Any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the
information we include in this Quarterly Report on Form 10-Q, including our unaudited interim condensed consolidated financial statements and accompanying notes, and the additional information in the other reports we file with the Securities and
Exchange Commission. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline and you could lose part or all of your investment.
Set forth below are certain risk factors applicable to our business that we believe are important to highlight.
Risks Related to Our Business, Financial Position and Capital Requirements
We have a limited operating history and have never generated any product revenue.
We are a clinical-stage biopharmaceutical company with a limited operating history. We were founded in December 2005, and our operations
to date have been limited to organizing our company and developing the Versamune
®
platform and related immunotherapy product candidates that incorporate the technology
of our Versamune
®
platform. We have not yet successfully completed a large-scale, pivotal clinical trial, obtained marketing approval, manufactured Versamune
®
at commercial scale, or conducted sales and marketing activities that will be necessary to successfully commercialize our Versamune
®
products. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and
commercializing immunotherapies.
Our ability to generate revenue and achieve and maintain profitability will depend upon our ability to successfully complete
the development of our Versamune
®
-based products for the treatment of HPV-related cancers, or PDS0101, and/or complete the development of our PDS0102, PDS0103, or
PDS0104 products, or, collectively with PDS0101, the Versamune
®
Products, for treatment of non-HPV-related cancers and other infectious diseases and to obtain the
necessary regulatory approvals. We have never generated any product revenue, and have no immunotherapy candidate in late-stage clinical development or approved for commercial sale.
Even if we receive regulatory approval for the sale of the Versamune
®
Products, we do not know when we will begin to generate revenue from PDS0101, if at all. Our ability to generate revenue depends on a number of factors, including our ability to:
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set an acceptable price for Versamune
®
-based immunotherapy candidates, including the
Versamune
®
Products, and obtain coverage and adequate reimbursement from third-party payors;
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establish sales, marketing, manufacturing and distribution systems;
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add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing and planned future clinical
development and commercialization efforts and operations as a public company;
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develop manufacturing capabilities for bulk materials and manufacture commercial quantities of PDS0101 and other Versamune
®
Products at acceptable cost levels;
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achieve broad market acceptance of PDS0101 and other Versamune
®
Products in the medical
community and with third-party payors and consumers;
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attract and retain an experienced management and advisory team;
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launch commercial sales of PDS0101 and other Versamune
®
Products, whether alone or in
collaboration with others; and
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maintain, expand and protect our intellectual property portfolio.
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Because of the numerous risks and uncertainties associated with immunotherapy development and manufacturing, we are unable to predict
the timing or amount of increased development expenses, or when we will be able to achieve or maintain profitability, if at all. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, or
comparable non-U.S. regulatory authorities, to perform studies or clinical trials in addition to those we currently anticipate. Even if PDS0101 is approved for commercial sale, we anticipate incurring significant costs associated with the
commercial launch of and the related commercial-scale manufacturing requirements for PDS0101 and other Versamune
®
Products. If we cannot successfully execute on any of
the factors listed above, our business may not succeed and your investment will be adversely affected.
We have incurred significant losses since our inception and expect to continue to incur
significant losses for the foreseeable future and may never achieve or maintain profitability.
We have never generated any product revenues and expect to continue to incur substantial and increasing losses as we continue to develop
PDS0101 and other Versamune
®
based Products. PDS0101 has not been approved for marketing in the United States and may never receive such approval. As a result, we are
uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to generate revenue and achieve profitability is dependent on our ability to complete development, obtain necessary regulatory
approvals, and have PDS0101 manufactured and successfully marketed. We cannot assure you that we will be profitable even if we successfully commercialize PDS0101 or other Versamune
®
Products. If we successfully obtain regulatory approval to market PDS0101, our revenues will be dependent, in part, upon, the size of the markets in the territories for which regulatory approval is received, the number of
competitors in such markets for the approved indication, and the price at which we can offer PDS0101. If the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician
choice or treatment guidelines, we may not generate significant revenue from sales of PDS0101, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail
to become and remain profitable the market price of our common stock and our ability to raise capital and continue operations will be adversely affected.
We expect research and development expenses to increase significantly for PDS0101 and other Versamune
®
Products. In addition, even if we obtain regulatory approval, significant sales and marketing expenses will be required to commercialize PDS0101. As a result, we expect to continue to incur
significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on our financial position and working capital. As of March 31, 2019, we had an
accumulated deficit of $14.2 million.
We are dependent on the success of PDS0101, which is still in early-stage clinical development, and if
PDS0101 does not receive regulatory approval or is not successfully commercialized, our business may be harmed.
PDS0101 is only in early clinical development, and as a consequence, it is too early to determine whether the Versamune
®
Products will ever be approved for commercial sale or marketable. We expect that a substantial portion of our efforts and expenditures over the next few years will be
devoted to PDS0101 and other Versamune
®
Products. Accordingly, our business currently depends heavily on the successful development, regulatory approval and
commercialization of PDS0101. PDS0101 may not receive regulatory approval or be successfully commercialized even if regulatory approval is received. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of
PDS0101 is and will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. We are not permitted to market PDS0101 in the United States until
it receives approval of a biologics license application, or BLA, from the FDA, or in any foreign countries until it receives the requisite approval from such countries. To date, we have only completed Phase 1/2A clinical trials for certain
applications of PDS0101. As a result, we have not submitted a BLA to the FDA or comparable applications to other regulatory authorities and do not expect to be in a position to do so for the foreseeable future. Obtaining approval of a BLA is an
extensive, lengthy, expensive and inherently uncertain process, and the FDA may delay, limit or deny approval of PDS0101 for many reasons, including:
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we may not be able to demonstrate that PDS0101 is safe and effective to the satisfaction of the FDA;
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the FDA may not agree that the completed Phase 1/2A clinical trials of PDS0101 satisfy the FDA
’
s
requirements and may require us to conduct additional testing;
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the results of our future clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;
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the FDA may disagree with the number, design, size, conduct or implementation of one or more of our clinical trials;
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the contract research organizations, or CROs, that we retain to conduct clinical trials may take actions outside of our control that materially and adversely impact our
clinical trials;
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the FDA may not find the data from our preclinical studies and clinical trials sufficient to demonstrate that the clinical and other benefits of PDS0101 outweigh the safety
risks;
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the FDA may disagree with our interpretation of data from our preclinical studies and clinical trials;
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the FDA may not accept data generated at our clinical trial sites;
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if our BLA is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may
recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;
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the FDA may require development of a risk evaluation and mitigation strategy, or REMS, as a condition of approval;
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the FDA may identify deficiencies in our manufacturing processes or facilities; or
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the FDA may change its approval policies or adopt new regulations.
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We will require additional capital to fund our operations, and if we fail to obtain necessary
financing, we may not be able to complete the development and commercialization of PDS0101.
We expect to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize PDS0101. Even
with our current cash reserves, we will require substantial additional capital to complete the development and potential commercialization of PDS0101 and the development of other Versamune
®
Products. If we are unable to raise capital or find appropriate partnering or licensing collaborations, when needed or on acceptable terms, if at all, we could be forced to delay, reduce or eliminate one or more of
our development programs or any future commercialization efforts. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our development efforts.
Based upon our current operating plan, we believe that our cash reserves will be sufficient to fund our operating expenses and
capital expenditure requirements for at least the next 12 months from the date of this report. Our estimate as to what we will be able to accomplish is based on assumptions that may prove to be inaccurate, and we could exhaust our available capital
resources sooner than is currently expected. Because the length of time and activities associated with successful development of PDS0101 is highly uncertain, we are unable to estimate the actual funds we will require for development and any
approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
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the initiation, progress, timing, costs and results of our planned clinical trials;
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the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;
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the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
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the cost of defending potential intellectual property disputes, including any patent infringement actions brought by third parties against us now or in the future;
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the effect of competing technological and market developments;
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the cost of establishing sales, marketing and distribution capabilities in regions where we choose to commercialize PDS0101 on our own; and
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the initiation, progress, timing and results of the commercialization of PDS0101, if approved, for commercial sale.
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Additional funding may not be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient
amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of PDS0101 or potentially discontinue operations.
Raising additional funds by issuing securities may cause dilution to existing stockholders, and
raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.
We expect that significant additional capital will be needed in the future to continue our planned operations. Until such time, if ever,
as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, strategic alliances and license and development agreements in connection with any collaborations. We do
not currently have any committed external source of funds. To the extent that we raise additional capital by issuing equity securities, our existing stockholders
’
ownership may
experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, creating liens, redeeming our stock or making investments.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third
parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or Versamune
®
Products or grant licenses on terms
that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, or through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties on
acceptable terms, we may be required to delay, limit, reduce or terminate our PDS0101 development or future commercialization efforts or grant rights to develop and market other Versamune
®
Products that we would otherwise develop and market.
Our future success depends on our ability to retain executive officers and attract, retain and
motivate qualified personnel.
We are highly dependent on our executive officers and the other principal members of the executive and scientific teams, particularly
our President and Chief Executive Officer, Dr. Frank K. Bedu-Addo, our Chief Medical Officer, Dr. Lauren Wood, and our Chief Scientific Officer, Dr. Gregory L. Conn. The employment of our executive officers are at-will and our executive officers
may terminate their employment at any time, subject to applicable notice requirements. The loss of the services of any of our senior executive officers could impede the achievement of our research, development and commercialization objectives. We
do not maintain
“
key person
”
insurance for any executive officer or employee.
Recruiting and retaining qualified scientific, clinical, and operational personnel is also critical to our success. We may not be able
to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. we also experience competition for the hiring of scientific and clinical personnel from
universities and research institutions. Our industry has experienced an increasing rate of turnover of management and scientific personnel in recent years. In addition, we rely on consultants and advisors, including scientific and clinical
advisors, to assist us in devising our research and development and commercialization strategy. Our consultants and advisors may be employed by third parties and have commitments under consulting or advisory contracts with other entities that may
limit their availability to advance our strategic objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to the company, our business may be harmed.
If we fail to obtain or maintain adequate coverage and reimbursement for PDS0101, our ability to generate revenue could
be limited.
The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford
expensive treatments. Sales of any of PDS0101 that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of PDS0101 will be paid by health maintenance, managed care,
pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only
on a limited basis, we may not be able to successfully commercialize PDS0101. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequate pricing that will allow it to realize
a sufficient return on our investment.
Outside the United States, international operations are 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 may cause us to price PDS0101 on less favorable terms than we currently anticipate. In many countries, particularly the
countries of the European Union, the prices of medical products 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 the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of PDS0101 to other available therapies. In
general, the prices of products 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 PDS0101. 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 revenues and profits.
Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce
healthcare costs may cause such organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for PDS0101. We expect to experience pricing pressures in
connection with the sale of PDS0101 due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly
prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.
We will need to expand our organization, and may experience difficulties in managing this growth,
which could disrupt operations.
Our future financial performance and our ability to commercialize PDS0101 and compete effectively will depend, in part, on our ability
to effectively manage any future growth. As of March 31, 2019,
we had 10 employees and 5 consultants.
We expect to hire additional employees for our managerial, clinical,
scientific and engineering, operational, manufacturing, sales and marketing teams. We may have operational difficulties in connection with identifying, hiring and integrating new personnel. Future growth would impose significant additional
responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of our attention away
from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to
operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects,
such as the development of PDS0101. If we are unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business
strategy.
Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and
other resources, different risk profiles and a longer history in the industry than us. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality
candidates and consultants than what it has to offer. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can select and develop PDS0101 and our business will be limited.
Our employees, independent contractors, principal investigators, consultants, commercial
collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations.
We are exposed to the risk that our employees and contractors, including principal investigators, consultants, commercial collaborators,
service providers and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations
of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud and abuse and health
regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of financial information or data. Misconduct by these parties may also involve the improper use or
misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter third-party 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 be in compliance with
such 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 financial results, including the
imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future
earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Our business and operations would suffer in the event of system failures.
Our computer systems and those of our service providers, including our CROs, are vulnerable to damage from computer viruses,
unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our or their operations, it could result in a material disruption of our development
programs. For example, the loss of preclinical or clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the
extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of
PDS0101 could be delayed.
Our failure to comply with international data protection laws and regulations could lead to government enforcement
actions and significant penalties against us, and adversely impact our operating results.
EU member states and other foreign jurisdictions, including Switzerland, have adopted data protection laws and regulations which impose
significant compliance obligations. Moreover, the collection and use of personal health data in the EU, which was formerly governed by the provisions of the EU Data Protection Directive, was replaced with the EU General Data Protection Regulation,
or the GDPR, in May 2018. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and
confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of personal data. The GDPR also imposes strict rules on the transfer of personal data out of the EU to the U.S.,
provides an enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. The GDPR requirements
apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information. The recent implementation of the GDPR has increased our responsibility and liability in relation to
personal data that we process, including in clinical trials, and we may in the future be required to put in place additional mechanisms to ensure compliance with the GDPR, which could divert management’s attention and increase our cost of doing
business. In addition, new regulation or legislative actions regarding data privacy and security (together with applicable industry standards) may increase our costs of doing business. In this regard, we expect that there will continue to be new
proposed laws, regulations and industry standards relating to privacy and data protection in the United States, the EU and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business.
Our failure to comply with state and/or national data protection laws and regulations could lead to government
enforcement actions and significant penalties against us, and adversely impact our operating results.
There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security
concerns, and some state privacy laws apply more broadly than the Health Insurance Portability and Accountability Act (HIPAA) and associated regulations. For example, California recently enacted legislation – the California Consumer Privacy Act, or
CCPA – which goes into effect January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures
of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Legislators have stated that they intend to propose
amendments to the CCPA before it goes into effect, and the California Attorney General will issue clarifying regulations. Although the law includes limited exceptions, including for certain information collected as part of clinical trials as
specified in the law, it may regulate or impact our processing of personal information depending on the context. It remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted.
We expect to incur significant additional costs as a result of being a public company, which may
adversely affect our operating results and financial condition.
We expect to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well
as rules implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, the SEC, and Nasdaq. These rules and regulations are expected to increase our accounting, legal and financial compliance costs and
make some activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements and we expect those costs to increase in the future. We also expect these rules and
regulations to make it more expensive for us to maintain directors
’
and officers
’
liability insurance and we
may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors, our board committees, or as executive officers. Increases in costs incurred as a result of becoming a publicly traded company may adversely affect our operating results and financial condition.
The recently enacted tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law the
“
Tax
Cuts and Jobs Act,
”
or TCJA, which significantly amends the Internal Revenue Code of 1986. The TCJA, among other things, reduces the corporate tax rate from a top marginal rate
of 35% to a flat rate of 21%, limits the tax deduction for interest expense to 30% of adjusted earnings, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are
repatriated, allows immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits (including reducing the business tax credit for certain
clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as
“
orphan drugs
”
). We continue to examine the effect these changes may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the TCJA is uncertain and our business and
financial condition could be adversely affected.
Risks Related to Clinical Development, Regulatory Approval and Commercialization
Clinical trials are very expensive, time-consuming, difficult to design and implement and involve
an uncertain outcome, and if they fail to demonstrate safety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, we will be unable to commercialize PDS0101.
PDS0101 is still in early-stage clinical development and will require extensive additional clinical testing before we are prepared to
submit a BLA for regulatory approval for any indication or for any other treatment regime. We cannot predict with any certainty if or when it might submit a BLA for regulatory approval for PDS0101 or whether any such BLAs will be approved by the
FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with our proposed endpoints for any clinical trial we
propose, which may delay the commencement of our clinical trials. The clinical trial process is also time-consuming. We estimate that the clinical trials we need to conduct to be in a position to submit BLAs for PDS0101 will take several years to
complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. In later stages of clinical trials, PDS0101 may fail to show the desired safety and efficacy
traits despite having progressed through preclinical studies and initial clinical trials, and the results of early clinical trials of PDS0101 therefore may not be predictive of the results of our planned Phase 1 and 2 trials. A number of companies
in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.
Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have
believed their immunotherapies performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success in preclinical testing and early clinical trials does not ensure that
later clinical trials, which involve many more subjects and different cancers than we have studied in Phase 1/2A clinical trials to date, and the results of later clinical trials may not replicate the results of prior clinical trials and
preclinical testing.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to
receive marketing approval or commercialize PDS0101, including that:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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clinical trials of PDS0101 may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon
product development programs;
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the number of subjects required for clinical trials of PDS0101 may be larger than we anticipate; enrollment in these clinical trials may be slower than we anticipate, or
participants may drop out of these clinical trials at a higher rate than we anticipate;
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Our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with
regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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the cost of clinical trials of PDS0101 may be greater than we anticipate; and
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the supply or quality of PDS0101 or other materials necessary to conduct clinical trials of PDS0101 may be insufficient or inadequate.
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If we are required to conduct additional clinical trials or other testing of PDS0101 beyond those that we currently contemplate, if we
are unable to successfully complete clinical trials of PDS0101 or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for PDS0101;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
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be subject to additional post-marketing testing requirements; or
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have the product removed from the market after obtaining marketing approval.
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Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not
know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to
commercialize PDS0101, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize PDS0101, any of which may harm our business and results of operations.
Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process
and could be made more difficult or rendered impossible by multiple factors outside our control.
We may encounter delays in enrolling, or be unable to enroll, a sufficient number of participants to complete any of our clinical
trials. Once enrolled, we may be unable to retain a sufficient number of participants to complete any of our trials. Late-stage clinical trials of PDS0101 may require the enrollment and retention of large numbers of subjects. Subject enrollment and
retention in clinical trials depends on many factors, including the size of the subject population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing
treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of subjects to clinical sites and the eligibility criteria for the study.
Furthermore, any negative results we may report in clinical trials of PDS0101 may make it difficult or impossible to recruit and retain
participants in other clinical trials of PDS0101. Delays or failures in planned subject enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop PDS0101, or could
render further development impractical. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we
will be limited in our ability to compel their actual performance in compliance with applicable regulations. Enforcement actions brought against these third parties may cause further delays and expenses related to our clinical development programs.
We face significant competition from other biotechnology and pharmaceutical companies, and our
operating results will suffer if we fail to compete effectively.
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of
competition. As a result, PDS0101 could become obsolete before we recoup any portion of our related research and development and commercialization expenses. Competition in the biopharmaceutical industry is based significantly on scientific and
technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain governmental approval for testing,
manufacturing and marketing. We compete with specialized biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many
biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements
with other biopharmaceutical companies. These companies, as well as academic institutions and governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and
consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital to us.
We are aware of certain investigational new drugs under development or approved products by competitors that are used for the
prevention, diagnosis, or treatment of certain diseases we have targeted for drug development. Various companies are developing biopharmaceutical products that have the potential to directly compete with PDS0101 even though their approach to may be
different. The biotechnology and biopharmaceutical industries are highly competitive, and this competition comes from both biotechnology firms and from major pharmaceutical companies, including companies like Advaxis, Transgene, ISA
Pharmaceuticals, Genexine, and Inovio as well as Etubics, Vaccibody, Admedus, Cel-Sci, Neo-ImmuneTech, Kite Pharma, Immune Design, Dynavax, Bavarian Nordic, Seattle Genetics, and Selecta Bioscience, each of which is pursuing cancer vaccines and/or
immunotherapies. Many of these companies have substantially greater financial, marketing, and human resources than we do (including, in some cases, substantially greater experience in clinical testing, manufacturing, and marketing of pharmaceutical
products). We also experience competition in the development of our immunotherapies from universities and other research institutions and competes with others in acquiring technology from such universities and institutions.
Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of
capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly than PDS0101.
We will face competition from other drugs currently approved or that will be approved in the future for the treatment of the other
cancers and infectious diseases we are currently targeting. Therefore, our ability to compete successfully will depend largely on our ability to:
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develop and commercialize immunotherapies that are superior to other alternatives in the market;
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demonstrate through our clinical trials that PDS0101 is differentiated from existing and future therapies;
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attract qualified scientific, immunotherapy development and commercial personnel;
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obtain additional patent or other proprietary protection for PDS0101;
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obtain required regulatory approvals;
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obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and
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successfully develop and commercialize, independently or with collaborators, new applications for PDS0101 or immunotherapies.
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The availability of our competitors
’
immunotherapies and other treatments could limit the demand, and the price we are able to charge, for PDS0101. The inability to compete with existing or subsequently introduced immunotherapies and other treatments would have an adverse impact on
our business, financial condition and prospects.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license
novel compounds that could PDS0101 less competitive. In addition, any new immunotherapy that competes with an approved treatment must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price
competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA
’
s approval for
or commercializing medicines before we do, which would have an adverse impact on our business and results of operations.
PDS0101 may cause adverse effects or have other properties that could delay or prevent its
regulatory approval or limit the scope of any approved label or market acceptance.
Adverse events caused by PDS0101 could cause reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or
halt clinical trials and could result in the denial of regulatory approval. If clinical trials for PDS0101 report an unacceptable frequency or severity of adverse events, our ability to obtain regulatory approval for PDS0101 may be negatively
impacted.
Furthermore, if PDS0101 is approved and then causes serious or unexpected side effects, a number of potentially significant negative
consequences could result, including:
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regulatory authorities may withdraw their approval of PDS0101 or impose restrictions on its distribution or other risk management measures;
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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
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we may be required to change the way PDS0101 is administered or to conduct additional clinical trials;
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we could be sued and held liable for injuries sustained by patients;
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we could elect to discontinue the sale of PDS0101; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining market acceptance of PDS0101 and could substantially increase the
costs of commercialization.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals,
we will not be able to commercialize, or will be delayed in commercializing, PDS0101, and our ability to generate revenue will be impaired.
PDS0101 and the activities associated with its development and commercialization, including its design, testing, manufacture, safety,
efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other
countries. Failure to obtain marketing approval for PDS0101 will prevent us from commercializing PDS0101. We have not received approval to market a PDS0101 from regulatory authorities in any jurisdiction. We have only limited experience in filing
and supporting the applications necessary to gain marketing approvals and expect to rely on CROs to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting
information to the various regulatory authorities for each therapeutic indication to establish the safety and efficacy of PDS0101. Securing regulatory approval also requires the submission of information about the product manufacturing process to,
and inspection of manufacturing facilities by, the relevant regulatory authority. PDS0101 may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that
may preclude it from obtaining marketing approval or prevent or limit commercial use.
The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary
substantially based upon a variety of factors. We cannot assure you that we will ever obtain any marketing approvals in any jurisdiction. Changes in marketing approval policies during the development period, changes in or the enactment of
additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial
discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varying interpretations of
the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval of PDS0101. Additionally, any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable.
Even if we obtain FDA approval in the United States, we may never obtain approval for or commercialize
PDS0101 in any other jurisdiction, which would limit our ability to realize each product’s full market potential.
In order to market PDS0101 in a particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements
on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions.
In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory
approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional testing and validation and additional administrative review periods. Seeking foreign regulatory
approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials that could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent
the introduction of PDS0101 in those countries. PDS0101 is not approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply
with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced.
Our product candidates are in various stages of development.
Favorable results in pre-clinical or early stage clinical trials may not be predictive of success in later clinical trials and may not
lead to commercially viable products for any of several reasons. For example, our product candidates may fail to be safe and effective in clinical trials or additional pre-clinical studies, or we may have inadequate financial or other resources to
pursue discovery and development efforts for new product candidates. Our product candidates will require significant additional development, clinical trials, regulatory clearances and additional investment by us before they can be commercialized.
Even if we obtain regulatory approval, we will still face extensive ongoing regulatory
requirements and PDS0101 may face future development and regulatory difficulties.
Marketing of PDS0101, if approved, along with the manufacturing processes, post- approval clinical data, labeling, packaging,
distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for PDS0101, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other
regulatory authorities. These requirements include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listing requirements, continued compliance with current Good Manufacturing
Practice, or cGMP, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and current GCP
requirements for any clinical trials that we conduct post-approval. Even if marketing approval of PDS0101 is granted, the approval may be subject to limitations on the indicated uses for which PDS0101 may be marketed or to the conditions of
approval. If PDS0101 receives marketing approval, an accompanying label may limit the approved use of PDS0101, which could limit sales.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety and/or
efficacy of PDS0101. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes
stringent restrictions on manufacturers
’
communications regarding off-label use and if we promote or otherwise markets PDS0101 for indications other than its approved
indications, we may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging
violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with PDS0101, manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on manufacturing PDS0101;
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restrictions on the labeling or marketing of PDS0101;
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restrictions on PDS0101 distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
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withdrawal of PDS0101 from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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fines, restitution or disgorgement of profits or revenues;
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suspension or withdrawal of marketing approvals;
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refusal to permit the import or export of PDS0101;
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seizures of PDS0101; or
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injunctions or the imposition of civil or criminal penalties.
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The FDA
’
s policies may change and additional
government regulations may be enacted that could prevent, limit or delay regulatory approval of PDS0101. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
maintain regulatory compliance, we may lose any marketing approval that we may have obtained.
Even if PDS0101 receives marketing approval, it may fail to achieve market acceptance by
physicians, patients, third-party payors or others in the medical community necessary for commercial success.
If PDS0101 receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients,
third-party payors and others in the medical community. If PDS0101 does not achieve an adequate level of acceptance, we may not generate significant revenues and become profitable. The degree of market acceptance, if approved for commercial sale,
will depend on a number of factors, including but not limited to:
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the efficacy and potential advantages compared to alternative treatments;
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effectiveness of sales and marketing efforts;
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the cost of treatment in relation to alternative treatments;
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our ability to offer PDS0101 for sale at competitive prices;
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the convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the willingness of the medical community to offer customers PDS0101 in addition to or in the place of other immunotherapies;
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the strength of marketing and distribution support;
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the availability of third-party coverage and adequate reimbursement;
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the prevalence and severity of any side effects; and
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any restrictions on the use of PDS0101 together with other medications.
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Because we expect sales of PDS0101, if approved, to generate substantially all of our revenues for the foreseeable future, the failure
of PDS0101 to achieve market acceptance would harm our business and could require us to seek additional financing sooner than we otherwise plan.
We may expend our limited resources to pursue a particular product candidate or indication and
fail to capitalize on product 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 are initially developing our lead product candidate, PDS0101 and the
other Versamune
®
Products. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and
product 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.
If we fail to comply with state and federal healthcare regulatory laws, we could face
substantial penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of our operations, any of which could harm our business.
Although we do not provide healthcare services or submit claims for third-party reimbursement, we are subject to healthcare fraud and
abuse regulation and enforcement by federal and state governments, which could significantly impact our business. The laws that may affect our ability to operate include, but are not limited to:
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the Federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying
remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment
may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid;
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the Federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying
remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment
may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid;
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the FCA
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s civil provisions, which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a
false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the FCA
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s criminal provisions, which imposes criminal fines or imprisonment against individuals or
entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent;
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HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters;
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the federal beneficiary inducement statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the
person knows or should know is likely to influence the beneficiary
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s selection of a particular supplier of items or services reimbursable by a Federal or state
governmental program;
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the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or
collectively, the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and
other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party
payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device 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; and state laws that require device manufacturers to report
information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.
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Further, the Affordable Care Act, among other things, amended the intent requirements of the federal anti-kickback statute and certain
criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. Moreover, while we do not plan to submit claims and our
customers will make the ultimate decision on how to submit claims, from time to time, we may provide reimbursement guidance to our customers. If a government authority were to conclude that we provided improper advice to our customers or encouraged
the submission of false claims for reimbursement, it could face action against it by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result
in a material adverse effect on our reputation, business, results of operations and financial condition.
We have entered into consulting and employment arrangements with individuals, physicians and other healthcare providers.
Compensation for some of these arrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory
agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our
financial relationships with providers who influence the ordering of and use our products to be in violation of applicable laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare
reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a
number of investigations, prosecutions, convictions and settlements in the healthcare industry.
Responding to investigations can be time- and resource-consuming and can divert management
’
s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent
decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Product liability lawsuits against us could cause us to incur substantial liabilities and could
limit the commercialization of PDS0101.
We face an inherent risk of product liability exposure related to the testing of PDS0101 in human clinical trials and will face an even
greater risk if we commercially sell any products that we may develop after approval. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for PDS0101 or other immunotherapies 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 any related litigation;
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substantial monetary awards to trial subjects or patients;
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the inability to commercialize any products we may develop.
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Although we maintain product liability insurance coverage in the amount of up to $5 million per claim
and $5 million in the
aggregate, it may not be adequate to cover all liabilities that it may incur. We anticipate that we will need to increase our insurance coverage as we continue clinical trials and if we
successfully commercialize any products. 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.
If we are unable to establish sales, marketing and distribution capabilities either on our own or
in collaboration with third parties, it may not be successful in commercializing PDS0101, if approved.
We do not have any infrastructure for the sales, marketing or distribution of PDS0101, and the cost of establishing and maintaining such
an organization may exceed the cost-effectiveness of doing so. In order to market PDS0101, we must build our sales, distribution, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these
services. To achieve commercial success for PDS0101, we will need either our own, or a third party’s, sales and marketing organization. There are significant expenses and risks involved with creating teams for, or contracting for, sales, marketing
and distribution capabilities. Any failure or delay in the development of our sales, marketing and distribution capabilities, either internally or in collaboration with third parties, could delay the launch of PDS0101, which would adversely affect
commercialization.
We may be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an
internal team or the support of a third-party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
If we obtain approval to commercialize PDS0101 outside of the United States, a variety of risks associated with
international operations could harm our business.
If PDS0101 is approved for commercialization, we may enter into agreements with third parties to market them in certain jurisdictions
outside the United States. We expect that we will be subject to additional risks related to international operations or entering into international business relationships, including:
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different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries;
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reduced protection for intellectual property rights;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign reimbursement, pricing and insurance regimes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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potential noncompliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions;
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shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
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We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed
by both the European Union and many of the individual countries in Europe with which we will need to comply.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain
marketing approval of and commercialize PDS0101 and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes
regarding the healthcare system that could, among other things, prevent or delay marketing approval of PDS0101, restrict or regulate post-approval activities and affect our ability to profitably sell PDS0101.
For example, in March 2010, Affordable Care Act was enacted to broaden access to health insurance, reduce or constrain the growth of
healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Although
the full effect of the Affordable Care Act may not yet be fully understood, the law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry
’
s regulatory burdens and operating costs.
Moreover, the Drug Supply Chain Security Act imposes obligations on manufacturers of prescription drugs in finished dosage forms. We
have not yet adopted the significant measures that will be required to comply with this law. We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or
what the impact of such changes on our business, if any, may be.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the
amounts that federal and state governments will pay for immunotherapies, which could result in reduced demand for PDS0101 or additional pricing pressures.
Risks Related to Our Dependence on Third Parties
We have limited to no manufacturing, sales, marketing or distribution capability and we must rely
upon third parties for such.
We currently have agreements with various third-party manufacturing facilities for production of PDS0101 for research and development
and testing purposes. We depend on third-party manufacturers to supply our preclinical and clinical materials and will be reliant on a third-party manufacturer to produce PDS0101 on a commercial scale, should that product receive regulatory
approval. Third-party manufacturers must be able to meet our deadlines and adhere to quality standards and specifications. Our predominant reliance on third parties for the manufacture of PDS0101 creates a dependency that could severely disrupt our
research and development, clinical testing, and sales and marketing efforts if the source of such supply proves to be unreliable or unavailable. There is no assurance that any third-party manufacturers will be able to meet commercialized scale
production requirements in a timely manner or in accordance with applicable standards or cGMP.
We intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if
those third parties perform in an unsatisfactory manner, it may harm our business.
We intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and we expect to have
limited influence over their actual performance.
We intend to rely upon CROs to monitor and manage data for our clinical programs, as well as the execution of future nonclinical
studies. We expect to control only certain aspects of our CROs
’
activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance
with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs will be required to comply with the Good Laboratory Practices and GCPs, which are regulations and guidelines enforced by
the FDA and are also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in the form of International Conference on Harmonization guidelines for PDS0101. The
Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with GCPs, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. Accordingly, if our CROs fail to comply with these regulations or fail to recruit
a sufficient number of subjects, we may be required to repeat clinical trials, which would delay the regulatory approval process.
Our CROs will not be our employees, and we will not control whether or not they devote sufficient time and resources to our future
clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our
competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our
proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere
to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize PDS0101. As a result,
our financial results and the commercial prospects for PDS0101 would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
If our relationship with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on
commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which
can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or
that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.
If we are unable to establish or manage strategic collaborations in the future, our revenue and
drug development may be limited.
Our strategy may include potential reliance upon strategic collaborations for marketing and commercialization of PDS0101 and other
Versamune
®
Products. We also rely on strategic collaborations for research, development, marketing and commercialization for PDS0101 and other Versamune
®
Products. We have also been heavily reliant upon third party outsourcing for our clinical trials execution and production of drug supplies for use in clinical trials.
Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the
establishment of collaborations on favorable terms, if at all. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of
the collaborator
’
s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator
’
s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential
market for PDS0101 and other Versamune
®
Products, the costs and complexities of manufacturing and delivering PDS0101 and other Versamune
®
Products to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership
without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative immunotherapies for similar indications that may be available to collaborate on and whether such a
collaboration could be more attractive than the one with us for PDS0101 and other Versamune
®
Products.
Our current collaborations, as well as any future new collaborations, may never result in the successful development or
commercialization of PDS0101 and other Versamune
®
Products or the generation of sales revenue. To the extent that we have entered or will enter into co-promotion or
other collaborative arrangements, PDS0101 and other Versamune
®
Products revenues are likely to be lower than if we directly marketed and sold any products that we
develop.
Management of our relationships with our collaborators will require:
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significant time and effort from our management team;
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financial funding to support said collaboration;
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coordination of our research and development programs with the research and development priorities of our collaborators; and
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effective allocation of our resources to multiple projects.
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If we continue to enter into research and development collaborations, our success will in part depend on the performance of our
collaborators. We will not directly control the amount or timing of resources devoted by our collaborators to activities related to PDS0101 and other Versamune
®
Products. Our collaborators may not commit sufficient resources to our research and development programs or the commercialization, marketing or distribution of PDS0101 and other Versamune
®
Products. If any collaborator fails to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed or terminated. Also, our collaborators may pursue
existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. If we fail to make required milestone or royalty payments to our collaborators or to observe other obligations
in our agreements with them, our collaborators may have the right to terminate those agreements. Additionally, our collaborators may seek to renegotiate agreements we has entered into, or may disagree with us about the terms and implementation of
these agreements. If collaborators disagree with us about the terms or implementation of our agreements, we may face legal claims that may involve considerable expense and could negatively affect our financial results.
Our relationships with customers and third-party payors will be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of PDS0101 and other
Versamune
®
Products, if approved for marketing. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and
other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our medicines for which we obtain marketing approval. Restrictions under applicable
federal and state healthcare laws and regulations include the following:
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the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration,
directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare
programs such as Medicare and Medicaid;
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the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly
presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes
criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information;
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in
connection with the delivery of or payment for healthcare benefits, items or services;
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the federal transparency requirements under the Affordable Care Act requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of
Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items
or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry
’
s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring immunotherapy manufacturers to report information related to payments to
physicians and other health care providers or marketing expenditures.
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Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our Versamune
®
platform, PDS0101, or other Versamune
®
Products or if the scope of the patent
protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property
related to Versamune
®
. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries. We seek to
protect our proprietary position by filing patent applications in the United States and abroad related to PDS0101. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner.
It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to
obtain patent protection. The patent applications that we own or in-licenses may fail to result in issued patents with claims that cover PDS0101 or its applications in the United States or in other countries. There is no assurance that all
potentially relevant prior art relating, which can invalidate a patent or prevent a patent from issuing from a pending patent application is known to us. Even if patents do successfully issue, third parties may challenge their validity,
enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the
successful commercialization of PDS0101 and other Versamune
®
Products that we may develop. Further, if we encounter delays in regulatory approvals, the period of time
during which we could exclusively market PDS0101 and other Versamune
®
Products under patent protection could be reduced.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual
questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the
patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in 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 know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or
that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not
result in patents being issued which protect PDS0101 or other Versamune
®
Products, in whole or in part, or which effectively prevent others from commercializing
competitive technologies and immunotherapies. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform legislation in the United States could increase the uncertainties and costs surrounding the prosecution of our
patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or Leahy-Smith Act was signed into law. The Leahy-Smith Act includes a number of significant changes to United
States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent Office recently developed new regulations and procedures to govern administration of the
Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the
Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith 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, all of which could have an adverse effect on our business and financial condition.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent Office, or become involved in
derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging its patent rights or the patent rights of others. In other countries, we may be subject to or become involved in opposition proceedings
challenging our patent rights or the patent rights of others. An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or
immunotherapies and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize PDS0101 without infringing third- party patent rights. In addition, 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 license, develop or commercialize PDS0101 and other Versamune
®
Products.
The issuance of a patent is not conclusive as to our inventorship, scope, validity or enforceability, and our owned and licensed patents
may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from
using or commercializing similar or identical technology and immunotherapies, or limit the duration of the patent protection of our technology and immunotherapies. Moreover, patents have a limited lifespan. In the United States and other countries,
the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for PDS0101 and other Versamune
®
Products, we may be open to competition from generic versions of PDS0101 or other similar products using our technology. Given the amount of time required for the
development, testing and regulatory review of new immunotherapy candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not
provide us with sufficient rights to exclude others from commercializing immunotherapies similar or identical to ours.
We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other
intellectual property rights, which could be expensive, time consuming and unsuccessful.
Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To
counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is
unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that such patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of
our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third-party may also cause the third-party to bring counter claims against us, such
as claims asserting that our patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged
failure to meet any of several statutory requirements, including lack of novelty, obviousness, non- enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with
prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as
inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and
unenforceability is unpredictable. We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and patent applications that we have licensed, we may have limited
or no right to participate in the defense of any licensed patents against challenge by a third-party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future
patent protection on PDS0101 and other Versamune
®
Products. Such a loss of patent protection could harm our business.
We may also face claims that our products infringe patents that our competitors hold. Claims for alleged infringement and any resulting
lawsuit, if successful, could subject us to significant liability for damages and invalidations of our proprietary rights. Any such lawsuit, regardless of our success, would likely be time consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property litigation could also force us to do one or more of the following: (a) stop selling our products; (b) obtain a license(s), from the owner of any asserted intellectual property, to
sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or (c) redesign our products to avoid using the relevant technology.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in
countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license on commercially reasonable terms. Any litigation or other
proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a
risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our
ability to protect the Versamune
®
platform, PDS0101 and other Versamune
®
Products.
The United States has recently enacted and implemented wide-ranging patent reform legislation. The United States Supreme Court has ruled
on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. 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 value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations
governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that it has licensed or that it might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world, which could
impair our business.
Filing, prosecuting and defending patents covering PDS0101 throughout the world would be prohibitively expensive. Competitors may use
our technologies in jurisdictions where we have not obtained patent protection to develop their own immunotherapies and, further, may export otherwise infringing immunotherapies to territories where we may obtain patent protection, but where patent
enforcement is not as strong as that in the United States. These immunotherapies may compete with PDS0101 in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may
not be effective or sufficient to prevent them from so competing.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a
competitor will discover them or that our trade secrets will be misappropriated or disclosed.
We seek to protect our proprietary technology in part by entering into confidentiality agreements with third parties and, if
applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements
typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other
confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our
proprietary position is based, in part, on our know-how and trade secrets, a competitor
’
s discovery of our trade secrets or other unauthorized use or disclosure would impair
our competitive position and may have an adverse effect on our business and results of operations.
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to
publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach
of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor
’
s discovery of our trade secrets
would impair our competitive position and have an adverse impact on our business.
General Market Risk Factors
Our stock price is expected to be volatile, and the market price of our common stock may drop in
the future.
The market price of our common stock may be subject to significant fluctuations in the future. Market prices for securities of
early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:
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the ability of us and our partners to develop product candidates and conduct clinical trials that demonstrate such product candidates
are safe and effective;
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the ability of us or our partners to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;
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failure of any of our
product candidates to demonstrate safety and efficacy, receive regulatory
approval and achieve commercial success;
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failure by us to maintain our existing third-party license, manufacturing and supply agreements;
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failure by us or our licensors to prosecute, maintain, or enforce our intellectual property rights;
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changes in laws or regulations applicable to our
product candidates;
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any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;
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adverse regulatory authority decisions;
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introduction of new or competing products by our competitors;
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failure to meet or exceed financial and development projections we may provide to the public;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
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announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;
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disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain intellectual property protection for our
technologies;
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additions or departures of key personnel;
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significant lawsuits, including intellectual property or stockholder litigation;
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if securities or industry analysts do not publish research or reports about us, or if they issue an adverse or misleading opinions regarding our business and stock;
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if large short positions are taken in our stock and or negative reports are provided, whether they are based in fact or otherwise;
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changes in the market valuations of similar companies;
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general market or macroeconomic conditions;
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sales of our common stock by us or our stockholders in the future;
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trading volume of our common stock;
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adverse publicity relating to our markets generally, including with respect to other products and potential products in such markets;
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changes in the structure of health care payment systems; and
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period-to-period fluctuations in our financial results.
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Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating
performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company
’
s common stock.
In the past, following periods of volatility in the market price of a company
’
s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources,
which could significantly harm the combined company
’
s profitability and reputation.
We do not anticipate will pay any cash dividends in the foreseeable future.
We currently expect to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital
appreciation, if any, of our company will be the sole source of our stockholders’ gain, if any, for the foreseeable future.
Future sales of shares by existing stockholders could cause our stock price to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after
certain legal restrictions on resale lapse, the trading price of our common stock could decline. As of March 31, 2019, we had
5,172,938
shares of common stock outstanding.
Approximately
3,320,000 of such shares are freely tradable, without restriction, in the public market. Approximately 1,846,000 of such shares of common stock are held by directors,
executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
Ownership of our common stock is highly concentrated, which may prevent our stockholders from
influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.
Our executive officers and directors and their affiliates beneficially own or control approximately
29.%
of the outstanding shares of our common stock as of March 31, 2019. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome
of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may also delay
or prevent a change of control of our company, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors
’
perception that conflicts of interest may exist or arise.
Because the Merger resulted in an ownership change under Section 382 of the Code for Edge,
pre-merger U.S. net operating loss carryforwards and certain other tax attributes will be subject to limitations.
As of December 31, 2018, prior to completion of the Merger, Edge had federal and state net operating loss carryforwards, or NOLs, of
$148 million and $29.5 million, respectively, due to prior period losses. If a corporation undergoes an
“
ownership change
”
within the meaning of Section 382 of the Code, the corporation
’
s U.S. net operating loss carryforwards and certain other tax attributes arising from before the
ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation
’
s equity
ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state and foreign tax laws. We believe that Edge may have already undergone one or more ownership changes prior
to the Merger. However, the Merger also resulted in an ownership change for Edge and, accordingly, Edge
’
s U.S. net operating loss carryforwards and certain other tax attributes
available to us are subject to limitations on their use.
Changes in tax laws and regulations or our operations may impact our effective tax rate and may
adversely affect our business, financial condition and operating results.
Changes in tax laws in any jurisdiction in which we operate, or adverse outcomes from any tax audits that we may be subject to in any
such jurisdictions, could result in an unfavorable change in our effective tax rate, which could adversely affect our business, financial condition, and operating results.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or
the Tax Act. The changes included in the Tax Act are broad and complex. The impact of these changes on how the combined company
’
s earnings are taxed include, among other items,
(i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii) repealing the corporate alternative minimum tax and changing how existing credits can be utilized; (iii) temporarily providing for elective immediate expensing for certain
depreciable property; (iv) creating a new limitation on the deductibility of interest expense; and (v) changing rules related to uses and limitations of net operating losses created in tax years beginning after December 31, 2017. We are continuing
to evaluate the Tax Act and its impact on our business. It is possible that the Tax Act will be subject to further changes either in a technical corrections bill or entirely new legislation. The overall impact of the Tax Act also depends on the
future interpretations and regulations that may be issued by U.S. tax authorities. We expects there will be further guidance provided by these authorities potentially having a material adverse effect on our financial condition or results of
operations. The impact of broad proposals or of regulatory issuances on our business can vary substantially depending upon the specific changes or further guidance made and how the changes or guidance are implemented by the authorities.
Anti-takeover provisions under Delaware law could make an acquisition more difficult and may prevent
attempts by our stockholders to replace or remove our current or future management.
Because we are incorporated in Delaware, our company is governed by the provisions of Section 203 of the DGCL, which prohibits
stockholders owning in excess of 15% of our voting stock from merging or combining with us. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with
our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove then current management by
making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Risks Related to Our Evaluation of Strategic Alternatives
Stockholder litigation and regulatory inquiries and investigations are expensive and could harm our business,
financial condition and operating results and could divert management attention.
In the past, securities class action and/or stockholder derivative litigation and inquiries or investigations by regulatory authorities
have often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events, such as negative results from one or more clinical trials. We
are currently and in the future may be the target of this type of action as a result of changes in our stock price, past transactions, results of clinical trials or other matters. Any stockholder litigation and/or regulatory investigations against
us, whether or not resolved in our favor, could result in substantial costs and divert our management’s attention from other business concerns, which could adversely affect our business and cash resources and our ability to consummate a potential
strategic transaction or the ultimate value our stockholders receive in any such transaction.