
|
|
32,601
|
|
Income tax benefit
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(30,495
|
)
|
|
$
|
(30,333
|
)
|
|
|
(32,601
|
)
|
Revenues
We
have not generated commercial revenues from product sales. To date, our sole source of generated revenues have come from our MSD
Collaboration Agreement. Revenues from our MSD Collaboration Agreement totaled $0.7 million and $0.3 million for the years ended
December 31, 2020 and 2019, respectively.
Research
and Development Expenses
Our
research and development expenses totaled $23.4 million for the year ended December 31, 2020, representing a decrease of $5.8
million, or 19.9%, compared to $29.2 million for the year ended December 31, 2019. Although costs for the running of our cancer
trials increased by $1.2 million, the completion of the Blautix Ph II clinical trial in the first half of the year meant that
there were no significant second half costs when compared to 2019, this created an overall reduction in costs when compared to
the full year for 2019 equating to $2.5 million. Furthermore, the cumulative effect of COVID-19, which both slowed recruitment
for our Asthma trails and triggered a number of costs reduction initiatives, resulted in an overall decrease in costs in other
areas of $3.3 million when compared to 2019.
General
and Administrative Expenses
Our
general and administrative expenses totaled $13.0 million for the year ended December 31, 2020, representing an increase of $2.6
million, or 25.0%, compared to $10.4 million for the year ended December 31, 2019. The increase was related to the exploration
of funding options, Nasdaq readiness, restructuring costs and increased patent costs, which were offset, in part, by reductions
on staff costs and travel expenses as a result of COVID-19. General and administrative expenses are mainly attributed to staff
costs, contractual commitments, legal and professional expenses patent costs, depreciation and amortization.
Foreign
Currency Losses (Gains)
For
foreign currency transactions included in the statement of operations and comprehensive loss, the exchange rates applicable to
the relevant transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation
of such balances are carried to foreign currency losses (gains). We recognized foreign currency gains of $0.7 million for the
year ended December 31, 2020, compared to foreign currency losses of $1.0 million for the year ended December 31, 2019. The change
is due to the changes in the exchange rates.
Operating
Loss
As
a result of the foregoing, our operating loss totaled $35.0 million for the year ended December 31, 2020, representing a decrease
of $5.3 million, or 13.2%, compared to $40.3 million for the year ended December 31, 2019.
Interest
Income
Interest
income consists of interest earned on our short-term investments. We recognized interest income of $6 thousand for the year ended
December 31, 2020, representing a decrease of $72 thousand, or 92.3%, compared to $78 thousand for the year ended December 31,
2019. The decrease was primarily attributable to the reduction in short-term investments during the year ended December 31, 2019.
Other
Income
Other
income consists of UK and Irish tax credit refunds based on a portion of our research and development expenses. This refund is
treated as a governmental grant. Other income was $4.5 million for the year ended December 31, 2020, representing a decrease of
$2.4 million, or 34.7%, compared to $6.9 million for the year ended December 31, 2019. The decrease was due to the decrease in
research and development expenses over the prior year.
Change
in Fair Value of Contingent Consideration Payable
The
change in fair value of contingent consideration payable relates to payment milestones for the MicroDx platform achievable on
the recruitment of a certain number of patients and on regulatory approval of a medical device following the recruitment. There
was no change in the fair value of the contingent consideration payable at December 31, 2020 as the milestones had failed or the
probability of failure was effectively established based on progress relative to the time-based recognition endpoints. Based on
the failure of completing these milestones within the required timeframes, we reduced the fair value of the contingent consideration
payable to $0 at December 31, 2019, which triggered a change in the fair value of contingent consideration income of $3.0 million
for the year ended December 31, 2019.
Net
Loss
As
a result of the foregoing, our net loss was $30.5 million for the year ended December 31, 2020, representing an increase of $0.2
million, or 0.1%, compared to $30.3 million for the year ended December 31, 2019.
Liquidity
and Capital Resources
Overview
Since
our inception through December 31, 2020, we have funded our operations principally from the sales of our common shares and the
MSD Collaboration Agreement. As of December 31, 2020, we had $12.0 million in cash and cash equivalents.
The
table below presents our cash flows for the periods indicated:
|
|
For the Year Ended
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
$
|
(27,270
|
)
|
|
$
|
(28,683
|
)
|
|
|
(30,158
|
)
|
Cash (used in) provided by investing activities
|
|
|
(230
|
)
|
|
|
12,283
|
|
|
|
35,951
|
|
Cash provided by (used in) financing activities
|
|
|
34,467
|
|
|
|
(14
|
)
|
|
|
(13
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(8
|
)
|
|
|
1,000
|
|
|
|
(1,386
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
6,959
|
|
|
$
|
(15,414
|
)
|
|
|
4,394
|
|
Operating
Activities
Net
cash used in operating activities of $27.2 million during the year ended December 31, 2020, was primarily related to $18.4 million
for clinical trials and research including other third-party expenses and an aggregate of $8.4 million in salary and other staff
costs, a further $5.4 million is attributable to patent spend. These expenses were offset by the $6.9 million in research and
development tax credits. Net cash used in operating activities of $28.7 million during the year ended December 31, 2019, was primarily
related to $22.0 million for clinical trials and research including other third-party expenses and an aggregate of $9.0 million
in salary and other staff costs, a further $5.0 million is attributable to patent spend. These expenses were offset by the receipt
of the $2.5 million upfront payment related to the MSD Collaboration Agreement and $6.0 million in research and development tax
credits.
Investing
Activities
Net
cash used in investing activities of $0.2 million during the year ended December 31, 2020, was due to the purchases of property
and equipment and software. Net cash provided by investing activities of $12.3 million during the year ended December 31, 2019,
was due to the maturities of short-term investments of $13.0 million, offset, in part, by purchases of property and equipment
and software of $0.8 million.
Financing
Activities
Net
cash provided by financing activities of $34.5 million during the year ended December 31, 2020 was primarily related to the issuance
of common stock of $32.9 million, issuance of warrants valued at $3.4 million and warrant exercises of $0.1 million, offset
in part by $1.9 million of deferred merger costs. Net cash used in financing activities in the year ended December 31, 2019 consisted
of $14 thousand in lease payments.
In
July 2020, we completed the sale of 21.9 million ordinary shares at £0.35 ($0.44) per share for a total of approximately
£7.7 million ($10 million) or £7.3 million ($9.5 million) net of transaction costs.
In February 2020, we completed
the sale of 44 million ordinary shares at £0.50 ($0.65) per share for a total of £22 million
($28.6 million) or £20.8 million ($26.8 million) net of transaction costs. Warrants were issued on March 9, 2020 on the
basis of one warrant for every two shares acquired. The warrants have an exercise price of £1.00 ($1.37) per share, are
immediately exercisable, expire five years from issuance and cannot be traded on a regulated market.
Current
Outlook
We
have historically financed our operations primarily through the sale of common stock. The Company intends to continue to raise
additional capital through sales of common stock, but there can be no assurance that these funds will be available or that they
are readily available at terms acceptable to the Company or in an amount sufficient to enable the Company to continue its development
and commercialization of its products or sustain operations in the future.
We
have incurred losses and generated negative cash flows from operations since inception. To date we have not generated significant
revenue, and we do not expect to generate significant revenues from the sale of our product candidates in the near future. In
order to capture the potential of the platform and maximize value creation, we are actively pursuing additional research collaborations,
pairing our expertise in LBP discovery and development and access to our library of well characterized bacterial isolates with
the disease-specific expertise of partners. The amounts that we actually spend for any specific purpose may vary significantly
and will depend on a number of factors, including, but not limited to, our research and development activities and programs, clinical
testing, regulatory approval, market conditions, and changes in or revisions to our business strategy and technology development
plans. Investors will be relying on the judgment of our management regarding the application of the proceeds from the sale of
our ordinary shares.
On
March 22, 2021, we completed a merger with Longevity a publicly-traded special purpose acquisition company. Shareholders of Longevity
received our ADSs, and Longevity became our wholly-owned subsidiary.
At
closing, Longevity merged with and into Merger Sub, our new wholly owned subsidiary, with Merger Sub continuing as the surviving
company. Each of Longevity’s common shares issued and outstanding prior to the effective time of the merger (excluding shares
held by the Company and Longevity and dissenting shares, if any) were automatically converted into the right to receive certain
per share merger consideration (as defined below), and each warrant to purchase Longevity’s ordinary shares and right to
receive Longevity’s ordinary shares that is outstanding immediately prior to the effective time of the merger was assumed
by us and automatically be converted into a warrant to purchase our common stock and a right to receive our common stock, payable
in our ADSs, respectively. The per share merger consideration consisted of 7.5315 common shares, payable in ADSs (each ADS representing
8 ordinary shares), for each issued and outstanding ordinary shares of Longevity. Longevity had $11.6 million at the time of the
merger after paying all of its debtors.
Concurrently
with the completion of the Merger, on March 22, 2021, we raised £18.0 million ($25.0 million) through the issuance of 16,367,332
common shares at a share price of £1.10 or ($1.53) per share, pursuant to the PIPE Investment. In addition, on April
23, 2021, pursuant to the Additional PIPE Investment, we issued 1,317,680 ordinary shares at a share price of £1.10 ($1.53)
representing £1.44 million ($2.0 million) to Duncan Peyton and Alexander Stevenson.
Additionally,
in March 2021, our subsidiary in Spain, received a €1.0 million (£0.86 million or $1.2 million) overdraft facility
supported by the Spanish government as part of its COVID-19 relief package. The overdraft is unsecured, incurs annual interest
at a rate of 2.35% and is repayable in full at the end of three years. To date, we have not drawn down any funds from the overdraft
facility.
As
of December 31, 2020, our cash and cash equivalents were $12.0 million. We expect that our existing cash and cash equivalents,
including the cash received in the merger with Longevity, the sale of our common shares and the receipt from an overdraft facility,
all in March 2021, will be sufficient to fund our operations through the second quarter of 2022. For further information, see
the Subsequent Events note that accompanies our audited consolidated financial statements included elsewhere in this prospectus.
We
currently anticipate that we will require approximately $35.4 million for research and development activities over the course
of the next 18 months based on the execution of existing programs but also dependent on exchange rates. We also anticipate that
we will require approximately $23.6 million for general and administrative costs over such 18-month period, which consists primarily
of expenditures for staff costs, legal and other professional fees, patent costs and other administrative expenses. We also estimate
receiving approximately $9.0 million in cash for research and development tax credit refunds over this 18-month period.
In
addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek
additional funds sooner than planned. Our future capital requirements will depend on many factors, including:
|
●
|
the
length of the COVID-19 pandemic and its impact on our planned clinical trials, operations and financial condition;
|
|
|
|
|
●
|
the
progress and costs of our pre-clinical studies, clinical trials and other research and development activities;
|
|
|
|
|
●
|
the
scope, prioritization and number of our clinical trials and other research and development programs;
|
|
|
|
|
●
|
any
cost that we may incur under in- and out-licensing arrangements relating to our therapeutic candidates that we may enter into
in the future;
|
|
|
|
|
●
|
the
costs and timing of obtaining regulatory approval for our therapeutic candidates;
|
|
|
|
|
●
|
the
costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
|
|
|
|
|
●
|
the
costs of scaling our manufacturing capabilities for production of sufficient clinical and commercial quantities of our therapeutic
candidates;
|
|
|
|
|
●
|
the
potential costs of contracting with third parties to provide marketing and distribution services for us or for building such
capacities internally; and
|
|
|
|
|
●
|
the
costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications
of our product candidates and the magnitude of our general and administrative expenses;
|
|
|
|
|
●
|
the
timing of payment and changes to tax regimes relate to our research and development tax credits;
|
|
|
|
|
●
|
the
costs of operating as a public company; and
|
|
|
|
|
●
|
adverse
trial results that would invalidate further investment in a product or products.
|
Until
we can generate significant revenues, if ever, we expect to satisfy our future cash needs through our existing cash, cash equivalents
and short-term deposits, the net proceeds from equity financings, or by out-licensing applications of our product candidates.
We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available,
we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts
with respect to, one or more applications of our product candidates.
Principal
Commitments
Leased
Facilities
We
have two real estate leases classified as operating leases, one on Spain and one in the UK. No additional leases were entered
into during the periods.
The
UK lease was for our headquarters in Leeds, England. The premises comprise office space and parking and are for a ten-year term
which commenced in May 2017. A tenant lease break clause is available in May 2022 which has not been included in the lease calculations
as there is no indication that this would be executed. Lease escalation costs have been included on a fixed rate basis as a practical
expedient. The lease includes a provision to return the premises to their original condition on exit, as such an asset retirement
obligation has been included in other liabilities of $0.2 million at December 31, 2020.
The
Spanish lease relates to our manufacturing premises in Leon, Spain. The agreement is for a ten-year term which commenced in April
2016 and includes a tenant lease break clause that can be executed after providing six months’ written notice at any point
five years from the commencement date, again this break clause has not been included in the lease value as there is no evidence
that this will be executed. Lease escalation cost have also been included on a fixed rate basis as a practical expedient. The
lease includes the requirement to make certain repairs and as such an asset retirement obligation has been included in other liabilities
at $38 thousand at December 31, 2020.
JOBS
Act Accounting Election
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 an emerging growth 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 an election to opt out is irrevocable.
We have elected to use the extended transition period to enable us to comply with new or revised accounting standards that have
different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth
company and (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result,
our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public
company effective dates.
We
will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more
than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700.0
million of equity securities held by non-affiliates; (iii) the date on which we have issued more than $1.0 billion in non-convertible
debt securities during the prior three-year period; and (iv) the last day of the fiscal year following the fifth anniversary of
the completion of the Merger.
This
may make comparison of our financial statement 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 accounting standards.
Contractual
and Other Commitments
The
following table sets forth certain information concerning our estimated fixed obligations and commitments to make future payments
under existing contracts at December 31, 2020.
Payments
Due by Period
Description
|
|
Total
|
|
|
Less Than One Year
|
|
|
1 – 3 Years
|
|
|
3 – 5 Years
|
|
Operating lease obligations
|
|
$
|
1,914
|
|
|
$
|
318
|
|
|
$
|
994
|
|
|
$
|
602
|
|
Total
|
|
$
|
1,914
|
|
|
$
|
318
|
|
|
$
|
994
|
|
|
$
|
602
|
|
Off-Balance
Sheet Arrangements
Except
for standard operating leases, we did not engage in any off-balance sheet arrangements, such as the use of unconsolidated subsidiaries,
structured finance, special purpose entities or variable interest entities before the year end.
We
do not believe that our off-balance sheet arrangements and commitments have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Business
Overview
We
are a pharmaceutical company developing LBPs, a novel class of drug derived from the human microbiome. Our differentiated approach,
as described above, has generated a pipeline of single strain LBPs targeting oncological, respiratory, Central Nervous System
(“CNS”) and gastrointestinal diseases. In recent months, we believe this approach has been validated by clinical
results in our programs in immune-oncology and gastrointestinal disease.
Our
LBPs are a novel class of biologics based on live organisms, namely single strains of naturally-occurring bacteria. These bacteria
are not genetically modified and are originally isolated from healthy human donors. Our therapeutic candidates are therefore ‘live’
drugs that can provide therapeutic benefit via their interaction with host biology, whether by their peptide structural components
such as peptides, primary or secondary metabolites or other means. In contrast, biologics, such as antibodies, are not ‘live’
compounds and, generally speaking, are not naturally occurring molecules. As naturally occurring, non-engineered, commensal bacteria
originally isolated from healthy human donors, our LBPs are expected, and to date have been found to be well tolerated compared
to other drugs’ modalities such as small molecules or to biologics, given that they are single strains of naturally-evolved
human commensal microbes that act on the gut-body network without significant risk of systemic exposure. To date, this has meant
that we can accelerate our therapeutic candidates from discovery and pre-clinical testing into clinical trials faster than traditional
therapeutic modalities such as small molecules or biologics. For all of our clinical-stage LBP candidates to date, regulators
including the FDA have allowed us to conduct first-in-human clinical trials in our target patient population without requiring
us to first conduct traditional Phase I safety studies in healthy volunteers or long-term animal toxicology testing. These factors
reduce the cost and time to generate meaningful in-patient clinical data for our therapeutic candidates compared to small molecules
or biologics targeting the same diseases.
To
further advance our product pipeline, we have developed MicroRx, our LBP discovery platform. MicroRx interrogates our proprietary
library of bacterial isolates for therapeutic functionality and comprehensively characterizes the bacterial isolates using a range
of complementary tools and technologies. By developing a thorough understanding of the mechanism of action of our therapeutic
candidates and their interaction with host biology, we can develop LBPs that target disease pathology rationally and effectively
and further expand our robust sector-leading patent portfolio with additional patents relating to LBP functionality.
The
functionality of bacteria and their impact on human biology is diverse, and has allowed us to develop a broad pipeline of therapeutic
candidates across multiple therapeutic areas. We initially focused on the gastrointestinal disease space in IBD and IBS, a logical
starting point for developing a modality based around organisms found in the human gut. However, as our research expertise and
the MicroRx discovery platform have advanced, we were able to leverage our knowledge of the human microbiome and its diverse interactions
with various host systems to realize the potential of LBPs to treat diseases manifest in organs and tissues distal to the gut.
Our observation that candidates in our proprietary library were having systemic, not just gut-localized, effects led us to explore
new applications and disease areas.
To
this end, our key clinical focus areas now include immuno-oncology and respiratory disease, with preclinical candidates MRx0029
and MRx0005 targeting CNS, MRx0006 targeting rheumatoid arthritis and MRx0002 targeting multiple sclerosis. We have completed
three clinical trials and currently have five more ongoing. Our clinical and preclinical Live Biotherapeutic development programs
are illustrated below.
Figure
1 - 4D Pharma’s pipeline of LBP therapeutic candidates.
One
of our key focus areas is immuno-oncology, and with our lead therapeutic candidate, MRx0518, to our knowledge, we delivered the
first positive proof-of-concept data with a Live Biotherapeutic in the treatment of cancer. MRx0518 is a strain of Enterococcus
gallinarum that was discovered with MicroRx and exhibits an immunostimulatory host-response profile that indicated strong potential
as an immuno-oncology candidate. The anti-tumor activity of its immuno-stimulatory profile was demonstrated in multiple preclinical
tumor models. MRx0518 is currently being evaluated in cancer patients in three ongoing clinical trials, including a Phase I/II
trial in solid tumor in combination with the ICI, Keytruda in patients with metastatic NSCLC, RCC and UC that are refractory to
prior anti-PD-1/PD-L1 therapy. Results from the completed part A of this clinical trial demonstrated a DCR of 42% in 12 patients
with mRCC and mNSCLC, which was considered a meaningful clinical benefit significantly above the 10% DCR threshold predefined
with our collaborator, MSD, to warrant further investigation of the combination in Part B. During Part A of this clinical trial,
MRx0518 was well tolerated and had no treatment-related serious adverse events or drug discontinuations and, importantly, no increase
of immune-related adverse events commonly associated with ICI therapy.
Part
B of the study is currently enrolling, and will assess clinical benefit in addition to safety, enrolling up to an additional 30
patients per tumor type with metastatic NSCLC, RCC and UC that are refractory to prior anti-PD-1/PD-L1 therapy. Additionally,
new cohorts of 10 patients with new tumor types are to be enrolled in the study, including patients with TNBC, HNSCC and MSI-H
high tumors that are also refractory to prior anti-PD-1/PD-L1 therapy. Encouraged by the results of Part A of this clinical trial,
we have expanded enrollment for Part B to additional trial sites to help accelerate recruitment and delivery of the clinical readout
of Part B of this clinical trial.
We
have two other ongoing studies of MRx0518 in oncology. We commenced a Phase I trial of MRx0518 as a neoadjuvant monotherapy in
patients undergoing surgical resection of solid tumors, which is being conducted at Imperial College London. At the Society for
Immunotherapy of Cancer’s 35th Annual Meeting (“SITC 2020”), we announced initial results from Part A
of this trial in 17 patients, demonstrating MRx0518 monotherapy immunomodulatory activity. We are currently designing Part B of
this Phase I clinical trial.
We
also initiated a Phase I clinical trial of MRx0518 in potentially resectable pancreatic cancer in combination with hypofractionated
radiotherapy, which is part of our strategic collaboration with the University of Texas MD Anderson Cancer Center, for which we
expect clinical data in 2021. Meanwhile, we are engaged in business development activities with the goal of expanding the development
of MRx0518 into new settings and are actively exploring additional collaboration opportunities.
In
February 2021, we announced a clinical trial collaboration and supply agreement with Merck KGaA, Darmstadt, Germany and Pfizer
Inc. for Bavencio® (avelumab), under which 4D pharma intends to commence a clinical trial in 2021 to evaluate Bavencio®
in combination with MRx0518 as a first-line maintenance therapy for patients with locally advanced or metastatic urothelial carcinoma
that has not progressed with first-line platinum-containing chemotherapy.
We
continue to utilize the MicroRx platform to discover promising new LBP candidates for major diseases with significant unmet need.
As part of our CNS portfolio, we have identified novel LBP candidates that act upon multiple aspects of the pathology of neurodegenerative
diseases in preclinical models, including gut-barrier function, neuroinflammation and protection of neurons critical to healthy
CNS function. Accordingly, we are currently planning a first-in-human clinical study for our lead CNS therapeutic candidate, MRx0029,
in Parkinson’s disease patients. As part of our commitment to CNS research and drug development, in December 2020, we became
an industry partner of the Parkinson’s Progression Markers Initiative, a longitudinal study sponsored by The Michael J.
Fox Foundation for Parkinson’s Research to better understand Parkinson’s disease and accelerate the development of
new treatments. We are also developing therapeutic candidates for our respiratory disease portfolio. MicroRx enabled the discovery
of MRx-4DP0004, an immunomodulatory single strain Live Biotherapeutic candidate that demonstrated marked effects in preclinical
trials of respiratory inflammation, particularly in the lungs. MRx-4DP0004 significantly reduced both neutrophilic and eosinophilic
airway infiltration concurrently in a preclinical disease model of severe steroid-resistant asthma. Our Phase I/II clinical trial
of MRx-4DP0004 in partly controlled asthma is, to our knowledge, the world’s first clinical trial of a Live Biotherapeutic
in the indication. This trial is ongoing and, due to COVID-19 related delays, it is anticipated that the results of this study
will be available Q3 2021.
A
critical stress factor facing healthcare systems as a result of the COVID-19 global pandemic is the inflammatory response to infection,
particularly in the lungs, leading to the need for oxygen therapy, ventilation or other critical care. In addition to effective
vaccines, there is an urgent need for rapid development of therapeutics to reduce harmful lung and/or systemic inflammation induced
by SARS-CoV-2 infection without impairing the appropriate anti-viral immune response. Our understanding of the functionality and
unique immunomodulatory profile of MRx-4DP0004, paired with the patient immunological data generated since the outset of the pandemic,
allowed us to recognize the potential of the candidate to treat patients with COVID-19. We are now investigating MRx-4DP0004 in
a Phase II clinical trial as an oral therapeutic to prevent or reduce the hyperinflammatory response in patients hospitalized
with COVID-19. The Phase II trial of MRx-4D0004 received expedited approval from the MHRA in April 2020, and we expect to report
preliminary clinical data in 2021.
In
our gastro-intestinal disease portfolio, we currently have two LBP candidates that have completed early-stage clinical evaluation,
Blautix and Thetanix. Blautix is being developed as the first therapeutic to treat all patients with IBS, regardless of clinical
subtype. Our Phase II study of Blautix in patients with IBS-C (constipation predominant) and IBS-D (diarrhea-predominant) showed
that Blautix achieved a statistically significant overall response rate compared to placebo in the combined IBS-C/D analysis group,
and demonstrated positive trends in overall response rate for both IBS-C and IBS-D subgroups independently, with an effect size
versus placebo comparable to that of other approved IBS therapeutics. Blautix was well tolerated, with a safety profile comparable
to placebo, an advantage compared to many currently approved IBS therapeutics which are associated with side effects linked to
their mechanism of action. The Phase II trial results provide a strong foundation for the continued development of Blautix as
the first therapeutic with the potential to treat both major subtypes of IBS, and this data will inform regulatory engagement
around the design of a potential Phase III pivotal program.
Thetanix
is a single-strain human, gut commensal bacteria that has an anti-inflammatory mechanism and is currently under investigation
for the treatment of IBD. Thetanix received an Orphan Drug Designation for pediatric Crohn’s disease from the FDA. We have
successfully completed a Phase Ib clinical trial of Thetanix in pediatric Crohn’s disease patients. The Phase Ib clinical
trial demonstrated that Thetanix was well tolerated, with no treatment-related serious adverse events or drug discontinuations
and indicated preliminary signals of clinical activity. We are exploring strategic options for Thetanix, including parallel development
in pediatric and adult populations in both Crohn’s disease and ulcerative colitis, as well as potential partnerships.
In
addition to our internal development programs, we are seeking to realize the value and potential of the MicroRx platform through
collaborations in new areas. In 2019, we entered into a research collaboration and option to license agreement with MSD to discover
and develop LBPs for vaccines. We received a non-refundable, upfront payment of $2.5 million and an equity investment by MSD of
$5 million upon initiation of this agreement. This collaboration pairs our proprietary MicroRx platform with MSD’s expertise
in the development and commercialization of novel vaccines, to discover and develop LBPs as vaccines in up to three undisclosed
indications. If MSD successfully develops vaccines under this agreement, we will be eligible to receive milestone payments of
up to approximately $1 billion as well as high single-digit royalties on sales. To date, we have screened and characterized hundreds
of LBPs with immuno-modulatory potential and selected from this group lead LBPs with desirable immuno-modulatory properties for
further evaluation and development. See “Business—Collaborations—Research Collaboration and Option to License
Agreement with Merck.”
Our
Strategy
Our
goal is to pioneer a novel class of safe and effective therapeutic derived from the gut microbiome that have the potential to
transform the way many diseases are treated.
Key
elements of our strategy include:
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Continuing
to be a leading innovator in the microbiome field, with a rigorous approach that focuses highly on the functionality of our
LBPs. We have invested highly in our research, manufacturing and clinical capabilities to put ourselves at the front of
the pack in the microbiome space. This expertise has generated what we believe is a comprehensive, sector-leading intellectual
property portfolio in the microbiome space.
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Delivering
what we believe are differentiated LBPs in multiple indications. We intend to deliver what we believe are differentiated
therapeutics that leverage the inherent advantages of LBPs in multiple indications. We seek to continue to deliver positive
clinical data, particularly in our immuno-oncology program, with a goal to develop the first LBP approved for the treatment
of cancer. We continue to work to push LBPs into new therapeutic areas, such as our preclinical LBP therapeutic candidate
MRx0029 that leverages the gut-brain axis and is currently being assessed in Parkinson’s disease.
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Working
with partners to realize the full potential of our sector-leading capabilities. MicroRx is a unique LBP discovery and
development platform and, alongside building our internal pipeline of LBP candidates, the platform also enables us to build
valuable partnerships and collaborations. We believe the collaboration with MSD to discover and develop LBPs for vaccines,
in addition to the proof-of-concept data generated to date across multiple programs, has validated the MicroRx platform and
4D Pharma’s approach to LBP development. We will seek to engage additional new partners that wish to explore the potential
of LBPs in disease areas of interest through collaborations.
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Background
on LBPs
Microbiome
Throughout
the history of medicine, pharmaceuticals have been originally derived from complex mixtures, whether that be plant extracts, serum
therapies, blood transfusions or fecal material transplant. Over time, researchers were able to accurately identify and characterize
the specific components of the complex mixtures that were exerting the desired therapeutic effects. These components could then
be isolated and developed as single entities, allowing the optimization of blunt unrefined natural mixtures with high levels of
functional redundancy, into potent and precise therapeutics which are the small molecules, antibodies, therapeutic proteins and
vaccines used to treat or prevent disease today.
Another
complex mixture is the gut microbiome, the trillions of bacteria, and their gene products, that colonize the human gastro-intestinal
tract. The gut microbiome contains more cells than there are in the entire human host and carries around 500 times more genetic
information than the human genome. These bacteria and all of their genetic information has function, whether that be metabolic
function, interaction with the host, or their interaction with other organisms in the microbiome. Consequently, the gut microbiome
plays a significant role in human health and disease.
The
gut microbiome is commonly understood to influence gastrointestinal diseases such as IBD and IBS. However, gut bacteria also impact
the host through systemic modulation of the human immune system, metabolism and even neurological function, and are increasingly
understood to play a key role in the cause, progression and treatment of diseases outside the gut, from cancer to immune-mediated
diseases and CNS conditions. Understanding and leveraging this precise functionality offers a new approach to the treatment of
a broad range of diseases, from cancer to asthma and conditions of the CNS.
Live
Biotherapeutic Products
Figure
2. LBPs interact with the host by a variety of mechanisms. Although typically initiated in the gut, the resulting changes in downstream
pathways are diverse and can produce effects in distal areas of the body. IEC = intestinal epithelial cell; DC = dendritic cell;
Treg = T regulatory cell; IL-10 = interleukin-10; TGF-β = Transforming growth factor beta; Th1 = T-helper 1 cell; Th17 =
T-helper 17 cell; Tn = naïve T cell; T = T-cell; B = B-cell.
We
are developing LBPs, a novel class of medicines that contain live organisms, which have the potential to prevent, treat, or cure
disease. In 2012, the FDA set the first guidelines for this new modality, which have set the administration, regulatory and manufacturing
standards by which such products must be developed; these were updated in 2016. While several different types of LBPs are currently
being developed, including fecal microbiota transplants, bacterial consortia and genetically engineered modified organisms, we
are developing single strain LBPs utilizing commensal human bacteria found in the gut microbiome.
Driven
by our unique LBP discovery engine MicroRx, we have built an end-to-end drug development company with capabilities across the
development process, from discovery and preclinical development, through manufacturing and scale-up, to execution of clinical
trials. Advances in technology and our consequent understanding of the microbiome have enabled us to develop the MicroRx platform
for the efficient discovery of single strain LBPs. This process enables us to take our library of single strains of gut commensal
bacteria originally isolated from the complex microbiomes of healthy human donors, and screen for strains that demonstrate particularly
functional profiles of interest with strong potential to treat disease. Once the single strains are identified, we can characterize
the functionality of the bacteria, including gaining a deep understanding of mechanism of action, and progress them into further
development as therapeutic candidates. Our in-depth characterization and understanding of our LBP candidates further strengthens
the discovery capabilities of our platform.
Key
aspects of our approach to drug development include the following:
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A
functional, not correlative approach. Our approach focuses on understanding and exploiting function and characterizing
the mechanisms by which our single strain LBP candidates interact with host biology. In this sense, our approach is analogous
to the traditional development of small molecules and biologics, rational selection and development based on functionality
and mechanism, rather than attempting to reverse engineer a ‘healthy’ microbiota profile and its correlation with
a given disease.
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Inherent
advantages of LBPs. The side effects associated with existing medicines are a concern for both patients and clinicians,
and these can lead to sub-optimal treatment regimens or termination of development programs. Our LBPs are naturally occurring,
non-engineered strains originally isolated from healthy human donors, and consequently, we have not observed any drug related
serious adverse effects in any of our clinical studies conducted to date, which have included dosing in over 250 individuals
with our LBPs. This significantly accelerates the development timeline from discovery to clinical proof-of-concept, enabling
us to conduct first-in-human studies in patients, rather than traditional Phase I safety studies in healthy volunteers and
without long-term animal toxicology studies, and thus generate clinically relevant data much earlier than with traditional
drug types.
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Orally-administered
single strain LBPs. Our therapeutic candidates are pharmaceutical formulations of single strains of bacteria originally
isolated from healthy human donors, selected using our MicroRx platform based on a desired functional profile investigated
and demonstrated using in vitro and in vivo models. Additionally, our candidates can exhibit polypharmacy, acting on multiple
disease relevant pathways to exert their therapeutic effects. Our LBPs are not required to engraft or “colonize”
the gut to achieve activity, in the same way that a small molecule drug does not need to stay in the body forever to exert
a therapeutic effect. Consequently, the activity of our LBP candidates should not be dependent on the composition of the resident
microbiome, and do not require preconditioning with antibiotics to create an ecological niche for engraftment.
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Well-developed
manufacturing capability. We have invested heavily in our manufacturing capability and infrastructure since our inception,
and now have significant expertise in the manufacturing of LBPs. Our therapeutic candidates are manufactured at our cGMP-certified
facility, with seven candidates now taken through the development and scale-up process to clinical-scale, with production
capacity up to small-to-mid-scale commercial supply. This level of capability gives us ultimate control over the supply of
our therapeutic candidates for clinical development and developing and optimizing processes in-house has generated valuable
know-how and intellectual property. We are also able to integrate manufacturing considerations into our candidate selection
and early development, reducing later development risk and accelerating the progression of candidates into the clinic.
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A
comprehensive intellectual property estate in the microbiome space. As of January 2021, our patent portfolio is comprehensive
and includes patents and pending applications that cover our therapeutic candidates in the US and other countries internationally.
Our LBPs in clinical development are protected by patent filings in major territories including the United States.
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MicroRx
Figure
3. A high-level overview of the processes that underpin the MicroRx discovery platform
Our
proprietary drug discovery platform, MicroRx, drives the development of our therapeutic candidates and is highly differentiated
in the microbiome space, based on its level of productivity in populating our pipeline with novel LBP candidates in multiple therapeutic
areas. We use MicroRx to interrogate our extensive proprietary library of bacterial isolates to identify Live Biotherapeutic candidates
for a target disease, based on a deep understanding of functionality and mechanism, looking for specific functional signatures
relevant to disease pathways.
We
select our LBPs based on their preclinical activity and potential to be translated into commercially viable therapeutic candidates
and elucidate their functionality and interactions with human biology. As bacteria of the human gut microbiome have co-evolved
with their hosts over millions of years to allow co-existence of bacteria and the host, LBPs have inherent advantages for use
in the human body as LBPs are derived from naturally occurring sources. Traditional pharmaceutical drug discovery involves multiple
rounds of hit and lead optimization to identify a clinical candidate, a process which can take many years and is highly capital
intensive. In addition, the side effects associated with existing medicines are a concern for both patients and clinicians, and
these can lead to sub-optimal treatment regimens or termination of development programs and in some cases, an inability to commence
treatment. Our LBPs are naturally occurring, non-engineered strains originally isolated from healthy human donors, and we have
not observed any serious adverse effects in any of our clinical studies conducted to date. As we do not need to optimize our LBPs
to be tolerated in the human body, we can enter clinical development in shorter timeframes than traditional modalities such as
small molecules and biologics.
MicroRx
is a multi-faceted and modular platform, and can easily integrate new technologies, tools, techniques and assays to refine the
platform through an iterative process, constantly improving our ability to identify single strain LBPs with functional profiles
that demonstrate high therapeutic potential in specific diseases. Moreover, the adaptable platform can be targeted to identify
strains with specific characteristics, phenotypes or functions of interest to us or our partners with regard to a specific target
disease.
MicroRx
is comprised of the following key areas:
Library.
We have built a large and diverse bacterial culture collection that captures the significant inter-individual variability of the
human gut microbiome by sampling donors that encompass a wide range of diets, ages, ethnicities, geographies and lifestyles. This
‘untargeted’ strategy has built a library that includes novel organisms that had previously never been isolated, an
aspect that has advantageously assisted with developing robust intellectual property that protects our therapeutic candidates.
To support the expansion of our library we have developed culturomics techniques to capture lesser-known taxa.
Discovery.
Strains from our growing proprietary library are first screened for their ability to activate specific host receptors or pathways
using a battery of reporter cell lines of both human and animal origin. Multiple aspects of the host-microbe interaction is investigated
using complex co-culture systems, spheroids and organoid-based assays to mimic the in vivo environment and improve clinical
translatability. Cytokine and metabolite production, cell differentiation and gene expression patterns are all evaluated at this
stage to identify and characterize the complex interaction between the specific strains and the host at the cellular and molecular
level. Genome mining is also used to identify strains with particular genes, or types of genes, of interest, as well as to characterize
candidate strains.
Preclinical.
Bacteria with specific signatures and functional profiles of interest are assayed in vivo in industry-standard disease-relevant
animal models, characterizing interaction with the host at both systemic and target tissue level by evaluating a broad panel of
markers, including cytokines and chemokines, metabolites, gene expression patterns, tissue histology, and frequency and activation
status of immune cell subsets. We often utilize multiple disease models to generate a robust and comprehensive understanding of
a candidate’s in vivo activity. For candidates where a strong efficacy profile in animal models is observed, we attempt
to elucidate their mechanism of action and identify putative effector molecules by using a multi-omics approach that incorporates
genome mining, metabolomics, proteomics and lipidomics to analyze different bacterial cellular fractions or compartments. Strain
engineering approaches are used to confirm the activity of potential effector molecules.
Process
Development and Manufacturing. Progressing promising candidates into further development that cannot be manufactured to
scale is futile, and it is for this reason that we have a pilot-scale manufacturing facility that runs alongside our research
facility to ensure that lead strains have the potential for ‘manufacturability’ on a commercial scale. Lead candidates
that demonstrate ‘manufacturability’ are then be transferred from this pilot lab to our commercial-scale manufacturing
facility to undergo process optimization to produce batches of clinic-ready drug product. As LBPs are a new drug modality, we
saw fit to invest in manufacturing and developing expertise. This approach has provided significant competitive advantages, allowing
us to maintain ultimate control over drug from discovery to entering the clinic, relying on no external forces in progressing
our therapeutic candidates.
Product
Development Strategy and Portfolio
We
are advancing our LBPs in multiple diseases, with our key focus areas being immuno-oncology, immune-inflammatory disease, CNS
conditions and gastro-intestinal diseases. Our approach to identifying LBPs has, in a relatively short period of time, allowed
us to conduct clinical trials on four therapeutic candidates with single strain LBPs in multiple disease areas, and provide valuable
data on safety, tolerability, pharmacodynamic responses and immune biomarkers. Additionally, we have an in-house team of bioinformaticians
that provide microbiome analysis from results obtained in our ongoing clinical trials. These analyses will assist us in the further
development of these assets, and others in new indications.
Beyond
the assets generated thus far, we intend to continue to invest in the discovery of new therapeutic candidates and add new pipeline
therapeutic candidates that leverage the broad functional potential of LBPs effectively to tackle disease areas of high unmet
need. We believe our function-driven approach to LBP development will continue to be fruitful, adding to our number of clinical
stage programs and further strengthening our intellectual property position.
We
intend to enter into more partnerships and collaborations utilizing our technology and expertise, including licensing deals for
existing development candidates, or research collaboration deals using MicroRx, akin to our collaboration with MSD to discover
LBPs for vaccines. We intend to collaborate to develop LBPs for new indications and leverage the complementary abilities of 4D
Pharma and our partners to accelerate the development of current and novel programs.
Immuno-oncology
Portfolio
The
immune system acts as a surveillance system made up of a plethora of cell types, that enable a coordinated response in the body
to detect and control disease and infection. When this system malfunctions and does not respond appropriately, this can enable
progression of a range of diseases, including cancer.
Treatment
of many types of advanced and metastatic cancer have been revolutionized in the last decade by the emergence of cancer immunotherapy.
Leading immunotherapies that target programmed cell death protein/ligand 1 (“PD-1/PD-L1”) immune checkpoint
pathways are monoclonal antibody biologics that target extracellular proteins on cells that enable the tumors to dampen the body’s
immune response to cancer. ICIs, such as Keytruda, Opdivo and Bavencio leverage the power of the human immune system to attack
cancer cells by ‘taking the brakes off’ the body’s immune response to cancer and amplifying the immune system’s
attack on malignant cells by binding to PD-1 or PD-L1, and preventing the dampening effect on the immune response.
While
existing immunotherapies have been a remarkable success and have fundamentally changed the way that patients with cancers such
as NSCLC and RCC are treated, many patients will stop responding to checkpoint immunotherapy (secondary, or acquired resistance),
or not respond at all (primary resistance). At present, there are no therapeutics approved specifically for patients that fail
on a checkpoint immunotherapy, and this represents a large unmet need for patients and clinicians.
MRx0518
is our lead immuno-oncology candidate, and is being assessed in the following three clinical trials:
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combination with Keytruda in patients with solid tumors that are resistant to prior ICIs;
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as
a monotherapy treatment in the neoadjuvant setting in patients undergoing surgical resection of solid tumors; and
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in
combination with hypofractionated radiotherapy in the neoadjuvant setting in patients with potentially resectable pancreatic
cancer.
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The
Keytruda combination clinical trial and pancreatic cancer clinical trial are part of our strategic collaboration with the University
of Texas MD Anderson Cancer Center to evaluate 4D’s Live Biotherapeutic oncology pipeline across a range of cancer settings.
The collaboration brings together MD Anderson’s translational medicine and clinical research capabilities with our expertise
in the discovery and development of LBPs. See the section “Business—Collaborations —Collaboration with
University of Texas MD Anderson” for more information about our collaboration with MD Anderson.
In
addition to lead oncology candidate MRx0518, we have second generation oncology candidates in preclinical development, such as
MRx1299, which have differentiated mechanisms of action to MRx0518 that may be more suitable for the treatment of additional tumor
types.
MRx0518
Our
lead product candidate in our immuno-oncology program is MRx0518, a strain of Enterococcus gallinarum that was discovered
with MicroRx. MRx0518 exhibits an immunostimulatory host-response profile that indicated strong potential as an immuno-oncology
candidate in preclinical trials. Additionally, the functionality of MRx0518 is well-characterized, demonstrating the primary mechanism
of action by which it exerts its anti-tumor activity, via flagellin mediated activation of toll-like receptor 5 (“TLR5”).
MRx0518 is now being assessed in three separate clinical trials, and to our knowledge has delivered the first proof-of-concept
data of a Live Biotherapeutic in a cancer setting.
MRx0518
preclinical data
Our
approach to drug development is exemplified by MRx0518. Unlike other microbiome drug discovery strategies that have looked for
correlations between specific species of bacteria and response of patients to checkpoint inhibitors that do not necessarily indicate
causation, we exploited the power of our MicroRx platform to select for potent immunostimulatory activity exhibited by the candidate,
agnostic of any prior knowledge of species.
In
Vitro Assays
Figure
4. Results of in vitro assays, demonstrating the effects of MRx0518 on peripheral blood mononuclear cells (PBMCs), splenocytes,
THP-1 cells (cell-line derived from an acute monocytic leukemia patient) and Caco-2 cells (cell-line derived from a patient with colon
carcinoma). Significance relative to vehicle: * (p < 0.05), ** (p < 0.01), *** (p < 0.001), **** (p < 0.0001).
Screening
of our proprietary library against a variety of in vitro assays enabled the discovery of MRx0518, a single strain of Enterococcus
gallinarum. MRx0518 was able to induce a strong innate immune response in a range of in vitro assays (see Figure 4),
in addition to a strong adaptive immune response, increasing ratios of CD4+ and CD8+ T-cells in PBMC co-culture assays, and reducing
differentiation of T regulatory cells. The immuno-stimulatory phenotype observed in vitro was characterized by a distinct transcriptomic
signature and induction of inflammatory mediators (IL-8, TNF-α, IL-1ß, IL-6, IL-23, CXCL9, CXCL10).
Statistical
analysis for this study was performed using ANOVA followed by multiple comparisons tests, with *p < 0.05, **p < 0.01, ***p <
0.001 and ****p < 0.0001 between untreated and MRx0518 treated cells (see Figure 4). The level of statistical significance
between treatments was expressed as a p-value between 0 and 1. The smaller the p-value, the stronger the evidence that the null hypothesis
should be rejected. A p-value less than 0.05 (p < 0.05) is considered statistically significant, while it is considered highly significant
as p < 0.001. It indicates strong evidence against the null hypothesis, as there is less than a 5% probability that the null is correct
(and the results are random). Therefore, the null hypothesis is rejected, and the alternative hypothesis (there is an effect of treatment)
is accepted.
A
statistically significant outcome for primary efficacy endpoints is typically one of the requirements for FDA approval of a product.
A statistically significant outcome indicates that the probability of the outcome occurring at random is less than the pre-established
allowed error level, frequently set at 0.05 (or 1 in 20).
Preclinical
Mouse Models
MRx0518
demonstrated an immunostimulatory signature, which translated into in vivo anti-tumor activity in syngeneic mouse tumor models
of breast (EMT6), kidney (RENCA) and lung (LLC1) cancers when dosed as a monotherapy, reducing tumor size between 35% to 51% compared
to controls (see Figure 5).
Figure
5 - Results of preclinical trials of MRx0518 monotherapy in syngeneic mouse models of breast (EMT6), kidney (RENCA)
and lung (LLC1) cancer. Significance relative to vehicle: ** (p < 0.01), **** (p < 0.0001).
Effects
of MRx0518 on the tumor and intestinal microenvironment in vivo was also assessed in preclinical mouse models. MRx0518
increased intra-tumoral populations of T cells, CD8+ T cell and NK cells (see Figure 6); in addition to genetic expression of
chemokines, cytokines and TLRs within the tumor. Moreover, MRx0518 increased splenic Tγδ cell, NK cell, cDC1, plasma
blasts and plasma cell populations.
Figure
6 - Quantification of cell subsets utilizing tumor tissues and analysis via NanoString PanCancer IO360 Gene Expression
Profile showed that MRx0518 administration in animal models led to increased intra-tumor populations of cytotoxic cells, T cells, CD8+
T cells and NK cells.
Significant
work has also been carried out to elucidate the mechanism by which MRx0518 exerts its immunostimulatory effects (see Figure 7).
While LBPs are poly-pharmaceutical and act on multiple biological pathways, in our preclinical trials we demonstrated that much of
MRx0518’s activity stems from its agonism of toll-like TLR5, a component of the innate immune system, through its flagellin. In
addition, our preclinical mouse model study showed that MRx0518 also activates nuclear factor kappa-light-chain-enhancer of activated
B cells (“NFκB”). Furthermore, the flagellin of MRx0518 was shown to be more immunostimulatory than flagellin
from other species, and a reference strain of Enterococcus gallinarum. These findings, in tandem with the other preclinical results
showing MRx0518’s specific effect on immune cell subsets and anti-tumor activity, were indicative of significant potential as an
LBP immunotherapy.
Figure
7. Activation of NF-κB and TLR5 pathway by E. gallinarum MRx0518 treatments. NF-κB (A) and TLR5
(B) activation after 22 h incubation with E. gallinarum MRx0518 (MRx0518LV), heat-killed MRx0518 (MRx0518HK) and culture
supernatant (MRx0518SN) in HEK-Blue hTLR5 and THP1-Blue NF-kB reporter cell lines. A MOI of 10:1 was used with MRx0518LV and a 100:1
MOI equivalent was used with MRx0518HK and MRx0518SN. Heat-killed Listeria monocytogenes (HKLM) and Salmonella Typhimurium
flagellin (FLA-ST) were used as positive controls for each cell line and YCFA was included as a negative control for MRx0518SN. NF-κB
(C) and TLR5 (D) activation after 22 h incubation with E. gallinarum MRx0518 culture supernatant (MRx0518SN) and trypsin-treated
supernatant (MRx0518Trypsin) (MOI 100:1 equivalent). YCFA = Yeast extract-Casein hydrolysate-fatty acid medium. Significance relative
to vehicle: * (p < 0.05), ** (p < 0.01), *** (p < 0.001), **** (p < 0.0001).
Phase
I/II clinical trial: MRx0518 in combination with Keytruda
Our
lead immuno-oncology product candidate, MRx0518, is being evaluated in an ongoing Phase I/II clinical trial in solid tumors in
combination with ICI Keytruda in patients with metastatic NSCLC, RCC and UC that are refractory to prior anti-PD-1/PD-L1 therapy.
Additionally, new cohorts of 10 patients with new tumor types are to be enrolled in the study, including patients with TNBC, HNSCC
and MSI-H high tumors that are also refractory to prior anti-PD-1/PD-L1 therapy. This trial is a clinical collaboration with MSD,
the maker of Keytruda. All patients enrolled in this clinical trial had previously responded to ICIs, and then developed resistance
and progressive disease. The clinical trial evaluates whether the combination of MRx0518 and Keytruda can affect a response in
patients that with resistance to ICIs, thus turning non-responders into responders.
The
trial is formed of two parts. Part A was an initial safety phase in 12 patients, evaluating the safety and tolerability of the
combination with MRx0518 and Keytruda over the dose limiting toxicity period of one three-week treatment cycle. Patients enrolled
in Part A are eligible to remain on study treatment for up to two years to evaluate clinical benefit. Following successful completion
of Part A and positive recommendation from the safety review committee, the Part B cohort expansion phase will enroll up to 30
patients per tumor type cohort, to evaluate clinical benefit in addition to safety and tolerability.
Part
A has been successfully completed and the safety review committee recommended proceeding to Part B of the study. Of the 12 patients enrolled
into Part A of the trial, five patients (42%) demonstrated clinical benefit (defined as a complete response, partial response or stable
disease for six months or longer) on treatment with MRx0518 and Keytruda (see Figure 8). These include three patients
achieving partial responses with radiological scans giving evidence of tumor shrinkage of greater than 30% from baseline. To the best
of our knowledge, we, through this data, delivered the first ever proof-of-concept data in the treatment of cancer using LBPs. We and
MSD, the study collaborators, pre-defined the clinical benefit threshold in this trial to support further investigation as 10%, which
has been substantially exceeded in the Part A cohort.
Figure
8. Percentage change in sum of diameters of target tumors per RECIST v1.1 in patients enrolled in Part A of Phase
I/II MRx0518 and Keytruda combination trial (NCT03637803), as of October 23, 2020. Radiological assessment was not possible for two patients
who were withdrawn from the study due to progression-related adverse events. ‘X’ denotes when patients discontinued.
During
Part A of this clinical trial, MRx0518 showed no treatment-related serious adverse effects or drug discontinuations and, importantly,
no increase of immune-related adverse events that are often associated with ICI therapy.
Of
the 12 patients enrolled in Part A of the combination trial, seven patients were evaluated at the first scheduled restaging scan
at nine weeks, and five were withdrawn prior to the first scheduled restaging scan due to clinical evidence of disease progression.
Of these five patients, three had progression confirmed by radiological assessment. Radiological assessment was not possible for
two patients who were withdrawn from the study as a result of progression-related adverse events. The early withdrawals ahead
of the first scheduled restaging scan reflect the challenges of treating patients with advanced metastatic, progressive and refractory
cancer, and the unmet needs of these patients.
It
should be noted that the patient population in the study are highly refractory, having stopped responding to prior checkpoint
immunotherapy, and all patients have received multiple lines of therapy and had progressive disease with no approved alternative
treatment options available. Additionally, one responder has NSCLC harboring an epidermal growth factor receptor (EGFR) mutation,
who has had seven previous lines of therapy. NSCLC patients harboring EGFR mutations have been shown to be much less likely to
show clinical benefit from PD-1/PD-L1 checkpoint inhibitors, indicating the potential for MRx0518 to induce response to checkpoint
immunotherapy in refractory patients.
The
Part B cohort expansion phase of the study is currently enrolling. Encouraged by the results of Part A of this clinical trial,
we have opened additional trial sites to accelerate recruitment and delivery of more clinical data of the open-label study. These
efforts will add up to an additional 30 patients per tumor type cohort of metastatic NSCLC, RCC and UC that are refractory to
prior anti-PD-1/PD-L1 therapy. Additionally, new cohorts of 10 patients with new tumor types are to be enrolled in the study,
including patients with TNBC, HNSCC and MSI-H high tumors that are also refractory to prior anti-PD-1/PD-L1 therapy.
Phase
I clinical trial: MRx0518 as a neoadjuvant monotherapy
We
also have an ongoing Phase I clinical trial of MRx0518 as a neoadjuvant monotherapy in patients undergoing surgical resection
of solid tumors, which is being conducted at Imperial College London. Patients enrolled are diagnosed with resectable tumors and
a tumor sample is taken at baseline. MRx0518 is then dosed as a monotherapy for two to four weeks prior to resection, at which
point another tumor sample is taken. Changes in systemic immune and intratumoral biomarkers are then analyzed to assess the effect
of MRx0518 monotherapy on immune cell populations over the dosing period. Results of this trial are expected to develop our understanding
of the mechanism of action of MRx0518 in the clinical setting which could inform the clinical development strategy for this candidate.
Initial
results from Part A of this trial were presented at SITC 2020 in November 2020 (see Figure 9). For the 17 patients
enrolled in Part A of this clinical trial, following MRx0518 treatment, relative increases in cytotoxic cells, CD8+ T cells and other
immune subsets associated with anti-tumor activity were observed in paired tumor samples. Upregulation of key immuno-stimulatory anti-tumor
cytokines and chemokines, such as IL-12 and CXCL10, was also observed in post-treatment plasma samples. Gene expression analysis identified
significant expression changes in 98 genes (p<0.05) in paired samples as a result of MRx0518 treatment, including upregulation of
pathways associated with antigen presentation, costimulatory signaling, cytokine and chemokine signaling, known to promote anti-tumor
immune activity. Crucially, the changes in intratumor immune subsets observed echoed findings in the preclinical setting with MRx0518.
We are currently designing Part B of this Phase I clinical trial and expect to begin enrollment and dosing 2021.
Figure
9. Relative frequency of immune cell subsets in diagnostic and surgery tumour samples were evaluated in the Phase I MRx0518 neoadjuvant
monotherapy trial, evaluated using the NanoString IO360 platform and nSolver (A-B). Systemic cytokine concentrations were evaluated in
plasma (Luminex) (C). P values calculated using paired t-test (* = p < 0.05).
Phase
I clinical trial: MRx0518 as a neoadjuvant monotherapy in combination with hypofractionated radiotherapy
A
third clinical trial of MRx0518 is ongoing in potentially resectable pancreatic cancer, as part of our strategic collaboration
with the University of Texas MD Anderson Cancer Center. Pancreatic Ductal Adenocarcinoma (“PDAC”) is the third
leading cause of cancer death in the United States. Outcomes are poor, with five-year overall survival as low as 9%. Complete
microscopic (“R0”) resection represents a requisite component of cure for PDAC, and as such, neoadjuvant therapies
are increasingly important to optimize surgical outcomes and maximize long-term survival. Recent studies have shown that patients
who received preoperative hypofractionated radiation had improved chances of R0 resection (63% versus 31%).
Our
single center, open-label, Phase I clinical trial will treat 15 potentially resectable PDAC patients with a regimen for approximately
six to nine weeks, before, during and after a course of hypofractionated radiation until the time of resection. The clinical trial
will evaluate the safety of MRx0518 with radiation and whether MRx0518 can elicit an immunogenic profile that may be beneficial
in decreasing systemic failure and improving local control. Efficacy outcomes will include incidence of major pathologic response,
tumor infiltrating lymphocytes, overall survival, progression-free survival, local control, distant control and margin status.
The study will evaluate immune infiltrates and stromal cells within and near the tumor as well as evaluating circulating immune
cells, tumor cells and tumor DNA. We anticipate receiving initial data from this Phase I clinical trial in 2021.
Exploring
new settings and combinations
Highly
encouraged by signals of clinical activity observed so far with MRx0518 combined with no observed treatment-related serious adverse
effects or drug discontinuations, including in a particularly difficult-to-treat refractory patients, we are actively exploring
additional drug combinations and settings in which to evaluate MRx0518. We are also active in seeking collaborations with industrial
partners operating in the pharmaceutical industry to expand the MRx0518 clinical development program and in February 2021, we
entered into a collaboration agreement with Merck KGaA, Darmstadt, Germany (“Merck KGaA”) and Pfizer, who co-developed
and co-commercialized Bavencio (avelumab). This collaboration allows us to evaluate our LBPs at an earlier treatment setting in
patients with locally advanced or metastatic UC which has not progressed with first-line platinum-containing chemotherapy. Under
the agreement, we remain the sponsor of any studies and clinical trials. Merck KGaA and Pfizer are providing Bavencio without
cost to us for the clinical trials.
The
parties granted each other licenses for rights to inventions and other intellectual property rights created in the design or performance
of the study. The parties also granted each other licenses under patents which include or rely on data generated in the study
to permit mutual freedom to operate. We have the first right to prosecute jointly owned patents. We retain the rights to all 4D
Pharma owned inventions. The collaboration will continue until the completion of all of the obligations from all parties, but
any party may terminate the agreement upon a party’s material breach if not cured within 30 days of written notice or immediately
if any regulatory authority takes any action or objects to the terminating party to supplying its compound for purposes of the
study.
Second
generation oncology candidates
Beyond
our lead immuno-oncology candidate MRx0518, the MicroRx platform has continued to identify new LBP candidates exhibiting novel
mechanisms of action with the potential to treat different types of cancers, such as MRx1299.
MRx1299
was selected using MicroRx and has an immunostimulatory host response profile. MRx1299 increased in vitro cytokine production
by peripheral blood mononuclear cells (“PBMCs”) and splenocytes, and CD8+/Treg ratio in treated PBMCs, reduced clonogenic
survival of various cancer cell lines; and reduced tumor growth by adoptive cell transfer in syngeneic cancer models in vivo (Figure
10).
Figure
10. MRx1299-induced immune activation was investigated in different cell types. MRx1299 induces a cytokine/chemokine
signature in PBMCs and splenocytes in vitro that includes IL-6, IL-22, IL-10, TNF-α, CXCL2, CXCL10, CCL3, CCL4 and CCL5,
and increases the CD8+/Treg ratio in PBMCs in vitro. YCFA = Yeast extract-Casein hydrolysate-fatty acid medium. Significance relative
to vehicle: * (p < 0.05), ** (p < 0.01), *** (p < 0.001), **** (p < 0.0001).
The
mechanism of action of MRx1299 is mediated in part by its metabolite profile - MRx1299 produces short chain fatty acids which act as
potent histone deacetylase inhibitors. Treatment with MRx1299 increased acetylated H3 and H4 nuclear staining in melanoma and colorectal
cancer cell lines, and acetylation corresponded to reduced clonogenic growth (Figure 11 and Figure 12). Pretreatment
with MRx1299 enhanced the anti-tumor activity of adoptively transferred cytotoxic T lymphocytes in an animal model of melanoma, increasing
tumor infiltration and production of effector cytokines.
Figure
11. MRx1299 increased acetylated H3 and H4 nuclear staining in melanoma cell lines. YCFA = Yeast extract-Casein
hydrolysate-fatty acid medium.
Figure
12. MRx1299-induced histone acetylation correlated with reduced clonogenic growth in preclinical models of melanoma
and colon carcinoma. YCFA = Yeast extract-Casein hydrolysate-fatty acid medium. Significance relative to vehicle: * (p < 0.05), **
(p < 0.01), *** (p < 0.001), **** (p < 0.0001).
Respiratory
Disease Portfolio
Asthma
A
significant number of patients with asthma are poorly controlled by current treatments, leading to exacerbations, hospitalization
and mortality. Biologic therapeutics approved for more severe patients only address the allergic or eosinophilic sub-types of
asthma, meaning other patient sub-types remain under-served. These drugs must be administered in a clinical setting via intravenous
delivery, and many come with warnings of serious side effects like anaphylaxis. There is significant need for a patient-friendly,
oral add-on therapy to reduce exacerbations, providing additional treatment options before patients are put on biologics, and
which addresses under-served sub-groups.
MRx-4DP0004
MicroRx
enabled the discovery of MRx-4DP0004, a Live Biotherapeutic candidate with unique effects on inflammation, particularly in the
lungs. MRx-4DP0004 demonstrates an ability to address both neutrophilic and eosinophilic lung inflammation concurrently, something
not possible with existing approved asthma therapies. The candidate is currently being evaluated in two clinical trials, a Phase
I/II study in patients with uncontrolled asthma, and a Phase II study in patients with COVID-19.
Respiratory
Preclinical Data
Studies
in a murine model of severe neutrophilic asthma of MRx-4DP004 showed a statistically significant reduction of lung inflammation in mice.
MRx-4DP0004 markedly reduced the magnitude of the neutrophilic immune response, with a reduction of eosinophils also observed (see Figure
14). This was associated with a statistically non-significant increase in regulatory T cells (Tregs) in the lung. MRx-4DP0004
was associated with reduced numbers of dendritic cells (DCs) meaning that Tregs cells could interact directly with DCs by downregulating
their surface expression of CD80/CD86, reducing the antigen-presenting ability of DCs and blocking the generation of allergen-specific
T cell responses.
MRx-4DP0004
also lowered inflammation in the lung, strongly reducing peribronchiolar and perivascular infiltrates, and lung IL-1α, IL-1β,
CXCL2. Additionally, histopathological analysis of lungs of mice exposed to house dust mites (“HDM”) showed that MRx-4DP0004
treatment strongly reduced peribronchiolar and perivascular inflammatory cell infiltration, resulting in lung histological appearance
similar to that of untreated animals (see Figure 15).
Figure
14. Bronchoalveolar lavage fluid (“BALF”) cell counts of mice exposed to HDM, and treated therapeutically
with MRx-4DP0004, anti-IL-17 or vehicle, with samples collected 24 h after final exposure. MRx-4DP0004 significantly reduced airway
neutrophils, in addition to eosinophils. Significance relative to vehicle: Significance relative to vehicle: * (p < 0.05), ** (p <
0.01), *** (p < 0.001), **** (p < 0.0001).
Figure
15. MRx-4DP0004 lowered inflammation in the lung, strongly reducing peribronchiolar and perivascular infiltrates,
and lung IL-1α, IL-1β, CXCL2. In contrast, anti-IL-17 treated animals were comparable to vehicle-treated groups. Histopathological
analysis of lungs of mice exposed to HDM, and treated with MRx-4DP0004, anti-IL-17 or vehicle, with samples collected 24 h after
final exposure, showed that MRx-4DP0004 treatment strongly reduced peribronchiolar and perivascular inflammatory cell infiltration, resulting
in lung histological appearance similar to that of untreated animals. HDM = house dust mite. Significance relative to vehicle: * (p <
0.05), ** (p < 0.01), *** (p < 0.001).
Phase
I/II clinical trial in asthma
In
July 2019, we launched a Phase I/II clinical trial first-in-human study of MRx-4DP0004 in 90 patients with partly controlled asthma.
Patients on the study receive MRx-4DP0004 daily in addition to their long-term maintenance asthma medication. The clinical trial
assesses the safety and tolerability of MRx-4DP0004, in addition to clinical endpoints relating to exacerbations, lung function
and quality of life. A wide panel of host and microbiome biomarkers are also being assessed, that will contribute to mechanistic
understanding of the candidate.
To
our knowledge, this is the world’s first clinical trial of a single strain Live Biotherapeutic in this indication. COVID-19
has had an impact on enrollment for the trial, delaying expected preliminary data to Q3 2021, with the study expected to be completed
in H1 2022.
Phase
II clinical trial in patients hospitalized with COVID-19
The
most critical stress facing healthcare systems because of the COVID-19 global pandemic is the inflammatory response to infection,
particularly in the lungs, leading to the need for oxygen therapy, ventilation or other critical care. Thus, there is an urgent
need for rapid development of a therapeutic to reduce harmful lung and/or systemic inflammation induced by SARS-CoV-2 infection
without impairing the appropriate anti-viral immune response. We are utilizing the unique immunomodulatory profile of MRx-4DP0004
as a therapeutic to prevent or reduce the hyperinflammatory response in patients hospitalized with COVID-19.
Based
on peer-reviewed data emerging from China early in 2020 regarding the immune response to the novel coronavirus SARS-CoV-2, we
were able to recognize the potential of MRx-4DP0004 to impact multiple components of the immune system implicated in the worsening
of disease as a result of the body’s hyperinflammatory response. As a result, in April 2020 we received MHRA acceptance
for a UK Phase II clinical trial of LBP MRx-4DP0004 to treat 90 patients hospitalized with COVID-19. The clinical trial assesses
the impact of treatment on mean clinical status score as measured by the WHO Ordinal Scale for Clinical Improvement and also the
safety and tolerability of MRx-4DP0004. We expect preliminary data from the study in 2021, with the study expected to be completed
in H1 2022.
CNS
Portfolio
Neurodegeneration
is becoming a significant burden on the healthcare system. It has also proved elusive for the pharmaceutical industry to tackle
this issue through traditional approaches. At 4D Pharma, we have most recently focused our MicroRx platform on the gut-brain axis.
This work has identified two LBP candidates that demonstrate significant effects on many of the key aspects of Parkinson’s
disease pathology and represent potentially disease-modifying therapies, in addition to candidates that have effects on the behavior
of animals in preclinical models that demonstrate potential in autism and psychiatric conditions.
Neurodegenerative
disease
As
the global population ages, age-related CNS conditions such as Alzheimer’s disease, Parkinson’s disease and other
dementias will increase in prevalence. These conditions have long affected society, yet therapeutic options to treat these diseases
remain limited, and no therapies exist that are known to reverse disease progression. Improving options for patients with neurodegenerative
diseases therefore remains one of the biggest challenges in modern medicine.
Parkinson’s
disease (“PD”) is one of the most common neurodegenerative diseases, affecting around 10 million people worldwide.
The pathology of the disease involves deterioration of motor function due to loss of dopamine producing brain cells in the motor
region of the brain, which has been linked to misfolded alpha-Synuclein proteins accumulating as Lewy bodies. The gut-brain axis
has been implicated in the pathology of the disease, with patients experiencing gastrointestinal symptoms and gut microbiome symptoms
long before the onset of motor symptoms.
Using
MicroRx, a multi-targeted functional screening approach was employed that led to the selection of two strains of bacteria, MRx0005 and
MRx0029. In vitro, the candidates decrease neuroinflammatory responses to stimuli including exogenous alpha-synuclein and protect
against oxidative stress. MRx0029 also upregulated gene expression of proteins associated with gut barrier integrity such as Tight Junction
Protein 1 and Occludin (Figure 16).
Figure
16. In vitro, MRx0029 was able to decrease gut permeability as measured by FITC/Ussing chambers, and increase gene expression
of proteins associated with gut barrier functions such as Tight Junction Protein 1 and Occludin. The candidates also demonstrated neuroprotection
from TBHP and MPP-induced oxidative stress in undifferentiated SH-SY5Y cells, and reduction in disease-specific neuroinflammation induced
by both LPS and mutated alpha-Synuclein proteins. YCFA = Yeast extract, casitone and fatty acid medium; TBHP = ; MPP ; FITC = . Significance
relative to vehicle: * (p < 0.05), ** (p < 0.01), *** (p < 0.001).
Notably,
MRx0029 has shown promise as a potentially disease-modifying therapy, by indicating a potentially neuro-regenerative effect that could
counteract the characteristic loss of dopaminergic neurons in PD (Figure 17). MRx0029 induced neuronal differentiation
in SH-SY5Y neuroblastoma cells towards a dopaminergic phenotype, via upregulation of microtubule-associated protein 2 (“MAP2”)
at the gene and cellular level, and upregulation of dopamine active transporter and LIM homeobox transcription factor 1-beta (“LMX1B”) - markers
of dopaminergic neurons.
Figure
17. In vitro treatment of neuroblastoma cells with MRx0029 demonstrated differentiation to a dopaminergic-like neuronal
phenotype, and significantly upregulated expression of numerous markers of dopaminergic neurons, including MAP2, LMX1B and DAT. MPTP
= 1-methyl-4-phenyl-1,2,3,6-tetrahydropyridine; TH = Tyrosine hydroxylase; 7-NI = 7-Nitroindazole; YCFA = Yeast extract, casitone and
fatty acid medium; MAP2 = Microtubule-associated protein 2; LMX1B = LIM homeobox transcription factor 1-beta; DAT/SCL6A3 = dopamine active
transporter. Significance relative to vehicle: * (p < 0.05), ** (p < 0.01), *** (p < 0.001), ## (no significant difference from
vehicle + vehicle).
In
vivo in the 1-methyl-4-phenyl-1,2,3,6-tetrahydropyridine (“MPTP”) model of PD, MRx0029 reduced loss of tyrosine
hydroxylase positive dopaminergic neurons, and MRx0005 was able to reduce deficits in dopamine and striatal 3,4-Dihydroxyphenylacetic
acid (“DOPAC”), a metabolite of dopamine (Figure 18).
Figure
18. In the MPTP-induced animal model of PD, MRx0029 protected from the loss of TH+ neurons in MPTP-induced brain lesions, offering
comparable neuroprotection to the 7-NI positive control. MRx0005 protected from loss of striatal dopamine and DOPAC in MPTP-treated mice,
with a similar effect to the 7-NI positive control. MPTP = 1-methyl-4-phenyl-1,2,3,6-tetrahydropyridine; TH+ = tyrosine hydroxylase;
7-NI = 7-nitroindazole; DOPAC = 3,4-Dihydroxyphenylacetic acid. Significance relative to vehicle: * (p < 0.05), ** (p < 0.01),
*** (p < 0.001), ## (no significant difference from vehicle + vehicle).
We
are in the process of evaluating designs for a potential first-in-human clinical trial of MRx0029 in patients with PD and have
enlisted the help of key opinion leaders in PD clinical study design to assist in planning.
Parkinson’s
Progression Markers Initiative
In
December 2020, we became an industry partner of the Parkinson’s Progression Markers Initiative (“PPMI”),
a longitudinal study sponsored by The Michael J. Fox Foundation for Parkinson’s Research to better understand Parkinson’s
disease and accelerate the development of new treatments. We will contribute to the efforts of the PPMI as members of the Partner
Scientific Advisory Board closely involved in the design and execution of the study. In addition, we also joined a variety of
PPMI Working Groups that provide a forum to discuss PPMI data and address Parkinson’s clinical trial challenges with other
PPMI industry and non-profit partners.
Autism
spectrum disorder & psychiatric disease
Autism
is a neurological development disorder that affects up to one in 54 children, with patients exhibiting a range of symptoms that
include impaired social interactions, language and communication skills, patterns of thought and physical behaviors. While the
cause of the condition is thought to involve a variety of genetic and environmental factors, the gut microbiome has been implicated
due to comorbidity of gastrointestinal symptoms and an altered gut microbiome composition.
Our
MicroRx platform has identified preclinical candidate MRx0006, a gut commensal strain of Blautia stercoris, that shows
strong potential for the treatment of neurodevelopmental disorders.
In
genetic BTBR and environmental maternal immune activation (“MIA”) mouse models of autism, MRx0006 demonstrated statistically
significant effects in a range of tests that assessed autism-like behaviors. The results in these models indicated reduced stereotyped
behaviors, increased social interaction, reduced anhedonia, decreased depressive-like behavior, and decreased anxiety-like behaviors
(see Figure 19).
Figure
19. MRx0006 effect on social behaviors assessed in several models, including three-chamber test and urine sniffing test. BTBR
= inbred BTBR T+tf/J mouse model of autism; MIA = maternal immune activation. Significance relative to vehicle: * (p < 0.05), ## (no
significant difference from vehicle + vehicle).
Oxytocin
and arginine vasopressin are neuropeptides synthesized in the hypothalamus and secreted from the posterior pituitary gland, that are
implicated in social behaviors, in addition to feelings of trust, romance and aggression. MRx0006 demonstrated the ability to significantly
increase expression of these neuropeptides, indicating potential to improve autistic-like behaviors (Figure 20).
Figure
20. MRx0006 significantly increased oxytocin and oxytocin receptor mRNA expression in mHypoA2-28 cells. MRx0006 also significantly
increased hippocampal arginine vasopressin mRNA expression in BTBR mice. Significance relative to vehicle: * (p < 0.05), ** (p <
0.01), *** (p < 0.001).
Immunology
Portfolio
MicroRx
has also produced candidates targeting immune-inflammatory diseases. These candidates are at the preclinical stage and have shown
promising activity in disease relevant animal models. Manufacturing processes for both therapeutic candidates have been developed.
Multiple
Sclerosis
Multiple
sclerosis (“MS”) encapsulates relapsing-remitting multiple sclerosis (“RRMS”) and secondary
progressive multiple sclerosis (“SPMS”), chronic demyelinating diseases of the CNS. RRMS is thought to affect
nearly one million people in the United States, with around 85% of patients initially diagnosed with RRMS, which eventually progresses
to SPMS over time.
MRx0002
is a strain in the Bacteroides genus and has demonstrated significant potential as an intervention for MS. MRx0002 was
found to cause expansion of T regulatory cells and reduce dendritic cell subpopulations in splenocytes, modulate TLR2 and TLR4
signaling, strongly induce secretion of IL-10, inhibit NF-κB activation and improve gut barrier function in vitro.
Additionally,
MRx0002 was able to completely prevent the onset of disease in an acute experimental autoimmune encephalomyelitis (“EAE”)
animal model of MS, and histological analysis in these models showed significantly reduced inflammation of the spinal cord. MRx0002 also
showed a significant reduction in clinical scores compared to vehicle in a chronic EAE model (Figure 21).
Figure
21. In an acute experimental autoimmune encephalomyelitis (EAE) mouse model, MRx0002 completely prevented the onset
of disease. In a chronic EAE model, MRx0002 also led to a significant reduction in clinical scores. PBS = Phosphate buffered saline;
CFU = colony-forming unit.
Rheumatoid
Arthritis
Rheumatoid
arthritis (“RA”) is an autoimmune disease, characterized by chronic inflammation of the joints that erodes
joints, bone and cartilage, eventually leading to progressive deformity. RA is estimated to affect around 1.5 million adults in
the United States, with patients with chronic inflammation receiving injectable biologic therapies to manage their condition.
MRx0006
(Blautia stercoris) is a preclinical candidate that has shown significant potential in both in vitro and in vivo
settings in treating RA. MRx0006 acts on the Th1/Th17 axis, and was able to decrease splenocyte proliferation response and
secretion of inflammatory cytokines such as IL-10 and interferon gamma (“IFNγ”) in vitro.
Moreover,
MRx0006 was able to significantly improve clinical scores in vivo using a type II collagen (“CII”)-induced
arthritis model of RA (see Figure 22). MRx0006 also showed a distinct protection of joint architecture from inflammatory
damage in histopathological assessment and scoring (see Figure 23).
Figure
22. MRx0006 significantly reduced clinical scores (swelling of paws and joints), compared to vehicle following type II-collagen
(CII) induction; and significantly reduced all hind limb histopathological scores, including joint inflammation, and cartilage and bone
damage. Significance relative to vehicle: ♦ (p<0.05 compared to vehicle on given day), **** (p<0.0001 compared to Day 21
in vehicle); *** (p < 0.001).
Figure
23. Representative H&E stained saggital sections of arthritic mouse hind limbs derived from subjects in the type II collagen
(CII)-induced arthritis model of RA. Cartilage destruction, bone erosion and infiltration of inflammatory cells including macrophages
(M) and neutrophils (N) were visible in vehicle-treated animals, whereas MRx0006 treated animals demonstrated few infiltrating inflammatory
cells and minimal bone erosion.
Gastrointestinal
Disease Portfolio
We
have also investigated the efficacy of two therapeutic candidates in our gastrointestinal program in clinical trials, Blautix,
a disease modifying therapeutic for IBS, and Thetanix, a single strain human gut commensal bacterium which has an anti-inflammatory
mechanism and is under investigation for the treatment of IBD and pediatric Crohn’s disease.
Blautix
IBS
is a functional gastrointestinal condition affecting 10% to 15% of the U.S. and E.U. population, but with poorly understood etiology.
The condition is currently defined symptomatically, patients are categorized as constipation predominant (“IBS-C”),
diarrhea predominant (“IBS-D”) or mixed (“IBS-M”). The occurrence of this mixed phenotype,
and clinical observations that patients frequently switch between IBS-C and IBS-D, suggests a common underlying condition in which
the microbiome may play a key role. However, current treatment options only address symptoms and do not address the underlying
cause of the disease. Moreover, inherent in their mechanisms of action, available therapies cause severe and unpleasant side effects
such as diarrhea.
Blautix
is a single strain Live Biotherapeutic intended to address the underlying pathology of IBS and has the potential to become the
first ever disease-modifying therapy suitable for all IBS patients regardless of clinical subtype. Blautix has a unique metabolism,
consuming hydrogen and producing acetate, which promotes bacterial cross-feeding of the microbiota increasing diversity and stability,
two attributes that have been demonstrated to be decreased in patients with IBS compared to healthy controls. Additionally, Blautix
increases butyrate production and decreases hydrogen disulfide, leading to a reduction in the visceral hypersensitivity associated
with IBS and improving gastrointestinal motility.
Blautix
clinical data
Blautix
completed a Phase Ib clinical trial in 24 patients with IBS and 24 healthy volunteers. The duration of the study was 14 days.
The clinical trial demonstrated that Blautix was well tolerated, with no treatment-related serious adverse events or drug discontinuations,
and increased microbiome diversity (Shannon diversity, p=0.04) and showed a trend to increased stability, which was associated
with an improvement in symptoms in 82% of IBS subjects receiving Blautix compared to 50% of those who received placebo.
Following
successful completion of the Phase Ib clinical trial, we commenced a Phase II multicenter randomized placebo-controlled clinical
trial of Blautix in patients with IBS-C and IBS-D, BHT-II-002. The study is the largest clinical trial of a Live Biotherapeutic
conducted to date, enrolling a total of 158 patients with IBS-C and 195 patients with IBS-D. The study was designed with feedback
from the FDA, using the FDA-recommended composite primary endpoint of overall response rate based on concurrent improvement in
abdominal pain and bowel habit (stool frequency for IBS-C patients, or stool consistency for IBS-D patients) in the same week
for at least four of the eight treatment weeks. The trial was intended as a signal finding Phase II study, to generate a signal
of activity in both IBS-C and IBS-D and generate the clinical data to inform the design of a Phase III pivotal program towards
registration.
Blautix
achieved a statistically significant overall response rate compared to placebo in the combined IBS-C/D group Efficacy Evaluable
Analysis Set (p = 0.037) and demonstrated positive, although not statistically significant, trends in improving overall response
for both the IBS-C and IBS-D subgroups independently. Interestingly, and highly supportive of the potential for Blautix to treat
both IBS-C and IBS-D subtypes, a statistically significant effect on improvement in bowel habit was shown in both IBS-C (p = 0.038)
and IBS-D patients (p = 0.05) and in the combined IBS-C/D group (p = 0.0045). Blautix was well tolerated, with a safety profile
comparable to placebo with respect to adverse events and severe adverse events.
The
Phase II clinical trial results provide a strong foundation for the continued development of Blautix as the first therapeutic
with the potential to treat both major subtypes of IBS. Additional analysis of the BHT-II-002 clinical trial data is ongoing.
The Phase II data will form the basis of regulatory engagement around the design of a potential Phase III pivotal trial.
Thetanix
Crohn’s
disease is an IBD which can occur in any part of the gastro-intestinal tract, but primarily affects the small intestine. Approximately
15% to 25% of all Crohn’s disease patients present when they are younger than 18 years old and the manifestation of the
disease in the pediatric population is clinically distinct. Patients suffer from diarrhea, rectal bleeding and abdominal pain,
with many also experiencing weight loss, malnutrition and pubertal delay. Many of the standard therapies used in the adult population
are problematic in children, including steroids and other systemic immunosuppressants long-term use of which can exacerbate growth
retardation.
Thetanix
is a single strain human gut commensal bacterium which has an anti-inflammatory mechanism and is under investigation for the treatment
of IBD. Thetanix has FDA Orphan Drug Designation for pediatric Crohn’s disease.
In
multiple pre-clinical models of IBD, Thetanix demonstrated promising activity on the primary readouts in two different preclinical models
with relevance to Crohn’s disease, protecting against weight loss, preventing histopathological changes in the colon and attenuating
expression of inflammatory mediators (see Figure 13). Using an in vitro co-culture assay, a pirin-like protein
(“PLP”) produced by Thetanix has been identified as a putative candidate effector molecule. Recombinant PLP was shown
to be protective against colitis in a preclinical model and, like Thetanix, to act on NF-κB signaling in vitro.
Figure
13. hetanix protects against intestinal inflammation in dextran sodium sulfate (DSS) mouse models of colitis, reducing
disease-associated bodyweight loss, downregulating inflammatory signals, and improving histopathology scores. BT = Thetanix. Significance
relative to vehicle: ** (p < 0.01), **** (p < 0.0001).
Thetanix
Clinical Data
Thetanix
has successfully completed a randomized, double-blind placebo-controlled Phase Ib clinical trial in pediatric patients with Crohn’s
disease. The study was conducted in two parts, a single-dose phase and a multiple-dose phase, and treated a total of 18 subjects
aged 16 to 18 with Crohn’s disease. In the single-dose phase, eight subjects were given a single dose of either Thetanix
or placebo. In the multiple-dose phase, 10 subjects were given either Thetanix or placebo twice daily for seven days.
The
Phase Ib study showed Thetanix was well tolerated, with no treatment-related serious adverse events or drug discontinuations,
and reduced fecal calprotectin in a subset of patients, an established biomarker intestinal inflammation and indicative of clinical
activity. Additionally, a significant difference in microbiome diversity and evenness was observed across the dosing period. We
are exploring strategic options for Thetanix, including the potential for parallel development in both pediatric and adult populations
in both Crohn’s disease and ulcerative colitis, as well as potential partnerships. Additionally, a significant difference
in microbiome diversity (Shannon diversity, p=0.023) and evenness (microbiota evenness, p=0.03) was observed across the dosing
period in Part B of the study.
Manufacturing
As
LBPs are a new drug modality, we saw fit to invest heavily in manufacturing and developing expertise in order to support rapid
progression of our therapeutic candidates from discovery into and through the clinic. Our in-house facility in Leòn, Spain,
can produce over 30 million capsules of cGMP drug product per year, with capacity to support all our ongoing trials and small-to-mid
scale commercial supply.
To
date we have taken seven strains through process development and scale-up to be able to manufacture clinic-ready product. Having
in-house control of production has been a significant advantage in a field that has experienced significant hurdles relating to
manufacturing. It also generates valuable know-how and intellectual property with returns across our pipeline and platform. We
will continue to leverage the competitive advantage of our in-house production capabilities to support our expanding clinical
development activities.
A
number of raw materials are used to produce our product candidates. The bulk of the raw materials are items that are also used
by other pharmaceutical producers, so are generally not difficult for us to obtain. We are dependent only on suppliers of raw
materials solely for use in the preclinical and clinical development stages of our product candidates. The raw materials have
relatively low-price volatility.
Sales
and Marketing
As
we are in the development stage of our therapeutic candidates, we are not yet a commercial organization. However, we do intend
to commercialize our products, and to do so by assembling our own sales and marketing team, or utilizing the capabilities of select
partners and collaborators.
Competition
The
sector in which we operate is highly dynamic, with new breakthroughs made regularly that shift the paradigm of treatment of human
disease. While we believe that our MicroRx platform and existing candidates enable us to make significant contributions within
the biopharmaceutical sector, our competitors may develop or market therapies that are more effective, safer or less costly than
any that we are commercializing, or may obtain regulatory or reimbursement approval for their therapies more rapidly than we may
obtain approval for ours.
As
we are developing medicines based on human microbiota, our natural competition could be thought of as other companies within the
microbiome space. While many others in the microbiome space are still highly focused on environmental changes to the microbiome
and correlations between certain microbiota profiles and disease, we believe that our function-driven approach to single strain
LBP development using our MicroRx platform is highly differentiated, and this has been evidenced by our significant progress in
the clinic across a broad range of therapeutic areas. Additionally, our capability in both manufacturing and intellectual property
has provided significant competitive advantages that we expect will continue.
Other
companies developing microbiome targeted therapeutics include Seres Therapeutics, Inc., Evelo Biosciences, Inc., Vedanta Biosciences,
Inc., Kaleido Biosciences, Inc. and BiomX.
Competition
in the oncology space, the area in which we are developing lead candidate MRx0518, is high. As is common in the oncology space,
we may seek to combine our candidates with those of competitors to provide therapeutic regimens with improved efficacy for patients.
Significant players in the oncology arena include MSD, Bristol Myers Squibb, F. Hoffmann-La Roche AG, Astrazeneca plc, Regeneron
Pharmaceuticals, Inc, Novartis, Janssen, Merck Serono and Pfizer Inc.
Several
add-on therapies for patients with uncontrolled asthma have been developed and commercialized. These therapies generally target
IL-4α or IL-5, and are developed by companies including Astrazeneca plc, Regeneron Pharmaceuticals, Inc, GlaxoSmithKline
plc and Teva Pharmaceutical Industries Ltd.
While
there are currently no disease modifying therapies for neurodegenerative diseases, many companies have therapies that address
the symptoms, or have products in development that seek to address aspects of biology that are implicated in the pathology of
neurodegenerative disease. In Parkinson’s disease specifically, these companies include F. Hoffmann-La Roche AG, AbbVie,
Kyowa Kirin Co., Ltd and UCB.
In
the GI space, we are developing Blautix for IBS - a therapeutic that seeks to meet the need of patients with both
IBS-C and IBS-D. Patients with these subtypes are treated with therapeutics specific to each subtype that are commercialized by
institutions that include AbbVie, Ironwood Pharmaceuticals, Inc, Bausch Health Companies Inc and Ardelyx.
In
the immune-inflammatory disease space, we are developing candidates for a range of different indications including IBD, MS and
RA. These are competitive arenas in which numerous products already exist that are commercialized, including by the following
companies:
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IBD:
The Takeda Pharmaceutical Company Limited, Johnson & Johnson, Abbvie and Pfizer Inc.
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MS:
Biogen Inc., F. Hoffmann-La Roche AG, Merck Serono, Novartis International AG and Sanofi S.A.
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RA:
Abbvie, Amgen Inc., Johnson & Johnson, Bristol Myers Squibb and UCB.
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Intellectual
Property
We
continue to prioritize establishing robust intellectual property protection for our candidate therapies and other key assets,
while also protecting our industry-leading manufacturing know-how. This approach also enables us to protect our competitive advantage
gained from investing in establishing and developing the manufacturing by bringing LBP manufacturing in-house.
Importantly,
we have procured granted patents that cover our clinical stage therapeutic products in the United States, and other major territories.
As of December 31, 2020, our patent portfolio included approximately 37 issued U.S. patents, approximately 46 pending U.S. provisional
or non-provisional patent applications, approximately 1130 foreign patents, and approximately 588 pending foreign patent applications,
which patents and patent applications we own. The foreign patents and pending foreign patent applications were filed in countries
and jurisdictions that include Australia, Brazil, Canada, Chile, China, Colombia, Eurasia, Hong Kong, India, Israel, Japan, Mexico,
New Zealand, Nigeria, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, Turkey, United Arab Emirates, and countries
within the European Patent Convention, the Eurasian Patent Organization, the African Regional Intellectual Property Organization,
and the Organisation Africaine de la Propriété Intellectuelle. The claims of these owned patents and patent applications
are directed toward various aspects of our product candidates and research programs. Specifically, the claims of these patents
and patent applications include, for example, compositions of matter, methods of use, combination therapies, and methods of manufacture.
These patents, and patent applications if issued, are expected to expire between 2021 and 2040, without taking into account any
possible patent term adjustments or extensions.
With
regard to MRx0518, as of December 31, 2020, we have approximately 3 issued U.S. patents, approximately 7 pending U.S. provisional
or non-provisional patent applications, approximately 53 foreign patents, and approximately 145 pending foreign patent applications
that include claims directed to MRx0518, such as compositions of matter and methods of use. These patents, and patent applications
if issued, are expected to expire between 2036 and 2039, without taking into account any possible patent term adjustments or extensions.
With
regard to MRx-4DP0004, as of December 31, 2020, we have approximately 2 issued U.S. patents, approximately 1 pending U.S. provisional
or non-provisional patent application, approximately 89 foreign patents, and approximately 20 pending foreign patent applications
that include claims directed to MRx-4DP0004, such as compositions of matter and methods of use. These patents, and patent applications
if issued, are expected to expire between 2036 and 2039, without taking into account any possible patent term adjustments or extensions
With
regard to Blautix, as of December 31, 2020, we have approximately 10 issued U.S. patents, approximately 7 pending U.S. provisional
or non-provisional patent applications approximately 214 foreign patents, and approximately 95 pending foreign patent applications
that include claims directed to Blautix, such as compositions of matter and methods of use. These patents, and patent applications
if issued, are expected to expire between 2021 and 2040, without taking into account any possible patent term adjustments or extensions.
With
regard to Thetanix, as of December 31, 2020, we have approximately 1 issued U.S. patent, approximately 1 pending U.S. provisional
or non-provisional patent application, approximately 69 foreign patents, and approximately 20 pending foreign patent applications
that include claims directed to Thetanix, such as compositions of matter and methods of use. These patents, and patent applications
if issued, are expected to expire between 2022 and 2039, without taking into account any possible patent term adjustments or extensions.
We
strive to protect the proprietary technology that is important to our business, including seeking and maintaining patents intended
to cover both our broad platform and individual therapeutic candidates. We seek to obtain domestic and international patent protection
and endeavor to promptly file patent applications for new commercially valuable inventions. We also rely on trade secrets to protect
aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
We
have established a comprehensive Intellectual Property estate among specialist LBP developers and continue to implement our aggressive
intellectual property strategy in securing robust, multi-layered protection of our therapeutic candidates.
We
plan to continue to expand our intellectual property estate by filing patent applications directed to pharmaceutical compositions,
methods of treatment, methods of manufacture, and methods for patient selection created or identified from our ongoing development
of our therapeutic candidates, as well as discoveries based on our proprietary platform. Our success will depend on our ability
to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how
related to our business, defend and enforce any patents that we may obtain, preserve the confidentiality of our trade secrets
and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how
and continuing technological innovation to develop and maintain our proprietary position and, in the future, may rely on or leverage
in-licensing opportunities.
The
patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific, and factual
questions. In addition, the coverage claimed in a patent may be challenged in courts after issuance. Moreover, many jurisdictions
permit third parties to challenge issued patents in administrative proceedings, which may result in narrowing or even cancellation
of patent claims. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular
jurisdiction or at all, whether the claims of any patent applications, should they issue, will cover our therapeutic candidates,
or whether the claims of any issued patents will provide sufficient protection from competitors or otherwise provide any competitive
advantage, or, if challenged, in courts or administrative proceedings, be determined to be invalid or unenforceable.
Because
patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially
even longer, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries
and patent application filings, we cannot be certain of the priority of inventions covered by pending patent applications. Accordingly,
we may not have been the first to invent the subject matter disclosed in some of our patent applications or the first to file
patent applications covering such subject matter, and we may have to participate in interference proceedings or derivation proceedings
declared by the USPTO to determine priority of invention.
Patent
Portfolio
We
continue to recognize the importance of establishing robust intellectual property protection for our candidate therapies, and
protecting the competitive advantage derived from our industry-leading manufacturing know-how. This is essential to capturing
the value of our research while sharing the advances we have made among the scientific community. It also enables us to protect
the competitive advantage gained by bringing LBP manufacturing in-house.
We
have established a comprehensive Intellectual Property estate among specialist LBP developers and continue to implement our aggressive
intellectual property strategy in securing robust, multi-layered protection of our therapeutic candidates. As of December 31,
2020, our patent portfolio includes numerous issued patents and pending applications that cover our therapeutic candidates in
the US and other countries internationally.
License
and Manufacturing Agreements
We
are a party to several license agreements under which we license patents, patent applications and other intellectual property.
The licensed intellectual property includes composition of matter and methods of using LBP candidates. In some cases, licenses
cover physical material in the form of microbial strains. Certain diligence and financial obligations are tied to these agreements.
Additionally, we are a party to manufacturing agreements for committed resources and exclusivity.
Collaborations
Collaboration
with University of Texas MD Anderson
In
November 2017, we entered into a strategic collaboration agreement with the University of Texas MD Anderson Cancer Center (“MD
Anderson”). This partnership brings together MD Anderson’s translational medicine and clinical research capabilities
with our expertise in the discovery and development of LBPs in oncology. Under the agreement, we provide funding and in-kind support
for pre-clinical and clinical studies in solid tumors and radiation oncology. All data, results, and inventions generated in the
conduct of the studies under the agreement are owned by us, and we have the sole right to prepare, file, prosecute and enforce
patents covering the same. To date, we have initiated two studies as part of the collaboration: a Phase I/II study of MRx0518
in combination with Keytruda in solid tumors, and a Phase I study of MRx0518 in combination with hypofractionated radiotherapy
in patients with potentially resectable pancreatic cancer. Pursuant to the agreement, we agreed to pay MD Anderson a maximum of
$10 million and have paid $4 million to date. The agreement expires six years from the effective date, unless earlier terminated
due to a party materially breaching the agreement and failing to cure such breach within 30 days of receiving notice from the
non-breaching party.
Research
Collaboration and Option to License Agreement with Merck
In
October 2019, we entered into a research collaboration and option to license agreement with Merck to discover and develop vaccines
in up to three indications derived from our proprietary gut microbiome-derived commensal bacteria selected from our culture collection.
The collaboration brings together MSD’s experience in the development of vaccines with our expertise in developing LBPs.
To date, we have screened and characterized hundreds of LBPs with immuno-modulatory potential and selected from this group lead
LBPs with desirable immuno-modulatory properties for further evaluation and development.
The
parties granted each other licenses under their intellectual property to conduct the research under the agreement. Each party
owns the inventions that it invents solely under the research collaboration, but we jointly own inventions that are jointly developed
between the parties. Merck has the first right to file and prosecute patents covering inventions developed under the research,
until Merck’s selection of its preferred LBPs, upon which time Merck’s first right will be limited to those patents
that cover inventions related to those preferred LBPs or vaccine products comprising those preferred LBPs. We granted Merck an
exclusive option with respect to each indication to obtain exclusive licenses to develop and commercialize products as therapeutic
agents useful in the treatment of such indication. For the term of the research collaboration, which expires on October 7, 2022,
and for six months thereafter (the “Option Period”), we cannot research, develop or commercialize any vaccine
product comprising a live bacteria and an exogenous antigen. In addition, during the term, and provided that Merck exercised at
least one option, we cannot conduct certain activities that would lead to developing a competitive vaccine product. Under the
agreement, Merck granted us a license under its intellectual property that specifically claim or cover LBPs for all purposes other
than developing or commercializing a vaccine product. Under the terms of the agreement, we received a $2.5 million upfront cash
payment, a $5 million equity investment, and we are eligible to receive up to $347.5 million per indication in option exercise
fees and in development, regulatory and sales milestone payments, ranging from low seven figures to high eight figures, plus royalties
on sales of any licensed product deriving from the collaboration. Such royalty rates range from low- to high-single digit royalties
and expire upon the later of (i) the last-to-expire valid patent claim or (ii) 10 years after the first commercial sale of such
product in the applicable country. If Merck does not exercise one of its options during the Option Period, the agreement will
expire at the end of the research collaboration. If Merck does exercise an option under the agreement, the agreement expires upon
the expiration of Merck’s royalty obligations. Merck can terminate the agreement without cause with 90 days’ written
notice. Either party can terminate the agreement in the event that the other party materially breaches the agreement and fails
to cure such breach within 90 days of receiving notice from the non-breaching party, or if the other party becomes bankrupt and
such proceeding is not dismissed within 90 days. If Merck terminates the agreement for convenience, or the agreement terminates
because Merck does not exercise an option, Merck has a fully paid-up non-exclusive license under our interest in the intellectual
property developed under the agreement for internal research purposes only. If Merck terminates the agreement due to our material
breach, we will assign to Merck all interest that we have in the intellectual property generated by the research, as well as the
LBPs that were the subject of and included in the research. If we terminate the agreement due to Merck’s breach before Merck
exercises an option, Merck grants us a non-exclusive license under Merck’s interest in the intellectual property generated
from the research for all purposes.
In
the near-term we look forward to advancing our research with our world-leading partners at MSD and MD Anderson. Beyond these partnerships,
we are actively pursuing additional research collaborations to enable us to realize the true value of the MicroRx platform and
expand into new therapeutic areas.
Government
Regulation
Government
authorities in the United States, at the federal, state, and local level, and other countries extensively regulate, among other
things, the research, development, nonclinical and clinical testing, manufacture, quality control, approval, labeling, packaging,
storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and
import of the biological products we are developing. Generally, before a new biologic drug, or biopharmaceutical, product can
be marketed, considerable data must be generated, which demonstrate the product candidate’s quality, safety, purity, and
potency, or efficacy. Such data must then be organized into a format specific for each regulatory authority, submitted for review
and approved by the regulatory authority.
U.S.
Biologics Development Process
In
the United States, the FDA regulates biopharmaceutical products under the federal Food, Drug, and Cosmetic Act, or FDCA, and its
implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations require 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, the approval process or after
approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal
to approve pending applications, withdrawal of an approval, a clinical hold, adverse publicity, 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. Any agency or judicial enforcement action could have a material adverse
effect on us.
The
process required by the FDA before a biopharmaceutical product may be marketed in the United States generally involves the following:
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completion
of nonclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s good laboratory practice
(“GLP”) regulations and other applicable regulations;
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submission
to the FDA of an IND, which must become effective before human clinical trials may begin;
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approval
of the study and informed consent by an independent IRB or ethics committee, either centralized or with respect to each clinical
site, before each clinical trial may be initiated;
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performance
of adequate and well-controlled human clinical trials in accordance with GCP requirements to establish the safety and potency,
or efficacy, of the proposed product for its intended use;
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submission
to the FDA of a Biologics License Application (“BLA”) after successful completion of all pivotal trials;
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determination
by the FDA within 60 days of its receipt of a BLA to accept the filing for substantive review;
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satisfactory
completion of an FDA advisory committee review, if applicable;
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satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with cGMP regulations to ensure that the facilities, methods and controls are adequate to ensure the product’s identity,
strength, potency, quality, and purity, and of selected clinical investigation sites to assess compliance with GCPs; and
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FDA
review and approval of the BLA to permit commercial marketing of the product for a particular indication or indications for
use in the United States.
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Prior
to beginning the first clinical trial with a product candidate in the United States, we must submit an (“IND”)
to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug or biologic product to
humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies.
The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology,
and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human
data or literature to support the use of the investigational product for the indication being studied. An IND must become effective
before human clinical trials may begin. 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 proposed clinical trial. In such a case, the IND
may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical
trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
In
2012 and updated subsequently, FDA has issued an industry guidance on early clinical trials with live biotherapeutic products,
which sets forth various regulatory considerations and standards on chemistry, manufacturing, and control information, which applicants
are expected to submit in an IND, including culture/passage of history of microbial strains, summary of phenotype and genotype
of the product strains, identification of cells used to establish the master cell bank, methods used to attenuate virulent strains,
description of cell growth and harvesting, measures of potency, purity tests, and tests for microbial bioburden, among other considerations.
If the applicant and FDA cannot agree on the proper tests and measures of safety, purity and potency for LBPs, clinical testing
and regulatory approval of product candidates may be significant delayed, or may never be approved by FDA.
Clinical
trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators
in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation
in any clinical study. Clinical trials are performed in accordance with protocols detailing, among other things, the objectives
of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission
to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent
protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve
the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the
study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects are being exposed to an unacceptable health risk or that the clinical trial is unlikely
to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the
clinical study sponsor, known as a data safety monitoring board, which may review data and endpoints at designated check points,
make recommendations and/or 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. There are also requirements governing the reporting of ongoing clinical studies
and clinical study results to public registries.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase
1: The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition.
These studies are designed to test the safety, dosage tolerance, absorption, metabolism, and distribution of the investigational
product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.
In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic
to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
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Phase
2: The product candidate is administered to a limited patient population with a specified disease or condition to evaluate
the preliminary efficacy, optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks.
Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase
3 clinical trials.
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Phase
3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically
significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical
trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product
and to provide an adequate basis for product approval.
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Post-approval
clinical trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These clinical trials
are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a BLA.
During
the development of a new biopharmaceutical product, sponsors are given opportunities to meet with the FDA at certain points. These
points may be prior to submission of an IND, at the end of Phase 2, and before a BLA is submitted. Meetings at other times may
be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date,
for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically
use the meetings at the end of the Phase 2 clinical trial to discuss Phase 2 clinical results and present plans for the pivotal
Phase 3 clinical trials that they believe will support approval of the new biopharmaceutical product for a particular indication.
Phase
I, Phase II, and Phase III clinical testing may not be completed successfully within a specified period, if at all, and there
can be no assurance that the data collected will support FDA approval or licensure of a product candidate. 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 and 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, the manufacturer must develop methods for testing the identity, strength, potency,
quality, and purity of the final product. In addition, 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 proposed shelf
life.
While
the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies
performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be
submitted to the FDA and investigators for serious and unexpected adverse events, findings from other studies suggesting a significant
risk to humans exposed to the same or similar product, findings from animal or in vitro testing suggesting a significant
risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed
in the protocol or investigator brochure.
We
will be required to develop and implement additional clinical trial policies and procedures designed to help protect subjects
from the COVID-19 virus. For example, in March 2020, the FDA issued a guidance, which the FDA subsequently updated, on conducting
clinical trials during the pandemic, which describes a number of considerations for sponsors of clinical trials impacted by the
pandemic, including the requirement to include in the clinical trial report contingency measures implemented to manage the clinical
trial, and any disruption of the clinical trial as a result of the COVID-19 pandemic; a list of all subjects affected by the COVID-19-pandemic
related study disruption by unique subject identifier and by investigational site and a description of how the individual’s
participation was altered; and analyses and corresponding discussions that address the impact of implemented contingency measures
(e.g., participant discontinuation from investigational product and/or study, alternative procedures used to collect critical
safety and/or efficacy data) on the safety and efficacy results reported for the clinical trial. Recently, FDA also issued a guidance
on good manufacturing practice considerations for responding to COVID-19 infection in employees in drug and biological products
manufacturing, including recommendations for manufacturing controls to prevent contamination of drugs, a guidance on resuming
normal drug and biologics manufacturing operations during the COVID-19 public health emergency, and a guidance on revised recommendations
for reducing the risk of human immunodeficiency virus transmission by blood and blood products. To the extent we are required
to implement additional or to modify existing policies and procedures for our clinical studies and/or manufacturing functions,
or if the pandemic significantly impacts recruitment of patients or the conduct of our clinical studies, our anticipated timelines
for initiating or completing clinical studies and seeking regulatory approval may be substantially delayed, and we may incur additional
costs. The extent to which the COVID-19 pandemic impacts our business, preclinical studies and clinical trials will depend on
future developments, which are highly uncertain and cannot be predicted with confidence.
BLA
Review and Approval Process
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product
development nonclinical and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted
on the chemistry of the product candidate, proposed labeling and other relevant information are submitted to the FDA as part of
a BLA requesting approval to market the product for a particular indication or indications. The submission of a BLA is subject
to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. Additionally,
no user fees are assessed on BLAs for products designated as orphan products, unless the product also includes a non-orphan indication.
Within
60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the
agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time
of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information.
Once a BLA has been filed, the FDA’s goal is to review the application within ten months after it accepts the application
for filing, or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months after
the FDA accepts the application for filing. The review process is often significantly extended by FDA requests for additional
information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure, potent
and effective for the proposed indication(s) and the facility in which it is manufactured, processed, packed or held meets standards
designed to assure the product’s continued safety, purity, and potency, or efficacy. The FDA may convene an advisory committee
to provide clinical insight on application review questions.
Before
approving a BLA, the FDA will typically 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 comply with cGMP requirements and
are adequate to assure consistent production of the product within required specifications. If applicable, FDA regulations also
require tissue establishments to register and list their human cells, tissues, and cellular and tissue-based products with the
FDA and to evaluate donors through screening and testing. Additionally, before approving a BLA, the FDA will typically inspect
one or more clinical sites to assure compliance with Current Good Clinical Practices (“CGCP”). If the FDA determines
that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in
the submission in a Complete Response Letter, and often will request additional testing or information. Notwithstanding the submission
of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria
for approval.
The
testing and approval process require substantial time, effort and financial resources, and each may take several years to complete.
The FDA may not grant approval on a timely basis, or at all, and we may encounter difficulties or unanticipated costs in our efforts
to secure necessary governmental approvals, which could delay or preclude us from marketing our product candidates. After the
FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product will be produced, the
FDA may issue an Approval Letter, a Complete Response Letter, or a Not Approval Letter. An Approval Letter authorizes commercial
marketing of the product with specific prescribing information for specific indications. A Complete Response Letter indicates
that the review cycle of the application is complete, and the application is not ready for approval. A Complete Response Letter
may request additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria
are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor
safety and potency, or efficacy of a product.
If
regulatory approval of a product is granted, such approval will entail limitations on the indicated uses for which such product
may be marketed. Additionally, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”),
plan to mitigate risks, which could include medication guides, physician communication plans, or other restrictions to assure
safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition
approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once
approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained
or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase IV post-market trials and
surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit
further marketing of the product based on the results of these post-marketing studies. In addition, new government requirements,
including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay
or prevent regulatory approval of our product candidates under development.
Expedited
Development and Review Programs
A
sponsor may seek approval of its product candidate under programs designed to accelerate the FDA’s review and approval of
new drugs and biological products that meet certain criteria. Specifically, new biologic products are eligible for Fast Track
designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet
medical needs for the condition. For a Fast Track product, the FDA may consider sections of the BLA for review on a rolling basis
before the complete application is submitted if relevant criteria are met. A Fast Track designated product candidate may also
qualify for priority review, under which the FDA sets the target date for FDA action on the BLA at six months after the FDA accepts
the application for filing. Priority review is granted when there is evidence that the proposed product would be a significant
improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious condition. If criteria are
not met for priority review, the application is subject to the standard FDA review period of ten months after the FDA accepts
the application for filing. Priority review designation does not change the scientific/medical standard for approval or the quality
of evidence necessary to support approval.
Under
the accelerated approval program, the FDA may approve a BLA on the basis of either 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. Post-marketing studies
or completion of ongoing studies after marketing approval are generally required to verify the product’s clinical benefit
in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit.
In
addition, the Food and Drug Administration Safety and Innovation Act of 2012, or FDASIA, established Breakthrough Therapy designation.
A sponsor may seek FDA designation of its product candidate as a Breakthrough Therapy if the product candidate is intended, alone
or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary
clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors may request the
FDA to designate a Breakthrough Therapy at the time of, or any time after, the submission of an IND, but ideally before an end-of-Phase
II meeting with the FDA. If the FDA designates a Breakthrough Therapy, it may take actions appropriate to expedite the development
and review of the application, which may include holding meetings with the sponsor and the review team throughout the development
of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding the development of the product
candidate to ensure that the development program to gather the nonclinical and clinical data necessary for approval is as efficient
as practicable; involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary
review; assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development
program and to serve as a scientific liaison between the review team and the sponsor; and considering alternative clinical trial
designs when scientifically appropriate, which may result in smaller or more efficient clinical trials that require less time
to complete and may minimize the number of patients exposed to a potentially less efficacious treatment. Breakthrough Therapy
designation also allows the sponsor to file sections of the BLA for review on a rolling basis. We may seek designation as a Breakthrough
Therapy for some or all of our product candidates.
Fast
Track designation, priority review and Breakthrough Therapy designation do not change the standards for approval but may expedite
the development or approval process.
In
addition, the Pediatric Research Equity Act (“PREA”), requires a sponsor to conduct pediatric clinical trials
for certain drugs and biological products, for a new active ingredient, new indication, new dosage form, new dosing regimen or
new route of administration. Under PREA, original BLAs and supplements must contain a pediatric assessment unless the sponsor
has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed
indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for
which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all
of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the product candidate
is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness
data needs to be collected before the pediatric clinical trials begin. The FDA will send a non-compliance letter to any sponsor
that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric
formulation.
Orphan
Drugs
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition,
defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 individuals in the United States when there is no reasonable expectation that the cost of developing
and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug
or biologic. Orphan drug designation must be requested before submitting a BLA or NDA. After the FDA grants orphan drug designation,
the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for
the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA
may not approve any other applications, including a full BLA or NDA, to market the same biologic or drug product for the same
indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan
drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability
of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was
designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease
or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation
are tax credits for certain research and a waiver of the BLA application user fee.
A
designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost
if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure
sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Post-Approval
Requirements
Any
products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the
FDA, including, among other things, requirements relating to record keeping, reporting of adverse events, periodic reporting,
distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding
new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user
fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application
fees for supplemental applications with clinical data. Biopharmaceutical manufacturers and their subcontractors are required to
register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the
FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us
and any third-party manufacturers that we may decide to use. Changes to the manufacturing process are strictly regulated and,
depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require
investigation and correction of any deviations from cGMP and impose reporting requirements upon us, and any third-party manufacturers,
that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production
and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. We cannot be certain that we
or our present or future suppliers will be able to comply with the cGMP regulations and other FDA post approval regulatory requirements.
If our present or future suppliers are not able to comply with these requirements, the FDA may, among other things, halt our clinical
trials, require us to recall a product from distribution, or withdraw approval of a BLA.
Future
FDA and state inspections may identify compliance issues at our facilities or at the facilities of contract manufacturers that
may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown
problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer
or holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated
or judicial action that could delay or prohibit further marketing.
The
FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after
the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions
to the approved labeling to add new warnings, contraindications and safety information; imposition of post-market studies or clinical
trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other
potential consequences include, among other things:
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restrictions
on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
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fines,
warning letters or holds on post-approval clinical trials;
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refusal
of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product
license approvals;
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product
seizure or detention, or refusal to permit the import or export of products; or
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injunctions
or the imposition of civil or criminal penalties.
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The
FDA closely regulates the marketing, labeling, advertising and promotion of biologics and drug products. A company can promote
only the safety, purity, and potency, or efficacy, that are approved by the FDA and reflected in the approved label. The FDA and
other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these
requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil
and criminal penalties, and exclusion from participation in governmental health programs, like Medicare and Medicaid. Physicians
may prescribe legally available products for uses that are not described in the product’s labeling and that differ from
those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe
that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior
of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject
of off-label use of their products.
Other
U.S. Regulatory Matters
Manufacturers
of biological products are subject to additional healthcare laws, regulation, and enforcement by the federal government and by
authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation,
U.S. federal anti-kickback, anti-self-referral, false claims, transparency, including the federal Physician Payments Sunshine
Act, consumer fraud, pricing reporting, data privacy, data protection, and security laws and regulations as well as similar foreign
laws in the jurisdictions outside the U.S. Similar state and local laws and regulations may also restrict business practices in
the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including
but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services
reimbursed by nongovernmental third-party payors, including private insurers, or by patients themselves; state laws that require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other
potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and
marketing information; state and local laws which require the tracking of gifts and other remuneration and any transfer of value
provided to physicians, other healthcare providers and entities; and state and local laws that require the registration of pharmaceutical
sales representatives; and state and local laws governing the privacy and security of health information in some circumstances,
many of which differ from each other in significant ways and often are not preempted by the Health Insurance Portability and Accountability
Act (“HIPAA”), thus complicating compliance efforts.
The
risk of our being found in violation of these or other laws and regulations is increased by the fact that many have not been fully
interpreted by the regulatory authorities or the courts and their provisions are open to various interpretations. These laws and
regulations are subject to change, which can increase the resources needed for compliance and delay product approval or commercialization.
Any action brought against us for violations of these laws or regulations, even successfully defended, could cause us to incur
significant legal expenses and divert our management’s attention from the operation of our business. Also, we may be subject
to private “qui tam” actions brought by individual whistleblowers on behalf of the federal or state governments. Actual
or alleged violation of any such laws or regulations may lead to investigations and other claims and proceedings by regulatory
authorities and in certain cases, private actors, and violation of any of such laws or any other governmental regulations that
apply may result in penalties, including, without limitation, significant administrative, civil and criminal penalties, damages,
fines, additional reporting obligations, and oversight if we become subject to a corporate integrity agreement or other agreement
to resolve allegations of non-compliance with these laws, the curtailment or restructuring of operations, exclusion from participation
in government healthcare programs and imprisonment.
Coverage
and Reimbursement
Sales
of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such
as federal, state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and
the level of reimbursement for such product by third-party payors. Significant uncertainty exists as to the coverage and reimbursement
status of any newly approved product. Decisions regarding the extent of coverage and amount of reimbursement to be provided are
made on a plan-by-plan basis. One third-party payor’s decision to cover a particular product does not ensure that other
payors will also provide coverage for the product. As a result, the coverage determination process can require manufacturers to
provide scientific details, information on cost-effectiveness, and clinical support for the use of a product to each payor separately.
This can be a time-consuming process, with no assurance that coverage and adequate reimbursement will be applied consistently
or obtained in the first instance. In addition, third-party payors are increasingly reducing reimbursements for pharmaceutical
products and related services. The U.S. government and state legislatures have continued implementing cost-containment programs,
including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Third-party
payors are increasingly challenging the prices charged, examining the medical necessity and reviewing the cost effectiveness of
pharmaceutical products, in addition to questioning their safety and efficacy. Adoption of price controls and cost-containment
measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit
sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover
a product could reduce physician usage and patient demand for the product.
In
international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted
price ceilings on specific products and therapies. For example, the European Union provides options for its member states to restrict
the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices
of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt
a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Pharmaceutical
products may face competition from lower-priced products in foreign countries that have placed price controls on such products
and may also compete with imported foreign products. Furthermore, there is no assurance that a product will be considered medically
reasonable and necessary for a specific indication, that it will be considered cost-effective by third-party payors, that an adequate
level of reimbursement will be established even if coverage is available, or that the third-party payors’ reimbursement
policies will not adversely affect the ability for manufacturers to sell products profitably.
Healthcare
Reform
In
the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative
and regulatory changes to the healthcare system. Third-party payors, whether domestic or foreign, or governmental or commercial,
are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign
jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could impact our ability
to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, or Affordable Care Act
(“ACA”) was enacted, which, among other things, subjected biologic products to potential competition by lower-cost
biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated
for drugs that are inhaled, infused, instilled, implanted, or injected, increased the minimum Medicaid rebates owed by most manufacturers
under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals
enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription
drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research.
There
have been legislative and judicial efforts to repeal, replace, or change some or all of the ACA, including measures taken during
the Trump administration. In November 2020, the United States Supreme Court held oral arguments on the Fifth Circuit U.S. Court
of Appeals decision that held that the individual mandate is unconstitutional. It is uncertain how the United States Supreme Court
will rule on this case or how healthcare measures of the Biden administration will impact the ACA and our business. Litigation
and legislation over the ACA are likely to continue, with unpredictable and uncertain results. Complying with any new legislation
or reversing changes implemented under the ACA could be time-intensive and expensive, resulting in a material adverse effect on
our business. Until the ACA is fully implemented or there is more certainty concerning the future of the ACA, it will be difficult
to predict its full impact and influence on our business. We cannot predict whether current or future efforts to repeal or modify
these laws and/or adopt new healthcare legislation will be successful, nor can we predict the impact that such a development would
have on its business and operating results. Future legislation, rulemaking, or other regulatory actions or developments under
the ACA or otherwise could adversely impact the number of Americans with health insurance and, consequently, prescription drug
coverage, which can impact the way we do business. We cannot predict the timing or impact of any future legislative, rulemaking,
litigation, or other regulatory actions, but any such action could have a material adverse impact on the results of our operations.
In
addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011,
the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee
on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through
2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in
2013, and will remain in effect through 2030, with the exception of a temporary suspension implemented under various COVID-19
relief legislation from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. The American Taxpayer
Relief Act of 2012 further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and
increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There
have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things,
bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between
pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal
level, the Trump administration’s budget for fiscal year 2021 includes allowance to support legislative proposals seeking
to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost
generic and biosimilar drugs. On July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders
related to prescription drug pricing that seek to implement several of the administration’s proposals. The FDA also released
a final rule in September 2020 providing guidance for states to build and submit importation plans for drugs from Canada. Further,
in November 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers
to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by
law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for
certain fixed fee arrangements between pharmacy benefit managers and manufacturers. The CMS also issued an interim final rule
implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain
physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On
December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against
implementation of the interim final rule. In December 2020, CMS issued a final rule implementing significant manufacturer price
reporting changes under the Medicaid Drug Rebate Program, including regulations that affect manufacturer-sponsored patient assistance
programs subject to pharmacy benefit manager accumulator programs and Best Price reporting related to certain value-based purchasing
arrangements. It is unclear to what extent these new regulations and any future regulations and legislation by the Biden administration
will have on our business, including our ability to generate revenue and achieve profitability, and the business of our customers.
There
has recently been heightened governmental scrutiny over the manner in which pharmaceutical manufacturers set prices for their
marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed, among
other things, to bring more transparency to drug pricing, to reform government program reimbursement methodologies for pharmaceutical
products, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk
purchasing. There has also been increased interest by third party payors and governmental authorities in reference to pricing
systems and publication of discounts and list prices, which may adversely affect our revenue and financial condition. Further,
at the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical
and biological product 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.
We
are unable to predict the future course of federal or state healthcare legislation in the United States directed at broadening
the availability of healthcare and containing or lowering the cost of healthcare. These and any further changes in the law or
regulatory framework that reduce our revenue or increase our costs could also have a material and adverse effect on our business,
financial condition and results of operations. It is also possible that additional governmental action is taken to address the
COVID-19 pandemic. The continuing efforts of the government, insurance companies, managed care organizations, and other payors
of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
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the
demand for our product candidates, if we obtain regulatory approval;
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our
ability to receive or set a price that we believe is fair for our products;
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our
ability to generate revenue and achieve or maintain profitability;
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the
level of taxes that we are required to pay; and
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the
availability of capital.
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We
expect that 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, lower reimbursement, and new payment methodologies.
This could lower the price that we receive for any approved product. Any denial in coverage or reduction in reimbursement from
Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which
may prevent us from being able to generate sufficient revenue, attain profitability, or commercialize our product candidates,
if approved.
Foreign
Regulation
In
addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials
and commercial sales and distribution of our product candidates to the extent we choose to develop or sell any product candidates
outside of the United States. The approval process varies from country to country and the time may be longer or shorter than that
required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary greatly from country to country.
Employees
As
of December 31, 2020, we had 92 employees, including 40 employees in the United Kingdom and one employee in the United States.
Of these employees, more 78 were engaged in research and development activities and 14 were engaged in administrative activities.
We also engage contractors and consultants. To the company’s knowledge, none of our employees outside of Spain are represented
by a labor union or covered under a collective bargaining agreement. Our staff based in Spain are covered by a sector-wide collective
bargaining agreement. They are also represented by a union-backed staff representative. We have not experienced any work stoppages
due to employee disputes, and we consider our relationship with our employees to be good.
Facilities
Our
corporate headquarters are located in Leeds, England, where we currently lease 5,800 square feet of office space that expires
in May 2027. We also lease 7,600 square feet of office and laboratory space in Aberdeen, Scotland, that expires in December 2020
with rolling one year extensions, lease 14,100 square feet of manufacturing facilities in Leòn, Spain that expires in April
2026; and lease 2,028 square feet of office and laboratory space in Cork, Ireland that expires March 2021. We believe our facilities
are sufficient to meet our current needs and that suitable space will be available as and when needed.
Legal
Proceedings
From
time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business.
We are not currently a party to any material legal proceedings. Regardless of outcome, such proceedings or claims can have an
adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances
that favorable outcomes will be obtained.
MANAGEMENT
Executive
Officers and Directors
The
following table sets forth information regarding our executive officers and directors, including their ages, as of April 1, 2021.
Name
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Age
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Position(s)
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Executive
Officers:
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Duncan
Peyton
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51
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Chief
Executive Officer, and Director
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Dr. Alexander
Stevenson
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50
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Chief
Scientific Officer, and Director
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John
Beck
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61
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Chief
Financial Officer
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Richard
Avison
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43
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Group
Finance Director
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Non-Executive
Directors:
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Prof.
Axel Glasmacher
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60
|
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Non-Executive
Director Chairman
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Dr.
Edgardo (Ed) Baracchini
|
|
61
|
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Non-Executive
Director
|
Dr.
Alexander (Sandy) Macrae
|
|
58
|
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Non-Executive
Director
|
Dr.
Katrin Rupalla
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|
53
|
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Non-Executive
Director
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Paul
Maier
|
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73
|
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Non-Executive
Director
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There
are no known family relationships between any of our officers and directors. To the best knowledge of our knowledge, there are
no arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of our officers
and directors was selected as a director or member of senior management
Executive
Officers
Duncan
Peyton co-founded 4D Pharma and has served as our Chief Executive Officer and as a member of our board of directors since
February 2014. Mr. Peyton also founded and serves as a director of Aquarius Equity, a life sciences investment firm, since August
2004. Mr. Peyton holds a B.Sc. in Biotechnology from the University of Sunderland and a CPE and LPC at Northumbria College of
Law.
Alexander
Stevenson co-founded 4D Pharma and has served as our Chief Scientific Officer and as a member of our board of directors
since June 2014. Dr. Stevenson also serves as a director of Aquarius Equity, a life sciences investment firm, since May 2008.
Prior to joining Aquarius Equity, Alex served as Chief Operating Officer of Modern Biosciences plc (a subsidiary of IP Group plc),
from 2006 to 2008.Dr. Stevenson currently serves on the board of directors of C4X Discovery PLC. Dr. Stevenson holds a B.Sc. (Hons)
in Microbiology, a Ph.D. in Microbiology, and an MBA from the University of Leeds.
John
Beck was appointed as our Chief Financial Officer in March 2021. Mr. Beck serves on the board of directors of Artelo Biosciences,
as a scientific advisor, and mentor to the University of San Diego’s student-run TRITON fund. Prior to joining us, Mr. Beck
served as Senior Vice President, Finance and CFO of Ritter Pharmaceuticals from May 2018 to May 2020. Mr. Beck also served as
Executive Manager and CEO at Wellspring Water Technologies, LLC from October 2015 to May 2018 and CEO of West Tech Medical, LLC
from October 2015 to May 2018. Mr. Beck also was the CFO and Senior Vice President of Finance and Operations of Ardea Biosciences
from February 2008 to June 2012, and held positions as Senior Vice President of Finance, Treasurer and CFO of Metabasis Therapeutics
from February 1998 to February 2008, and the Director of Finance at Neurocrine Biosciences from June 1992 to February 1998. Mr.
Beck holds a B.A. in Accounting from the University of Washington, Seattle, a degree in theology from a Seattle-area seminary
and is a licensed CPA (inactive status) in the state of California.
Richard
Avison has served as our Finance Director since November 2017. Prior to joining us, Mr. Avison served as Accounting Services
Manager for Summ.it Assist LLP, a financial consulting agency, from January 2009 to October 2017. Mr. Avison holds a B.Sc. (Hons)
in Accountancy, Finance & Computer Science from Lancaster University.
Non-Executive
Directors
Prof.
Dr. Axel Glasmacher joined our board of directors in January 2019, and he has served as our Chairman since April 2020.
Prof. Glasmacher currently serves as the Owner of AG Life Science Counsulting GmbH & Co. KG since March 2018. Previously,
Prof. Glasmacher served as Senior Vice President, Global Clinical Research & Development at Celgene, from April 2016 to February
2018, as Corporate Vice President, Clinical Research and Development from January 2015 to April 2016 and as Vice-President of
Medical Affairs for Europe, Middle East, and Africa from April 2012 to December 2014. Prior to Celgene, Professor Glasmacher worked
within the field of haematology-oncology at the University Hospital in Bonn from August 1988 to April 2006. Prof. Glasmacher currently
serves on the board of Active Biotech AB, a Nasdaq listed company. Prof. Glasmacher holds a Medical Doctorate from the University
of Bonn. State University.
Dr.
Edgardo (Ed) Baracchini joined our board of directors in January 2019. Dr. Baracchini currently serves as the Chief Business
Officer of Imago BioSciences, Inc., a biotechnology company, since April 2020.Prior to joining us, Dr. Baracchini served as Chief
Business Officer at Xencor Inc, from January 2010 to September 2018. Dr. Baracchini has also served as the SVP, Business Development
for Metabasis Therapeutics (which was acquired by Ligand Pharmaceuticals, Inc.) from May 2002 to November 2009. Dr. Baracchinicurrently
serves on the board of INmune Bio, Inc., a Nasdaq listed company. Dr. Baracchini holds a B.S. inMicrobiology from University of
Notre Dame, a Ph.D. in Molecular and Cell Biology from the University of Texas at Dallas, and an MBA from the University of California,
Irvine — Paul Merage School of Business.
Dr.
Alexander (Sandy) Macrae joined our board of directors in August 2019. Since June 2016, Dr. Macrae serves as the President
and Chief Executive Officer of Sangamo Therapeutics, Inc., a biotechnology company. Dr. Macrae previously served as Global Medical
Officer at Takeda Pharmaceuticals, from 2012 to March 2016. Dr. Macrae holds a B.Sc. and Bachelor of Medicine and Bachelor of
Surgery degrees from the University of Glasgow and a Ph.D. in Molecular Genomics from the King’s College, Cambridge.
Dr.
Katrin Rupalla joined our board of directors in August 2020. Dr. Rupalla currently serves as the SVP, Head Regulatory,
MedDoc, R&D Quality at Lundbeck since October 2019. Prior to that, Dr. Rupalla served as VP, Regulatory Oncology Head from
April 2018 to July 2019, VP, China Head Development from November 2015 to September 2018, and VP, EU Regulatory Sciences from
May 2012 to December 2015at Bristol-Myers Squibb. Ms. Rupalla holds a M.Sc. in Pharmacy and a Ph.D. in CNS Pharmacology from the
Philipps-University Marburg and an MBA in Project Management from Jones International University.
Paul
Maier joined our board of directors in March 2021. Mr. Maier currently serves as a board member of Eton Pharmaceuticals,
Inc, a life science company, since September 2017, and as a board member of International Stem Cell Corporation, a life science
company, since July 2007. Previously, Mr. Maier was the Chief Financial Officer at Sequenom Inc. from November 2009 to June 2014.
Mr. Maier also served as Senior Vice President and Chief Financial Officer of Ligand Pharmaceuticals from October 1992 to January
2007, and as independent financial consultant to certain life sciences companies. Mr. Maier holds an MBA from Harvard University
and a BS in Business Logistics from the Pennsylvania State University.
Foreign
Private Issuer Exemption
We
qualify as a foreign private issuer and our ADSs are listed on Nasdaq. As a result, in accordance with the listing requirements
of Nasdaq, we rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate
governance requirements of Nasdaq. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure
obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security
registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers
and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange
Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently intend to file
quarterly reports filed with the SEC, we are not required to file such reports with the SEC as frequently or as promptly as U.S.
public companies and are not required to file quarterly reports on Form 10-Q or current reports on Form 8-K that a domestic company
would be required to file under the Exchange Act. Accordingly, there may be less publicly available information concerning our
company than there would be if we were not a foreign private issuer.
In
addition, the Listing Rules for the Nasdaq Stock Market (the “Nasdaq Listing Rules”) for domestic U.S. issuers
require listed companies to have, among other things, a majority of their board members be independent, and to have independent
director oversight of executive compensation, nomination of board members and corporate governance matters. While we currently
comply, and intend to continue to comply, with these requirements, we are permitted to follow home country practice in lieu of
the above requirements. Our board may in the future not include, or include fewer, independent directors than would be required
if we were subject to the Nasdaq Listing Rules, or our board may decide that it is in our interest to have our committees governed
by practices that would not comply with the Nasdaq Listing Rules.
We
follow home country practice with regard to, among other things, quorum requirements generally applicable to general meetings
of shareholders as such quorum requirements are not required under English law, though we elected in our articles to require
a quorum of two persons, each being a member or a proxy for a member. In addition, our shareholders have and may authorize
our board of directors to issue securities, including in connection with certain events such as the acquisition of shares or assets
of another company, the establishment of or amendments to equity-based compensation plans for employees, certain private placements
and directed issues at or above market price. To this extent, our practice varies from the requirements of Nasdaq Listing Rule
5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such
events.
Composition
of our Board of Directors
Our
board of directors is currently composed of seven members, consisting of Mr. Peyton, Dr. Stevenson and five non-executive directors.
Our board of directors has determined that for the purposes of the Corporate Governance Code published by the Quoted Companies
Alliance, which is the corporate governance code that we apply in the United Kingdom, all of our non-executive directors are independent.
Additionally, our board of directors has determined that none of our directors, other than Mr. Peyton and Dr. Stevenson, who are
executive officers of the company, has a relationship that would interfere with the exercise of independent judgment in carrying
out the responsibilities of director and that each of these five directors is “independent” as that term is defined
under Nasdaq rules. There are no family relationships among any of our executive officers or directors.
In
accordance with our articles of association, any director who served as a director at each of the preceding two annual general
meetings of shareholders and who was not appointed or re-appointed by the shareholders at a general meeting at, or since, either
such meeting shall retire from office at the next annual general meeting of shareholders. Retiring directors are eligible for
re-election. See “Description of Securities—General Description of our Ordinary Shares.”
Committees
of our Board of Directors
Our
board of directors has two standing committees: an audit and risk committee and a remuneration committee.
Audit
and Risk Committee
Our
audit and risk committee, which consists of Dr. Glasmacher, Dr. Baracchini and Mr. Maier, assists the board of directors in overseeing
our accounting and financial reporting processes and the audits of our financial statements. Mr. Maier serves as chairman of the
audit and risk committee. The audit and risk committee consists exclusively of members of our board who are financially literate,
and Mr. Maier is considered an “audit committee financial expert” as defined by applicable SEC rules and has the requisite
financial sophistication as defined under applicable Nasdaq rules. Our board of directors has determined that all of the members
of the audit and risk committee satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange
Act. We have also adopted a charter governing the audit and risk committee that complies with the rules of Nasdaq.
The
audit and risk committee’s responsibilities include:
|
●
|
monitoring
the integrity of our financial and narrative reporting, preliminary announcements and any other formal announcements relating
to our financial performance;
|
|
|
|
|
●
|
advise
the Board on whether, taken as a whole, the Annual Report and Accounts is fair, balanced and understandable reviewing the
appropriateness and completeness of our risk management and internal controls;
|
|
|
|
|
●
|
considering
annually whether we should have an internal audit function;
|
|
|
|
|
●
|
overseeing
our relationship with the external auditors and assessing the effectiveness of the external audit process, including in relation
to appointment and tendering, remuneration and other terms of engagement, and appropriate planning ahead of each annual audit
cycle;
|
|
|
|
|
●
|
maintaining
regular, timely, open and honest communication with the external auditors, ensuring the external auditors report to the committee
on all relevant matters to enable the committee to carry out its oversight responsibilities; and
|
|
|
|
|
●
|
monitoring
risk.
|
Remuneration
Committee
Our
remuneration committee, which consists of Prof. Glasmacher and Dr. Macrae, assists the board of directors in determining executive
officer compensation. Dr. Macrae serves as chairman of the remuneration committee.
The
remuneration committee’s responsibilities include:
|
●
|
setting
a remuneration policy that is designed to promote our long-term success;
|
|
|
|
|
●
|
ensuring
that the remuneration of executive directors and other senior executives reflects both their individual performance and their
contribution to our overall results;
|
|
|
|
|
●
|
determining
the terms of employment and remuneration of executive directors and other senior executives, including recruitment and retention
terms;
|
|
|
|
|
●
|
approving
the design and performance targets of any annual incentive schemes that include the executive directors and other senior executives;
|
|
|
|
|
●
|
agreeing
upon the design and performance targets, where applicable, of all share incentive plans;
|
|
|
|
|
●
|
gathering
and analyzing appropriate data from comparator companies in the biotechnology sector; and
|
|
|
|
|
●
|
the
selection and appointment of external advisers to the remuneration committee, if any, to provide independent remuneration
advice where necessary.
|
Code
of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics applicable to all of our directors, executive officers and employees, including our
Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similar functions,
which is a code of ethics as defined in Item 16B of Form 20-F promulgated by the SEC. The full text of the Code of Business Conduct can
be found on our website at www.4dpharmaplc.com. Information contained on, or that can be accessed through, our website does not constitute
a part of this prospectus and is not incorporated by reference herein. If we make any amendment to the Code of Business Conduct
and Ethics or grant any waivers, including any implicit waiver, from a provision of such Code of Business Conduct and Ethics, we will
disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC. Under
Item 16B of Form 20-F, if a waiver or amendment of the Code of Business Conduct and Ethics applies to our principal executive officer,
principal financial officer, principal accounting officer or controller and relates to standards promoting any of the values described
in Item 16B(b) of Form 20-F, we are required to disclose such waiver or amendment on our website in accordance with the requirements
of Instruction 4 to such Item 16B.
Compensation
of Executive Officers and Directors
The
following table sets forth the approximate remuneration paid to our executive officers for the year ended December 31, 2020.
Name
|
|
Salary
($)
|
|
|
Bonus
($)(1)
|
|
|
All Other
Compensation
($)(2)
|
|
|
Total
($)(3)
|
|
Duncan Peyton
|
|
|
129,254
|
|
|
|
-
|
|
|
|
2,538
|
|
|
|
131,792
|
|
Alexander Stevenson
|
|
|
129,254
|
|
|
|
-
|
|
|
|
2,517
|
|
|
|
131,771
|
|
John Beck(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Richard Avison
|
|
|
105,873
|
|
|
|
-
|
|
|
|
5,615
|
|
|
|
111,488
|
|
(1)
|
Amount
shown reflects cash bonuses awarded for achievement of performance goals. See “—Equity Incentive Arrangements.”
|
|
|
(2)
|
Amount
shown represents health benefit payments and pension contributions made by us.
|
|
|
(3)
|
Total
compensation set out in this table does not include the value of options to acquire our ordinary shares or awards granted
to or held by current senior management, which is described in “—Equity Incentive Arrangements.”
|
|
|
(4)
|
Appointed
in March 2021.
|
Non-Executive
Director Compensation
The
following table sets forth the remuneration paid during 2020 to the current non-employee directors, all of which was in the form
of annual fees:
Name
|
|
Base Salary
($ in thousands)
|
|
Prof. Axel Glasmacher
|
|
|
64.6
|
|
Dr. Edgardo (Ed) Barachini
|
|
|
64.6
|
|
Dr. Alexander (Sandy) Macrae
|
|
|
64.6
|
|
Dr. Katrin Rupalla(1)
|
|
|
19.1
|
|
Paul Maier(2)
|
|
|
—
|
|
(1)
|
Dr.
Rupalla was appointed as a member of our board of directors on September 23, 2020.
|
|
|
(2)
|
Mr.
Maier was appointed as a member of our board of directors March 1, 2021.
|
Service
Agreement of Duncan Peyton
Duncan
Peyton is currently engaged as our Chief Executive Officer under a service agreement entered into on February 10, 2014. He is
entitled to a base salary of $129,254 per annum. In addition to the base salary, he is entitled to participate in private health
care scheme and a bonus scheme, which may be paid from time to time at the discretion of the Remuneration Committee.
The
agreement may be terminated by either party on one year’s written notice or, immediately by us, in the event of default,
which includes, but is not limited to circumstances in which, Mr. Peyton is disqualified from acting as a director, convicted
of a criminal offence, declared bankrupt, found guilty of fraud or conducting gross misconduct. In the event of early termination
not caused by an event of default, we may exercise our discretion to make a payment in lieu of notice to Mr. Peyton. The agreement
includes certain restrictive covenants, and, upon termination, Mr. Peyton is restricted from becoming involved, directly or indirectly,
with any business which is similar to or competitive with us, for a period of 12 months.
Service
Agreement of Alex Stevenson
Alexander
Stevenson is currently engaged as our Chief Scientific Officer under a service agreement entered into on February 10, 2014. He
is entitled to a base salary of $129,254 per annum. In addition to the base salary, he is entitled to participate private health
care scheme and in a bonus scheme, which may be paid from time to time at the discretion of the Remuneration Committee.
The
agreement may be terminated by either party on one year’s written notice or, immediately by us, in the event of default,
which includes, but is not limited to circumstances in which, Dr. Stevenson is disqualified from acting as a director, convicted
of a criminal offence, declared bankrupt, found guilty of fraud or conducting gross misconduct. In the event of early termination
not caused by an event of default, we may exercise our discretion to make a payment in lieu of notice to Dr. Stevenson. The agreement
includes certain restrictive covenants, and, upon termination, Dr. Stevenson is restricted from becoming involved, directly or
indirectly, with any business which is similar to or competitive with us, for a period of 12 months.
Service
Agreement of John Beck
John
Beck is currently engaged as our Chief Financial Officer under a service agreement entered into on March 1, 2021. He is entitled
to a base salary of $330,000 per annum. In addition to the base salary, he is entitled to participate in a bonus scheme, which
may be paid from time to time at the discretion of the Remuneration Committee.
The
agreement may be terminated by either party on one year’s written notice or, immediately by us, in the event of default,
which includes, but is not limited to circumstances in which, Mr. Beck is disqualified from acting as a director, convicted of
a criminal offence, declared bankrupt, found guilty of fraud or conducting gross misconduct. In the event of early termination
not caused by an event of default, we may exercise our discretion to make a payment in lieu of notice to Mr. Beck. The agreement
includes certain restrictive covenants, and, upon termination, Mr. Beck is restricted from becoming involved, directly or indirectly,
with any business which is similar to or competitive with us, for a period of 12 months.
Service
Agreement of Richard Avison
Richard
Avison is currently engaged as Group Finance Director under a service agreement entered into on November 1, 2017 and amended and
restated on August 29, 2019. He is entitled to a base salary of $92,850 per annum and is entitled to participate in our group
personal pension scheme. In addition to the base salary, Mr. Avison is entitled to a participate in a private healthcare scheme
and in our bonus scheme, in our sole and absolute discretion and to receive taxable travel expenses on a “tax free”
basis.
The
agreement may be terminated by either party on three months’ written notice or immediately by us in the event of default,
which includes, but is not limited to circumstances in which Mr. Avison is negligent, convicted of any criminal offence, declared
bankrupt, found guilty of fraud, or conducted gross misconduct. In the event of early termination not caused by an event of default,
we may exercise our discretion to make a payment in lieu of notice to Mr. Avison. The agreement includes certain restrictive covenants
and, upon termination, Mr. Avison is restricted from becoming involved, directly or indirectly, with any business which is similar
to or competitive with us, for a period of 12 months.
Non-executive
Director Letters of Appointment
We
have entered into letters of appointment with each of our non-executive directors which provides each director with cash compensation
of $64,627 per annum for service on our board of directors. The appointment of our non-executive directors can be terminated by
either us or the director upon three calendar months’ written notice, or by us in our absolute discretion at any time with
immediate effect on payment of money in lieu of notice.
Under
the non-executive director appointment letters, we may also terminate each appointment with immediate effect if the non-executive
director: (i) commits a material breach of his or her obligations under the letter of appointment; (ii) commits a serious or repeated
breach or non-observance of his or her obligations to us; (iii) has been guilty of any fraud or dishonesty or acts in any manner
which, in our opinion, brings or is likely to bring us into disrepute or is materially adverse to our interests; (iv) is incompetent
or guilty of gross misconduct and/or any serious or persistent negligence or misconduct in respect of his or her obligations under
the letter of appointment; (v) is convicted of an arrestable criminal offence other than a road traffic offence for which a fine
or non-custodial penalty is imposed; (vi) is declared bankrupt or makes an arrangement with or for the benefit of his creditors,
or suffers comparable proceedings in another jurisdiction; (vii) is disqualified from acting as a director in any jurisdiction;
(viii) accepts a position with another company, without our prior agreement, which in the reasonable opinion of our board of directors
may give rise to a conflict of interest between his position as a director of our company and his interest in such other company;
or (ix) commits any offence under the U.K. Bribery Act 2010.
Equity
Incentive Arrangements
We
operate the 2015 Long Term Incentive Plan (the “LTIP”), which is the primary mechanism for attracting and retaining
selected key employees through the grant of stock options. All of our employees are eligible to participate in the LTIP and receive
stock options, although participation is normally limited to senior managers and employees. Although our directors are eligible
to participate in the LTIP and receive stock options, they have not done so.
The
LTIP is administered by the remuneration committee and may be amended on a forward-looking basis in any respect at its discretion.
Stock
options granted under the LTIP will ordinarily vest and become capable of exercise on (or shortly after) the third anniversary
of their grant, subject to the extent to which individual performance criteria applicable to the stock options have been met by
the company and/or the relevant option holder over the preceding three years.
Once
vested, stock options may be exercised at any point up until the tenth anniversary of their grant. Stock options may only be exercised
on payment of the associated exercise price, which is ordinarily an amount equal to the aggregate nominal value of the stock that
may be acquired on exercise.
Stock
options will ordinarily lapse on cessation of the option holder’s employment with us, unless the option holder falls into
a prescribed category of “good leaver” (e.g. cessation due to their death, ill-health, disability, to recognize exceptional
performance during their time with the company) or have otherwise been determined by the remuneration committee to be permitted
to retain their stock options on a discretionary basis. The extent to which such stock options may be exercised shall be subject
to the extent to which the applicable performance criteria are determined to have been met and (ordinarily) to a time pro-rata
reduction in the number of shares that may be acquired on exercise to reflect the reduced period of time spent in employment relative
to the normal three year vesting period.
To
the extent not already exercisable, stock options will become exercisable in connection with any change of control or on a winding-up.
In such circumstances, stock options will become exercisable for a limited period after the occurrence of the change of control
or winding-up, subject to the extent to which the applicable performance criteria are determined by the remuneration committee
to have been met at that date and (ordinarily) to time pro-rating. The remuneration committee retains the right to assess the
performance criteria on any modified basis it considers appropriate taking into account the curtailed vesting period.
Alternatively,
the remuneration committee may (subject to having obtained consent of the acquiring company) specify that stock options will not
become exercisable in connection with a change of control and will instead be exchanged for equivalent awards over shares in the
acquiring company.
If
any variation in our share capital (e.g. a capitalization, rights issue, consolidation, sub-division or reduction of capital)
occurs, then the number of shares held under any stock options (or the exercise price) may be adjusted to ensure that the value
of the stock option in the hands of the relevant option holder is not impacted by the variation in share capital.
Stock
options granted under the LTIP are not subject to any ongoing clawback provisions.
Stock
options granted under the LTIP are non-transferrable (except, on death, to the option holder’s personal representatives)
and may not be assigned or charged.
No
stock options may be granted under the LTIP in any single financial year over stock having an aggregate market value in excess
of 200% of the option holder’s annual basic salary for the year. Furthermore, no stock option may be granted under the LTIP
if the grant of that stock option, when aggregated with all stock options granted under the LTIP and any awards granted under
any other employee stock plans in the preceding 10 years, would cause the total number of shares falling to be issued in connection
with such options or awards to exceed 10% of our issued ordinary share capital.
Insurance
and Indemnification
To
the extent permitted by the U.K. Companies Act, we are empowered to indemnify our directors against any liability they incur by
reason of their directorship. We maintain directors’ and officers’ insurance to insure such persons against certain
liabilities. Insofar as indemnification of liabilities arising under the Securities Act may be permitted to our board, executive
officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
BENEFICIAL
OWNERSHIP OF SECURITIES
The
following table sets forth information relating to the beneficial ownership of our ordinary shares as of April 22, 2021
by:
|
●
|
each
person, or group of affiliated persons, that beneficially owns 5% or more of our outstanding ordinary shares;
|
|
|
|
|
●
|
each
member of our board of directors and each of our other executive officers; and
|
|
|
|
|
●
|
all
of our directors and executive officers as a group
|
The
percentage of beneficial ownership in the table below is based upon a total of 180,299,728 ordinary shares.
The
number of our ordinary shares beneficially owned is determined in accordance with the rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any
shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual
has the right to acquire within 60 days of April 22, 2021 through the exercise of any option, warrant or other right. Except
as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and
investment power with respect to all ordinary shares held by that person. Except as otherwise indicated, the address for the
persons named in the table is 5th Floor, 9 Bond Court, Leeds, LS1 2JZ, United Kingdom.
|
|
Amount
and Nature of Share Ownership
|
|
Name
of Principal Stockholder
|
|
Number
of
Shares(1)
|
|
|
Percentage
Owned (%)
|
|
5% or Greater Shareholders:
|
|
|
|
|
|
|
|
|
Entities affiliated with
Steven Olivera(2)
|
|
|
26,572,916
|
|
|
|
14.3
|
%
|
Merck Sharp and Dohme Co.(3)
|
|
|
12,145,523
|
|
|
|
6.6
|
%
|
Whale Management Corporation(4)
|
|
|
9,263,741
|
|
|
|
5.1
|
%
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Duncan Peyton(5)
|
|
|
10,181,437
|
|
|
|
5.6
|
%
|
Alexander Stevenson(6)
|
|
|
10,025,130
|
|
|
|
5.5
|
%
|
Axel Glasmacher
|
|
|
30,000
|
|
|
|
*
|
%
|
Richard Avison
|
|
|
838
|
|
|
|
*
|
%
|
Edgardo Baracchini
|
|
|
—
|
|
|
|
*
|
%
|
Katrin Rupalla
|
|
|
—
|
|
|
|
*
|
%
|
Sandy Macrae
|
|
|
—
|
|
|
|
*
|
%
|
John Beck
|
|
|
—
|
|
|
|
*
|
%
|
Paul Maier
|
|
|
—
|
|
|
|
*
|
%
|
All current directors
and executive officers as a group
|
|
|
20,237,405
|
|
|
|
11.2
|
%
|
|
*
|
Represents
beneficial ownership of less than one percent (1%) of the outstanding ordinary shares.
|
|
|
|
|
(1)
|
Includes
ordinary shares represented by ADSs.
|
|
|
|
|
(2)
|
Consists
of (i) 10,000,000 ordinary shares of record and 5,000,000 warrants exercisable for £1.00
per ordinary share held by South Ocean Capital Management LLC, (ii) 7,114,994
ordinary shares of record held by Nemean Asset Management LLC, (iii) 850,000 shares of
record and 383,050 warrants exercisable for £1.00 per ordinary share held by Steven
Oliveira, (iv) 612,880 ordinary shares of record and 306,440 warrants exercisable for
£1.00 per ordinary share held by South Ocean Capital LLC and (v) 2,305,552
ordinary shares underlying ADSs issued to Nemean Asset Management LLC pursuant to the
Merger. The address for these entities is c/o 225 Via Palacio, Palm Beach Gardens, Florida,
33418, United States of America.
|
|
|
|
|
(3)
|
Consists
of (i) 8,134,016 ordinary shares of record and (ii) 3,830,500 warrants
exercisable for £1.00 per ordinary share held by Merck Sharp and Dohme
Co. The address for these entities is 2000 Galloping Hill Road Kenilworth NJ 07033.
|
|
|
|
|
(4)
|
Consists
of (i) 8,134,016 ordinary shares held of record and (ii) 300,000 warrants exercisable
for 1,129,725 ordinary shares at $1.53 per ordinary share. The shares and warrants are
beneficially owned by Matthew Chen, the Managing Member of Whale Management Corporation,
who has sole voting and dispositive power of the shares held thereby. The business address
of Whale Management Corporation is Suite 972, No. 429 Taikang Insurance Plaza, Pudong
District, Shanghai, China 200120.
|
|
|
|
|
(5)
|
Consists
of (i) 9,018,675 ordinary shares held of record, (ii) 666,666 warrants exercisable for £1.00 per ordinary share,
and (iii) 496,096 ordinary shares underlying ADSs issued to Mr. Peyton pursuant to the Merger.
|
|
|
|
|
(6)
|
Consists
of (i) 8,976,736 ordinary shares held of record, (ii) 666,666 warrants exercisable for £1.00 per ordinary share,
and (iii) 381,728 ordinary shares underlying ADSs issued to Dr. Stevenson pursuant to the Merger.
|
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Agreements
with Our Executive Officers and Directors
A
director in one of our subsidiaries, 4D Pharma León S.L.U., Antonio Fernandez, is also a director of Biomar Microbial Technologies
(“Biomar”), which charged rent and building service costs to the Company of $153 thousand and $51 thousand
for the years ended December 31, 2020 and 2019, respectively. We charged Biomar $41 thousand and $35 thousand for services as
of December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, $4 thousand and $54 thousand, respectively, was
due from Biomar for these services.
We
have entered into service contracts with our executive officers and appointment letters with our non-executive directors. These
agreements contain customary provisions and representations, including confidentiality, non-competition, non-solicitation and
inventions assignment undertakings by the executive officers. However, the enforceability of the non-competition provisions may
be limited under applicable law.
Agreements
with Collaborators
MSD
purchased 7,661,000 shares of the Company’s common stock in February 2020, and a further 654,023 were added during
the March 22, 2021 fundraise, with MSD currently holding 6.6% of the Company’s total outstanding common stock. The
Company entered into the MSD Agreement with MSD in October 2019. See “Business—Collaborations—Research Collaboration
and Option to License Agreement with Merck” for further information. Additionally, the Company also has an ongoing clinical
trial evaluating MRx0518 in the combination with Keytruda in patients with solid tumors who progresses on prior PD-1 inhibitor
therapy. Under the terms of the agreement MSD will provide Keytruda free of charge to the trial.
Indemnification
Agreements
We
have entered into a deed of indemnity with each of our directors and executive officers. The deeds of indemnity and our articles
of association require us to indemnify our directors and executive officers to the fullest extent permitted by law. See “Management—Insurance
and Indemnification.”
Related
Party Transaction Policy
Our
Board has adopted a written related person transaction policy, which sets forth the policies and procedures for the review and
approval or ratification of related person transactions. This policy covers any transaction or proposed transactions between us
and a related person that are material to us or the related person. In reviewing and approving any such transactions, our audit
and risk committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction
is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s
interest in the transaction. The related party transaction policy also covers related party transactions under the AIM Rules for
Companies published by the London Stock Exchange.
DESCRIPTION
OF SECURITIES
Set
forth below is a summary of certain information concerning the share capital of 4D Pharma plc (“4D Pharma,” the “Company,”
“we” or “us”), as well as a description of certain provisions of our articles of association and relevant
provisions of the United Kingdom Companies Act 2006 (as amended from time to time and including any statutory modification or
re-enactment thereof, the “U.K. Companies Act”). The summary includes certain references to, and descriptions of,
material provisions of our articles of association and English law. The summary below contains only material information concerning
our share capital and corporate status and does not purport to be complete and is qualified in its entirety by reference to our
articles of association, a copy of which is filed as Exhibit 1.1 to the Annual Report on Form 20-F of the Company for the fiscal
year ended December 31, 2020, and applicable English law. We encourage holders to read the articles and the applicable provisions
of English law for additional information. Further, please note that if you are a holder of ordinary shares represented by American
Depositary Shares, or ADSs, then you are not treated as one of our shareholders and do not have any shareholder rights.
General
We
were incorporated as a private limited company with the legal name 4D Pharma plc under the laws of England and Wales on February
2014 with the company number 08840579. Our principal executive offices are located at 5th Floor, 9 Bond Court, Leeds, LS1 2JZ,
United Kingdom. The principal legislation under which we operate and our ordinary shares are issued is the U.K. Companies Act.
Our ordinary shares have been listed on are listed on the AIM since February 2014 under the symbol “DDDD,” our ADSs
have been listed on the Nasdaq Global Market in the United States since March 2021 under the symbol “LBPS” and our
new warrants have been listed on the Nasdaq Global Market in the United States since March 2021 under the symbol “LBPSW.”
Share
Capital
As
of December 31, 2020, our issued share capital was £328,669.8375 equivalent to 131,467,935 ordinary shares. The nominal
value of our ordinary shares, including ordinary shares in the form of ADSs, is £0.0025 per ordinary share. Each issued
ordinary share is fully paid.
General
Description of our Ordinary Shares
The
ordinary shares underlying our ADSs comprise a single class of ordinary shares with a nominal value of £0.0025 each.
The
following information is a summary of our ordinary shares:
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Our
ordinary shares carry the right to receive dividends and distributions paid by us, if any.
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The
holders of our ordinary shares have the right to receive notice of, and to attend and vote at, all our general meetings.
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Subject
to the U.K. Companies Act, any equity securities issued by us for cash must first be offered to our shareholders in proportion
to their existing holdings of our ordinary shares.
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The
U.K. Companies Act allow for the disapplication of pre-emption rights, which may be waived by a special resolution of not
less than three-fourths of our shareholders, either generally or specifically, for a maximum period not exceeding five years.
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Our
ordinary shares are not redeemable; however, we may purchase or contract to purchase any of our ordinary shares on or off-market,
subject to the U.K. Companies Act and our articles of association. We may only purchase our ordinary shares out of distributable
reserves or the proceeds of a new issue of shares made for the purpose of funding the repurchase.
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If
we are wound up (whether the liquidation is voluntary, under supervision of the Court or by the Court), the liquidator is under
a duty to collect in and realize our assets and to distribute them to our creditors and, if there is a surplus, to our shareholders
according to their entitlements. This applies whether the assets consist of property of one kind or of different kinds.
Share
rights
Subject
to the U.K. Companies Act, the articles and to any rights for the time being attached to any existing share, ordinary shares may
be issued with such rights or restrictions as we may from time to time by ordinary resolution determine, or, if we have not so
determined, as our board of directors may determine.
Subject
to the U.K. Companies Act, any share may be issued which is to be redeemed or is to be liable to be redeemed at the option of
4D Pharma or the holder, on such terms, conditions and in such manner as our board of directors may determine.
Voting
rights
Subject
to any rights or restrictions attached to any shares from time to time, the 4D Pharma shareholders, their duly appointed proxies
shall have voting as provided in the U.K. Companies Act, except that on a vote on a resolution on a show of hands at a meeting,
a proxy has one vote for and one vote against the resolution if the proxy has been duly appointed by more than one member entitled
to vote on the resolution and either:
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the
proxy has been instructed by one or more of those members to vote in one way and has been instructed by one or more other
of those members to vote in the other way; or
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the
proxy has been instructed by one or more of those members to vote in one way and is given discretion as to how to vote by
one or more other of those members and wishes to use that discretion to vote in the other way.
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At
any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or
on the declaration of the result of the show of hands) demanded. Subject to the provisions of the Companies Act, a poll may be
demanded by:
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the
chairman of the meeting;
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not
less than five members present in person having the right to vote on the resolution;
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a
member or members present in person representing in aggregate not less than one tenth of the total voting rights of all the
members having the right to vote at the meeting; or
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a
member or members present in person holding shares in the Company conferring a right to vote at the meeting, being shares
on which an aggregate sum has been paid up equal to not less than one tenth of the total sum paid up on all the shares conferring
that right.
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Restrictions
on Voting
No
shareholder shall, unless the directors otherwise determine, be entitled to vote, either in person or by proxy, at any general
meeting or at any separate class meeting in respect of any share held by such shareholder unless all calls or other sums payable
by such shareholder in respect of that share have been paid.
Our
board of directors may from time to time make calls upon the shareholders in respect of any money unpaid on their shares and each
shareholder shall (subject to us serving on such shareholder at least 14 days’ notice specifying the time or times and place
of payment) pay at the time or times so specified the amount called on such holder’s shares.
Variation
of Rights
The
rights attached to any class of shares may be varied or abrogated, in accordance with the provisions of the U.K. Companies Act
and with either the written consent of the holders of not less than three-fourths in nominal value of the issued shares of that
class (calculated excluding any shares held as treasury shares), or with the sanction of a special resolution (being a 75% majority
of 4D Pharma shareholders, present at a general meeting in person or by proxy) passed at a separate meeting of the holders of
those shares. At every such separate general meeting (except an adjourned meeting) the quorum must be two or more persons holding
or representing by proxy not less than one-third in nominal value of the issued shares of the class (calculated excluding any
shares held as treasury shares).
The
rights conferred upon the holders of any shares are not, unless otherwise expressly provided in the rights attaching to those
shares, deemed to be varied by the creation or issue of further shares ranking equally with them.
Share
transfers
The
ordinary shares are in registered form. Any ordinary shares may be held in uncertificated form.
A
member may transfer certificated shares to another person by a written instrument of transfer in any usual form (or any other
form approved by our board of directors) executed by or on behalf of the member and, in the case of a share which is not fully
paid, by or on behalf of that person. Our board of directors may refuse to register the transfer of a certificated share which
is in respect of a partly paid share provided that any refusal does not prevent open and proper dealings of any class of shares
which are admitted to trading on AIM. Our board of directors may also refuse to register the transfer of a certificated share
unless the transfer is in respect of only one class of share, is duly stamped (or certified as not chargeable to stamp duty) and
is deposited to our registered office or any place the our board of directors may determine and is accompanied by the relevant
share certificate or such other evidence our board of directors may reasonably require.
The
transferor of an ordinary share is deemed to remain the holder until the transferee’s name is entered in the share register.
Subject
to the provisions of our articles of association, title to uncertificated shares may be transferred in accordance with the Uncertificated
Securities Regulations 2001. Our board of directors is required to register a transfer of any uncertificated share in accordance
with those regulations. Our board of directors may refuse to register any such transfer which is in favor of more than four persons
jointly or in any other circumstance permitted by those regulations. Provisions of the articles of association do not apply to
any uncertificated shares to the extent that such provisions are inconsistent with the holding of shares in uncertificated form
or with the transfer of shares by means of a relevant system.
Our
board of directors can decline to register any transfer of any share which is not a fully paid share or any transfer of any share
on which we have a lien.
Dividends
Subject
to it having sufficient distributable reserves, we may by ordinary resolution (being a resolution passed by a 50% majority of
our shareholders in person or by proxy) from time to time declare dividends not exceeding the amount recommended by our board
of directors. Our board of directors may pay interim dividends, and also any fixed rate dividend, whenever our financial position,
in the opinion of our board of directors, justifies its payment.
All
dividends on shares are to be paid according to the amounts paid up on their nominal value, or otherwise in accordance with the
terms concerning entitlement to dividends on which shares were issued.
All
unclaimed dividends may be made use of by our board of directors for our benefit until claimed. Any dividend unclaimed for a period
of 12 years from the date when it was declared or became due for payment shall revert to 4D Pharma.
Our
board of directors by way of scrip dividend instead of cash in respect of any dividend.
Shareholder
meetings
Our
board of directors is required to convene annual general meetings in accordance with the U.K. Companies Act. The U.K. Companies
Act provides that a general meeting (other than an adjourned meeting) must be called by notice of at least 21 days’ in the
case of an annual general meeting (unless shareholders approve a notice period of 14 days’ by special resolution (being
a resolution passed by a 75% majority of 4D Pharma shareholders present at a general meeting in person or by proxy) and at least
14 days’ in any other case). Our board of directors may convene a general meeting which is not an annual general meeting
whenever it thinks fit.
We
are required to give notice of a general meeting to each member (other than a person who, under our articles of association or
pursuant to any restrictions imposed on any shares, is not entitled to receive such a notice or to whom we, in accordance with
applicable law, have not sent and are not required to send our latest annual report and accounts), to our directors and to our
auditors. For these purposes “members” are the persons registered in our register of members as being holders of shares
at any particular time on any particular record date fixed by our board of directors that (in accordance with the Uncertificated
Securities Regulations 2001) is not more than 21 days before the sending out of the notice convening the meeting. The notice of
a general meeting may specify a time by which a person must be entered on our register of members in order to have the right to
attend or vote at the meeting.
A
member who is entitled to attend and vote at a general meeting is entitled to appoint another person, or two or more persons in
respect of different shares held by him, as his proxy to exercise all or any of his rights to attend and to speak and to vote
at the meeting.
Every
member who is present at a general meeting in person or by proxy is entitled to one vote on a resolution put to the meeting on
a show of hands and to one vote for every share of which he is the holder on a resolution put to the meeting on a poll.
Alteration
of share capital
We
may alter its share capital in any way permitted by the U.K. Companies Act and applicable law and confer any preference or other
advantage on one or more of the shares resulting from any division or sub- division of its share capital. We may, by special resolution
(being a resolution passed by a 75% majority of 4D Pharma shareholders present at a general meeting in person or by proxy), reduce
its share capital, share premium account, capital redemption reserve or any other undistributable reserves.
Change
of Control
There
is no specific provision in the articles of association that would have the effect of delaying, deferring or preventing a change
of control.
Distributions
on Winding Up
On
a winding up, the liquidator may, with the sanction of a special resolution of shareholders and any other sanctions required by
law, divide amongst the shareholders (excluding the company itself to the extent it is a shareholder by virtue only of its holding
of shares as treasury shares) in specie or in kind the whole or any part of our assets (whether they shall consist of property
of the same kind or not) and may set such values and may determine how such division shall be carried out as between the shareholders
or different classes of shareholder. The liquidator may, with the sanction of a special resolution of the shareholders and any
other sanctions required by law, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the
shareholders as the liquidator shall think fit, but no shareholder shall be compelled to accept any shares or other assets upon
which there is any liability.
CREST
To
be traded on AIM, securities must be able to be transferred and settled through the CREST system. CREST is a computerized paperless
share transfer and settlement system which allows securities to be transferred by electronic means, without the need for a written
instrument of transfer. The articles of association are consistent with CREST membership and, amongst other things, allow for
the holding, evidencing and transferring of shares through CREST in uncertificated form.
Directors
Number
of Directors
Unless
and until otherwise determined by an ordinary resolution of shareholders, we may not have less than two directors and no more
than ten directors on our board of directors.
Appointment
of Directors
Subject
to the provisions of the articles of association we may, by ordinary resolution of the shareholders, elect any person who is willing
to act to be a director, either to fill a casual vacancy or as an addition to the existing board. No person that is not a director
retiring from the existing board is eligible for appointment as a director unless recommended by the board of directors, or unless
not less than seven and not more than 42 days before the date appointed for the meeting a notice is given to the company by a
member expressing an intention to propose such person for appointment as a director, and such notice has also been signed by that
person expressing a willingness to be elected.
Without
prejudice to the power to appoint any person to be a director by shareholder resolution, the board has power to appoint any person
to be a director, either to fill a casual vacancy or as an addition to the existing board but so that the total number of directors
does not exceed any maximum number fixed by or in accordance with the Articles.
Any
director appointed by the board will hold office only until the following annual general meeting. Such a director is eligible
for re-appointment at that meeting.
Rotation
of Directors
At
every annual general meeting, there shall retire from office at least one third of the directors. A retiring director shall be
eligible for re-appointment. A director retiring at a meeting shall, if he or she is not re- appointed at such meeting, retain
office until the meeting appoints someone in his or her place, or if it does not do so, until the conclusion of such meeting.
Directors’
Interests
The
directors may authorize, to the fullest extent permitted by law, any matter proposed to them which would otherwise result in a
director infringing his or her duty to avoid a situation in which he or she has, or can have, a direct or indirect interest that
conflicts, or possibly may conflict, with our interests. A director shall not, save as otherwise agreed by him or her, be accountable
to us for any benefit which he or she derives from any matter authorized by the directors and any contract, transaction or arrangement
relating thereto shall not be liable to be avoided on the grounds of any such benefit.
Subject
to the requirements under sections 175, 177 and 182 of the Companies Act, a director who is any way, whether directly or indirectly,
interested in a proposed or existing transaction or arrangement with us shall declare the nature of his interest at a meeting
of the directors.
A
director shall not vote in respect of any contract, arrangement or transaction whatsoever in which he or she has an interest which
is to his or her knowledge a material interest otherwise than by virtue of interests in shares or debentures or other securities
of or otherwise in or through our company. A director shall not be counted in the quorum at a meeting in relation to any resolution
on which he or she is debarred from voting.
A
director shall be entitled to vote (and be counted in the quorum) in respect of any resolution concerning any of the following
matters:
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the
giving of any guarantee, security or indemnity in respect of (i) money lent or obligations incurred by him or any other person
at the request of, or for the benefit of, the Company or any of its subsidiary undertakings, or (ii) a debt or obligation
of the of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility under a guarantee
or indemnity or by the giving of security;
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any
contract concerning the subscription of or purchase of shares, debentures or other securities of the Company by him under
an offer to members;
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any
contract concerning any issue or offer of shares or debentures or other securities of or by the Company or any of its subsidiary
undertakings for subscription or purchase, in respect of which he is or may be entitled to participate in his capacity as
a holder of any such securities or as an underwriter or sub-underwriter;
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any
contract concerning another company in which he is interested, directly or indirectly, and whether as an officer or member
or otherwise, provided that he does not hold an interest representing one per cent or more of any class of the equity share
capital of such company (or of any third company through which his interest is derived and calculated exclusive of any shares
of that class in that company held as treasury shares) or of the voting rights available to members of the relevant company
(any such interest being deemed for the purposes of this article to be a material interest in all circumstances);
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any
contract for the benefit of employees of the Company or of any of its subsidiary undertakings which does not accord to him
any privilege or benefit not generally accorded to the employees to whom the contract or arrangement relates;
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6
any contract concerning the purchase or maintenance of insurance either for or for the benefit of any director or for persons
who include directors; and
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any
proposal for the Company (i) to provide him with an indemnity permitted by the Statutes, (ii) to provide him with funds in
circumstances permitted by the Statutes to meet his defense expenditure in respect of any civil or criminal proceedings or
regulatory investigation or other regulatory action or in connection with any application for any category of relief permitted
by the Statutes, or (iii) to do anything to enable him to avoid incurring any such expenditure.
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If
a question arises at a meeting of the board or of a committee of the board as to the right of a director to vote or be counted
in the quorum, and such question is not resolved by his or her voluntarily agreeing to abstain from voting or not to be counted
in the quorum, the question shall be determined by the chairman and his or her ruling in relation to any director other than himself
or herself shall be final and conclusive except in a case where the nature or extent of the interest of the director concerned
has not been fairly disclosed.
Directors’
Fees and Remuneration
Each
of the directors shall be paid a fee in such sums as may from time to time be determined by the directors provided that the aggregate
of all such fees so paid to a director shall not exceed £0.2 million per annum, or such higher amount as may from time to
time be determined by ordinary resolution of shareholders.
Each
director may be paid all proper and reasonable expenses incurred in attending and returning from meetings of the directors or
committees of the directors or general meetings of the company or separate meetings of the holders of any class of shares or debentures
of the company or otherwise in connection with the business of our Company.
Any
director who is appointed to any executive office or who serves on any committee or who devotes special attention to the business
of our company, or who otherwise performs services which in the opinion of the 4D Pharma Board are outside the scope of the ordinary
duties of a director, may be paid such extra remuneration by way of salary, percentage of profits or otherwise as the 4D Pharma
Board may determine.
Borrowing
Powers
Our
board of directors may exercise all the powers to borrow money and to mortgage or charge all or any part of our undertaking, property,
assets (present or future) and uncalled capital and to issue debentures, debenture stock and other securities, whether outright
or as collateral security for any debt, liability or obligation of us or of any third party, subject to and in accordance with
the U.K. Companies Act.
Our
board of directors must restrict our borrowings and exercise all voting and other rights or powers of control exercisable by us
in relation to its subsidiaries so as to secure that the aggregate amount remaining outstanding of all monies borrowed by us and
its subsidiaries shall not at any time, without the previous sanction of an ordinary resolution of the shareholders, exceed a
sum equal to three times the aggregate of:
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the
amount paid up on our issued share capital and on any share capital that has been unconditionally allotted but not issued;
and
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the
amounts standing to the credit of our reserves (including any share premium account, capital redemption reserve and revaluation
reserve) after adding any credit balance or deducting any debit balance on the profit and loss account;
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all
as shown in the latest audited consolidated balance sheet, subject to certain adjustments.
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Indemnity
Every
one of our directors or other officers shall be indemnified out of our funds against all costs, charges, expenses, losses and
liabilities sustained or incurred by him or her for negligence, default, breach of duty or breach of trust or otherwise in relation
to our affairs or the affairs of an associated company, or in connection with our activities, or the activities of an associated
company.
Other
English Law Considerations
Notification
of Voting Rights
A
shareholder in a public company incorporated in the United Kingdom whose shares are admitted to trading on AIM is required pursuant
to Rule 5 of the Disclosure Guidance and Transparency Rules of the U.K. Financial Conduct Authority to notify us of the percentage
of his, her or its voting rights if the percentage of voting rights which he, she or it holds as a shareholder or through his,
her or its direct or indirect holding of financial instruments (or a combination of such holdings) reaches, exceeds or falls below
3%, 4%, 5%, and each 1% threshold thereafter up to 100% as a result of an acquisition or disposal of shares or financial instruments.
Mandatory
Purchases and Acquisitions
Pursuant
to Sections 979 to 991 of the U.K. Companies Act, where a takeover offer has been made for us and the offeror has acquired or
unconditionally contracted to acquire not less than 90% in value of the shares to which the offer relates and not less than 90%
of the voting rights carried by those shares, the offeror may give notice to the holder of any shares to which the offer relates
which the offeror has not acquired or unconditionally contracted to acquire that he, she or it wishes to acquire, and is entitled
to so acquire, those shares on the same terms as the general offer. The offeror would do so by sending a notice to the outstanding
minority shareholders telling them that it will compulsorily acquire their shares.
Such
notice must be sent within three months of the last day on which the offer can be accepted in the prescribed manner. The squeeze-out
of the minority shareholders can be completed at the end of six weeks from the date the notice has been given, subject to the
minority shareholders failing to successfully lodge an application to the court to prevent such squeeze-out any time prior to
the end of those six weeks following which the offeror can execute a transfer of the outstanding shares in its favor and pay the
consideration to us, which would hold the consideration on trust for the outstanding minority shareholders. The consideration
offered to the outstanding minority shareholders whose shares are compulsorily acquired under the U.K. Companies Act must, in
general, be the same as the consideration that was available under the takeover offer.
Sell
Out
The
U.K. Companies Act also gives our minority shareholders a right to be bought out in certain circumstances by an offeror who has
made a takeover offer for all of our shares. The holder of shares to which the offer relates, and who has not otherwise accepted
the offer, may require the offeror to acquire his, her or its shares if, prior to the expiry of the acceptance period for such
offer, (i) the offeror has acquired or unconditionally agreed to acquire not less than 90% in value of the voting shares, and
(ii) not less than 90% of the voting rights carried by those shares. The offeror may impose a time limit on the rights of minority
shareholders to be bought out that is not less than three months after the end of the acceptance period. If a shareholder exercises
his, her or its rights to be bought out, the offeror is required to acquire those shares on the terms of this offer or on such
other terms as may be agreed.
Disclosure
of Interest in Shares
Pursuant
to Part 22 of the U.K. Companies Act, we are empowered by notice in writing to any person whom we know or have reasonable cause
to believe to be interested in our shares, or at any time during the three years immediately preceding the date on which the notice
is issued has been so interested, within a reasonable time to disclose to us particulars of that person’s interest and (so
far as is within such person’s knowledge) particulars of any other interest that subsists or subsisted in those shares.
Under
the articles of association, if a person defaults in supplying us with the required particulars in relation to the shares in question,
or default shares, within the prescribed period of 14 days from the date of the service of notice, the directors may by notice
direct that:
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in
respect of the default shares, the relevant shareholder shall not be entitled to vote (either in person or by proxy) at any
general meeting or to exercise any other right conferred by a shareholding in relation to general meetings; and
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where
the default shares represent at least 0.25% of their class, (i) any dividend or other money payable in respect of the default
shares shall be retained by us without liability to pay interest and/or (ii) no transfers by the relevant shareholder of any
default shares may be registered (unless the shareholder is not in default and the shareholder provides a certificate, in
a form satisfactory to the directors, to the effect that after due and careful enquiry the shareholder is satisfied that none
of the shares to be transferred are default shares).
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Purchase
of Own Shares
Under
the laws of England and Wales, a limited company may only purchase its own shares out of the distributable profits of the company
or the proceeds of a fresh issue of shares made for the purpose of financing the purchase, provided that they are not restricted
from doing so by their articles of association.
A
limited company may not purchase its own shares if, as a result of the purchase, there would no longer be any issued shares of
the company other than redeemable shares or shares held as treasury shares. Shares must be fully paid in order to be repurchased.
Subject
to the above, we may purchase our own shares in the manner prescribed below. We may make an “on-market” purchase of
our own fully paid shares pursuant to an ordinary resolution of shareholders. The resolution authorizing an on-market purchase
must:
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specify
the maximum number of shares authorized to be acquired;
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determine
the maximum and minimum prices that may be paid for the shares; and
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specify
a date, not being later than five years after the passing of the resolution, on which the authority to purchase is to expire.
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We
may purchase our own fully paid shares in an “off-market” purchase otherwise than on a recognized investment exchange
pursuant to a purchase contract authorized by resolution of shareholders before the purchase takes place. Any authority will not
be effective if any shareholder from whom we propose to purchase shares votes on the resolution and the resolution would not have
been passed if he, she or it had not done so. The resolution authorizing the purchase must specify a date, not being later than
five years after the passing of the resolution, on which the authority to purchase is to expire.
For
these purposes, on-market purchases can only be made on AIM. Any purchase of our ADSs through Nasdaq would be an off-market purchase.
Distributions
and Dividends
Under
the U.K. Companies Act, before a company can lawfully make a distribution or dividend, it must ensure that it has sufficient distributable
reserves (on a non-consolidated basis). The basic rule is that a company’s profits available for the purpose of making a
distribution are its accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less
its accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital duly made.
The requirement to have sufficient distributable reserves before a distribution or dividend can be paid applies to us and to each
of our subsidiaries that has been incorporated under the laws of England and Wales.
It
is not sufficient that we, as a public company, have made a distributable profit for the purpose of making a distribution. An
additional capital maintenance requirement is imposed on us to ensure that the net worth of the company is at least equal to the
amount of its capital. A public company can only make a distribution:
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if,
at the time that the distribution is made, the amount of its net assets (that is, the total excess of assets over liabilities)
is not less than the total of its called up share capital and undistributable reserves; and
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if,
and to the extent that, the distribution itself, at the time that it is made, does not reduce the amount of the net assets
to less than that total.
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City
Code on Takeovers and Mergers
As
a public company incorporated in England and Wales with our registered office in England and Wales which has shares admitted to
AIM, we are subject to the U.K. Takeover Code, which is issued and administered by the U.K. Panel on Takeovers and Mergers, or
the Takeover Panel. The U.K. Takeover Code provides a framework within which takeovers of companies subject to it are conducted.
In particular, the U.K. Takeover Code contains certain rules in respect of mandatory offers. Under Rule 9 of the U.K. Takeover
Code, if a person:
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acquires
an interest in our shares which, when taken together with shares in which he or she or persons acting in concert with him
or her are interested, carries 30% or more of the voting rights of our shares; or
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who,
together with persons acting in concert with him or her, is interested in shares that in the aggregate carry not less than
30% and not more than 50% of the voting rights of our shares, and such persons, or any person acting in concert with him or
her, acquires additional interests in shares that increase the percentage of shares carrying voting rights in which that person
is interested, the acquirer and depending on the circumstances, its concert parties, would be required (except with the consent
of the Takeover Panel) to make a cash offer for our outstanding shares at a price not less than the highest price paid for
any interests in the shares by the acquirer or its concert parties during the previous twelve months.
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Corporate
Governance Code
The
AIM Rules for Companies published by the London Stock Exchange require us to include on our website details of a recognized corporate
governance code that our board of directors has decided to apply, how we comply with that code and, where we depart from our chosen
corporate governance code, an explanation of the reasons for doing so.
Since
2015, our board of directors has sought to apply The QCA Corporate Governance Code (2018 edition). Our board of directors views
this as an appropriate corporate governance framework for our company and consideration has been given to each of the ten principles
set out in the code.
New
Warrants assumed by us
The
following description of the new warrants issued by us pursuant to the Merger we consummated with Longevity, a publicly-traded
special purpose acquisition company, contains only material information concerning such warrants and does not purport to be complete
and is qualified in its entirety by reference to the Warrant Agreement and Assumption Agreement filed as exhibits to the registration
statement of which this prospectus makes a part.
The
warrants are exercisable, as described herein, for our ordinary shares on the basis that each warrant will give the holder the
right to purchase 3.76575 ordinary shares for a warrant exercise price of $1.53 per whole share, subject to adjustment as described
herein. The ordinary shares may be delivered in the form of ADSs based on the eight to one exchange ratio.
The
warrants will expire five years from March 22, 2021, at 5:00 p.m., New York City time or upon earlier exercise or redemption.
Warrants
originally issued by Longevity pursuant to its initial public offering registration statement on Form S-1 (Registration No. 333-226699),
referred to as the “public warrants,” are not exercisable for cash unless there is an effective and current registration
statement covering the issuance of the underlying ordinary shares issuable upon exercise of the warrants and a current prospectus
relating to such underlying shares. Notwithstanding the foregoing, if a registration statement covering the issuance of the underlying
ordinary shares issuable upon exercise of the public warrants is not effective within 90 days from the closing of the Merger,
warrant holders may, until such time as there is an effective registration statement and during any period when an effective registration
statement has not been maintained, exercise warrants on a cashless basis pursuant to an available exemption from registration
under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their warrants
on a cashless basis.
Warrants
originally issued by Longevity on a private placement basis, referred to as the “private warrants,” are identical
to the public warrants except that such private warrants are exercisable for cash (even if a registration statement covering the
issuance of the ordinary shares issuable upon exercise of such warrants is not effective) or on a cashless basis, at the holder’s
option, and were not redeemable by Longevity prior to the Merger or us after the Merger, in each case so long as they are still
held by the initial purchasers or their affiliates. In addition, for as long as the private warrants are held by the underwriter
for Longevity’s initial public offering or its designees or affiliates they may not be exercised after August 29, 2023.
The
warrants can be called for redemption (excluding the private warrants but including any outstanding warrants issued upon exercise
of the unit purchase option issued to the underwriter for Longevity’s initial public offering and/or its designees), in
whole and not in part, at a price of $0.01 per warrant:
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at
any time while the warrants are exercisable,
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upon
not less than 30 days’ prior written notice of redemption to each warrant holder,
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if,
and only if, after the Merger the reported last sale price of the underlying ordinary shares equals or exceeds the greater
of $2.39 per ordinary share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) or $19.12
per ADS (based on the ADS Exchange Ratio), for any 20 trading days within a 30 trading day period ending on the third trading
business day prior to the notice of redemption to warrant holders, and
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if,
and only if, there is a current registration statement in effect with respect to the issuance of the shares underlying such
warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter
until the date of redemption
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The
right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption.
On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price
for such holder’s warrant upon surrender of such warrant.
If
and when the warrants become redeemable, the redemption right cannot be exercised if the issuance of the underlying ordinary shares
upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are
unable to effect such registration or qualification.
If
we call the warrants for redemption as described above, our management will have the option to require all holders that wish to
exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering
the warrants for that number of underlying shares equal to the quotient obtained by dividing (x) the product of the number of
ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair
market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported
last sale price of the underlying shares for the 10 trading days ending on the third trading day prior to the date on which the
notice of redemption is sent to the holders of warrants. Whether the option to require all holders to exercise their warrants
on a “cashless basis” is exercised will depend on a variety of factors including the price of the underlying shares
at the time the warrants are called for redemption, cash needs at such time and concerns regarding dilutive issuances.
Continental
Stock Transfer & Trust Company is the warrant agent for the warrants.
The
exercise price and number of underlying ordinary shares issuable on exercise of the warrants may be adjusted in certain circumstances
including in the event of a share dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation.
However, the warrants will not be adjusted for issuances of shares at a price below their respective exercise prices.
The
warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant
agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied
by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to
us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of shares
and any voting rights until they exercise their warrants and have received underlying shares.
Except
as described above, no warrants issued as public warrants are exercisable and no shares will be issued on exercise unless, at
the time a holder seeks to exercise such warrant, a prospectus relating to the shares issuable upon exercise of the warrants is
current and the shares had been registered or qualified or deemed to be exempt under the securities laws of the state of residence
of the holder of the warrants.
Under
the terms of the warrant agreement, Longevity agreed, and we have assumed the obligation, to use best efforts to meet the conditions
above and to maintain a current prospectus relating to the underlying shares issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure holders that we will be able to do so and, if we do not maintain a current
prospectus relating to the underlying shares issuable upon exercise of the warrants, except as described above, holders will be
unable to exercise their warrants and we will not be required to settle any such warrant exercise. If the prospectus relating
to the underlying shares issuable upon the exercise of the warrants is not current or if the underlying shares are not qualified
or exempt from qualification in the jurisdictions in which the holders of the warrants reside, we will not be required to net
cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants may be limited and
the warrants may expire worthless.
Warrant
holders may elect to be subject to a restriction on the exercise of their warrants such that an electing warrant holder would
not be able to exercise their warrants to the extent that, after giving effect to such exercise, such holder would beneficially
own in excess of 9.8% of the share capital outstanding.
Description
of Our American Depositary Shares
American
Depositary Receipts
We
have appointed JPMorgan Chase Bank, N.A. (“JPMorgan”), as depositary. The depositary’s office is located
at 383 Madison Avenue, Floor 11, New York, NY 10179. A copy of the form of the deposit agreement is on file with the SEC under
cover of a registration statement on Form F-6. A copy of the deposit agreement is available from the SEC’s website (www.sec.gov).
Please refer to registration number 333-253268 when retrieving such copy.
Each
ADS represents an ownership interest in eight ordinary shares deposited with the custodian, as agent of the depositary, under
the deposit agreement among ourselves, the depositary, and all ADR holders, and all beneficial owners of an interest in the ADSs
evidenced by ADRs from time to time. Each ADS represents any securities, cash or other property deposited with the depositary
but which they have not distributed directly to the holders. Unless certificated ADRs are specifically requested by the holder
all ADSs are issued on the books of our depositary in book-entry form and periodic statements will be mailed to the holder which
reflect the holder’s ownership interest in such ADSs. In our description, references to American depositary receipts or
ADRs shall include the statements holders will receive which reflect their ownership of ADSs.
The
holders may hold ADSs either directly or indirectly through their broker or other financial institution. If a holder holds ADSs
directly, by having an ADS registered in their name on the books of the depositary, they are an ADR holder. This description assumes
they are an ADR holder and hold their ADSs directly. If holders have a beneficial ownership interest in ADSs but hold the ADSs
through their broker or financial institution nominee, they are a beneficial owner of ADSs and must rely on the procedures of
such broker or financial institution to assert the rights of an ADR holder described in this section. Holders should consult with
their broker or financial institution to find out what those procedures are. If a holder is a beneficial owner, they will only
be able to exercise any right or receive any benefit under the deposit agreement solely through the ADR holder which holds the
ADR(s) evidencing the ADSs owned by the holder, and the arrangements between the holder and such ADR holder may affect their ability
to exercise any rights they may have. For all purposes under the deposit agreement, an ADR holder is deemed to have all requisite
authority to act on behalf of any and all beneficial owners of the ADSs evidenced by the ADR(s) registered in such ADR holder’s
name. The depositary’s only notification obligations under the deposit agreement shall be to the ADR holders, and notice
to an ADR holder shall be deemed, for all purposes of the deposit agreement, to constitute notice to any and all beneficial owners
of the ADSs evidenced by such ADR holder’s ADRs.
ADR
holders or beneficial owners will not be treated as shareholders of ours and they will not have any shareholder rights. English
law governs shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented
by all outstanding ADSs, shareholder rights rest with such record holder. Holders’ rights are those of an ADR holder or
of a beneficial owner. Such rights derive from the terms of the deposit agreement to be entered into among the depositary and
all registered holders and beneficial owners from time to time of ADSs issued under the deposit agreement and, in the case of
a beneficial owner, from the arrangements between the beneficial owner and the holder of the corresponding ADRs. Obligations of
4D Pharma, the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee will
actually be the registered owner of the shares, holders must rely on it to exercise the rights of a shareholder on their behalf.
The deposit agreement, the ADRs and the ADSs are governed by New York law. Under the deposit agreement, an ADR holder or a beneficial
owner of ADSs agrees that any legal suit, action or proceeding brought by holders against or involving us or the depositary, arising
out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may only be instituted
in a federal court in New York, New York, or, except for claims arising under the Securities Act of 1933 or Securities Exchange
Act of 1934, any state court in New York, New York, and holders irrevocably waive any objection which they may have to the laying
of venue of any such proceeding and irrevocably submit to the exclusive jurisdiction of such courts in any such suit, action or
proceeding, provided, however, pursuant to applicable law and the Company’s Articles of Association, any claim brought by
holders arising under the Securities Act of 1933 may be instituted only in any federal court in the United States, and any claim
brought by holders or on behalf of the Company with regard to the internal affairs of the Company, including the ability to bring
such a claim, shall be governed by and construed in accordance with the laws of England and Wales, and may only be instituted
against the Company, its directors, officers or employees as provided in the Company’s Articles of Association in the courts
of England and Wales.
The
following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it
is a summary, it may not contain all the information that holders may otherwise deem important. For more complete information,
holders should read the entire deposit agreement and the form of ADR which contains the terms of their ADSs. Holders can read
a copy of the deposit agreement which is filed as an exhibit to, or incorporated by reference in, the most recent Form F-6 registration
statement (or amendment thereto) filed with the SEC. Holders may also obtain a copy of the form of deposit agreement at the SEC’s
Public Reference Room which is located at 100 F Street, NE, Washington, DC 20549. Holders may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-732-0330. Holders may also find the registration statement and the attached
deposit agreement on the SEC’s website at http://www.sec.gov.
Share
Dividends and Other Distributions
How
will Holders receive dividends and other distributions on the shares underlying my ADSs?
We
may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable,
it will pay to holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities,
after converting any cash received into U.S. dollars (if it determines such conversion may be made on a reasonable basis) and,
in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch
or affiliate of JPMorgan to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement.
Such division, branch and/or affiliate may charge the depositary a fee in connection with such sales, which fee is considered
an expense of the depositary. Holders will receive these distributions in proportion to the number of underlying securities that
their ADSs represent.
Except
as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following
manner:
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Cash.
The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution
or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other
practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or
impracticable with respect to certain ADR holders, and (iii) deduction of the depositary’s and/or its agents’
expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may
be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the
depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining
any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable
cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner.
If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, holders may lose some
or all of the value of the distribution.
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Shares.
In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing
such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds
will be distributed in the same manner as cash to the ADR holders entitled thereto.
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Rights
to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights,
if we timely provide evidence satisfactory to the depositary that it may lawfully distribute such rights, the depositary will
distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not
timely furnish such evidence, the depositary may: (i) sell such rights if practicable and distribute the net proceeds in the
same manner as cash to the ADR holders entitled thereto; or (ii) if it is not practicable to sell such rights by reason of
the non-transferability of the rights, limited markets therefor, their short duration or otherwise, do nothing and allow such
rights to lapse, in which case ADR holders will receive nothing and the rights may lapse. We have no obligation to file a
registration statement under the Securities Act in order to make any rights available to ADR holders.
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Other
Distributions. In the case of a distribution of securities or property other than those described above, the depositary
may either (i) distribute such securities or property in any manner it deems equitable and practicable or (ii) to the extent
the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities
or property and distribute any net proceeds in the same way it distributes cash.
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Elective
Distributions. In the case of a dividend payable at the election of our shareholders in cash or in additional shares,
we will notify the depositary at least 30 days prior to the proposed distribution stating whether or not we wish such elective
distribution to be made available to ADR holders. The depositary shall make such elective distribution available to ADR holders
only if (i) we shall have timely requested that the elective distribution is available to ADR holders, (ii) the depositary
shall have determined that such distribution is reasonably practicable and (iii) the depositary shall have received satisfactory
documentation within the terms of the deposit agreement including any legal opinions of counsel that the depositary in its
reasonable discretion may request. If the above conditions are not satisfied, the depositary shall, to the extent permitted
by law, distribute to the ADR holders, on the basis of the same determination as is made in the local market in respect of
the shares for which no election is made, either (x) cash or (y) additional ADSs representing such additional shares. If the
above conditions are satisfied, the depositary shall establish procedures to enable ADR holders to elect the receipt of the
proposed dividend in cash or in additional ADSs. There can be no assurance that ADR holders or beneficial owners of ADSs generally,
or any ADR holder or beneficial owner of ADSs in particular, will be given the opportunity to receive elective distributions
on the same terms and conditions as the holders of shares.
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If
the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific
ADR holder, the depositary may (after consultation with the Company, if practicable, in the case where the depositary believes
such distribution is not practicable with respect to all ADR holders) choose any method of distribution that it deems practicable
for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without
paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent
the retained items.
Any
U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents
will be withheld without liability and dealt with by the depositary in accordance with its then current practices.
The
depositary is not responsible if it fails to determine that any distribution or action is lawful or reasonably practicable.
There
can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property,
rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified
time period. All purchases and sales of securities will be handled by the depositary in accordance with its then current policies,
which are currently set forth on https://www.adr.com/ disclosure/disclosures, the location and contents of which the depositary
shall be solely responsible for.
Deposit,
Withdrawal and Cancellation
How
does the depositary issue ADSs?
The
depositary will issue ADSs if holders or a holder’s broker deposit shares or evidence of rights to receive shares with the
custodian and pay the fees and expenses owing to the depositary in connection with such issuance.
Shares
deposited in the future with the custodian must be accompanied by certain delivery documentation and shall, at the time of such
deposit, be registered in the name of JPMorgan, as depositary for the benefit of ADR holders or in such other name as the depositary
shall direct.
The
custodian will hold all deposited shares for the account and to the order of the depositary, in each case for the benefit of ADR
holders, to the extent not prohibited by law. ADR holders and beneficial owners thus have no direct ownership interest in the
shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities,
property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items
are referred to as “deposited securities”.
Deposited
securities are not intended to, and shall not, constitute proprietary assets of the depositary, the custodian or their nominees.
Beneficial ownership in deposited securities is intended to be, and shall at all times during the term of the deposit agreement
continue to be, vested in the beneficial owners of the ADSs representing such deposited securities. Notwithstanding anything else
contained herein, in the deposit agreement, in the form of ADR and/or in any outstanding ADSs, the depositary, the custodian and
their respective nominees are intended to be, and shall at all times during the term of the deposit agreement be, the record holder(s)
only of the deposited securities represented by the ADSs for the benefit of the ADR holders. The depositary, on its own behalf
and on behalf of the custodian and their respective nominees, disclaims any beneficial ownership interest in the deposited securities
held on behalf of the ADR holders.
Upon
each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement,
including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will
issue an ADR or ADRs in the name or upon the order of the person entitled thereto evidencing the number of ADSs to which such
person is entitled. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositary’s
direct registration system, and an ADR holder will receive periodic statements from the depositary which will show the number
of ADSs registered in such ADR holder’s name. An ADR holder can request that the ADSs not be held through the depositary’s
direct registration system and that a certificated ADR be issued.
How
do ADR holders cancel an ADS and obtain deposited securities?
When
holders turn in their ADR certificate at the depositary’s office, or when they provide proper instructions and documentation
in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver
the underlying shares to holders or upon their written order. Delivery of deposited securities in certificated form will be made
at the custodian’s office. At the holder’s risk, expense and request, the depositary may deliver deposited securities
at such other place as holders may request.
The
depositary may only restrict the withdrawal of deposited securities in connection with:
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temporary
delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting
at a shareholders’ meeting, or the payment of dividends;
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the
payment of fees, taxes and similar charges; or
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compliance
with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.
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This
right of withdrawal may not be limited by any other provision of the deposit agreement.
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Record
Dates
The
depositary may, after consultation with us if practicable, fix record dates (which, to the extent applicable, shall be as near
as practicable to any corresponding record dates set by us) for the determination of the ADR holders who will be entitled (or
obligated, as the case may be):
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to
receive any distribution on or in respect of deposited securities,
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to
give instructions for the exercise of voting rights at a meeting of holders of shares,
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to
pay any fees, charges or expenses assessed by, or owing to the depositary, or
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to
receive any notice or to act or be obligated in respect of other matters,
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all
subject to the provisions of the deposit agreement.
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Voting
Rights
How
do holders vote?
If
a holder is an ADR holder and the depositary asks the holder to provide it with voting instructions, the holder may instruct the
depositary how to exercise the voting rights for the shares which underlie their ADSs. As soon as practicable after receiving
notice from us of any meeting at which the holders of shares are entitled to vote, or of our solicitation of consents or proxies
from holders of shares, the depositary shall fix the ADS record date in accordance with the provisions of the deposit agreement,
provided that if the depositary receives a written request from us in a timely manner and at least 30 days prior to the date of
such vote or meeting, the depositary shall, at our expense, distribute to the ADR holders a notice stating (i) final information
particular to such vote and meeting and any solicitation materials, (ii) that each ADR holder on the record date set by the depositary
will, subject to any applicable provisions of the laws of England and Wales, be entitled to instruct the depositary to exercise
the voting rights, if any, pertaining to the shares underlying such ADR holder’s ADSs and (iii) the manner in which such
instructions may be given, including instructions to give a discretionary proxy to a person designated by us. Each ADR holder
is solely responsible for the forwarding of such notices to the beneficial owners of ADSs registered in such ADR holder’s
name. Following actual receipt by the ADR department responsible for proxies and voting of ADR holders’ instructions (including,
without limitation, instructions of any entity or entities acting on behalf of the nominee for DTC), the depositary shall, in
the manner and on or before the time established by the depositary for such purpose, endeavor to vote or cause to be voted the
shares represented by the ADSs evidenced by such ADR holders’ ADRs in accordance with such instructions insofar as practicable
and permitted under the provisions of or governing our shares.
ADR
holders and beneficial owners of ADSs are strongly encouraged to forward their voting instructions to the depositary as soon as
possible. For instructions to be valid, the ADR department of the depositary that is responsible for proxies and voting must receive
them in the manner and on or before the time specified, notwithstanding that such instructions may have been physically received
by the depositary prior to such time. The depositary will not itself exercise any voting discretion. Notwithstanding anything
contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by any law, rule or regulation,
or by the rules and/or requirements of the stock exchange or market on which the ADSs are listed or traded, in lieu of distribution
of the materials provided to the depositary in connection with any meeting of, or solicitation of consents or proxies from, holders
of deposited securities, distribute to the ADR holders a notice that provides such ADR holders with, or otherwise publicizes to
such ADR holders, instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference
to a website containing the materials for retrieval or a contact for requesting copies of the materials).
There
is no guarantee that ADR holders and beneficial owners of ADSs generally, or any ADR holder or beneficial owner of ADSs in particular,
will receive voting materials in time to instruct the depositary to vote and it is possible that holders, or persons who hold
their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Reports
and Other Communications
Will
ADR holders be able to view our reports?
The
depositary will make available for inspection by ADR holders at the offices of the depositary and the custodian the deposit agreement,
the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian
or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities.
Additionally,
if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English
translations or summaries) to the depositary, it will distribute the same to ADR holders.
Fees
and Expenses
What
fees and expenses will holders be responsible for paying?
The
depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares,
issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split
declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs
or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are cancelled
or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered,
or upon which a share distribution or elective distribution is made or offered, as the case may be. The depositary may sell (by
public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution
prior to such deposit to pay such charge.
The
following additional charges shall also be incurred by the ADR holders and beneficial owners of ADSs, by any party depositing
or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance
pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities
or a distribution of ADSs), whichever is applicable:
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a
fee of U.S.$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs;
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a
fee of up to U.S.$0.05 per ADS held upon which any cash distribution made pursuant to the deposit agreement or in the case
of an elective cash/stock dividend, upon which a cash distribution or an issuance of additional ADSs is made as a result of
such elective dividend;
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an
aggregate fee of up to U.S.$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in
administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against
ADR holders as of the record date or record dates set by the depositary during each calendar year and shall be payable in
the manner described in the next succeeding provision);
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a
fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including,
without limitation, the custodian and expenses incurred on behalf of ADR holders in connection with compliance with foreign
exchange control regulations or any law, rule or regulation relating to foreign investment) in connection with the servicing
of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities),
the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance
with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against ADR holders
as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing
such ADR holders or by deducting such charge from one or more cash dividends or other cash distributions);
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a
fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an
amount equal to the $0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result
of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash
proceeds from the sale thereof are instead distributed by the depositary to those ADR holders entitled thereto;
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stock
transfer or other taxes and other governmental charges;
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SWIFT,
cable, telex and facsimile transmission and delivery charges incurred at holders’ request in connection with the deposit
or delivery of shares, ADRs or deposited securities;
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transfer
or registration fees for the registration of transfer of deposited securities on any applicable register in connection with
the deposit or withdrawal of deposited securities; and
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fees
of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public
and/or private sale of securities under the deposit agreement.
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To
facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other cash distributions
and other corporate actions, the depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A. (the “Bank”)
and/or its affiliates in order to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars
(“FX Transactions”). For certain currencies, FX Transactions are entered into with the Bank or an affiliate,
as the case may be, acting in a principal capacity. For other currencies, FX Transactions are routed directly to and managed by
an unaffiliated local custodian (or other third-party local liquidity provider), and neither the Bank nor any of its affiliates
is a party to such FX Transactions.
The
foreign exchange rate applied to an FX Transaction will be either (i) a published benchmark rate, or (ii) a rate determined by
a third-party local liquidity provider, in each case plus or minus a spread, as applicable. The depositary will disclose which
foreign exchange rate and spread, if any, apply to such currency on the “Disclosure” page (or Successor page) of www.adr.com
(as updated by the depositary from time to time, “ADR.com”). Such applicable foreign exchange rate and spread may
(and neither the depositary, the Bank nor any of their affiliates is under any obligation to ensure that such rate does not) differ
from rates and spreads at which comparable transactions are entered into with other customers or the range of foreign exchange
rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the relevant currency
pair on the date of the FX Transaction. Additionally, the timing of execution of an FX Transaction varies according to local market
dynamics, which may include regulatory requirements, market hours and liquidity in the foreign exchange market or other factors.
Furthermore, the Bank and its affiliates may manage the associated risks of their position in the market in a manner they deem
appropriate without regard to the impact of such activities on us, the depositary, ADR holders or beneficial owners of ADSs. The
spread applied does not reflect any gains or losses that may be earned or incurred by the Bank and its affiliates as a result
of risk management or other hedging related activity. Notwithstanding the foregoing, to the extent we provide U.S. dollars to
the depositary, neither the Bank nor any of its affiliates will execute an FX Transaction as set forth herein. In such case, the
depositary will distribute the U.S. dollars received from us.
Further
details relating to the applicable foreign exchange rate, the applicable spread and the execution of FX Transactions will be provided
by the depositary on ADR.com. We and by holding an ADS or an interest therein, ADR holders and beneficial owners of ADSs will
each be acknowledging and agreeing that the terms applicable to FX Transactions disclosed from time to time on ADR.com will apply
to any FX Transaction executed pursuant to the deposit agreement.
We
will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements
from time to time between us and the depositary.
The
fees and charges holders may be required to pay may vary over time and may be changed by us and by the depositary. ADR holders
will receive prior notice of the increase in any such fees and charges. The right of the depositary to charge and receive payment
of fees, charges and expenses as provided above shall survive the termination of the deposit agreement.
The
depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or
otherwise upon such terms and conditions as we and the depositary may agree from time to time. The depositary collects its fees
for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal
or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those
fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect
its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging
the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions
made to ADR holders. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary
may refuse to provide any further services to ADR holders that have not paid those fees and expenses owing until such fees and
expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in
advance and/or when declared owing by the depositary.
Payment
of Taxes
ADR
holders or beneficial owners must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS
or ADR, deposited security or distribution. If any taxes or other governmental charges (including any penalties and/or interest)
shall become payable by or on behalf of the custodian or the depositary with respect to any ADR, any deposited securities represented
by the ADSs evidenced thereby or any distribution thereon, such tax or other governmental charge shall be paid by the applicable
ADR holder to the depositary and by holding or owning, or having held or owned, an ADR or any ADSs evidenced thereby, the ADR
holder and all beneficial owners of such ADSs, and all prior registered holders of such ADRs and prior beneficial owners of such
ADSs, jointly and severally, agree to indemnify, defend and save harmless each of the depositary and its agents in respect of
such tax or governmental charge. Each ADR holder and beneficial owner of ADSs, and each prior ADR holder and beneficial owner
of ADSs, by holding or having held an ADR or an interest in ADSs, acknowledges and agrees that the depositary shall have the right
to seek payment of any taxes or governmental charges owing with respect to the relevant ADRs from any one or more such current
or prior ADR holder or beneficial owner of ADSs, as determined by the depositary in its sole discretion, without any obligation
to seek payment of amounts owing from any other current or prior ADR holder or beneficial owner of ADSs. If an ADR holder owes
any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell
deposited securities (by public or private sale) and deduct the amount owing from the net proceeds of such sale. In either case
the ADR holder remains liable for any shortfall. If any tax or governmental charge is unpaid, the depositary may also refuse to
effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited
securities until such payment is made. If any tax or governmental charge is required to be withheld on any cash distribution,
the depositary may deduct the amount required to be withheld from any cash distribution or, in the case of a non-cash distribution,
sell the distributed property or securities (by public or private sale) in such amounts and in such manner as the depositary deems
necessary and practicable to pay such taxes and distribute any remaining net proceeds or the balance of any such property after
deduction of such taxes to the ADR holders entitled thereto.
ADR
holders or beneficial owners will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective
officers, directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental
authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding
at source or other tax benefit obtained.
Reclassifications,
Recapitalizations and Mergers
If
we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation,
cancellation or other reclassification of deposited securities or (ii) any distributions of shares or other property not made
to ADR holders or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or
sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us:
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amend
the form of ADR;
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distribute
additional or amended ADRs;
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distribute
cash, securities or other property it has received in connection with such actions;
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sell
any securities or property received and distribute the proceeds as cash; or
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none
of the above.
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If
the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute
part of the deposited securities and each ADS will then represent a proportionate interest in such property.
Amendment
and Termination
How
may the deposit agreement be amended?
We
may agree with the depositary to amend the deposit agreement and the ADSs without holders’ consent for any reason. ADR holders
must be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges on a per ADS basis
(other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT, cable, telex or
facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of
ADR holders or beneficial owners of ADSs. Such notice need not describe in detail the specific amendments effectuated thereby,
but must identify to ADR holders and beneficial owners a means to access the text of such amendment. If an ADR holder continues
to hold an ADR or ADRs after being so notified, such ADR holder and the beneficial owner of the corresponding ADSs are deemed
to agree to such amendment and to be bound by the deposit agreement as so amended. No amendment, however, will impair holders’
right to surrender their ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable
law.
Any
amendments or supplements which (i) are reasonably necessary (as agreed by us and the depositary) in order for (A) the ADSs to
be registered on Form F-6 under the Securities Act of 1933 or (B) the ADSs or shares to be traded solely in electronic book-entry
form and (ii) do not in either such case impose or increase any fees or charges to be borne by ADR holders, shall be deemed not
to prejudice any substantial rights of ADR holders or beneficial owners of ADSs. Notwithstanding the foregoing, if any governmental
body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit
agreement or the form of ADR to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement
and the form of ADR (and all outstanding ADRs) at any time in accordance with such changed laws, rules or regulations, which amendment
or supplement to the deposit agreement in such circumstances may become effective before a notice of such amendment or supplement
is given to ADR holders or within any other period of time as required for compliance.
Notice
of any amendment to the deposit agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated
thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however,
that, in each such case, the notice given to the ADR holders identifies a means for ADR holders and beneficial owners to retrieve
or receive the text of such amendment (i.e., upon retrieval from the SEC’s, the depositary’s or our website
or upon request from the depositary).
How
may the deposit agreement be terminated?
The
depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination
to the ADR holders at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary
shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided
to ADR holders unless a successor depositary shall not be operating under the deposit agreement within 60 days of the date of
such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary
shall not be provided to ADR holders unless a successor depositary shall not be operating under the deposit agreement on the 60th
day after our notice of removal was first provided to the depositary. Notwithstanding anything to the contrary herein, the depositary
may terminate the deposit agreement without notifying us, but subject to giving 30 days’ notice to the ADR holders, under
the following circumstances: (i) in the event of our bankruptcy or insolvency, (ii) if we effect (or will effect) a redemption
of all or substantially all of the deposited securities, or a cash or share distribution representing a return of all or substantially
all of the value of the deposited securities, or (iii) there occurs a merger, consolidation, sale of all or substantially all
assets or other transaction as a result of which securities or other property are delivered in exchange for or in lieu of deposited
securities. After the date so fixed for termination, the depositary and its agents will perform no further acts under the deposit
agreement and the ADRs, except to receive and hold (or sell) distributions on deposited securities and deliver deposited securities
being withdrawn. As soon as practicable after the date so fixed for termination, the depositary shall use its reasonable efforts
to sell the deposited securities and shall thereafter (as long as it may lawfully do so) hold in an account (which may be a segregated
or unsegregated account) the net proceeds of such sales, together with any other cash then held by it under the deposit agreement,
without liability for interest, in trust for the pro rata benefit of the ADR holders who have not theretofore surrendered their
ADRs. After making such sale, the depositary shall be discharged from all obligations in respect of the deposit agreement and
the ADRs, except to account for such net proceeds and other cash. After the date so fixed for termination, we shall be discharged
from all obligations under the deposit agreement except for our obligations to the depositary and its agents.
Limitations
on Obligations and Liability to ADR holders
Limits
on our obligations and the obligations of the depositary; limits on liability to ADR holders and beneficial owners of ADSs
Prior
to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any
distribution in respect thereof, and from time to time in the case of the production of proofs as described below, we or the depositary
or its custodian may require:
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payment
with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration
fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and
(iii) any applicable fees and expenses described in the deposit agreement;
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the
production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such
other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial
or other ownership of, or interest in, any securities, compliance with applicable law, regulations, provisions of or governing
deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and
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compliance
with such regulations as the depositary may establish consistent with the deposit agreement.
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The
issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of
ADRs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADR register or any register
for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to
withdraw shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of
the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the
payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental
regulations relating to ADRs or to the withdrawal of deposited securities.
The
deposit agreement expressly limits the obligations and liability of the depositary, ourselves and each of our and the depositary’s
respective agents, provided, however, that no provision of the deposit agreement is intended to constitute a waiver or limitation
of any rights which ADR holders or beneficial owners of ADSs may have under the Securities Act of 1933 or the Securities Exchange
Act of 1934, to the extent applicable. In the deposit agreement it provides that neither we nor the depositary nor any such agent
will be liable to ADR holders or beneficial owners of ADSs if:
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any
present or future law, rule, regulation, fiat, order or decree of the United States, England, Wales or any other country or
jurisdiction, or of any governmental or regulatory authority or securities exchange or market or automated quotation system,
the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war,
terrorism, nationalization, epidemic, pandemic, expropriation, currency restrictions, work stoppage, strike, civil unrest,
revolutions, rebellions, explosions, computer failure or circumstance beyond our, the depositary’s or our respective
agents’ direct and immediate control shall prevent or delay, or shall cause any of them to be subject to any civil or
criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or performed by
us, the depositary or our respective agents (including, without limitation, voting);
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it
exercises or fails to exercise discretion under the deposit agreement or the ADRs including, without limitation, any failure
to determine that any distribution or action may be lawful or reasonably practicable;
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it
performs its obligations under the deposit agreement and ADRs without gross negligence or willful misconduct;
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it
takes any action or refrains from taking any action in reliance upon the advice of or information from legal counsel, accountants,
any person presenting shares for deposit, any ADR holder, or any other person believed by it to be competent to give such
advice or information, or in the case of the depositary only, our company; or
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it
relies upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been
signed, presented or given by the proper party or parties.
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The
depositary shall not be a fiduciary or have any fiduciary duty to ADR holders or beneficial owners of ADSs. Neither the depositary
nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited
securities, the ADSs or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit
or other proceeding in respect of any deposited securities, the ADSs or the ADRs, which in our opinion may involve us in expense
or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability
is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for
information maintained by or on its behalf in connection with the deposit agreement, any ADR holder or holders, any ADRs or otherwise
related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful
authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other
regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository,
clearing agency or settlement system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in
connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of JPMorgan. Notwithstanding
anything to the contrary contained in the deposit agreement or any ADRs, the depositary shall not be responsible for, and shall
incur no liability in connection with or arising from, any act or omission to act on the part of the custodian except to the extent
that any ADR holder has incurred liability directly as a result of the custodian having (i) committed fraud or willful misconduct
in the provision of custodial services to the depositary or (ii) failed to use reasonable care in the provision of custodial services
to the depositary as determined in accordance with the standards prevailing in the jurisdiction in which the custodian is located.
The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such
as, but not limited to, pricing, proxy voting, corporate actions, class action litigation and other services in connection with
the ADRs and the deposit agreement, and use local agents to provide services such as, but not limited to, attendance at any meetings
of security holders. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable
care) in the selection and retention of such third-party providers and local agents, they will not be responsible for any errors
or omissions made by them in providing the relevant information or services. The depositary shall not have any liability for the
price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall
it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained
in connection with any such sale or proposed sale.
The
depositary has no obligation to inform ADR holders or beneficial owners of ADSs about the requirements of any laws, rules or regulations
or any changes therein or thereto.
Additionally,
none of us, the depositary or the custodian shall be liable for the failure by any ADR holder or beneficial owner of ADSs to obtain
the benefits of credits or refunds of non-U.S. tax paid against such ADR holder’s or beneficial owner’s income tax
liability. The depositary is under no obligation to provide ADR holders or beneficial owners of ADSs, or any of them, with any
information about the tax status of our company. Neither we nor the depositary shall incur any liability for any tax or tax consequences
that may be incurred by ADR holders or beneficial owners of ADSs on account of their ownership or disposition of the ADRs or ADSs.
Neither
the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities,
for the manner in which any such vote is cast, or for the effect of any such vote. The depositary may rely upon instructions from
us or our counsel in respect of any approval or license required for any currency conversion, transfer or distribution. The depositary
shall not incur any liability for the content of any information submitted to it by us or on our behalf for distribution to ADR
holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the
deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for
allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us. The
depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous
act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary.
Neither the depositary, the Company, nor any of their respective agents shall be liable to ADR holders or beneficial owners of
ADSs for any indirect, special, punitive or consequential damages (including, without limitation, legal fees and expenses) or
lost profits, in each case of any form incurred by any person or entity (including, without limitation, ADR holders and beneficial
owners of ADSs), whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
The
depositary and its agents may own and deal in any class of securities of our company and our affiliates and in ADSs.
Disclosure
of Interest in ADSs
To
the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial
or other ownership of deposited securities, other shares and other securities and may provide for blocking transfer, voting or
other rights to enforce such disclosure or limits, ADR holders and beneficial owners of ADSs agree to comply with all such disclosure
requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof. We reserve
the right to instruct ADR holders (and through any such ADR holder, the beneficial owners of ADSs evidenced by the ADRs registered
in such ADR holder’s name) to deliver their ADSs for cancellation and withdrawal of the deposited securities so as to permit
us to deal directly with the ADR holder and/or beneficial owner of ADSs as a holder of shares and, by holding an ADS or an interest
therein, ADR holders and beneficial owners of ADSs will be agreeing to comply with such instructions.
Each
ADR holder and beneficial owner agrees to provide such information as the Company may request in a disclosure notice (a “Disclosure
Notice”) given pursuant to the U.K. Companies Act or the Articles of Association of the Company. Each ADR holder and
Beneficial owner acknowledges that it understands that failure to comply with a Disclosure Notice may result in the imposition
of sanctions against the holder of the underlying Company ordinary shares in respect of which the non-complying person is or was,
or appears to be or has been, interested as provided in the U.K. Companies Act and the Articles of Association which currently
may include, subject to the granting of an appropriate order by the court, the withdrawal of the voting rights of such ordinary
shares and the imposition of restrictions on the rights to receive dividends on and to transfer such ordinary shares. In addition,
each ADR holder and beneficial owner agrees to comply with the provisions of the Disclosure Guidance and Transparency Rules published
by the United Kingdom Financial Conduct Authority (as amended from time to time, the “DTRs”) with regard to
the notification to the Company of interests in Company ordinary shares underlying ADSs and certain financial instruments, which
currently provide, inter alia, that an ADR holder and beneficial owner must notify the Company of the percentage of its
voting rights he holds as a shareholder or holds or is deemed to hold through his direct or indirect holding of certain financial
instruments (or a combination of such holdings) if the percentage of those voting rights reaches, exceeds or falls below specified
thresholds.
Books
of Depositary
The
depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs,
which register shall include the depositary’s direct registration system. ADR holders may inspect such records at the depositary’s
office at all reasonable times, but solely for the purpose of communicating with other ADR holders in the interest of the business
of our company or a matter relating to the deposit agreement. Such register (and/or any portion thereof) may be closed at any
time or from time to time, when deemed expedient by the depositary. Additionally, at the reasonable request of the Company, the
depositary may close the issuance book portion of the ADR register in order to enable the Company to comply with applicable law.
The
depositary will maintain facilities for the delivery and receipt of ADRs.
Appointment
In
the deposit agreement, each ADR holder and each beneficial owner of ADSs, upon acceptance of any ADSs (or any interest therein)
issued in accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to:
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be
a party to and bound by the terms of the deposit agreement and the applicable ADR or ADRs, and
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appoint
the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated
in the deposit agreement and the applicable ADR or ADRs, to adopt any and all procedures necessary to comply with applicable
laws and to take such action as the depositary in its sole discretion may deem necessary or appropriate to carry out the purposes
of the deposit agreement and the applicable ADR and ADRs, the taking of such actions to be the conclusive determinant of the
necessity and appropriateness thereof.
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Each
ADR holder and beneficial owner of ADSs is further deemed to acknowledge and agree that (i) nothing in the deposit agreement or
any ADR shall give rise to a partnership or joint venture among the parties thereto nor establish a fiduciary or similar relationship
among such parties, (ii) the depositary, its divisions, branches and affiliates, and their respective agents, may from time to
time be in the possession of non-public information about our company, the ADR holders, the beneficial owners of ADSs and/or their
respective affiliates, (iii) the depositary and its divisions, branches and affiliates may at any time have multiple banking relationships
with us, ADR holders, beneficial owners of ADSs and/or the affiliates of any of them, (iv) the depositary and its divisions, branches
and affiliates may, from time to time, be engaged in transactions in which parties adverse to us or the ADR holders or beneficial
owners of ADSs may have interests, (v) nothing contained in the deposit agreement or any ADR(s) shall (A) preclude the depositary
or any of its divisions, branches or affiliates from engaging in such transactions or establishing or maintaining such relationships,
or (B) obligate the depositary or any of its divisions, branches or affiliates to disclose such transactions or relationships
or to account for any profit made or payment received in such transactions or relationships, and (vi) the depositary shall not
be deemed to have knowledge of any information held by any branch, division or affiliate of the depositary.
Governing
Law and Consent to Jurisdiction
The
deposit agreement and the ADRs are governed by and construed in accordance with the laws of the State of New York. In the deposit
agreement, we have submitted to the jurisdiction of the courts of the State of New York and appointed an agent for service of
process on our behalf. Without limiting the foregoing, any claim brought by any ADR holder or beneficial owner or on behalf of
the Company with regard to the internal affairs of the Company, including the ability to bring such a claim, shall be governed
by and construed in accordance with the laws of England and Wales, and any such claims may only be instituted against the Company,
its directors, officers or employees as provided in the Company’s Articles of Association in the courts of England and Wales.
By
holding an ADS or an interest therein, ADR holders and beneficial owners of ADSs each irrevocably agree that any legal suit, action
or proceeding brought by any holder or beneficial owner against or involving us or the depositary, arising out of or based upon
the deposit agreement, the ADSs or the transactions contemplated thereby, may only be instituted in a federal court in New York,
New York, or, except for claims arising under the Securities Act of 1933 or Securities Exchange Act of 1934, any state court in
New York, New York, and each irrevocably waives any objection which it may have to the laying of venue of any such proceeding,
and irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding, provided, however,
pursuant to applicable law and the Company’s Articles of Association, any claim brought by holders or beneficial owners
arising under the Securities Act of 1933 may be instituted only in any federal court in the United States, and any claim brought
by any ADR holder or beneficial owner or on behalf of the Company with regard to the internal affairs of the Company, including
the ability to brings such a claim, shall be governed by and construed in accordance with the laws of England and Wales, and any
such claims may only be instituted against the Company, its directors, officers or employees as provided in the Company’s
Articles of Association in the courts of England and Wales.
Jury
Trial Waiver
The
deposit agreement provides that, to the fullest extent permitted by applicable law, each party thereto (including, for avoidance
of doubt, each ADR holder and beneficial owner and/or holder of interests in ADSs) irrevocably waives, to the fullest extent permitted
by applicable law, the right to a jury trial in any suit, action or proceeding against us or the depositary directly or indirectly
arising out of or relating to our shares or other deposited securities, the ADSs, the ADRs, the deposit agreement, or any transaction
contemplated therein, or the breach thereof (whether based on contract, tort, common law or other theory), including any suit,
action or proceeding under the U.S. federal securities laws. If we or the depositary were to oppose a jury trial demand based
on such waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance
with applicable state and federal law, including whether a party knowingly, intelligently and voluntarily waived the right to
a jury trial. The waiver to right to a jury trial of the deposit agreement is not intended to be deemed a waiver by any ADR holder
or beneficial owner of ADSs of our or the depositary’s compliance with the Securities Act of 1933 or the Securities Exchange
Act of 1934, to the extent applicable.
REGISTERED
HOLDERS
This
prospectus relates to, among other things, the registration and resale by the Registered Holders set forth in the table below
of (i) certain ordinary shares issued in the PIPE Investments and/or (ii) restricted ADSs issued to certain of our affiliates
and one affiliate of Longevity in connection with the Merger. The Registered Holders may from time to time offer and sell any or all
of the ordinary shares (or ADSs representing such ordinary shares) set forth below pursuant to this prospectus and any accompanying prospectus
supplement. The Registered Holders identified below may have sold, transferred or otherwise disposed of some or all of their ordinary
shares since the date on which the information in the following table is presented in transactions exempt from or not subject to the
registration requirements of the Securities Act. We cannot advise you as to whether the Registered Holders will, in fact, sell any or
all of such ordinary shares.
The
following table sets forth, as of the date of this prospectus, the names of the Registered Holders, the aggregate number of ordinary
shares beneficially owned by such Registered Holder immediately prior to the offering, the number of ordinary shares (and equivalent
number of ADSs) that may be sold by the Registered Holders under this prospectus and the number of ordinary shares that the Registered
Holders will beneficially own after the Registered Shares are sold..
The
percentage of beneficial ownership is calculated based on 180,299,728 ordinary shares outstanding as of April 22,
2021, adjusted for each owner’s options, warrants or restricted stock units held by that person that are currently exercisable
or exercisable within 60 days of April 22, 2021, if any. Unless otherwise indicated, we believe that all persons named
in the table have sole voting and investment power with respect to all ordinary shares beneficially owned by them. Except as
otherwise indicated, the address for the persons named in the table is 5th Floor, 9 Bond Court, Leeds, LS1 2JZ, United Kingdom.
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Ordinary Shares Beneficially Owned Prior
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Ordinary Shares Being
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Equivalent ADSs Being
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Ordinary
Shares Beneficially Owned After the Registered Shares are Sold
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Name of Registered Holder
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to Offering(1)
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Offered
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Offered
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Number
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Percent
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Duncan Peyton
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10,181,437
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(2)
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496,094
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(3)
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62,012
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9,685,341
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5.3%
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Alexander Stevenson
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10,025,130
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(4)
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381,728
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(5)
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47,716
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9,643,402
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5.3%
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Whale Management Corporation
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9,263,741
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(6)
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8,134,016
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(7)
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1,016,752
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1,129,725
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*
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Nemean Asset Management
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26,572,926
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(8)
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5,905,552
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(8)
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738,194
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20,667,364
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11.1%
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Cornix Advisors, LLC
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1,242,113
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1,242,113
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155,264
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—
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—
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DAFNA Lifescience LP
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686,724
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686,724
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85,840
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—
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—
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DAFNA Lifescience Select LP
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294,310
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294,310
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36,788
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—
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—
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Greg Tagaris
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327,012
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327,012
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40,876
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—
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—
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Kepos Alpha Master Fund LP
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2,289,078
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2,289,078
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286,134
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—
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—
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Kerry Propper
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654,023
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654,023
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87,752
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—
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—
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Mark T. Pulte Living Trust
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1,308,045
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1,308,045
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163,505
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—
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—
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Merck Sharp and Dohme Co.
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12,145,523
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654,023
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81,752
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11,491,500
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6.2%
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*
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Represents beneficial ownership
of less than one percent (1%) of the outstanding ordinary shares.
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(1)
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Includes
ordinary shares represented by ADSs.
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(2)
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Consists
of (i) 9,018,675 ordinary shares held of record, (ii) 666,666 warrants exercisable for £1.00 per ordinary share,
and (iii) 496,096 ordinary shares underlying ADSs issued to Mr. Peyton pursuant to the Merger.
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(3)
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Consists
of 496,096 ordinary shares underlying ADSs issued to Mr. Peyton pursuant to the Merger.
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(4)
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Consists
of (i) 8,976,736 ordinary shares held of record, (ii) 666,666 warrants exercisable for £1.00 per ordinary share,
and (iii) 381,728 ordinary shares underlying ADSs issued to Dr. Stevenson pursuant to the Merger.
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(5)
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Consists
of 381,728 ordinary shares underlying ADSs issued to Dr. Stevenson pursuant to the Merger.
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(6)
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Consists
of (i) 8,134,016 ordinary shares held of record and (ii) 300,000 warrants exercisable for 1,129,725 ordinary shares
at $1.53 per ordinary share. The shares and warrants are beneficially owned by Matthew Chen, the Managing Member of Whale
Management Corporation, who has sole voting and dispositive power of the shares held thereby. The business address of Whale
Management Corporation is Suite 972, No. 429 Taikang Insurance Plaza, Pudong District, Shanghai, China 200120.
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(7)
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Consists
of 8,134,016 ordinary shares held of record.
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(8)
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Consists
of (i) 10,000,000 ordinary shares held of record and 5,000,000 warrants exercisable for £1.00 per ordinary share
held by South Ocean Capital Management LLC, (ii) 7,114,994 ordinary shares held of record held by Nemean Asset
Management LLC, (iii) 850,000 ordinary shares held of record and 383,050 warrants exercisable for £1.00 per ordinary
share held by Steven Oliveira, (iv) 612,880 ordinary shares held of record and 306,440 warrants exercisable for £1.00
per ordinary share held by South Ocean Capital LLC and (v) 2,305,552 ordinary shares underlying ADSs issued to Nemean
Asset Management LLC in the Merger. The address for these entities is c/o 225 Via Palacio, Palm Beach Gardens, Florida, 33418,
United States of America.
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(9)
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Consists
of (i) 2,305,552 ordinary shares underlying ADSs issued to Nemean Asset Management LLC pursuant to the Merger and (ii) 3,600,000
ordinary shares issued to Nemean Asset Management LLC pursuant to the PIPE Investment.
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MATERIAL
INCOME TAX CONSIDERATIONS
The
following summary contains a description of material U.K. and U.S. federal income tax consequences of the acquisition, ownership
and disposition of our ordinary shares or ADSs. This summary should not be considered a comprehensive description of all the tax
considerations that may be relevant to the decision to acquire ADSs representing our ordinary shares.
U.S.
Federal Income Taxes
The
following is a summary of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of purchasing,
owing and disposing of the ADSs or ordinary shares. This discussion is included for general informational purposes only, does
not purport to consider all aspects of U.S. federal income taxation that might be relevant to a U.S. Holder, and does not constitute,
and is not, a tax opinion for or tax advice to any particular U.S. Holder ADS or ordinary shares. The summary does not address
any U.S. tax matters other than those specifically discussed. The summary is based on the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), existing, temporary and proposed Treasury Regulations issued thereunder,
judicial decisions and administrative rulings and pronouncements and other legal authorities, all as of the date hereof and all
of which are subject to change, possibly with retroactive effect. Any such change could alter the tax consequences described herein.
The
discussion below applies only to U.S Holders as capital assets within the meaning of Section 1221 of the Code (generally, property
held for investment), and does not address the tax consequences that may be relevant to U.S. Holders who, in light of their particular
circumstances, may be subject to special tax rules, including without limitation:
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insurance
companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, brokers or dealers in
securities or foreign currencies, banks and other financial institutions, mutual funds, retirement plans, traders in securities
that elect to mark to market, certain former U.S. citizens or long-term residents;
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●
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U.S.
Holders that are classified for U.S. federal income tax purposes as partnerships and other pass-through entities and investors
therein;
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●
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U.S.
Holders who hold ADSs or ordinary shares as part of a hedge, straddle, constructive sale, conversion, or other integrated
or risk-reduction transaction, as “qualified small business stock,” within the meaning of Section 1202 of the
Code or as Section 1244 stock for purposes of the Code;
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●
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U.S.
Holders who hold ADSs or ordinary shares through individual retirement or other tax-deferred accounts;
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●
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U.S.
Holders that have a functional currency other than the U.S. dollar;
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●
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U.S.
Holders who are subject to the alternative minimum tax provisions of the Code or the tax on net investment income imposed
by Section 1411 of the Code;
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●
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U.S.
Holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;
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●
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U.S.
Holders required to accelerate the recognition of any item of gross income with respect to their ADSs or ordinary shares as
a result of such income being recognized on an applicable financial statement; or
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●
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U.S.
Holders who hold or held, directly or indirectly, or are treated as holding or having held under applicable constructive attribution
rules, 10% or more of the stock of 4D Pharma, measured by voting power or value.
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Any
such U.S. Holders should consult their own tax advisors.
For
purposes of this discussion, a “U.S. Holder” means a holder of ADS or ordinary shares that is or is treated as, for
U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation (or other entity
taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States,
any State thereof or the District of Columbia or any entity treated as such for U.S. federal income tax purposes, (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (A) the administration
over which a U.S. court exercises primary supervision and all of the substantial decisions of which one or more U.S. persons have
the authority to control, or (B) that has a valid election in effect under the applicable Treasury Regulations to be treated as
a U.S. person under the Code.
If
a partnership or other pass-through entity (including any entity or arrangement treated as such for purposes of U.S. federal income
tax law) holds ADS or ordinary shares, the tax treatment of a partner of such partnership or member of such entity will generally
depend upon the status of the partner and the activities of the partnership. Partnerships and other pass-through entities holding
ADS or ordinary shares, and any person who is a partner or member of such entities should consult their own tax advisors regarding
the tax consequences of purchasing, owning and disposing of the ADSs or ordinary shares.
Passive
Foreign Investment Company Considerations
A
U.S. corporation, such as 4D Pharma, will be classified as a PFIC for U.S. federal income tax purposes, if, in the case of any
particular taxable year, either (i) 75% or more of its gross income for such taxable year consists of certain types of “passive”
income or (ii) 50% or more of the value of its assets (based on an average of the quarterly values of the assets) during such
taxable year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash is
categorized as a passive asset and the company’s unbooked intangibles associated with active business activities may generally
be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties,
and gains from the disposition of passive assets. For this purpose, a foreign corporation will be treated as owning its proportionate
share of the assets and earning its proportionate share of the income of any other non-U.S. corporation in which it owns, directly
or indirectly, more than 25% (by value) of the stock.
Based
upon its current income and assets and projections as to the value of the ADSs and ordinary shares, it is not presently expected
that 4D Pharma will be classified as a PFIC for the 2021 taxable year or the foreseeable future.
The
determination of whether 4D Pharma will be or become a PFIC will depend upon the composition of its income (which may differ from
4D Pharma’s historical results and current projections) and assets and the value of its assets from time to time, including,
in particular the value of its goodwill and other unbooked intangibles (which may depend upon the market value of the ADSs or
ordinary shares from time to time and may be volatile). Among other matters, if our market capitalization is less than anticipated
or subsequently declines, we may be classified as a PFIC for the taxable year in the 2021 taxable year or future taxable years.
It is also possible that the IRS may challenge the classification or valuation of 4D Pharma’s assets, including its goodwill
and other unbooked intangibles, or the classification of certain amounts received by 4D Pharma, including from JPMorgan, as depositary,
which may result in 4D Pharma being, or becoming classified as, a PFIC for the taxable year in 2021 or future taxable years.
The
determination of whether 4D Pharma will be or become a PFIC may also depend, in part, on how, and how quickly, it uses liquid
assets and the cash acquired from Longevity in the Merger or otherwise. If 4D Pharma were to retain significant amounts of liquid
assets, including cash, the risk of 4D Pharma being classified as a PFIC may substantially increase. Because there are uncertainties
in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable
year, there can be no assurance that 4D Pharma will not be a PFIC for the 2021 taxable year or any future taxable year, and no
opinion of counsel has or will be provided regarding the classification of 4D Pharma as a PFIC. If 4D Pharma were classified as
a PFIC for any year during which a holder held 4D Pharma ADSs or ordinary shares, it generally would continue to be treated as
a PFIC for all succeeding years during which such holder held the ADSs or ordinary shares.
The
discussion below under “—Dividends Paid on ADSs or Ordinary Shares” and “—Sale or Other Disposition
of ADSs or Ordinary Shares” is written on the basis that 4D Pharma will not be classified as a PFIC for U.S. federal income
tax purposes.
Dividends
Paid on ADSs or Ordinary Shares
Subject
to the PFIC rules described below, any cash distributions (including constructive distributions) paid on the ADSs or ordinary
shares out of 4D Pharma’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles,
will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received
by the U.S. Holder, in the case of ordinary shares, or by the depositary bank, in the case of ADSs. Because 4D Pharma does not
intend to determine its earnings and profits on the basis of U.S. federal income tax principles, any distribution will generally
be treated as a “dividend” for U.S. federal income tax purposes. Under current law, a non-corporate recipient of a
dividend from a “qualified foreign corporation” will generally be subject to tax on the dividend income at the lower
applicable net capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain
holding period and other requirements are met.
A
non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid
or the preceding taxable year) will generally be considered to be a qualified foreign corporation (i) if it is eligible for the
benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines
is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to
any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market
in the United States. 4D Pharma believes it is eligible for the benefits of the Convention Between the Government of the United
States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income and On Capital Gains, or the United States-United Kingdom
income tax treaty (which the Secretary of the Treasury of the United States has determined is satisfactory for this purpose and
includes an exchange of information program), in which case it would be treated as a qualified foreign corporation with respect
to dividends paid on the ordinary shares or ADSs. U.S. Holders are urged to consult their tax advisors regarding the availability
of the reduced tax rate on dividends in their particular circumstances. Dividends received on the ADSs or ordinary shares will
not be eligible for the dividends received deduction allowed to corporations.
Sale
or Other Disposition of ADSs or Ordinary Shares
Subject
to the PFIC rules discussed below, a U.S. Holder of 4D Pharma ADSs or ordinary shares will generally recognize capital gain or
loss, if any, upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount
realized upon the disposition and the U.S. Holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital gain
or loss will be long-term capital gain or loss if the ADSs or ordinary shares have been held for more than one year and will generally
be United States source capital gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate
taxpayers are currently eligible for reduced rates of taxation.
Passive
Foreign Investment Company Rules
If
4D Pharma is classified as a PFIC for any taxable year during which a U.S. Holder holds the 4D Pharma ADSs or ordinary shares, unless
the holder makes a mark-to-market election (as described below), the holder will, except as discussed below, be subject to special tax
rules that have a penalizing effect, regardless of whether 4D Pharma remains a PFIC, on (i) any excess distribution that 4D Pharma make
to the holder (which generally means any distribution paid during a taxable year to a holder that is greater than 125% of the average
annual distributions paid in the three preceding taxable years or, if shorter, the holder’s holding period for the ADSs or ordinary
shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of 4D Pharma
ADSs or ordinary shares. Under the PFIC rules:
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●
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The
excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;
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●
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The
amount of the excess distribution or gain allocated to the taxable year of the distribution or disposition and any taxable years
in the U.S. Holder’s holding period prior to the first taxable year in which 4D Pharma is classified as a PFIC, or a pre-PFIC
year, will be taxable as ordinary income; and
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●
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The
amount of the excess distribution or gain allocated to each taxable year other than the taxable year of the distribution or disposition
or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, and the
interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
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If
4D Pharma is a PFIC for any taxable year during which a U.S. Holder holds the 4D Pharma ADSs or ordinary shares and any of its non-U.S.
subsidiaries is also a PFIC, such holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier
PFIC for purposes of the application of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application
of the PFIC rules to any of 4D Pharma’s subsidiaries.
As
an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with
respect to such stock. The ADSs are expected to be treated as “marketable stock” for this purpose, provided that the ADSs
are “regularly traded” (as specially defined under the Code) on The Nasdaq Global Market. No assurances may be given regarding
whether the ADSs will qualify, or will continue to be qualified, as being regularly traded in this regard. If a mark-to-market election
is made, the U.S. Holder will generally (i) include as ordinary income for each taxable year that 4D Pharma is a PFIC the excess, if
any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as
an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of
the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market
election. If a U.S. Holder makes an effective mark-to-market election, in each year that 4D Pharma is a PFIC any gain recognized upon
the sale or other disposition of the ADSs will be treated as ordinary income and loss will be treated as ordinary loss, but only to the
extent of the net amount previously included in income as a result of the mark-to-market election. U.S. Holders of 4D Pharma’s
ordinary shares should consult their tax advisors regarding the availability of a mark-to-market election with respect to such ordinary
shares.
If
a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified
as a PFIC, the holder will not be required to take into account the mark-to-market gain or loss described above during any period that
such corporation is not classified as a PFIC.
Because
a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, a U.S. Holder who makes a mark-to-market election
with respect to the ADSs may continue to be subject to the general PFIC rules with respect to such holder’s indirect interest in
any of 4D Pharma’s non-U.S. subsidiaries that is classified as a PFIC.
4D
Pharma does not intend to provide information necessary for U.S. Holder’s to make qualified electing fund elections, which, if
available, would result in tax treatment different from the general tax treatment for PFICs described above. However, as described above
under “Passive Foreign Investment Company Considerations-PFIC Classification of 4D Pharma,” it is not presently expected
that 4D Pharma will be classified as a PFIC for the 2021 taxable year or the foreseeable future.
As
discussed above under “Dividends Paid on ADSs or Ordinary Shares”, dividends that 4D Pharma pays on the ADSs or ordinary
shares will not be eligible for the reduced tax rate that applies to qualified dividend income if 4D Pharma is classified as a PFIC for
the taxable year in which the dividend is paid or the preceding taxable year. In addition, if a U.S. Holder owns the ADSs or ordinary
shares during any taxable year that 4D Pharma is a PFIC, the holder must file an annual information return with the IRS. Each holder
is urged to consult its tax advisor concerning the U.S. federal income tax consequences of purchasing, holding, and disposing ADSs or
ordinary shares if 4D Pharma is or become a PFIC, including the possibility of making a mark-to-market election and the unavailability
of the qualified electing fund election.
Information
reporting and backup withholding
Certain
U.S. Holders are required to report information to the IRS relating to an interest in “specified foreign financial assets,”
including shares issued by a non-U.S. corporation, for any year in which the aggregate value of all specified foreign financial assets
exceeds $50 thousand (or a higher U.S. dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for
shares held in custodial accounts maintained with a United States financial institution). These rules also impose penalties if a holder
is required to submit such information to the IRS and fails to do so.
In
addition, U.S. Holders may be subject to information reporting to the IRS and backup withholding with respect to dividends on and proceeds
from the sale or other disposition of the 4D Pharma’s ADSs or ordinary shares. Information reporting will apply to payments of
dividends on, and to proceeds from the sale or other disposition of, 4D Pharma’s ADSs or ordinary shares by a paying agent within
the United States to a holder, other than holders that are exempt from information reporting and properly certify their exemption. A
paying agent within the United States will be required to withhold at the applicable statutory rate, currently 24%, in respect of any
payments of dividends on, and the proceeds from the disposition of, 4D Pharma’s ADSs or ordinary shares within the U.S. to a U.S.
Holder (other than holders that are exempt from backup withholding and properly certify their exemption) if the holder fails to furnish
its correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements. U.S. Holders
who are required to establish their exempt status generally must provide a properly completed IRS Form W-9.
Backup
withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income
tax liability. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the IRS in a timely manner and furnishing any required information. Each U.S. Holder is advised to consult with
its tax advisor regarding the application of the United States information reporting rules to their particular circumstances.
Material
United Kingdom Tax Considerations
The following is a
description of the material U.K. tax considerations relating primarily to the ownership and disposal of our ADSs by the U.S. Holders
described above. The U.K. tax comments set out below are based on current U.K. tax law as applied in England and Wales, and HMRC
practice (which may not be binding on HMRC) as at the date of this summary, both of which are subject to change, possibly with
retrospective effect. They are intended as a general guide and, save where otherwise stated, only apply to you if you are not
resident in the U.K. for U.K. tax purposes and do not hold our ADSs for the purposes of a trade, profession or vocation that you
carry on in the U.K. through a branch, agency or permanent establishment in the U.K. and if you hold our ADSs as an investment
for U.K. tax purposes and are not subject to special rules.
This summary does not
address all possible tax consequences relating to an investment in our ADSs. In particular it does not cover the U.K. inheritance
tax consequences of holding our ADSs. It assumes that DTC has not made an election under section 97A(1) of the Finance Act 1986.
It assumes that we do not (and will not at any time) derive 75% or more of our qualifying asset value, directly or indirectly,
from U.K. land, and that we are and remain solely resident in the U.K. for tax purposes. It assumes that the holder is not our
officer or our employee (or of any related company of ours) and has not (and is not deemed to have) acquired the ordinary shares
or ADSs by virtue of an office or employment. It assumes that a holder of ADSs is the beneficial owner of the underlying ordinary
shares for U.K. tax purposes. This summary is for general information only and is not intended to be, nor should it be considered
to be, legal or tax advice to any particular holder. Holders of our ADSs are strongly urged to consult their tax advisers in connection
with the U.K. tax consequences of their investment in our ADSs.
U.K.
Taxation of Dividends
We will not be required
to withhold amounts for or on account of U.K. tax at source when paying a dividend in respect of our ordinary shares.
Individual holders
who hold our ADSs as an investment, who are not resident in the U.K. for U.K. tax purposes should not be subject to U.K. income
tax in respect of any dividends on our ordinary shares, unless they hold their ADSs in connection with any trade, profession or
vocation carried on (whether solely or in partnership) by them in the U.K. through a branch, agency or permanent establishment
in the U.K.. In these circumstances, such holder may, depending on his or her individual circumstances, be chargeable to U.K.
income tax in respect of our dividends.
Corporate holders which
are not resident in the U.K. for U.K. tax purposes should not be subject to U.K. corporation tax in respect of any dividends on
our ordinary shares, unless they carry on a trade in the U.K. through a permanent establishment to which the ordinary shares or
ADSs are attributable. In these circumstances, such holders may, depending on their individual circumstances and if an exemption
from U.K. corporation tax in respect of dividend payments does not apply, be chargeable to U.K. corporation tax in respect of
our dividends.
U.K.
Taxation of Capital Gains
An individual holder
who is not resident in the U.K. for U.K. tax purposes should not be liable to U.K. capital gains tax on capital gains realized
on the disposal of their ADSs unless such holder carries on (whether solely or in partnership) a trade, profession or vocation
in the U.K. through a branch or agency in the U.K. to which our ADSs are attributable. In these circumstances, such holder may,
depending on his or her individual circumstances, be chargeable to U.K. capital gains tax on chargeable gains arising from a disposal
of his or her ADSs.
Any such individual
holder of our ADSs who is temporarily non-resident for U.K. tax purposes will, in certain circumstances, become liable to U.K.
tax on capital gains in respect of gains realized while they were not resident in the U.K.
A corporate holder
of our ADSs which is not resident in the U.K. for U.K. tax purposes should not be liable for U.K. corporation tax on chargeable
gains realized on the disposal of our ADSs unless it carries on a trade in the U.K. through a permanent establishment in the U.K.
to which our ADSs are attributable. In these circumstances, a disposal of ADSs by such holder may give rise to a chargeable gain
or an allowable loss for the purposes of U.K. corporation tax.
Stamp
Duty and Stamp Duty Reserve Tax
The following statements
apply to all holders, regardless of their jurisdiction of tax residence.
It is assumed for the
purposes of the following statements that all transfers of, or agreements to transfer, our ordinary shares are only made at times
when (i) our ordinary shares are admitted to trading on AIM but are not listed on any market (with the term “listed”
being construed in accordance with section 99A of the Finance Act 1986); and (ii) AIM continues to be accepted as a “recognized
growth market” (as construed in accordance with section 99A of the Finance Act 1986). Holders of our ADSs who propose to
transfer, or agree to transfer, our ordinary shares during such time as these conditions are not met (including during any period
between the creation and issue of our ADSs and including after the removal of our ordinary shares from trading on AIM) are strongly
urged to obtain their own advice.
No stamp duty is payable
on the issue of our ordinary shares into a depositary receipt system (such as, we understand, that operated by JPMorgan) or a
clearance service (such as, we understand, DTC). No stamp duty reserve tax (“SDRT”) should be payable on the
issue of our ordinary shares into a depositary receipt system or a clearance service. Accordingly, no stamp duty or SDRT should
be payable on the creation and issue of our ADSs pursuant to the issue of our ordinary shares to JPMorgan’s custodian.
No stamp duty or SDRT
should be payable on transfers of, or agreements to transfer, our ordinary shares into a depositary receipt system or a clearance
service.
No SDRT or stamp duty
should be payable on paperless transfers of, or agreements to transfer, our ADSs through the facilities of DTC.
No stamp duty should
be payable on a written instrument transferring, or a written agreement to transfer, our ADSs provided the instrument or agreement
is executed and remains at all times outside the U.K. No SDRT should be payable in respect of agreements to transfer our ADSs.
No stamp duty or SDRT
should be payable on transfers of, or agreements to transfer, our ordinary shares outside of a depositary receipt system or a
clearance service.
Plan
of Distribution
We
are registering the offer and sale, from time to time, by the Registered Holders of up to (i) 11,055,328.00 ordinary shares
issued pursuant to the PIPE Investments, and (ii) 11,317,392 ordinary shares underlying 1,414,674 ADSs issued to
affiliates of 4D Pharma and Longevity pursuant to the Merger.
We
will not receive any of the proceeds from the sale of the securities by the Registered Holders. The
aggregate proceeds to the Registered Holders from the sale of the Registered Shares will be the purchase price of the Registered Shares
less any discounts and commissions. We will not pay any brokers’ or underwriters’ discounts and commissions in connection
with the registration and sale of the Registered Shares covered by this prospectus. The Registered Holders reserve the right to accept
and, together with their respective agents, to reject, any proposed purchases of Registered Shares to be made directly or through agents.
Upon
effectiveness of the registration statement of which this prospectus forms a part, the securities beneficially owned by the Registered
Holders covered by this prospectus may be offered and sold from time to time by the Registered Holders. Notwithstanding the foregoing,
Registered Holders subject to our insider trading policy, including Duncan Peyton, Alex Stevenson, and any members of their immediate
families, will be subject to our regular clearance procedures, which restrict trading beginning on the calendar day that
is 30 calendar days prior to the release of (i) our half-yearly financial report or (ii) the preliminary announcement of our annual
results. At the closing of the Merger, we entered into a Lock-up Agreement with certain shareholders of Company including Messrs.
Peyton, Stevenson and Whale Management Corporation. Pursuant to the Lock-Up Agreement, each holder agreed that, subject
to certain exceptions, and unless waived by the Company, during the period ending twelve months after the closing of the Merger,
it will not (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares received as consideration in the Merger (the “Restricted Securities”),
(ii) enter into any swap, short sale, hedge or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Restricted Securities, or (iii) publicly disclose the intention to effect any transaction specified
in clause (i) or (ii), or (iv) make any demand for or exercise any right with respect to the registration of any shares received
pursuant to the Merger.
The
term “Registered Holders” include donees, pledgees, transferees or other successors in interest selling securities
received after the date of this prospectus from the Registered Holders as a gift, pledge, partnership distribution or other transfer.
The Registered Holders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such
sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing
or at prices related to the then current market price or in negotiated transactions. The Registered Holders and any of their permitted
transferees may sell their securities offered by this prospectus on any stock exchange, market or trading facility on which the securities
are traded or in private transactions.
The
Registered Shares offered by this prospectus may be sold from time to time to purchasers:
|
●
|
directly
by the Registered Holders, or
|
|
|
|
|
●
|
through
underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, commissions or agent’s commissions
from the selling securityholders or the purchasers of the Registered Shares.
|
Any
underwriters, broker-dealers or agents who participate in the sale or distribution of the Registered Shares may be deemed to be “underwriters”
within the meaning of the Securities Act. As a result, any discounts, commissions or concessions received by any such broker-dealer or
agents who are deemed to be underwriters will be deemed to be underwriting discounts and commissions under the Securities Act. Underwriters
are subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities under the
Securities Act and the Exchange Act. We will make copies of this prospectus available to the Registered Holders for the purpose of satisfying
the prospectus delivery requirements of the Securities Act. To our knowledge, there are currently no plans, arrangements or understandings
between the selling securityholders and any underwriter, broker-dealer or agent regarding the sale of the Registered Shares by the Registered
Holders.
The
Registered Shares may be sold in one or more transactions at:
|
●
|
fixed
prices;
|
|
|
|
|
●
|
prevailing
market prices at the time of sale;
|
|
|
|
|
●
|
prices
related to such prevailing market prices;
|
|
|
|
|
●
|
varying
prices determined at the time of sale; or
|
|
|
|
|
●
|
negotiated
prices.
|
These
sales may be effected in one or more transactions:
|
●
|
on
any securities exchange or quotation service on which the Registered Shares may be listed or quoted at the time of sale, including
Nasdaq and AIM, as applicable;
|
|
|
|
|
●
|
in
the over-the-counter market;
|
|
|
|
|
●
|
in
transactions otherwise than on such exchanges or services or in the over-the-counter market;
|
|
|
|
|
●
|
any
other method permitted by applicable law; or
|
|
|
|
|
●
|
through
any combination of the foregoing.
|
In
addition, a Registered Holder that is an entity may elect to make a pro rata in-kind distribution of securities to its members,
partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a
plan of distribution. Such members, partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution
through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we
may file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.
The Registered Holder also may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors-in-interest
will be the selling beneficial owners for purposes of this prospectus. Upon being notified by a Registered Holder that a donee, pledgee,
transferee, other successor-in-interest intends to sell our securities, we will, to the extent required, promptly file a supplement to
this prospectus to name specifically such person as a Registered Holder.
At
the time a particular offering of the Registered Shares is made, a prospectus supplement, if required, will be distributed, which will
set forth the name of the selling securityholders, the aggregate amount of Registered Shares being offered and the terms of the offering,
including, to the extent required, (1) the name or names of any underwriters, broker-dealers or agents, (2) any discounts, commissions
and other terms constituting compensation from the selling securityholders and (3) any discounts, commissions or concessions allowed
or reallowed to be paid to broker-dealers. We may suspend the sale of Registered Shares by the selling securityholders pursuant to this
prospectus for certain periods of time for certain reasons, including if the prospectus is required to be supplemented or amended to
include additional material information.
The
Registered Holder will act independently of us in making decisions with respect to the timing, manner, and size of each resale or other
transfer. There can be no assurance that the selling securityholders will sell any or all of the Registered Shares under this prospectus.
Further, we cannot assure you that the Registered Holder will not transfer, distribute, devise or gift the Registered Shares by other
means not described in this prospectus. In addition, any Registered Shares covered by this prospectus that qualify for sale under Rule
144 of the Securities Act may be sold under Rule 144 rather than under this prospectus. The Registered Shares may be sold in some states
only through registered or licensed brokers or dealers. In addition, in some states the Registered Shares may not be sold unless they
have been registered or qualified for sale or an exemption from registration or qualification is available and complied with.
The
Registered Holder and any other person participating in the sale of the Registered Shares will be subject to the Exchange Act. The Exchange
Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the Registered Shares
by the Registered Holder and any other person. In addition, Regulation M may restrict the ability of any person engaged in the distribution
of the Registered Shares to engage in market-making activities with respect to the particular Registered Shares being distributed. This
may affect the marketability of the Registered Shares and the ability of any person or entity to engage in market-making activities with
respect to the Registered Shares.
With
respect to those Registered Shares being registered pursuant to the PIPE Investment or the Registration Rights Agreement by and among
Longevity and the holders of registerable securities as defined therein and assumed by us pursuant to the Merger, we have agreed to indemnify
or hold harmless the Registered Holders and all of their officers, directors, and agents of each, and control persons, as applicable,
against certain liabilities, including certain liabilities under the Securities Act. Such Registered Holders have agreed to indemnify
us in certain circumstances against certain liabilities, including certain liabilities under the Securities Act. The Registered Holders
may indemnify any broker or underwriter that participates in transactions involving the sale of the Registered Shares against certain
liabilities, including liabilities arising under the Securities Act.
We
are required to no later than 30 calendar days following the consummation of the Merger (the “Filing Deadline”), submit
to or file with the SEC a registration statement registering the resale of the shares sold pursuant to the Subscription Agreements. Additionally,
we are required to use commercially reasonable efforts to have the registration statement declared effective as soon as practicable after
the filing thereof, but no later than the earlier of (i) the 60th calendar day (or 90th calendar day if the SEC notifies us that it will
“review” the registration statement) following the Filing Deadline and (ii) the 10th business day after the date we are notified
(orally or in writing, whichever is earlier) by the SEC that the registration statement will not be “reviewed” or will not
be subject to further review. We must use commercially reasonable efforts to keep the registration statement effective until the earliest
of: (a) the date on which the registrable shares may be resold without volume or manner of sale limitations
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, and without the requirement for us to be in compliance
with the current public information required under Rule 144(c)(2) (or Rule 144(i)(2), if applicable), (b) the date on which all registrable
shares have actually been sold and (c) the date which is three years after the closing of the Merger. The Subscription Agreement contains
customary indemnification provisions with respect to the registration statement.
For
additional information regarding expenses of registration, see the section titled “Use of Proceeds.”
EXPENSES
OF THIS OFFERING
Set
forth below is an itemization of the total expenses which are expected to be incurred in connection with the registration of the
ordinary shares registered hereby. With the exception of the registration fee payable to the SEC, all amounts are estimates.
Expense
|
|
Amount
|
|
SEC registration fee
|
|
$
|
3,891
|
|
Printing expenses
|
|
|
1,107
|
|
Legal fees and expenses
|
|
|
175,000
|
|
Accounting fees and expenses
|
|
|
25,000
|
|
Total
|
|
$
|
204,998
|
|
LEGAL
MATTERS
The
validity of our ordinary shares registered hereby and certain other matters of the laws of England and Wales will be passed upon for
us by Pinsent Masons LLP.
EXPERTS
The consolidated financial statements of 4D pharma plc as of December
31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 have been audited by RSM US LLP, an independent
registered public accounting firm, as stated in their report thereon, and included in this Prospectus and Registration Statement
in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND More INFORMATION
We
have filed with the SEC a registration statement on Form F-1 of which this prospectus forms a part under the Securities Act that
registers certain of our ordinary shares. We have also filed a registration statement on a Form F-6 to register the ADSs representing
our ordinary shares. The registration statement on Form F-1, including the attached exhibits and schedules, contains additional
relevant information about us and our capital stock. The rules and regulations of the SEC allow us to omit from this prospectus certain
information included in the registration statement. For further information about us and the Registered Shares, you should refer to the
registration statement and the exhibits and schedules filed with the registration statement. With respect to the statements contained
in this prospectus regarding the contents of any agreement or any other document, in each instance, the statement is qualified in all
respects by the complete text of the agreement or document, a copy of which has been filed as an exhibit to the registration statement.
We
are subject to the informational reporting requirements of the Exchange Act. We file reports and other information
with the SEC under the Exchange Act. Our SEC filings are available over the Internet at the SEC’s website at http://www.sec.gov.
Our website address is www.4dpharma.com. The information on, or that can be accessed through, our website is not part of this prospectus.
Index
to Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and the Board of Directors of 4D pharma plc
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of 4D pharma plc and its subsidiaries (the Company) as of December 31,
2020 and 2019, the related consolidated statements of operations, and comprehensive loss, stockholders’ equity and cash
flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We
have served as the Company’s auditor since 2020.
Boston,
Massachusetts
April 1, 2021
4D
PHARMA PLC
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share amounts)
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,990
|
|
|
$
|
5,031
|
|
Research and development tax credits receivable
|
|
|
4,799
|
|
|
|
7,049
|
|
Prepayments and other current assets
|
|
|
4,055
|
|
|
|
2,705
|
|
Total current assets
|
|
|
20,844
|
|
|
|
14,785
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
5,082
|
|
|
|
5,596
|
|
Right-of-use assets (operating leases)
|
|
|
1,129
|
|
|
|
1,251
|
|
Intangible assets, net
|
|
|
6,303
|
|
|
|
6,296
|
|
Goodwill
|
|
|
13,489
|
|
|
|
12,651
|
|
Deferred merger costs
|
|
|
2,010
|
|
|
|
-
|
|
Research and development tax credits receivable
|
|
|
242
|
|
|
|
247
|
|
Total assets
|
|
$
|
49,099
|
|
|
$
|
40,826
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,540
|
|
|
$
|
1,641
|
|
Accrued expenses and other current liabilities
|
|
|
2,557
|
|
|
|
4,235
|
|
Current portion of operating lease liabilities
|
|
|
94
|
|
|
|
75
|
|
Deferred revenues, current
|
|
|
1,318
|
|
|
|
538
|
|
Total current liabilities
|
|
|
8,509
|
|
|
|
6,489
|
|
Long term operating lease liabilities, net
|
|
|
1,092
|
|
|
|
1,229
|
|
Deferred revenues, net
|
|
|
306
|
|
|
|
1,720
|
|
Deferred tax
|
|
|
18
|
|
|
|
31
|
|
Other liabilities
|
|
|
203
|
|
|
|
170
|
|
Total liabilities
|
|
|
10,128
|
|
|
|
9,639
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common Stock, $0.003 par value, 167,991,442 authorized; 131,467,935 and 65,493,842 shares outstanding at December 31, 2020 and 2019, respectively
|
|
|
479
|
|
|
|
266
|
|
Additional paid in capital
|
|
|
210,876
|
|
|
|
174,376
|
|
Accumulated other comprehensive loss
|
|
|
(24,149
|
)
|
|
|
(25,715
|
)
|
Accumulated deficit
|
|
|
(148,235
|
)
|
|
|
(117,740
|
)
|
Total stockholders’ equity
|
|
$
|
38,971
|
|
|
$
|
31,187
|
|
Total liabilities and stockholders’ equity
|
|
$
|
49,099
|
|
|
$
|
40,826
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
4D
PHARMA PLC
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In
thousands, except share and per share amounts)
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
690
|
|
|
$
|
269
|
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
23,384
|
|
|
|
29,193
|
|
|
|
27,830
|
|
General and administrative expenses
|
|
|
13,015
|
|
|
|
10,380
|
|
|
|
11,294
|
|
Foreign currency losses (gains)
|
|
|
(699
|
)
|
|
|
957
|
|
|
|
(234
|
)
|
Total operating expenses
|
|
|
35,700
|
|
|
|
40,530
|
|
|
|
38,890
|
|
Loss from operations
|
|
|
(35,010
|
)
|
|
|
(40,261
|
)
|
|
|
(38,890
|
)
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6
|
|
|
|
78
|
|
|
|
379
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
Other income
|
|
|
4,496
|
|
|
|
6,883
|
|
|
|
6,378
|
|
Change in fair value of contingent consideration payable
|
|
|
-
|
|
|
|
2,967
|
|
|
|
(465
|
)
|
Total other income, net
|
|
|
4,502
|
|
|
|
9,928
|
|
|
|
6,289
|
|
Net loss before income tax benefit
|
|
|
(30,508
|
)
|
|
|
(30,333
|
)
|
|
|
(32,601
|
)
|
Income tax benefit
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
(30,495
|
)
|
|
|
(30,333
|
)
|
|
|
(32,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
1,566
|
|
|
|
1,113
|
|
|
|
(3,995
|
)
|
Comprehensive loss
|
|
$
|
(28,929
|
)
|
|
$
|
(29,220
|
)
|
|
$
|
(36,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.27
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.50
|
)
|
Weighted-average number of common shares used in computing basic and diluted net loss per common share
|
|
|
114,149,743
|
|
|
|
65,493,842
|
|
|
|
65,493,842
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
4D
PHARMA PLC
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(In
thousands, except share and per share amounts)
|
|
Common stock
|
|
|
Additional Paid-In
|
|
|
Accumulated Other Comprehensive
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
65,493,842
|
|
|
$
|
266
|
|
|
$
|
173,673
|
|
|
$
|
(22,833
|
)
|
|
$
|
(54,086
|
)
|
|
$
|
96,300
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,995
|
)
|
|
|
-
|
|
|
|
(3,995
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,601
|
)
|
|
|
(32,601
|
)
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
363
|
|
|
|
-
|
|
|
|
-
|
|
|
|
363
|
|
Balance, December 31, 2018
|
|
|
65,493,842
|
|
|
$
|
266
|
|
|
$
|
174,036
|
|
|
$
|
(26,828
|
)
|
|
$
|
(87,407
|
)
|
|
$
|
60,067
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,113
|
|
|
|
|
|
|
|
1,113
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,333
|
)
|
|
|
(30,333
|
)
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
340
|
|
Balance, December 31, 2019
|
|
|
65,493,842
|
|
|
|
266
|
|
|
|
174,376
|
|
|
|
(25,715
|
)
|
|
|
(117,740
|
)
|
|
|
31,187
|
|
Issuance of common stock, net
|
|
|
65,898,400
|
|
|
|
213
|
|
|
|
32,801
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,014
|
|
Issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
3,270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,270
|
|
Warrant exercises
|
|
|
75,693
|
|
|
|
-
|
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,566
|
|
|
|
-
|
|
|
|
1,566
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,495
|
)
|
|
|
(30,495
|
)
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
Balance, December 31, 2020
|
|
|
131,467,935
|
|
|
$
|
479
|
|
|
$
|
210,876
|
|
|
$
|
(24,149
|
)
|
|
$
|
(148,235
|
)
|
|
$
|
38,971
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
4D
PHARMA PLC
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands, except share and per share amounts)
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(30,495
|
)
|
|
$
|
(30,333
|
)
|
|
$
|
(32,601
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,572
|
|
|
|
1,644
|
|
|
|
1,614
|
|
Stock based compensation
|
|
|
331
|
|
|
|
340
|
|
|
|
363
|
|
Change in fair value of contingent consideration
|
|
|
-
|
|
|
|
(2,967
|
)
|
|
|
465
|
|
Other non-cash expenses
|
|
|
13
|
|
|
|
74
|
|
|
|
1
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments and other current assets
|
|
|
(1,168
|
)
|
|
|
168
|
|
|
|
2,735
|
|
Research and development tax credits receivable
|
|
|
2,422
|
|
|
|
(939
|
)
|
|
|
(1,678
|
)
|
Accounts payable
|
|
|
2,677
|
|
|
|
(903
|
)
|
|
|
163
|
|
Deferred revenues
|
|
|
(689
|
)
|
|
|
2,197
|
|
|
|
-
|
|
Operating lease obligations
|
|
|
(185
|
)
|
|
|
(148
|
)
|
|
|
-
|
|
Other liabilities and accrued expenses
|
|
|
(1,748
|
)
|
|
|
2,184
|
|
|
|
(1,220
|
)
|
Net cash used in operating activities
|
|
|
(27,270
|
)
|
|
|
(28,683
|
)
|
|
|
(30,158
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of software
|
|
|
(19
|
)
|
|
|
(73
|
)
|
|
|
(5
|
)
|
Purchase of property and equipment
|
|
|
(211
|
)
|
|
|
(681
|
)
|
|
|
(721
|
)
|
Acquisition of subsidiary net of cash acquired
|
|
|
-
|
|
|
|
-
|
|
|
|
(887
|
)
|
Proceeds on disposal of assets
|
|
|
-
|
|
|
|
55
|
|
|
|
-
|
|
Maturities of short-term investments
|
|
|
-
|
|
|
|
12,982
|
|
|
|
37,564
|
|
Net cash (used in) provided by investing activities
|
|
|
(230
|
)
|
|
|
12,283
|
|
|
|
35,951
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
33,014
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of warrants
|
|
|
3,270
|
|
|
|
-
|
|
|
|
-
|
|
Warrant exercises
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
Deferred merger costs
|
|
|
(1,901
|
)
|
|
|
-
|
|
|
|
-
|
|
Lease liability payments
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
(13
|
)
|
Net cash provided by (used in) financing activities
|
|
|
34,467
|
|
|
|
(14
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(8
|
)
|
|
|
1,000
|
|
|
|
(1,386
|
)
|
Change in cash and cash equivalents
|
|
|
6,959
|
|
|
|
(15,414
|
)
|
|
|
4,394
|
|
Cash and cash equivalents at beginning of year
|
|
|
5,031
|
|
|
|
20,445
|
|
|
|
16,051
|
|
Cash and cash equivalents at end of year
|
|
$
|
11,990
|
|
|
$
|
5,031
|
|
|
$
|
20,445
|
|
Supplemental disclosures of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
224
|
|
|
$
|
230
|
|
|
$
|
1
|
|
Lease liabilities from obtaining right-of-use assets
|
|
$
|
-
|
|
|
$
|
1,446
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
NOTE
1 – NATURE OF THE BUSINESS
4D
Pharma plc (the “Company”) and its subsidiary undertakings were established with the mission of leveraging the deep
and varied interactions between the human body and the gut microbiome – the trillions of bacteria that colonize the human
gastrointestinal tract – to develop an entirely novel class of drug: Live Biotherapeutics. The Company is focused on understanding
how individual strains of bacteria function and how their interactions with the human host can be exploited to treat particular
diseases, from cancer to asthma to conditions of the central nervous system.
The
Company is incorporated in England and Wales and its operations are largely undertaken in Europe. The Company’s common stock
are listed on the Alternative Investment Market of the London Stock Exchange (“AIM”).
Merger
Agreement
As discussed further in Note 14, on March
22, 2021 the Company completed a merger with Longevity Acquisition Corporation (NASDAQ: LOAC) a publicly-traded special purpose
acquisition company (“SPAC”). Shareholders of LOAC received American Depositary Shares (“ADSs”) of the
Company, and LOAC became a wholly-owned subsidiary of the Company.
Transaction
Details
At
closing, LOAC merged with and into Dolphin Merger Sub Limited (“Merger Sub”), a new wholly owned subsidiary
of the Company, with Merger Sub continuing as the surviving company. Each of LOAC’s common shares issued and outstanding
prior to the effective time of the merger (excluding shares held by the Company and LOAC and dissenting shares, if any) were automatically
converted into the right to receive certain per share merger consideration (as defined below), and each warrant to purchase LOAC’s
ordinary shares and right to receive LOAC’s ordinary shares that were outstanding immediately prior to the effective
time of the merger was assumed by the Company and automatically converted into a warrant to purchase common stock of the Company
and a right to receive common stock of the Company, payable in Company ADSs, respectively. The per share merger consideration
consisted of 7.5315 common shares of the Company, payable in Company ADSs (each ADS representing 8 ordinary shares), for each
issued and outstanding ordinary shares of LOAC. LOAC had cash and cash equivalents of $11.6 million at the time of the
merger after paying all of its debtors.
Immediately
following the consummation of the merger, the shareholders of
LOAC collectively own approximately 13.1% of outstanding ordinary shares of the combined entity based on the issued share
capital of 4D Pharma and Longevity prior to consummation of the merger.
Concurrently with the completion of the merger,
on March 22, 2021, the Company raised £18.0 million ($25.0 million) through the issuance of 16,367,332 common shares
at a share price of £1.10 or ($1.53) per share.
Liquidity
and capital resources
Since
inception, the Company has incurred net losses and negative cash flows from operations. During the year ended December 31, 2020,
the Company incurred a net loss of $30.5 million and used $27.3 million of cash in operations. As of December 31,
2020, the Company had an accumulated deficit of $148.2 million. Management expects to incur additional operating losses in the
future as the Company continues to further develop, seek regulatory approval for and, if approved, commence commercialization
of its product candidates.
As
of December 31, 2020, the Company’s cash and cash equivalents were $12.0 million. The Company expects that its existing
cash and cash equivalents, including the cash received in the merger with LOAC, the sale of its common shares and the receipt
from an overdraft facility, all in March 2021 (See Note 14 for further information), will be sufficient to satisfy its
working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing
operations through the next 12 months following the date of the issuance of these consolidated financial statements.
The
Company has historically financed its operations primarily through the sale of common stock. The Company intends to continue to
raise additional capital through sales of common stock, but there can be no assurance that these funds will be available or that
they are readily available at terms acceptable to the Company or in an amount sufficient to enable the Company to continue its
development and commercialization of its products or sustain operations in the future.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
|
Basis
of presentation
|
The
consolidated financial statements have been prepared in accordance with U.S. GAAP and include all adjustments necessary for the
fair presentation of the Company’s financial position for the periods presented. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated
during the consolidation process.
(b)
|
Functional
and Reporting Currency
|
The
functional currency of the Company and its subsidiaries (other than the foreign subsidiaries mentioned below) is the Great Britain
Pound Sterling (“GBP”). The operations of the two foreign subsidiaries are conducted in EUROs. Balances denominated
in, or linked to, foreign currencies are stated on the basis of the exchange rates prevailing at the balance sheet date. For foreign
currency transactions included in the statement of operations and comprehensive loss, the exchange rates applicable to the relevant
transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of
such balances are carried to financing income or expenses. Assets and liabilities of the two subsidiaries are translated from
their functional currency to GBP at the balance sheet date exchange rates. Income and expense items are translated at the average
rates of exchange prevailing during the year. Translation adjustments are reflected in the consolidated balance sheets as a component
of accumulated other comprehensive income or loss.
The
reporting currency for the Company and its subsidiaries is the United States dollar (“USD”), and these consolidated
financial statements are presented in USD. Dollar amounts included herein are in thousands, except per share data. Stockholders’
equity is translated into USD from GBP at historical exchange rates. Assets and liabilities are translated at the exchange rates
as of the balance sheet date. Income and expenses are translated at the average exchange rates prevailing during the reporting
period. Adjustments resulting from translating the financial statements into USD are recorded as a separate component of accumulated
other comprehensive loss in stockholders’ equity.
The
preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from those estimates and be based on events different
from those assumptions. As part of these consolidated financial statements, the Company’s significant estimates include
(1) goodwill impairment; (2) these estimated useful lives of intangible assets and property and equipment; (3) revenue recognition,
in regards to the deferred revenues; (4) the inputs used in determining the fair value of equity-based awards; (5) the estimated
fair value of the contingent consideration payable; and (6) valuation allowance relating to the Company’s deferred tax assets.
(d)
|
JOBS
Act Accounting Election
|
The
Company is an “emerging growth company” or “EGC”, as defined in the Jumpstart Our Business Startups Act
of 2012 (the “JOBS Act”). Under the JOBS Act, an EGC can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected
to use the extended transition period for complying with any new or revised financial accounting standards.
(e)
|
Cash
and cash equivalents and short-term investments
|
The
Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents.
Cash equivalents are valued at cost, which approximates their fair value. Short-term investments comprise deposits with maturities
of more than three months, but no greater than twelve months. The Company deposits its cash primarily in checking, money market
accounts, as well as certificates of deposit. The Company does not generally enter into investments for trading or speculative
purposes, rather to preserve its capital for the purpose of funding operations. The Company deposits its cash investments in financial
institutions that it believes have high credit quality and has not experienced any losses on such accounts nor does it believe
it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. At December
31, 2020 and 2019, the Company’s cash, cash equivalents and short-term investments were held at a number of accredited financial
institutions.
(f)
|
Concentrations
of credit risks
|
Concentrations
of credit risk have been provided for customers and suppliers who individually represent greater than 10% of the applicable measure
during the periods stated.
The
Company derived 100% of its revenue for the year ended December 31, 2020 from a collaboration partner. See Note 9, Revenues for
additional information.
The
Company had two suppliers that accounted for 32% of purchases for the period ended December 31, 2020. The accounts payable balance
at December 31, 2020 contained one balance which constituted 45% of the total balance outstanding at that date. The Company had
two suppliers that accounted for 27% of purchases for the period ended December 31, 2019. The accounts payable balance at December
31, 2019 contained two balances which constituted 21% of the total balance outstanding at that date.
(g)
|
Deferred
Merger Costs
|
Specific
incremental legal, accounting and other fees and costs directly attributable to a proposed or actual offering of securities may
properly be deferred and charged against the gross proceeds of such an offering. As of December 31, 2020, there were $2,010 of
merger costs, primarily consisting of legal, accounting and printing fees, that were capitalized in assets on the consolidated
balance sheet. Upon completion of the merger, these costs were charged against the gross proceeds.
(h)
|
Fair
value of financial instruments
|
The
Company measures and discloses fair value in accordance with ASC 820, “Fair Value,” which defines fair value,
establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about
fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is
a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset
or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the
inputs used in measuring fair value as follows:
Level
1 - unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability
to access as of the measurement date.
Level
2 - pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data.
Level
3 - pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market
activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require
significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation
methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
This
hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when
determining fair value.
The
Company’s financial instruments primarily consist of cash and cash equivalents, trade and other payables and cash deposits
with initial maturity of up to 12 months. The estimated fair values of these financial instruments approximate their carrying
values as presented, due to their short maturities. We consider contingent considerations to be Level 3. We determine the fair
value of Level 3 assets and liabilities utilizing various inputs, including contract terms. At December 31, 2020, the Company
has no contingent consideration payable. At December 31, 2019, the contingent consideration payable on a business combination
was measured at fair value. The method used to value this liability is a level 3 discounted expected cash flow model. The principal
inputs to the model are:
|
●
|
the
probability of the liability occurring (2019 – 0%)
|
|
●
|
the
rate used to discount the estimated undiscounted liability (2019 – 17.5%).
|
The
fair value is most sensitive to the probability of the liability occurring, which in turn depends on the achievement of milestones
as described in Note 10. The greater the probability of the milestones being achieved, the greater the fair value of the contingent
liability.
The
Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.
The Company’s singular focus is development of a disruptive class of drug – Live Biotherapeutic products (LBPs) –
leveraging the profound impact of the gut microbiome on human health and disease. Long-lived assets by geography are as follows
as of December 31, 2020: UK $9,383, Spain $10,615 and Ireland $6,004. Long-lived assets by geography are as follows as of December
31, 2019: UK $9,733, Spain $10,246 and Ireland $5,815.
(j)
|
Property
and equipment
|
Property
and equipment are recorded at cost, net of accumulated depreciation and any accumulated impairment losses. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets. The useful lives of property and equipment, including
right-of-use assets, are as follows:
|
●
|
Plant
and machinery – straight line over three to ten years
|
|
●
|
Fixtures,
fitting and office equipment – straight line over four to five years
|
|
●
|
Land
and buildings – straight line over the shorter of the lease or a five to ten-year period
|
Upon
retirement or sale, the cost of disposed assets and their related accumulated depreciation are removed from the balance sheet.
Any resulting net gains or losses on dispositions of property and equipment are included as a component of operating expenses
within the Company’s consolidated statements of operations and comprehensive loss. Repair and maintenance costs that do
not significantly add value to the property and equipment, or prolong its life, are charged to operating expense as incurred.
On
January 1, 2019, the Company adopted ASC 842 using a modified retrospective approach. In addition, we elected the package of practical
expedients available for existing contracts, which allowed us to carry forward our historical assessments of lease identification,
lease classification, and initial direct costs. As a result of adopting ASC 842, we recognized right-of-use assets and lease liabilities
of approximately $1.5 million.
The
Company enters into operating lease arrangements for real estate assets related to office space and finance lease arrangements
for vehicles and other equipment. The Company determines if an arrangement contains a lease at its inception by assessing whether
there is an identified asset and whether the arrangement conveys the right to control the use of the identified asset in exchange
for consideration. Lease liabilities are included in current and long-term portions for each of financing and operating leases
in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and
lease liabilities represent our obligation to make payments arising from the lease. Lease right-of-use assets and lease liabilities
are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments
consist of the fixed payments under the arrangement. The operating lease liabilities is adjusted for any unpaid lease incentives,
such as tenant improvement allowances and certain other immaterial non-lease components which have been included a practical expedient.
Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of right-to-use assets
and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. As the
implicit rate of our leases is not determinable, we use an incremental borrowing rate (“IBR”) based on the information
available at the lease commencement date, including consideration to the Company’s incremental borrowing rate, in determining
the present value of lease payments.
The
Company recognizes options to extend or terminate a lease when it is reasonably certain that the Company will exercise any such
options. The operating lease expense is recognized on a straight-line basis over the lease term. We also elected the post-transition
practical expedient to not separate lease components from non-lease components for all existing leases, as well as a policy to
not apply the recognition requirements of ASC 842 for short-term leases with an initial term of 12 months of less.
(l)
|
Asset
Retirement Obligations
|
An
asset retirement obligation (“ARO”) represents a legal obligation associated with the retirement of a tangible long-lived
asset that is incurred upon the acquisition, construction, development or normal operation of that long-lived asset. Our AROs
are associated with leasehold improvements that, at the end of a lease, we are contractually obligated to remove in order to comply
with certain lease agreements. The ARO balance, included in other liabilities, at December 31, 2020 and 2019 was $203 and $165,
respectively, and will be subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life. Due to the time over
which these obligations could be settled and the judgment used to determine the liability, the ultimate obligation may differ
from the estimate. Upon settlement, any difference between actual cost and the estimate is recognized as a gain or loss in that
period.
Accretion
expense on the liability is recognized over the estimated productive life of the related assets and is included on the consolidated
statements of operations under general and administrative expenses. For the years ended December 31, 2020, 2019 and
2018 accretion expenses were $27, $22 and Nil, respectively.
Goodwill
Goodwill
represents the excess of the consideration transferred over the fair value of net assets of businesses acquired. Goodwill is evaluated
for impairment on at least an annual basis, or more frequently if impairment indicators exist. When evaluating goodwill for impairment,
the Company may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying
amount exceeds its fair value. Under Accounting Standards Update (“ASU”) 2017-04, “Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment,” Step 2 from the goodwill impairment test has been
eliminated and goodwill impairment is measured as the excess of the carrying amount of the reporting unit over its fair value.
Early application is permitted.
Patents
Acquired
patents are initially recorded at cost (or if initially recognized in a business combination at fair value), assigned an
estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives of up to 20 years from
the date of filing the patent. The Company periodically evaluates whether current facts or circumstances indicate that the carrying
values of its acquired intangibles may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted
future cash flows of these assets, or appropriate asset groupings, is compared to the carrying value to determine whether an impairment
exists. If the asset is determined to be impaired, the loss is measured based on the difference between the carrying value of
the intangible asset and its fair value, which is determined based on the net present value of estimated future cash flows.
Acquired
Research and Development (Intellectual Property)
Intellectual
property that the Company acquired in conjunction with the acquisition of a business represents the fair value assigned to the
research and development platforms and basis that discoveries will be made from. The amounts are capitalized and are accounted
for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Intellectual
Property is evaluated for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first
assessing qualitative factors to determine whether it is more likely than not that the fair value of is less than carrying amount.
If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
a quantitative fair value test is performed. If the fair value is less than the carrying amount, an impairment loss is recognized
in operating results.
Software
Software
is recognized initially at cost. After initial recognition, these assets are carried at cost less any accumulated amortization
and any accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration
given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.
Amortization
is computed by allocating the amortization amount of an asset on a systematic basis over its useful life and is applied separately
to each identifiable component. Amortization is applied to software over three to five years on a straight-line basis.
(n)
|
Impairment of Long-Lived Assets and Intangibles
|
Long-lived
assets, such as property and equipment, right-of-use assets and definite-lived intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the undiscounted
cash flows attributable to the asset group. If the carrying amount of an asset group exceeds its undiscounted cash flows, an impairment
charge is recognized in the amount by which the carrying amount of the asset group exceeds its fair value.
(o)
|
Research
and development and expenditures
|
Research
and development expenses include salaries and benefits, materials and supplies, preclinical and clinical trial expenses, stock-based
compensation expense, depreciation of equipment, contract services and other outside expenses.
The
Company has entered into various research and development-related contracts with research institutions, contract research organizations,
contract manufacturers and other companies. These agreements are generally cancellable, and related payments are recorded as research
and development expenses as incurred. Costs of certain development activities, such as manufacturing, pre-clinical and clinical
trial expenses, are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities
are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected
in the consolidated financial statements as prepaid or accrued research and development costs. Non-refundable advance payments
for goods or services to be received in the future for use in research and development activities are deferred and capitalized.
The capitalized amounts are expensed as the related goods are delivered or the services are performed. Costs incurred in obtaining
technology licenses are charged to research and development expense as acquired in-process research and development if the technology
licensed has not reached technological feasibility and has no alternative future use.
The
Company adopted Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”),
during 2019. The Company generates revenue solely through collaboration arrangements with strategic partners for the development
and commercialization of product candidates. The core principle of ASC 606 is that an entity should recognize revenue to depict
the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for
arrangements that the Company determines are within the scope of ASC 606, the Company performs the following steps: (i) Identify
the contract(s) with the customer, (ii) Identify the performance obligations in the contract, (iii) Determine the transaction
price, (iv) Allocate the transaction price to the performance obligations in the contract and (v) Recognize revenue when (or as)
each performance obligation is satisfied.
The
Company recognizes collaboration revenue under certain of the Company’s license or collaboration agreements that are within
the scope of ASC 606. The Company’s contracts with customers typically include promises related to licenses to intellectual
property and research and development services. If the license to the Company’s intellectual property is determined to be
distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable,
up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit
from the license. For licenses that are bundled with other promises, the Company utilizes judgement to assess the nature of the
combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point
in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable,
up-front fees. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable
consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when
customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration
to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The Company
utilizes the “most likely amount” method to estimate the amount of variable consideration, to predict the amount of
consideration to which it will be entitled for its one open contract. Amounts of variable consideration are included in the transaction
price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur
when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement
that includes development and regulatory milestone payments, the Company evaluates whether the associated event is considered
probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method.
Currently, the Company has one contract with an option to acquire exclusive licenses for identified targets for development product
candidates which it evaluated and determined that it was not a material right related to the MSD Agreement, as defined in Note
10.
The
Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements
or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the difference between the
consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income
taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the
extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the
deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential
for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and
feasible tax planning strategies.
The
Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process
to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood
that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not
to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial
statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being
realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized
tax benefits, that are considered appropriate as well as the related net interest and penalties.
Equity
settled share-based payment transactions are measured with reference to the fair value of equity awards at the date of grant and
recognized on a straight-line basis over the vesting period, based on the Company’s estimate of shares that will eventually
vest. Fair value is measured using a suitable option pricing model, which takes into account any market conditions.
At
each reporting date before vesting, the cumulative expense is calculated, representing both the extent to which the vesting period
has expired and management’s best estimate of the achievement or otherwise of non-market conditions. This calculation determines
the number of equity instruments that will ultimately vest with the movement in cumulative expense since the previous reporting
date recognized in the Company’s consolidated statements of operations and other comprehensive loss, with a corresponding
entry in equity.
When share-based payments have lapsed
due to a failure to meet performance criteria, no expense is recognized and any previously recognized expense is reversed
when the lapse occurs. Where share-based payments fail to vest as a result of market-based vesting criteria, the fair value
of the award is expensed and included in the consolidated statements of operations and comprehensive loss .
(s)
|
Earnings
(loss) per share
|
Basic
earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted loss per common share is computed similar to basic loss per share, except
that the denominator is increased to include the number of additional potential common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive. Potential common shares are
excluded from the computation for a period in which a net loss is reported or if their effect is anti-dilutive. Basic and diluted
loss per common share is the same for all periods presented because all outstanding stock options and warrants are anti-dilutive.
At
December 31, 2020, 2019 and 2018, the Company excluded the outstanding securities summarized below, which entitle
the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have
been anti-dilutive.
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Common stock warrants
|
|
|
21,924,307
|
|
|
|
-
|
|
|
|
-
|
|
Common stock options
|
|
|
485,056
|
|
|
|
925,589
|
|
|
|
1,047,332
|
|
Total
|
|
|
22,409,363
|
|
|
|
925,589
|
|
|
|
1,047,332
|
|
(t)
|
Recently
adopted accounting pronouncements
|
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value
measurements. Under the new guidance, entities will no longer be required to disclose the amount and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public business
entities will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level
3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. ASU 2018-13
is effective for public and non-public business entities for fiscal years beginning after December 15, 2019, including interim
periods. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
(u)
|
Recent
issued accounting pronouncements not yet adopted
|
Accounting
Standards Update (ASU 2016-13), Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments – The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
Financial institutions and other organizations will now use forward-looking information to better evaluate their credit loss estimates.
Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change
to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale
debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies
for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued Accounting Standards Update No. 2019-10,
which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies.
The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
The Board issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity
while maintaining usefulness of the financial statements. The main provisions remove certain exceptions, including the exception
to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated
loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income-based franchise taxes,
eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement
that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the
interim period that includes the enactment date. ASU 2019-12 is effective for non-public companies beginning after December 15,
2021 and interim periods within fiscal years beginning after December 15, 2022. Because the Company’s deferred tax assets
and liabilities are fully reserved, it does not expect a material impact from the adoption of this standard.
Management
has evaluated subsequent events that have occurred through the date these financial statements were issued. There were no events
that require adjustment to or disclosure in the Company’s financial statements, except as disclosed. See Note 14 for further
information on subsequent events.
NOTE
3 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments
and other current assets consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Prepayments
|
|
$
|
2,394
|
|
|
$
|
1,465
|
|
VAT receivables
|
|
|
1,263
|
|
|
|
980
|
|
Other assets – goods to be consumed in R&D activities
|
|
|
398
|
|
|
|
260
|
|
|
|
$
|
4,055
|
|
|
$
|
2,705
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment, net, consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cost
|
|
|
|
|
|
|
|
|
Property and machinery
|
|
$
|
8,728
|
|
|
$
|
7,852
|
|
Fixtures, fittings and office equipment
|
|
|
294
|
|
|
|
282
|
|
Land and buildings
|
|
|
1,674
|
|
|
|
1,549
|
|
Total cost
|
|
|
10,696
|
|
|
|
9,683
|
|
Accumulated depreciation
|
|
|
5,614
|
|
|
|
4,087
|
|
Total property and equipment, net
|
|
$
|
5,082
|
|
|
$
|
5,596
|
|
Depreciation
and related amortization expense was $1,111, $1,368, and $1,216 for the years ended December 31, 2020, 2019
and 2018 respectively.
NOTE
5 – GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Balance at December 31, 2018
|
|
$
|
12,625
|
|
Translation differences
|
|
|
26
|
|
Balance at December 31, 2019
|
|
|
12,651
|
|
Translation differences
|
|
|
838
|
|
Balance at December 31, 2020
|
|
$
|
13,489
|
|
Intangible
assets, net, consisted of the following:
|
|
December 31, 2020
|
|
|
|
Software
|
|
|
Patents
|
|
|
Intellectual Property
|
|
|
Total
|
|
Gross amount beginning of period
|
|
$
|
365
|
|
|
$
|
1,418
|
|
|
$
|
5,910
|
|
|
$
|
7,693
|
|
Additions
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
Translation differences
|
|
|
16
|
|
|
|
59
|
|
|
|
248
|
|
|
|
323
|
|
Gross amount end of period
|
|
|
400
|
|
|
|
1,477
|
|
|
|
6,158
|
|
|
|
8,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(339
|
)
|
|
|
(1,393
|
)
|
|
|
-
|
|
|
|
(1,732
|
)
|
Net Book value
|
|
$
|
61
|
|
|
$
|
84
|
|
|
$
|
6,158
|
|
|
$
|
6,303
|
|
|
|
December 31, 2019
|
|
|
|
Software
|
|
|
Patents
|
|
|
Intellectual Property
|
|
|
Total
|
|
Gross amount beginning of period
|
|
$
|
428
|
|
|
$
|
1,377
|
|
|
$
|
5,740
|
|
|
$
|
7,545
|
|
Additions
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
Translation differences
|
|
|
4
|
|
|
|
41
|
|
|
|
170
|
|
|
|
215
|
|
Gross amount end of period
|
|
|
505
|
|
|
|
1,418
|
|
|
|
5,910
|
|
|
|
7,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
Accumulated amortization
|
|
|
(232
|
)
|
|
|
(1,165
|
)
|
|
|
-
|
|
|
|
(1,397
|
)
|
Net Book value
|
|
$
|
133
|
|
|
$
|
253
|
|
|
$
|
5,910
|
|
|
$
|
6,296
|
|
Estimated
amortization expense for each of the next five years is:
Year
|
|
|
|
2021
|
|
$
|
119
|
|
2022
|
|
|
22
|
|
2023
|
|
|
2
|
|
2024
|
|
|
1
|
|
2025
|
|
|
1
|
|
Total
|
|
$
|
145
|
|
Amortization
expense was $262, $276 and $398 for the years ended December 31, 2020, 2019 and 2018,
respectively.
At
the acquisition dates, goodwill amounted to $13.3 million, intellectual property amounted to $6.1 million and patent rights amounted
to $1.5 million for the acquisitions of 4D Pharma Research Limited (2015), 4D Pharma Leon S.L.U. (2016), 4D Pharma Cork Limited
(formerly Tucana Health Limited) (2016) and The Microbiota Company Limited (2014). These entities together provide the necessary
facilities and resources to enable the Company to successfully research, manufacture, gain approval for and commercialize LBPs.
NOTE
6 – Leases
Operating
Lease obligations
Effective
January 1, 2019, the Company adopted new guidance for the accounting and reporting of leases. The Company has two real estate
leases classified as operating leases (one on Spain and one in the UK). No additional leases were entered into during 2019.
The
UK lease was for our head office in Leeds, England. The premises comprise office space and parking and are for a ten-year term
which commenced in May 2017. A tenant lease break clause is available in May 2022 which has not been included in the lease calculations
as there is no indication that this would be executed. Lease escalation costs have been included on a fixed rate basis as a practical
expedient. The lease includes a provision to return the premises to their original condition on exit, as such an asset retirement
obligation has been included in other liabilities of $165 and $136 at December 31, 2020 and 2019, respectively.
The
Spanish lease relates to our manufacturing premises in Leon, Spain. The agreement is for a ten-year term which commenced in April
2016 and includes a tenant lease break clause that can be executed after providing six months’ written notice at any point
five years from the commencement date, again this break clause has not been included in the lease value as there is no evidence
that this will be executed. Lease escalation cost have also been included on a fixed rate basis as a practical expedient. The
lease includes the requirement to make certain repairs and as such an asset retirement obligation has been included in other liabilities
at $38 and $29 at December 31, 2020 and 2019, respectively.
The
existing leases are considered net leases as their non-lease components, such as common area maintenance, are paid separately
from rent and based on actual costs incurred. Therefore, such variable non-lease components were not included in the right-of-use
asset and liability and are reflected as expenses in the periods incurred.
Operating
lease costs were $311 and $307 for the years ended December 31, 2020 and 2019, respectively. Cash paid for amounts included
in the measurement of operating lease liabilities was $301 and $262 for the years ended December 31, 2020 and 2019, respectively.
Short term lease costs were $174 and $199 for the years ended December 31, 2020 and 2019, respectively. Cash paid
for short term leases was $155 and $169 for the years ended December 31, 2020 and 2019, respectively.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Right of use assets
|
|
$
|
1,129
|
|
|
$
|
1,251
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
|
94
|
|
|
|
75
|
|
Long term operating lease liabilities, net
|
|
|
1,092
|
|
|
|
1,229
|
|
|
|
$
|
1,186
|
|
|
$
|
1,304
|
|
Weighted-average remaining lease term (years)
|
|
|
6
|
|
|
|
7
|
|
Weighted-average discount rate
|
|
|
13.6
|
%
|
|
|
13.6
|
%
|
Maturities
of operating leases liabilities are as follows:
|
|
December 31,
|
|
|
|
2020
|
|
2021
|
|
$
|
318
|
|
2022
|
|
|
320
|
|
2023
|
|
|
336
|
|
2024
|
|
|
339
|
|
2025
|
|
|
340
|
|
Thereafter
|
|
|
262
|
|
Total lease payments
|
|
|
1,915
|
|
Less: Imputed interest
|
|
|
(729
|
)
|
|
|
$
|
1,186
|
|
NOTE
7 – ACCRUED EXPENSES AND OTHER CURRENT LIABLITIES
Accrued
expenses and other current liabilities consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Clinical trials expenses
|
|
$
|
231
|
|
|
$
|
2,561
|
|
Patents and other research expenses
|
|
|
302
|
|
|
|
428
|
|
Payroll expenses
|
|
|
149
|
|
|
|
122
|
|
Building and office expenses
|
|
|
337
|
|
|
|
274
|
|
Professional consultants expenses
|
|
|
839
|
|
|
|
156
|
|
Tax expenses
|
|
|
305
|
|
|
|
334
|
|
Deferred grant income
|
|
|
82
|
|
|
|
52
|
|
Short-term finance lease
|
|
|
5
|
|
|
|
14
|
|
Other expenses
|
|
|
307
|
|
|
|
294
|
|
|
|
$
|
2,557
|
|
|
$
|
4,235
|
|
NOTE
8 – COMMITMENTS AND CONTINGENCIES
We
enter into contracts in the normal course of business with Contract Research Organizations, Contract Manufacturing Organizations,
universities, and other third parties for preclinical research studies, clinical trials and testing and manufacturing services.
These contracts generally do not contain minimum purchase commitments and are cancellable by us upon prior written notice although,
purchase orders for clinical materials are generally non-cancellable. Payments due upon cancellation consist only of payments
for services provided or expenses incurred, including noncancellable obligations of our service providers, up to the date of cancellation
or upon completion of a manufacturing run. These payments, where the costs are material, have been included based
on assumptions regarding those that are reasonably likely to be incurred.
COVID-19
In
2020, the global COVID-19 pandemic hit the United States and UK affecting almost all aspects of the global economy, the pharmaceutical
industry and the Company included. The Company’s operations and financial results have already been adversely impacted by the COVID-19
pandemic in the United Kingdom, United States and the rest of the world. Enrolment of patients in the clinical trials and maintaining
patients in the ongoing clinical trials were delayed or limited to lesser or greater extent as the Company’s clinical trial sites
limited their onsite staff, temporarily closed or adjusted the way they worked during the COVID-19 pandemic. As a result of measures
imposed by the governments in affected regions, many commercial activities, businesses and schools have been suspended as part of quarantines
and other measures intended to contain this pandemic. These factors resulting from COVID-19 remain ongoing and other unforeseen pandemics
could have similar or worse consequences, delaying the anticipated readouts from our clinical trials and our regulatory submissions.
Additionally, certain third parties with whom we engage, including our collaborators, contract organizations, third-party manufacturers,
suppliers, clinical trial sites, regulators and other third parties with whom we conduct business were often and can be similarly affected,
adjusting their operations and assessing their capacity in light of the COVID-19 and other pandemics. While the extent of the impact
of the current COVID-19 pandemic on the Company’s future business and financial results continues to carry uncertainty, the effect
of a continued and prolonged public health crisis from further significant mutations to COVID-19 or other pandemics could have a material
negative impact on the Company’s business, financial condition and operating results.
NOTE
9 – STOCKHOLDERS’ EQUITY
Common
stock
On
February 18, 2020 the Company raised £22 million ($28.6 million) (£20.9 million ($27.2 million) net of transaction
costs) through the issuance of 44 million common stock at a share price of 50 pence ($0.65) per share. A warrant was also issued
on the basis of one share for every two common shares issued and have an exercise price of 100 pence ($1.37) per share
and is exercisable for five years from the date of issuance.
On
July 8, 2020, the Company raised £7.7 million ($9.7 million) (£7.1 million ($9.0 million) net of transaction costs)
through the issuance of 21,898,400 shares of common stock at a share price of 35 pence ($0.44) per share.
Warrants
On
February 18, 2020, the Company issued 22 million warrants as part of the February 2020 issuance of common stock. The warrants
have an exercise price of 100 pence ($1.37) per share and are immediately exercisable for five years from the date of issuance.
The warrants were evaluated under ASC Topic 480, “Distinguishing Liabilities from Equity” and ASC Topic 815, “Derivatives
and Hedging”, and the Company determined that equity classification was appropriate. The relative fair value of the
warrants issued of $3,270 was allocated from the total net proceeds of the common stock issuance on a relative basis to
the common stock and warrants. The intrinsic value of exercisable but unexercised in-the-money common stock warrants at December
31, 2020 was $8,688.
The
following table summarizes the common stock warrant activity for the year ended December 31, 2020:
Balance at January 1, 2020
|
|
|
-
|
|
Issuances
|
|
|
22,000,000
|
|
Exercises
|
|
|
(75,693
|
)
|
Balance at December 31, 2020
|
|
|
21,924,307
|
|
Options
The
Company has a long-term incentive plan, the 4D Pharma plc 2015 Long Term Incentive Plan (the “Plan”) which was established
in 2015 and expires in 10 years. The Plan limits the number of shares issued to no more than 10% of the issued common stock. The
number of shares available for issuance as of December 31, 2020 was 12,661,738. Share options are awarded to management and key
staff as a mechanism for attracting and retaining key members of staff. These options vest over period of three years from the
date of grant and are exercisable until the tenth anniversary of the award. Exercise of the award is subject to the employee remaining
a full-time member of staff at the point of exercise and the vesting conditions being met.
Vesting
conditions are based on a mixture of the Company’s total shareholder return market performance, relative to an appropriate
comparator group, and certain individual (non-market) performance criteria. The market performance options, which vest three years
after the grant date only if the Company’s common stock achieves certain levels of total shareholder return when compared
to the total shareholder return of a peer group of pharmaceutical companies quoted on the market in which the Company is listed.
The individual performance options, vest three years after the grant date only if the performance measure has been completed.
The
reconciliation of movement in share options in the years ended December 31, 2020 and 2019 is as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Non-Vested Options
|
|
|
Weighted
Average Grant date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,047,332
|
|
|
$
|
0.0033
|
|
|
|
1,017,332
|
|
|
$
|
2.88
|
|
Granted
|
|
|
538,596
|
|
|
|
0.0033
|
|
|
|
538,596
|
|
|
|
1.16
|
|
Vested and exercised
|
|
|
|
|
|
|
0.0033
|
|
|
|
(9,686
|
)
|
|
|
11.18
|
|
Expired/cancelled
|
|
|
(660,340
|
)
|
|
|
0.0033
|
|
|
|
(660,340
|
)
|
|
|
3.01
|
|
Outstanding at December 31, 2019
|
|
|
925,588
|
|
|
|
0.0033
|
|
|
|
915,902
|
|
|
|
1.68
|
|
Granted
|
|
|
262,093
|
|
|
|
0.0033
|
|
|
|
262,093
|
|
|
|
0.96
|
|
Vested and exercised
|
|
|
-
|
|
|
|
0.0033
|
|
|
|
(224,949
|
)
|
|
|
1.49
|
|
Expired/cancelled
|
|
|
(702,625
|
)
|
|
|
0.0033
|
|
|
|
(702,625
|
)
|
|
|
1.47
|
|
Outstanding at December 31, 2020
|
|
|
485,056
|
|
|
$
|
0.0033
|
|
|
|
250,421
|
|
|
|
1.20
|
|
Options exercisable
|
|
|
234,635
|
|
|
$
|
0.0033
|
|
|
|
|
|
|
|
|
|
Options vested
|
|
|
234,635
|
|
|
$
|
0.0033
|
|
|
|
|
|
|
|
|
|
Options expected to vest
|
|
|
73,715
|
|
|
$
|
0.0033
|
|
|
|
|
|
|
|
|
|
The
weighted average remaining contractual life of options outstanding, options vested and options expected to vest at December 31,
2020 was 8.24 years, 7.04 years and 8.17 years, respectively.
The
aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and
the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value
of the Company’s common stock. The Company used the value of the Company’s common stock as valued on the AIM stock
market as the fair value per common stock. The share price as of December 31, 2020, was £1.29 ($1.7626) and the aggregate
intrinsic value for options outstanding, exercisable and expected to vest was $853, $413 and $375, respectively. The share price
for December 31, 2019, was £1.00 ($1.3114) and the intrinsic value for options outstanding, exercisable and expected to
vest was $1,211, $13 and $96, respectively.
During
the year ended December 31, 2020, the following events resulted in the amendment to terms of outstanding stock option awards.
On July 22, 2020, in connection with an employee departure, the Company’s remuneration committee vested 21,352 performance-based
stock options that otherwise would not have vested. On December 13, 2020 an employee left employment of the Company but became
non-employee consultant to the Company. For the employee, the Company’s remuneration committee determined
to vest 166,667 performance-based stock options and to allow 74,074 options with market conditions to continue to vest
over an 18-month period.
The
Company calculated the change in stock-based compensation cost associated with the previously described stock option modifications
pursuant to the applicable guidance in ASC 718. The change in compensation cost was determined by calculating the difference between
(a) the estimated fair value of each option award immediately prior to the modifications and (b) the estimated fair value of each
option award immediately after the modifications. The fair value of each option award immediately prior to and immediately after
modification was estimated using the Black-Scholes option-pricing model to determine an incremental fair value, consistent with
and in accordance with the Company’s existing accounting policy for stock compensation. The total additional compensation
cost associated with the previously described modifications was determined to be $56, which was expensed in the year ended December
31, 2020, and $34, which will be expensed over the remaining service period for the consultant.
Fair
value is generally measured using a Black Scholes model, taking into account the terms and conditions upon which the share options
were issued. The grant-date fair value of options with a market conditions was discounted for the estimated probability utilizing
various factors including stock price, volatility, the risk-free rate, and the associated market condition trigger. The following
weighted-average assumptions were used to calculate the fair value of stock options granted during the periods indicated:
|
|
December 13,
|
|
|
July 22,
|
|
|
December 31,
|
|
|
December 31
|
|
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
0.09
|
%
|
|
|
0.08
|
%
|
|
|
0.57
|
%
|
|
|
0.72
|
%
|
Expected volatility
|
|
|
35.74
|
%
|
|
|
40.11
|
%
|
|
|
69.62
|
%
|
|
|
54.95
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
1.56 year
|
|
|
|
0.77 years
|
|
|
|
3 years
|
|
|
|
3
years
|
|
The
expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur.
Volatility is based on Company historical volatility on the AIM. The Company has never paid dividends and does not currently anticipate
paying any in the foreseeable future.
On
July 5, 2019, the Company issued options to purchase 538,596 shares of common stock to its management and key staff at an exercise
price of $0.0033. The options vest in three years based on based on market parameters and non-market performance measures and
expire ten years from the date of grant. The aggregate fair value of the options granted was $626.
Stock-based
compensation expense for the years ended December 31, 2020, 2019 and 2018 was $331, $340 and $363,
respectively. As of December 31, 2020, total unrecognized stock-based compensation expense relating to unvested stock options
was $344. This amount is expected to be recognized over a weighted-average period of 1.32 years.
NOTE
10 – REVENUE
In
October 2019, the Company entered into a research collaboration and option agreement with MSD (Merck Sharp & Dohme Corp.)
(“the MSD Agreement”). The MSD Agreement is for the use of the Company’s MicroRx discovery platform to discover,
design and develop mucosal vaccines candidates derived from selected 4D Live Biotherapeutics (“LBP”), when used in
conjunction with selected antigens from MSD in up to three indications. The MSD Agreement covers the grant of a non-exclusive,
non-transferable, sublicensable license under Company patent rights and know-how to perform MSD’s activities under the research
program and work plan. The MSD Agreement also specifies the Company’s obligation to conduct research and development activities
during the three-year research program term. A joint research committee will direct the research program and its activities are
indistinguishable from the research services being provided.
The
non-exclusive license is considered of limited value without the Company’s development activities during the research term.
As such, the license is not capable of being distinct until after successful identification of candidates, grant of an exclusive
license, clinical development and regulatory approval and alone do not have standalone functionality to MSD. On analyses of market
deal terms, Management determined that analyzed collectively, the option payments for exclusive licenses are at market for a development
and commercialization license on a pre-clinical mucosal vaccine candidate and do not represent options that provide a material
right to MSD and therefore do not give rise to a performance obligation in the contract.
Under
the MSD Agreement, the Company received a non-refundable, upfront payment, of $2.5 million, a $5 million equity investment, and
is eligible to receive up to $347.5 million per indication in option exercise fees and in development, regulatory and sales milestone
payments, ranging from low seven figures to high eight figures, plus royalties on sales of any licensed product deriving from
the collaboration. Such royalty rates range from low- to high-single digit royalties. The option payments for exclusive license
and achievement and timing of the milestones depend on the success of identifying candidates, development, approval and sales
progress, if any, of vaccines in the future.
The
Company has initially estimated a total transaction price of $2.5 million, consisting of the fixed upfront payment determined
to be the single bundled performance obligation consisting of the non-exclusive license, research and development services and
governance activities. Upon execution of the MSD Agreement and as of December 31, 2020, variable consideration consisting of exclusive
option license payments and milestone payments has been constrained and excluded from the transaction price given the significant
uncertainty of achievement of the development and regulatory milestones.
The
Company has allocated the transaction price entirely to the single bundled performance obligation and recorded the $2.5 million
initially as deferred revenue and will recognize revenue over the period the research and development services are provided using
an input method as a measure of progress towards completion of the performance obligation according to actual research and development
costs and labor effort incurred compared to the estimated total research and development costs and labor effort, to estimate progress
toward satisfaction of the performance obligation, and will remeasure its progress towards completion of the performance obligation
at the end of each reporting period. For the years ended December 31, 2020, 2019 and 2018, the Company has recognized
$690, $269 and Nil respectively, in collaboration revenues. Associated development costs and labor effort of $1,345
and $215, are included within research and development costs in the consolidated statements of operations and comprehensive loss
for the years ended December 31, 2020 and 2019, respectively.
Amounts
expected to be recognized as revenue within the 12 months following the balance sheet date are classified as a current portion
of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the
12 months following the balance sheet date are classified as deferred revenue, net of current portion. As of December 31, 2020,
the Company has $1,318 as current deferred revenues and $306 as long-term deferred revenues.
NOTE
11 –CONTINGENT CONSIDERATION
Contingent
consideration relates to the amounts due on the remaining milestones which form part of the original contingent acquisition costs
for the entire issued share capital in Tucana Health Limited (now 4D Pharma Cork Limited) on February 10, 2016.
The
contingent consideration is based on milestones in the development of the MicroDx diagnostic platform which has been designed
to diagnose, stratify and monitor the treatment of patients based on their gut microbiome, the bacteria which colonize
the human gastrointestinal tract.
The
Company has provided for the contingent consideration on the achievement of three time-based milestones for the validation of
the MicroDx platform by 4D Pharma Cork Ltd.
The
contingent liability was calculated upon the acquisition of 4D Pharma Cork Limited and was based on the discounted probability
of the liability at that time. The probability of future milestones is re-assessed as the timepoints for the milestones are reached;
these milestones are:
|
1)
|
Technical
validation of a diagnostic platform for IBS dysbiosis
|
|
|
|
|
|
The milestone was achieved by August 23, 2017 and triggered the issue of 635,692 shares for an aggregate market value of €2.6 million ($3.06 million) (at £3.7575 ($4.8095) per 4D pharma plc share, being the average mid-market price of a 4D share for the five business days immediately preceding the date of allotment).
|
|
2)
|
Clinical
validation of the optimal IBS dysbiosis diagnostic platform based on more than 1,000 patients in a multicenter trial
|
|
|
|
|
|
Whilst there are no adverse indicators relating to the clinical validation of the platform at December 31, 2019, the time-based criteria for the completion of the milestone, which required completion of this phase by August 23, 2019, was not achieved and the fair value of the contingent consideration has been adjusted by $2,094 to bring the balance at December 31, 2019 to $0.
|
|
|
|
|
3)
|
Regulatory approval of a diagnostic platform for IBS dysbiosis
|
|
|
|
|
|
The third milestone is also time based and linked to regulatory approval being achieved by August 23, 2020. The fair value of the contingent consideration was adjusted as of December 31, 2019 to $0, releasing $873 of the contingent consideration. There was no contingent consideration for this milestone as of December 31, 2020. Based on the patient recruitment at milestone two it was anticipated that regulatory approval would not be achieved in 2021 meaning that achieving milestone three by the required date didn’t occur; as a result the fair value was reduced to $0 as for year ended December 31, 2019.
|
Recurring
Level 3 Activity and Reconciliation
The
table below provides a reconciliation of the beginning and ending balances for the liability measured at fair value using significant
unobservable inputs (Level 3).
|
|
Current Portion
|
|
|
Long-term Portion
|
|
|
Total Contingent Consideration
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
$
|
2,090
|
|
|
$
|
871
|
|
|
$
|
2,961
|
|
Change in fair value
|
|
|
(2,094
|
)
|
|
|
(873
|
)
|
|
|
(2,967
|
)
|
Translation differences
|
|
|
4
|
|
|
|
2
|
|
|
|
6
|
|
Balance, December 31, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
12 – INCOME TAXES
The
Company and its subsidiaries file separate income tax returns.
United
States of America
In
2020, the Company incorporated a subsidiary in the United States. The applicate income tax rate for this company is approximately
30%. At December 31, 2019, neither the Company nor any of its subsidiaries were incorporated in the United States and no operations
are currently undertaken in the United States, therefore the Company is not is subject to a US federal corporate income tax rate.
United
Kingdom
The
Company is incorporated in the United Kingdom (UK). It also has one active subsidiary engaged in research and development activity
and two dormant subsidiaries incorporated in the UK. The applicable UK statutory income tax rate for these companies is 19%.
Other
Jurisdictions
The
company also has an Irish subsidiary engaged in research and development activity, a Spanish subsidiary engaged in the production
of live biotherapeutics and a subsidiary in the US operating as a service company. The applicable Irish and Spanish income tax
rates for these companies in 12.5% and 25% respectively.
The
average standard rate for activities undertaken in all jurisdictions was 19.0% for the years ended December 31, 2020 and 2019.
For
the years ended December 31, 2020 and 2019 loss before income tax benefit is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Loss before income taxes arising in UK
|
|
$
|
29,938
|
|
|
$
|
27,751
|
|
|
$
|
30,364
|
|
Loss before income taxes arising in Ireland
|
|
|
918
|
|
|
|
1,539
|
|
|
|
1,693
|
|
(Profit)/loss before income taxes arising in Spain
|
|
|
(340
|
)
|
|
|
1,043
|
|
|
|
544
|
|
(Profit) before income taxes arising in United States
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
Total loss before income tax
|
|
$
|
30,508
|
|
|
$
|
30,333
|
|
|
$
|
32,601
|
|
The
provision for income taxes includes income taxes currently payable and deferred taxes resulting from net operating loss carry
forwards and temporary differences between the financial statement and tax bases of assets and liabilities. Valuation allowances
are recorded to reduce deferred tax assets when it is not more likely than not that a tax benefit will be realized.
The
difference between the actual income tax benefit and that computed by applying average standard tax rate to pre-tax loss from
continuing operations is summarized below:
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Loss before income taxes
|
|
$
|
(30,508
|
)
|
|
|
|
%
|
|
$
|
(30,333
|
)
|
|
|
|
%
|
|
$
|
(32,601
|
)
|
|
|
|
%
|
Expected tax benefit
|
|
|
(5,797
|
)
|
|
|
(19.0
|
)%
|
|
|
(5,763
|
)
|
|
|
(19.0
|
)%
|
|
|
(6,087
|
)
|
|
|
(18.7
|
)%
|
Costs included in R&D tax credit
|
|
|
2,255
|
|
|
|
7.4
|
%
|
|
|
4,070
|
|
|
|
13.4
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Non-taxable income
|
|
|
(846
|
)
|
|
|
(2.8
|
)%
|
|
|
(1,299
|
)
|
|
|
(4.3
|
)%
|
|
|
-
|
|
|
|
0.0
|
%
|
Foreign tax differential
|
|
|
(248
|
)
|
|
|
(0.8
|
)%
|
|
|
69
|
|
|
|
0.2
|
%
|
|
|
4
|
|
|
|
0.0
|
%
|
Change in valuation allowance
|
|
|
4,504
|
|
|
|
14.8
|
%
|
|
|
3,111
|
|
|
|
10.3
|
%
|
|
|
6,057
|
|
|
|
18.6
|
%
|
Other
|
|
|
119
|
|
|
|
0.4
|
%
|
|
|
(188
|
)
|
|
|
(0.6
|
)%
|
|
|
26
|
|
|
|
(0.1
|
)%
|
Income tax benefit
|
|
$
|
(13
|
)
|
|
|
0
|
%
|
|
$
|
-
|
|
|
|
0
|
%
|
|
$
|
-
|
|
|
|
0
|
%
|
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current tax expense
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax benefit
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
-
|
|
Income tax benefit
|
|
$
|
(13
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
The
tax effects of the temporary differences that give rise to significant portions of deferred income tax assets and liabilities
are presented below:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets/(liabilities):
|
|
|
|
|
|
|
|
|
Net operating tax loss carry forwards
|
|
$
|
17,025
|
|
|
$
|
10,847
|
|
Property and equipment, net
|
|
|
(179
|
)
|
|
|
(247
|
)
|
Right of use assets
|
|
|
(90
|
)
|
|
|
(99
|
)
|
Intangible assets
|
|
|
(1,166
|
)
|
|
|
(1,006
|
)
|
Stock-based compensation expense
|
|
|
319
|
|
|
|
218
|
|
Operating lease liabilities
|
|
|
103
|
|
|
|
102
|
|
Valuation allowance
|
|
|
(16,030
|
)
|
|
|
(9,846
|
)
|
Net deferred tax liability
|
|
$
|
(18
|
)
|
|
$
|
(31
|
)
|
For
each of the years ended December 31, 2020 and 2019 the Company did not have unrecognized tax benefits, and therefore no interest
or penalties related to unrecognized tax benefits were accrued. Management does not expect that the amount of unrecognized tax
benefits will change significantly within the next twelve months.
The
Company mainly files income tax returns in the UK with other returns in Spain and Ireland. The Company is not subject to U.S.
federal income tax examination by tax authorities. The UK tax returns for the Company’s UK subsidiaries are typically open
to enquiry for up to two years after the year end though the UK tax authorities have the power to re-open closed periods in certain
circumstances.
As
of December 31, 2020, the Company has net operating losses (NOLs) of approximately $83,852, $1,007 and $6,124 in the UK, Spain
and Ireland respectively. NOLs may be carried forward indefinitely.
Research
and development tax credits
For
companies with research and development expenses, the UK government provides a notifiable state aid in the form of an enhanced
research and development deduction to Corporation tax, The Company has elected to take the enhanced deduction as a cash payment
rather than carry the costs as a deduction against future taxable income. The Irish government has a similar program for qualifying
research and development expenses. Under the Irish program, the Company is entitled to receive a rebate up to a maximum of the
employment taxes paid, which is reimbursed over a period of three years from the balance sheet date. Research and development
tax credit receivables consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
UK research and development tax credits
|
|
$
|
4,315
|
|
|
$
|
6,565
|
|
Irish research and development tax credits
|
|
|
453
|
|
|
|
373
|
|
Translation differences
|
|
|
273
|
|
|
|
358
|
|
Total
|
|
|
5,041
|
|
|
|
7,296
|
|
Less: current portion
|
|
|
(4,799
|
)
|
|
|
(7,049
|
)
|
Research and development tax credits receivable, net
|
|
$
|
242
|
|
|
$
|
247
|
|
For
the years ended December 31, 2020 and 2019, the Company has recorded other income of $4,457 and $6,840, respectively for the research
and development tax credits.
NOTE
13 – RELATED PARTY TRANSACTIONS
One
of the directors of our subsidiary, Antonio Fernandez is also a director of Biomar Microbial Technologies (“Biomar”),
which charged rent and building service costs to the Company of $153, $51 and $24 for the years ended December 31,
2020, 2019 and 2018, respectively. The Company charged Biomar $41, $35 and $44 for services as of
December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, $4 and $54, respectively, was
due from Biomar for these services.
MSD
purchased 7,661,000 shares of the Company’s common stock in February 2020 and currently holds 5.8% of the Company’s
total outstanding common stock. The Company entered into the MSD Agreement with MSD in October 2019. See Note 10 for further information
regarding this agreement. Additionally, the Company also has an ongoing trail evaluating the combination of KEYTRUDA (pembrolizumab)
in combination with MRx-0518 in patients with solid tumors who progressed on prior PD-1 inhibitor therapy. Under the terms
of the agreement MSD will provide KEYTRUDA free of charge to the trial.
NOTE
14 – SUBSEQUENT EVENTS
Merger
with Longevity Acquisition Corporation
On
March 18, 2021 (the “Closing Date”), the transaction (the “Closing”) contemplated by the previously
announced Merger Agreement and BVI Plan of Merger (the “Merger”), dated as of October 21, 2020 (as amended, the “Merger
Agreement”), by and among Longevity Acquisition Company (“Longevity”), the Company, and Dolphin Merger Sub Limited,
a British Virgin Islands company and a wholly-owned subsidiary of the Company (the “Merger Sub”), and the other parties
named therein, was approved by the shareholders’ of both Company and 4D Pharma and the transaction was completed
on March 22, 2021. The Merger Sub is the surviving entity. As a result of the Merger, each Longevity share issued and outstanding
immediately prior to the completion of the Merger was converted into the right to receive 7.5315 common shares of the Company
payable in 4D Pharma American Depository Shares (“ADS”) at a rate equal to one 4D Pharma ADS for every eight shares
of the Company. The Company issued no fractional shares or 4D Pharma ADSs in the Merger. Each warrant to purchase Longevity Shares
and right to receive Longevity Shares that was outstanding immediately prior to the Closing was assumed by the Company and automatically
converted into a warrant to purchase the Company’s common shares and a right to receive the Company’s common shares,
payable in 4D Pharma ADSs, respectively.
In
connection with the Closing, certain holders of Longevity common shares exercised their right to redeem those shares in accordance
with Longevity’s organizational documents, as amended, for cash at a price of approximately $11 per common share, for an
aggregate of approximately $3,000. Accordingly, pursuant to a Backstop Agreement previously entered into between Longevity, the
Company, Longevity’s sponsor (Whale Capital Management the “Sponsor”) and certain current Company shareholders
and new investors (such current Company shareholders and new investors, collectively, the “Buyers”). The Buyers provided
financial backing of approximately $14.7 million to Longevity immediately prior to the Closing, to cover against redemptions by
Longevity Shareholders. In view of the de
minimis redemptions, the backstop was not called upon. The consideration paid to the Buyers pursuant
to the Backstop Agreements consisted of 700,000 newly issued Ordinary Longevity Shares, the transfer by Longevity’s sponsor
of 200,000 outstanding Longevity Shares, the grant of an option to acquire up to an additional 400,000 outstanding Longevity Shares
from the Sponsor ,
and the Company’s commitment to grant to the Buyers, following the closing of the Merger, warrants to acquire up to 1,000,000
Longevity shares (equivalent to 7,530,000 common shares of the Company) for 0.25 pence ($0.35) per common share. In connection
with the Closing, and pursuant to the Merger Agreement, (a) an aggregate of 28,298,192 common shares of the Company were issued
to Longevity shareholders and the Buyers, (b) the Company assumed Longevity warrants to acquire and rights to receive an aggregate
of 16,268,040 common shares of the Company, and (c) 2,750,000 common shares of the Company were issued to a bank as an advisor
fee.
At
the Closing, the Company entered into a Lock-up Agreement with the Sponsor and certain shareholders of Company. Pursuant to the
Lock-Up Agreement, each holder agreed that, subject to certain exceptions, during the period ending twelve months after the Closing,
it will not (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares received as consideration in the Merger (the “Restricted Securities”),
(ii) enter into any swap, short sale, hedge or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Restricted Securities, or (iii) publicly disclose the intention to effect any transaction specified
in clause (i) or (ii), or (iv) make any demand for or exercise any right with respect to the registration of any Longevity Shares.
Management
of 4D Pharma has concluded the Merger is a recapitalization through an asset acquisition and not a business combination as Longevity
does not meet the definition of a business pursuant to ASC 805. According to the guidance in ASC 805, the Company obtained control
as: (i) it owns 100% of the issued and outstanding shares of Longevity; (ii) Longevity merged with and into a wholly-owned subsidiary
of the Company, the separate existence of Longevity ceased, and the wholly-owned subsidiary of the Company will be the
surviving company; and (iii) the Company’s board of directors and officers are the initial board of directors and officers
of the Company following the Closing. The Company was the accounting acquirer and issued equity in exchange for the net assets
of Longevity with no goodwill or intangible assets recorded in the Merger. At Closing, Longevity had approximately $14.8 million
of gross cash in hand, $11.6 million net of costs and payment of liabilities, which has been transferred to the Company.
NASDAQ
Listing
On
March 22, 2021, with the completion of the Longevity transaction, the Company completed its NASDAQ Global Market listing
using ADSs under the ticker ‘LBPS’. The Company’s common shares can be converted at any time to ADSs at a ratio
of eight common shares for one ADS. J.P Morgan Chase bank, N.A. is acting as depositary bank for the ADSs and the Company’s
common shares will continue to be admitted to trading on AIM under the ticker ‘DDDD’.
Private
Placement Financing
On March 17, 2021, the Company announced
that it had entered into securities purchase agreements with certain US and UK institutional and accredited investors raised
approximately £18.0 million ($25.0 million) in gross proceeds (£16.87 million ($23.5 million) net of fees)
through the sale of 16,367,332 common shares at a price of £1.10 ($1.53) per share including a late subscription from
Merck Sharp & Dohme.
Overdraft
Facility
In
March 2021, the Company’s subsidiary in Spain, received a €1.0 million (£0.86 million or $1.2 million)
overdraft facility supported by the Spanish government as part of its COVID-19 relief package. The overdraft is unsecured, incurs
annual interest at a rate of 2.35% and is repayable in full at the end of three years.
April
23, 2021
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
6. Indemnification of Directors and Officers
4D
Pharma’s articles of association provide that, to the extent permitted by the U.K. Companies Act, the 4D Pharma may indemnify its
directors against and every other officer of the company against all costs, charges, losses, expenses and liabilities incurred by such
director or officer for any negligence, default, breach of duty or breach of trust or otherwise in relation to the business and affairs
of 4D Pharma or any associated company. In addition, 4D Pharma maintains directors’ and officers’ insurance to insure such
persons against certain liabilities.
Insofar
as indemnification of liabilities arising under the Securities Act may be permitted to our board, executive officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Item
7. Recent Sales of Unregistered Securities.
Set
forth below is information regarding share capital issued by us since January 1, 2018. None of the below described transactions involved
any underwriters, underwriting discounts or commissions, or any public offering.
On
March 17, 2021 and March 22, 2021, we announced subscription agreements (the “Subscription Agreements”) with certain
accredited investors and Merck Sharp & Dohme Corp. (collectively, the “PIPE Investors”) pursuant to, and
on the terms and subject to the conditions of which, the PIPE Investors collectively subscribed for 16,367,332 ordinary shares at a price
of £1.10 (or $1.53) per ordinary share for an aggregate investment amount equal to £18.0 million ($25.0 million) (the “PIPE
Investment”). In addition, on April 15, 2021, we entered into Subscription Agreements with our Chief Executive Officer, Duncan
Peyton and our Chief Scientific Officer, Alexander Stevenson (the “Additional PIPE Investors”) pursuant to, and on
the terms and subject to the conditions of which, the Additional PIPE Investors collectively subscribed for an additional 1,317,680 ordinary
shares at a share price of £1.10 (or $1.53) per share for an aggregate investment amount equal to £1.44 million ($2.0 million)
(the “Additional PIPE Investment” and together with the PIPE Investment, the “PIPE Investments”).
The Subscription Agreements provide for certain registration rights.
In addition
to the shares issued in the Merger and the PIPE Investments, in the Merger we assumed warrants to purchase up to a total 16,268,040
ordinary shares at an exercise price of $1.53 per ordinary share (the “Assumed Warrants”). We also assumed
an option to purchase up to a total of 240,000 units at an exercise price of $11.50 per unit, each unit consisting of 8.28465
ordinary shares and a warrant to purchase up to 3.76575 ordinary shares at an exercise price of $1.53 per ordinary share. In connection
with certain backstop financing agreements related to the Merger, we have committed to issue warrants to acquire up to 7,530,000
ordinary shares at an exercise price of £0.0025 per ordinary share.
In
July 2020, we raised £7.7 million ($9.7 million) (£7.1 million ($9.0 million) net of transaction costs) through the issuance
of 21,898,400 ordinary shares at a share price of 35 pence ($0.44) per share.
In
February 2020, we raised £22 million ($28.6 million) (£20.9 million ($27.2 million) net of transaction costs) through the
issuance of 44 million ordinary shares at a share price of 50 pence ($0.65) per share. A warrant was also issued on the basis of one
share for every two ordinary shares issued and have an exercise price of 100 pence ($1.30) per share and is exercisable for five years
from the date of issuance.
We
have also exercised our right to cause MSD to purchase $5 million of new ordinary shares at the same price as other investors in the
February 2020 fundraising pursuant to the terms of a subscription agreement.
Item
8. Exhibits and Financial Statement Schedules
Exhibits
(a)
The following exhibits are filed herewith unless otherwise indicated:
|
|
|
|
|
|
|
|
Incorporated
by Reference
|
Exhibit Number
|
|
Exhibit
Description
|
|
Included
Herein
|
|
File No.
|
|
Form
|
|
Exhibit
|
|
Filing
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
.1
|
|
Agreement and Plan of Merger by and among Longevity Acquisition Corporation, 4D pharma plc and Dolphin Merger Sub Limited, dated October 21, 2020
|
|
|
|
333-250986
|
|
F-4
|
|
2.1
|
|
11/25/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
.2
|
|
BVI Plan of Merger
|
|
|
|
333-250986
|
|
F-4
|
|
|
|
11/25/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
.1
|
|
Articles of Association of 4D pharma plc, as currently in effect
|
|
|
|
333-250986
|
|
F-4/A
|
|
3.2
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
.1
|
|
Form of share certificate of 4D pharma plc ordinary share
|
|
|
|
333-250986
|
|
F-4/A
|
|
4.1
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
.2
|
|
Form of Deposit Agreement among 4D pharma plc., JPMorgan Chase Bank, N.A., as depositary thereunder, and all Holders and Beneficial Owners from time to time of American Depositary Receipts issued thereunder evidencing American Depositary Shares representing deposited Shares
|
|
|
|
333-250986
|
|
F-4/A
|
|
4.2
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
.3
|
|
Warrant Agreement between Longevity Acquisition Corporation and Continental Stock Transfer & Trust Company, dated August 28, 2018
|
|
|
|
333-250986
|
|
F-4/A
|
|
4.3
|
|
2/16/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
.4
|
|
Form of Assumption Agreement among 4D pharma plc, Longevity Acquisition Corporation and Continental Stock Transfer & Trust Company
|
|
|
|
333-250986
|
|
F-4/A
|
|
4.4
|
|
2/16/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
.5
|
|
Form of Warrant
|
|
|
|
333-250986
|
|
F-4/A
|
|
4.5
|
|
2/16/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
.1
|
|
Opinion of Pinsent Masons regarding legality of the ordinary shares underlying the 4D pharma ADSs
|
|
X
|
|
|
|
|
|
|
|
|
10
.1#
|
|
Strategic Collaboration Agreement by and between The University of Texas M.D. Anderson Cancer Center and 4D pharma plc, dated November 10, 2017
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.1
|
|
01/08/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.2#
|
|
Research Collaboration and Option to License Agreement by and between Merck Sharp & Dohme Corp. and 4D pharma plc, dated October 7, 2019
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.2
|
|
01/08/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.3
|
|
Lease Agreement between University Court of the University of Aberdeen and 4D Pharma Research Limited dated August 1, 2013
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.3
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.4
|
|
Lease Agreement by and among Bishopsgate Long Term Property Fund Nominees No. 1 Limited and Bishopsgate Long Term Property Fund Nominees No. 2 Limited and 4D pharma plc, dated May 3, 2017
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.4
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.5
|
|
Lease Agreement between Instituto Biomar and 4D Pharma Leon SLU, dated April 7, 2016
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.5
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.6+
|
|
Service Agreement between Duncan Peyton and 4D pharma plc, dated February 10, 2014
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.6
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.7+
|
|
Service Agreement between Alexander Stevenson and 4D pharma plc, dated February 10, 2014
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.7
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.8+
|
|
Service Agreement between Richard Avison and 4D pharma plc, dated November 1, 2017
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.8
|
|
01/27/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.9+
|
|
Service Agreement between Katrin Rupalla and 4D pharma plc, dated August 18, 2020
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.9
|
|
2/16/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.10+
|
|
Service Agreement between Sandy Macrae and 4D pharma plc, dated August 19, 2019
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.10
|
|
2/16/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.11+
|
|
Service Agreement between Edgardo Baracchini and 4D pharma plc, dated December 6, 2018
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.11
|
|
2/16/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
.12+
|
|
4D pharma plc 2015 Long Term Incentive Plan and related forms
|
|
|
|
333-250986
|
|
F-4/A
|
|
10.10
|
|
01/27/21
|
+
Indicated management contract or compensatory plan
#
Portions of this exhibit (indicated by asterisks) have been excluded because such information is both (i) not material and (ii) would
be competitively harmful if publicly disclosed.
Financial
Statements Schedules
None.
All schedules have been omitted because the information required to be set forth therein is not applicable or has been included in the
consolidated financial statements and notes thereto.
Item
9. Undertakings
The undersigned Registrant
hereby undertakes:
(1) To file, during any period
in which offers or sales of the securities registered hereby are being made, a post-effective amendment to the registration statement:
(i) to include any prospectus
required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus
any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
(iii) to include any material
information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of
determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration
by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) To file a post-effective
amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed
offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus
is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements
on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3)
of the Act or Item 8.A of Form 20-F if such financial statements and information are contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
(5) That, for the purpose of
determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance
on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was
made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately
prior to such date of first use.
(6) That, for the purpose of
determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of the securities, the
undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold
to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such purchaser:
(i) any preliminary prospectus
or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by such undersigned Registrant;
(iii) the portion of any other
free writing prospectus relating to the offering containing material information about such undersigned Registrant or its securities
provided by or on behalf of the undersigned Registrant; and
(iv) any other communication
that is an offer in the offering made by the undersigned Registrant to the purchaser.
(7) Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of London, United Kingdom, on April 23, 2021.
|
4D Pharma plc
|
|
|
|
|
By:
|
/s/
Duncan Peyton
|
|
Name:
|
Duncan
Peyton
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
|
By:
|
/s/
John Beck
|
|
Name:
|
John
Beck
|
|
Title:
|
Chief
Financial Officer
|
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENT, that each person whose signature appears below hereby constitutes and appoints Duncan Peyton, John Beck
and Alexander Stevenson, and each of them, individually, as his true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead in any and all capacities, in connection with this Registration Statement,
including to sign in the name and on behalf of the undersigned, this Registration Statement and any and all amendments (including post-effective
amendments, exhibits thereto, and other documents in connection therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as amended, which relates to this Registration
Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons on
April 23, 2021 in the capacities indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Duncan Peyton
|
|
Chief
Executive Officer and Director
|
|
April
23, 2021
|
Duncan
Peyton
|
|
|
|
|
|
|
|
|
|
/s/
Alexander Stevenson
|
|
Director
and Chief Scientific Officer
|
|
April
23, 2021
|
Alexander
Stevenson
|
|
|
|
|
|
|
|
|
|
/s/
John Beck
|
|
Chief
Financial Officer
|
|
April
23, 2021
|
John
Beck
|
|
|
|
|
|
|
|
|
|
/s/
Axel Glasmacher
|
|
Chairman
(non-executive) of the Board of Directors
|
|
April
23, 2021
|
Axel
Glasmacher
|
|
|
|
|
|
|
|
|
|
/s/
Alexander Macrae
|
|
Director
|
|
April
23, 2021
|
Alexander
(Sandy) Macrae
|
|
|
|
|
|
|
|
|
|
/s/
Edgardo Baracchini
|
|
Director
|
|
April
23, 2021
|
Edgardo
(Ed) Baracchini
|
|
|
|
|
|
|
|
|
|
/s/
Katrin Rupalla
|
|
Director
|
|
April
23, 2021
|
Katrin
Rupalla
|
|
|
|
|
|
|
|
|
|
/s/
Paul Maier
|
|
Director
|
|
April
23, 2021
|
Paul
Maier
|
|
|
|
|
SIGNATURE
OF AUTHORIZED U.S. REPRESENTATIVE OF THE REGISTRANT
Pursuant
to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of the registrant has signed
this registration statement or amendment thereto on April 23, 2021.
|
4D
Pharma Delaware Inc.
|
|
|
|
|
By:
|
/s/
Glenn Dourado
|
|
Name:
|
Glenn
Dourado
|
|
Title:
|
President
|
|
|
|
|
Authorized
Representative in the United States
|
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