ITEM 1 – BUSINESS
Overview
We are a biopharmaceutical company focused
on advancing XCART, a personalized CAR T cell platform technology engineered to target patient-specific tumor neoantigens. The
Company is initially advancing cell-based therapeutics targeting the unique B-cell receptor on the surface of an individual patient’s
malignant tumor cells, for the treatment of B-cell lymphomas. The XCART technology, developed by the Scripps Research Institute
(the “Institute”) in collaboration with the Shemyakin-Ovchinnikov Institute of Bioorganic Chemistry (“IBCH”),
is believed to have the potential to significantly enhance the safety and efficacy of cell therapy for B-cell lymphomas by generating
patient- and tumor-specific CAR T cells. On March 1, 2019, we entered into agreements to acquire the XCART technology (the “Transaction”)
and closed the Transaction on July 19, 2019 (the “Closing Date”) concurrent with the completion of an approximate $15
million public offering (the “Offering”).
More than 70,000 new cases of non-Hodgkin Lymphoma (“NHL”)
are diagnosed each year in the United States, and more than 19,000 patients die of this group of diseases annually. Most forms
of NHL, including follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma, lymphoplasmacytic lymphoma, and small lymphocytic
lymphoma, which account collectively for ~45% of all cases of NHL, are incurable with available therapies, except for allo-SCT.
However, many NHL patients are not suitable candidates for allo-SCT, and this treatment is also limited by significant rates of
morbidity and mortality due to graft versus host disease. Aggressive B-cell lymphomas such as diffuse large B-cell lymphoma account
for 30-35% of NHL. The majority of patients with aggressive B-NHL are successfully treated with combination chemotherapy, but a
significant portion relapse or have refractory disease, and the outcome of these patients is poor.
CAR-T cell therapies are an innovative
approach in which a patient’s T cells are genetically modified to carry chimeric antigen receptors (“CARs”).
High objective response rates have been reported in some hematological malignancies, but patients treated with CAR-T cell therapies
can have serious and sometimes fatal toxicities, which include instances in which the CAR-T cells have caused high levels of cytokines
due to over-activation, referred to as “cytokine release syndrome,” or CRS, neurologic toxicities and cases in which
CAR-T cells have attacked healthy organs. In each case, these toxicities have sometimes resulted in death. HSCT, also known as
bone marrow transplantation, has for decades been curative for many patients with hematological cancers or orphan inherited blood
disorders. However, adoption of HSCT to date has been limited by the risks of transplant-related morbidity and mortality from graft-versus-host-disease,
or GvHD, and the potential for serious infections or cancer recurrence due to the lack of an effective immune system following
a transplant.
The XCART technology
platform was designed by its originators to utilize an established screening technique to identify peptide ligands that bind specifically
to the unique B-cell receptor (“BCR”) on the surface of an individual patient’s malignant tumor cells. The peptide
is then inserted into the antigen-binding domain of a CAR T cell, and a subsequent transduction/transfection process is used to
engineer the patient’s T cells into a CAR T format which redirects the patient’s T cells to attack the tumor. Essentially,
the XCART screening platform is the inverse of a typical CAR T screening protocol wherein libraries of highly specific antibody
domains are screened against a given target. In the case of XCART screening, the target is itself an antibody domain, and hence
highly specific by its nature. The XCART technology creates the possibility of personalized treatment of lymphomas utilizing a
CAR with an antigen-binding domain that should only recognize, and only be recognized by, the unique BCR of a particular patient’s
B-cell lymphoma. An expected result for XCART is limited off-tumor toxicities, such as B-cell aplasia. Our clinical development
program will seek to confirm the early preclinical results, and to demonstrate a more attractive safety profile than existing therapies.
We anticipate that our primary focus will now be on advancing this technology through regulatory approval and commercialization.
Additionally, our proprietary drug development
platform, PolyXen, enables next-generation biological drugs by modifying their half-life and other pharmacological properties.
PolyXen has been demonstrated in human clinical trials to confer prolonged half-life on biotherapeutics such as recombinant human
erythropoietin and recombinant Factor VIII (“rFVIII”). We believe this technology may be applied to a variety of drug
candidates to enhance the properties of the therapeutic, potentially providing advantages over competing products.
Our drug candidates have resulted from
our research activities or that of our collaborators and are in the development stage. As a result, we continue to commit a significant
amount of our resources to our research and development activities and anticipate continuing to do so for the near future. To date,
none of our drug candidates have received regulatory marketing authorization in the U.S. by the FDA nor in any other territories
by any applicable agencies. We are receiving ongoing royalties pursuant to a license of our PolyXen technology to an industry partner.
We also have oncology
therapeutic investigational drug candidate XBIO-101 (sodium cridanimod) for the treatment of progestin resistant endometrial cancer.
We have exclusive rights to develop and commercialize XBIO-101 worldwide, except for specified countries in the Commonwealth of
Independent States. XBIO-101 has been granted orphan drug designation by the U.S. Food and Drug Administration (“FDA”)
for the potential treatment of progesterone receptor negative endometrial cancer in conjunction with progesterone therapy. We commenced
a Phase 2 trial under an IND in 2017, with the first patient dosed in October 2017. We closed patient enrollment in the trial in
March 2019 as a result of slower than expected progress on the trial resulting from patient enrollment and retention challenges
and have suspended further development of XBIO-101. We currently have no plans to continue development of XBIO-101.
Although we hold a broad patent portfolio,
the focus of our internal development efforts in 2019 was limited to winding down the XBIO-101 Phase 2 trial and preliminary development
efforts associated with the XCART technology.
We were incorporated under the laws of
the State of Nevada in August 2011. We, directly or indirectly, through our wholly-owned subsidiary, Xenetic Biosciences (U.K.)
Limited (“Xenetic U.K.”), and its wholly-owned subsidiaries, Lipoxen Technologies Limited (“Lipoxen”),
Xenetic Bioscience, Incorporated (“XTI”) and SymbioTec, GmbH (“SymbioTec”), own various U.S. federal trademark
registrations and applications, and unregistered trademarks and service marks, including but not limited to XCART, OncoHist, PolyXen,
ErepoXen and ImuXen.
Our Strategy
In July 2019 we acquired the XCART platform,
a novel CAR T technology engineered to target patient- and tumor-specific neoantigens (see “Business Developments”
for a description of the Transaction and “Our Technology and Drug Candidates” for a description of the technology).
We believe these personalized T cell therapies have the potential to offer cancer patients substantial benefits over the existing
standard of care and currently approved CAR T therapies. We plan to initially apply the XCART technology to develop cell-based
therapeutics for the treatment of B-cell Lymphomas with our primary focus to advance this technology through regulatory approval
and commercialization. We also intend to pursue industry collaborations and potential licenses to develop XCART for other uses
and indications.
We plan to opportunistically advance our
PolyXen platform technology by entering into collaborative out-license arrangements with global pharmaceutical companies who could
apply the necessary resources for advancing drug candidates through to worldwide commercialization, or by entering into arrangements
with other partners that would in-license our technology on a restrictive-market basis. The latter arrangement would provide support
to us in the form of access to partner-generated clinical data, which is informative when contemplating potential monetization
of our proprietary technology in larger markets. One aim of these efforts would be to drive incremental shareholder value and generate
working capital to assist in providing the funding required to support our XCART development efforts.
We intend to pursue orphan drug designations
and accelerated approval pathways for relevant oncology indications as appropriate in both the U.S. and Europe. If our orphan oncology
drug candidates are granted orphan drug designation, then we may benefit from certain key advantages of orphan status including
certain market exclusivities.
We intend to advance development of our
drug candidates primarily through the use of contract manufacturing and contract research organizations (“CROs”) in
order to efficiently manage our resources. Continuous pipeline growth and advancement of out-licensed drug candidates is dependent,
in part, on our ability to raise sufficient capital and to advance our existing co-development collaborations and strategic arrangements
as well as enter into new such arrangements.
Business Developments
XCART Technology
On March 1, 2019 (the “Signing Date”)
we entered into agreements with Hesperix SA, a Swiss Corporation (“Hesperix”) and Opko Pharmaceuticals, LLC (“OPKO”)
to acquire the XCART technology. We entered into a Share Purchase Agreement, as amended (the “Share Purchase Agreement”),
with Hesperix, the owners of Hesperix (each, a “Seller” and collectively, the “Sellers”), and Alexey Andreevich
Vinogradov, as the representative of each Seller, pursuant to which we purchased from Sellers all of the issued and outstanding
shares of capital stock of Hesperix.
Under the terms of the Share Purchase Agreement,
we issued to Sellers an aggregate of Four Hundred Six Thousand Two Hundred Forty-Six (406,246) shares of our Common Stock (the
“Transaction Shares”) at the time of the closing. In addition, the Share Purchase Agreement contains customary representations
and warranties relating to each Seller and about the condition of the Company and Hesperix. We issued the Transaction Shares pursuant
to a registration statement on Form S-4.
On the Signing Date and in connection with
the Transaction, Hesperix entered into an assignment agreement (the “Hesperix Assignment Agreement”) with IBCH, Pharmsynthez,
a Russian pharmaceutical company, and certain other parties thereto (collectively, the “Assignors”), pursuant to which
the Assignors have agreed, among other things, to sell, assign, transfer, and convey unto Hesperix all of their individual right,
title, and interest throughout the world in and to patents related to “Articles And Methods Directed To Personalized Therapy
Of Cancer,” and the related know-how. Hesperix has agreed to pay each of IBCH and Pharmsynthez a royalty rate in the low
single digit range based on the net sales of products in each country in which, in the absence of the Hesperix Assignment Agreement,
the manufacture, use, offer for sale, sale, or importation of such product would infringe a valid claim of a patent.
Also on the Signing Date, we entered into
an assignment agreement with OPKO (the “OPKO Assignment Agreement”), pursuant to which the Company will acquire and
accept, all of OPKO’s right, title and interest in and to that certain Intellectual Property License Agreement (the “IP
License Agreement”), entered into between the Institute and OPKO regarding certain patents related to “Articles And
Methods Directed To Personalized Therapy Of Cancer” and in which the Institute agreed to grant an exclusive royalty-bearing
license, to the patent rights owned by the Institute to OPKO, and OPKO has agreed to pay the Institute a royalty rate in the low
single digit range based on the net sales of products in each country in which, in the absence of the IP License Agreement, the
manufacture, use, offer for sale, sale, or importation of such product would infringe a valid claim of a patent or pending application.
Under the terms of the OPKO Assignment
Agreement and the IP License Agreement, we issued One Hundred Sixty Four Thousand Sixty Two (164,062) shares of our Common Stock
to OPKO and Fifty-Four Thousand Six Hundred Eighty Seven (54,687) shares of our Common Stock to the Institute at the time of the
closing. In addition, the OPKO Assignment Agreement contains customary representations and warranties relating to OPKO and the
IP License Agreement. The Transaction closed on July 19, 2019.
The Offering
On
July 17, 2019, we entered into an underwriting agreement (the "Underwriting Agreement") with Maxim Group LLC (the “Underwriter”),
relating to our Offering of 1,730,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 (the
“Common Stock”), Prefunded Warrants to purchase 570,000 shares of Common Stock (the “Prefunded Warrants”),
and warrants to purchase 2,300,000 shares of the Common Stock (the “Purchase Warrants,” and together with the Shares
and the Prefunded Warrants, the "Firm Securities"). Each Share was sold together with one Purchase Warrant at a combined
public offering price of $6.50 per Share and Purchase Warrant. Each Pre-funded Warrant purchased was sold together with one Purchase
Warrant at a combined public offering price of $6.49 per Prefunded Warrant and Purchase Warrant. The Prefunded Warrants were exercisable
beginning on July 17, 2019 at an exercise price of $0.01 per share. The holders of the Prefunded Warrants did not have the right
to exercise any portion of the Prefunded Warrant if the holder (together with its affiliates) would beneficially own in excess
of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such
percentage ownership is determined in accordance with the terms of the Prefunded Warrants. Pursuant
to the Underwriting Agreement, we also granted the Underwriter a 45-day option to purchase up to an additional 345,000 shares of
Common Stock and/or Purchase Warrants to purchase up to 345,000 shares of Common Stock (the "Additional Securities,"
and together with the Firm Securities, the "Securities"), at the public offering price less discounts and commissions.
The
Securities were offered, issued, and sold pursuant to an effective Registration Statement on Form S-1 (Reg. No. 333-231508)
and accompanying prospectus filed with the SEC under the Securities Act of 1933, as amended.
On
the Closing Date, we completed the Offering resulting in gross proceeds to us of approximately
$15.0 million before deducting the underwriting discount and offering fees and expenses payable by us. In addition, on the Closing
Date, the Underwriter exercised its overallotment option with respect to 160,000 Purchase Warrants, resulting in additional gross
proceeds of $1,600. We intend to use the net proceeds from the Offering of approximately $13.4 million to fund our research, development
and clinical programs, including the development of the XCART technology acquired in the Transaction, and for other general corporate
purposes. All of the Prefunded Warrants were exercised during the year ended December 31, 2019, resulting in $5,700 of net proceeds
to us.
The
Purchase Warrants were immediately exercisable at a price of $13.00 per share of Common Stock and expire five years from the date
of issuance. The Purchase Warrants began trading on NASDAQ on July 23, 2019 under the symbol “XBIOW.” The Purchase
Warrants also provide that if the weighted-average price of Common Stock on any trading day on or after 30 days after issuance
is lower than the then-applicable exercise price per share, each Purchase Warrant may be exercised, at the option of the holder,
on a cashless basis for one share of Common Stock. The weighted-average price of our Common Stock 30 days after issuance was lower
than the applicable exercise price per share. As a result, Purchase Warrants to purchase 2.2 million shares were exercised on a
cashless basis into 2.2 million shares of our Common Stock during the year ended December 31, 2019.
Reverse Stock Split
On June 25, 2019, we effected a reduction,
on a 1 for 12 basis, in our authorized Common Stock, par value $0.001, along with a corresponding and proportional decrease in
the number of shares issued and outstanding (the “Reverse Stock Split”). On the effective date of the Reverse Stock
Split, (i) every 12 shares of Common Stock were reduced to one share of Common Stock, with any fractional amounts rounded up to
one share; (ii) the number of shares of Common Stock into which each outstanding warrant, restricted stock unit, or option to purchase
Common Stock were proportionately reduced on the same basis as the Common Stock; (iii) the exercise price of each outstanding warrant
or option to purchase Common Stock were proportionately increased on a 1 for 12 basis; and (iv) the number of shares of Common
Stock into which each share of preferred stock could be converted were proportionately reduced on the same basis as the Common
Stock. Unless otherwise indicated, all of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive
basis, to reflect this Reverse Stock Split.
On June 21, 2019, we filed a Certificate
of Change to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effect the Reverse Stock Split.
The Reverse Stock Split was effective at 12:01 a.m., eastern Time, on June 25, 2019. No fractional shares were issued as a result
of the Reverse Stock Split and any remaining share fractions were rounded up to the nearest whole share, resulting in 1,442 new
shares of Common Stock being issued to existing holders of our Common Stock.
Increase in Authorized Shares
On June 19, 2019, shareholders of the Company
voted to approve an amendment to our Articles of Incorporation to increase the authorized shares of Common Stock to 150,000,000
shares on a pre-Reverse Stock Split basis (the “Authorized Share Increase”). On June 24, 2019, we filed a Certificate
of Amendment to the Company’s Articles of Incorporation with the Secretary of the State of Nevada to effect the Authorized
Share Increase as of June 25, 2019. As a result of the Authorized Share Increase and after giving effect to the Reverse Stock Split,
we had 12,500,000 authorized shares of Common Stock.
Closing of Patient Enrollment in
XBIO-101 Phase II EC Trial
We commenced a Phase II trial under an
IND for XBIO-101 in 2017, with the first patient dosed in October 2017. We closed patient enrollment in the trial in March 2019
as a result of slower than expected progress on the trial resulting from patient enrollment and retention challenges and have suspended
further development of XBIO-101.
Our Technology and Drug Candidates
The Technologies
We incorporate our patented and proprietary
technologies into a number of drug candidates which are currently under development internally or with our biotechnology and pharmaceutical
collaborators, with the goal of creating what we believe will be the next generation of biologic drugs and therapeutics. While
we primarily focus on researching and developing oncology drugs, we also have ownership and other economic interests in drugs being
developed by our collaborators to treat other conditions. Our patent portfolio spans five core proprietary technologies including
three platforms, small molecules and biologics covering multiple drug candidates and indications including XCART, XBIO-101, PolyXen,
OncoHist and ImuXen. During the year ended December 31, 2019, our primary focus was on the management of the XBIO-101 Phase II
clinical study and the preliminary development efforts associated with the XCART technology. We have not been actively pursuing
development efforts for PolyXen, OncoHist and ImuXen due to capital constraints. As a result, we anticipate that the focus of our
future internal development efforts will be limited to research and development of our XCART technology.
XCART
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The XCART technology platform was designed by its originators to utilize an established screening technique to identify peptide ligands that bind specifically to the unique BCR on the surface of an individual patient’s malignant tumor cells. The peptide is then inserted into the antigen-binding domain of a CAR T cell, and a subsequent transduction/transfection process is used to engineer the patient’s T cells into a CAR T format which redirects the patient’s T cells to attack the tumor. Essentially, the XCART screening platform is the inverse of a typical CAR T screening protocol wherein libraries of highly specific antibody domains are screened against a given target. In the case of XCART screening, the target is itself an antibody domain, and hence highly specific by its nature. The XCART technology creates the possibility of personalized treatment of lymphomas utilizing a CAR with an antigen-binding domain that should only recognize, and only be recognized by, the unique BCR of a particular patient’s B-cell lymphoma. An expected result for XCART is limited off-tumor toxicities, such as B-cell aplasia. Our clinical development program will seek to confirm the early preclinical results, and to demonstrate a more attractive safety profile than existing therapies to support our preliminary discussions with the FDA in advance of an IND filing.
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PolyXen
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An enabling biological platform technology designed to extend
the circulation time of drug molecules in the human body by chemically attaching polysialic acid, or PSA, to the drug molecule
by a process termed polysialylation, thereby creating potentially superior next generation therapeutic candidates. PSA, a biopolymer,
comprising a chain of sialic acid molecules, is a natural constituent of the human body, although we obtain our PSA from a bacterial
source.
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OncoHist
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A novel therapeutic platform technology that utilizes the properties of modified human histone H1.3 for targeted cell apoptosis (programmed cell death), which may enable OncoHist to treat a broad range of cancer indications. OncoHist, unlike many competing oncology therapies, is based on a molecule occurring naturally in the human body, primarily in the cell nucleus, and is therefore hypothesized to be better tolerated and less immunogenic than other oncology therapies.
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ImuXen
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A novel liposomal co-entrapment encapsulation technology designed to maximize both cell and immune system mediated responses. The technology is based on the co-entrapment of the nominated antigen(s) in a liposomal vesicle. The technology when applied may create new vaccines and improve the use and efficacy of certain existing human vaccines.
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Though we hold a broad patent portfolio, the focus of our internal
development efforts in 2019 was limited to research and development of XBIO-101 and XCART due to capital constraints.
Research, Outside Services and Collaborations
Through partner efforts, we are developing our pipeline of next-generation
bio-therapeutics and novel oncology drugs based on our XCART and PolyXen proprietary technologies. In order to do this while efficiently
managing our overhead, we rely on the services of contract manufacturers and CROs and our strategic collaborations. We currently
do not have in-house research facilities to pursue these initiatives. Accordingly, continuous pipeline growth and advancement of
our technologies and drug candidates is dependent on several important collaborations and strategic arrangements including our
arrangements with:
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Pharmsynthez, a beneficial owner of over 5% of our Common Stock;
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Serum Institute of India Limited (“Serum Institute”), one of the world’s largest vaccine manufacturers and one of India’s largest biotech companies; and
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Takeda Pharmaceuticals Co. Ltd (formerly Shire plc) (“Takeda”), a global biopharmaceutical leader.
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Accordingly, in addition to pursuing our development of the
XCART technology, we also have significant interests in drug candidates being developed by our collaborators to treat other conditions.
We may collect milestone payments and royalties pursuant to these collaborations to the extent that these drugs are successfully
developed and marketed. However, other than royalty payments under a sublicense with Takeda, we do not anticipate any milestone
or royalty payments in the near term, if at all. For further detail, please read the section titled “Significant Co-Development
Collaborations and Strategic Arrangements” below.
Our Drug Candidate Pipeline
Our product pipeline contains a number of drug candidates under
development internally and with our biotechnology and pharmaceutical collaborators. The following discussion summarizes key information
regarding our current drug candidates, organized by our internal programs and our collaborators’ programs:
XCART
XCART is a personalized CAR T cell platform
technology engineered to target patient-specific tumor neoantigens. We believe XCART has the potential to offer cancer patients
substantial benefits over the existing standard of care and currently approved CAR T therapies including enhanced the safety and
efficacy of cell therapy for B-cell lymphomas. We are initially advancing cell-based therapeutics targeting the unique B-cell receptor
on the surface of an individual patient’s malignant tumor cells, for the treatment of B-cell lymphomas.
On March 1, 2019 we entered into agreements
with Hesperix and OPKO to acquire all of the right, title, and interest throughout the world in and to patents related to the XCART
technology and closed the Transaction on July 19, 2019. By acquiring this novel and differentiated CAR T technology, the Company
will be positioned in a field that is at the forefront in the development of new oncology therapeutics. The XCART platform was
designed to target personalized, patient-specific tumor neoantigens and has demonstrated proof of mechanism in B-cell lymphoma,
an area of significant unmet medical need. In addition, the acquisition of XCART fits with our current strategy of focusing on
research addressing unmet needs in oncology. Our R&D efforts will focus initially on leveraging the XCART platform to develop
cell-based therapeutics for the treatment of B-cell Non-Hodgkin lymphomas, an initial global market opportunity estimated to exceed
$5 billion per year.
ErepoXen
ErepoXen, or polysialylated erythropoietin (“PSA-EPO”),
uses our PolyXen platform technology for the treatment of anemia in chronic kidney disease (“CKD”) patients. It is
designed to reduce the dosing frequency by extending the circulating half-life of the therapeutic in the body. We are not pursuing
clinical development of ErepoXen but continue to entertain out-license opportunities for the drug candidate in our licensed territories.
We have collaboration agreements with SynBio LLC (“SynBio”)
and Serum Institute to develop and launch ErepoXen in limited markets pursuant to which we will collect royalties if they are successful
in these efforts.
Serum Institute conducted Phase I and Phase II clinical trials
in 95 human subjects. These safety trials, which had no significant drug-related adverse events, provided us with the data to commence
a Phase II, repeat dosing, ICH compliant clinical trial for ErepoXen in Australia, New Zealand and South Africa for CKD patients
not on dialysis. We completed three cohorts of this study and then terminated the study.
In addition, Serum Institute finished Phase I/II clinical trials
in India of ErepoXen for in-center-dialysis patients and plans to submit a clinical trial application to conduct a Phase III clinical
trial for PSA-EPO in India in 2020.
SynBio received regulatory approval and commenced a Phase II(b)/III
human clinical trial of ErepoXen in Russia and expects to have patient recruitment completed in 2020. SynBio intends to commence
the commercialization and marketing stages of ErepoXen in the Russian and CIS markets subject to approval in such markets.
Drug Candidates in the Pipeline that are not Currently
Active Internally or with Third Party Collaborators
XBIO-101
XBIO-101 is an internal candidate with orphan drug designation
from the FDA for the potential treatment of progesterone receptor negative endometrial cancer in conjunction with progesterone
therapy. An IND application was submitted for XBIO-101 and is in effect for our Phase II clinical trial in the U.S.
We acquired certain IP rights with respect to XBIO-101, and
the worldwide rights to develop, market and license XBIO-101 for certain uses, except for excluded uses within the Commonwealth
of Independent States (“CIS”), from AS Kevelt (“Kevelt”), a wholly-owned subsidiary of Pharmsynthez. We
also acquired Kevelt’s orphan drug designation from the FDA for the use of XBIO-101 in the treatment of PrR- endometrial
cancer in conjunction with progesterone therapy.
XBIO-101 (sodium cridanimod), belongs to a class of low-molecular
weight synthetic interferon, or IFN, inducers and is primarily used in a wide range of therapeutic areas such as antiviral, antibacterial,
antitumor, and inflammatory indications due to its ability to modify or regulate one or more immune system functions. We believe
XBIO-101 may also prove to be therapeutically relevant in hormone-resistant cancers by increasing the levels of PrR expression
in tumor tissue of patients who are PrR deficient. As such, it may restore the sensitivity of non-responsive endometrial cancers
to hormonal (e.g., progestin) therapy. Accordingly, our initial focus was on the use of XBIO-101 for the treatment of endometrial
cancer.
Our decision to investigate XBIO-101 for the treatment of endometrial
cancer was based in part on the history of sodium cridanimod in preclinical and clinical research conducted by others, including
prior clinical trials conducted and completed in Russia that assessed the efficacy and safety of sodium cridanimod. Sodium cridanimod
has been authorized for medicinal use in the Russian Federation for over 20 years with millions of doses estimated to have been
sold for the treatment of non-cancer indications. XBIO-101 is also known under the brand names Neovir, Camedon and Primavir.
The extensive clinical testing conducted by others, as well
as the marketing history of sodium cridanimod, provided support for our authorization to proceed directly with a Phase II efficacy
study under our U.S. IND for the use of sodium cridanimod in conjunction with progestin therapy in patients with progestin resistant,
recurrent or persistent endometrial cancer. We commenced a Phase II trial under an IND in 2017, with first patient dosed in October
2017. We closed patient enrollment in the trial in March 2019 as a result of slower than expected progress on the trial resulting
from patient enrollment and retention challenges and have suspended further development of XBIO-101.
OncoHist
Our drug candidate OncoHist, which has clinical proof of concept,
utilizes the properties of modified human histone H1.3 for targeted cell killing. We were previously researching and developing
OncoHist for the treatment of relapsed or resistant acute myeloid leukemia (“AML”). We completed non-clinical toxicity
studies and had a productive, in-person pre-IND meeting with the FDA in August 2015 where manufacturing and clinical matters were
addressed, including guidance from the FDA regarding inclusion of an additional indication besides AML in our proposed Phase I
clinical trial. However, our efforts in developing this drug candidate have been on hold since 2016 due to capital constraints.
Pipeline Expansion Opportunities
Operating under licenses from us within their home markets,
our collaborators can potentially generate preclinical and clinical data related to our technologies across a wide spectrum of
therapeutic areas. Under these agreements, we retain all rights for major markets and co-own the clinical data. We therefore have
the opportunity to utilize the data in our decision-making process regarding development and commercialization in major markets.
We expect to be able to utilize the results from substantially all of the clinical toxicity data and other clinical data generated
in the development of XBIO-101 and PolyXen, and potentially for OncoHist, and ImuXen, if any, for a variety of orphan oncology
indications and next generation biologic drugs.
Significant Co-Development Collaborations and Strategic Arrangements
Takeda (f/k/a Shire plc)
We are a party to an exclusive research,
development and license agreement with Baxalta US Inc. and Baxalta AB, wholly-owned subsidiaries of Takeda, related to the development
of a novel series of polysialylated blood coagulation factors. This collaboration with Takeda relies on our PolyXen technology
to conjugate PSA to therapeutic blood-clotting factors, with the goal of improving the pharmacokinetic profile and extending the
active half-life of these biologic molecules. The agreement grants Takeda a worldwide, exclusive, royalty-bearing license to our
PSA patented and proprietary technology in combination with Takeda’s proprietary molecules designed for the treatment of
blood and bleeding disorders. The first program under this agreement was a next generation Factor VIII protein product candidate
(“SHP656”).
In May 2017, we announced that Takeda had
terminated further development of SHP656, its polysialylated rFVIII drug candidate for the treatment of hemophilia, being developed
using our proprietary PolyXen technology. While Takeda’s Phase I/II trial demonstrated SHP656’s efficacy and pharmacokinetic
data commensurate with the profile of an extended half-life rFVIII product, the pre-defined once-weekly dosing criterion set forth
in the research, development, license and supply agreement was not met. Based on Takeda’s published research, there were
no treatment-emergent adverse events reported. Though the trial’s pre-defined once-weekly dosing criterion was not met, we
continue to explore the potential for future collaborations with Takeda and Takeda has commenced a new, undisclosed internal project
under the agreement.
In October 2017, we entered into a Right
of Sublicense Agreement (the “Sublicense Agreement”) with Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH (collectively,
with their affiliates, “Baxalta”) wholly-owned subsidiaries of Takeda. Pursuant to the Sublicense Agreement, we granted
to Baxalta the right to grant a nonexclusive sublicense to certain patents related to our PolyXen technology that were previously
exclusively licensed to Baxalta in connection with products related to the treatment of blood and bleeding disorders (“Covered
Products”). Pursuant to the Sublicense Agreement, Baxalta (i) paid us a one-time payment of seven million five hundred thousand
dollars ($7,500,000) in November 2017 and (ii) agreed to pay us single digit royalty payments based upon net sales of the Covered
Products throughout the term. We recognized the one-time payment of $7.5 million as license revenue in connection with this Sublicense
Agreement during the year ended December 31, 2017. Royalty payments on net sales of the Covered Products commenced during the fourth
quarter of 2019.
SynBio LLC
In August 2011, we entered into a stock
subscription and collaborative development agreement with SynBio (the “Co-Development Agreement”), pursuant to which
we granted SynBio an exclusive license to develop, market and commercialize certain drug candidates utilizing molecules based on
our PolyXen and OncoHist platform technologies in Russia and the CIS, collectively referred to herein as the SynBio Market. In
exchange for our granting to SynBio those certain license rights, SynBio granted an exclusive license to us to use any SynBio preclinical
and clinical data generated by SynBio and to engage in the development and commercialization of drug candidates that may arise
from the collaboration in any territory outside of the SynBio Market based upon the Co-Development Agreement.
We hope and expect to mitigate certain
technical and commercial risks of drug development by working in collaboration with SynBio. Under the Co-Development Agreement,
SynBio is responsible for progressing six new product candidates through human proof of concept trials in Russia as primary validation
for the initiation of European Medicines Agency (“EMA”) or FDA clinical trials by us.
The primary goal of the Co-Development
Agreement is to research and develop drug candidates for planned commercialization using SynBio and our combined respective expertise
and technologies. Drug candidates must meet the success criteria as decided upon by a joint steering committee, which includes
representation from both SynBio and us, where we have the right to appoint the chair who has the casting vote. Once a potential
drug candidate is selected, clinical trials will be separately conducted by each company in their respective territories with the
goal to achieve regulatory approval of the products for commercial sale.
SynBio is wholly responsible for funding
and conducting their own research and clinical development activities in Russia, and we are wholly responsible for funding and
conducting our own research and clinical development activities in the U.S., Europe and elsewhere outside the SynBio Market. There
are no milestones or other research-related payments provided for under the Co-Development Agreement other than fees for the provision
of each party’s respective research supplies based on their technology. For the years ended December 31, 2019 and 2018,
we recognized no supply service revenues in connection with the Co-Development Agreement. Among other provisions, the parties may
terminate the Co-Development Agreement in relation to a particular product upon 30 days’ written notice, if such party, in
its reasonable opinion, believes that a third-party IP right exists, which would have a material effect on the research and/or
development of the relevant product. Further, the parties may terminate the Co-Development Agreement if the other party is in material
breach of the Co-Development Agreement and, in the case of a breach capable of remedy, the breach is not remedied within 90 days
of receiving notice specifying the breach and requiring its remedy, or if the other party becomes insolvent. The parties also may
terminate the Co-Development Agreement by immediate written notice to the other party in relation to a specific product such as
if product does not meet the relevant success criteria for the product.
In furtherance of our co-development clinical
objectives, on December 31, 2014, we granted SynBio a warrant to purchase shares of our Common Stock that contain vesting triggers
based on the achievement by SynBio of certain clinical development objectives within specific timeframes (the “SynBio 2014
Warrant”). Simultaneously with the issuance of the SynBio 2014 Warrant, we granted additional warrants to purchase shares
of our Common Stock to SynBio and Pharmsynthez non-director designees under the same terms and conditions of the SynBio 2014 Warrant.
The vesting criteria for the SynBio 2014 warrants was not met and, as a result, the warrants expired during the year ended December
31, 2018. No warrants were exercised during the term of the warrants.
SynBio is a wholly-owned subsidiary of
Pharmsynthez and all ownership percentages held by SynBio are combined with Pharmsynthez.
PJSC Pharmsynthez
In November 2009, we entered into a collaborative
research and development license agreement with Pharmsynthez (the “Pharmsynthez Arrangement”) pursuant to which we
granted an exclusive license to Pharmsynthez to develop, commercialize and market six product candidates based on our PolyXen and
ImuXen technology anywhere within Russia and the CIS, as well as certain clinical and research data developed by us on the six
product candidates. In exchange, Pharmsynthez granted us an exclusive license to use any preclinical and clinical data developed
by Pharmsynthez, within the scope of the Pharmsynthez Arrangement, and to engage in further research, development and commercialization
of drug candidates in any territory outside of Russia and the CIS at our own expense.
We expect to mitigate certain risks of
drug development by reviewing human clinical data arising out of this collaboration with Pharmsynthez before we take a particular
drug candidate into FDA and EMA trials. Under the Pharmsynthez Arrangement, Pharmsynthez is responsible for progressing six new
drug candidates through human proof of concept trials in Russia as primary validation prior to the initiation of EMA/FDA clinical
trials by us outside of Russia. A joint steering committee, where we have the right to appoint the chair who has the casting vote,
was established to facilitate the communication of scientific data and to assist generally with each party’s research decisions
and to monitor research and development progress under the Pharmsynthez Arrangement.
Pharmsynthez is wholly responsible for
funding and conducting its own research and clinical development activities in Russia. We are wholly responsible for funding and
conducting our own research and clinical development activities in the U.S., Europe and the rest of the world outside of Russia
and the ex-CIS regions. There are no milestones or other research related payments provided for under the Pharmsynthez Arrangement
other than royalties. Among other provisions, the parties may terminate the agreement in relation to a particular product upon
30 days’ written notice, if such party, in its reasonable opinion, believe that a third-party intellectual property right
exists which would have a material effect on the research and/or development of the relevant product. Further, the parties may
terminate the agreement if the other party is in material breach of the agreement and, in the case of a breach capable of remedy,
the breach is not remedied within 90 days of receiving notice specifying the breach and requiring its remedy, or if the other party
becomes insolvent. The parties also may terminate the agreement by immediate written notice to the other party in relation to a
specific product if such product does not meet the relevant success criteria for the product.
Pharmsynthez is an affiliate of the Company
and a significant stockholder. Pharmsynthez directly, and indirectly through SynBio, has a share ownership in the Company of approximately
7.4% of the total issued and outstanding Common Stock as of December 31, 2019. In addition to its Common Stock ownership, Pharmsynthez
holds outstanding warrants to purchase our Common Stock, approximately 1.5 million shares of our outstanding Series B Preferred
Stock (as defined in Note 10, Stockholders’ Equity), and all of our issued and outstanding Series A Preferred Stock
(as defined in Note 10, Stockholders’ Equity) through SynBio.
During the third quarter of 2019, we entered into a sponsored
research agreement with Pharmsynthez related to experiments identified by us to support our efforts as we prepare for the initial
tech transfer of the XCART methods to a future academic collaborator. Under the agreement, we made a $350,000 payment to Pharmsynthez
during the third quarter of 2019, which is refundable on a pro rata basis if the project is terminated prematurely as a result
of Pharmsynthez failing to perform the work.
During the fourth quarter of 2019, we entered into a loan agreement
with Pharmsynthez (the “Pharmsynthez Loan”), pursuant to which we advanced Pharmsynthez an aggregate principal amount
of up to $500,000 to be used for the development of Product A under the Co-Development Agreement. The Pharmsynthez Loan has a term
of 15 months and shall accrue interest at a rate of 10% per annum. The Pharmsynthez Loan is guaranteed by all of the operating
subsidiaries of Pharmsynthez, including SynBio and AS Kevelt, and is secured by all of the equity interests of the Company owned
by Pharmsynthez and SynBio.
Serum Institute
In August 2011, we entered into a collaborative
research and development agreement with Serum Institute (the “Serum Agreement”) providing Serum Institute an exclusive
license to use our PolyXen technology to research and develop one potential commercial product, PSA-EPO. Serum Institute is responsible
for conducting all preclinical and clinical trials required to achieve regulatory approvals within certain predetermined territories
at Serum Institute’s own expense. Royalty payments are payable by Serum Institute to us for net sales to certain customers
in the Serum Institute sales territory. Royalty payments are payable by us to Serum Institute for net sales received by us over
the term of the license. There are no milestone or other research-related payments due under the collaborative arrangement. No
royalty, revenue or expense was recognized by us related to the Serum Institute arrangement during the years ended December 31,
2019 and 2018.
Through December 31, 2019, we and Serum
Institute continued to engage in research and development activities with no resultant commercial products. Among other reasons,
the parties may terminate the Serum Agreement by written notice if the other party is in material breach of the Serum Agreement
and, in the case of a breach capable of remedy, the breach is not remedied within 90 days of the other party receiving notice specifying
the breach and requiring its remedy.
In furtherance of our co-development clinical
objectives, on December 31, 2014, we granted to Serum Institute certain warrants to purchase our Common Stock that contain vesting
triggers based on the achievement by Serum Institute of certain clinical development objectives within specific timeframes (“Serum
2014 Warrant”). Simultaneously with the issuance of the Serum 2014 Warrant, we issued additional warrants to purchase our
Common Stock to Serum Institute non-director designees under the same terms and conditions of the Serum 2014 Warrant. The Serum
2014 Warrant expired on December 30, 2019 and no warrants were exercised during the term of the Serum Warrants. In addition, the
Serum Agreement allows for Serum Institute to nominate a non-executive director to our Board of Directors as long as Serum Institute
or its subsidiaries holds at least 6% of our Common Stock. Serum Institute is a related party of ours and had a share ownership
of less than 1% of our total issued Common Stock as of December 31, 2019.
Our Intellectual Property
We strive to protect and enhance the proprietary technology,
inventions, and improvements that are commercially important to our business, including seeking, maintaining and defending patent
rights, whether developed internally or licensed from our collaborators or other third-parties. Our policy is to seek to protect
our proprietary position by, among other methods, filing patent applications in the U.S. and in jurisdictions outside of the U.S.
covering our proprietary technology, inventions, improvements and product candidates that are important to the development and
implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product candidates,
continuing innovation, and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field
of oncology. We also plan to rely on data exclusivity, market exclusivity, and patent term extensions when available. Our commercial
success will depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions,
and improvements; to preserve the confidentiality of our trade secrets; to obtain and maintain licenses to use intellectual property
owned by third-parties; to defend and enforce our proprietary rights, including any patents that we may own in the future; and
to operate without infringing on the valid and enforceable patents and other proprietary rights of third-parties.
Our drug candidates are in various stages of development, each
protected by patent and pending patent applications in the U.S. with the U.S. Patent and Trademark Office (“USPTO”)
and in certain other developed countries. Our first issued patents begin to expire starting in 2021 with the majority of the existing
issued patents expiring between 2025 and 2030.
Our patent strategy is to file patent applications on innovations
and improvements in those jurisdictions that comprise the major pharmaceutical markets in the world or locations where a pharmaceutical
may be manufactured. These jurisdictions include, but are not limited to, the U.S., U.K., Australia, Japan, Canada, South Korea,
China, India, Russia and certain other countries in the European Union (“E.U.”) and Asia, though we do not necessarily
file a patent application in each of these jurisdictions for every patent family.
As of March 6, 2020, we directly or indirectly own, through
our wholly-owned subsidiary, Xenetic U.K., and its wholly-owned subsidiaries, Lipoxen, XTI and SymbioTec, more than 170 U.S. and
international patents that cover various aspects of our technologies. We have acquired or filed patent applications, and plan to
file additional patent applications, covering various aspects of our XCART platform technology including all rights throughout
the world in and to patents and patent applications related to “Articles And Methods Directed To Personalized Therapy Of
Cancer,” and our PolyXen platform technology covering polysialylation and advanced polymer conjugate technologies, respectively,
as well as our other product candidates, including XBIO-101. More specifically, our patents and patent applications cover polymer
architecture, drug conjugates, formulations, methods of manufacturing polymers and polymer conjugates and methods of administering
polymer conjugates. We may also file additional patent applications, where possible, for XBIO-101 and OncoHist for additional uses
and indications.
Our patent portfolio contains patents and patent applications
that encompass our OncoHist platform technology including use of histones for the treatment of different cancers. The OncoHist
patent portfolio, acquired as part of our acquisition of SymbioTec in January 2012, includes OncoHist, a bis-Met histone H1.3.
In addition, our licensed patent portfolio includes patents issued in jurisdictions outside of the U.S. and licensed patent applications
pending in jurisdictions outside of the U.S. that are foreign counterparts to one or more of the foregoing U.S. patents and patent
applications. The OncoHist portfolio also includes patents that cover the use of a histone protein as an antibiotic and to treat
thrombocytopenia and further as an antimicrobial component of a personal care product.
We have received patent protection for certain therapeutics
that use our PolyXen technology linking the specific therapeutic to a PSA. These include, but are not limited to, PSA-EPO, PSA-insulin
and PSA-insulin like protein, SHP656 (PSA-rFVIII), PSA-DNase I and PSA-granulocyte colony stimulating factor (PSA-GCSF). Further
patents cover methods to prepare proteins that are linked to a PSA. These method patents include those that link a PSA to a protein
in a high pH solution as well as patents that use a process for producing an aldehyde derivative of a sialic acid through the opening
and oxidation of a sialic acid unit. For instance, we have patent protection for a PSA linkage that can be at the N-terminus.
We have received patent protection for the production of PSA
and the removal of endotoxin during the purification process. The removal of endotoxin occurs through the addition of a high pH
solution to the PSA and a process to separate a polydisperse ionically charged polysaccharide, such as PSA, into fractions of different
average molecular weight. This is accomplished through the use of a column and elution buffers with different and constant ionic
strength and pH, resulting in a fractionated polysaccharide that has a molecular weight polydispersity of 1.1 or lower.
Issued patents can provide protection for varying periods of
time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal term of patents in
the countries in which they are obtained. In general, patents issued for applications filed in the U.S. can provide exclusionary
rights for 20 years from the earliest effective filing date. In addition, in certain instances, the term of an issued U.S. patent
that covers or claims an FDA approved product can be extended to recapture a portion of the term effectively lost as a result of
the FDA regulatory review period, which is called patent term extension. The restoration period cannot be longer than five years
and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The term of patents
outside of the U.S. varies in accordance with the laws of the foreign jurisdiction, but typically is also 20 years from the earliest
effective filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country,
and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related
extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.
In certain situations, where we work with drugs covered by one
or more patents, our ability to develop and commercialize our technologies may be affected by limitations of our access to these
proprietary drugs. Even if we believe we are free to work with a proprietary drug, we cannot guarantee that we will not be accused
of, or be determined to be, infringing a third-party’s rights and be prohibited from working with the drug or found liable
for damages. Any such restriction on access or liability for damages would have a material adverse effect on our business, results
of operations and financial condition.
The patent positions of pharmaceutical and biotechnology companies,
such as ours, are uncertain and involve complex legal and factual issues. There can be no assurance that patents that have issued
will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable, the legal process associated
with obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to opposition or other
proceedings that can result in the revocation of the patent or maintenance of the patent in amended form (and potentially in a
form that renders the patent without commercially relevant and/or broad coverage). Further, our competitors may be able to circumvent
and otherwise design around our patents. Even if a patent is issued and enforceable, because development and commercialization
of pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a short period of protection,
if any, following the commercialization of products encompassed by our patent(s). We may have to participate in interference proceedings
declared by the USPTO, which could result in a loss of the patent and/or substantial cost to us. Further, we understand that if
any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable IP protection.
U.S. and foreign patent rights and other proprietary rights
exist that are owned by third-parties and relate to pharmaceutical compositions and reagents, medical devices and equipment and
methods for preparation, packaging and delivery of pharmaceutical compositions. We cannot predict with any certainty which, if
any, of these rights will be considered relevant to our technology by authorities in the various jurisdictions where such rights
exist, nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third-parties. We
could incur substantial costs in defending ourselves and our partners against any such claims. Furthermore, parties making such
claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability to develop or commercialize
some or all of our products in the U.S. and in other countries and could result in the award of substantial damages. In the event
of a claim of infringement, we or our partners may be required to obtain one or more licenses from third-parties. There can be
no assurance that we can obtain a license to any technology that we determine we require on reasonable terms, if at all, or that
we could develop or otherwise obtain alternative technology. The failure to obtain licenses, if required, may have a material adverse
effect on our business, results of operations and financial condition. Further, we may not be able to obtain IP licenses related
to the development of our drug candidates on a commercially reasonable basis, if at all.
It is our policy to require our employees and consultants, outside
scientific collaborators, sponsored researchers and other advisors who receive confidential information from us to execute confidentiality
agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of the individual’s relationship with us is to be
kept confidential and not disclosed to third-parties except in specific circumstances. The agreements provide that all inventions
conceived by an employee shall be our property. There can be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.
Manufacturing and Supply
We do not have the capability to manufacture our own materials
necessary to support our drug candidate development programs nor do we intend to acquire such capability as part of our present
business strategy. We currently have agreements in place with Serum Institute whereby Serum Institute would produce clinical materials
for use in the development of drug candidates involving our PolyXen technology, including candidates developed by our partners.
We do not have any agreements in place to manufacture clinical materials for use in the development of our XCART technology and
anticipate seeking a third party manufacturer, including potentially an academic collaborator, for our clinical supply needs.
Government Regulation
General
Government authorities in the U.S., at the federal, state and
local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality
control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and
import of products such as those we are developing. Generally, a new drug must be approved by the FDA through the NDA process and
a new biologic must be licensed by the FDA through the biologics license application (“BLA”) process before it may
be legally marketed in the U.S.
U.S. Regulation
Drug Development Process
In the U.S., the FDA regulates drugs under the Federal Food,
Drug, and Cosmetic Act (“FDCA”), and in the case of biologics, also under the Public Health Service Act, and their
implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure
to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval
may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve
pending applications, withdrawal of an approval, license revocation, a clinical hold, warning letters or untitled letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government
contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material
adverse effect on us.
The process required by the FDA before a drug or biologic may
be marketed in the U.S. generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in accordance with Good Laboratory Practices (“GLP”) regulations and other applicable regulations;
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submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice (“GCP”) regulations to establish the safety and efficacy of the proposed drug for its intended use;
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submission to the FDA of an NDA or BLA;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practices (“cGMP”) requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
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FDA review and approval of the NDA or BLA.
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Once a pharmaceutical candidate is identified for development,
it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation,
as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information
and analytical data, to the FDA as part of the IND. The sponsor will also include a protocol detailing, among other things, the
objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria
to be evaluated, if the first phase lends itself to an efficacy evaluation. Some preclinical testing may continue even after the
IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical
trials due to safety concerns about ongoing or proposed clinical trials or noncompliance with specific FDA requirements, and the
trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted.
All clinical trials must be conducted under the supervision
of one or more qualified investigators in accordance with GCP regulations. They must be conducted under protocols detailing the
objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria
to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and timely safety reports must be submitted to
the FDA and the investigators for serious and unexpected adverse events. An institutional review board (IRB) at each institution
participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution
and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his
or her legal representative, monitor the study until completed and otherwise comply with IRB regulations.
Human clinical trials are typically conducted in three sequential
phases that may overlap or be combined:
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Phase 1: The drug candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
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Phase 2: This phase involves clinical trials in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and appropriate dosage.
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Phase 3: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk-benefit ratio of the drug candidate and provide, if appropriate, an adequate basis for product labeling.
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Post-approval trials, sometimes referred to as Phase IV studies,
may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients
in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase IV clinical trials as
a condition of approval of an NDA or BLA.
The FDA or the sponsor may suspend a clinical trial at any time
on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted
in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In
addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data
safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated
check points based on access to certain data from the trial.
Concurrent with clinical trials, companies usually complete
additional animal studies and must also develop additional information about the chemistry and physical characteristics of the
drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing
process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer
must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging
must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable
deterioration over its shelf life.
While the IND is active and before approval, progress reports
summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted
at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected
suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs,
findings from animal or in-vitro testing suggesting a significant risk to humans, and any clinically important increased incidence
of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
There are also requirements governing the reporting of ongoing
clinical trials and completed trial results to public registries. Sponsors of certain clinical trials of FDA-regulated products
are required to register and disclose specified clinical trial information, which is publicly available at www.clinicaltrials.gov.
Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects
of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their
clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication
being studied has been approved.
U.S. Market Approval Process
The results of product development, preclinical and other non-clinical
studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry
of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA or BLA requesting approval
to market the product. The submission of an NDA or BLA is subject to the payment of user fees; a waiver of such fees may be
obtained under certain limited circumstances. The FDA reviews all NDAs and BLAs submitted to ensure that they are sufficiently
complete for substantive review before it accepts them for filing. The FDA may request additional information rather than accept
an NDA or BLA for filing. In this event, the NDA or BLA must be resubmitted with the additional information. The resubmitted application
also is subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an
in-depth substantive review. The FDA may refer the NDA or BLA to an advisory committee for review, evaluation and recommendation
as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. The approval process is lengthy and often difficult, and the FDA may
refuse to approve an NDA or BLA if the applicable regulatory criteria are not satisfied or may require additional clinical or other
data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA or BLA does not
satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective
for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength,
quality and purity. The FDA reviews a BLA to determine, among other things whether the product is safe, pure and potent and the
facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued
safety, purity and potency. Before approving an NDA or BLA, the FDA will inspect the facility or facilities where the product is
manufactured.
After the FDA evaluates an NDA or BLA, it will issue an approval
letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with prescribing information
for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application
will not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA or
BLA identified by the FDA and may require additional clinical data, such as an additional pivotal Phase 3 trial or other significant
and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a Complete Response Letter
is issued, the sponsor must resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the
application. Even if such data and information are submitted, the FDA may decide that the NDA or BLA does not satisfy the criteria
for approval.
If a product receives regulatory approval, the approval may
be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict
the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase 4 testing, which involves clinical
trials designed to further assess a drug’s safety and effectiveness after NDA or BLA approval, and may require testing and
surveillance programs to monitor the safety of approved products which have been commercialized. The FDA may also place other conditions
on approval including the requirement for a risk evaluation and mitigation strategy (REMS) to assure the safe use of the drug.
If the FDA concludes a REMS is needed, the sponsor of the NDA or BLA must submit a proposed REMS. The FDA will not approve the
NDA or BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans or elements
to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these
limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products.
Marketing approval may be withdrawn for noncompliance with regulatory requirements or if problems occur following initial marketing.
Orphan Drug Act
The Orphan Drug Act provides incentives to manufacturers to
develop and market drugs or biologics for rare diseases and conditions affecting fewer than 200,000 persons in the U.S. at the
time of application for orphan drug designation, or for a patient population greater than 200,000 in the U.S. where there is no
reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the U.S. The first developer
to receive FDA marketing approval for an orphan drug is entitled to a seven-year exclusive marketing period in the U.S. for that
product. However, a drug that the FDA considers to be clinically superior to, or different from, another approved orphan drug,
even though for the same indication, may also obtain approval in the U.S. during the seven-year exclusive marketing period. In
addition, holders of exclusivity for orphan drugs are expected to assure the availability of sufficient quantities of their orphan
drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing exclusivity for the drug.
Pediatric Information
Under the Pediatric Research Equity Act of 2007 (“PREA”),
NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of the drug for the claimed
indication(s) in all relevant pediatric sub-populations and to support dosing and administration for each pediatric sub-population
for which the drug is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless
otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan drug designation has been
granted. The Best Pharmaceuticals for Children Act (“BPCA”) provides sponsors of NDAs with an additional six-month
period of market exclusivity for all unexpired patent or non-patent exclusivity on all forms of the drug containing the active
moiety if the sponsor submits results of pediatric studies specifically requested by the FDA under BPCA within required timeframes.
The Biologics Price Competition and Innovation Act provides sponsors of BLAs an additional six-month extension for all unexpired
non-patent market exclusivity on all forms of the biologic containing the active moiety pursuant to the BPCA if the conditions
under the BPCA are met.
The Food and Drug Administration Safety and Innovation Act (“FDASIA”),
which was signed into law on July 9, 2012, amended the FDCA. FDASIA requires that a sponsor who is planning to submit a marketing
application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing
regimen or new route of administration submit an initial Pediatric Study Plan (“PSP”) within sixty days of an end-of-Phase
II meeting or as may be agreed between the sponsor and FDA. The initial PSP must include an outline of the pediatric study or studies
that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach,
or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full
or partial waiver of the requirement to provide data from pediatric studies along with supporting information. FDA and the sponsor
must reach agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric
plan need to be considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical
development programs.
Expedited Development and Review Programs
The FDA has a Fast Track program that is intended to expedite
or facilitate the process for reviewing new drugs and biological products that meet certain criteria. Specifically, new drugs and
biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition
and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination
of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the
FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. Unique
to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees
to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees
upon submission of the first section of the application.
Any product submitted to the FDA for marketing, including under
a Fast Track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority
review and accelerated approval. Fast Track designation, priority review and accelerated approval do not change the standards for
approval but may expedite the development or approval process. Any product is eligible for priority review if it has the potential
to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment,
diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the
evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the
review. Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety
and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing
treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled
clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical
benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval,
the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled
post-marketing clinical trials. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of
promotional materials, which could adversely impact the timing of the commercial launch of the product. If the FDA concludes that
a drug shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing
restrictions as it deems necessary to assure safe use of the drug, such as distribution restricted to certain facilities or physicians
with special training or experience; or distribution conditioned on the performance of specified medical procedures.
FDASIA established a new category of drugs and biologics referred
to as “breakthrough therapies” that may be eligible to receive Breakthrough Therapy Designation. A sponsor may seek
FDA designation of a drug or biologic candidate as a “breakthrough therapy” if the product is intended, alone or in
combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical
evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant
endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the Fast
Track program features, as well as more intensive FDA interaction and guidance. The Breakthrough Therapy Designation is a distinct
status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are
met. If a product is designated as breakthrough therapy, the FDA will expedite the development and review of such drug. All requests
for breakthrough therapy designation will be reviewed within 60 days of receipt, and the FDA will either grant or deny the request.
Post-Approval Requirements
Once an approval is granted, the FDA may withdraw the approval
if compliance with regulatory requirements or standards is not maintained or if problems occur after the product reaches the market.
Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal
of the product from the market. After approval, some types of changes to the approved product, such as adding new indications,
certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug and biologics
manufacturers and other entities involved in the manufacture and distribution of approved drugs and biologics are required to register
their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with cGMP regulations and other laws and regulations.
U.S. Patent Term Restoration and Marketing Exclusivity
The Biologics Price Competition and Innovation
Act, or BPCIA, amended the Public Health Service Act to authorize the FDA to approve similar versions of innovative biologics,
commonly known as biosimilars. A competitor seeking approval of a biosimilar must file an application to establish its molecule
as highly similar to an approved innovator biologic, among other requirements. The BPCIA, however, bars the FDA from approving
biosimilar applications for 12 years after an innovator biological product receives initial marketing approval. This 12-year period
of data exclusivity may be extended by six months, for a total of 12.5 years, if the FDA requests that the innovator company conduct
pediatric clinical investigations of the product.
Depending upon the timing, duration and specifics of the FDA
approval of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price
Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments
permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years
from the product’s approval date. The patent term restoration period is generally one-half the time between the effective
date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval
of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension
must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application
for any patent term extension or restoration. In the future, we intend to apply for restoration of patent term for one of our currently
owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical
trials and other factors involved in the filing of the relevant NDA or BLA.
Marketing exclusivity provisions under the FDCA can also delay
the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing
exclusivity within the U.S. to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical
entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion
responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated
new drug application (ANDA), or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety,
regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where
the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may
be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed
with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement
to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the
applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths
of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis
of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for
the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of
a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the
preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Pediatric exclusivity is another type of regulatory market exclusivity
in the U.S. under the BPCA. Pediatric exclusivity provides for an additional six months of marketing exclusivity if a sponsor conducts
clinical trials in children as addressed in the section named “Pediatric Information” above. In addition, orphan drug
exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
Foreign Regulation
In addition to regulations in the U.S., we will be subject to
a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution
of our drug candidates.
Whether or not we obtain FDA approval for our drug candidates,
we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials
or marketing of the drug candidates in those countries. Certain countries outside of the U.S. have a similar process that requires
the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In the European
Union, for example, a CTA must be submitted to each country’s national health authority and an independent ethics committee,
much like the FDA and the IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical
study development may proceed.
The requirements and process governing the conduct of clinical
trials, product approval and licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials
are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin
in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug or
biological product under European Union regulatory systems, we must submit a marketing authorization application. The application
used to file the NDA or BLA in the U.S. is similar to that required in the European Union, with the exception of, among other things,
country-specific document requirements. The European Union also provides opportunities for market exclusivity. For example, in
the European Union, upon receiving marketing authorization, new chemical entities generally receive eight years of data exclusivity
and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the European
Union from referencing the innovator’s data to assess a generic application. During the additional two-year period of market
exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic
product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered
by the European Union’s regulatory authorities to be a new chemical entity, and products may not qualify for data exclusivity.
Products receiving orphan designation in the European Union can receive ten years of market exclusivity, during which time no similar
medicinal product for the same indication may be placed on the market. An orphan product can also obtain an additional two years
of market exclusivity in the European Union for pediatric studies. No extension to any supplementary protection certificate can
be granted on the basis of pediatric studies for orphan indications.
The criteria for designating an “orphan medicinal product”
in the European Union are similar in principle to those in the U.S. Under Article 3 of Regulation (EC) 141/2000, a medicinal product
may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically
debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the European Union when the
application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return
in the European Union to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment
of such condition authorized for marketing in the European Union, or if such a method exists, the product will be of significant
benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for
financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten
years of market exclusivity for the approved therapeutic indication. The application for orphan drug designation must be submitted
before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization
application if the orphan drug designation has been granted, but not if the designation is still pending at the time the marketing
authorization is submitted. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory
review and approval process.
The 10-year market exclusivity may be reduced to six years if,
at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example,
if the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, marketing authorization
may be granted to a similar product for the same indication at any time if:
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the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior;
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the applicant consents to a second orphan medicinal product application; or
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the applicant cannot supply enough orphan medicinal product.
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For other countries outside of the European Union, such as countries
in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical studies, product licensing or approval,
pricing and reimbursement vary from country to country. In all cases, again, the clinical studies are conducted in accordance with
GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements,
we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of
products, operating restrictions and criminal prosecution.
Other Regulatory Matters
Manufacturing, sales, promotion and other activities following
product approval are also potentially subject to regulation by numerous regulatory authorities in addition to the FDA, including,
in the U.S., the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services,
the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety
& Health Administration, the Environmental Protection Agency and state and local governments. In the U.S., sales, marketing
and scientific/educational programs must also comply with state and federal fraud and abuse laws, including state and federal anti-kickback,
false claims, data privacy and security and physician payment transparency laws. Pricing and rebate programs must comply with the
Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively the Affordable
Care Act. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration,
additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances
Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under
the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to
federal and state consumer protection and unfair competition laws.
The distribution of pharmaceutical products is subject to additional
requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent
the unauthorized sale of pharmaceutical products.
The failure to comply with regulatory requirements may subject
us to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can
result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension
of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including
government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety
or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal
of future products marketed by us could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing
regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii)
additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping
requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
Reimbursement
In both domestic and foreign markets, sales and reimbursement
of any approved products will depend, in part, on the extent to which the costs of such products will be covered by third-party
payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors
are increasingly challenging the prices charged for medical products and services and imposing controls to manage costs. The containment
of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort.
Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products. For example, in the U.S. there have been several recent Congressional
inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug
pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and
reform government program reimbursement methodologies for drugs. Additionally, in May 2018, the U.S. presidential administration
laid out a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals
to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers
to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The Department
of Health and Human Services, or HHS, has started the process of soliciting feedback on some of these measures and, at the same
time, is immediately implementing others under its existing authority.
In January 2019, the HHS Office of Inspector General proposed
modifications to U.S. federal healthcare Anti-Kickback Statute safe harbors which, among other things, will affect rebates paid
by manufacturers to Medicare Part D plans, the purpose of which is to further reduce the cost of drug products to consumers. Although
some of these and other proposals may require authorization through additional legislation to become effective, members of Congress
and the presidential administration have indicated that they will continue to seek new legislative or administrative measures to
control drug costs.
At the state level, legislatures have increasingly passed legislation
and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, to encourage importation from other countries and bulk purchasing.
Within the U.S., if we obtain appropriate approval in the future
to market any of our product candidates, we may seek approval and coverage for those products under Medicaid, Medicare and the
Public Health Service, or PHS, pharmaceutical pricing program and also seek to sell the products to federal agencies. Medicaid
is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid
Drug Rebate Program, manufacturers are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs.
The amount of the rebate for each product is set by law and may be subject to an additional discount if certain pricing increases
more than inflation. Medicare is a federal program administered by the federal government that covers individuals age 65 and over
as well as those with certain disabilities. Medicare Part D provides coverage to enrolled Medicare patients for self-administered
drugs (i.e., drugs that do not need to be administered by a physician). Medicare Part D is administered by private prescription
drug plans approved by the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug
coverage and pricing, which the drug plan may modify from time-to-time. Medicare Part B covers most injectable drugs given in an
in-patient setting, and some drugs administered by a licensed medical provider in hospital outpatient departments and doctors’
offices. Medicare Part B is administered by Medicare Administrative Contractors, which generally have the responsibility of making
coverage decisions. Subject to certain payment adjustments and limits, Medicare generally pays for Part B covered drugs based on
a percentage of manufacturer-reported average sales price. Drug products are subject to discounted pricing when purchased by federal
agencies via the Federal Supply Schedule, or FSS. FSS participation is required for a drug product to be covered and paid for by
certain federal agencies and for coverage under Medicaid, Medicare Part B and the PHS pharmaceutical pricing program. FSS pricing
is negotiated periodically with the Department of Veterans Affairs. FSS pricing is intended to not exceed the price that a manufacturer
charges its most-favored non-federal customer for its product. In addition, prices for drugs purchased by the Veterans Administration,
Department of Defense (including drugs purchased by military personnel and dependents through the TRICARE retail pharmacy program),
Coast Guard, and PHS are subject to a cap on pricing (known as the “federal ceiling price”) and may be subject to an
additional discount if pricing increases more than inflation. To maintain coverage of drugs under the Medicaid Drug Rebate Program,
manufacturers are required to extend discounts to certain purchasers under the PHS pharmaceutical pricing program. Purchasers eligible
for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics and
other entities that receive health services grants from the PHS.
In March 2010, the U.S. Congress enacted the Patient Protection
and Affordable Care Act and the Health Care and Education Reconciliation Act, or the Affordable Care Act, which included changes
to the coverage and payment for drug products under government health care programs. Since its enactment, there have been judicial
and Congressional challenges to numerous elements of the Affordable Care Act, as well as efforts by both the executive and legislative
branches of the federal government to repeal or replace certain aspects of the Affordable Care Act. For example, the President
signed Executive Orders designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent
some of the requirements for health insurance mandated by the Affordable Care Act. In addition, the U.S. Congress has considered
legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive
repeal legislation, it has enacted laws that modify certain provisions of the Affordable Care Act, such as removing penalties,
starting January 1, 2019, for not complying with the Affordable Care Act’s individual mandate to carry health insurance,
delaying the implementation of certain mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical
manufacturers who participate in Medicare Part D. In December 2018, a Texas U.S. District Court Judge ruled that the Affordable
Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the
Tax Cuts and Jobs Act of 2017, or the Tax Act. The Texas U.S. District Court Judge, as well as the presidential administration
and the Centers for Medicare and Medicaid Services, or CMS, have stated that the ruling will have no immediate effect pending appeal
of the decision, but it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable
Care Act will impact the Affordable Care Act and our business. Any other executive, legislative or judicial action to “repeal
and replace” all or part of the Affordable Care Act may have the effect of limiting the amounts that government agencies
will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure,
or may lead to significant deregulation, which could make the introduction of competing products and technologies much easier.
Environmental Regulation
In addition to being subject to extensive regulation by the
FDA, we must also comply with environmental regulation insofar as such regulation applies to us or our drug candidates. Our costs
of compliance with environmental regulation as applied to similar pharmaceutical companies are minimal, since we do not currently,
nor do we intend to, engage in the manufacturing of any of our drug candidates. We currently use unaffiliated manufacturers to
produce all of our drug candidate material and receive final material from such manufacturer, without any involvement on our part
in the manufacturing process at any stage of the process.
Although we believe that our safety procedures for using, handling,
storing and disposing of our drug candidate materials comply with the environmental standards required by state and federal laws
and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. We do not
carry a specific insurance policy to mitigate this risk to us or to the environment.
Employees
At December 31, 2019, we employed four
full-time employees. We are not a party to any collective bargaining agreement with our employees; nor are any of our employees
a member of any labor unions. We may be subject to certain statutory and contractual obligations in instances where we terminate
U.K.-based employees. These obligations, which are ordinary and customary in the U.K., generally range from one to 12 months of
wages for terminated employees and would not be expected to represent a material adverse effect to us.
To complement our own professional staff, we utilize specialists
in regulatory affairs, pharmacovigilance, process engineering, manufacturing, quality assurance, preclinical and clinical development,
accounting and business development. These individuals include scientific advisors as well as independent consultants.
Competition
The pharmaceutical and biotechnology industries are characterized
by intense competition and rely heavily on the ability to move quickly, adapt to changing medical and market needs, and to develop
and maintain strong intellectual property positions. We believe that the development experience of our scientific and management
team, as well as the strength and promise of our drug candidates, provide us with a competitive advantage; nevertheless, we
face potential competition from a myriad of sources many of which operate with greater resources and more mature products. These
include pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research
institutions. Competition is intense and is expected to increase.
Product and Technology Specific Competition
XCART for B-cell lymphomas
Should any product candidate incorporating the XCART platform
technology be approved for use, we will face substantial competition. In addition to the current standard of care for patients,
commercial and academic clinical studies are being pursued by a number of parties in the field of immunotherapy. Early results
from these studies have fueled continued interest in T-cell immunotherapy. In addition, if approved, our CAR T cell programs would
compete with currently marketed drugs and therapies used for treatment of the indications we are addressing, and potentially with
drug candidates currently in development for the same indications.
There are currently two CAR T therapies approved in the U.S.
and EU: Novartis’ Kymriah (tisagenlecleucel) and Gilead Sciences, Inc.’s and Kite Pharma’s Yescarta (axicabtagene
ciloleucel). However, there are over 100 CAR T therapy products in development with more than 35 being allogeneic and off-the-shelf
cell therapies. In addition, depending on the diseases that our CAR T therapies target, we may face competition in the indication
of interest from both CAR T therapies and other modalities such as small molecules and antibodies.
T-cell based treatments for cancer, such as CAR T and TCR therapies,
have recently been an area of significant research and development by academic institutions and biopharmaceutical companies. XCART
therapies may compete with product candidates from a number of companies that are currently focused on this therapeutic modality,
which we estimate to include over 20 other companies.
PSA for Drug Delivery
Current competing platforms include PEGylation, Fc-fusion, albumin
-fusion, HESylation, PASylation, and CTP-fusion, among others.
We also expect to compete with academic institutions and other
smaller pharmaceutical companies during the drug development stage of our progress. In addition to competing with universities
and other research institutions in the development of drug products, therapies, technologies and processes, we may compete with
other companies in acquiring rights to products or technologies from universities. There can be no assurance that our products
or drug candidates will be more effective or achieve greater market acceptance than competitive products, or that these companies
will not succeed in developing products and technologies that are more effective than those being developed for us or that would
render our products and technologies less competitive or obsolete.
Available Information
Our website address is www.xeneticbio.com.
The information on, or that can be accessed through, our website is not part of this Annual Report on Form 10-K. Our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports are available, free
of charge, on or through our website as soon as practicable after we electronically file such forms, or furnish them to, the SEC.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our
filings at www.sec.gov.
In addition to disclosing current information
pursuant to Section 13 or 15(d) of the Exchange Act and for reports of information required to be disclosed by Regulation FD through
our SEC filings, we also intend to disclose such current information through our investor relations website, press releases, public
conference calls and webcasts.
ITEM 1A –
RISK FACTORS
Our business
is subject to numerous risks. You should consider carefully the risks and uncertainties described below, in addition to other
information contained in this Annual Report as well as our other public filings with the Securities and Exchange Commission. Any
of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects
and cause the trading price of our Common Stock to decline.
Risks Related to Our Financial Condition
and Capital Requirements
We have never been profitable and
may never achieve or sustain profitability.
We are a clinical stage biopharmaceutical
company with a limited operating history. Pharmaceutical product and technology development is a highly speculative undertaking
and involves a substantial degree of risk. To date, we have focused primarily on developing our drug candidates, XBIO-101 and PolyXen,
our biological platform technology, and researching additional drug candidates. We have no products approved for commercial sale
and have generated only limited revenue to date. Due to capital constraints in 2019 we focused solely on XBIO-101 and the acquisition
of XCART. We anticipate that our primary focus will be on advancing the XCART technology through regulatory approval and commercialization
and that we will continue to incur significant research and development and other expenses related to our ongoing operations. As
a result, we have never been profitable and we may not achieve profitability in the foreseeable future, if at all. Our ability
to generate profits in the future will depend on a number of factors, including:
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Funding the costs relating to the research and development, regulatory approval, commercialization and sale and marketing of our drug candidates and technologies;
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Market acceptance of our drug candidates and technologies;
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Costs of acquiring and developing new drug candidates and technologies;
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Ability to bring our drug candidates to market;
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General and administrative costs relating to our operations;
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Increases in our research and development costs;
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Charges related to purchases of technology or other assets;
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Establishing, maintaining and protecting our intellectual property rights;
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Attracting, hiring and retaining qualified personnel; and
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Our ability to raise additional capital.
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As of December 31, 2019, we had an accumulated
deficit of approximately $166.0 million. Substantial doubt exists about our ability to continue as a going concern in the long-term
as a result of anticipated capital needs. We expect to incur additional significant operating losses as we expand our research
and development activities and our commercialization, marketing and sales efforts. We may also encounter unforeseen expenses,
difficulties, complications, delays and other unknown factors that may adversely affect our business. In addition, because of
the numerous risks and uncertainties associated with pharmaceutical product development, including that our current drug candidates
may not achieve the clinical endpoints of applicable trials, we are unable to predict the timing or amount of increased expenses,
and if or when we will achieve or maintain profitability. If we are unable to generate sufficient revenue from our operations
to pay expenses or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition
and results of operations may be materially and adversely affected.
We will require substantial additional
funding to achieve our goals. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us
to delay, limit or terminate our product development efforts, other operations or commercialization efforts.
Developing drug candidates is an expensive,
risky and lengthy process, and we expect our expenses to increase in connection with our ongoing activities, particularly as we
continue the research and development of, continue and initiate clinical trials of, and seek marketing approval for, our drug candidates.
As of December 31, 2019, we had cash of
approximately $10.4 million. We expect that we will require additional capital to commence and complete clinical trials, obtain
regulatory approval for, and to commercialize, our drug candidates, including our other preclinical drug candidates and our future
drug candidates. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to
seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing
and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination
of these approaches. In any event, we will require additional capital to pursue preclinical and clinical activities, pursue regulatory
approval for, and to commercialize, our longer term pipeline drug candidates. Even if we believe we have sufficient funds for our
current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic
considerations.
Any additional fundraising efforts may
divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our
drug candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable
to us, if at all. Moreover, the terms of any financing may negatively impact the holdings or the rights of our stockholders, and
the issuance of additional securities, whether equity or debt, by us or the possibility of such issuance may cause the market price
of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required
to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability
to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability
to conduct our business.
If we are unable to obtain funding on a
timely basis, we may be required to significantly curtail, delay or discontinue our pre-clinical development program or the commercialization
of any drug candidates. We may also be unable to expand our operations or otherwise capitalize on our business opportunities, as
desired, which could harm our business, financial condition and results of operations.
Raising additional capital may cause
dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.
Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our cash needs through a combination of equity and debt financings, as well
as selectively continuing to enter into collaborations, strategic alliances and licensing arrangements. We do not currently have
any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, equity interests will be diluted, and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or
declaring dividends, and may be secured by all or a portion of our assets.
If we raise funds by selectively continuing
to enter into collaborations, strategic alliances or licensing arrangements with third-parties, we may have to relinquish additional
valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that
may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop
and market drug candidates that we would otherwise prefer to develop and market ourselves. If we are unable to raise additional
funds through collaborations, strategic alliances or licensing arrangements, we may be required to terminate product development
or future commercialization efforts or to cease operations altogether.
Risks Related to the Discovery and Development
of our Pharmaceutical Products
Our business is substantially dependent
on the success of XCART.
Our business will substantially depend
on the successful clinical development, regulatory approval and commercialization of the XCART platform technology. It will require
substantial clinical development and regulatory approval efforts before we are permitted to commence its commercialization, if
ever. We plan to pursue our clinical development strategy through an academic collaboration. If we have difficulty obtaining, or
are unable to obtain, and maintaining one or more academic collaborations as planned, we may need to delay, limit or terminate
any ongoing or planned clinical development, which would have an adverse effect on our business. The clinical trials and manufacturing
and marketing of XCART and any other product candidates will be subject to extensive and rigorous review and regulation by numerous
government authorities in the United States, the European Union and other jurisdictions where we intend to test and, if approved,
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must
demonstrate through preclinical testing and clinical trials that the product candidate is safe and effective for use in each target
indication, and potentially in specific patient populations. This process can take many years and may include post-marketing studies
and surveillance, which would require the expenditure of substantial resources beyond the proceeds we have currently raised. Of
the large number of drugs in development for approval in the United States and the European Union, only a small percentage successfully
complete the FDA or European Medicines Agency, or EMA, regulatory approval processes, as applicable, and are commercialized. Accordingly,
even if we are able to obtain the requisite financing or identify an academic collaboration partner to continue to fund our research,
development and clinical programs, we cannot assure you that XCART or any of our other product candidates will be successfully
developed or commercialized.
We are an early stage company in
the business of developing pharmaceutical products including drug candidates and technologies. Given the uncertainty of such development,
our business operations may never fully materialize and create value for investors.
We currently do not have any products that
have gained marketing approval. We have invested substantially all of our efforts and financial resources developing ErepoXen,
OncoHist, XBIO-101 and, more recently XCART. Our revenues to date consist primarily of collaboration revenue from a single partner
and not from product sales. Our ability to generate product revenues, which may not occur for several years, if ever, will depend
on the successful development and eventual commercialization of our drug candidates. We currently generate royalty revenue under
a sub-license agreement but do not have revenue from sales of any drugs, and we may never be able to develop or commercialize a
marketable drug. Each of our drug candidates will require development, management of development and manufacturing activities,
marketing approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, substantial
investment and significant marketing efforts before we generate any revenues from drug sales. We have not yet demonstrated an ability
to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields,
particularly in the pharmaceutical area. For example, to execute our business plan we will need to successfully:
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Execute development activities for our drug candidates, including successful enrollment in and completion of clinical trials;
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Obtain required marketing approvals for the development and commercialization of our drug candidates;
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Obtain and maintain patent and trade secret protection or regulatory exclusivity for our drug candidates;
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Protect, leverage and expand our intellectual property portfolio;
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Establish and maintain clinical and commercial manufacturing capabilities or make arrangements with third-party manufacturers for clinical and commercial manufacturing;
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Build and maintain robust sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners, if our drug candidates are approved;
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Gain acceptance for our drug candidates, if approved, by patients, the medical community and third party payors;
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Effectively compete with other therapies;
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Obtain and maintain healthcare coverages and adequate reimbursement;
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Maintain a continued acceptable safety profile for our drug candidates following approval;
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Develop and maintain any strategic relationships we elect to enter into, if any;
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Enforce and defend intellectual property rights and claims; and
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Manage our spending as costs and expenses increase due to preclinical development, clinical trials, marketing approvals and commercialization.
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We may find it difficult to enroll
patients in our clinical studies, which could delay or prevent clinical studies of our pharmaceutical products.
Identifying and qualifying patients to
participate in clinical studies of our pharmaceutical products is critical to our success. The timing of our clinical studies depends
on the speed at which we can recruit patients to participate in testing our pharmaceutical products. We may experience delays.
If patients are unwilling to participate in our clinical studies because of negative publicity from adverse events in the biopharmaceutical
industries or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting
patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result
in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination
of the clinical studies altogether.
We may not be able to identify, recruit
and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study,
to complete our clinical studies in a timely manner. Patient enrollment is affected by many factors including:
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Severity of the disease under investigation;
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Real or perceived availability of alternative treatments;
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Size and nature of the patient population;
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Eligibility criteria for and design of the trial in question;
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Perceived risks and benefits of the drug candidate under study;
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Proximity and availability of clinical sites for prospective patients;
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Ongoing clinical trials of potentially competitive agents;
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Physicians’ and patients’ perceptions as to the potential advantages of our drug candidates being studied in relation to available therapies or other products under development;
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Our CRO’s and our trial sites’ efforts to facilitate timely enrollment in clinical trials;
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Patient referral practices of physicians; and
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The need to monitor patients and collect patient data adequately during and after treatment.
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We may not be able to initiate or continue
clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by
the FDA or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical study in any foreign
country is subject to numerous risks unique to conducting business in foreign countries, including:
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Difficulty in establishing or managing relationships with CROs and physicians;
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Different standards for the conduct of clinical studies;
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Our inability to locate qualified local consultants, physicians and partners; and
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The potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment.
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If we have difficulty enrolling a sufficient
number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate ongoing or planned clinical
studies, any of which would have an adverse effect on our business.
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We may encounter substantial delays
in commencement, enrollment or completion of our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction
of applicable regulatory authorities, which could prevent us from commercializing our current and future drug candidates on a timely
basis, if at all.
Before obtaining marketing approval from
regulatory authorities for the sale of our current and future drug candidates, we must conduct extensive clinical trials to demonstrate
the safety and efficacy of the drug candidates. We cannot guarantee that any clinical studies will be conducted as planned or completed
on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful
or timely completion of clinical development include:
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Delays in reaching a consensus with regulatory agencies on study design;
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Delays in reaching agreement on acceptable terms with prospective CROs and clinical study sites;
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Delays in obtaining required Institutional Review Board, or Independent Ethics Committee approval at each clinical study site;
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Delays in recruiting suitable patients to participate in our clinical studies;
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Imposition of a clinical hold by regulatory agencies, including after an inspection of our clinical study operations or study sites;
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Failure by our CROs, other third-parties or us to adhere to clinical study requirements;
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Failure to perform in accordance with the FDA’s GCP, or applicable regulatory requirements in other countries;
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Delays in the testing, validation, manufacturing and delivery of our drug candidates to the clinical sites;
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Delays in having patients complete participation in a study or return for post-treatment follow-up;
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Clinical study sites or patients dropping out of a study;
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Occurrence of serious adverse events associated with the drug candidate that are viewed to outweigh its potential benefits; or
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Changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.
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Any inability to successfully complete
preclinical studies and clinical trials could result in additional costs to us or impair our ability to generate revenues from
product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation
changes to our drug candidates, we may need to conduct additional studies to bridge our modified drug candidates to earlier versions.
Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates
or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize
our drug candidates and may harm our business, financial condition, results of operations and prospects.
If the results of our clinical studies
are inconclusive or if there are safety concerns or adverse events associated with our pharmaceutical products, we may:
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Be delayed in obtaining marketing approval or licenses for our drug candidates, if 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;
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Be subject to changes with the way the product is administered;
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Be required to perform additional clinical studies to support approval or be subject to additional post-marketing testing requirements;
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Have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy;
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Be subject to the addition of labeling statements, such as warnings or contraindications;
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Be sued; or
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Experience damage to our reputation.
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As described above, any of these events
could prevent us from achieving or maintaining market acceptance of our pharmaceutical products and impair our ability to generate
revenues.
Clinical trials may fail to demonstrate
the safety and efficacy of our pharmaceutical drug candidates and could prevent or significantly delay regulatory approval.
Before receiving NDA or BLA approval to
commercialize a drug candidate, we must demonstrate to the FDA, with substantial evidence from well-controlled clinical trials,
that the drug candidate is both safe and effective or the biologic is safe, pure and potent. If these trials or future clinical
trials are unsuccessful, our business and reputation could be harmed and our stock price could be adversely affected.
Clinical failure can occur at any stage
of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future
collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. We will be required
to demonstrate with substantial evidence through well-controlled clinical trials that our drug candidates are as safe and effective
for use in a specific patient population as the respective reference products before we can seek regulatory approvals for their
commercial sale. Success in early clinical trials does not mean that future larger registration clinical trials will be successful
because drug candidates in later-stage clinical trials may fail to demonstrate equivalent safety and efficacy to the satisfaction
of the FDA and foreign regulatory agencies despite having progressed through initial clinical trials. Drug candidates that have
shown promising results in early clinical trials may still fail in subsequent confirmatory clinical trials. Similarly, the outcome
of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results
of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical industry, including those
with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining
promising results in earlier clinical trials.
In addition, the design of a clinical trial
can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become
apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory
approval. In some instances, there can be significant variability in safety or efficacy results between different trials of the
same drug candidate due to numerous factors, including but not limited to changes in trial protocols, differences in size and type
of the patient populations, adherence to the dosing regimen and the rate of dropout among clinical trial participants.
Because of these risks, our research and
development efforts, and those of our collaborative partners, may not result in any commercially viable products. If a significant
portion of these development efforts is not successfully completed, or if required regulatory approvals are not obtained by us
or our partners, or any approved products are not commercially successful, we may not generate significant revenues or become profitable.
Even if we complete the necessary
preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a drug candidate
or the approval may be for a more narrow indication than we expect.
A drug candidate cannot be commercialized
until the appropriate regulatory authorities have reviewed and approved the drug candidate. Even if our drug candidates demonstrate
safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or
we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory
advisory group or authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections
based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy
during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a drug
candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing
studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful
commercialization of our drug candidates. Failure to obtain, or a delay in obtaining, regulatory approval to commercialize a drug
candidate will impair our ability to generate revenues and harm our business prospects.
Even if we obtain regulatory approval
for a drug candidate, our drug candidate will remain subject to regulatory scrutiny.
If our drug candidates are approved, they
will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling,
record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including
both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturing facilities
are required to comply with extensive FDA, and comparable foreign regulatory authority requirements, including ensuring that quality
control and manufacturing procedures conform to cGMP regulations. As such, we will be subject to continual review and inspections
to assess compliance with cGMP and adherence to commitments made in any, BLA or marketing authorization application, or MAA. Accordingly,
we and our collaborators and suppliers must continue to expend time, money and effort in all areas of regulatory compliance, including
manufacturing, production and quality control.
Any regulatory approvals that we or our
collaboration partners receive for our drug candidates may be subject to limitations on the approved indicated uses for which the
product may be marketed or to the conditions of approval or may contain requirements for potentially costly additional clinical
trials and surveillance to monitor the safety and efficacy of the drug candidate. We will be required to report certain adverse
reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing
drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance.
We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with
respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information
in the product’s approved label. As such, we are not allowed to promote our products for indications or uses for which they
do not have approval. If our drug candidates are approved, we must submit new or supplemental applications and obtain approval
for certain changes to the approved products, product labeling or manufacturing process. We could also be asked to conduct post-marketing
clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post-marketing
study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously
unknown problems with an approved product, such as adverse events of unanticipated severity or frequency or problems with our manufacturing
facilities, or if a regulatory agency disagrees with the promotion, marketing or labeling of a product, such regulatory agency
may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply
with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
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Issue untitled and warning letters;
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Impose civil or criminal penalties;
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Suspend or withdraw regulatory approval or revoke a license;
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Suspend any of our ongoing clinical trials;
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Refuse to approve pending applications or supplements to approved applications submitted by us;
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Impose restrictions on our operations, including closing our manufacturing facilities; or
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Seize or detain products or require a product recall.
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Any government investigation of alleged
violations of law could require us to expend significant time and resources in response and could generate negative publicity.
Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize
and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of
the Company and our operating results will be negatively impacted.
The commercial success of any current
or future pharmaceutical products will depend upon the degree of market acceptance by physicians, patients, third-party payors
and others in the medical community.
Even with the requisite approvals, the
commercial success of our pharmaceutical products will depend in part on the medical community, patients, and third-party payors
accepting our pharmaceutical products as medically useful, cost-effective, and safe. Any pharmaceutical product that we, or our
partners, bring to the market may not gain market acceptance by physicians, patients, third-party payors or others in the medical
community. The degree of market acceptance of these pharmaceutical products, if approved for commercial sale, will depend on a
number of factors, including:
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The effectiveness of our approved drug candidates as compared to currently available products;
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Patient willingness to adopt our approved drug candidates in place of current therapies;
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Our ability to provide acceptable evidence of safety and efficacy;
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Relative convenience and ease of administration;
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The prevalence and severity of any adverse side effects;
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Restrictions on use in combination with other products;
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Availability of alternative treatments;
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Pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements, based on the profile of our drug candidates and target markets;
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Effectiveness of our or our partners’ sales and marketing strategy;
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Our ability to obtain sufficient third-party coverage or reimbursement; and
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Potential product liability claims.
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Even if a potential product displays a
favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be known until
after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the pharmaceutical
products may require a significant amount of resources and may never be successful. If these products do not achieve an adequate
level of acceptance, we may not generate significant product revenue and may not become profitable.
The commercial potential of a pharmaceutical
candidate in development is difficult to predict. If the market size for a new drug candidate or technology is significantly smaller
than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
It is very difficult to estimate the commercial
potential of pharmaceutical products due to important factors, such as safety and efficacy compared to other available technologies
or treatments, including changing standards of care, third-party payor reimbursement standards, patient and physician preferences,
the availability of competitive alternatives that may emerge either during the long drug development process or after commercial
introduction, and the availability of generic versions of our successful drug candidates following approval by government health
authorities, based on the expiration of regulatory exclusivity or our inability to prevent generic versions from coming to market
by asserting our patents. If due to these factors, or others, the market potential for a pharmaceutical product is lower than we
anticipated, it could significantly and negatively impact the commercial terms of any collaboration partnership potential for such
pharmaceutical product or, if we have already entered into a collaboration for such pharmaceutical product, the revenue potential
from royalty and milestone payments could be significantly diminished which would negatively impact our business, financial condition
and results of operations.
Failure to obtain or maintain adequate
coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those products and decrease
our ability to generate revenue.
The success of our drug candidates, if
approved, depends on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our
drug candidates represent new approaches to the treatment of certain diseases, we cannot be sure that coverage and reimbursement
will be available for, or accurately estimate the potential revenue from, our drug candidates or assure that coverage and reimbursement
will be available for any product that we may develop.
Patients who are provided medical treatment
for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment.
Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors
are critical to new product acceptance.
Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover
and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including
the third-party payor’s determination that use of a product is:
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A covered benefit under its health plan;
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Safe, effective and medically necessary;
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Appropriate for the specific patient;
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Cost-effective; and
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Neither experimental nor investigational.
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In the United States, no uniform policy
of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval
of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide
to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis,
with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the
resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments
that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term
follow-up evaluations required following the use of our gene-modifying products. Patients are unlikely to use our drug candidates
unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drug candidates. There
is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict
at this time what third-party payors will decide with respect to the coverage and reimbursement for our drug candidates.
Moreover, increasing efforts by governmental
and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit
both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate
payment for our drug candidates. We expect to experience pricing pressures in connection with the sale of any of our drug candidates
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, cost containment initiatives
and additional legislative changes.
We intend to seek approval to market our
drug candidates in both the United States and in select foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions
for our drug candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, the pricing
of pharmaceutical products is subject to governmental control and other market regulations which could put pressure on the pricing
and usage of our drug candidates. In these countries, pricing negotiations with governmental authorities can take considerable
time after obtaining marketing approval of a drug candidate. In addition, market acceptance and sales of our drug candidates will
depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our drug candidates
and may be affected by existing and future health care reform measures. Failure to obtain or maintain adequate coverage and reimbursement
for our drug candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
We may use our financial and human
resources to pursue a particular research program or drug candidate and fail to capitalize on programs or drug candidates that
may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may
forego or delay pursuit of opportunities with certain programs, drug candidates or for indications that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable
market opportunities. Our spending on current and future research and development programs for drug candidates may not yield any
commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular drug
candidate, we may relinquish valuable rights to that drug candidate through strategic 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 drug candidate, or we may allocate internal resources to a drug candidate in a therapeutic area in which it would have
been more advantageous to enter into a partnering arrangement. Failure to pursue opportunities with greater commercial potential
or relinquishing valuable rights to drug candidates may adversely impact our business, results of operations and prospects.
We may not be successful in our efforts
to identify or discover additional pharmaceutical products.
The success of our business depends primarily
upon our ability to identify and develop pharmaceutical products. Our research programs may fail to identify potential pharmaceutical
products for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential
pharmaceutical products or our potential pharmaceutical products may be shown to have harmful side effects or may have other characteristics
that may make the products unmarketable or unlikely to receive marketing approval.
If any of these events occur, we may be
forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business
and could potentially cause us to cease operations. Research programs to identify new pharmaceutical products require substantial
technical, financial and human resources. We may focus our efforts and resources on potential programs or pharmaceutical products
that ultimately prove to be unsuccessful. If we are not successful in our efforts to identify or discover additional pharmaceutical
products, it could adversely affect our business, results of operations and prospects.
We may fail to obtain orphan drug
designations from the FDA for our drug candidates, and even if we obtain such designations, we may be unable to maintain the benefits
associated with orphan drug designation, including the potential for market exclusivity.
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring
in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United
States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in
the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities
for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan
drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is
entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA or BLA,
to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing
of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product
quantity.
OncoHist for AML and XBIO-101 for endometrial
cancer have orphan designation in the U.S. While we have not obtained nor have we sought to obtain additional orphan designations
for any drug candidate, we believe our products and drug candidates could qualify for additional orphan drug designations for additional
indications. We may seek to obtain orphan drug designation for our drug candidates for any qualifying indications they may be approved
for in the future. Even if we obtain such designations, we may not be the first to obtain marketing approval of our drug candidate
for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition,
exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated
indication, or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer
is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further,
even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition
because different drugs with different active moieties can be approved for the same condition. Even after an orphan product is
approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes
that the later drug is safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens
the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval
process. In addition, even if we seek orphan drug designation for our drug candidates, we may never receive such designations.
The market opportunities for our
drug candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
Cancer therapies are sometimes characterized
as first line, second line or third line, and the FDA often approves new therapies initially only for third line use. When cancer
is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever
first line therapy, which usually consists of chemotherapy, hormone therapy, surgery or a combination of these, proves unsuccessful,
second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor
targeted small molecules or a combination of these. Third line therapies can include bone marrow transplantation, antibody and
small molecule targeted therapies, more invasive forms of surgery and new technologies. In markets with approved therapies, we
expect to initially seek approval of our drug candidates as a later stage therapy for patients who have failed other approved treatments.
Subsequently, for those drugs that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line
therapy and potentially as a first line therapy, but there is no guarantee that our drug candidates, even if approved, would be
approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining
approval for second line or first line therapy.
Our projections of both the number of people
who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive later stage
therapy and who have the potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates.
These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations
or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these
cancers. The number of patients may turn out to be lower than expected. In addition, the potentially addressable patient population
for our drug candidates may be limited or may not be amenable to treatment with our drug candidates. Even if we obtain significant
market share for our drug candidates, we may never achieve profitability without obtaining regulatory approval for additional indications,
including use as a first or second line therapy, which may adversely affect our business and results of operations.
Healthcare legislative reform measures
may have a material adverse effect on our business and results of operations.
In both the United States and certain foreign
jurisdictions, there have been a number of legislative and regulatory enactments in recent years that change the healthcare system
in ways that could impact our future ability to sell our drug candidates profitably.
Furthermore, there have been and continue
to be a number of initiatives at the federal and state level that seek to reduce healthcare costs. Most significantly, in March
2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act (collectively,
the “ACA”), was signed into law, which includes measures that significantly change the way healthcare is financed by
both governmental and private insurers. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the
Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. In addition, on January
20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the
ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal
or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical
devices. Further, on October 12, 2017, President Trump issued another executive order requiring the Secretaries of the Departments
of Health and Human Services (“HHS”), Labor, and the Treasury to consider proposing regulations or revising existing
guidance to allow more employers to form association health plans that would be allowed to provide coverage across state lines,
increase the availability of short-term, limited duration health insurance plans, which are generally not subject to the requirements
of the ACA, and increase the availability and permitted use of health reimbursement arrangements. On October 13, 2017, the Department
of Justice announced that HHS was immediately stopping its cost sharing reduction payments to insurance companies based on the
determination that those payments had not been appropriated by Congress. Furthermore, on December 22, 2017, President Trump signed
the Tax Cuts and Jobs Act (the “TCJA”) into law that, in addition to overhauling the federal tax system, also, effective
as of January 1, 2019, repeals the penalties associated with the individual mandate. In part, as a result of the repeal of such
penalties, there is litigation pending in various Federal jurisdictions challenging the validity of the ACA and such cases may
ultimately be decided by the United States Supreme Court. Congress or the President of the United States also could consider subsequent
legislation or executive action to replace or eliminate elements of the ACA. We will continue to evaluate the effect that the ACA
and any future measures to modify, repeal or replace the ACA have on our business. We are not able to provide any assurance that
the continued healthcare reform debate will not result in legislation, regulation, litigation, or executive action by the President
of the United States that is adverse to our business.
Laws and other reform and cost containment
measures that may be proposed and adopted in the future remain uncertain, but may result in additional reductions in Medicare and
other healthcare funding, which could have a material adverse effect on our future customers and accordingly, our ability to generate
revenue, attain profitability, or commercialize our products.
Risks Related to Our Reliance on Third-Parties
If conflicts arise between us and
our collaborators or strategic partners, these parties may act in their self-interest, which may limit our ability to implement
our strategies.
If conflicts arise between our corporate
or academic collaborators or strategic partners and us, the other party may act in its self-interest, which may limit our ability
to implement our strategies. Some of our academic collaborators and strategic partners are conducting multiple product development
efforts within each area that is the subject of the collaboration with us. Our collaborators or strategic partners, however, may
develop, either alone or with others, products in related fields that are competitive with the products or potential products that
are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to
which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for our drug candidates.
Some of our collaborators or strategic
partners could also become our competitors in the future. Our collaborators or strategic partners could develop competing products,
preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their
agreements with us prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any
of these developments could harm our product development efforts, which may adversely affect our business, results of operations
and prospects.
We expect to rely on third-parties
to conduct, supervise and monitor our clinical studies, and if these third-parties perform in an unsatisfactory manner, it may
harm our business.
We expect to rely on CROs, clinical investigators
and clinical study sites to ensure our clinical studies are conducted properly and on time. We will have limited influence over
the performance by CROs, clinical investigators and clinical study sites and we will control only certain aspects of our CROs’
activities. Nevertheless, we will be responsible for ensuring that each of our clinical studies is conducted in accordance with
the applicable protocol, legal, and regulatory requirements and scientific standards, and our reliance on the CROs does not relieve
us of our regulatory responsibilities.
We, our clinical investigators and our
CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to
assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical
trial participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators
and clinical trial sites. If we, our CROs or the clinical investigators fail to comply with applicable GCPs, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before
approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs.
In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and efficacy of
our drug candidates. Accordingly, if our CROs or clinical investigators fail to comply with these regulations or fail to recruit
a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we
are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical
programs, which must be conducted in accordance with GCPs and GLPs, respectively. These CROs may also have relationships with other
commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development
activities that could harm our competitive position. 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 studies may be extended,
delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our pharmaceutical
products. As a result, our financial results and the commercial prospects for our pharmaceutical products would be harmed, our
costs could increase, and our ability to generate revenues could be delayed.
We may also rely on other third-parties
to store and distribute our products for any clinical studies that we may conduct. Any performance failure on the part of our distributors
could delay clinical development or marketing approval of our pharmaceutical products or commercialization of our products, if
approved, producing additional losses and depriving us of potential product revenue.
Our collaborators or strategic partners
may decide to adopt alternative technologies or may be unable to develop commercially viable products with our technology, which
would negatively impact our revenues and our strategy to develop these products.
Our collaborators or strategic partners
may adopt alternative technologies, which could decrease the marketability of our products. Additionally, because our current or
future collaborators or strategic partners are likely to be working on more than one development project, they could choose to
shift their resources to projects other than those they are working on with us. If they do so, this would delay our ability to
test our technology and would delay or terminate the development of potential products based on our platforms. Further, our collaborators
and strategic partners may elect not to develop products arising out of our collaborative and strategic partnering arrangements
or to devote sufficient resources to the development, manufacturing, marketing or sale of these products. The failure to develop
and commercialize a drug candidate pursuant to our agreements with our current or future collaborator would prevent us from receiving
future milestone and royalty payments which would negatively impact our revenues.
We may seek to establish additional
collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development
and commercialization plans.
Our drug candidate development programs
and the potential commercialization of our drug candidates will require substantial additional cash to fund expenses. For some
of our drug candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development
and potential commercialization of those drug candidates. For our XCART technology, we intend to seek to leverage the manufacturing
expertise and capability of an academic collaborator during early development.
We face significant competition in seeking
appropriate collaborators. Whether we reach a definitive agreement for any additional collaborations 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 FDA or similar regulatory authorities outside the United States, the potential market for
the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential
of competing drugs, 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 drug candidates or technologies 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 our drug candidate. The terms of any additional
collaborations or other arrangements that we may establish may not be favorable to us.
We may also be restricted under existing
collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are
complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations
among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate additional
collaborations on a timely basis, including for early XCART development, on acceptable terms, or at all. If we are unable to do
so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales
or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may
not be able to further develop our drug candidates or bring them to market and generate product revenue.
If we enter into one or more collaborations,
we may be required to relinquish important rights to and control over the development of our drug candidates or otherwise be subject
to unfavorable terms.
Any future collaborations we enter into
could subject us to a number of risks, including:
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We may not be able to control the amount and timing of resources that our collaborators devote to the development or commercialization of our drug candidates;
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Collaborators may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new version of a drug candidate for clinical testing;
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Collaborators may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs;
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Collaborators may not commit adequate resources to the marketing and distribution of our drug candidates, limiting our potential revenues from these products;
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Disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our drug candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;
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Collaborators may experience financial difficulties;
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Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
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Business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
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Collaborators could decide to move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors; and
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Collaborators could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our drug candidates.
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Our contract manufacturers are subject
to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue
to meet regulatory requirements and have limited capacity.
We currently have relationships with a
limited number of suppliers for the manufacturing of our pharmaceutical products. Each supplier may require licenses to manufacture
components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or sublicense
the intellectual property rights we may have with respect to such activities.
All entities involved in the preparation
of pharmaceutical products for clinical studies or commercial sale, including our existing contract manufacturers for our drug
candidates, are subject to extensive regulation. Components of a finished pharmaceutical product approved for commercial sale or
used in late-stage clinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes
and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality
of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of
adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our pharmaceutical products
that may not be detectable in final product testing. Our contract manufacturers must supply all necessary documentation in support
of an NDA or BLA on a timely basis and must adhere to the FDA’s GLP, and cGMP regulations enforced by the FDA through its
facilities inspection program. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval
inspection for compliance with the applicable regulations as a condition of regulatory approval of our pharmaceutical products
or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing
facility involved with the preparation of our pharmaceutical products or our other potential products or the associated quality
systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval
plant inspection, FDA approval of the products will not be granted.
The regulatory authorities also may, at
any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such
inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications
or applicable regulations occurs independent of such an inspection or audit, we, or the relevant regulatory authority, may require
remedial measures that may be costly and/or time-consuming for us or a third-party to implement and that may include the temporary
or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial
measures imposed upon third-parties with whom we contract could materially harm our business.
If our third-party manufacturers fail to
maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending
application for a drug candidate, or revocation of a pre-existing approval. As a result, our business, financial condition and
results of operations may be materially harmed.
Additionally, if supply from one approved
manufacturer is interrupted, there could be a significant disruption in commercial supply. The number of manufacturers with the
necessary manufacturing capabilities is limited. In addition, an alternative manufacturer would need to be qualified through an
NDA or BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new
manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result
in a delay in our desired clinical and commercial timelines, which could materially harm our business and results of operations.
These factors could cause the delay of
clinical studies, regulatory submissions, required approvals or commercialization of our pharmaceutical products, and/or cause
us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet
contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially
equivalent cost, our clinical studies may be delayed or we could lose potential revenue, which could materially harm our business
and results of operations.
We have no manufacturing, sales,
marketing or distribution capabilities, and we may have to invest a significant amount of resources to develop these capabilities.
We have no internal manufacturing capabilities.
As a result, for manufacturing we depend on third-party manufacturers, including Kevelt, Pharmsynthez and the Serum Institute,
which in turn may rely upon third-parties to manufacture our products. Although our strategy is based on leveraging the ability
of collaboration partners to develop and manufacture our products for commercialization in the pharmaceutical marketplace, we will
be dependent on collaborations with drug development and manufacturing collaborators. If we are not able to maintain existing collaborative
arrangements or establish new arrangements on commercially acceptable terms, we would be required to undertake product manufacturing
and development activities at our own expense. This would increase our capital requirements or require us to limit the scope of
our development activities. Moreover, we have limited or no experience in conducting full scale bioequivalence or other clinical
studies, preparing and submitting regulatory applications, and distributing and marketing pharmaceutical products and as such we
are reliant on contract parties for such efforts. We may not be able to enter into collaborations or hire consultants or external
service providers to assist us in sales, marketing and distribution functions on acceptable financial terms or at all.
If any of our developmental collaborators
breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities in a timely manner, the
preclinical and/or clinical development and/or commercialization of our pharmaceutical products will be delayed and we would be
required to devote additional resources to product development and commercialization or terminate certain development programs.
Also, a license relationship may be terminated at the discretion of our collaborator, or at the end of contract terms, and in some
cases with only limited notice to us. The termination of the collaborative arrangement could have a material adverse effect on
our business, financial condition and results of operations. There also can be no assurance that disputes will not arise with respect
to the ownership of rights to any technology developed with third-parties. These and other possible disagreements with collaborators
could lead to delays in the development or commercialization of our pharmaceutical products or could result in litigation or arbitration,
which could be time consuming and expensive and could have a material adverse effect on our business, financial condition and results
of operations. Even if we decide to perform clinical trials, sales, marketing and distribution functions ourselves, we could face
a number of additional related risks, including:
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We may not be able to attract clinical investigators and build effective clinical trials, or a solid marketing department or sales force;
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The cost of establishing an internal clinical trials program, marketing department or sales force may exceed our available financial resources and the revenue generated by any of our current product candidates, if approved, or any other pharmaceutical products that we may develop, in-license or acquire; and
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Our direct sales and marketing efforts may not be successful.
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Any failure to perform such activities
could have a material adverse effect on our business, financial condition and results of our operations.
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.
Because we rely on third-parties to manufacture
our pharmaceutical products, and because we collaborate with various organizations and academic institutions on the development
of our pharmaceutical products, we must, at times, share trade secrets with them. We seek to protect our proprietary technology
in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements,
consulting agreements or other similar agreements with our collaborators, advisors, employees 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, such as 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 a material adverse effect
on our business.
In addition, these agreements typically
restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade
secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay
publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases,
publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We may
also conduct joint research and development programs that may require us to share trade secrets under the terms of our research
and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover
our trade secrets, either through breach of these agreements, independent development or publication of information including our
trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s
discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks Related to Our Intellectual Property
If we fail to adequately protect
or enforce our intellectual property rights, we may be unable to operate effectively.
Our success and ability to compete are
substantially dependent on our patents, proprietary formulations and trademarks. Although we believe that the patents and associated
trademarks and licenses are valid, there can be no assurance that they will not be challenged and subsequently invalidated and/or
canceled. The invalidation or cancellation of any one or all of the patents or trademarks would significantly damage our commercial
prospects. Further, we may find it necessary to legally challenge parties infringing our patents or trademarks or licensed trademarks
to enforce our rights thereto. There can be no assurance that any of the patents would ultimately be held valid or that efforts
to defend any of the patents, trade secrets, know-how or other IP rights would be successful.
The patent positions of pharmaceutical
and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. We own numerous U.S. and
foreign patents and a number of pending patent applications that cover various aspects of our drug candidates and technologies.
There can be no assurance that patents that have been issued will be held valid and enforceable in a court of law. Even for patents
that are held valid and enforceable, the legal process associated with obtaining such a judgment is time consuming and costly.
Additionally, issued patents can be subject to opposition or other proceedings that can result in the revocation of the patent
or maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevant and/or
broad coverage). Further, our competitors may be able to circumvent and otherwise design around our patents. Even if a patent is
issued and enforceable, because development and commercialization of pharmaceutical products can be subject to substantial delays,
patents may expire early and provide only a short period of protection, if any, following the commercialization of a product encompassed
by our patents. We may have to participate in interference proceedings declared by the USPTO, which could result in a loss of the
patent and/or substantial cost to us.
We have filed patent applications and plan
to file additional patent applications covering various aspects of our drug candidates and technologies. There can be no assurance
that the patent applications for which we apply would actually be issued as patents, or do so with commercially relevant and/or
broad coverage. The coverage claimed in a patent application can be significantly reduced before the patent is issued. The scope
of our claim coverage can be critical to our ability to enter into licensing transactions with third-parties and our right to receive
royalties from our collaboration partnerships. Since publication of discoveries in scientific or patent literature often lags behind
the date of such discoveries, we cannot be certain that we were the first inventor of inventions covered by our patents or patent
applications. In addition, there is no guarantee that we will be the first to file a patent application directed to an invention.
An adverse outcome in any judicial proceeding
involving IP, including patents, could subject us to significant liabilities to third-parties, require disputed rights to be licensed
from or to third-parties or require us to cease using the technology in dispute. In those instances where we seek an IP license
from another, we may not be able to obtain the license on a commercially reasonable basis, if at all, thereby raising concerns
on our ability to freely commercialize our technologies and/or products. It is also possible that we or our licensors or licensees
will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before
it is too late to obtain patent protection on them. Moreover, in some circumstances, we may not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license
to third-parties and are reliant on our licensors or licensees. Therefore, these patents and applications may not be prosecuted
and enforced in a manner consistent with the best interests of our business. If our current or future licensors or licensees fail
to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated.
If our licensors or licensees are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of
any patent rights, such patent rights could be compromised.
Failure to adequately protect or enforce
our intellectual property rights could have a material adverse impact on our business, results of operations and prospects.
Issued patents covering our drug
candidates could be found invalid or unenforceable if challenged in court.
If we or one of our licensing partners
initiated legal proceedings against a third-party to enforce a patent covering one of our drug candidates, the defendant could
counterclaim that the patent covering our drug candidate is invalid and/or unenforceable. In patent litigation in the United States,
defendant counterclaims alleging invalidity and/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 or non-enablement. Grounds
for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. Third-parties may also raise similar claims before
administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination,
post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result
in revocation or amendment to our patents in such a way that they no longer cover our drug candidates. The outcome following legal
assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be
certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant
were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the
patent protection on our drug candidates. Such a loss of patent protection would have a material adverse impact on our business.
We may not be able to protect our
intellectual property rights throughout the world.
Filing, prosecuting and defending patents
on drug candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights
in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some
foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third-parties from practicing our inventions in all countries outside the United States,
or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors
may use our inventions in jurisdictions where we have not obtained patent protection to develop their own products and further,
may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that
in the United States. These products may compete with our products and our patents or other intellectual property rights may not
be effective or sufficient to prevent them from competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing and could provoke third-parties to assert claims against us. We may not prevail in any lawsuits that we initiate
and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Failure to adequately protect our intellectual
property rights throughout the world could have a material adverse impact on our business, results of operations and prospects.
If we infringe on the intellectual
property rights of others, our business and profitability may be adversely affected.
Our commercial success will also depend,
in part, on us and our collaborative partners not infringing on the patents or proprietary rights of others. There can be no assurance
that the technologies and products used or developed by our collaborative partners and marketed and sold by us will not infringe
such rights. If such infringement occurs and neither we nor our collaborative partner is able to obtain a license from the relevant
third-party, we will not be able to continue the development, manufacture, use, or sale of any such infringing technology or product.
There can be no assurance that necessary licenses to third-party technology will be available at all, or on commercially reasonable
terms. In some cases, litigation or other proceedings may be necessary to defend against or assert claims of infringement or to
determine the scope and validity of the proprietary rights of third-parties. Any potential litigation could result in substantial
costs to, and diversion of, our resources and could have a material and adverse impact on us. An adverse outcome in any such litigation
or proceeding could subject us to significant liabilities, require us to cease using the subject technology or require us to license
the subject technology from the third-party, all of which could have a material adverse effect on our business.
If we fail to comply with our obligations
in the agreements under which we license intellectual property rights from third-parties or otherwise experience disruptions to
our business relationships with our licensors, we could lose license rights that are important to our business.
We are a party to a number of intellectual
property license agreements that are important to our business and we expect to enter into additional license agreements in the
future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone
payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject
to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products
covered by the license.
We may need to obtain licenses from third-parties
to advance our research, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost
or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license
replacement technology. If we are unable to do so, we may be unable to develop the affected drug candidates, which could harm our
business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against
our current drug candidates or future products, resulting in either an injunction prohibiting the sales, or, with respect to the
sales, an obligation on our part to pay royalties and/or other forms of compensation to third-parties.
In many cases, patent prosecution of our
licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection
for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity
with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases,
we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related
to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical
importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific
discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:
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The scope of rights granted under the license agreement and other interpretation-related issues;
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The extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
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The sublicensing of patent and other rights under our collaborative development relationships;
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Our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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The ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and
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The priority of invention of patented technology.
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If disputes over intellectual property
that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may
be unable to successfully develop and commercialize the affected drug candidates, which could have a material adverse effect on
our business.
We may be involved in lawsuits to
protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or
the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which
can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our
licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology
at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or 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.
Interference proceedings provoked by third-parties
or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or
those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license
rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially
reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial
costs and distract our management and other employees. We may not be able to prevent, 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.
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 a material 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 our products.
As is the case with other biopharmaceutical
companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in
the biotechnology industry involve both technological and legal complexity and is, therefore, costly, time-consuming and inherently
uncertain. In addition, the United States has enacted and is expected to continue to implement wide-ranging patent reform legislation.
Further, certain U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and/or
weakened 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 decisions 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 our existing patents and patents
that we might obtain in the future.
Patent reform legislation could increase
the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement
or defense of our or our licensors’ issued patents. Provisions of the Leahy-Smith America Invents Act (the “Leahy-Smith
Act”), adopted in September 2011, made a number of significant changes to U.S. patent law, the effects of which are still
unfolding. The Leahy-Smith Act and its implementation, in addition to any new regulation, 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 a material adverse effect on our business and financial condition.
We may be subject to claims that
our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third-parties
or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously
employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used
or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former
employers or other third-parties. Litigation may be necessary to defend against these claims. If we fail in defending any such
claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely
impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and
be a distraction to management and other employees.
We may be subject to claims challenging
the inventorship or ownership of our patents and other intellectual property.
We may also be subject to claims that former
employees, collaborators or other third-parties have an ownership interest in our patents or other intellectual property. We may
have in the future ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved
in developing our drug candidates. Litigation may be necessary to defend against these and other claims challenging inventorship
or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a
material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other employees.
Our inability to protect our confidential
information and trade secrets would harm our business and competitive position.
In addition to seeking patents for some
of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary
information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure
and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third-parties. We also enter into confidentiality and invention
or patent assignment agreements with our employees and consultants. Any of these parties may breach the agreements and disclose
our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming,
and the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing or unwilling
to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have
no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive
position and our business.
Obtaining and maintaining our patent
protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees,
annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various
governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications.
The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process. Non-compliance may result in abandonment or lapse of the patent
or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our
competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
Risks Related to Our Business Operations
We operate in an extremely competitive
environment and there can be no assurances that competing technologies would not harm our business development.
We are engaged in a rapidly evolving field.
Competition from numerous pharmaceutical companies is intense and expected to increase. The large and rapidly growing market for
oncology treatments is likely to attract new entrants. Numerous biotechnology and pharmaceutical companies are focused on developing
cancer treatments and I-O technologies including CAR T. Many, if not all, of these companies have greater financial and other
resources and development capabilities than we do. Many of our competitors also have greater collective experience in undertaking
preclinical and clinical testing of products, obtaining regulatory approvals and manufacturing and marketing prescription pharmaceutical
products. There can be no assurance that our under-development drug candidates will be more effective or achieve greater market
acceptance than competitive products, or that our competitors will not succeed in developing products and technologies that are
more effective than those being developed by us or that would render our products and technologies less competitive or obsolete.
Additionally, there can be no assurance that the development by others of new or improved drugs will not make our pharmaceutical
products superfluous or obsolete.
We are a party to collaboration agreements
and other significant agreements which contain complex commercial terms that could result in disputes, litigation or indemnification
liability that could adversely affect our business, results of operations and financial condition.
We currently derive, and expect to derive
in the foreseeable future, all or much of our revenue from collaboration agreements with biotechnology and pharmaceutical companies.
These collaboration agreements contain complex commercial terms, including:
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Clinical development and commercialization obligations that are based on certain commercial reasonableness performance standards that can often be difficult to enforce if disputes arise as to adequacy of our partner’s performance;
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Research and development performance and reimbursement obligations for our personnel and other resources allocated to partnered drug candidate development programs;
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Clinical and commercial manufacturing agreements, some of which are priced on an actual cost basis for products supplied by us to our partners with complicated cost allocation formulas and methodologies;
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Intellectual property ownership allocation between us and our partners for improvements and new inventions developed during the course of the collaboration;
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Royalties on drug sales based on a number of complex variables, including net sales calculations, geography, scope of patent claim coverage, patent life, generic competitors, bundled pricing and other factors; and
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Indemnity obligations for intellectual property infringement, product liability and certain other claims.
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From time to time, we have informal dispute
resolution discussions with third-parties regarding the appropriate interpretation of the complex commercial terms contained in
our agreements. One or more disputes may arise or escalate in the future regarding our collaboration agreements, transaction documents,
or third-party license agreements that may ultimately result in costly litigation and unfavorable interpretation of contract terms,
which would have a material adverse effect on our business, financial condition and results of operations.
Governments may impose price controls,
which may adversely affect our future profitability.
We intend to seek approval to market our
drug candidates in both the United States and in foreign jurisdictions. In some foreign countries and jurisdictions, particularly
in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate.
To obtain reimbursement or pricing approval in some countries, we may be required to conduct clinical trials to compare the cost
effectiveness of our drug candidates to other available therapies, which is time consuming and costly. If reimbursement of our
future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability.
Write-offs related to the impairments
of our long-lived assets, including goodwill and indefinite-lived intangible assets, and other non-cash charges such as share-based
payments may adversely impact our results of operations.
We may incur significant non-cash charges
related to impairments of our long-lived assets, including Goodwill and Indefinite-lived intangible assets. We are required to
perform periodic impairment reviews of our long-lived assets at least annually. To the extent future reviews conclude that the
expected future cash flows generated from our business activities are not sufficient to recover the carrying value of these assets,
we will be required to measure and record an impairment charge to write-down these assets to their realizable values and those
impairment charges could be equal to the entire carrying value. During the third quarter of 2019, we recorded an impairment charge
for the full carrying value related to our Goodwill due to a significant decline in our stock price during the period.
We completed our last annual review during
the fourth quarter of 2019 and determined that indefinite-lived intangible assets were not impaired as of December 31, 2019. However,
there can be no assurance that upon completion of subsequent reviews a material impairment charge will not be recorded. If future
periodic reviews determine that our assets are impaired and a write-down is required, it will adversely impact our operating results.
In addition, we record non-cash charges related to share-based expense, which could fluctuate materially as the Company expects
to continue to issue share-based payments awards.
Potential new accounting standards
or legislative actions may adversely impact our future financial position or results of operations.
Future changes in financial accounting
standards may cause adverse, unexpected fluctuations in the timing of the recognition of revenues or expenses, and may affect our
financial position or results of operations. New standards may occur in the future and may cause us to be required to make changes
in our accounting policies. Compliance with changing regulation of corporate governance and public disclosure may result in additional
expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, new SEC regulations, Public Company Accounting Oversight Board, or PCAOB, standards and
NASDAQ rules, are creating uncertainty for companies such as ours and insurance, accounting and auditing costs are high as a result
of this uncertainty and other factors.
We have limited capital resources and currently
have only one full time employee in our finance department. We rely on outside consultants to supplement our internal expertise
and are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest
all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative
expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Varying interpretations of existing
standards and rules have occurred with frequency and may cause us to have to restate previously reported result of operations.
Varying interpretations of existing standards
of accounting policies or accounting treatments of existing transactions may cause us to have to restate previously reported result
of operations.
Tax reform may significantly affect
the Company and its stockholders.
Due to the potential for changes to tax
laws and regulations or changes to the interpretation thereof,
the ambiguity of tax laws and regulations, the subjectivity of factual interpretations and other factors, our estimates of effective
tax rate and income tax assets and liabilities may be incorrect and our financial statements could be adversely affected. The impact
of these factors referenced in the first sentence of this paragraph may be substantially different from period-to-period.
In addition, the amount of income taxes
we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits
result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax
liabilities and our financial statements could be adversely affected. Any further significant changes to the tax system in the
United States or in other jurisdictions (including changes in the taxation of international income as further described below)
could adversely affect our financial statements.
Our ability to use potential future
operating losses and our federal and state NOL carryforwards to offset taxable income from revenue generated from operations or
corporate collaborations could be limited.
The use of our NOL carryforwards may have
limitations resulting from certain future ownership changes or other factors under the Code and other taxing authorities. The TCJA
changed both the federal deferred tax value of the NOL carryforwards and the rules of utilization of federal NOL carryforwards.
The TCJA lowered the corporate tax rate from 35% to 21% effective for our 2018 fiscal year. For NOL carryforwards generated in
years prior to 2018, there is no annual limitation on the utilization and the carryforward period remains at 20 years. However,
NOL carryforwards generated in years after 2017 will only be available to offset 80% of future taxable income in any single year
but will not expire.
If our NOL carryforwards are limited, and
we have taxable income which exceeds the available NOL carryforwards for that period, we would incur an income tax liability even
though NOL carryforwards may be available in future years prior to their expiration. Any such income tax liability may adversely
affect our future cash flow, financial position and financial results.
Our future success depends on our
ability to retain principal members of our executive team, consultants and advisors and to attract, retain and motivate qualified
personnel.
We are highly dependent on principal members
of our executive team, the loss of whose services may adversely impact the achievement of our objectives. Recruiting and retaining
other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be
critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a
result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain
personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with
similar skill sets. In addition, failure to succeed in preclinical or clinical studies may make it more challenging to recruit
and retain qualified personnel. The inability to recruit or loss of the services of any executive, consultant or advisor may impede
the progress of our research and development objectives.
We will need to expand our organization
and we may experience difficulties in managing this growth, which could disrupt our operations.
As of December 31, 2019, we had four full-time
employees. As we mature, we may need to expand our full-time employee base and to hire more consultants and contractors. Our management
may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount
of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may
result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced
productivity among remaining employees, all of which may have a material adverse effect on our business, results of operations
and prospects. Any future growth could require significant capital expenditures and may divert financial resources from other projects,
such as the development of additional drug candidates. If our management is 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. Our future financial performance and our ability to commercialize drug candidates and compete effectively
will depend, in part, on our ability to effectively manage any future growth.
Our employees, principal investigators,
consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory
standards and requirements and insider trading.
We are exposed to the risk of fraud or
other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could
include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to
the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report
financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks,
self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting,
marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also
involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions
and cause serious harm to our reputation or could cause regulatory agencies not to approve our drug candidates. It is not always
possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business,
including the imposition of significant fines or other sanctions.
We face potential product liability,
and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our drug candidates
harms patients, or is perceived to harm patients even when such harm is unrelated to our drug candidates, our regulatory approvals
could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.
The use of our drug candidates in clinical
studies and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims.
Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling
or otherwise coming into contact with our products. There is a risk that our drug candidates may induce adverse events. If we cannot
successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of
merit or eventual outcome, product liability claims may result in:
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Impairment of our business reputation;
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Withdrawal of clinical study participants;
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Costs due to related litigation;
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Distraction of management’s attention from our primary business;
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Substantial monetary awards to patients or other claimants;
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The inability to commercialize our drug candidates; and
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Decreased demand for our drug candidates, if approved for commercial sale,
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all of which may have a material adverse
effect on our business, results of operations and prospects.
If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material
adverse effect on the success of our business.
We are subject to numerous environmental,
health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment
and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including
chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third-parties
for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In
the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages,
and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and
penalties.
The workers’ compensation insurance
we maintain to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous
materials or other work-related injuries may not provide adequate coverage against potential liabilities. In addition, we may incur
substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current
or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and
regulations also may result in substantial fines, penalties or other sanctions, which may have a material adverse effect on our
business and results of operations.
Our disclosure controls and procedures
may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting
requirements of the Exchange Act. Any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent
limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system,
misstatements due to error or fraud may occur and not be detected, which may have material adverse effect on our business and results
of operations.
Failure in our information technology
systems, including by cybersecurity attacks or other data security incidents, could significantly disrupt our operations.
Our operations depend, in part, on the
continued performance of our information technology systems. Our information technology systems are potentially vulnerable to physical
or electronic break-ins, computer viruses and similar disruptions. Failure of our information technology systems could adversely
affect our business, profitability and financial condition.
A successful cybersecurity attack or other
data security incident could result in the misappropriation and/or loss of confidential or personal information, create system
interruptions, or deploy malicious software that attacks our systems. It is possible that a cybersecurity attack might not be noticed
for some period of time. The occurrence of a cybersecurity attack or incident could result in business interruptions from the disruption
of our information technology systems, or negative publicity resulting in reputational damage with our clinical trial participants,
customers, stockholders and other stakeholders and/or increased costs to prevent, respond to or mitigate cybersecurity events.
In addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could
expose us or other third-parties to regulatory fines or penalties, litigation and potential liability, or otherwise harm our business.
Risks Related to Our Common Stock
An active, liquid and orderly market
for our Common Stock or Purchase Warrants may not develop.
Our Common Stock and Purchase Warrants
trade on NASDAQ. An active trading market for our Common Stock or Purchase Warrants may never develop or be sustained. If an active
market for our Common Stock or Purchase Warrants does not continue to develop or is not sustained, it may be difficult for investors
to sell shares or Purchase Warrants without depressing the market price and investors may not be able to sell the shares or Purchase
Warrants at all. An inactive market may also impair our ability to raise capital by selling Common Stock or Purchase Warrants and
may impair our ability to acquire other businesses, applications or technologies using our Common Stock or Purchase Warrants as
consideration, which, in turn, could materially adversely affect our business.
The market price of our securities
may be highly volatile, and you may not be able to sell our securities.
Companies trading in the stock market in
general have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors may negatively affect the market price of our securities, regardless
of our actual operating performance.
The market price of our securities may
be volatile. Our securities could be subject to wide fluctuations in price in response to a variety of factors, including the following:
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Adverse results or delays in pre-clinical or clinical studies;
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Inability to obtain additional funding;
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Any delay in filing an IND or BLA for any of our drug candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that IND or BLA;
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Failure to develop successfully our drug candidates;
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Failure to maintain our existing strategic collaborations or enter into new collaborations;
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Failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;
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Changes in laws or regulations applicable to future products;
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Inability to obtain adequate product supply for our drug candidates or the inability to do so at acceptable prices;
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Adverse regulatory decisions;
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Introduction of new products, services or technologies by our competitors;
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Failure to meet or exceed financial projections we may provide to the public;
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Failure to meet or exceed the financial projections of the investment community;
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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, our strategic collaboration partner or our competitors;
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Disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
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Additions or departures of key scientific or management personnel;
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Significant lawsuits, including patent or stockholder litigation;
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Changes in the market valuations of similar companies;
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Sales of our securities by us or our stockholders in the future;
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Adverse economic conditions, including potential adverse effects of public health issues, such as the coronavirus outbreak on economic activity generally; and
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Trading volume of our securities.
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Our executive officers, directors
and affiliates own a significant percentage of our stock and could exert significant control over matters subject to stockholder
approval.
As of March 6, 2020, our executive officers,
directors and affiliates beneficially own approximately 19.6% of our outstanding Common Stock. Therefore, these stockholders will
have the ability to influence us through their ownership positions. Further, Pharmsynthez has beneficial ownership of approximately
1.0 million shares of Common Stock. These shares represent beneficial ownership of approximately 14.5% of our Common Stock as of
March 6, 2020. These stockholders may be able to influence matters requiring stockholder approval.
We have entered into several agreements
with our significant stockholders.
We have entered into several agreements
with our significant stockholders. Some of the agreement parties may be considered affiliates of ours, which may result in conflicts
of interest. In addition, these arrangements may not have been negotiated at arm’s length and may contain terms and conditions
that are not in our best interest and would not otherwise be applicable if we entered into arrangements with a third-party not
affiliated with us.
Our preferred stock has rights, preferences
and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could result in the
interests of the holders of our preferred stock differing from those of our common stockholders.
The holders of our preferred stock have
the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders
before any payment may be made to holders of any Common Stock or any series of preferred stock ranked junior to such class of preferred
stock. The existence of a liquidation preference may reduce the value of our Common Stock, make it harder for us to sell shares
of Common Stock in offerings in the future, or prevent or delay a change of control. Additionally, each share of Series A preferred
stock is convertible into one-twelfth (1/12) of one share of Common Stock and 1.625 shares of Series B preferred stock are convertible
into one share of Common Stock, subject to an Issuable Maximum and subject to certain adjustments, which may cause significant
dilution to our common stockholders. The preferential rights could result in divergent interests between the holders of shares
of preferred stock and holders of our Common Stock. In addition, Pharmsynthez holds shares consisting of the majority of our Series
B Preferred Stock and all of our Series A Preferred Stock. The interests of these preferred holders may differ from the interests
of our security holders as a whole.
The issuance of future shares of
Common Stock may result in dilution to our stockholders.
As of March 6, 2020, we had approximately
6.3 million shares of Common Stock outstanding, excluding 1.7 million of potentially dilutive Common Stock related to outstanding
Preferred Stock, warrants, options, restricted stock and Common Stock awards.
The issuance of these shares of Common
Stock and the sale of these shares of Common Stock, or even the potential of such issuance and sale, may have a depressive effect
on the market price of our Common Stock and the issuance of such Common Stock will cause dilution to our stockholders.
We could be subject to securities
class action litigation.
In the past, securities class action litigation
has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant
for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation,
it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
We do not intend to pay dividends
on our Common Stock or Preferred Stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash
dividends on our Common Stock or Preferred Stock. We currently anticipate that we will retain future earnings for the development,
operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
Any return to common or preferred stockholders will therefore be limited to the appreciation of their stock.
Certain provisions of our Articles
of Incorporation, Bylaws, and the Nevada Revised States may be deemed to have an anti-takeover effect, which could cause the market
price of our Common Stock to decline.
Certain provisions of our Articles of Incorporation,
Bylaws, and the Nevada Revised States may be deemed to have an anti-takeover effect. Such provisions may delay, deter or prevent
a tender offer or takeover attempt that a stockholder might consider to be in that stockholder’s best interests, including
attempts that might result in a premium over the market price for the shares held by stockholders, which could cause the market
price of our Common Stock to decline.
We have, in the past, failed to satisfy
certain continued listing requirements on Nasdaq and could fail to satisfy those requirements again in the future which could affect
the market price of our Common Stock and liquidity and reduce our ability to raise capital.
Currently, our Common Stock trades on the
Nasdaq Capital Market. During 2019, we received notification from Nasdaq informing us of certain listing deficiencies related to
the minimum number of publicly held shares required for continued listing. Although we have since cured the deficiency, it is possible
that we could fall out of compliance again in the future. If we fail to maintain compliance with any Nasdaq listing requirements,
we could be delisted and our stock would be considered a penny stock under regulations of the SEC, and would therefore be subject
to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed
upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our Common Stock, which
could severely limit the market liquidity of our Common Stock and your ability to sell our securities in the secondary market.
We are a smaller reporting company
and the reduced reporting requirements applicable to smaller reporting companies may make our Common Stock less attractive to investors.
We are a smaller reporting company (“SRC”),
which allows us to take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not SRCs, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in our Annual Report and our periodic
reports and proxy statements and providing only two years of audited financial statements in our Annual Report and our periodic
reports. We will remain an SRC until (a) the aggregate market value of our outstanding Common Stock held by non-affiliates as of
the last business day our most recently completed second fiscal quarter exceeds $250 million or (b) (1) we have over $100 million
in annual revenues and (2) the aggregate market value of our outstanding Common Stock held by non-affiliates as of the last business
day our most recently completed second fiscal quarter exceeds $700 million. We cannot predict whether investors will find our Common
Stock less attractive if we rely on certain or all of these exemptions. If some investors find our Common Stock less attractive
as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile and may decline.